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Bank of Internet Holding (ticker: BOFI) stock started trading today. The company priced its IPO in the middle of the range, selling 3,052,174 shares (plus an underwriter's option for an additional 457,826 shares) at $11.50 per share. The IPO was lead-underwritten by WR Hambrecht using an auction method. The stock is currently trading at about $11.40.

BofI's S-1 filing is a terrific primer on Internet banking. Here are some key stats about the company's business, plus excerpts from the S-1 that describe its growth and the issues facing the online banking business as interest rates rise:


Key stats for F2004 (ended 6/30/04):

  • Net income up 79% to $2.2 million.
  • Total assets up 67% to $405 million.
  • Total deposits up 72% to $270 million.
  • Net interest income up 78% to $6.53 million.
  • Interest rate spread 1.81%, up from 1.76%.
  • Efficiency ratio (non-interest expense as a % income) was 49.47%, slightly worse than previous year's 49.06%.
  • Return on average assets fell to 0.67% from 0.71%.

Recent stats:

  • Average account size by account type (6 months ending Dec 31st '04): demand $29,382; savings $89,490; term $174,763.
  • Spending on advertising for the six months ending 12/31/04 rose to $131,000 from $97,000 a year earlier.
  • Employees (end '04): 24 full time and 2 part time.
  • About 5.2 million fully diluted shares outstanding.

Excerpts from BofI's S-1:

How the bank grew

During our first two years of operation, we focused primarily on building our online franchise and deposit growth. We became profitable during the fiscal year ended June 30, 2002, as we grew sufficiently to generate enough net interest income to exceed our operating expenses. In our deposit gathering business, we initially sought time deposits because of their large average size and their relatively simple application and processing. This initial focus gave us time to develop our customer relationship management, or CRM software and manage workflow, as well as develop our online advertising strategy. The proceeds from our deposits were invested primarily in single family mortgage loans, which we purchased in pools with servicing retained by the sellers. The initial pool purchases and third-party servicing provided us the time to hire and train loan origination and servicing staff. In the last half of the fiscal year ended June 30, 2002, we began to shift our focus from purchasing single family mortgage loans to originating and purchasing multifamily mortgage loans. At June 30, 2002, we had 20 full time employees and $217.6 million in assets. For the fiscal year ended June 30, 2002, our net interest income, the primary component of our net income, was $3.5 million, which resulted in a net interest margin of 1.83% on average interest earning assets.

During the fiscal years ended June 30, 2003 and 2004, we developed and strengthened our online loan origination capabilities. We launched our single family loan origination website in March 2002. We originated single family mortgage loans for sale of $7.0 million for the fiscal year ended June 30, 2002, $124.7 million for the fiscal year ended June 30, 2003 and $76.6 million for the fiscal year ended June 30, 2004. We launched our multifamily loan origination website in December 2002. We originated multifamily mortgage loans of $30.0 million for the fiscal year ended June 30, 2002, $49.9 million for the fiscal year ended June 30, 2003 and $57.3 million for the fiscal year ended June 30, 2004.

At June 30, 2004, we had $405.0 million in assets, or $16.9 million in assets per full time equivalent employee. For the fiscal year ended June 30, 2004, our net interest income was $6.5 million which resulted in a net interest margin of 2.0% on average interest-earning assets. Our asset growth, the shift in our loan portfolio toward multifamily loans and the relative increase in demand and savings accounts, combined with the relatively slower growth in our operating expense as result of our Internet platform, are principally responsible for our increase in earnings from $1.0 million for the fiscal year ended June 30, 2002 to $1.7 million for the fiscal year ended June 30, 2003 and $2.2 million for the fiscal year ended June 30, 2004.

Internet-only banks versus multi-channel banks

We are an independent Internet-based bank, as distinguished
from the Internet banking services of an established “brick and mortar

Source: As BofI starts trading, investors hope rates don't rise too fast