INBK - Long, fact-filled very positive article…

First Internet Bancorp: Turnaround Banking Story Taking Shape

Their mortgage banking business gained ground in Q3, with 23.2% QoQ growth in origination volume compared to 1.01% growth nationwide. Total assets grew 25.5% and net loans grew 59% YoY, while Tier 1 leverage ratio increased. A confluence of tailwinds down the road, including higher net interest margin, mortgage banking business growth, and more. This turnaround banking story is now taking shape, which bodes well for a great 2015 and beyond. The stock is trading at only 0.79x book value and 0.84x tangible book value (as of 12/9/2014)…

Blowout Quarter

Q3 was indeed a blowout quarter for the company. Even though net interest income of $5.67 million missed consensus estimate of $5.85 million slightly by 3%, pretax net income of $1.94 million exceeded consensus ($1.23 million) by 58% while net income beat by 50% ($1.28 million actual versus $0.85 million projected). And EPS diluted of $0.28 was 47% above consensus estimate of $0.19.

The 3% miss in net interest income was largely due to the timing of certain commercial loans, as the company explained below.

A significant portion of the production did not close until late in the quarter, so the impact on average loan balances for the quarter was minimal but does leave us well positioned to continue our trend of strong net interest income growth entering the fourth quarter. Furthermore, the pipeline of commercial originations at the end of the third quarter was up substantially over levels as of June 30, 2014.

A credit recovery of $0.459 million (pretax) and gain on sale of securities of $0.054 million (pretax) helped boost net income, more than offsetting a $0.14 million (pretax, calculated) or so salaries and benefits charge during the quarter. Excluding these special items, however, pretax income ($1.57 million) would still have beat consensus by 28%, net income ($1.036 million) by 22% and EPS diluted ($0.23) by 21%.

Year-over-year, net interest income grew 30%, noninterest income 18%, revenue 27%, net income 76%, and EPS diluted 12%. The much subdued growth on EPS compared to net income was due to the dilutive impact of a secondary public offering conducted in 4Q13. Excluding special items, net income would still have grown 42%. However, EPS diluted would have declined 8%, again due to the dilutive impact just mentioned…

and lots and lots more



This article was full of information, which sounded good to me, but I’m not expert in banking to fully evaluate it. (I rely on Fletch, for instance, for the evaluation of BOFI). So if anyone who is more knowledgeable (Anirban?, others?) could say what they think, I’d be very appreciative.


1 Like

Excellent article! Howe has been covering INBK for a while and has been a big bull over at Seeking Alpha.

I very much agree with his analysis. I think we need to watch the various metrics (efficiency ratio, net interest margin, interest and non-interest income etc) but I do think that the next quarter will be quite telling on how this small-time RV and horse trailer lender is transforming into a full-fledged online bank.

This is my third biggest position, behind WFM & SWIR. I have 52 positions though. SWIR has grown to become my second biggest position and I have a covered call on 1/3rd of my holdings. I will let the remainder run as long as they keep performing. WFM is my biggest position because I added when they took a hit around May and I probably managed to time the bottom on that one. But, INBK I have very high conviction because they have done a great job of transforming from a niche to a more mainstream operation. I love how the founder/CEO still has around 10% stake and I like how they don’t dilute via stock grants.

INKB is trading for less than book value and Q3 was solid and Q4 will likely be very good as well. If they continue executing, this can be worth a lot more in a few years time.



Thanks Anirban, you manage to put it all in language I can understand.



This article and your detailed previous analysis have got me thinking about INBK again. I may take a starter position.

Also, I was curious if you ever took a position in SQBK after our previous discussions. It looks like it is starting to get noticed, up over 25% the last several months.


1 Like

Hi Sameer,

SQBK looked like a good bank, but I didn’t buy. I thought the P/B was on the expensive side though when I did my analysis. Any ideas where the P/B is after the recent quarter?

One reason I didn’t add was my already high financial exposure. I have a large INBK position, a medium-sized BOFI position, a medium sized exposure to AIG via options and warrants, a medium sized exposure to BAC via options, a medium sized position in PGR, a position in LUK etc. Financials have been one area where one could find some value, e.g., AIG and BAC trading at significant discounts to book value, LUK being discounted because of leadership change and merger with Jeffrey’s etc.



I didn’t buy any SQBK myself on my macro concern that there is a bubble in VC funding. I have friends who work at startups and even they are astounded by some of the absurd ideas that get funded today. And many of these startups are deferring profitability and even revenue longer than ever, all the while raising several funding rounds and frothy valuations.

And besides the above, there are some non-technical reasons why I believe there is a bubble. For example, valley entrepreneurs have basically become the rockstars of this generation. They are worshipped online and in the media, and they even have a TV show. As long as there are the Instagrams, Ubers, and WhatsApps of the world, the tech scene will continue to flourish - however at some point the chaff may outweigh the wheat and cause some serious drawdowns.


I did buy a little SQBK this spring, but recently sold for a quick profit for the 2 reasons mentioned above. Relatively high book value, and concerns about too much lending in the VC arena. A third reason is that I don’t really do my own analysis and without a Fool rec or an interested Saul contingent to provide ongoing information and opinion, I didn’t want to hold any longer.