Tweet
Whenever I go to Vegas, I always find a college football game I really like and make a wager on it that I like to call a “rubber band” bet. A “rubber band” bet means you take a wad of cash out of your pocket, wrapped in a rubber band, and throw it down at the betting window. You don’t care how much money is in the wad because you know in 3 hours you will get back double whatever it is. So goes the story of the “rubber band” game.
If we didn’t have banks, everyone would be walking around with wads of cash wrapped in rubber bands. However, now that think about it, that’s not such a bad thing. I mean why do we need banks anyway? Well…we need banks, but we really don’t need the actual buildings on the corner of North and Main St anymore. We can all access our accounts online and get our monies at any ATM all over the world.
I guess Piggy Banks don’t quite cut it anymore. But with the crap interest rate you get on your savings accounts you might as well keep you quatloops in a piggy bank. What about those buildings we call banks? They are roach motels. Look what happens in those joints:
The first banks were probably the religious temples of the ancient world, and were probably established sometime during the third millennium B.C. Banks probably predated the invention of money. Deposits initially consisted of grain and later other goods including cattle, agricultural implements, and eventually precious metals such as gold, in the form of easy-to-carry compressed plates. Temples and palaces were the safest places to store gold as they were constantly attended and well built. As sacred places, temples presented an extra deterrent to would-be thieves. There are extant records of loans from the 18th century BC in Babylon that were made by temple priests/monks to merchants. By the time of Hammurabi's Code, banking was well enough developed to justify the promulgation of laws governing banking operations.
We’ve come a long way baby. You don’t need bricks and mortar to be a bank. Twenty years ago, a customer had a handful of neighborhood banks to choose from to store his deposits. Today, that customer can choose a neighborhood bank, or can choose an online account from either on online bank like Everbank or Bank of Internet or from an online account offering from a large multiservice bank. As consumers become more accustomed to making financial transactions over the internet, online accounts will continue to gain increasing market share. Just set up shop online. Take deposits online and make loans online. Voila, you are a bank!
Today I bought Bank of Internet USA (BOFI) at $12.39 per share. I will sell it in 4 to 6 weeks at $14.38. Here’s why I like BOFI:
First of all look at this chart:
BOFI stock is up 218% over the low of the last 52 weeks. That’s some pretty serious price momentum. What is even more amazing is that its PE is only 8.8. The average PE’s for Savings and Loan banks is 16. That’s right, banks are BAA - AACK. But this bank never left. Bank of the Internet didn’t make any of those ridiculous toxic secondary mortgage delivery commercial bank loans that completely ruined the credit markets last year. Oh no no no. This bank does what a bank is supposed to do. It takes deposits. It makes small loans to needy retail customers and it collects a spread on the rates…just like they did in Babylon. Only this time, there are no toilets to clean, weeds to pull, parking lots to maintain and old coffee to throw out.
At Bank of Internet doesn’t think in terms of geography – they are your neighborhood bank wherever you are. Due to the fact that they don't have the overhead and high marketing costs associated with a branch network, they pass the savings on to the consumer. Bank of Internet constantly delivers financial solutions tailored to fit your needs and enhance your banking experience.
It offers a variety of consumer banking services, focusing primarily on gathering retail deposits over the Internet and originating and purchasing multifamily and single-family mortgage loans. Bank of Internet USA offers products through its websites at www.bankofinternet.com and www.ApartmentBank.com. Retail deposit products include certificates of deposit, online checking accounts with check images, bill payment, high interest savings accounts, ATM or Visa Check Cards, money market savings accounts, and ATM fee reimbursement anywhere in the world.
Look what happened to Amazon last Christmas…they had the biggest year ever. People are finally getting comfortable with the internet and learning how to do stuff. I just bought a coat on Ebay because my wife won’t wash my other coat. I bought it for 20 bucks! The internet is awesome.
Anyway, BOFI was not significantly impacted by the financial crisis and they were able to secure depressed mortgages during the crisis that actually had decent fundamentals. Just on those transactions alone, BOFI will improve their balance sheet, and valuation, tremendously. There was garbage all over the place, and BOFI was out there getting some steals. BOFI has one of the best-performing loan books of any bank in the entire country, due to conservative underwriting. BOFI has one of the lowest non-performing asset ratios in the entire industry. So I guess it does a lot of good to have a parking lot and a branch manager with a nice desk to lend out money to people who don’t pay you back.
