View of an online banking pioneer from the catbird headquarters

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If David Becker’s career was devoted to country song, the title might be “I was in online banking when online banking weren’t cool.”

Becker founded the online-only First Internet Bank in 1998, long before the term digital platform was launched. Online banking has long been promising, but to hear Becker say it, it makes perfect sense – and he has a front row seat for a change.

Consumers are finding digital banks more attractive thanks to skyrocketing deposit rates and big bank scandals, he said, and the growing number of online-only competitors has made the market more mainstream.

Fishers Bank, Ind., Has averaged compound annual growth of around 35% over the past five years to reach $ 4 billion in assets. Small business administration loans are expected to fuel further expansion over the next two years with the help of a recent acquisition, and health care funding has shown promise, nearly tripling by a year the other to reach $ 252 million as of September 30.

The following is an edited version of Becker’s comments on growing competition, First Internet’s ability to respond to fluctuations in deposit and mortgage rates, and how its lack of geographic boundaries could foster further growth and avoid mistakes. end of cycle in credit decisions.

What are the opportunities and challenges for First Internet as more and more financial institutions play an increasingly important role in the digital space?

DAVID BECKER: Really, it helped our position. One of the concerns we’ve had over the past 20 years has been about people who don’t really understand the idea [of an online-only bank] and how it might work for them. So having competition and additional players is similar to how you find McDonald’s, Arby’s, and Wendy’s all together – the more people in the market, the better in many ways. Take a look at what has happened to Wells Fargo in recent years with the Consumer Game. When they explode and Wells Fargo gets screwed for something, our volume of new account activity increases. People are now comfortable with the web, and they go out there looking for an alternative, and we appear at the top.

Are you surprised at the size of the digital banking market?

No, I’m actually surprised it didn’t happen sooner. Part of this is just the educational component. Twenty years ago there was a lot of fear around the internet and security, and I think a lot of that has been overcome. There is still a little hesitation, but I think consumers live their daily lives on the Internet. My children wouldn’t know an encyclopedia or a dictionary if I put it in their heads [laughs]. It’s just a normal course of business today.

On your last earnings call, you spoke about the strength of your consumer mortgage business. Are you taking more business from online players or more traditional lenders?

It really is a mixture of the two. We go directly to consumers – we don’t use brokers in between. About 95% of all homes purchased today involve someone doing some research on the web. It is therefore a natural progression for them to move from research to funding. And the efficiency is enormous. We can shut down anyone, anywhere in the country in 30 business days.

Mortgage cycles, and there was a bit of a downturn a year or two ago, when millennials were wondering if they wanted to buy homes, and we were about 60% new businesses and 40% new. refi[nancing]. But now [that rates have fallen] it fell to 70% refi and 30% first-time buyers. The productivity in the mortgage business has been phenomenal for us.

You spoke of refis. Which geographic markets in the United States are particularly hot?

By far the hottest market has been California. It is definitely the No. 1 in the real estate market. Probably 20-25% of our business is based in California. The Southeast, particularly Georgia, Florida, and Texas, has been another hot market in recent years. There is so much activity in these markets that when rates go down people take action. Rates could drop a quarter point, and that’s big enough to get people thinking about refi. If the 10-year Treasury stays in this 1.75% range or below, the refi game will continue to be a boom. And we can finish them in three to four weeks.

On the deposit side, does being a digital bank make the battle for funding easier or harder?

This made it easier for us because with the online systems that we have, a person can basically make an impulse purchase because they can open an app with us in about five minutes. Obviously, this is faster than what you could do in a traditional brick and mortar bank. Historically, most banks were not price sensitive on the deposit side. They just assumed that people would take what they got and be there forever. But there was a real wake-up call in 2018 when rates rose faster than what I’ve seen in our 20-year history. There was a lot of activity with people jumping off the ship and figuring out how to get paid even more so there was a real race to the top on fares. Now some [certificate of deposit] rates have fallen by 100 basis points or more. But collecting deposits has never been a problem for us. We can change the rates by a few basis points and the money goes through the front door.

In the Q3 earnings call, you said the bank’s margin “bottomed out” when it fell to 1.54% from 2.06% a year earlier. So what is it that gives you confidence when you look at the net interest margin going forward?

This is in part because of the activity of about a year ago when rates were skyrocketing. Most of them intervened within 15 to 18 months. And we weren’t putting on CDs that were four and five years old. So over the next 12 months, we’ll have over $ 1 billion worth of CDs that will mature at an average cost of around 2.6%. And the new CDs we released in October were less than 2%. And if the Fed cuts rates again or does anything next year, that rate could be in the range of 1.50% or 1.60%, so we’re getting back almost 100 basis points of savings on $ 1 billion in deposits. And that’s phenomenally important to the bottom line.

How do you feel about credit quality as rumors of a looming recession continue?

The real key for us is our national footprint. If we were to fight with 14 other banks here in the Indianapolis market, I would probably be making credit decisions that are not in our best interests. But we can set a box we’re comfortable funding in, and if the opportunity doesn’t fit that box, we just move on to the next one.


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