Convenience and favorable returns are starting to draw consumers and businesses toward BofI Holding (NASDAQ: BOFI). Is a consumer-driven shift toward this innovative, branchless bank around the corner?
BofI Holding's branchless existence enables it to achieve a low-cost structure. And these savings are being passed on to its depositors in the form of an attractive convenience and higher yielding accounts.
In fact, when looking at the benefits of BofI Holding's rewards checking account, it is actually hard to imagine what more it could offer to attract consumers -- besides a local branch.
But that is exactly the point: For BofI Holding, no branch is needed.
BofI Holding can also do without a costly network of ATMs because it pays other banks' ATM fees through its infrastructure savings. Far from a hindrance, this is a huge benefit to depositors, because it connects them to the largest possible nationwide network of ATMs.
Depositors also have the opportunity to earn up to 1.25% APY on their balances and pay no monthly fees -- period. They are also exempt from overdraft fees and do not have to carry a minimum monthly balance.
With all of these benefits of its entirely free rewards checking account, it is no wonder BofI Holding has had a year-over-year checking balance increase of 397%.
BofI Holding's low-cost structure also allows it to offer attractive interest rates for savings accounts. BofI Holding's high yield savings account, for example, has a 0.61% APY.
In comparison, Wells Fargo's (NYSE: WFC) high-yield savings account offers 0.03% APY and requires $25,000 to open. Bank of America (NYSE: BAC) offers a paltry 0.03% APY with a $20,000 balance. Yet with BofI Holding, savers can open an account with as little as $100 and enjoy a highly competitive interest rate.
These obviously favorable returns offered by BofI Holding definitely have the potential to draw consumers away from Wells Fargo and Bank of America.
Building a nationwide presence
Like Wells Fargo and Bank of America, BofI Holding has a vast, nationwide scope. But unlike them, its nationwide presence isn't on every (high-priced) street corner -- it's entirely on the Internet.
Despite being Internet-based, BofI Holding has been able to build a diversified deposit base highlighted by rapid business banking deposit growth.
Notably, BofI Holding's business banking deposits have increased almost ninefold since Q2 2013 from an account increase of of less than fourfold. Clearly, BofI Holding is attracting some larger business accounts with its convenience and favorable returns.
BofI Holding is also building a nationwide presence through its strategic partnerships. One of its most favorable partnerships is Costco's mortgage program.
Participation in Costco's program is an effective tool for BofI Holding because it increases awareness to a discerning audience that is always after favorable terms -- the Costco member. The Costco program also aids in maintaining BofI Holding's single-family residential loans -- currently the main source of BofI Holding's profits.
Shedding stereotypical features
Based on its loan portfolio structure, BofI Holding is currently a public thrift because of its heavy concentration of multi-family and single-family residential loans. But BofI Holding is starting to shed the stereotypical features of a thrift and is currently diversifying its loan portfolio to include commercial/industrial, or C&I.
In last quarter's earnings report, BofI Holding's CEO Gregory Garrabrants stated: "Our record earnings this quarter were the result of our efforts to expand organic loan growth and to diversify our lending through selected C&I loan types."
With this strategic movement toward C&I loan types, BofI Holding is clearly taking steps to move toward being a competitive national bank.
BofI Holding has the potential to be a nationwide player but its current asset size and loan portfolio currently puts it in the company of community banks and thrifts. Ultimately, BofI Holding will have to garner the trust of America's businesses and consumers to achieve asset growth. Convenience and favorable returns coupled with its nationwide presence, however, perfectly tee up BofI Holding for a rapid growth in assets. This is definitely one consumer-driven shift growth investors should keep an eye on.