BOFI FY2016.Q1 Earnings Quick Take

Bank of the Internet earnings are out and they have beaten expectations on both the top and bottom line. Book value is up to $36.33 per share. There was no mention of the lawsuit by former auditor Matt Erhart or the counter-suit by the company in the press release or SEC filing.

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

“We delivered record earnings and margin expansion last quarter,” stated Greg Garrabrants, President and Chief Executive Officer. Mr. Garrabrants continued, “Loan growth was strong across a variety of categories, including jumbo single family, commercial real estate, C&I and auto. We successfully closed the H&R Block agreements, adding over 250,000 new IRA customers and approximately 729,000 new prepaid accounts, further diversifying our deposit base. We see tremendous opportunities to leverage Block’s nationwide footprint and digital channels to provide a variety of services to Block’s customers over time. Coupled with investments we are making in our user experience, technology, and personnel across each of our core businesses, we are well positioned to sustain strong organic growth in revenues and earnings.”

Here are my quick takes for the FY 2016.Q1:

Net Income

$1.60 EPS (FY 2016.Q1 actual)
$1.50 EPS (FY 2016.Q1 estimate)
$1.20 EPS (FY 2015.Q1 actual)
+33.3% YoY

Net Revenue (Net Interest Income)

$59.128 M (FY 2016.Q1 actual)
$57.06 M (FY 2016.Q1 estimate)
$44.875 M (FY 2015.Q1 actual)
+31.8% YoY

Key Metrics

Tangible book value: $36.33 per share (FY 2016.Q1 actual) vs. $27.52 per share (FY 2015.Q1 actual) [+32%]

Total assets: $6,259.6 M (FY 2016.Q1 actual) vs. $4,824.9 M (FY 2015.Q1 actual) [+29.7%]

Loan portfolio growth YoY: $1,266.2 M, +32.0%

Loan originations: $1,097.4 M (FY 2016.Q1 actual) vs. $1,004.7 M (FY 2015.Q1 actual) [+9.2%]

Deposit growth YoY: $1,493.6 M, +45.8%

Non-performing asset ratio: 0.50% (FY 2016.Q1 actual) vs. 0.52% (FY 2015.Q1 actual)

Non-performing loans ratio: 0.57% (FY 2016.Q1 actual) vs. 0.62% (FY 2015.Q1 actual)

My Take

Back in July a user noted how quiet the BOFI Rule Breakers board was despite the stellar performance of the stock:…. Oh my how things have quickly changed…

The earnings once again, like they have been for several quarters now were stellar. I must note even better than the past two as the non-performing metrics seem to be improving (as opposed to declining in previous quarters). With the H&R block acquisition closed BOFI’s growth should continue for the next year or so.

Long term we must see if BOFI can continue its excellent growth and metrics as they get larger. As the recent NY Times article and events have revealed, BOFI can get a little “creative” with its loans and gaining deposit customers. This has driven their growth and this should continue as long as management is careful. One macro trend to keep an eye on is home sales which are starting to flatten a bit as prices rise and inventory is lower.

As for the elephant in the room, the allegations by Matt Erhart a former BOFI employee and auditor was not specifically addressed in the release/filing. We should hear more about it and the counter suit in the conference call today at 4:30PM EDT. I plan on doing live posting during the CC. My take on the situation is that I believe the key fraud allegations are false, but management needs to be more careful and needs to take a look on how to manage employees better. Hopefully the company will be able to get through these accusations, regain trust of investors, improve/learn from this situation and become a better company in the long term for it.

BOFI is currently trading at $94.23 (-6.42%) per share in regular market activity. Price to book is currently at 2.59, the lowest it’s been in quite some time.



No reason that these earnings should have the stock down 7%. This is a buy.

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When people think the numbers are bogus, to them higher numbers just indicate more fudging in a desperate attempt to push up the stock price. Investing in BOFI comes down to whether you believe the company executives are cheating. Or not.

I know of no way for an outsider to determine this. I have had CPA tell me it can be hard to tell even when you are doing an official audit with corporate cooperation.

Especially for banks. I know of a log home house near me that was repossessed. The bank had loaned more money than the house was worth. It is not in good condition and because it is a log home there are no comps.The bank tried to sell it for nearly $100,000 more than market and had no takers. Meanwhile it is probably being carried on bank books at the inflated value. They seem in no rush to sell, then they would have to record a loss. So is this cooking the books? Probably it is legal but it is certainly deceptive.

So for me holding BOPFI is not a deep conviction choice so it would be easy to sell. OTOH, in the likely event that earnings continue to grow P/E will continue to shrink ,because this type of dark cloud will take quite a while to dissipate. So I don’t count on any quick gains. In fact I think there is a fair chance the next bear market is not more than 2 years away and BOFI could be caught in that before the accounting is cleared up. Thus it is a long term speculation to me, not worth a large holding. Especially since I can see no moat or tight patents here.

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On the conference call about the lawsuit, the CEO mentioned that he wanted to buy the stock for the upcoming “blowout earnings”

So, that kept some people in the stock but apparently it wasn’t enough of a blowout for most to wait and see what happens with that lawsuit.

Just too much uncertainty here to get back in, but assuming profits keep growing and no more bad news, I’d likely buy again at 75 or so. For now though, it’s hands off. Why gamble on this one when others don’t have the dark cloud. See LL as an example


Saul got out at 114!

Here is why:

…BOFI submitted a transcript of its October 14th Business Update Call in an 8-K filing to the SEC.

I compared the company’s version of the transcript to the Bloomberg transcript and to the actual call and the differences appear to be substantive.

In a digital era (when these things are easily verifiable), why did the company produce a transcript that was so different than transcripts from reliable 3rd party vendors?

I took the time to listen to the BofI Holding,……

The 8K clearly states under Item 7.01:

The attached transcript is a textual reproduction of the conference call and there may be minor omissions or discrepancies. An audio broadcast of the conference call is also available until Thursday, December 31, 2015, at the Company’s website and telephonically by dialing toll-free number 888-203-1112, passcode 4259184

Doesn’t look to me like they are trying to hide it.