Business context and reporting period
The filing is for BofI Holding, Inc. and its wholly owned BofI Federal Bank, a branchless financial services business offering consumer and business deposits, residential and commercial loans, and specialty finance products. It covers the three months ended September 30, 2014, BofI’s fiscal first quarter, and compares results with the three months ended September 30, 2013. The request names Axos Financial, Inc., but the filing itself identifies the registrant as BofI Holding, Inc.; verify the issuer and filing match.
Financial performance and condition
- Earnings: Net income was $17.8 million versus $12.2 million, up about 46%. Net income attributable to common shareholders was $17.8 million; diluted EPS was $1.20 versus $0.85.
- Income and margins: Interest and dividend income was $54.8 million versus $36.3 million; net interest income was $44.9 million versus $28.1 million. Net interest margin rose to 3.98% from 3.86%; interest rate spread was 3.85% versus 3.73%. Non-interest income was $5.2 million, down from $7.0 million. Non-interest expense rose to $17.4 million from $14.5 million. The efficiency ratio improved to 34.81% from 41.37%.
- Returns: Return on average assets was 1.56% versus 1.63%; return on average common equity was 18.61% versus 17.73%.
- Balance sheet: Assets were $4.82 billion at September 30, up from $4.40 billion at June 30, 2014. Net loans were $3.96 billion, up 12.1% during the quarter; deposits were $3.26 billion, up 7.2%. Stockholders’ equity was $412.1 million, versus $370.8 million.
- Credit: The loan-loss provision increased to $2.5 million from $0.5 million, primarily reflecting portfolio growth. The allowance was $20.5 million, or 0.51% of gross loans. Non-performing loans rose to $24.8 million, 0.62% of loans, from $20.4 million and 0.57% at June 30. Non-performing assets were $25.1 million, or 0.52% of assets.
- Cash flow and liquidity: Operating cash flow was $58.9 million; investing cash outflow was $412.5 million and financing cash inflow was $396.3 million. Cash and cash equivalents ended at $198.3 million, up $42.7 million during the quarter. The Bank reported $826.3 million of immediately available FHLB borrowing capacity, $35.0 million of unused unsecured federal funds lines, and $12.8 million available at the Federal Reserve discount window.
- Funding and capital: Borrowings totaled $1.12 billion, including $1.075 billion of FHLB advances; total borrowings were 23.1% of assets. Brokered deposits were $422.3 million. The Bank was reported well capitalized: Tier 1 leverage ratio 8.72%, Tier 1 risk-based ratio 14.75%, and total risk-based capital ratio 15.46%.
Material changes versus the prior comparable period
- Net interest income increased 59.6%, principally from loan growth and lower average funding costs; average earning assets grew 54.6%.
- Non-interest income declined by $1.7 million. Lower gains from structured-settlement sales and increased securities losses outweighed higher mortgage banking income and service fees.
- Non-interest expense increased by $2.9 million, including higher staffing, marketing, data-processing, and loan-production costs; staff increased 22.8% year over year to 393.
- Loan growth was funded by deposit growth and increased FHLB advances. Equity also increased through earnings and $20.6 million of common-stock issuance.
Outlook, risks, contingencies, and unusual items
- No earnings guidance was provided. Management said results for the quarter should not be taken as necessarily indicative of full-year results.
- The planned assumption of H&R Block Bank’s remaining deposits was subject to regulatory approval. The company did not expect approval during calendar 2014 and had increased short-term FHLB borrowing ahead of the anticipated $450 million to $550 million deposit inflow. Management said it had taken steps to extend some borrowing terms and diversify deposits; the filing described the resulting rate sensitivity as temporary.
- Interest-rate modeling showed net interest income down 4.91% in the first 12 months under an immediate 200-basis-point rate increase and down 13.70% in the following 12 months. These are modeled sensitivities, not forecasts, and rely on assumptions.
- The quarter included a $1.2 million securities impairment loss recognized in earnings. Significant valuation estimates for certain securities and other assets depend on unobservable inputs, including credit losses, prepayments, and discount rates.
- Management cited risks from economic and interest-rate changes, competition, credit quality, and loan portfolio growth. It believed the allowance was adequate but noted future provisions could rise. Certain repurchase agreements and FHLB advances have early call or put features.
- Off-balance-sheet commitments included $169.6 million to originate loans and $65.7 million to sell loans. Time deposits totaling about $308 million were due within one year. The company reported no material legal proceedings.
Important facts for investors to verify
- Confirm that BofI Holding, Inc. and the September 30, 2014 quarter are the intended issuer and period, given the Axos Financial metadata.
- Track the H&R Block Bank transaction’s regulatory approval, timing, deposit amount, and funding consequences.
- Assess whether loan growth, rising non-performing loans, and the allowance for loan losses remain consistent with credit performance and underwriting quality.
- Review reliance on FHLB advances and brokered deposits, near-term deposit maturities, and the modeled exposure to rising rates.
- Reconcile reported earnings with core earnings, which exclude securities gains and losses; core earnings were $18.5 million versus $12.0 million.
- Monitor use of the $50 million at-the-market equity program: $21.2 million of gross sales had been completed by September 30, with $28.8 million remaining.