There's really only one branch of Bank of Internet USA, but the bank is everywhere. One of the few banks in the country to be based entirely online, Bank of Internet USA doesn't have tellers or notaries to finish a home loan transaction. The method of banking might be a sign of what's to come everywhere. Think about it…when was the last time you actually WENT to a bank?
Bank of Internet USA, which opened on July 4, 2000, gets around much of the hardware of modern banking by essentially outsourcing. The bank reimburses customers up to $10 a month for fees incurred by using other banks' ATMs. If a customer takes out a home loan from Bank of Internet USA, the bank hires an appraiser to look at the house and a notary from a title company close to where the customer lives to finish the paperwork. Don’t make a face. You probably work for a company that outsourced its people. You know when you call the 800 number and someone named “Buster” picks up the phone and tries to use American slang but has a peculiar accent? That’s right. You just called the Phillipines.
Most banks have online components today, but they combine that with the classic banking practice of branches with tellers and other employees. The Internet model is cheaper. The company saves on salary, real estate and office space costs. Bank of Internet USA passes those savings on to the more than 21,000 customers who bank with the company in all 50 states.
Even though most people have e-mail addresses and a lot of people shopped online in the late '90s when the idea for Bank of Internet was coming together, BOFI faced a lot of skeptics. Today, those apprehensions have dissolved with the click of a mouse.
Bank of Internet USA is one of only three purely Internet-based, full-service banks in the country, the others being First Internet Bank of Indiana and Atlanta-based ebank. Those companies aren’t as good as BOFI as Bank of the Internet is on the leading edge of security, which is most customers biggest concern.
Great idea, no? Does it make money? YES!
On February 4, BOFI announced net income of $5,548,000 for its second quarter ended December 31, 2009 compared to net income of $2,761,000 for the three months ended December 31, 2008. Earnings available to the Company's common stockholders were $5,375,000, or $0.61 per diluted share for the current quarter compared to $2,588,000, or $0.30 per diluted share for the quarter ended December 31, 2008. For the six months ended December 31, 2009, net income totaled $9,256,000 compared to $944,000 for the six months ended December 31, 2008. Diluted earnings per share were $1.02 compared to $0.09 for the six months ended December 31, 2009 and 2008, respectively.
BofI's quarterly net income of $5,548,000 and its quarterly diluted earnings per share of $0.61 were new historic highs for the Company. Net income for the second quarter ended December 31, 2009 increased 100.9% compared to net income for last year's second quarter ended December 31, 2008. Net income for the six months ended December 31, 2009 increased $8,312,000 compared to the six months ended December 31, 2008.
The Company's total assets increased $43.1 million, or 3.3%, to $1,345.3 million, as of December 31, 2009, up from $1,302.2 million at June 30, 2009. The increase in total assets was primarily due to the purchases of additional loans and the origination of additional loans held for sale. Total liabilities increased $29.4 million, primarily due to an increase in deposits of $229.3 million, partially offset by a decrease of $199.0 million in borrowings from the Federal Home Loan Bank of San Francisco and the Federal Reserve Discount Window.
Second Quarter Highlights:
-- Net interest margin grew to 4.02% in the current quarter, 34.9% over
the second quarter last year.
-- Asset quality remains strong, with the principal balance of non-
performing loans equal to 0.90% of the loan portfolio, and total non-
performing assets equal to 0.93% of total assets at December 31, 2009.
-- Total assets reached $1,345.3 million at December 31, 2009, up 10.2%
compared to the second quarter last year.
-- Total deposits reached $877.8 million at December 31, 2009, up 38.8%
compared to the second quarter last year.
-- The efficiency ratio decreased to 28.6%, an improvement of 16.5%
compared to the second quarter last year.
BOFI’s profitability has been growing fast, and its valuation is very cheap given those historical trends. If these earnings trends are sustainable this is a cheap bank. Of course these earnings trends are sustainable. What is going to reduce them? If the PE multiple doesn’t rise from 8.8 to where it should be, the continued growth in book value will force up BOFI’s price just like trying to hold a beach ball under water…you can’t do it.
