Conference Call at 5:30PM EDT (2:30PM Local PDT)

I would have preferred a little–no, a lot less–bombast and bluster. I would have liked walking a lot softer (but confidently) and just carrying the big stick as opposed to brandishing it (“they are going to jail”).

I have not had a chance to listen yet but from what has been posted, this was my opinion as well. I think it would just be better to stick to facts not make speculations about possible motives (working with shorts) nor make any comment at all about a past employee being on medical leave or about performance. Best just to say that they that they considering their options about the false statements against them and that it wouldn’t be proper to speculate further.

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I would have preferred a little–no, a lot less–bombast and bluster. I would have liked walking a lot softer (but confidently) and just carrying the big stick as opposed to brandishing it (“they are going to jail”).

I don’t know, personally, I liked it. I think his sureness in the baseless-ness of these re-dredged up allegations is what brought the stock back up almost half of what was lost yesterday.

Also, the CEO is taking it as an attack on “his” company, that he has a stake in and that he has worked his butt off to grow and you get this bad seed that couldn’t do his job properly and messed with you once already, now bringing back the same issues you were already cleared of…I’d be pissed!

Yes, maybe he should have taken a little time to cool off before having the call, but if you do that, you get the Lumber Liquidators situation where after the 60 Minutes expose, you don’t say anything and your stock continues to fall for weeks till it’s 1/4 the value it was before the attack. Then, when you finally mount a rebuttal, it’s weak, even though your tests and emissions were within CARB compliance (my opinion, at least), but the market has already judged and found you guilty!

BOFI CEO is my hero. Maybe if there were more like him, there would be less short attacks like we’re seeing.

Although I shouldn’t be complaining as I’ve made some good money in these situations - made a bunch off of Herbalife, I think in time, I’ll end up making a bunch off of LL, and I thank the market for the 30% discount I got yesterday in this strong company.

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Foodles,

I can’t argue too much with what you say. Certainly needed a quick, firm rebuttal. I may be asking too much that he would do it with style points as a bonus. I was pissed, too, as I noted somewhere upthread and I purchased my first batch too soon yesterday. And I’m just a frustrated shareholder.
Still, going forward, I discount the company a bit for questions of general business management.

KC

Either he is the greatest liar ever or he’s telling the truth.
should he go into politics?

Mauser
should he go into politics?

He is an executive - he already is in politics.

I second the comments about the high level of professionals attracted to this board. We all can make much more informed and hopefully more profitable decisions because of the contributors to this board. I thank the more experienced members in sharing their wisdom to the next generation.

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I can’t say I feel a ton better to be honest. There are a number of things that give me pause.

Hi Michael, I have to admit that I was a little uncomfortable with the CEO’s style and presentation. I felt that there were a few possible explanations.

  1. He was just pissed, outraged and emotional, and imagining that the complainant must have been in league with the shorts (which is certainly possible, but I agree that he probably shouldn’t have said it).

  2. Even the most innocent person sounds guilty when he is put in a position of having to deny accusations.

  3. He was having to explain things on a very brief notice, having just gotten the paperwork a couple of hours before.

  4. He was having to answer questions like “Why didn’t you fire this guy much earlier?” which he probably hadn’t considered at the time, as he didn’t know the guy was going to do all this crazy stuff. This caused him to stumble over answers. The same for questions like “Are you buying at this price/” After all, that morning the price was $42 higher, and he had probably been too busy to think about buying.

  5. He couldn’t answer all the questions in the complaint because this was just a conference call after all.

  6. Maybe the complaint was valid and BOFI will fall apart (I strongly doubt that, but should include it).

I think the proof is in several items:

  1. The complainant approached two investigating agencies with these same complaints and they cleared the company. There are no ongoing investigations of the company. They just got cleared for a major acquisition.

  2. The company has undergone periodic deep exams, especially in relation to the H&R Block acquisition, and nothing was found wrong.

  3. The paper with the 150 names without tax numbers or whatever, was actually prepared to be sent (and WAS sent) to an examining agency in response to a specific request. This makes the complainants "I gotcha"s really look like he didn’t actually understand what was going on.

I concluded that by far the weight of evidence is with the company. Note that I could be wrong of course.

Best

Saul

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4. He was having to answer questions like “Why didn’t you fire this guy much earlier?” which he probably hadn’t considered at the time, as he didn’t know the guy was going to do all this crazy stuff. This caused him to stumble over answers.

