My first real job was in the international banking group of the First National Bank of Boston, usually referred to as “First Boston.”
First Boston, as befitting the second-oldest bank in America, had its headquarters in a stately red granite building at 100 Federal Street — in the heart of Boston’s financial district. The imposing structure inspired confidence and trust.
But perhaps the most prestigious bank in the world is Morgan Guaranty Trust. Until recently, its global headquarters was at 23 Wall Street — right across from the New York Stock Exchange and Federal Hall, where President George Washington took the oath of office.
A fortress-like structure only four stories high, the building looks as if it could withstand a military attack… and in 1920, it did, repelling a bomb attack with minimal damage.
The psychological signal sent by an imposing bank building is still important to traditionalists like me, but technology and time has weakened its potency for many. My guess is the millennial generation could care less.
Because of these changing attitudes, as well as efforts to make banking more convenient and the need to keep costs low, almost every bank now offers online banking services.
But why stop there? Some banks are dispensing with the bricks and mortar altogether.
This trend is called “Internet banking,” it and often includes no-fee checking, unlimited check use, a VISA check/ATM card, and 24-hour Internet access to your account — all for no fee!
Those comfortable with this arrangement could also enjoy higher interest rates on deposits and perhaps lower rates on loans.
The use of mobile phones to check accounts, transfer funds, and make payments has fueled interest in this area. As one might expect, the heaviest mobile users are younger: 43% of mobile banking users were under the age of 35.
There are a lot of alternatives across the Internet banking landscape, with some names like Ally Bank becoming well known through media campaigns.
Every so often, I find a stock trading at great value and earnings prospects rising sharply. And I’ve found some hidden value in this sector with a relatively unknown play.
Due to the sharp pullback in small-cap stocks, First Internet Bancorp. (NASDAQ: INBK) is now trading at book value and only slightly above tangible book value of $19.54. But the market is simply treating this stock as a stagnant community bank with declining earnings.
A number of analysts expect earnings to rise at an 80% clip. Moreover, if net interest income growth comes in better than 25%, the numbers could be even better.
INBK grew total assets by 26% last year and over 30% in the first quarter of this year. If it succeeds in growing another 25% this year, its total assets will top $1 billion by the end of the year.
Online banking has developed and evolved for about two decades now. It’s now customers’ overwhelmingly preferred method of banking, with 63% of adults preferring to bank online according to a 2011 study.
INBK is on track for strong growth in its assets, loans, deposits, and net interest income. The company is benefiting from a secular online banking trend that helps it to grow nationally, maintain customer loyalty, and boost profitable growth. This allows it to grow deposits as well as consumer and residential mortgage loans cost effectively.
The company is also well positioned to benefit from a rising-rate or inflationary environment. It has a broad and deep base of adjustable-rate loans in its portfolio. In particular, rates on about 92% of residential real estate loans were adjustable.
Based on a conservative price to book of 1.5x, the stock could trade at $34 or higher by the end of 2015, representing at least a nice upside from the current price.
Until next time,
Carl Delfeld for Wealth Daily
