BOFI Numbers

Investment Analysis Clubs Saul’s Investing Discussions
1

Fools,

Overall, it looks like a well-executed quarter, except for the non-performing loans, which, while still very low, jumped 29% from the previous period (0.80% from 0.62%).


NPLoans Mar	Jun	Sep	Jan
2012				0.95%
2013	0.86%	0.80%	0.63%	0.58%
2014	0.60%	0.57%	0.62%	0.80%

Also, QoQ EPS is very nice, but not accelerating. Looks like Q4 growth is typically typically lower than Q3, but the reduction in growth is more than the last two December quarters:


EPS QoQ Mar	Jun	Sep	Dec
2012		10.3%	4.7%	4.5%
2013	5.7%	5.4%	9.0%	7.1%
2014	9.9%	9.0%	10.1%	5.0%

The efficiency ratio is improving:


ERatio	Mar	Jun	Sep	Dec
2012				40.98%
2013	42.14%	42.80%	41.37%	39.89%
2014	35.10%	34.87%	34.81%	34.55%

And tangible book value per share is rising nicely:


TBV/Shr	Mar	Jun	Sep	Dec
2012	15.64	15.82	16.36	17.08
2013	18.17	19.16	20.11	21.82
2014	23.51	25.27	27.52	29.58

Price/BV/Share seems to be settling in at about 2.6 - 2.8 (2.76 @ $81.72/share). If they can close HR Block, this number will go down nicely:


PBV/Shr	Mar	Jun	Sep	Dec
2012	1.09	1.25	1.59	1.63
2013	1.97	2.39	3.22	3.59
2014	3.65	2.91	2.64	2.63

If assets can grow and if they can slow the increase in non-performing loans over the next few quarters, we could see the share price move up with tangible book value for a while from here.

It looks like the stock price is taking a breather while the market mulls this this over. Perhaps they’ll address the increase in non-performing loans and the deceleration of earnings growth on the call.

You’re welcome to use the spreadsheet:

https://docs.google.com/spreadsheets/d/1cBGjiYgrcGOc101txMue…

DJ

P.S. It’ll be nice to see what Fletch has to say about the state of the business.

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Overall, it looks like a well-executed quarter, except for the non-performing loans, which, while still very low, jumped 29% from the previous period (0.80% from 0.62%).


NPLoans Mar	Jun	Sep	Jan
2012				0.95%
2013	0.86%	0.80%	0.63%	0.58%
2014	0.60%	0.57%	0.62%	0.80%

Sometimes percentages quoted on things drive me a little crazy, especially when it’s percentages based on percentages.

.80 / .62 = 1.29 … so that’s a 29% increase…or is it?

Since it’s already percentages you could also say it’s…

.80% - .62% = .18% … is that also correct?

Is one more correct than the other? Is it how one chooses to look at it? 0.18% is insignificant but 29% sounds like a pretty big change.

Let me play with the numbers one more time…

.80 / .62 = 1.29 = 29% rate of change (Jan v. Sep)
.62 / .57 = 1.09 = 9% rate of change (Sep v. Jun)

.29 / .09 = 3.22 = 222% increase in the rate of change. Holy cow! The sky must surely be falling. That’s a huge increase in the rate from quarter to quarter.

I’m not a numbers expert by any stretch of the imagination, but I feel like percentages can sometimes be misleading. If you look at the entire list of percentage changes in non-performing loan it just looks like some slightly lumpy figures that are ALL below a single percentage point. It’s been .80% and higher several times.

Is it much ado about nothing or is it significant? I don’t have the answer, just the question.

Steve

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Thanks DJ, very nice analysis.
Saul

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Steve,

The way FourthStooge reported it is exactly how I would have, 0.8 is 29% larger than 0.62. The difference between the two as you calculated is mathematically correct, but it’s not a 0.18% increase, it’s an increase of 0.18 percentage points. Which is not really that useful in this context, eg 6.18% is 0.18 percentage points greater than 6%, but only 3% greater than 6%. Same increase in percentage points, much smaller percentage increase (bordering on noise).

Percentages (and numbers in general) are only misleading if they are misrepresented and/or not presented with any context. Which is sadly all too common, imo.

-srslydude

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Some more numbers:

  • Total assets reached $5,194.7 million, up $1,626.4 million or 45.6% compared to December 31, 2013

  • Loan portfolio grew by $1,526.3 million or 55.0% compared to December 31, 2013

  • Loan originations for the three months ended December 31, 2014 were $1,078.9 million, up 37.0% compared to the quarter ended December 31, 2013

  • Deposits grew by $1,602.3 million, or 66.7% compared to December 31, 2013

  • Asset quality remains strong with total non-performing assets of 0.69% of total assets and non-performing loans equal to 0.80% of total loans at December 31, 2014

  • Tangible book value increased to $29.58 per share, up $7.76 per share compared to December 31, 2013

Looks like a very good quarter to me.

IMO, the share price not doing much is just reflective of the P/B value for BOFI. P/B is still around 2.7, and so the market has already given it a solid “premium”. BOFI is now growing into it’s premium multiple and a non-drop in share price IMO shows that the market is fine with this premium and it needs BOFI to continue executing like this for a few more quarters.

I will continue to write puts and add opportunistically to my position.

Anirban

Long BOFI

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but it’s not a 0.18% increase, it’s an increase of 0.18 percentage points. -srslydude

Thanks! I get the subtle difference in % vs. percentage points that you make there. I was in effect treating both as the same in terminology, even though I understood the difference in the numbers.

It still seems like percentages are used sometimes in ways that are misleading (and I’m probably thinking about other cases I’ve seen more so than this one). Which is more significant as a focus, 29% or a .18 percentage point increase? The former sounds pretty large, while the second could be considered a small blip. I don’t know how many loans are involved, but let’s say it’s 10,000. That would make it 80 loans vs. 62. So yes, at the heart of it is a 29% increase in the actual number of loans. The real question should be if 18 out of 10,000 is important. Saying there’s a 29% increase seems to imply that there is some significant trend that might be a concern. Had the numbers been 5 (.05%) and 1 (.01%), that’s only 4 more loans vs. 18, but it’s a 400% increase, which sounds much worse that the 29% increase, but is it really? It could be…but I think that depends on whether or not it indicates a trend. In this case I think that 29% increase sounds much worse than it really is.

Steve

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srslydude,

I’ve got pretty strong math skills. While I’ve got a liberal arts undergraduate degree, I hold minors in math, physics and chem. What you say about percentage growth in non-performing loans is valid, but also I think somewhat irrelevant.

Let’s say they went from .01 to .02. OMG! 100% increase! But, I assume from a business perspective this would still be incredibly low for this metric. So, like you said, context is important. I don’t know enough about the banking business to know if .8% is worrisome while .62% is not. What’s the industry average? Is there an accepted benchmark? Is there a meaningful threshold value which reflects an inflection point of some sort?

Also, how exactly is this percentage arrived at? Is it a percentage based on the total number of loans or is based on the total value of loaned funds? Those two methods of calculation are likely to provide widely different numbers.

Without contextual information both numbers (.62% and .80%) seem really low to me just from a gut feel. But, I don’t really know.

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