Which is great! Not complaining! But just wondering if anybody knows why? I couldn’t find any news. Is this just in expectation of their earnings later this week?
- Matt
3 Likes
But just wondering if anybody knows why?
I think it’s because TMFBreakerRob posted that it makes up about 8% of his portfolio 
http://discussion.fool.com/1069/i-came-across-the-board-just-now…
Rob, you should probably post an update that it’s now 9%! Maybe that’ll push it to 10%
Neil
Long INBK
4 Likes
LOL.
You’ll notice that I made a subsequent post this afternoon cautioning people to use limit orders on INBK if they decide to buy some. It doesn’t take much to move a stock with so little daily volume and I was wondering if a few eager people may have helped push the price up.
But a 10% pop due to undisciplined buying would surprise me. I hope there’s some good news somewhere, but even if there is no real news…. I think the company is significantly undervalued. I probably should buy more.
Minor clarification: INBK was actually about 7.8% of the portfolio earlier today, now 8.5%. Lots of good share price increases today, including AMBA (my #2) at 11%. 11.1% actually. 
Rob
1 Like
Volume was less than 24,000 shares. It does not take much to push the needle on INBK.
Htownrich
1 Like
BreakerRob -
So I’ve been watching INBK since 22.50 and been mildly kicking myself all the way up the last ~20%. I like the company and online banking concept a lot as I am invested in BOFI.
Do you have any current literature to that I could read regarding valuation, the more current the better. Wondering if I should commit now or if I’ve missed the boat and should move on? I’m guessing you’ll say its still a good opportunity for new capital given you mentioned above you might do that yourself.
Interested in your thoughts and others.
Eric
Do you have any current literature to that I could read regarding valuation, the more current the better. Wondering if I should commit now or if I’ve missed the boat and should move on? I’m guessing you’ll say its still a good opportunity for new capital given you mentioned above you might do that yourself. – Eric
No fancy analysis. On my part. Just look at this link: http://caps.fool.com/Blogs/inbk-q1-2015-earnings-analysis/10…
(Referenced at the link cited earlier in this thread).
Then consider the improving financials (especially the improvements over time with the efficiency ratio) and the P/B. That P/B is too low currently IMO. I don’t have some analytical target that I could defend but it should be “more”. 1.5? Maybe. 2.0? Maybe not too far off, especially if those numbers continue to improve at this rate. And if INBK keeps growing and improving the financials to anything like BOFI (it’ll be a long journey to see that happen), this would be a tremendous winner.
Very squishy thinking? Yeah, in the sense that it’s not some calculated number. But I’d rather focus on the overall picture and recognize lots of opportunity than spend much effort in assigning numbers. If I think twice the current price is reasonable now, it doesn’t matter if it really “should be” 1.8X or 2.2X or even 1.5X given the growth rate. Such details can be worked out as the trajectory lengthens.
Rob
8 Likes
Great point, Htownrich.
Volume of 24,000 shares means about 3/4 of a million dollars…hardly a large investment. But it is good to be reminded of how thinly this stock is traded. This board is more than capable of moving the needle of INBK.
Always use limit orders on these little guys.
Jim
1 Like
I think it’s because TMFBreakerRob posted that it makes up about 8% of his portfolio
Hi Neil, The same thought flashed through my mind after reading his post, but after sober reflection I doubt our posts here move the market. (Anirban, for instance has long indicated that it’s his largest position, and he is very respected on the boards. I point out each month that it’s one of my high conviction stocks, etc). I suspect that some fund or something was trying to take a position and that there just weren’t enough sellers and he or she had to keep chasing it. Volume was only about 24 thousand shares up from a three month average of about 18 thousand, so it wasn’t a huge volume. It’s just an illiquid stock, which moves it going up, but which could also be a danger going down in case of bad news.
Saul
1 Like
Anirban has made some great posts on this board. I would never be able to find them again without going through thousands of posts, but I have summarized them in my own notes about the company, mixed in with my own comments and notes and the company’s earnings reports. Here is my summary, at least from 2014 to the present. Anirban’s comments are indicated. After an earnings report, when it says “Conclusion”, that’s me talking. To whet your appetite, here was my conclusion (for myself) after the last earnings:
Conclusion: The way I figure it, barring some banking catastrophe, by the end of the year they will have made at least $2.00 (at least!), will be up over 100% year over year (last year was 95 cents), and at today’s price ($21) will be at roughly 10 times earnings. And have a 1YPEG the lowest I’ve ever seen, at say PE of 10 divided by a growth of earnings rate of 100 = 0.10. People are blind sometimes. I bought a bunch more. (Saul’s Conclusion).
WARNING: THIS POST IS A LONG READ.
