BOFI FY2016.Q2 Earnings Quick Take

Bank of the Internet earnings are out and they have beaten EPS expectations and missed net income estimates. Book value is up to $9.60 per share. There is no mention of the Erhart (or any other) lawsuit in the press release.

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

“Our strong performance reflects the resilience of our business model and the focus of our employees,” stated Greg Garrabrants, President and Chief Executive Officer. Mr. Garrabrants continued, “Growth in our jumbo single family lending business was augmented by acceleration in two newer lines of business – small balance commercial real estate and C&I lending. We see tremendous opportunities to expand geographically and to adjacent market segments in both of these businesses as we further refine our data analytics and distribution capabilities. With a well collateralized loan portfolio and no exposure to oil and gas industry lending, our credit performance remains strong. Our net interest margin improved this quarter to 4.10%, at the high end of our guidance. We completed a successful first full quarter of our strategic partnership with H&R Block, adding high margin fee income. With a strong balance sheet, a highly profitable and scalable core business and investments in new initiatives, we are well positioned for continued growth.”

Here are my quick takes for the FY 2016.Q2:

Net Income

$0.44 EPS (FY 2016.Q2 actual)
$0.42 EPS (FY 2016.Q2 estimate)
$0.32 EPS (FY 2015.Q2 actual)
+37.5% YoY

Net Revenue (Net Interest Income)

$63.17 M (FY 2016.Q2 actual)
$64.50 M (FY 2016.Q2 estimate)
$48.11 M (FY 2015.Q2 actual)
+31.3% YoY

Key Metrics

Tangible book value: $9.60 per share (FY 2016.Q2 actual) vs. $7.40 per share (FY 2015.Q2 actual) [+29.7%]

Total assets: $6,662.2 M (FY 2016.Q2 actual) vs. $5,194.7 M (FY 2015.Q2 actual) [+28.2%]

Loan portfolio growth YoY: $1,341.6 M, +31.2%

Loan originations: $1,623.1 M (FY 2016.Q2 actual) vs. $1,078.9 M (FY 2015.Q2 actual) [+50.4%]

Deposit growth YoY: $1,197.6 M, +29.8%

Non-performing asset ratio: 0.40% (FY 2016.Q2 actual) vs. 0.69% (FY 2015.Q2 actual)

Non-performing loans ratio: 0.46% (FY 2016.Q2 actual) vs. 0.80% (FY 2015.Q2 actual)

My Take

Another great quarter in the books for Bank of the Internet as expected. I was worried from a financial standpoint about continuing growth for the company: but the >30% YoY earnings and book value is stellar and negates such a concern. My main concern from a quarter ago was the loan originations growth was only 9% YoY. This quarter loan originations shot up 50.4% YoY which alleviates my concerns there.

In regards to the trust issues and the lawsuits, things have quieted down on that front. Aside from the occasional short seller articles on Seeking Alpha, there was only a new lawsuit alleging insider trading by BOFI’s board filed recently. I have not delved into that, but the market did not react to it. As long as there are no further disruptions trust will slowly rebuild.

From a valuation standpoint BOFI has never looked better - growing at over a 30% clip and its price to book value under 2. Growth can continue as the H+R Block deposit acquisition will provide a big boost this year. Management seems very adept to finding new avenues of growth to their banking business with all the retail partnerships. The big question is whether you can trust management’s tactics to be legitimate - it will take time, but if you can BOFI should reward shareholders with excessive returns over the long term.

BOFI is currently trading at $18.75 (+3.76%) per share in regular market activity. Price to book is currently at 1.953.

Sincerely,
Charlie

28 Likes

Charlie,

Bank of the Internet earnings are out and they have beaten EPS expectations and missed net income estimates.

Can you explain this a bit? Isn’t EPS just net income divided by shares outstanding? If they beat EPS, but missed on net income, did they buy back a bunch of shares to make that happen?

Tiptree, Fool One guide, confused.

Dear Tiptree,

Ahh small typo, I meant to say Net Interest Income which is the majority of its “revenue”. That’s basically the net revenue it derives from loans.

Sincerely,
Charlie

Adding to Charlie’s note, here are some updated data points.

We haven’t seen such a valuation since March, 2013. The book value is now under 2 even with today’s bump in the price.


