Home Markets Featured First Internet Bancorp (INBK)

First Internet Bancorp (INBK)


On August 8, 2017 underwriters for INBK filed a registration statement for a $150 million secondary offering with all proceeds going to the company for “general corporate purposes.”

At first glance this is about as uninteresting a deal as you can find this summer. A bank headquartered in Fishers, Indiana; not exactly the epicenter of economic activity. They describe themselves as a community bank. This usually means small loans to small business: yawn, yawn.

First The Sizzle: Then The Ho Hum

So what makes INBK different? First Internet Bank is the first state-chartered, Federal Deposit Insurance Corporation (“FDIC”) insured Internet bank.

INBK does not have a conventional brick and mortar branch system. It operates through a scalable Internet banking platform. That may not sound like a big deal since every bank around has mobile banking.

So little old plane vanilla First Internet Bancorp has the key benefit of being an FDIC chartered and insured bank just like the big boys like Citibank and JP Morgan Chase but without the bricks and mortar branches.

It gives INBK nationwide reach. The implications for costs and customer acquisition are major.

Now The Ho Hum

INBK offers the usual assortment of commercial, small business, consumer and municipal banking products and services. They conduct consumer and small business deposit operations primarily through online channels on a nationwide basis and have no traditional branch offices.

Residential mortgage products are offered nationwide primarily through an online direct-to-consumer platform and are supplemented with Central Indiana-based mortgage and construction lending.

Consumer lending products are originated nationwide over the Internet as well as through relationships with dealerships and financing partners.

Commercial banking products and services are delivered through a relationship banking model and include commercial real estate (“CRE”) banking, commercial and industrial (“C&I”) banking and public finance.

A public finance team was established in early 2017, provides a range of public and municipal lending and leasing products to government entities on a nationwide basis.

Bank Of The Future

Mobile banking means that in 20 years it is possible that 80% of all branches will be gone. Perhaps there will be none at all.

In 2016 customers shelled out about $45 billion in fees to the banking industry in account service fees, check return fees, overdraft fees and more. All of this was needed to cover the overhead of the bazillion bank branches.

With no branch overhead to cover, First Internet and others like them can offer appealing perks like free checking, no overdraft or bounced check fees. That is a big selling point.

Customer Turnover Is Low In Banking

Customers hate those annoying fees but it takes a lot to get them to move. Costs are often measured on the amount of marketing dollars needed to attract new customers. There are many ways of measuring these costs so there is no single guide to the true cost.

One bank, BBVA placed the cost at $100. Other estimates run as high as $145. Both numbers include the cost of branches.

A study that I participated in several years ago placed the cost for an online bank as low as $50 per new customer. The difference in these two numbers is why you should get excited about pure online banks.

INBK Is A Rare Bank

You have to look pretty far to find an FDIC Insured bank like First Internet. Everybody in fintech wants into the branchless online banking but it isn’t so easy. It takes a huge amount of paper work and lots of time to get approval.

The period following the 2008 financial crisis has made entering the business far more difficult; many have tried, few have succeeded.

What To Do With $150 Million

Considering the current market cap of INBK is about $250 million, the offering is huge. It will substantially bolster Tier One Capital. That means for the first time in a while since the financial crisis that INBK can expand its deposit and lending base. With a $150 million it could be major. So you may want to keep an eye on the plane vanilla bank in Fishers, Indiana.