Apr 2014 - Mar quarter results
We are off to a strong start in 2014, with net loans receivable increasing 49% over a year ago. Despite increased competition in the marketplace, we have been highly successful in winning new commercial loan relationships which continue to drive increased interest income. We anticipate continued growth in revenue, total assets, and core earnings throughout the remainder of 2014.
Overview for the Three Months ended March 31, 2014:
Net interest income up 25% to $4.87 million from $3.89 million.
Net income was $0.6 million, or 13 cents per share, down from $1.49 million, or 52 cents per share a year ago. The decline in net income was primarily due to a 70% decrease in mortgage banking income, reflecting the nationwide slowdown of residential mortgage refinancing activity that began in the second half of 2013. Per share net income was also impacted by the 1.62 million increase in diluted shares following our fourth quarter 2013 public offering.
Total assets up 30% to $848 million, from $651 million.
Net loans receivable were up 49% to $527 million from $353 million.
Total commercial loans up 111% to $230 million from $109 million.
Nonperforming assets to total assets declined to 0.81% from 1.57%. The cushion for potential losses to total nonperforming loans increased to 400%, up from 150% in the prior year period.
Total deposits up 33% to $728 million from $547 million.
We have worked to protect shareholder value by addressing interest rate risk. We have maintained a growing and solid base of variable rate loans. We have complemented that initiative by taking actions in our securities portfolio to reduce exposure to longer term investments.
First Quarter Income Statement Highlights
Net interest income was $4.87 million, up 25% from $3.89 million. The increase reflected greater revenue from mortgage loans as well as a 12% decrease in interest expense. Our cost of funds declined to 1.22% from 1.39% as longer-term maturing CDs were replaced at lower rates.
Our net interest margin was 2.51% in the first quarter 2014 compared to 2.60% in the first quarter 2013. This was because the timing of loans and the repositioning of the securities portfolio to address interest rate risk left above-average cash on the balance sheet, which had a negative impact on net interest margin. We expect net interest margin to improve in future periods.
Total noninterest expense in first quarter 2014 was $5.44 million compared with $4.55 million in first quarter 2013. The increase in noninterest expense reflected the Company’s continued investment in strategic initiatives and hiring of revenue-producing lending teams in key markets. In the past year, the Company added experienced talent in commercial banking and lending and launched loan production offices to support its asset-generating efforts. Noninterest expense as a percentage of average assets was down 23 basis points, from 2.92% in first quarter 2013 to 2.69% in first quarter 2014.
Asset and loan quality remained strong.
Nonperforming assets as a percentage of total assets decreased to 0.81% from 1.57%.
Nonperforming loans to total loans receivable was 0.26% down from 1.06%.
The allowance for loan loss to total nonperforming loans was 398.52% and the allowance for loan loss to total loans receivable was 1.02% at March 31, 2014.
May 2014
Announced a construction lending initiative. The innovative program will allow homeowners to finance the construction of a new home, and then convert the loan to a mortgage loan upon completion of construction, with only one visit to the closing table.
Sep 2014 – There have probably been 30 insider buys and no insider sales over the last year and a half, but the stock price has fallen almost in half. Puzzling, to say the least.
Oct 2014 – Started a 6 cent quarterly dividend.
Oct 2014 – Anirban’s Post about Sept earnings
INBK is another branchless bank, founder led, with founder still having a 10% ownership. It has been growing its staff, bringing in bankers (the founder comes from an IT background), and has been showing very strong loan and deposit growth. In its early days, INBK’s loan portfolio looked kind of strange, with loans for things like RVs and horse trailers. INBK now does more “normal” looking loans.
INBK had a very good quarter. Based on today’s closing share price, they are selling for 0.77 book value.
Anirban
Deposit Growth - Total deposits increased 24% to $740 million, up from $598 million a year ago. Sequentially, deposits increased only marginally from $727 million to $740 million.
Loan Portfolio - Total loans were $695.9 million, up $64.3 million, or 10.2% sequentially, and up 58.3% from a year ago. That’s pretty handy loan portfolio growth.
The loan-to-deposit ratio climbed up to 94%, up from about 85% sequentially. (This is good and means there is less money just sitting around).
Total commercial loans were $308 million, up 70% ! Industrial loans rose to $74M up from $47M. Commercial loans were 44% of the loan portfolio, unchanged for the past two quarters.
Residential mortgage + home equity loans are growing rapidly to $280 million up from $238 million sequentially and up 100% from a year ago.
Trailers and recreational vehicle loans are being reduced and now account for about 14% of the loan portfolio, down from 24.5% a year ago
Overall, INBK has steadily grown its loan portfolio and nicely diversified the portfolio b/w commercial and residential loans in the last year or two.
