BOFI question(s)

Would appreciate thoughts on a few BOFI questions:

  1. how are you justifying owning this stock at a price to book of 3.5…well above the industry average?

  2. how do you feel the announced interest rate hikes will impact spreads and therefore profitability?

  3. how many here actually use their bank for personal accounts and what is your experience?

  4. what exactly is the barrier to entry (if any) that would hinder multiple competing internet based banks from entering this non-brick strategy?

I believe a stock price of around $50 places it is a more industry average P/B…not saying it necessarily gets there or that it’s growth rate at present would justify it but if the spread compresses, the trend downward may yet continue.

Thanks in advance for your thoughts since I am just kicking the tires at the moment.

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Hi dumaflotchie,

If you have access to Rule Breakers, I highly recommend going through all of the posts from Fletch (BlazerMania) on the BOFI board, as he’s answered all of your questions and more very thoroughly.

Here are my own very quick off-the-cuff opinions:

1)how are you justifying owning this stock at a price to book of 3.5…well above the industry average?

BOFI can generate more profit from its book than other banks, so it deserves a higher multiple. It’s also rapidly growing its book.

2) how do you feel the announced interest rate hikes will impact spreads and therefore profitability?

BOFI issues mostly short-term loans, and has also found that it has pricing power with regard to checking deposit interest rates. It also earns some fee income.

3) how many here actually use their bank for personal accounts and what is your experience?

BOFI has found that checking account users are loyal (much more loyal than CD buyers, which is one reason they no longer try to woo CD customers) and has discovered they have pricing power. To me that indicates that its customers must be happy.

4) what exactly is the barrier to entry (if any) that would hinder multiple competing internet based banks from entering this non-brick strategy?

I think there’s room for multiple winners here. Remember, too, that banking is about more than just collecting deposits: its also about loaning out those deposits, and doing so diligently and effectively to minimize defaults. BOFI has demonstrated its ability to do this very well IMHO.

Neil
Long BOFI

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Some might find this article of interest regarding the disruption occurring in standard banking relationships:

http://www.impactlab.net/2014/07/07/banking-with-startups-a-…

For investors and entrepreneurs, when looking for opportunity in the financial industry where technology can have the greatest impact, the best place to start has been with one of our oldest institutions: banks. However, while critical to our economy, banks are generally inefficient, have high fixed costs and don’t exactly elicit happy thoughts from the average consumer. It’s for these reasons, among others, that the biggest opportunities in the financial world revolve around the disintermediation of these banks and core financial services.

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