Telebanc Financial Corp. announced results last week that put it in a class by itself among community banks.
The $2.3 billion-asset bank, which exists solely on the telephone and Internet, boosted fourth-quarter revenues 120% from a year ago. The results make it a star of the community bank sector, where the median revenue- growth rate hovers around "the mid-single digits," according to Kevin Timmons, an analyst at First Albany Corp.
Exhibiting attributes more akin to an Internet company than a community bank, Telebanc's share price rose 10% Wednesday, the day it announced its earnings, to $44.125. The stock closed Friday at $47.625, up 20% from last week's close of $39.625 and 228% from its offering price of $14.50.
"Internet banking will probably be the hottest sector on Wall Street in 1999 and 2000," said Gary Craft, an analyst at BancBoston Robertson Stephens. Telebanc is growing "in an industry that is stagnant," he added.
Telebanc's fourth-quarter revenues were $38.5 million, up from $17.5 million a year earlier. Net income (before taxes) came in at $1.96 million, up 56% from a year ago. The bank earned 5 cents a share, 4 cents more than the Wall Street consensus estimate as tracked by First Call. Its asset total grew 109% from a year earlier, and deposits rose 110%, to $1.1 billion.
Telebanc spent $4.6 million on marketing in 1998 to boost its deposit base, compared with just $600,000 the year before. The campaign emphasized the Arlington, Va., bank's low-cost operations. With about half the expenses of traditional banks, Telebanc can offer interest-bearing checking accounts with rates ranging from 3.1% to 4.7%, depending on the balance.
The industry's only other publicly traded Internet-based bank, Atlanta- based Net.Bank, is a relative newcomer, having opened for business in October 1996. It went public the next July after getting a thrift charter. As of last September, Net.Bank had assets of $283 million and deposits of $241 million. Its stock closed Friday at $45.9375, down 17% for the week.
The former Security First Network Bank, an Internet-only bank that went public in 1996, is now a unit of Royal Bank of Canada.
Ten-year-old Telebanc started by offering high-yield savings accounts over the telephone and through the mail, and it has not stopped innovating.
The bank is now trying to woo customers with a product called ATM Refunder, which automatically refunds ATM fees imposed by other banks-up to $6 a month-to customer accounts.
It has also reached a deal with Yahoo Finance, the financial area of the popular portal. Customers who sign up for an account through the portal need only maintain a balance of $1,000 to get ATM refunds. Others must maintain a $2,500 balance.
Mitchell H. Caplan, president and chief executive officer of Telebanc, said people detest ATM fees. "I am a believer that there is a tremendous opportunity to capture a meaningful part of market share," he said. "People are sick to death of being charged fees and not getting value."
Mr. Craft of BancBoston Robertson Stephens, which managed Telebanc's public offering, said, "Telebanc will teach the banking industry how to do retail marketing."
Though he called the ATM refund program "a marketing gimmick," he noted that Telebanc "is taking mainstream banking head on."