No one can accuse First Internet Bancorp CEO David Becker of being shy.
He wants the online bank with $ 3.7 billion in assets to quickly become one of the country’s top Small Business Administration lenders.
Fishers, Ind., Is close to finalizing its acquisition of the small business lending division of First Colorado National Bank in the third quarter, and Becker has outlined an aggressive plan to build on the $ 39 million. Unit High Yield Loan, $ 112 Million Services Portfolio and Experienced Lending Team.
“It’s a little ambitious to think that we can get $ 100 million in loans by the end of the year, but I think it’s still a possibility,” said Becker, 65, who has founded First Internet in 1998, in a recent interview. “I can definitely see that in the next 24 to 36 months, we can grow it to become a $ 200 million per year operation.”
John Rodis, an analyst who covers First Internet for Janney Montgomery Scott, predicts an increase in earnings per share in the low to mid single-digit range due to his expanded SBA program.
Few could fault Becker for wanting to make up for lost time. He began courting the team at First Colorado, with $ 68 million in assets, which has offices in Chicago and Indianapolis, almost eight years ago.
The SBA loan “has always been on the horizon for me as something that I wanted the bank to do,” Becker said. So, First Internet considered a number of other options for breaking into the business, but “for a myriad of different reasons they haven’t” seemed to connect.
The signs continued to point to First Colorado.
“We didn’t just wait, we looked for other opportunities, but since pretty much the first time I met these guys, it seemed like a great connection to me,” Becker said. “Just being in our backyard, sort of a Chicago-Indianapolis market, was incredibly appealing. Just watching them and getting to know them over the last seven or eight years is a really good opportunity for us and a great foundation.
First Colorado CEO Stan Park did not respond to a request for comment on the deal, including why he was willing to part ways with the division.
According to data from the Federal Deposit Insurance Corp., First Colorado made a net profit of $ 1.7 million in 2018 and $ 282,000 in the first quarter of this year. The gain on loan sales made a disproportionate contribution to net income: $ 504,000 in the first quarter and $ 3.1 million last year.
The expansion of First Internet coincides with a tumultuous year for SBA. The agency was to close for 35 days at the start of 2019. From now on, a budgetary impasse threatens to close operations in October; Congress and the Trump administration cannot agree on a formula to fund the SBA’s flagship 7 (a) loan program.
However, worries about the budget and another potential shutdown don’t seem to have dampened bankers’ enthusiasm much. Until mid-June, the volume in 7 (a) and 504, the SBA’s largest guarantee programs, was $ 19.3 billion, down from the high levels the agency enjoyed during fiscal years 2017 and 2018, but in line with fiscal year 2016.
Earlier this month, ConnectOne Bancorp in Englewood Cliffs, NJ, completed the previously announced acquisition of Boefly, an online loan exchange in New York. ConnectOne’s $ 6 billion asset made the deal largely to boost its year-old SBA lending business.
“A market that connects borrowers and lenders seems to be where we need to be,” CEO Frank Sorrentino said in a recent interview. “It gives us the ability to create and get started with an SBA loan unit. “
Last year, KeyCorp, $ 138 billion in assets concluded a similar agreement for Bolstr, a digital loan platform that she leveraged to streamline her application process and help speed up credit decisions.
Banks like First Internet and ConnectOne deserve credit for being proactive and “thinking outside the box,” said Chris Marinac, research director at Janney Montgomery Scott.
A strong online presence will become increasingly important as younger generations, who prefer digital channels, open small businesses, Marinac said. An online platform could allow banks to charge a premium because it is “simpler and faster and has fewer subscription boxes”.
At the same time, banks must be careful not to lower credit standards. “The key is underwriting and selection,” Marinac said.
“In our experience, First Internet has refused many transactions,” Marinac added. “They’ve been selective. They don’t just do all the business that comes up.”
According to Becker, First Internet’s multiple lines of business nationwide, which include public finance and mortgages, should provide some cushion if the SBA closes again.
“It doesn’t scare us,” Becker said. “We got used to being able to pivot and change at any time. … If there is a downturn for a period of 30, 60, or 90 days, we are able to overcome that.
Last fall, as the First Colorado deal began to take shape, First Internet embarked on a soft launch, hiring a handful of SBA lenders to operate in its central Indiana market.
“We started hiring people locally,” Becker said, “bringing things together in September and October of last year, hiring people, building the infrastructure. ”
The results exceeded expectations, Becker said. In just over nine months, First Indiana has taken out over $ 10 million in loans, with “another serious over $ 10 million in the works.”
“I would have assumed that, as we have done with our other lines of business, commercial real estate, municipal loans, etc., we would have a [modest] market in Indiana, but to really get scale and volume, we’ll have to establish a national footprint, ”he said.
With the First Colorado team in place, First Internet plans to expand the SBA nationwide across multiple tracks.
This includes plans to take advantage of its two year partnership with a San Francisco fintech to provide another source of borrowers. In September 2017, the company signed a five-year agreement with healthcare funding platform Lendeavor to fund up to $ 120 million in loans each year. Initial efforts focused on the West Coast, but First Internet is considering a nationwide expansion of its healthcare lending.
Working with Lendeavor, First Internet has built a $ 159 million healthcare portfolio, focused on dental and veterinary practices, but has been unable to offer SBA guaranteed loans to these clients. . According to Becker, this has resulted in a market gap as the bank is unable to serve many promising entrepreneurs whose finances do not yet meet the standards for a conventional loan.
“SBA will allow us to expand the set of clients that we can serve with Lendeavor,” Becker said.
Rodis said that for First Internet, the healthcare push “depends on execution,” but there’s no reason it can’t reach more borrowers.
“It certainly makes sense,” he added.
Lendeavor’s CEO Daniel Titcomb did not respond to a request for comment.
First Internet plans to sell much of its increased SBA production on the secondary market, which should lead to increased non-interest income. In the quarter ending March 31, fee revenue totaled $ 2.4 million, or 6% of total revenue.
“Our only real fee income today is the money we make on mortgage sales,” Becker said. “Given the seasonality of mortgages, this will sort of smooth out this uninteresting trail for us. “