Filing summary
Period and issuer: The supplied filing is BofI Holding, Inc.’s Form 10-K for the fiscal year ended June 30, 2015, filed August 26, 2015. This does not match the request metadata identifying Axos Financial, Inc. and “2014 Q4”; verify the intended issuer and period. Figures below are for BofI Holding and its subsidiary, BofI Federal Bank.
Business context
BofI operated a nationwide, branchless bank offering consumer and business deposits and lending, with fee businesses including mortgage banking, prepaid-card services, and factoring of structured-settlement and lottery-payment receivables. Its strategy emphasized growing loans and deposits through technology-enabled, lower-cost channels. At June 30, 2015, it reported $5.82 billion in assets.
Financial performance and condition
| Metric | FY 2015 / June 30, 2015 | FY 2014 / June 30, 2014 |
|---|---|---|
| Total assets | $5.824 billion | $4.403 billion |
| Gross loans held for investment | $5.001 billion | $3.593 billion |
| Deposits | $4.452 billion | $3.042 billion |
| Net interest income | $198.9 million | $137.1 million |
| Non-interest income | $30.6 million | $22.5 million |
| Provision for loan losses | $11.2 million | $5.4 million |
| Non-interest expense | $77.5 million | $59.9 million |
| Net income | $82.7 million | $56.0 million |
| Diluted earnings per share | $5.37 | $3.85 |
| Net interest margin | 3.92% | 3.95% |
| Efficiency ratio | 33.75% | 37.56% |
| Return on average assets / common equity | 1.61% / 18.34% | 1.59% / 17.89% |
Interest and dividend income increased 41.4% to $244.4 million, primarily on loan growth; average yield on interest-earning assets declined to 4.82% from 4.98%. Net income rose about 47.8%. The allowance for loan losses was $28.3 million, 0.57% of gross loans, versus $18.4 million, or 0.51%, a year earlier. Net charge-offs were 0.03% of average loans.
Cash and cash equivalents ended at $222.9 million, up from $155.6 million. Cash flow was $116.1 million from operating activities, negative $1.374 billion from investing activities, and positive $1.325 billion from financing activities, for a $67.3 million net increase in cash. The investing outflow primarily reflected loan originations net of repayments.
Reported borrowings totaled approximately $793.2 million: $753.0 million of Federal Home Loan Bank advances, $35.0 million under repurchase agreements, and $5.2 million of subordinated debentures. Stockholders’ equity was $533.5 million. The Bank’s regulatory capital ratios were 9.25% Tier 1 leverage, 14.58% common equity Tier 1, and 15.38% total capital; it was categorized as well-capitalized. The filing reported $1.585 billion of immediately available FHLB borrowing capacity, $35 million of unused federal-funds lines, and $8.7 million of available Federal Reserve borrowing capacity.
Material changes versus the prior year
- Assets grew 32.3%; net loans increased about $1.396 billion. Loan originations for investment rose to $3.272 billion from $2.298 billion.
- Deposits increased $1.410 billion, principally in demand and savings accounts; FHLB advances declined $157 million to $753 million.
- Net interest income increased $61.8 million. Growth in average earning assets more than offset lower average asset yields, while the average rate paid on interest-bearing liabilities fell to 1.03% from 1.17%.
- Mortgage banking income improved to $15.3 million from $10.2 million, with originations for sale rising to $1.049 billion from $741.5 million. Non-interest expense grew 29.3%, with staffing increasing to 467 from 366, mainly to support lending, business banking, and compliance.
- Non-performing assets rose to $32.1 million from $20.5 million; non-performing loans increased to $30.8 million from $20.4 million. The non-performing-loan ratio increased to 0.62% from 0.57%.
- Common equity issuance generated $76.0 million during FY 2015. The company completed a $50 million ATM offering and had sold $28.3 million under a subsequent $50 million ATM program by year-end.
Outlook, risks, and unusual items
- Management’s stated business-plan objectives were annualized return on average common equity of at least 15%, annual growth in average interest-earning assets of at least 15%, and an efficiency ratio of 35% or lower. These are objectives, not specific earnings guidance.
- The H&R Block Bank purchase-and-assumption transaction remained pending at the filing date. Regulatory approval had been received in August 2015; the transaction was subject to customary closing conditions and scheduled to close by September 30, 2015. The company projected approximately $450 million in customer deposits and prepaid-card balances, subject to change, and expected to provide branded financial products under a program agreement.
- Key risks include interest-rate sensitivity, competition for deposits and loans, rapid growth and integration demands, loan-loss estimation, and regulatory and consumer-compliance costs. Approximately 66.4% of the real-estate loan portfolio was in California. Management cautioned that newer business and commercial lending portfolios had limited seasoning and that non-performing loans could increase.
- The filing describes a negative cumulative repricing gap through one year. Its modeled market value of equity fell 27.8% under an immediate 300-basis-point rate increase; the filing cautions that such scenarios depend on assumptions and are not forecasts.
- Held-to-maturity securities had $12.7 million of gross unrecognized losses. FY 2015 included $2.4 million of securities impairment losses recognized in earnings and a $1.7 million one-time FHLB dividend, which management excluded in its non-GAAP adjusted-earnings reconciliation. Adjusted earnings were $82.9 million versus GAAP net income of $82.7 million; the company cautions that the non-GAAP measure should not be considered in isolation.
- The company reported no material pending legal proceedings. Management and the auditor reported effective internal control over financial reporting; the independent auditor issued an unqualified opinion on the financial statements.
Most important facts to verify
- Confirm that the intended filing is BofI Holding’s FY 2015 10-K, not an Axos Financial filing or a 2014 quarterly report.
- Review the increase in non-performing loans and the allowance’s adequacy as the loan book and newer C&I and specialty-finance portfolios expand.
- Assess California real-estate concentration and the sensitivity of earnings and equity value to rising rates, deposit repricing, and mortgage prepayments.
- Verify the final closing, deposit balance, economics, and operational obligations of the H&R Block transaction and related program-management agreement.
- Evaluate funding mix, including brokered deposits of $661.9 million, time-deposit maturities, FHLB collateral availability, and potential dilution from ATM share issuance.
- Review valuation assumptions and impairment exposure for non-agency mortgage securities, including the $12.7 million of held-to-maturity gross unrealized losses.