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CEO Has Extra Incentive to Keep BofI Federal Bank Profiting

Greg Garrabrants, CEO of BofI Federal Bank, is betting his company’s stock price will rise annually for the foreseeable future.

He recently signed a five-year contract with the bank, which he has led since 2007, increasing his salary from $375,000 to $700,000 annually and tying his annual grant of restricted stock units to the company’s market capitalization. Companies measure market cap by multiplying the number of shares held by investors by the price of a share.

Share price for La Jolla-based BofI Holding Inc., BofI’s parent company, closed at nearly $28 per share on July 31, the highest price since March of this year, rising 4.34 percent from market opening.

In comparison, a composite stock index, ABA Community Bank Nasdaq Index (ABAQ), rose about half a percentage point. The size of Garrabrants’ restricted stock grant, under the recently amended employment agreement, which went into effect June 30, will also be affected by how its stock performance measures up to that composite index.

BofI’s rising stock price follows the company’s earnings announcement on July 27, which revealed the La Jolla-based bank had earned $32.5 million in the three months ending June 30, the fourth quarter of the bank’s fiscal year 2017 — up 9.5 percent from the same quarter in 2016.

Earnings for the quarter that ended June 30 were 50 cents per share, compared with 46 cents per share at the end of the same quarter a year ago, the bank reported.

Net interest income for the fourth quarter was about $78.53 million, up 13.6 percent from the same three months in 2016, when it was $69.16 million. Net non-interest income fell from $17.02 million to $13.53 million in those three months, 20.5 percent lower than a year ago.

At the close of the market July 27, just ahead of the company’s earnings announcement for the fourth quarter of its fiscal year 2017, a share of BofI was priced at $24.89 per share. When the market closed July 31, it was $27.89, nearly 12 percent higher. The stock — the holding company trades on the Nasdaq as BOFI — last closed above $27 on March 30.

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BofI’s total assets topped $8.5 billion as of June 30, up 11.9 percent compared with the same date in 2016. Banks with at least $10 billion in assets are subject to a higher degree of governmental oversight than smaller-size institutions.

The bank is already in the midst of preparations ahead of its expected entrance into that next echelon of banks, readying to do a trial run of the stress test to which it will be subjected under the Dodd-Frank Act once it passes the $10 billion mark in total assets.

The bank’s chief financial officer, Andy Micheletti, said during the company’s July 27 earnings call that BofI has begun investing in additional personnel and software in anticipation of the transition.

The bank also made news on July 27 when it announced an expansion of its relationship with tax preparation services company H&R Block.

Last year, BofI and another bank were tapped by the tax prep firm to make loans to customers who wanted an advance on their refund. Together, the banks loaned about $700 million to H&R customers in the 2017 tax season. This season, BofI will provide refund advance loans exclusively. The bank said it expects to do at least the same amount of loans by itself as it did as a team of two providers; possibly more.

Doing as much as the two banks did together last season would generate BofI about $8 million in pretax profit, Garrabrants said during the July 27 earnings call, about $3 million more than it did without the exclusivity guarantee from H&R.

The deal could also bring in additional revenue for BofI through the other products it has previously partnered on with H&R, such as a refund transfer, which gives customers the option of paying their tax preparation fees out of their refund once it arrives, or a variety of disbursement options, such as getting their refund via prepaid card.

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The online bank — BofI has no brick-and-mortar branches in California though it recently opened an office in Las Vegas — reported record earnings of $134.7 million for its fiscal year 2017, which ended June 30, up 13 percent compared to the previous fiscal year.

The bank’s record earnings stemmed primarily from growth in its loan and lease portfolio and its fee income businesses, BofI said.

Deposits rose by $855.5 million, up 14.2 percent year over year.

Garrabrants said the bank remains open to growing through acquisition as well as organically, and that it is eyeing firms with expertise in generating branchless deposits and specialty lending nationwide.


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