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| February 11, 2000 |
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Web-only bank has turned the corner into profitability |
| By David Goetz The Courier-Journal USAccess Bank turned a year old this month, but it turned something even more important in January - a profit. "We were profitable as of Jan. 31," said Maria Bouvette, president of the Louisville-based Web bank and CEO of its parent company, Porter Bancorp Inc. of Sheperdsville. "And we will continue to be profitable." That's not a statement or even a promise that can be made by a lot of e-commerce companies, but Internet-only banking has been an exception. Even paying the higher return for deposits that low overhead allows, Web banks are moneymakers, said Chris Musto, director of financial services with Gomez Advisors, a research firm focusing on Internet commerce. "You're getting money at 5 or 6 percent and lending at 7,8 or 9 percent," Musto said. "If you can do that in any meaningful size, you can make a profit. Even if you're not doing any substantial marketing, the money is there." Still, Musto said, getting into the black in 12 months is "kind of quick" for one of the approximately 20 Internet-only banks operating in the United States. Bouvette likes to illustrate the growth of USAccess, and the potential of Web banking in general, with a quick comparison to one of its Porter Bancorp sister institutions. "The Bullitt County Bank was founded in 1898 - it's a good, solid bank - and it has $108 | million in assets," Bouvette said. "This Internet bank was launched in February 1999. We'll be at $150 million by the end of the quarter." USAccess gained 5,000 customers its first year, said Chief Financial Officer Phil Barnhouse, but federal capital requirements limited the speed of its growth. "We haven't turned people down, but we have been less aggressive" with attractive interest rates, Barnhouse said. The goal is 100,000 customers in five years. That will require more capital, but the founders were buoyed by the recent sale of 30 percent of the bank's stock for $22 million to a group of private investors. "We had a tremendously successful private offering," Bouvette said. "We can grow, with that capital base, to a quarter of a billion dollars." Growing to 100,000 customers is "a realistic goal," said Jim Bruene, editor of Online Banking Report. "It will require time, money and energy to accomplish, but they have the building blocks in place." USAccess also sees a possible publick offering in its future, although that might require a more growth-oriented strategy. The bank's success so far "suggests they've got a formula that works in a small size," Musto said. "The question is, given what they want to do, will it work in a big size?" All of the Web-only banks in the country combined have only about 250,000 depositors, out of the nearly 6 million customers who say they do a lot of their banking over the Internet, Musto said. A big, traditional bank like Wells Fargo can sign up 100,000 Web customers a day. | "Existing banks with Internet offerings are actually doing quite well at converting their customers to the Internet," Musto said. Web banks "have shown it can be profitable, but they haven't shown it can be big." But USAccess has the potential to compete for banking-industry investors, Barnhouse said. "Our long-term profit projections and return on equity is much more attractive than someone could get by investing in a traditional bank." USAccess also plans to follow the lead of other Web banks and team up with another financial-services company, possibly an online brokerage. "We have looked at and will be looking at getting a partner like that in the next 12 months," said USAccess CEO David Pierce. "Such a partner would want an equity interest." The bank has an agreement UPS to use the air carrier's package-tracking system to give bank customers online access to their statements. It's a secure system, Pierce said, and can save the bank 75 percent of the cost of delivering traditional statements by mail. Bouvette and partner Chester Porter, chairman of both USAccess and Porter Bancorp, credit Pierce with researching and developing the model that led to the creation of USAccess with an initial investment of $5 million in staffing and equipment. Part of the logic was that because Porter Bancorp is a small, regional bank company, it would not cannibalize its own accounts by establishing a Web bank seeking deposits nationwide. "I thought the rewards were worth the risks and the headaches," Porter said. "And I thought Maria and David would handle all of the headaches." The Web bank began under the charter of Porter Bancorp's Central Bank USA, but the name was officially changed to USAccess. Headquarters Is a 10,000-square-foot facility on Biggin Hill Lane near the Stonybrook shopping complex in eastern Jefferson County. It has offices, a telephone call center to handle customer inquiries, and a small operations room. Four glass-fronted cabinets house the 11 servers that handle the bank's Internet connections. "These things are beautiful," Barnhouse said. "We're hardly tapping their ability at this point." Below them, a stack of batteries is on hand in case of a power failure, to keep operations flowing until the big, industrial sized generator out back can take over. Another server, tucked unceremoniously under a table in the operations room, holds the bank's account information. A single proof machine encodes checks and deposits. Chief Operating Officer Fred Catlett can hold a morning's worth in one hand. The bank generates about 150 pieces of paper a day, Catlett said, compared to a traditional bank's 10,000. Reprinted from the Courier-Journal Louisville, Kentucky February 11, 2000 |