Every company has a certain level of tolerance for underperformers, often believing it’s in the company’s best interest and more cost-effective to rehabilitate a current employee than hire a new, and potentially, worse performer. As Garrabrants noted, Erhart’s first performance review raised red flags and his second performance review emphasized his lack of improvement. What gave me pause in the conference call was the revelation that Erhart had used his audit authority to gain confidential salary and bonus information and share it with co-workers. In my experience, that would result in immediate termination (although it was unclear in the call exactly when the company discovered this activity).

The same for questions like “Are you buying at this price/” After all, that morning the price was $42 higher, and he had probably been too busy to think about buying.

Garrabrants and the company’s employees are in a Black Out period and prohibited from trading in BOFI stock until earnings are released.

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"Garrabrants and the company’s employees are in a Black Out period and prohibited from trading in BOFI stock until earnings are released. "

I have been long this stock for a couple years now, but I am still not comfortable with Garrabant’s style. I cannot put my finger on it but he seems like a used car salesman to me for some reason.

In the conference call he made a huge issue that he wanted to get out of the black out period and buy stock. I am not really sure of the context of this, i.e. him personally or company buy back, but we only have to go back to early July when the share price was $100. He probably could not have bought it then because of blackout etc… but it’s not like we are at multiyear lows… Shoot it was at 75 to start the year and he has had plenty of opportunities to buy the stock this year.

He is a human being, but it seems like he is a little more emotional than I would like for a CEO of a public company. When you look at some of the Glassdoor reviews of him I think this paints a pretty consistent picture.

Just my 2 cents…

Still long though and still up 70% since I bought in August of 2013.

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I have been long this stock for a couple years now, but I am still not comfortable with Garrabant’s style. I cannot put my finger on it but he seems like a used car salesman to me for some reason. In the conference call he made a huge issue that he wanted to get out of the black out period and buy stock. I am not really sure of the context of this, i.e. him personally or company buy back, but we only have to go back to early July when the share price was $100. He probably could not have bought it then because of blackout etc… but it’s not like we are at multiyear lows… Shoot it was at 75 to start the year and he has had plenty of opportunities to buy the stock this year. He is a human being, but it seems like he is a little more emotional than I would like for a CEO of a public company. When you look at some of the Glassdoor reviews of him I think this paints a pretty consistent picture.

I have to agree with coachtom. I wrote that I was uncomfortable with the conference call and tried to make excuses for the CEO, but something just doesn’t smell right about this, and about the market’s response. I decided today that I wasn’t comfortable with such a large part of my portfolio at risk (it was about 14%) and acted accordingly. If it all plays out there will be plenty of time to rebuild my position, but I can’t get rid of the feeling that something just isn’t right.

Saul

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I think you made a wise decision, Saul.

decided today that I wasn’t comfortable with such a large part of my portfolio at risk (it was about 14%) and acted accordingly

what does that mean?

Saul:

but there isn’t any other pieces of news coming out. So you are following the market?

By how much did you reduce your BOFI holdings if you would say?

tj

Does anyone know if BOFI has a plan to buy back its stock?

I will agree that there are some aspects of the call that seemed a little odd, but still holding my shares for now.

The part about firing the guy was weird, but also it can be really hard to get rid of a poor performer in those type of roles.

We had a junior person in an old job of mine who was a poor performer, came in late, wasn’t interested, and clearly it was not what he wanted to do, so he was just coasting. EVen with multiple performance reviews and such, it took almost a year to go through the process with HR to actually fire him.

Now, he wasn’t doing anything malicious, but HR is so concerned about being sued at many companies that they try to really make sure before letting people go.

There is some wait and see for me on this still, but I am keeping a short leash on my shares at the moment, at which point I may cut some, but I think as long as earnings continue to perform, the stock will be fine and this will blow over.

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Does anyone know if BOFI has a plan to buy back its stock?

I highly doubt it. BOFI continuously issues shares to grow its deposit base.

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I finally was able to listen to the conference call and after reading most of the posts on BOFI I wanted to post my thoughts.

First, Erhart is claiming that he is a whistleblower, but if your allegations have been reported to the appropriate authorities, and found to be baseless, how can you then be a whistleblower. I think Erhart truly thought that BOFI was being inappropriate, but he didn’t have the complete information. But while trying to get the information to bolster his case he leaked information to individuals that he didn’t have the right to divulge. He was caught up in trying to prove his allegations which pushed him to go further than he should have.