Non-interest income – Non-interest income was $1.9 million compared to $1.6 million sequentially and $1.6 million a year ago. The increase of $0.3 million, or 19.8%, was driven by an increase of $0.4 million, or 33.3%, in mortgage banking revenue.
It appears mortgage operations are gaining traction and the operational improvements are making headways.
Net Interest Income & Net interest margin - Net interest incomewas $5.7 million up from $5.4 million sequentially and from $4.4 million a yr ago. That’s about a 29.5% increase.
Their net interest margin was 2.68%, up from 2.61% sequentially and 2.59% a yr ago. (Small but positive change)
Asset Quality - Asset quality improved significantly. The ratio of nonperforming loans to total loans declined to 0.06% from 0.19% for the prior quarter. (That’s practically nothing)
Efficiency Measure
Net Interest income (‘000):
09/14: 5,673
06/14: 5,373
03/14: 4,866
Non-interest income (‘000):
09/14: 1,943
06/14: 1,622
03/14: 1,511
Non-interest expenses (‘000):
09/14: 5,785
06/14: 5,560
03/14: 5,438
Cash efficiency ratios
09/14: 0.76 (Q3 14)
06/14: 0.79 (Q2 14)
03/14: 0.85 (Q1 14)
I like how the efficiency ratio is steadily coming down from the highs of 85% in Q1 2014 to now around 75%.
Earnings and Book Value
Earnings per share:
09/14: 0.28 (shares out: 4.44M)
06/14: 0.22 (shares out: 4.45M) —> Significant increase in earnings with respect to 03/14 quarter; driven by strong increases in interest income.
03/14: 0.13 (shares out: 4.45M)
12/13: 0.19 (shares out: 4.45M) → Note the dilution following their secondary.
09/13: 0.25 (shares out: 2.86M)
06/13: 0.59 (shares out: 2.82M)
TTM: $0.82
P/E: 20 (using $16.44 closing price)
P/B (Market Cap divided by Shareholder’s Equity) is just 0.77. (In other words, the market cap is only three quarters of book value).
Concluding Remarks - This looks like a great buy for the long-term. I‘m going to add to my already large position and sit tight. (Anirban talking here)
Jan 2014 – They started a 6 cent quarterly dividend.
Jan 2014 – Announced Dec quarter results.
Net income was $1.5 million, up over 100% from $0.7 million and up about 15% sequentially from $1.3 million.
Earnings were 32 cents, up 68% from 19 cents and up 14% from 28 cents sequentially.
Net interest income up $1.4 million or 28.4%, and up $0.7 million, or 12.4% sequentially.
Mortgage banking revenue increased $0.9 million, or 101.3%, and up $0.2 million or 12.5% sequentially.
Total loan growth of $231.3 million, or 46.1%, and $36.5 million or 5.2% sequentially.
Net interest margin improved 10 bps to 2.78% sequentially, driven by a 12 bps decline in the cost of interest-bearing liabilities
Nonperforming loans to total loans declined 2 bps to 0.04% from 0.06% sequentially
We posted another excellent quarter of loan growth. Total commercial loan balances increased $43.1 million, or 14.0%, during the quarter even though we experienced the early payoff of some larger credits.
While we remain focused on continuing to improve net interest margin, we took advantage of low interest rates and converted $40 million of short term borrowings to longer term funding in early 2015. This may negatively impact net interest margin growth in the near term but will leave us well positioned to benefit when rates begin to rise.”
Noninterest Income
Noninterest income for the fourth quarter was $2.1 million compared to $1.9 million for the third quarter and $1.2 million for the fourth quarter 2013. The increase of $0.2 million, or 8.0% sequentially was driven by an increase in mortgage banking revenue.
Noninterest Expense
Noninterest expense for the fourth quarter was $5.9 million compared to $5.8 million for the third quarter and $5.3 million for the fourth quarter 2013. The increase of $0.1 million, or 1.6% sequentially was due to higher consulting and professional fees and other noninterest expenses, offset by lower salaries and employee benefits, marketing costs, and loan expenses.
Income Taxes
Income tax expense was $0.7 million for the fourth quarter, resulting in an effective tax rate of 33.6%, compared to $0.7 million and an effective tax rate of 34.0% for the third quarter.
Capital
Tangible book value per share increased to $20.74 from $20.29 sequentially.
Efficiency Ratio has been dropping every quarter (good). From .85 to .79 to .76 to .69 (this quarter).
Conclusion: To me it looks great, but I wouldn’t bet the farm on it. Trailing earnings are 95 cents, and with modest sequential gains will be at about $1.60 next year. Gives them a present PE of 16 and a future PE of 9.
Anirban’s Take:
Below is my report on the Q4 2014 earnings. It was a solid quarter. The stock is trading at 16x trailing earnings and 0.7x book value, based on closing price of $14.95 (Jan 22, 2015).