QTR	BV/Shr.	QoQ	EPS	QoQ	TTM	Hi	Lo	Close	P/E	P/TBV	Hi	Lo	PEHi	PELo
Mar-12	3.91		0.15			4.40	3.87	4.27		1.09	1.13	0.99		
Jun-12	3.96		0.16			4.98	4.24	4.94		1.25	1.26	1.07		
Sep-12	4.09		0.17			6.67	4.88	6.51		1.59	1.63	1.19		
Dec-12	4.27		0.18		0.65	7.11	5.98	6.95	10.7	1.63	1.67	1.40	10.98	9.23
Mar-13	4.54	16%	0.19	28%	0.69	9.21	7.01	8.97	13.0	1.97	2.03	1.54	13.39	10.19
Jun-13	4.79	21%	0.20	22%	0.72	12.50	8.76	11.46	15.9	2.39	2.61	1.83	17.29	12.13
Sep-13	5.03	23%	0.21	27%	0.77	17.36	11.40	16.20	21.1	3.22	3.45	2.27	22.63	14.85
Dec-13	5.46	28%	0.23	30%	0.82	20.57	14.39	19.61	23.9	3.59	3.77	2.64	25.08	17.55
Mar-14	5.88	29%	0.25	35%	0.89	26.64	18.81	21.44	24.2	3.65	4.53	3.20	30.10	21.25
Jun-14	6.32	32%	0.27	40%	0.96	21.76	17.84	18.37	19.1	2.91	3.44	2.82	22.61	18.54
Sep-14	6.88	37%	0.30	41%	1.05	20.61	16.89	18.18	17.3	2.64	3.00	2.46	19.63	16.09
Dec-14	7.40	36%	0.32	38%	1.14	20.25	16.16	19.45	17.1	2.63	2.74	2.18	17.80	14.20
Mar-15	8.01	36%	0.34	35%	1.23	24.42	18.88	23.26	19.0	2.90	3.05	2.36	19.93	15.41
Jun-15	8.48	34%	0.39	41%	1.34	27.10	22.02	26.43	19.8	3.12	3.20	2.60	20.26	16.46
Sep-15	9.08	32%	0.40	33%	1.44	33.70	26.31	32.21	22.4	3.55	3.71	2.90	23.44	18.30
Dec-15	9.60	30%	0.44	40%	1.56	35.98	17.73	21.05	13.5	2.19	3.75	1.85	23.03	11.35
======================================================================================================================
Jan-16	9.60	25%	0.42	25%	1.65	35.98	17.73	18.95	11.5	1.97	3.75	1.85	21.85	10.77

Today’s P/E is 12.13, which places the earnings value multiple at or near the bottom of the range since the December, 2012 quarter. The 1 year PEG is 0.33 (12.13/100/37%), which is at the bottom of its range since the end of 2013.


1 YPeg	Mar	Jun	Sep	Dec
2013				0.90
2014	0.84	0.57	0.47	0.44
2015	0.49	0.51	0.61	0.36

If all the things the shorts are saying are true, wouldn’t we start seeing some deterioration in the business performance as they attempt to stop doing all the bad things they do?

If they’ve been cooking the books even a little, one would expect them to stop pushing the limits and, as a consequence, show some deterioration in performance.

EPS keeps rising, and YoY growth is 40%:


EPS	Mar	Jun	Sep	Dec		EPS TTM	Mar	Jun	Sep	Dec
2012	0.15	0.16	0.17	0.18		2012				0.65
2013	0.19	0.20	0.21	0.23		2013	0.69	0.72	0.77	0.82
2014	0.25	0.27	0.30	0.32		2014	0.89	0.96	1.05	1.14
2015	0.34	0.39	0.40	0.44		2015	1.23	1.34	1.44	1.56

EPS Y/Y	Mar	Jun	Sep	Dec
2013	28%	22%	27%	30%
2014	35%	40%	41%	38%
2015	35%	41%	33%	40%

They are getting increasingly more earnings out each dollar of book value as is evidenced by the BV to TTM Earnings Growth ratio:

				
BVG/EG	Mar	Jun	Sep	Dec
2012				
2013				1.01
2014	1.01	0.99	1.00	0.98
2015	0.98	0.97	0.96	0.95

Also, the amount of non-performing assets and loans is at its lowest level since the end of 2012:


NPAss	Mar	Jun	Sep	Dec		NPLoan	Mar	Jun	Sep	Dec
2012				0.79%		2012				0.95%
2013	0.71%	0.66%	0.55%	0.49%		2013	0.86%	0.80%	0.63%	0.58%
2014	0.50%	0.46%	0.52%	0.69%		2014	0.60%	0.57%	0.62%	0.80%
2015	0.65%	0.55%	0.50%	0.40%		2015	0.72%	0.62%	0.57%	0.46%

The number of shares outstanding, although having increased YoY, has dropped about 5% since last quarter.