I think the CEO Garrabrants, on the call, while clearly unhappy, went to far trying to prove that Erhart was incompetent. But if you follow any of the whistleblower cases you will see that this is a pattern that is followed by the companies and the management. The first thing they do is try to paint the employee as underperforming and totally inept. So that part of the conference call I took with a big grain of salt. I think Erhart while maybe not the best employee, was not the worst employee either. I also think the company had to be careful on how they treated Erhart under the False Claim Act, they couldn’t fire him while his allegations were being investigated. But I do think they made life very uncomfortable for him and that is why he went on medical leave. But medical leave does not go on forever. Most companies have a period of time that you can go on medical leave and if you stay out past your allotted time your employment is terminated. I think this is what Garrabrant was saying on the CC. They didn’t fire him but his time with the company has ellapsed.

So where does this leave me? I think Erhart is going to far. He already was proven incorrect by the OCC and their investigations. At that time he should have let this drop. But he is to invested in his allegations so he is pushing on. I hope he realizes at this time that he will no longer be able to ever get a job in the financial industry. I believe that this will go to trial and that BOFI will be found not guilty. While this will be very volatile going into the future the coming conference call on Oct 29th will be a catalyst for the stock pushing it higher, Garrabrant already stated that they would beat estimates, but until that time what the stock will do could be anyone’s guess. I also think that BOFI could come back and sue Erhart for the damage that he has done in the short term, but in the long term I think if this company slides down further this week I will be buying more. Nothing has changed with the company, they have been vetted by the OCC and have bought the H&R block bank business. I think they have been scrutinized very thoroughly. So I feel comfortable holding this company and buying more.

Andy

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Hello Andy,

As I am sure there are many reading this board who are still invested in BOFI, I write with a different viewpoint than those heretofore expressed. Some have exited because of extreme volatility, some because the style of the CEO causes concerns, some because of Opendoor comments and ratings. From my perspective, these are the salient facts:

  1. BOFI has exhibited rare growth in earnings for a bank.
  2. BOFI has exhibited rare ROE for a bank.
  3. BOFI, still a small bank, has had considerable price appreciation in its stock.
  4. This rapid stock appreciation attracts sophisticated short sellers attempting to take advantage of the price exceeding industry norms.
  5. BOFI received regulatory approval of their transaction with H & R Block. This negates the pre-dated accusations of the ex-employee.
  6. The suit casts negative aspersions on the CEO and the company/regulator relationship, but does not attack the financial information filed by BOFI with the SEC. These filings support a case that management is effectively working for shareholders benefit.
    7.BOFI has stated that the H & R Block transaction is significantly accretive. Management has stated that the recently completed quarter exceeded analyst expectations. These assertions mitigate downside risk in the near term.

Speculation:

  1. What if short sellers co-opted the ex-employee (young and earnest as he is), financed his lawsuit, arranged the NYT publicity to coincide with options expiration, and are delighted with the 40% haircut in the stock price? If so, they will be reversing their positions prior to the earnings conference call in a few days.

Opinion: Some of the above facts may be incorrect. I have no knowledge other than my gut to support the speculation. No one should be criticized for any action (selling, holding, or buying)as that is the sole province of each portfolio manager. Saul has sponsored one of the great investment boards on the internet and deserves full support for his tremendous service to us all.

Best regards,

Mike

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Hi Mike,
I agree with all of your points 1 thru 6 and especially with your opinion. This is a free board with information freely given. Ideas can change anyone’s view point and that is why we discuss our companies on this board. If my mind changes I could be out of any company tomorrow.

As far as bullet number 7, I do not think anything that we know right now mitigates the risk in the near term. When a stock is hammered like this stock has been the fear just keeps growing until the steady hands come in. I wouldn’t be surprised if BOFI was down again tomorrow. But I will be watching in order to get a better value point.

As far as your Speculation: I think we might find out in the trial whether you are correct or not. It should be interesting.

Andy

Long Bofi

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I hope he realizes at this time that he will no longer be able to ever get a job in the financial industry.

Andy, I agree, but he may be more interested in advancing his modeling career. Publicity (even bad publicity) is good for that.

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Andy, I agree, but he may be more interested in advancing his modeling career. Publicity (even bad publicity) is good for that

Lol that is true Chris.

Andy