It’s time to play the online banking revolution


BofIHoldings Inc. is the holding company of Bank of the Internet Federal Bank, a national Internet-based bank headquartered in San Diego, California. As of March 21, 2015, the bank held approximately $5.5 billion in assets. But BofI is not just the bank of the Internet, it is the bank of the future and one of the fastest growing banks in the country.

Unlike its traditional banking peers, BofIHoldings US:BOFI
does not depend on existing branch infrastructure, but builds its business model based on technology service and brand relationships. As a result, it achieved an ROE of 19%, which puts it in the top 95% percentile of all banks. Quite simply, the bank’s branchless business model is more profitable because its costs are significantly lower. There is only one branch and only 438 employees.

According to the American Bankers Association, Internet banking remains the preferred banking method for adults in the United States, with ATMs and mobile rapidly gaining ground.

BofI’s Internet model is complemented by several affinity programs and prepaid credit card programs. It also has a retail distribution agreement with Costco Wholesale COST,

BofI also markets under several different national brands that target specific consumer segments. The Company’s online banking brands include: BofI Federal Bank, BofI Advisor, UFB Direct, Bank of the Internet USA, NetBank and Bank X.

One of the bank’s fastest growing segments is corporate banking, where deposits grew significantly from $467 million in the first quarter of 2014 to $2.2 billion in the third quarter. 2015.

Year-over-year, the main source of overall growth in core deposits was in the areas of checking (+102%) and savings (+197%).

So what is driving all the growth in deposits from retail and business banking customers? Consumers are disappointed with traditional banks. The costs and fees associated with traditional banking services remain a major source of frustration. Technology has removed many of the old barriers to branchless banking through services such as remote deposit capture, top-up networks and enhanced ATM deposit capabilities. Additionally, mobile devices and smartphones have taken the convenience of online banking to new levels.

According to Accenture’s “Digital Disruption in Banking” study, millennials of adults aged 18-34 are the most willing to abandon their traditional banking relationship and move away from branches at 39 %, but an additional 29% of 35-55 year olds are also willing to move their main account to a branchless bank.

A whopping 85% of banking transactions in the United States now take place outside of the branch, with branch traffic continuing to decline by 4% per year for an overall decline of 51% over the past 16 years.

Based on BofI’s latest results released on April 30, it is successfully capitalizing on the online banking revolution. The company beat earnings expectations by $0.07 on the back of strong loan growth, continued efficiency improvements and stable net interest margins. The quarter marked the 12th consecutive quarter of record profits for the bank. And in the expectation, given a near-record lending pipeline, the continued expansion of its deposit base, and the impending acquisition of HRB from H&R Block,
bank, its prospects for future growth appear solid.

So let’s take a closer look using our Best Stock’s Now analysis.

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BofI Holdings is a small cap bank stock with a market capitalization of $1.6 billion. Its risk profile is aggressive and I am long on the title of my aggressive growth accounts.

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The stock’s valuation is high compared to other bank stocks. It has a back P/E of 20 and a forward P/E of 16. That’s expensive for a bank, but not relative to the overall market. Also, you can argue that the stock’s premium valuation is warranted given its superior growth indicators. Still, the stock receives a value rating of “D+.”

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BofI’s price performance is also not like that of a bank stock. The stock has generated returns of almost 41% over the past year, and year-to-date it is up 36%. As a result, it gets a momentum rating of “A” and a performance rating of “A+”.

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BofI stock is currently ranked 72nd out of over 4,100 stocks in the Best Stocks Now universe. Its overall rating is “A-“, making it a buy.

After its strong April results, BofI experienced a nice technical break, trending towards a new 52-week high.

BofI is a powerful way to play the age-old shift to online banking. Its online-only business model offers structural cost advantages over the traditional bank branch model and offers superior growth and ROE metrics compared to traditional banks. As one of the pioneers of online banking, BofI is not your average banking stock, it is the bank of the future.

Disclosure: Gunderson is long BOFL.

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