- Deposit Growth
- Total deposits increased 15% to $747M up from $647M. And up marginally from $740M to $747M sequentially.
- Loan Portfolio
-
Total loans up 5% from $695.9 million to $732.4 million sequentially. Year over year they were up about $231M, or about 46%. That’s pretty handy loan portfolio growth.
-
The Company’s loan-to-deposit ratio climbed up to 97%, up from 94% in Q3 2014, and the mid 80’s in Q2 2014. (Putting the money to work)
-
Total commercial loans went up to $351M at Dec 31, 2014, up from $308M at Sept 30, 2014 and $212M at Dec 31, 2013. That’s a 66% growth in commercial lending activities.
-
Commercial lending now accounts for 48% of the loans. Commercial loans comprised 44% of the loan portfolio at end of Q3 2014. The percentage of commercial loans has been hovering around the mid-40%’s for the past two quarters.
-
A majority of the commercial loans is in credit tenant lease financing. These accounted for $192M in Q4 2014, versus $165M in Q3 2014, $144M in Q2 2014 and only $84M in Q4 2014.
-
Commercial and Industrial loans stayed around the $75M level, similar to Q3 2014.
-
Residential mortgage + home equity loans accounted for $280M, essentially unmoved with respect to Q3 2014. It was $175M in Q4 2013. As a percentage of total loans this segment accounted for 38% of the loan book.
-
Trailers and recreational vehicle loans (which were sort of the bread and butter of the company in its initial days) now account for about 12.9% of the loan portfolio. The total value is sitting at $93M, down from $96M in Q3 2014 (when it was 14% of the loan portfolio). These accounted for 20.5% of the loan portfolio in Q4 2013.
Overall, INBK has steadily grown its loan portfolio and nicely diversified the portfolio b/w commercial and residential loans in the last year or two.
- Non-interest income
-
Noninterest income for Q4 2014 was $2.1M. It was $1.9M in Q3 2014 and $1.2M in Q4 2013. compared to $1.6 million for the second quarter and $1.6 million for the third quarter 2013. It appears mortgage banking revenue is on the mend. Let’s recap what the company has said in the past few quarters:
-
In Q2 2014, the company said the following with respect to decline in non-interest income:
The Company experienced a $2.23 million year-over-year decline in income from mortgage banking activities. The Company made adjustments to reduce expenses in the second quarter in the mortgage operations to reflect the lower volumes. The Company continued to invest in this revenue channel, launching a construction lending program in Central Indiana in the second quarter.
Then, in Q3 2104, they said the following, which was reassuring:
Over the last 12 months, the Company has increased its sales and marketing efforts related to purchase mortgage business and has added sales personnel since the second quarter following a restructuring of its mortgage operations earlier in the year. Furthermore, it recently launched an Indianapolis-based origination effort to complement its nationwide online origination platform. As a result, origination activity has increased throughout the year with third quarter originations increasing 23.2% compared to the second quarter.
It seems the Q4 2014 story is similar to Q3 2014. This is what the company noted in the earnings release:
The increase of $0.2 million, or 8.0%, compared to the linked quarter was driven by an increase of $0.2 million, or 12.5%, in mortgage banking revenue. The increase in mortgage banking revenue was primarily a result of higher origination volumes as purchase originations were supplemented by increased refinance activity when interest rates dropped early in the fourth quarter.
- Net Interest Income & Net interest margin (NIM)
-
Net interest income for Q4 2014 was $6.4M, versus $5.7M in Q3 2014, and $5M in Q4 2013. That’s about a 28% increase in net interest income.
-
The company noted that their sequential increase in net interest income was primarily driven by average loan balance growth, partially offset by a decline in yield earned on loan portfolio and also a decline in their investment portfolio. The bank is conservatively managing prospective interest rate increases and had the following to say with respect to increasing its liquidity profile:
Additionally, the impact of the loan growth was offset by a decline of $9.9 million, or 7.1%, in the average balance of the investment portfolio as well as a decline of 6 bps in the yield earned on investments. The decline in average investment balances was the result of portfolio restructuring efforts made in 2014, which concluded in the third quarter, to increase the liquidity profile and reduce the interest rate risk and duration of the portfolio. -
The Company’s net interest margin was 2.78%, up from 2.68% in Q3 2014, 2.61% in Q2 2014, and 2.7% in Q4 2013.
- Asset Quality
Asset quality improved significantly.
*Nonperforming loans declined $0.1 million, or 26.0%, with nonperforming loans to total loans declining 2 bps to 0.04% from 0.06% for Q3 2014.
- Nonperforming assets declined $0.2 million, or 4.0%, compared to Q3 2014 and $2.3 million, or 32.3%, compared to Q4 2013.
