What happened
Shares of internet banking specialist BofI Holding Inc. (BOFI +1.09%) were down 8.3% as of 1:38 p.m. EDT on Wednesday, a slight improvement from the 11.1% drop in early trading. Today's big sell-off is a result of the company releasing its fiscal 2018 fourth-quarter earnings after market close yesterday and coming up a little short of Wall Street analyst estimates.
BofI reported 14% earnings growth in its fourth quarter, closing out a record fiscal year. Earnings per share were $0.58, up 16% from last year, but about $0.03 short of what Mr. Market was expecting. BofI also missed revenue estimates, with its reported $104 million short of the consensus target of $107.8 million.
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So what
BofI improved the results across most of its measurables. Total assets (before the recently announced Nationwide Bank acquisition) increased $12.2%, its loan and lease portfolio increased 14.3%, and deposits increased 14.7%. These strong metrics helped BofI increase net interest income 11%, and noninterest income 25.4%.
But there was some deterioration in a few key areas. BofI reported a net interest margin of 3.71% -- or 3.8% adjusted to exclude the cyclical impact of some short-term tax-season products. This was a reasonably strong result, but it was well below the full-year result of 4.11%, and at the very bottom of management's target range between 3.8% and 4%. Furthermore, CFO Andrew Micheletti reduced guidance for net interest margin to a low of 3.75% for the remainder of the calendar year.
Now what
BofI delivered a great quarter and a record 2018. And shareholders have been rewarded, with the stock price still up 36% over the past 12 months after today's sell-off. Since the start of 2018 alone, its stock price is still up nearly 25%. So there shouldn't be a big surprise that some investors -- maybe better-described as traders -- took profits after today's earnings, particularly with BofI missing analyst estimates.
But looking at the bigger picture, BofI not only delivered a record year, but also just closed a major acquisition that will lower its funding costs by about $25 million per year. On the earnings call, Micheletti said that BofI would have $1.8 billion in high-cost time deposits mature near year end, and will pay down $700 million in debt as a result of the Nationwide Bank acquisition. Considering that higher interest expense on its deposits has started to become an area of concern, this is a very positive development.
Add it all up, and today's price drop may be disappointing, but BofI continues to create value for its shareholders. Tangible book value increased 8.1% to $13.99 per share, the Nationwide Bank deposit acquisition looks on track to bring deposit costs down, and BofI's investments in growing its various lending lines continue to pay off. That seems likely to remain the case for long-term investors who ride out the daily ups and downs.
