Online banking might not be the cash cow that Bank of Internet (NASDAQ: BOFI) fans claim it is. A company with a very similar business model, EverBank Financial (NYSE: EVER) is experiencing serious revenue and net income drops.
EverBank is a Florida-based financial services company that hocks online checking accounts, CDs and savings accounts in much the same way as Bank of Internet or BOFI Holdings. The difference is that it is not a Motley Fool favorite, nor does it seem to have a legion of rabid shareholders mindlessly telling us what a bright future EverBank has.
What should concern BOFI and other bank investors is the way in which EverBank’s revenues have been dropping. EverBank reported $883.72 million in revenues in December 2015; that number increased slightly to $899.3 million in March 2016, then dropped to $843.07 million in June. More worrying is EverBank’s net income; which reached $130.53 million in December 2015, and $144.22 million in March before dropping to $124.21 million in June.
Why are BOFI’s Revenues Still Growing?
This sudden drop off indicates a decline in consumer banking business. One has to wonder is online banking really dropping off; or are customers finding a better deal elsewhere perhaps at credit unions or one of the big monster banks such as Wells Fargo (NYSE: WFC).
Strangely enough BOFI’s revenue grew during part of the same period rising from $272.19 million in December 2015 to $306.75 million in March 2016 to $327.35 in June 2016. One has to wonder if customers are not bouncing around from bank to bank in search of a better deal. BOFI and EverBank both try to lure customers with higher interest rates on products like CDs and savings accounts.
What we might be seeing here is churn as a certain sort of bank customer keeps moving his or her money around every few months in search of a better deal. If that is the case these online banks might be too unstable to serve as long term investments.
One thing is for certain they do not make that much money; BOFI reported a net income of just $119.26 million on June 30, 2016. That was up from $99.12 million in December 2015, but it’s nothing to write home about.
I have to wonder if the situation at BOFI is a lot like that at insurance companies such as Progressive (NYSE: PGR) where fast growth is the result of aggressive marketing and little else. One has to wonder if a stable banking business can be built on constant churn of depositors.
Are BOFI and EverBank Value Bargains?
Despite these problems many of you will probably be wonder if Bank of Internet and EverBank are value bargains. After all BOFI was trading at $16.82 a share on July 29, 2016, and EverBank was trading at $17.96 a share on the same day.
I would say no for a very simple reason; Bank of America (NYSE: BAC) was trading at $14.49 a share on the same day. The financial numbers below will tell you why BOA of is a bargain and Bank of Internet and EverBank are not. Here they are:
Bank of America earnings report for June 30, 2016:
- Revenues: $80.09 billion.
- Net Income: $14.57 billion.
- Profit Margin: 20.75%
- Free Cash Flow $10.84 billion.
- Total Assets: $2.187 trillion.
- Cash and Short-Term Investments: $178.76 billion
- Cash from financing $39.46 billion.
- Cash from Operations: $38.33 billion.
- Dividend Yield: 1.38%
- Return on Equity: 6.19%.
EverBank Financial Report for June 30, 2016.
- Revenues: $843.07 million.
- Net Income: $124.21 million.
- Profit Margin: 10.96%.
- Free Cash Flow: -$156.44 million.
- Total Assets: $27.35 billion.
- Cash and Short-Term Investments: $621.95 million.
- Cash from Financing: $3.141 billion.
- Cash from Operations: $460.74 million.
- Dividend Yield: 1.34%.
- Return on Equity: 7.33%.
BofI Holding Earnings Report for June 30, 2016:
- Revenues: $327.35 million.
- Net Income: $119.29 million.
- Profit Margin: 34.5%.
- Free Cash Flow: $105.05 million.
- Total Assets: $7.601 billion.
- Cash and Short-Term Investments: $486.63 million.
- Cash from Financing: $1.641 billion.
- Cash from Operations: $210.64 million.
- Dividend Yield: O%.
- Return on Equity: 19.64%.
These numbers from ycharts data show us that neither BOFI; nor EverBank is generating any float. BOFI is actually losing float, its cash and short-term investments fell from a high of $895.45 million in March to $486.63 million June. Cash from financing also fell from $2.049 billion in March to $1.641 billion in June.
Meanwhile Bank of America is generating a vast amount of float; which is why Warren Buffett is so interested in it. BOA is a bargain while BOFI and EverBank are dangerously close to junk stocks. They are generating cash flows worthy of a modest regional bank, yet they claim to operate on a national level.
If you are looking for a bargain in banking check out Bank of America and stay away from BOFI and EverBank, far, far away. My prediction is that both Bank of Internet and EverBank are heading for a fall into the single digit share value range real soon.
Disclosure: Your friendly neighborhood blogger owns a few shares of BAC, but avoids BOFI and EverBank like the plagues they are.