Internet banking company BofI Holding Inc. (NASDAQ: BOFI) reported fiscal year 2017 earnings that showed excellent growth and profitability, and the stock jumped by 10% as a result. Here's a rundown of BofI's impressive year, as well as a news item that should allow the bank to grow even more in 2018.
Strong growth all around
BofI's impressive growth story continued in its fourth quarter (BofI's fiscal year ends in June), with 9.5% growth in both net income to $32.5 million and in earnings per share to $0.50. For the full year, net income and earnings per share both grew at an impressive 13% rate.
BofI now has a total of $8.5 billion in assets, which represents 11.9% year-over-year growth, fueled by 16% growth in the loan portfolio. Deposits grew by 14.2% for the year, and as a result of the growth, the bank's tangible book value increased by more than 21% for the year.
Net interest margin also grew, as would be expected given the rising-rate environment, to 3.80%. Excluding the company's partnership with H&R Block (more on that in a bit), the adjusted net interest margin was 3.89%, which is right in line with BofI's expectations.
Just as important as the growth is that it's occurring in the right way, without taking on too much risk. BofI's non-performing loans and leases represent just 0.38% of the total portfolio, which is an improvement over an already-impressive 0.50% from the 2016 fiscal year.
Profitability and efficiency is BofI's key advantage
Because it operates exclusively online, BofI doesn't have the overhead costs associated with brick-and-mortar banking operations. This allows the company to run a far more efficient operation than most peers, and also produces some impressive profitability metrics.
For fiscal year 2017, BofI operated at an efficiency ratio of 36.1% (lower is better, and 50%-70% is common among other banks), which is among the best in the industry. Furthermore, the bank's full-year return on assets (ROA) of 1.68% and return on equity (ROE) of 17.8% are much higher than the industry benchmarks of 1% and 10%, respectively.
Expanding a key partnership
In addition to all of the growth and profitability data, the other big news of the quarter was BofI's announcement that it is expanding its partnership with tax preparer H&R Block for 2018.
Under the new agreement, BofI will originate and fund all of H&R Block's Refund Advance loans during the 2018 tax season, which the bank estimates will generate about $8 million in pre-tax profit, about $3 million more than the partnership produced for BofI in 2017. In addition to the direct income from providing the loans, the partnership also opens up significant cross-selling opportunities from H&R Block customers.
The Foolish bottom line
BofI's earnings show that the bank is still growing at an impressive pace, and that there could still be a lot more room to grow in the years ahead. Keep in mind that even after the post-earnings bounce, BofI trades at an extremely reasonable multiple of just 13.3 times TTM earnings, which still looks like a compelling bargain, especially considering the bank's growth rate.
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