First Internet Bank to exit consumer mortgage business

Fishers-based First Internet Bank says the downturn in the housing market is prompting its exit from the consumer mortgage business. The bank announced the news as part of its fourth-quarter and year-end 2022 financial report, which was released Wednesday afternoon.

“Due to the steep decline in mortgage volumes and the negative outlook for mortgage lending over the next several years, the company decided to exit its consumer mortgage business during the first quarter of 2023,” First Internet said in the report.

The mortgage exit includes First Internet’s nationwide digital direct-to-consumer mortgage platform that originates residential loans for sale in the secondary market. It also includes local traditional consumer mortgage lending and construction-to-permanent lending. It does not include First Internet’s commercial construction and land development business.

According to the Mortgage Bankers Association, mortgage originations for one- to four-family homes totaled $2.25 billion last year, down from $4.44 billion in 2021. The association forecasts $1.89 billion in mortgage originations this year, $2.28 billion in 2024 and $2.47 billion in 2025.

First Internet noted that its pipeline for other types of lending is strong, and that it will focus its lending efforts this year on floating-rate loan products such as commercial construction and small business lending; and on higher-yield fixed rate activity such as franchise financing.

Most of First Internet’s lending activity is focused on the commercial sector. As of Dec. 31, the bank’s total loan portfolio stood at $3.5 billion, and 77.7% of those were commercial loans. Another 11%, or $383.9 million, were residential mortgages.

First Internet said it expects that its exit from mortgage lending will reduce the company’s annual noninterest expenses by about $6.8 million and increase its annualized pretax income by about $2.7 million. The company also said it expects to incur pretax expenses of about $3.3 million in the first and second quarters of this year in relation to its exit from mortgage lending.

Turning to First Internet’s financial report:

The bank reported annual profit in 2022 of $35.5 million, or $3.70 in diluted earnings per share, as compared with $48.1 million, or $4.82 per share, in 2021.

Fourth-quarter profit was $6.4 million, or 68 cents in diluted earnings per share, coming in just short of analysts’ expectations of 70 cents per share. During the same period a year ago, the bank reported profit of $12.5 million, or $1.25 per share.

Shares of First Internet were trading at $25.46 Thursday morning, up 54 cents from Wednesday’s close.