- Efficiency Measure
Net Interest income (‘000):
12/14: 6,375
09/14: 5,673
06/14: 5,373
03/14: 4,866
12/13: 4,964
Non-interest income (‘000):
12/14: 2,098
09/14: 1,943
06/14: 1,622
03/14: 1,511
12/13: 1,171
Non-interest expenses (‘000):
12/14: 5,879
09/14: 5,785
06/14: 5,560
03/14: 5,438
12/13: 5,255
Cash efficiency ratios
———————————
12/14: 0.69 (Q4 14)
09/14: 0.76 (Q3 14)
06/14: 0.79 (Q2 14)
03/14: 0.85 (Q1 14)
12/13: 0.86 (Q4 13)
Last quarter, we had an interesting discussion regarding INBK still working like a refinance shop and that it wasn’t making any monies from it’s real business of making out loans. In one of the posts, I had said the following:
If we just look at the net interest income for the just reported quarter, then it would appear that the bank is mostly earning monies from non-interest income activities because the non-interest expense is just as large as the net interest income. But, if we look at the trend, then we will notice that non-interest expense (“operating expenses”) have been flat-lining at least over the past four quarters. In fact, non-interest expense has grown only by 4% b/w 06/13 and 09/14. In the same time period, however, net interest income (i.e., income from the loans) has grown by 34%. If this trend is to hold, then any additional loan book growth should drop directly into the bottom-line. Increase in non-interest income is just the icing on the cake.
The flat-lining of the expenses seems to be aligning nicely with what management has been doing. The bank raised money by selling shares, used these funds to go on a hiring spree to give a boast to its commercial lending activities. So, I think this strategy is working, and we are probably sitting at a crucial junction. If the loan book growth continues at the rate it is, then we should be seeing a very bright Q4.
Then, I had gone on to make the argument that the costs are likely to be flatlining and this should essentially have a trickle down effect on the earnings. Well, I guess I ‘m happy to see the thesis play out as I was expecting it to play out. This is what I had noted in one of the discussions:
Related to my point above, if the expenses stay relatively flat as they have over the past four quarters, then the increases in the loan book would have trickle down effect on the bottomline, which in turn should bring the efficiency measure down. Is a 65% efficiency measure possible by the end of the year?
INBK didn’t quite get to my ambitious target of hitting 65% efficiency ratio, but it did bring the efficiency ratio down to 69%, with interest income being now greater than non-interest expense, so non-interest income is gravy. I think it’s made very nice progress.
- Earnings and Book Value
Earnings per share:
12/14: $0.32 (shares out: 4,514,505) [Note, share count has marginally increased]
09/14: 0.28 (shares out: 4,511,291)
06/14: $0.22 (shares out: 4.45M) —> Significant increase in earnings with respect to 03/14 quarter; driven by strong increases in interest income.
03/14: $0.13 (shares out: 4.45M)
12/13: $0.19 (shares out: 4.45M) → Note the dilution following the bank’s secondary offering.
09/13: $0.25 (shares out: 2.86M)
06/13: $0.59 (shares out: 2.82M)
TTM: $0.95
P/E: 15.7 (using $14.95, closing price as of Jan 22, 2015)
I look at the total shareholder’s equity line which is $95.83M (This is the assets minus liability line on the financials.) Then, I look at the diluted share count, which is 4,514,505. With the share price at $14.95, I get market cap of $67.49M. I calculate P/B as (Market Cap divided by Shareholder’s Equity) and get 0.70.
P/B: 0.77
Concluding Remarks
Well, I think this was a very important quarter, one that shows that management’s investments in people, processes, and IT is paying off. Expenses have flatlined. If loan book growth continues, the bank is well positioned to keep growing. Management is taking a cautious approach to growth, carefully balancing assets and liabilities. It’s positioning the bank to adapt to interest rate increases. Management sounded optimistic for 2015. Some snippets from management’s commentary:
We posted another excellent quarter of loan growth … The level of new business opportunities continues to grow and we remain confident in our asset generating capabilities moving forward.
Our mortgage banking team had another solid quarter … Origination activity constantly improved throughout the year and our improved sales and marketing capabilities combined with the low interest rate environment provide significant momentum heading into 2015.
We were especially pleased with the continued growth in net interest margin which expanded 10 bps during the quarter. We significantly reduced our cost of funds by actively managing the liability side of our balance sheet. (prudent management!)
While we remain focused on continuing to improve net interest margin, we took advantage of low interest rates and converted $40 million of short term borrowings to longer term funding in early 2015. This may negatively impact net interest margin growth in the near term but will leave us well positioned to benefit when rates begin to rise.
Earnings are growing. Assume a modest 10% increases in earnings each quarter. INBK should end FY 15 with eps of $1.63 (assuming there’s no dilution). The stock as of today’s close is trading at 16x trailing earnings or 9x my forward estimate. My forward estimate is likely to be conservative. The stock is also trading for 0.7x book value.
