Business context and reporting period
The filing is a Form 10-Q for BofI Holding, Inc. and its subsidiary, BofI Federal Bank, for the quarter ended September 30, 2012 (the company’s fiscal first quarter). The request metadata names Axos Financial, Inc., but the filing identifies the registrant as BofI Holding, Inc.
The bank reported $2.6 billion of assets and approximately 40,000 customers. It originates and purchases residential and multifamily mortgage loans, offers consumer and business banking products, and funds lending in part through internet-based deposits.
Financial results and position
| Metric | Quarter ended September 30, 2012 | Prior comparable period or balance |
|---|---|---|
| Net interest income | $22.5 million | $18.2 million; up 23.7% year over year |
| Net interest margin | 3.70% | 3.65% |
| Net income | $9.0 million | $6.5 million |
| Net income attributable to common stockholders | $8.9 million; diluted EPS $0.67 | $6.4 million; diluted EPS $0.58 |
| Non-interest income / expense | $6.8 million / $11.5 million | $4.6 million / $9.6 million |
| Efficiency ratio | 39.43% | 41.99% |
| Operating / investing / financing cash flow | $(32.3) million / $(179.9) million / $220.1 million | Prior-year quarter: $65.8 million / $(186.2) million / $145.0 million |
| Total assets / net loans held for investment | $2.62 billion / $1.91 billion | June 30, 2012: $2.39 billion / $1.72 billion |
| Deposits / borrowings | $1.85 billion / $529.2 million | June 30, 2012: $1.62 billion / $547.2 million |
| Stockholders’ equity / cash and cash equivalents | $214.7 million / $43.3 million | June 30, 2012: $206.6 million / $35.4 million |
Return on average assets was 1.44% and return on average common equity was 18.46%. The bank reported regulatory capital ratios of 8.20% for Tier 1 leverage, 12.83% for Tier 1 risk-based capital, and 13.44% for total risk-based capital; it said it met capital requirements and was “well capitalized.”
Changes, outlook, risks and unusual items
- Year-over-year earnings growth reflected higher average earning assets and loan volumes, lower funding costs, and increased mortgage banking income. Average earning assets rose 22.0%; the average loan balance rose 32.8%. Lower asset yields partly offset growth: loan and securities yields declined 49 and 60 basis points, respectively.
- Mortgage banking income increased to $6.5 million from $4.8 million, as loans originated for sale rose to $254.8 million from $90.4 million. Compensation and stock-based compensation increased $1.7 million, with staffing rising to 261 from 189 full-time equivalents.
- Quarter-end non-performing loans were $20.8 million, or 1.07% of gross loans, versus $17.1 million, or 0.98%, at June 30. The increase included a rise in non-performing commercial loans from $0.4 million to $4.5 million. The allowance was $10.2 million, 0.53% of gross loans; quarterly provision was $2.6 million.
- Operating cash flow was negative, primarily because of originations of loans held for sale; deposit growth and other financing funded asset growth. Management said liquidity sources were adequate, citing $431.7 million of immediately available FHLB borrowing capacity, an additional $119.6 million available with more collateral, $20 million in unused unsecured federal funds lines, and $59.8 million available at the Federal Reserve discount window.
- Funding risks include $381.9 million in brokered deposits and $579.9 million of time deposits due within one year. Repurchase agreements totaling $120 million could be called on scheduled dates; $19 million of FHLB advances also included put provisions.
- Management’s interest-rate sensitivity analysis estimated market value of equity would decline 11.3% under an immediate 100-basis-point rate increase and 34.0% under a 300-basis-point increase. The filing cautions that these modeled estimates depend on assumptions and are not forecasts of actual results.
- Securities included significant Level 3 valuations. The company recognized $874,000 of impairment expense on securities and reported a $1.3 million after-tax unrealized securities loss in other comprehensive income. Management’s valuation models depend on assumptions about credit defaults, housing prices, unemployment, prepayments, and discount rates.
- On September 11, 2012, 20,132 Series B preferred shares converted into 1,246,571 common shares. Subsequent to quarter-end, the company sold $18.57 million of Series C convertible preferred stock. The Series C has preferential dividend and liquidation rights, conversion features, and redemption provisions.
- The filing gives no specific earnings or growth guidance. Management said future credit provisions would depend on ongoing risk assessments and warned economic uncertainty could increase charge-offs. It reported no material legal proceedings; disclosure controls were assessed as effective.
Key facts for investors to verify
- Confirm the issuer identity: this 2012 filing is for BofI Holding, Inc., while the request metadata names Axos Financial, Inc.
- Review the rise in non-performing loans, especially commercial exposure, and the allowance coverage of non-performing loans (48.96%, down from 69.98% a year earlier).
- Assess reliance on brokered deposits, near-term time-deposit maturities, and callable or puttable borrowings alongside the reported liquidity facilities.
- Examine the assumptions and sensitivities underlying Level 3 securities valuations and impairment estimates.
- Review the Series B conversion and subsequent Series C issuance for dilution, preferred claims, and restrictions affecting common-stock dividends or repurchases.
- Interpret negative operating cash flow in light of loan-sale originations and cash generated through deposits and borrowing, rather than as a standalone measure of earnings.