Deposits have been growing, up in each of the past 4 years at a CAGR of 16%. Last year, they grew 14%, and they surged 19% quarter-over-quarter for the most recent period. Online savings accounts, however, are a new phenomenon, and as customers become more comfortable managing their finances over the internet, depositors will increasingly shift funds from local banks to online accounts offering higher interest rates. BOFI has also embarked on initiatives to accelerate this trend, such as teaming up with independent financial advisers to provide attractive banking options to customers. These advisers want to avoid referring their customers to brick-and-mortar banks that have captive wealth management groups. The company’s main driver of profitability is its net interest margin. Over the past 8 quarters, its Net Interest Margin has steadily risen from 1.24% to 3.88%.
So what does this mean about where its stock price is gonna go? There’s not a lot of downside to this stock, especially with a PE ratio of 8.8. ANAL-ysts project earnings in the year ending June 2010 of $1.99/share. Well alright. Let’s take the ANAL-yst’s projection and multiply it by today’s PE of 8.8. That computes to a stock price of $17.51. If PE ratio expands to 12, you end up with a share price of around $24. This is all well past my target sale price. This is a growing business in a growing space that’s cheap cheap cheap. I love this stock.
Here’s what the boss had to say:
Greg Garrabrants, President and Chief Executive Officer: "While many institutions have been forced to raise capital through dilutive equity issuances, we have been able to increase our core capital ratios and grow our assets by $43.1 million this year without raising external capital. With our strong capital ratios and our profitable business model we should be able to attain a virtuous cycle of asset and earning growth. Additionally, we believe we can raise capital for specific tangible opportunities on terms we believe are attractive to our shareholders. We continue to execute on our two pronged strategy of taking advantage of current market opportunities to purchase attractively priced high-credit quality assets and investing in our franchise to grow our origination capability and prepare our infrastructure for further expansion. Our single family gain-on-sale mortgage banking operation continues to grow, not only in terms of increased volume and revenue, but also in terms of marketing and operational efficiency. Although there is still much more to do, we made significant progress investing in and improving our core capabilities as an institution this quarter."
Let me know what you think of this write up. If you end up jumping in and making some money on this stock pick, please remember Derek and Derek’s Dreams at www.dereksdreams.com
I am HUGE!!
$$$MR. MARKET$$$
If we didn’t have banks, everyone would be walking around with wads of cash wrapped in rubber bands. However, now that think about it, that’s not such a bad thing. I mean why do we need banks anyway? Well…we need banks, but we really don’t need the actual buildings on the corner of North and Main St anymore. We can all access our accounts online and get our monies at any ATM all over the world.
I guess Piggy Banks don’t quite cut it anymore. But with the crap interest rate you get on your savings accounts you might as well keep you quatloops in a piggy bank. What about those buildings we call banks? They are roach motels. Look what happens in those joints:
The first banks were probably the religious temples of the ancient world, and were probably established sometime during the third millennium B.C. Banks probably predated the invention of money. Deposits initially consisted of grain and later other goods including cattle, agricultural implements, and eventually precious metals such as gold, in the form of easy-to-carry compressed plates. Temples and palaces were the safest places to store gold as they were constantly attended and well built. As sacred places, temples presented an extra deterrent to would-be thieves. There are extant records of loans from the 18th century BC in Babylon that were made by temple priests/monks to merchants. By the time of Hammurabi's Code, banking was well enough developed to justify the promulgation of laws governing banking operations.
We’ve come a long way baby. You don’t need bricks and mortar to be a bank. Twenty years ago, a customer had a handful of neighborhood banks to choose from to store his deposits. Today, that customer can choose a neighborhood bank, or can choose an online account from either on online bank like Everbank or Bank of Internet or from an online account offering from a large multiservice bank. As consumers become more accustomed to making financial transactions over the internet, online accounts will continue to gain increasing market share. Just set up shop online. Take deposits online and make loans online. Voila, you are a bank!
