Axos Financial, Inc. (then BofI Holding, Inc.) — Form 10-Q Summary
Reporting period: Fiscal first quarter, three months ended September 30, 2011. The filing reports unaudited consolidated results for BofI Holding, Inc. and BofI Federal Bank. Unless noted otherwise, dollar amounts are in millions.
Financial performance
| Metric | Quarter ended Sep. 30, 2011 | Quarter ended Sep. 30, 2010 |
|---|---|---|
| Interest and dividend income | $27.8 | $21.1 |
| Net interest income | $18.2 | $12.7 |
| Provision for loan losses | $2.4 | $1.6 |
| Non-interest income | $4.6 | $2.1 |
| Non-interest expense | $9.6 | $5.2 |
| Net income | $6.5 | $4.8 |
| Net income attributable to common stock | $6.4 | $4.8 |
| Basic / diluted EPS | $0.59 / $0.58 | $0.45 / $0.45 |
- Net interest margin increased to 3.65% from 3.55%; interest rate spread rose to 3.51% from 3.34%. The efficiency ratio worsened to 41.99% from 35.14%.
- Average earning assets grew 39.8%, driven mainly by loan originations. Lower funding costs partly offset lower loan and securities yields.
- Mortgage banking income rose substantially, reflecting higher gains on loan sales, including gains from loans transferred from investment to held-for-sale. Non-interest expense increased 83.7%, notably from higher staffing and costs related to foreclosed real estate and repossessed assets.
- Operating cash flow was $65.8, investing cash outflow was $186.2, and financing cash inflow was $145.0. Cash and cash equivalents increased $24.5 to $33.6.
Financial position, credit, and capital
- Total assets were $2,097.0 at September 30, up from $1,940.1 at June 30, 2011. Net loans held for investment were $1,443.9; deposits were $1,494.2, up $153.8 during the quarter.
- Borrowings included $130.0 under repurchase agreements, $287.0 of FHLB advances, and $5.2 of subordinated debentures and other borrowings. Total stockholders’ equity was $166.5.
- The allowance for loan losses was $8.0, or 0.55% of gross loans, versus $7.4, or 0.72%, at June 30. Nonperforming loans rose to $11.4 (0.79% of loans) from $9.6 (0.72%); nonperforming assets declined to $16.7 from $19.2.
- Management attributed increased nonperforming loans mainly to a newly troubled multifamily loan. The quarter included $1.6 of loan charge-offs and a $2.4 provision. Management considered the allowance adequate but cautioned that economic conditions could require future increases.
- The bank reported regulatory capital ratios of 8.08% Tier 1 leverage, 12.89% Tier 1 risk-based, and 13.50% total risk-based, and was classified as “well capitalized.”
- Management reported $211.2 of FHLB borrowing capacity immediately available, a further $278.8 subject to additional collateral, $112.8 available at the Federal Reserve discount window, and two unused $10.0 unsecured federal-funds lines.
Outlook, risks, and unusual items
- The filing provides no numerical earnings or revenue guidance. Management said it believed liquidity sources were adequate for anticipated needs and expected to be able to raise deposits or borrowings as needed.
- Time deposits of $678.0 mature within one year. The company cautioned that retaining these funds may depend on market rates and that replacement funding could cost more.
- Interest-rate exposure is material: the company’s modeled net present value fell 24.70% under an immediate 300-basis-point rate increase. Management cautioned that the model depends on assumptions and is not a forecast of actual results.
- Non-agency mortgage-backed securities and trading securities rely on significant Level 3 valuation assumptions. The filing reported $597 thousand of impairment losses recognized in earnings for securities during the quarter.
- The company issued $11.6 of Series B convertible preferred stock during the quarter. Additional preferred shares were issued after quarter-end, and the company expected to close a further offering in November 2011.
- Management reported effective disclosure controls, but also noted limited staffing, insufficient segregation of duties, and undocumented internal controls. No material legal proceedings were reported.
Important facts for investors to verify
- Confirm the reported common shares outstanding: the balance sheet states 10,185,953 at September 30, while the equity statement and selected financial data state 10,485,953.
- Reconcile brokered deposit disclosures: the deposit table reports $220.2 at September 30, while the liquidity discussion reports $230.4.
- Reconcile preferred dividends: the equity statement reports $126 thousand of dividends on preferred stock, while the cash-flow statement reports $78 thousand paid and the balance sheet notes $48 thousand declared but unpaid.
- Assess loan-credit trends, especially the rise in nonperforming loans, charge-offs, and the provision, alongside management’s allowance estimates and property valuations.
- Evaluate dependence on deposits—including brokered deposits and near-term maturities—and the sensitivity of Level 3 securities valuations and modeled capital value to economic and interest-rate assumptions.