Disclosures

BofI Holding, Inc.

I, Joe Gladue , certify that this report reflects my personal beliefs about this company and that no portion of my compensation was, is or will be directly or indirectly related to the specific recommendations or views discussed in this report.

Disclosure

  • B. Riley & Co., LLC does and seeks to do business with companies covered in its research reports.
  • A portion of this analyst’s compensation is based on the sales, trading and investment banking activities of B. Riley & Co., LLC.
  • B. Riley & Co., LLC makes a market in the securities of the company covered in this report.
  • This company currently is, or within the past 12 months was, a client of B. Riley & Co., LLC. The services provided were Investment Banking Services.
  • B. Riley & Co., LLC, or any of its affiliates, has received compensation for investment banking services from this company in the past 12 months.
  • B. Riley & Co., LLC, or any of its affiliates, has managed or co-managed a public offering of securities for this company in the past 12 months.
Disclosure Chart

Ratings Distribution as of May 17, 2012 % with Investment Banking Relationships
Rating Number of Companies Percent of Total Rating Number of Companies Percent of Total
Buy 112 73.7% Buy 13 100.0%
Neutral 37 24.3% Neutral 0 0.0%
Sell 3 2.0% Sell 0 0.0%
Total 152 100% Total 13 100%

Explanation of B. Riley & Co. LLC's Rating System

  • Buy: We generally expect "Buy" rated stocks to materially outperform both the S&P 500 and Russell 2000 as well as other stocks in their sector. Further, we believe that the potential reward relative to the potential risk is particularly attractive.
  • Neutral: We generally believe "Neutral" rated stocks will perform roughly in line with the S&P 500 and Russell 2000 over the intermediate and long term.
  • Sell: We generally expect "Sell" rated stocks to materially underperform both the S&P 500 and Russell 2000 as well as other stocks in their sector. Further, we believe that the potential reward relative to the potential risk is particularly unattractive.

Risks and Considerations

  • Asset Quality - Areas in which the Company operates are suffering from the fallout of the subprime mortgage debacle with increasing delinquencies and foreclosures, higher unsold home inventories and declining sales prices. These problems are leading to troubles in residential construction loans and residential mortgages and they appear to be spreading to commercial real estate as well. While the Company is a conservative lender, the troubles are broadly based and likely to affect all lenders to some degree.
  • Further Potential Risks - See the Company's SEC filings, particularly its 10-K filing, for a discussion of further potential risks.

Additional Risks and Considerations

    • Interest Rates – Although a significant portion of BofI’s assets carry variable interest rates, the company’s balance sheet is liability-sensitive over a twelve month period. Should interest rates rise sharply at some point, BofI’s net interest margin would likely suffer noticeable compression.
    • Sustainability of Results – BofI’s unusual business model, strong asset quality and solid capital have put the thrift in a position to benefit from forced asset sales at other financial institutions. This has aided the company’s loan growth and net interest margin. In addition, the company has been able to utilize low-cost wholesale funding during this economic downturn that mitigates the company’s weakness in regards to core deposit funding. As the economy recovers, the company may find fewer such opportunities on both the asset and liability side and the pricing may be less favorable, resulting in slower earnings growth going forward.