Investment Ideas - Net.B@nk
D. R. Grimes, Vice Chairman and Chief Executive Officer
Net.B@nk
Interviewed by George S. Mack
The Internet Analyst
When NET.B@NK (NTBK: research, earnings) opened its doors for business ? or more precisely, turned on its modems ? in October 1996, e-commerce was still an unproven concept. The online bank, which has a market cap of $527.3 million and total assets of $817.7 million, has actually enjoyed profits for five consecutive quarters. The company offers a full line of services, such as high-interest checking, free online electronic bill payment, credit cards, CDs, home equity and mortgage loans, as well as securities brokerage. D. R. Grimes, vice chairman and chief executive officer, started in banking 33 years ago. In 1978 he joined an interactive software firm that was extensively involved in electronic funds transfer. Then, following a short retirement, Mr. Grimes was lured back by NET.B@NK's Chairman T. Stephen Johnson, who realized that his newfangled Internet startup was a perfect fit for Mr. Grimes' financial knowledge and experience.
[THE INTERNET ANALYST - GEORGE S. MACK] What are your sources of income?
[D. R. GRIMES] On deposit accounts, we pay interest to customers, not the other way around. But we turn around and invest deposits in a combination of securities and loans that become our sources of income. Quite frequently new niche banks are successful at attracting deposit accounts from whatever group they're trying to appeal to. But sometimes they forget that you don't make money on deposits, and you must have an investment or asset strategy to be successful. We started with that notion from the very beginning.
[GSM] Do you make unsecured loans?
[GSM] Most of them are secured by single-family residential real estate. Non-secured loans are pretty trivial to us. Mainly they are overdraft lines to our deposit customers.
[GSM] How fast are you growing?
[DRG] We're growing at about 110% to 115% every six months. Another way of looking at it is that we're growing by 4,500 to 5,000 accounts per month.
[GSM] How are you marketing the bank to bring in new customers? Vital Statistics:
Net.B@nk
(NTBK: research, earnings)
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Market Cap.: $527.3M (9/17/99)
Shares Outstanding: 25.80M
Recent Stock Price: $20.43 (9/17/99)
52-week High: $83
52-week Low: $3.57
EPS:
1999E: $0.15
2000E: $0.29
Revenue:
1999E: $52.84M
2000E: $120.83M
[DRG] At any one time, we're on about 70 to 75 Web sites, places where people are likely to open bank accounts. You'll find us at investment and bank research sites, as well as travel and weather sites.
[GSM] How much does it cost to acquire a customer?
[DRG] For the first six months of this year, it was $62 per customer.
[GSM] BancBoston Robertson Stephens thinks you'll be an acquisition target next year. Are you worried that you might not be able to finish what you've started and achieve your full valuation?
[DRG] If I sat down every day and made a list of the things I could worry about, then for sure we'd fall short of whatever our full value could be. But it really doesn't matter what happens next year or the year after. We've already had significant accomplishments. We've run a profitable Internet bank.
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