Apr 2015 – Mar quarter results – Great results!
Earnings were 46 cents, up 254% from 13 cents a year ago, and up 44% from 32 cents sequentially!!!
We reached two significant milestones during the quarter.
First, we surpassed $1.0 billion in total assets. As our organization grows, we expect to realize economies of scale that should allow us to generate higher returns. We continued our trend of strong loan growth. Our investment in commercial lending is paying strong dividends, as commercial balances have increased $152.1 million, or 62.6%, over the past year and now represent more than 50% of our total loans. The commercial pipeline at the end of the first quarter is higher than it was at the end of the fourth quarter and looks extremely strong, leaving us optimistic about our ability to continue generating high quality assets. Furthermore, we generated strong deposit growth as balances increased $62.6 million, or 8.2%, and drove balance sheet expansion during the quarter.
Second, we achieved a record level of quarterly net income.
Highlights for the quarter:
Return on average assets of 0.84% up from 0.62% sequentially and 0.30% a year ago.
Return on average shareholders’ equity of 8.6% up from 6.1% sequentially and 2.6% a year ago.
Return on average tangible common equity of 9.0% up from 6.4% sequentially and 2.8% a year ago.
Continued strong revenue growth
Net interest income increased 6.3% sequentially and 39.2% year over year
Mortgage banking revenue up $1.0 million, or 57% sequentially, and up $2.0 million, or 221% from a year ago.
Total loan growth of $35.3 million, or 4.8%, compared to December 31, 2014 and $235.4 million, or 44.2%, compared to March 31, 2014
Net interest margin (“NIM”) increased to 2.84%, or 6 bps compared to the linked quarter and 33 bps compared to the first quarter 2014
Capital levels remain solid and continue to support loan growth
Asset quality remains strong
Nonperforming loans to total loans receivable declined to 0.03% from 0.04% and nonperforming assets to total assets declined to 0.47% from 0.50% compared to the linked quarter.
Net interest margin was 2.84% for the first quarter compared to 2.78% for the fourth quarter 2014 and 2.51% for the first quarter 2014.
Tangible book value per share increased to $21.11 from $20.74 as of December 31, 2014.
Conclusion: The way I figure it, barring some banking catastrophe, by the end of the year they will have made at least $2.00 (at least!), will be up over 100% year over year (last year was 95 cents), and at today’s price ($21) will be at roughly 10 times earnings. And have a 1YPEG the lowest I’ve ever seen, at say PE of 10 divided by a growth of earnings rate of 100 = 0.10. People are blind sometimes. I bought a bunch more. (Saul’s Conclusion).
Apr 2015 – Anirban’s Take:
The 10-second takeaway:
- Management’s investments are taking hold
- Loans growing at a healthy clip
- Earnings are growing at a healthy clip as well, thanks to scale efficiencies.
- Efficiency ratio went down to 0.63 (lower is better)
- Long runway for growth, insiders have skin in the game
- Still looks cheap, trading at 1x book value and 17x TTM earnings.
- Potentially trading at less than 10 times 2015 earnings!
Anirban
- Deposit Growth
-
Total average deposits increased to $784M, about a 12.3% from a year ago. There was a sequential 5% increase.
-
One point of concern might be the slow growth in deposits. After all, deposits are the life line of banks. No need to panic here. We need to look at deposit versus loans, and I just think management has been managing deposit growth so increase their spreads. Carrying unnecessary deposits would be a drag on the results. This was a problem in prior quarters.
- Loan Portfolio
-
In the last quarter, we had seen a pretty solid loan growth of 46%. That’s kept pace this quarter as well and we got loan growth of 44%. Overall, loan portfolio is growing nicely.
-
Loan to deposit ratio stood at 94%, and it has been hovering around mid-to-low 90%’s since Q3 2014. This ratio was in the mid 80’s in Q2 2014 and only 72% in Q1 2014. This tighter partially explains the improved efficiency of the bank. It might also help explain why the bank has not attempted to push on deposit growth. I am guessing that the bank has been managing the rate at which deposits grow to improve efficiency and they may push deposit growth in the second half of the year as soon they will need to bring in deposits at a much higher rate to keep up with the torrid growth in loans. We will need to keep an eye on this and make sure the bank is able to attract cheap capital at the rate it needs it to sustain growth.
-
Commercial loans were up 62.5% from a year ago and 12.5% sequentially. Commercial lending now accounts for 51.5% of the loans, up from 48% of total loans in Q4 2014, and 46% in Q1 2014.
-
A majority of the commercial loans is in single tenant lease financing. These accounted for $227M versus $192M sequentially and $106M a year ago.