Today I bought Bank of Internet USA (BOFI) at $12.39 per share. I will sell it in 4 to 6 weeks at $14.38. Here’s why I like BOFI:
First of all look at this chart:
BOFI stock is up 218% over the low of the last 52 weeks. That’s some pretty serious price momentum. What is even more amazing is that its PE is only 8.8. The average PE’s for Savings and Loan banks is 16. That’s right, banks are BAA - AACK. But this bank never left. Bank of the Internet didn’t make any of those ridiculous toxic secondary mortgage delivery commercial bank loans that completely ruined the credit markets last year. Oh no no no. This bank does what a bank is supposed to do. It takes deposits. It makes small loans to needy retail customers and it collects a spread on the rates…just like they did in Babylon. Only this time, there are no toilets to clean, weeds to pull, parking lots to maintain and old coffee to throw out.
At Bank of Internet doesn’t think in terms of geography – they are your neighborhood bank wherever you are. Due to the fact that they don't have the overhead and high marketing costs associated with a branch network, they pass the savings on to the consumer. Bank of Internet constantly delivers financial solutions tailored to fit your needs and enhance your banking experience.
It offers a variety of consumer banking services, focusing primarily on gathering retail deposits over the Internet and originating and purchasing multifamily and single-family mortgage loans. Bank of Internet USA offers products through its websites at www.bankofinternet.com and www.ApartmentBank.com. Retail deposit products include certificates of deposit, online checking accounts with check images, bill payment, high interest savings accounts, ATM or Visa Check Cards, money market savings accounts, and ATM fee reimbursement anywhere in the world.
Look what happened to Amazon last Christmas…they had the biggest year ever. People are finally getting comfortable with the internet and learning how to do stuff. I just bought a coat on Ebay because my wife won’t wash my other coat. I bought it for 20 bucks! The internet is awesome.
Anyway, BOFI was not significantly impacted by the financial crisis and they were able to secure depressed mortgages during the crisis that actually had decent fundamentals. Just on those transactions alone, BOFI will improve their balance sheet, and valuation, tremendously. There was garbage all over the place, and BOFI was out there getting some steals. BOFI has one of the best-performing loan books of any bank in the entire country, due to conservative underwriting. BOFI has one of the lowest non-performing asset ratios in the entire industry. So I guess it does a lot of good to have a parking lot and a branch manager with a nice desk to lend out money to people who don’t pay you back.
There's really only one branch of Bank of Internet USA, but the bank is everywhere. One of the few banks in the country to be based entirely online, Bank of Internet USA doesn't have tellers or notaries to finish a home loan transaction. The method of banking might be a sign of what's to come everywhere. Think about it…when was the last time you actually WENT to a bank?
Bank of Internet USA, which opened on July 4, 2000, gets around much of the hardware of modern banking by essentially outsourcing. The bank reimburses customers up to $10 a month for fees incurred by using other banks' ATMs. If a customer takes out a home loan from Bank of Internet USA, the bank hires an appraiser to look at the house and a notary from a title company close to where the customer lives to finish the paperwork. Don’t make a face. You probably work for a company that outsourced its people. You know when you call the 800 number and someone named “Buster” picks up the phone and tries to use American slang but has a peculiar accent? That’s right. You just called the Phillipines.
Most banks have online components today, but they combine that with the classic banking practice of branches with tellers and other employees. The Internet model is cheaper. The company saves on salary, real estate and office space costs. Bank of Internet USA passes those savings on to the more than 21,000 customers who bank with the company in all 50 states.
Even though most people have e-mail addresses and a lot of people shopped online in the late '90s when the idea for Bank of Internet was coming together, BOFI faced a lot of skeptics. Today, those apprehensions have dissolved with the click of a mouse.
Bank of Internet USA is one of only three purely Internet-based, full-service banks in the country, the others being First Internet Bank of Indiana and Atlanta-based ebank. Those companies aren’t as good as BOFI as Bank of the Internet is on the leading edge of security, which is most customers biggest concern.
Great idea, no? Does it make money? YES!
On February 4, BOFI announced net income of $5,548,000 for its second quarter ended December 31, 2009 compared to net income of $2,761,000 for the three months ended December 31, 2008. Earnings available to the Company's common stockholders were $5,375,000, or $0.61 per diluted share for the current quarter compared to $2,588,000, or $0.30 per diluted share for the quarter ended December 31, 2008. For the six months ended December 31, 2009, net income totaled $9,256,000 compared to $944,000 for the six months ended December 31, 2008. Diluted earnings per share were $1.02 compared to $0.09 for the six months ended December 31, 2009 and 2008, respectively.
