Filing summary
Period and entity: The filing is BofI Holding, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2012, its fiscal third quarter, and the nine months then ended. The filing identifies BofI Holding, Inc. and its subsidiary, BofI Federal Bank, as the registrants’ reporting entities; it does not identify the company as Axos Financial, Inc. The supplied metadata’s “2011 Q3” does not match the filing period.
Financial performance and condition
| Metric | Quarter ended March 31, 2012 | Year to date through March 31, 2012 |
|---|---|---|
| Net interest income | $20.3 million, versus $15.3 million | $57.6 million, versus $42.1 million |
| Provision for loan losses | $2.0 million, versus $1.2 million | $6.0 million, versus $4.4 million |
| Non-interest income | $3.9 million, versus $1.9 million | $11.4 million, versus $6.0 million |
| Non-interest expense | $9.2 million, versus $7.4 million | $27.9 million, versus $18.9 million |
| Net income | $7.7 million, versus $5.3 million | $20.9 million, versus $15.0 million |
| Diluted EPS | $0.58, versus $0.48 | $1.68, versus $1.37 |
| Net interest margin | 3.72%, versus 3.71% | 3.66%, unchanged |
- Assets were $2.278 billion at quarter-end, up 17.4% from June 30, 2011. Net loans held for investment were $1.596 billion, up 20.4%; deposits were $1.575 billion, up 17.5%.
- Quarterly return on average assets was 1.38%, compared with 1.25%; the efficiency ratio was 37.99%, compared with 43.12%.
- Cash and cash equivalents were $25.9 million. For the nine months, operating cash flow was negative $47.9 million, investing cash flow negative $245.1 million, and financing cash flow positive $309.8 million. Operating outflow reflected increased originations of loans held for sale.
- Total borrowings were $484.2 million, including $359.0 million of FHLB advances and $120.0 million in repurchase agreements. Borrowings were 21.25% of assets; their reported weighted-average cost was 2.22%.
- Stockholders’ equity was $203.2 million, or 8.92% of assets. The bank reported Tier 1 leverage of 8.42%, Tier 1 risk-based capital of 13.47%, and total risk-based capital of 14.05%; management said the bank was “well capitalized.”
Material changes and drivers
- Quarterly net interest income rose 32.7%, principally because average earning assets grew 32.7%, driven mainly by loan originations. Average loan balances rose 55.9%; lower asset yields were largely offset by reduced funding costs. The nine-month net interest margin remained 3.66%.
- Mortgage banking income rose to $4.4 million from $0.4 million in the quarter, as loans originated for sale increased to $179.4 million from $23.3 million. For the nine months, mortgage banking income increased by $8.6 million.
- Quarterly expenses increased $1.8 million, primarily from compensation, staffing and office expansion. The bank reported 209 full-time-equivalent employees, compared with 170 a year earlier; data processing and advertising costs also rose.
- The company issued $19.5 million of Series B convertible preferred stock and raised approximately $13.3 million net from a common-stock offering. The preferred stock is convertible and contributes to potential dilution.
- Year-to-date core earnings, a company-defined non-GAAP measure excluding after-tax realized and unrealized securities gains and losses, were $21.9 million versus $14.4 million. The measure is not a substitute for GAAP results.
Credit, risks, liquidity and outlook
- Nonperforming loans were $16.0 million, or 0.99% of gross loans, up from 0.72% at June 30, 2011. A $2.2 million multifamily loan was classified as nonperforming because borrower financial statements were stale, although the borrower was current; excluding it, the ratio was 0.86%. Nonperforming assets were $17.4 million, down from $19.2 million.
- The allowance for loan losses was $8.4 million, 0.52% of gross loans and 52.14% of nonperforming loans, compared with 0.61% and 64.93%, respectively, at June 30, 2011. Management considered the allowance adequate but said future provisions depend on credit conditions, loan growth, collateral values and losses.
- Non-agency mortgage-backed securities and other instruments rely in part on Level 3 valuation estimates. The company recorded $2.5 million of net securities impairment losses in earnings for the nine months. Management’s valuations depend on assumptions about defaults, unemployment, home prices, prepayments and discount rates.
- Liquidity sources included $349.8 million of immediately available FHLB borrowing capacity, an additional $181.4 million subject to additional collateral, a $107.2 million Federal Reserve discount-window capacity, and two $10 million unsecured bank lines with no outstanding borrowings. Brokered deposits totaled $259.8 million.
- Time deposits of $579.9 million were due within one year. Management expected a significant portion to remain but warned replacement funding could cost more. Repurchase agreements and some FHLB advances are callable or subject to put features.
- Interest-rate sensitivity modeling showed estimated net present value falling 11.0% under a 100-basis-point increase and 32.7% under a 300-basis-point increase; these are scenario estimates based on assumptions, not forecasts of actual results.
- The filing gives no specific earnings or growth guidance. Management said liquidity was adequate for anticipated needs, expected continued deposit and borrowing access, and noted uncertainty around the economy and potential future credit losses. It expected no further valuation charges on the identified current single-family REO properties and repossessed RV portfolio.
- Commitments included $100.9 million to originate loans and $94.8 million to sell loans. Management reported no material legal proceedings and said disclosure controls were effective.
Investor facts to verify
- Confirm the correct issuer and reporting period: this document is BofI Holding, Inc.’s quarter ended March 31, 2012, not a filing labeled 2011 Q3.
- Review whether the rapid growth in loans and loans held for sale is sustainable, and how mortgage banking gains and related cash-flow volatility develop.
- Track nonperforming loans, especially purchased single-family and multifamily exposures, the $2.2 million classification item, charge-offs and allowance coverage.
- Assess the valuation sensitivity and credit performance of non-agency securities, including Level 3 assumptions and impairment charges.
- Monitor deposit retention and pricing, brokered-deposit reliance, near-term maturities, callable funding, available collateral and interest-rate exposure.
- Consider preferred-stock conversion and equity issuance when assessing future common-share dilution and per-share performance.