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