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By: Nathaniel D’Amato, AIM student at
Marquette University
Disclosure: The AIM Equity
Fund currently holds this position. This article was written by myself, and it
expresses my own opinions. I am not receiving compensation for it and I have no
business relationship with any company whose stock is mentioned in this
article.
Summary
•
Bofi Holding, Inc. (NYSE:BOFI) is a bank holding company with
approximately $10 billion in assets, that operates through a completely online
platform that also offers loan financing services for residential properties
and small to medium sized businesses.
•
Efficient online platform allowing with branchless low-cost distribution
channels
•
Total assets have increased by approximately a billion year-over-year (YoY) since
the stock was added to the AIM portfolio in 2016
•
Exclusive lending partnership with H&R Block
•
Tax Act reducing limit on deductible mortgage debt to $750,000
Key points: Bofi Holding, Inc. stock has been a well
performing security in the AIM Small Cap portfolio, increasing its price by
over 100% since the purchase made in November of 2016.
Bofi
primary source of income comes from their loan products including mortgages for
single family and multifamily real properties as well as commercial and
industrial loans for small and medium sized businesses. Net interest income has
grown by an average of 25.6% year-over-year since 2016.
A
segment that has been negatively impacted by Tax Reform was BOFI’s jumbo
residential mortgage lending services. This is due to the new tax act reducing
the limit on deductible mortgage debt to $750,000. This reduction will make
this service less profitable as BOFI will incur more interest expenses.
Bofi did not participate in
much merger or acquisition activity in 2017 and has continued to sustain from
any activity through March of 2018. However, Bofi Holdings and H&R Block began an exclusive partnership in July of 2017 and a subsidiary
of the Bank acquired Epiq. Epiq provides
specialized software and consulting services to Chapter 7 and non-7 trustees
and fiduciaries.
The
deal with H&R Block holds Bofi exclusively responsible for their Refund
Advance loans, this unique service allows the borrower to receive their tax
refund in advanced. Epiq is a software and consulting service that is expected
to bring in depositors and additional fee generated income along with loans
originated for sale and transaction fees earned from processing payment activity.
What has the stock done
lately?
Since
the start of the 2018 BOFI’s stock price has increased substantially.
Increasing by approximately 33% since January - jumping from $30 a share to $40
a share. BOFI can expect to reach new heights as the price bounces around the
top of the recent 52 week price range of $21.60 - $43.50.
Past Year Performance: As of March 2018 total assets for BOFI are
$9.8 billion, growing by over a billion YoY. Net interest income grew by 20% in
2017 and continued this momentum into 2018 growing by 18.5% in the first quarter.
The increase in net interest income was driven by the 14% increase in total
deposits for the 2017 year.
Source: FactSet
My Takeaway
Bofi
Holdings, Inc. is well positioned for the near future with a rate rising
environment driving up their primary source of income with expanding net
interest margins combined with BOFI’s ability to rapidly grow their total
assets and loans will continue to drive the stock price higher. The use of
internet-based technology eliminates geographical boundaries from acquiring new
customers and will allow BOFI to continue to grow their depositors faster than
competitors that aren’t satisfying their customer’s technological needs.
