First Internet expects to triple banking-as-a-service deposits by year-end

First Internet Bancorp has taken in $50 million of deposits from its new banking-as-a-service partnership, and it expects to grow the balance to about $150 million by the end of 2022, CFO Kenneth Lovik said during the company's first-quarter earnings call April 21.

In January, First Internet Bank of Indiana said it entered a partnership with financial technology company Synctera Inc. to expand banking-as-a-service offerings. The bank is also reviewing other banking-as-a-service opportunities that can bring additional low-cost deposits on top of the Synctera partnership, Lovik said.

The efforts to increase the composition of deposits from banking-as-a-service are part of its plan to position for an increasing interest rate cycle. Its investments in technology for small business loans and mortgages have helped increase the proportion of noninterest income to 25% of total revenue as of March 31, 2021, from 16% in 2017, according to an investor presentation.

First Internet will further invest in its digital capabilities by prioritizing recruiting and talent development and building partnerships with fintechs, said Chairman and CEO David Becker. It is working on new front-end interfaces to improve the user experience and third-party software integrations for small businesses to open accounts, make bill payments and apply for loans.

For the first quarter, First Internet posted adjusted net income of $12 million, up 15.2% year over year. Total loan portfolio balances declined to $2.88 billion, down 0.2% from the fourth quarter and 5.8% from the first quarter of 2021. It was caused by a drop in commercial loan balances due to net payoffs in healthcare finance, owner-occupied commercial real estate and public finance loans, in addition to a sale of $14.4 million of single-tenant lease financing loans.

First Internet still feels good about being in the double-digit range on loan growth by the end of 2022, Lovik said. It is likely to see elevated prepayment activity waning, and loan origination on the consumer side was strong, driven by the demand for recreational vehicles and horse trailers, he said.