Branch-free bank boosts bottom line

David Becker

Executives of First Internet Bank, Indianapolis, told investors in late January that the bank posted record earnings in 2018, particularly in commercial and consumer loans and its specialty lending areas, including single tenant lease financing, public finance, healthcare finance, and horse trailer and recreational vehicle lending.

First Internet Bank was founded in 1999 and was an early adopter of a branchless bank strategy.

“As we enter into our 20th year of operations we have a lot to be proud of,” David Becker, chairman, president and CEO, told investors. Becker said 2018’s record net income was driven by 30 percent loan growth, excellent credit quality and well managed expenses. “We furthered our mission of serving customers in the digital economy, providing them with customer-centric digital banking solutions, while maintaining the personal touch of relationship banking.”

The bank added $774,000 in assets in 2018, starting 2019 at $3.5 billion.

With $2.7 billion in deposits, the bank, “provides consumers, small businesses, commercial clients and municipalities with innovative technology, convenient access, high touch customer service and competitive deposit rates,” Becker said. “That being said, our cost of funds continued to increase during 2018 as the competition for deposits remained high and the Federal Reserve continued on its path toward monetary policy normalization, implementing four interest rate increases over the course of the year. The increased cost of funds put pressure on our margins and adversely impacted our profitability, somewhat muting the benefit of our loan portfolio growth.”

Chief Financial Officer Ken Lovik said public finance continued to contribute to loan growth, which increased for the bank by $95 million or nearly 16 percent from the third quarter 2018. “We continue to put resources into this business and plan to continue our geographic expansion with lending relationships now in 17 states,” Lovik said. “As we’ve discussed in the past we particularly like this asset class due to its high credit quality and lower regulatory capital requirements. And these loans are very easy to hedge with interest rate swaps.”

Lovik pointed out that the bank’s public finance portfolio saw almost 70 percent of the loans made were to borrowers with credit ratings of BBB-plus or better and over 47 percent to borrowers with a rating of A-plus or better.