“It’s only a flesh wound!”
BOFI has chosen some might strange bedfellows. Ever heard of On Deck Lending? Seen its stock or news lately?
(Recent On Deck take from Motley Fool)
(On Deck chart & scads of news links)
Why does this matter to BOFI?
A Seeking Alpha writer finds some very bad news in On Deck’s (ONDK) latest 10Q telling us how BOFI’s very profitable relationship with On Deck Lending will end this July 2016 and not be renewed.
So BOFI will no longer do business with the scuzzballs at ONDK, how can that hurt BOFI shareholders?
I have already speculated that this arrangement would likely attract regulatory scrutiny–a conclusion that was validated by California’s subsequent publicly announced “state inquiry” into so called marketplace lenders, including OnDeck. Interviewing officials, American Banker reported several weeks ago that the state is “more concerned about marketplace lenders that provide credit to small businesses” and “the lack of borrower protections for small businesses under federal law”. Because BOFI has used government guaranteed deposits to originate hundreds of small business loans that, in my opinion are misleading and predatory, the regulatory risks remain particulary acute.
Over the past two years, the OnDeck/BOFI “rent-a-charter” scheme has been a material contributor to BOFI’s reported earnings and loan origination growth. OnDeck has stated that BOFI constituted just under 13% of its $1.8 Billion in 2015 loan originations. As a result, simple math dictates that OnDeck likely accounts for roughly a third of BOFI’s calendar year 2015 C&I loan production:
Total BOFI CY 2015 “C&I” originations $745 Million
Estimated BOFI CY 2015 ONDK production $231 Million
Estimated ONDK Portion of BOFI’s C&I originations 31%
During the most recent quarter, BOFI’s sell side zealots cheered as C&I loan origination volumes surged to a reported $331 million. However, the ostrich-like analysts likely missed a very important detail contained in the 10-K OnDeck filed weeks prior; the BOFI/ONDK contract will expire in July and will “not be renewed”.