-
Trailers and recreational vehicle loans (which were the bread and butter of the company in its initial days) now account for about 12% of the loan portfolio. They were 19% a year ago. Overall, INBK has steadily grown its loan portfolio and nicely diversified it between commercial and residential loans in the last year or two.
- Non-interest income
- Non-interest income ticked up to $3.1M from $2.1M sequentially and $1.5M a year ago. Clearly, mortgage banking revenue is on the mend.
Here’s the latest update from the earnings release:
The increase of $1.0 million, or 50.0%, sequentially was driven by an increase of $1.0 million, or 56.7%, in mortgage banking revenue.
- Net Interest Income & Net interest margin (NIM)
-
Net interest income for Q1 2015 was $6.8M versus $6.4M sequentially, and up 66% from $4.1M a year ago.
-
The net interest margin was 2.84%, up steadily from 2.78% in the Dec quarter, 2.68% in Sept, 2.61% in June, and 2.51% in Mar.
- Credit Quality
Credit quality continues to remain strong.
- Nonperforming loans to total loans declining 1 bps to 0.03% from 0.04% sequentially.
- Efficiency Ratio
Net Interest income (‘000):
03/15: 6,774
12/14: 6,375
09/14: 5,673
06/14: 5,373
03/14: 4,866
12/13: 4,964
Non-interest income (‘000):
03/15: 3,148
12/14: 2,098
09/14: 1,943
06/14: 1,622
03/14: 1,511
12/13: 1,171
Non-interest expenses (‘000):
03/15: 6,257
12/14: 5,879
09/14: 5,785
06/14: 5,560
03/14: 5,438
12/13: 5,255
Cash efficiency ratios
———————————
0.63 (Q1 15)
0.69 (Q4 14)
0.76 (Q3 14)
0.79 (Q2 14)
0.85 (Q1 14)
0.86 (Q4 13)
We have been discussing INBK’s efficiency ratios quite a bit. Efficiency ratio is a measure of the bank’s overhead (think of this as fixed costs such as people, IT, building, etc) as a percentage of its total income. Of course, lower is better and we would expect efficiency ratios to be better for online banks versus brick and mortar ones. BOFI, INBK’s big brother, has industry leading efficiency ratios in the low 30%’s. What’s going on here with INBK? I had said the following:
If we just look at the net interest income for the just reported quarter, then it would appear that the bank is mostly earning monies from non-interest income activities because the non-interest expense is just as large as the net interest income. But, if we look at the trend, then we will notice that non-interest expense (“operating expenses”) have been flat-lining at least over the past four quarters. In fact, non-interest expense has grown only by 4% b/w 06/13 and 09/14. In the same time period, however, net interest income (i.e., income from the loans) has grown by 34%. If this trend is to hold, then any additional loan book growth should drop directly into the bottom-line. Increase in non-interest income is just the icing on the cake.
The flat-lining of the expenses seems to be aligning nicely with what management has been doing. The bank raised money by selling shares, used these funds to go on a hiring spree to give a boast to its commercial lending activities. So, I think this strategy is working, and we are probably sitting at a crucial junction. If the loan book growth continues at the rate it is, then we should be seeing a very bright Q4.
Related to my point above, if the expenses stay relatively flat as they have over the past four quarters, then the increases in the loan book would have trickle down effect on the bottomline, which in turn should bring the efficiency measure down. Is a 65% efficiency measure possible by the end of the year?
Now we are sitting at an efficiency ratio of 0.63. It’s really nice to see the thesis play out and I do believe that scale advantages will help pushing the efficiency ratio lower. We will likely see mid-50%’s this year, I think.
One important peg in the wheel is the cost of funds. CDs account for about half of the deposits and they cost more than regular savings and money market accounts. Money market accounts are about 35% of the deposits. The distribution of CDs and money market accounts have been more or less steady. I guess INBK could try to attract more money market type funds to lower its cost of funds. However, I see that ‘Other borrowed funds’ has ballooned to $110M at end of Q1 2015 from $91M at end of Q4 2014 and $25M at end of Q1 2014. I think (although I ‘m not 100% sure) this refers to funds borrowed from ‘Federal Home Loan Banks’ which are chartered to provide on-demand, low-cost funding to American financial institutions. Now, looking at pg. 9 of the release “Average Balance and Rates” it is clear that these ‘Other borrowed fund’ cost much more than CDs, currently at 1.7% versus 1.38% for CDs and 0.73% for money market accounts. This seems to be a natural place for optimisation and I ‘m a bit confused why they borrowed more from other sources. One possible hypothesis is that they had more opportunities for loans than they though they would have and they hadn’t planned their deposit side to adequately cover this, so they had to borrow. Anyways, this is something to watch and this is also something that can be optimised.
