Filing summary
Period and entity: The supplied filing is a BofI Holding, Inc. Form 10-Q for the quarter ended March 31, 2013, covering the three and nine months ended on that date. This is not an Axos Financial, Inc. filing for 2012 Q3 as indicated in the request metadata. The company describes BofI Federal Bank as its wholly owned subsidiary; results are unaudited.
Business context
BofI was a diversified financial services company with approximately $3.0 billion in assets and about 40,000 customers. It originated and purchased mortgage and other loans and funded lending through deposits and borrowings, including online, affinity and wholesale deposit channels.
Key financial metrics
| Metric | Three months ended March 31, 2013 | Nine months ended March 31, 2013 | Comparable 2012 period |
|---|---|---|---|
| Net interest income | $26.2 million | $73.6 million | $20.3 million; $57.6 million |
| Provision for loan losses | $1.6 million | $6.1 million | $2.0 million; $6.0 million |
| Non-interest income | $6.8 million | $19.8 million | $3.9 million; $11.4 million |
| Non-interest expense | $13.9 million | $38.2 million | $9.2 million; $27.9 million |
| Net income | $10.4 million | $29.2 million | $7.7 million; $20.9 million |
| Net income attributable to common stock | $10.1 million | $28.4 million | $7.3 million; $20.0 million |
| Diluted EPS | $0.74 | $2.12 | $0.58; $1.68 |
| Net interest margin | 3.74% | 3.75% | 3.72%; 3.66% |
Unless otherwise indicated, figures in the 2012 column are for the matching three-month and nine-month periods, respectively.
- Balance sheet at March 31, 2013: Assets were $2.962 billion, up 24.1% from June 30, 2012. Net loans were $2.195 billion, up 27.6%; deposits were $2.103 billion, up 30.2%. Stockholders’ equity was $260.7 million, versus $206.6 million at June 30, 2012.
- Funding and debt: Period-end borrowings were $575.2 million, including $460.0 million of FHLB advances, $110.0 million of repurchase agreements and $5.2 million of subordinated debentures and other borrowings. Borrowings were 19.42% of assets. Total deposits included $411.7 million of brokered deposits.
- Credit quality: Non-performing loans were $19.1 million, or 0.86% of gross loans, compared with $17.1 million and 0.98% at June 30, 2012. Non-performing assets were $21.2 million, or 0.71% of assets. The allowance for loan losses was $12.3 million, 0.55% of gross loans.
- Cash flow, nine months: Operating activities used $13.0 million, investing activities used $420.5 million, and financing activities provided $541.5 million. Cash and cash equivalents ended at $143.5 million, up from $35.4 million at June 30, 2012.
- Capital and liquidity: BofI Federal Bank was reported as “well capitalized.” Its tier 1 leverage, tier 1 risk-based and total risk-based capital ratios were 8.64%, 14.10% and 14.78%, respectively. The company reported $385.6 million of immediately available FHLB capacity, another $303.5 million available with additional collateral, two unused $20 million federal funds lines and $31.5 million available at the Federal Reserve discount window.
Changes versus prior comparable periods
- Quarterly and nine-month net income increased year over year; management attributed higher net interest income primarily to growth in average earning assets and lower funding costs.
- Average earning assets increased 28.3% for the quarter and 24.6% for the nine months. Net interest margin rose 2 basis points and 9 basis points, respectively, despite lower yields on loans and investments; lower deposit and borrowing rates more than offset the asset-yield decline.
- Mortgage banking income increased to $5.4 million for the quarter and $17.4 million for nine months, alongside higher loan originations for sale. Non-interest income also reflected prepayment fees, service fees and securities-related gains and losses.
- Non-interest expense rose 51.5% for the quarter and 36.8% for the nine months, chiefly due to higher staffing and compensation, advertising, professional fees and other operating costs associated with growth.
- Gross loans expanded, notably single-family mortgage, warehouse, multifamily, factoring and commercial and industrial balances. Non-performing loans declined as a share of total loans, although their dollar balance and total non-performing assets increased from June 2012.
- Equity increased following net earnings, issuance of Series C preferred stock and common shares through the ATM program, partly offset by unrealized securities losses and preferred dividends. Series B preferred stock converted to common shares in September 2012; Series C converted after quarter-end in April 2013.
Outlook, risks and unusual items
- The filing provides no numerical earnings or revenue guidance. Management said it believed liquidity sources were stable and adequate for anticipated needs and contingencies, and expected to be able to attract deposits and increase funding as needed. It also noted that additional capital might be needed to support growth and maintain “well capitalized” status.
- Credit risk remains relevant as loan growth can require higher loss provisions, and management acknowledged that economic uncertainty could increase charge-offs. Non-performing assets rose in dollars, including two purchased commercial real estate loans; management also cited delayed foreclosures tied to servicing practices of a seller servicer.
- Time deposits totaling approximately $658.2 million were due within one year. If they do not renew, replacement funding could cost more. Repurchase agreements and some FHLB advances include near-term call or put features.
- Interest-rate modeling showed estimated net present value falling 27.4% under an immediate 300-basis-point rate increase and rising 9.2% under a 100-basis-point decrease. The filing cautions that these hypothetical estimates rely on assumptions and are not predictions of actual results.
- Some securities rely on Level 3 valuation models and significant management assumptions. Non-agency mortgage securities had substantial unrealized losses; the company recorded a $2.2 million net impairment loss in earnings for the nine months. Management stated that assumptions about defaults, loss severity, prepayments, housing prices and unemployment affect valuations.
- The company established a common-stock ATM program of up to $50 million and began sales in March. It reported no material legal proceedings and stated that disclosure controls were effective, while noting the inherent limits of internal controls.
Important facts for investors to verify
- Confirm the entity and period: the supplied text is BofI Holding’s March 31, 2013 quarterly filing, not an Axos 2012 Q3 filing.
- Reconcile ATM offering proceeds: the filing reports $6.765 million net proceeds in its financial statements and elsewhere, while its MD&A transaction table reports $7.050 million gross proceeds and $176,250 agent compensation for the 200,000 shares sold.
- Assess credit performance and reserve adequacy alongside rapid loan growth, changes in non-performing assets, charge-offs and the allowance for loan losses.
- Review funding concentration and refinancing exposure, including brokered deposits, deposits maturing within one year, and callable or putable borrowings.
- Evaluate the sensitivity of Level 3 securities valuations and the disclosed interest-rate scenarios to changes in management assumptions and market conditions.
- Consider rising operating costs and the extent to which mortgage banking income, securities results and other non-interest items contribute to reported earnings.