BofI's quarterly net income of $5,548,000 and its quarterly diluted earnings per share of $0.61 were new historic highs for the Company. Net income for the second quarter ended December 31, 2009 increased 100.9% compared to net income for last year's second quarter ended December 31, 2008. Net income for the six months ended December 31, 2009 increased $8,312,000 compared to the six months ended December 31, 2008.
The Company's total assets increased $43.1 million, or 3.3%, to $1,345.3 million, as of December 31, 2009, up from $1,302.2 million at June 30, 2009. The increase in total assets was primarily due to the purchases of additional loans and the origination of additional loans held for sale. Total liabilities increased $29.4 million, primarily due to an increase in deposits of $229.3 million, partially offset by a decrease of $199.0 million in borrowings from the Federal Home Loan Bank of San Francisco and the Federal Reserve Discount Window.
Second Quarter Highlights:
-- Net interest margin grew to 4.02% in the current quarter, 34.9% over
the second quarter last year.
-- Asset quality remains strong, with the principal balance of non-
performing loans equal to 0.90% of the loan portfolio, and total non-
performing assets equal to 0.93% of total assets at December 31, 2009.
-- Total assets reached $1,345.3 million at December 31, 2009, up 10.2%
compared to the second quarter last year.
-- Total deposits reached $877.8 million at December 31, 2009, up 38.8%
compared to the second quarter last year.
-- The efficiency ratio decreased to 28.6%, an improvement of 16.5%
compared to the second quarter last year.
BOFI’s profitability has been growing fast, and its valuation is very cheap given those historical trends. If these earnings trends are sustainable this is a cheap bank. Of course these earnings trends are sustainable. What is going to reduce them? If the PE multiple doesn’t rise from 8.8 to where it should be, the continued growth in book value will force up BOFI’s price just like trying to hold a beach ball under water…you can’t do it.
Deposits have been growing, up in each of the past 4 years at a CAGR of 16%. Last year, they grew 14%, and they surged 19% quarter-over-quarter for the most recent period. Online savings accounts, however, are a new phenomenon, and as customers become more comfortable managing their finances over the internet, depositors will increasingly shift funds from local banks to online accounts offering higher interest rates. BOFI has also embarked on initiatives to accelerate this trend, such as teaming up with independent financial advisers to provide attractive banking options to customers. These advisers want to avoid referring their customers to brick-and-mortar banks that have captive wealth management groups. The company’s main driver of profitability is its net interest margin. Over the past 8 quarters, its Net Interest Margin has steadily risen from 1.24% to 3.88%.
So what does this mean about where its stock price is gonna go? There’s not a lot of downside to this stock, especially with a PE ratio of 8.8. ANAL-ysts project earnings in the year ending June 2010 of $1.99/share. Well alright. Let’s take the ANAL-yst’s projection and multiply it by today’s PE of 8.8. That computes to a stock price of $17.51. If PE ratio expands to 12, you end up with a share price of around $24. This is all well past my target sale price. This is a growing business in a growing space that’s cheap cheap cheap. I love this stock.
Here’s what the boss had to say:
Greg Garrabrants, President and Chief Executive Officer: "While many institutions have been forced to raise capital through dilutive equity issuances, we have been able to increase our core capital ratios and grow our assets by $43.1 million this year without raising external capital. With our strong capital ratios and our profitable business model we should be able to attain a virtuous cycle of asset and earning growth. Additionally, we believe we can raise capital for specific tangible opportunities on terms we believe are attractive to our shareholders. We continue to execute on our two pronged strategy of taking advantage of current market opportunities to purchase attractively priced high-credit quality assets and investing in our franchise to grow our origination capability and prepare our infrastructure for further expansion. Our single family gain-on-sale mortgage banking operation continues to grow, not only in terms of increased volume and revenue, but also in terms of marketing and operational efficiency. Although there is still much more to do, we made significant progress investing in and improving our core capabilities as an institution this quarter."
Let me know what you think of this write up. If you end up jumping in and making some money on this stock pick, please remember Derek and Derek’s Dreams at www.dereksdreams.com
I am HUGE!!
$$$MR. MARKET$$$
Comment