BOFI FY2015.Q4 Earnings Quick Take

Bank of the Internet earnings are out and they have exceeded expectations once again! EPS and “net revenue” beat analyst estimates. Book value is up to $33.92 per share.

Here is a quick note from the company in their press release:

“We achieved our fourteenth consecutive quarter of record earnings through strong loan originations, fee income growth, and disciplined expense management,” stated Greg Garrabrants, President and Chief Executive Officer. “Continued growth in our jumbo single family mortgage portfolio, record production from our C&I lending group and strong deposit growth were contributing factors to our increased net interest income this quarter. We further diversified our funding mix, with checking and savings accounts increasing to approximately 82% of our total deposits at June 30, 2015 compared to 74% a year ago. Our net interest margin increased to 3.97% this quarter including the one-time dividend received from the FHLB and would have been 3.85% without the one-time dividend, equal to last quarter and within our target range. Lastly, our efficiency ratio improved to 31.65% this quarter, or 32.47% without the one-time dividend, as our cost management program’s focus shifted to vendor cost reduction and productivity improvement.”

Here are my quick takes for the FY 2015.Q4 and FY 2015 full year earnings:

Net Income

$1.54 EPS (FY 2015.Q4 actual)
$1.38 EPS (FY 2015.Q4 estimate)
$1.09 EPS (FY 2014.Q4 actual)
+41.2% YoY

$5.37 EPS (FY 2015 actual)
$3.85 EPS (FY 2014 actual)
+39.5% YoY

Net Revenue (Net Interest Income)

$55.29 M (FY 2015.Q4 actual)
$53.67 M (FY 2015.Q4 estimate)
$45.2 M (FY 2014.Q4 actual)
+36.5% YoY

$198.95 M (FY 2015 actual)
$159.6 M (FY 2014 actual)
+24.6% YoY

Key Metrics

Tangible book value: $33.92 per share (FY 2015.Q4 actual) vs. $25.27 per share (FY 2014.Q4 actual) [+34.2%]

Total assets: $5,823.7 M (FY 2015.Q4 actual) vs. $4,403.0 M (FY 2014.Q4 actual) [+32.3%]

Loan portfolio growth YoY: $1,395.8 M, +39.5%

Loan originations: $1,281.4 M (FY 2015.Q4 actual) vs. $898.9 M (FY 2014.Q4 actual) [+42.6%]

Deposit growth YoY: $1,410.4 M, +46.4%

Non-performing asset ratio: 0.55% (FY 2015.Q4 actual) vs. 0.46% (FY 2014.Q4 actual)

Non-performing loans ratio: 0.62% (FY 2015.Q4 actual) vs. 0.57% (FY 2014.Q4 actual)

My Take

What if I told you that there existed an investment, a financial institution of sorts that was growing rapidly, but was still under the radar? That there was a company that repeatedly beat analyst estimates on their earnings quarter after quarter after quarter. What if I told you that there existed a bank that had no branches, no ATMs, no greeters, no lines, but was still able to grow assets to $5.8 Billion, >30% year over year? Would you believe me?

Bank of the Internet Holdings (NASDAQ:BOFI) delivers yet another stellar quarter. Growth any way you look at it (EPS, Book Value, etc.) is accelerating. Even with the enormous growth the company is undervalued if you look at it from an income perspective trading at about 23 P/E. From a price to book perspective it is still high at 3.41 (TTM) but the book value growth rate supports these levels in my opinion.

Although execution seems all around great per usual, we must keep an eye on the non-performing assets/loans which has creeped up YoY (although still much lower than big banks like Wells Fargo). As deposits and loans grow we expect this ratio to increase but the company must keep this under control. Another potential risk is the concentration of loans in California. According to Jason Hall on (…) BOFI is still largely regional in terms of its mortgage business. Thus many of their loans are based in California which a majority of the loans being of the jumbo variety due to the high housing prices.

With all that being said, even with the small bump today, BOFI’s market cap is only $1.8 B. If they can continue to execute and grow (no reason they can’t), shareholders will be rewarded handsomely over the next few years.

