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This Banking Stock Is On Fire

By Greg Pugh on August 27, 2013

The thrifts and mortgage sector has been a solid performer, with a 30 percent return over the past year. However, I found a stock in the sector that has increased by more than six times this return.

BOFI Holding Inc
(NASDAQ: BOFI) reported record earnings for its fourth quarter and full fiscal year, as a result of growth in both the bank’s loan portfolio and its fee income businesses. This is the bank’s sixth straight quarter of record earnings. And there is even more growth ahead with a potential 40 percent upside.

BOFI Holding operates as the bank holding company for BofI Federal Bank that provides financial services to consumers through the Internet in the United States. The company’s deposit products include demand accounts, savings accounts, and time deposits.

BOFI Holding reported record financial results for the fourth quarter and the fiscal year ended June 30, 2013. Net income was a record $11.1 million, an increase of 30 percent over net income of $8.5 million for the quarter ended June 30, 2012.

Earnings attributable to BOFI Holding’s common stockholders were $11 million or $0.78 per diluted share for the fourth quarter of fiscal 2013, an increase of 35 percent from $8.1 million or $0.64 per diluted share for the fourth quarter of fiscal 2012.

Core earnings, which exclude the after-tax impact of gains and losses associated with the securities portfolio, increased 36.6 percent to $12 million for the quarter ended June 30, 2013 compared to $8.8 milion for the quarter ended June 30, 2012.

The commercial and industrial (C&I) lending business is generating a growing pipeline and is gaining significant traction in its target segments. The pipeline of accepted letter of intents in the C&I lending business as of July 25 was $120 million, an increase on the $84 million at the end of the fourth fiscal quarter with approximately $31 million of health care asset-backed transactions.

To put these loan pipeline numbers in context, they are significantly higher than they were on the December quarter and have even risen substantially since the end of the fiscal year. Multifamily’s pipeline was as low as $66 million in December of 2012. Within 6 months after some management and operational changes in the multifamily group, the pipeline has nearly doubled to over $129 million.

BOFI has also seen a robust increase in its single-family jumbo pipeline in the past month from $204 million on June 30, 2013, to the end of July with a pipeline of $266 million. This is the result of enhanced marketing and sales but also the result of its competitors adjusting loan rates higher to be more in line with the bank’s loan rates as a result of rising rates in the overall marketplace.

Shareholders have been rewarded: the stock price is up 194 percent in the past year, killing the S&P 500’s 18 percent return. The stock continues to exhibit strong momentum and is up 29 percent in the past month.

Moreover, BOFI is trading at a price-to-earnings (P/E) ratio of 23, which is significantly below the industry average for thrifts and mortgage banks.

First Call has fiscal year 2014 earnings increasing to $3.70 per share which is a 28 percent increase from the current year. Earnings are projected to grow 15 percent for fiscal year 2015. First Call has a buy recommendation with a 2.5 rating.

BOFI Holding has a 12-month price target of $92.50, an increase of 40 percent from its current trading price.

Greg Pugh, an income-investing expert, publishes a newsletter called Investing for Monthly Income.

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