1 Company Crushing the Competition

Bofl Holding (NASDAQ: BOFI  ) has experienced a great run since the beginning of 2009, up from $4.70 per share to nearly $80 per share at the time of writing. That significant increase could surprise and interest many investors around the world. However, some investors might feel scared that Bofl Holding is too richly valued already. Let's take a closer look to see whether or not Bofl Holding is a good buy now.

Efficient, conservative and profitable performance
Bofl Holding is the holding company for Bofl Federal Bank and has more than $3 billion in assets and provides banking products to both consumers and businesses. Its loan portfolio skews toward real estate loan, especially mortgage and multifamily real estate.

In 2013, its mortgage loan book was more than $1 billion, accounting for 46.5% of the total loan portfolio while the commercial real estate loan represented 33% of the total loan portfolio.

Bofl Holding focuses its lending activities in California state, which makes up more than 58% of the total portfolio. The company seems to be quite conservative with its lending practices, with a reasonable weighted average loan-to-value ratio (LTV) of nearly 54%. 

In terms of deposit-generation, 50% of its total deposits are time deposits, whereas savings deposit rank second, at $641.5 million in fiscal 2013. The time deposits are the most expensive type of deposit, but they only costs the company an average rate at 1.50%.  Because of the low-cost funding, Bofl Holding has quite a decent net interest margin. In the past five years, the company has managed to keep its net interest margin above 3%. In 2013, its net interest margin reached 3.79%. 

Compared to its peers, including U.S. Bancorp (NYSE: USB  ) and Wells Fargo (NYSE: WFC  ) , Bofl Holding has much more exciting financial ratios. 

%

Bofl Holding

U.S. Bancorp

Wells Fargo

ROE

17.7

15.8

14.1

Efficiency Ratio

41.4

51.5

58.5

Net Interest Margin

3.79

3.58

3.76

Source: Banks' 10-K filings.

Although U.S. Bancorp and Wells Fargo are generally considered to have the best financial ratios in the banking industry, Bofl Holding still beat those two banking leaders in all three of these important ratios. It has the highest return on average equity, lowest efficiency ratio and highest net interest margin.

But no dividend and high valuation
However, what might make investors hesitate before investing in Bofl could be its relatively high valuation and lack of dividend payment. U.S. Bancorp offers investors a decent dividend yield at 2.40% on a quite conservative payout ratio at 28%. Wells Fargo is the most attractive dividend payer, with a 2.70% dividend yield and a payout ratio of only 27%. 

Both U.S. Bancorp and Wells Fargo also returned cash to investors via share repurchases. In the third quarter, U.S. Bancorp reported that it has returned 77% of its earnings to shareholders by paying a quarterly dividend of $0.23 per share and repurchasing 17 million shares. 

Wells Fargo also uses share buybacks to return cash to its shareholders. In 2012, it completed a $4 billion share buyback. The company expected the total share repurchase in 2013 would be higher than fiscal 2012. If Wells Fargo kept the same share buyback value it did in 2012, investors could receive an additional yield at 1.72%. 

Bofl Holding has the highest valuation, at nearly 4 times its book value. Wells Fargo and U.S. Bancorp have much lower valuations, at only 1.5 and 2, respectively.

My Foolish take
The operating performance of Bofl Holding is impressive. In the future, Bofl Holding could continue to grow sustainably with its conservative and profitable banking practices. However, it is currently valued quite expensively, much higher than its banking industry leaders. Despite its growing operating performance, waiting for a cheaper price may be the best option.


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