EoPShr	Mar	Jun	Sep	Dec		WAShrs	Mar	Jun	Sep	Dec
2012	48.7	49.3	54.6	54.6		2012	52.9	53.0	53.0	55.3
2013	55.6	58.6	58.9	59.9		2013	55.8	56.6	57.0	57.4
2014	60.5	61.7	63.0	64.1		2014	58.3	58.7	59.4	61.1
2015	65.1	66.4	67.2	64.1		2015	62.4	63.0	63.7	64.4

There have been a lot of serious allegations made about Bank of Internet. However, we haven’t seen a single meaningful accusation stick, and the only impact has been a significantly reduced share price and a bunch of lawsuits. As time goes by and if the accusations turn out to be nothing more than accusations, we’ll see a significant rise in the price. At least for the last quarter as the sky was falling, the business was humming right along, improving just as it has been over the past few years.

From time to time, go back and read this post from Neil, especially the closing statement:

If you’re investing in a disruptor, it goes with the territory that they’re going to do things differently. Some people don’t understand that, while others try to use it against investors to spread fear and make a profit. I think the best thing we can do is to understand our investments as well as possible so that we can make our own informed decisions, acknowledge the risks of being wrong, and then allocate appropriately to manage those risks.

http://discussion.fool.com/why-if-they-are-lending-at-50-60-ltv-…

It helps me to put things into perspective whenever my emotions play tricks on me.

DJ

13 Likes

Thanks for the additional numbers DJ.

I sold out all of my BOFI position a couple months ago when all the news coming out was bad.

But I’ve come around to thinking the reward at this time outweighs the risk and I’ve taken a small starter position again (and at a lower price than I got out at, so that’s better than a poke in the eye).

Just my current opinion and exercising my right to change my investing mind.

any reason you see for the big drop today?

thejusticier: any reason you see for the big drop today?

Perhaps because near the end of his remarks and prior to opening the conference call for questions, Mr. Garrabrants decided to throw gasoline on a blazing fire by saying that “it is possible and perhaps even anticipated that other baseless lawsuits might be filed by the same or different attorneys” in the wake of the suit filed by Mr. Erhart?

SWKS “bounce” today is a disappointment as well.

2 Likes

I think he was talking about the class action lawsuits that tend to spring up like weeds when a short attack is going on. Whether coordinated or not, they just add more FUD to the situation.

I doubt very seriously if he was talking about more lawwsuits from Erhart.

TMFTiptree: I think he was talking about the class action lawsuits that tend to spring up like weeds when a short attack is going on.

I don’t think so. He seemed to be implying that Erhart’s attorney (or other attorneys) is trying to get additional former employees to file suits.

Full quote:

“A variety of what appears to be short seller funded attorneys and short-seller funded investigators have continued to call and harass our former employees. Although we have good relationships with the vast majority of our ex-employees, it is possible and perhaps even anticipated that other baseless lawsuits might be filed by the same or different attorneys in what will be a futile attempt to pressure us. This will not change the bank’s sound policy of terminating poor performing employees. BofI is not in the business of settling meritless lawsuits. So we will ride out the temporary storm while focusing on continuing to grow our business in a safe and sound manner and deliver positive earnings growth.”

Regardless, a stupid, unnecessary comment by Garrabrants to spoil the review of a mostly strong quarterly performance.

2 Likes

Regardless, a stupid, unnecessary comment by Garrabrants to spoil the review of a mostly strong quarterly performance

I disagree. It is pertinent to the affairs of the company and I applaud Garrabrants disclosing this information. While we all can surmise that more law suits might be coming he is just confirming it.

Andy

6 Likes

“SWKS bounce today is a disappointment as well”

You posted this on 1/29 and on 1/29 SWKS bounced up over 6%.

How is this a disappointment NewEchota ?

Or should I say: what is your point?

Best,
Frank

2 Likes

gettinsumcoffeee: You posted this on 1/29 and on 1/29 SWKS bounced up over 6%.

How is this a disappointment NewEchota ?

Or should I say: what is your point?

At the time I commented (about noon, more than halfway through the trading day), SWKS’s was up 2.5%, a somewhat tepid market response given that all of the doom and gloom about Apple’s iPhone sales decline had much less impact on SWKS’s performance than anticipated (while, at the same time of day, QRVO was up 8.5%).

1 Like