- Earnings Growth and Book Value
Earnings per share:
03/15; $0.46 (shares out: 4,523,246)
12/14: $0.32 (shares out: 4,514,505)
09/14: 0.28 (shares out: 4,511,291)
06/14: $0.22 (shares out: 4.45M) — Significant increase in earnings sequentially; driven by strong increases in interest income.
03/14: $0.13 (shares out: 4.45M)
12/13: $0.19 (shares out: 4.45M) → Note the dilution following the secondary offering.
09/13: $0.25 (shares out: 2.86M)
06/13: $0.59 (shares out: 2.82M)
TTM: $1.28
P/E: 17.1 (using $21.86, closing price as of April 27, 2015)
Since our last analysis, the market participants have realised that INBK was being priced at a big discount and the discount with respect to book value is gone. However, I would think a fast growing bank with a big runway for growth could easily command a bigger multiple. A 2X book value multiple might be very reasonable.
P/B: 1
Valuation and Concluding Remarks
This was yet another good quarter. Expenses have flatlined. If loan book growth continues, the bank is well positioned to keep growing. Management is taking a cautious approach to growth, carefully balancing assets and liabilities. It’s positioning the bank to adapt to interest rate increases. I think management might have to work a bit harder on reducing cost of funding but this would seem reasonably feasible. After all, management has been able to improve net interest margin yet again this quarter.
So where does this leave us going forward? Management doesn’t provide any guidance, but it would seem 15% might be a reasonable expectation for sequential eps growth. With this assumption we will be sitting around $2.29 as earnings for 2015. That would be about 78% YoY earnings growth which I think is entirely doable. Therefore, today’s price represents a potential forward PE (next 9 months) of 9.5. That’s super cheap, however, one looks at the company. The earnings growth is picking steam, efficiency is improving, and insiders are holding on to their shares. Couple that with the opportunity of online and mobile banking and I see a very long runway for this compan
23 Likes
Anyone who bough the cost around the low $15 mark, is nearing a double. Well done if you bought at those lows. That was when management was also buying the stock.
I think this is a simple stock that can possibly be held for a long time, with the obvious caveat that management keeps executing. So far, this seems to be playing out as expected. For those interested in small cap online banking exposure, its still early days. One can ease in slowly and if things continue to work out like they have in the past, we will see the continue to do well.
Anirban
TTS & XOOM Ticker Guide
Very long INBK (and INBK is my largest holding)
4 Likes
Anirban, do you have insight into the depositor demographic that INBK is attracting? Compared to other major online banks, like CapitalOne 360 or Ally, INBK’s offerings don’t seem very competitive to me (same or lower rates, higher and more fees). So is it the CD’s that people are after? When I look at “best online bank” reviews, it seems like they’re touting First IB’s CD rates as the main reason to choose them. But of course CD’s bring interest rate risk and lower loyalty, which is why BOFI has moved away from them as a primary means of attracting depositors.
Clearly INBK is growing deposits, so people are switching to them. But I wonder if you have a good understanding of why those people are choosing INBK over other online banks?
Thanks!
Neil
5 Likes
Hi Neil,
It’s hard for me to tell exactly why people are heading to INBK for deposits, so I 'm making some guesses. In addition to better rates on deposits, there can be a few other reasons driving deposits. One I think is that it’s probably a trend now for people to choose easy to use Internet banks. INBK has a good Web interface and they have apps that are also easy to use. The other reason is possibly good customer service, which is very important for online banks. Finally, I think this is a secular trend, so it’s one where all online banks that have decent service are going to benefit because of these banks ability to offer better rates, be it on deposits or on loans.
If you look at the most recent investor presentation here:
http://www.firstinternetbancorp.com/Cache/1500073022.PDF?Y=&…
you will see that management believes that treasury management and small business deposits provide a significant opportunity for increasing lower-cost core deposits. This seems consistent with their focus on developing their commercial banking activities.
Anirban
5 Likes
any comments on BOFI vs INBK?
Because I don’t want to over-invest in one sector.
Especially since I really don’t understand modern banks, anything much beyond the “It’s a Wonderful Life” type of banks or S&L.
1 Like
The same thought flashed through my mind after reading his post, but after sober reflection I doubt our posts here move the market. – Saul
Way back in the days of the Fool’s Global Gains, there was a recommendation called “China Fire & Safety” (maybe Fire and Security…whatever). It was somewhat thinly traded and I forgot to consider that when I entered a sell order.
A little while later, there was a discussion on the board “What Was THAT?” as they noted a largish spike in the volume and a drop in the share price. That was about a $100k transaction and I made a difference all by myself. I’m much more careful since.
Never think that a small group of people can’t cause anomalies in the share price by piling in or out of a limited volume issue.
Rob
6 Likes