BOFI is currently trading at $117.21 per share in regular market activity.


If they can continue to execute and grow (no reason they can’t)

Charlie, how much of the higher loan interest rates that BOFI earns is due to it playing in the niche of those non-conforming jumbo loans? And what is the total size of that niche? Is it possible that could act as a ceiling on growth (or at least growth with the current high net interest margin)?

I thought it was interesting to see that BOFI is getting a significantly higher interest rate on average for its loans than INBK does.


This link has the information……

In the United States, a reserve requirement[4] (or liquidity ratio) is a minimum value, set by the Board of Governors of the Federal Reserve System, of the ratio of required reserves to some category of deposits held at depository institutions (e.g., commercial bank including US branch of a foreign bank, savings and loan association, savings bank, credit union). The only deposit categories currently subject to reserve requirements are net transactions accounts, mainly checking accounts. The total amount of all net transaction accounts held in USA depository institutions, plus US currency held by the nonbank public, is called M1.

A depository institution can satisfy its reserve requirements by holding either vault cash[5] or reserve deposits. An institution that is a member of the Federal Reserve System must hold its reserve deposits at a Federal Reserve Bank. Nonmember institutions can elect to hold their reserve deposits at a member institution on a pass-through basis.[6]

A depository institution’s reserve requirements vary by the dollar amount of net transaction accounts held at that institution. Effective January 23, 2014, institutions with net transactions accounts:

Of less than $13.3 million have no minimum reserve requirement;
Between $13.3 million and $103.6 million must have a liquidity ratio of 3%;
Exceeding $103.6 million must have a liquidity ratio of 10%.[6]
The threshold monetary amounts are recalculated annually according to a statutory formula.

Effective December 27, 1990, a liquidity ratio of zero has applied to CDs, savings deposits, and time deposits, owned by entities other than households, and the Eurocurrency liabilities of depository institutions. Deposits owned by foreign corporations or governments are currently not subject to reserve requirements.[6]

When an institution fails to satisfy its reserve requirements, it can make up its deficiency with reserves borrowed either from a Federal Reserve Bank, or from an institution holding reserves in excess of reserve requirements. Such loans are typically due in 24 hours or less.

An institution’s overnight reserves, averaged over some maintenance period, must equal or exceed its average required reserves, calculated over the same maintenance period. If this calculation is satisfied, there is no requirement that reserves be held at any point in time. Hence reserve requirements play only a limited role in money creation in the USA - and since quantitative easing began in 2008, they have been even less important, as an enormous glut of excess reserves now exists (over the whole system; theoretically, though, individual banks may still run into temporary shortfalls).

The International Banking Act of 1978 requires branches of foreign banks operating in the US to follow the same required reserve ratio standards.[7][8]

Countries without reserve requirements[edit]
Canada, the UK, New Zealand, Australia and Sweden have no reserve requirements.

This does not mean that banks can - even in theory - create money without limit. On the contrary: banks are constrained by capital requirements, which are arguably more important than reserve requirements even in countries that have reserve requirements.

It also does not mean that a commercial bank’s overnight reserves can become negative, in these countries. On the contrary: the central bank will always step in to lend the necessary reserves if necessary so that this does not happen: this is sometimes described as “defending the payment system”. Historically, a central bank might once have run out of reserves to lend and so have had to suspend redemptions, but this cannot happen anymore to modern central banks because of the end of the gold standard worldwide, which means that all nations use a fiat currency.

A zero reserve requirement cannot be explained by a theory that holds that monetary policy works by varying the quantity of money using the reserve requirement.

Even in the United States, which retains formal (though now mostly irrelevant) reserve requirements, the notion of controlling the money supply by targeting the quantity of base money fell out of favour many years ago, and now the pragmatic explanation of monetary policy refers to targeting the interest rate to control the broad money supply.

Before the financial crisis reserve requirements were extremely liberal for the investment banks and it was not unusual for them to be leveraged several times their capital base. Lehman’s high degree of leverage - the ratio of total assets to shareholders equity - was 31 in 2007…

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Sorry wrong thread…