Business context and reporting period
The supplied filing is BofI Holding, Inc.’s unaudited Form 10-Q for the quarter and nine months ended March 31, 2016—not an Axos Financial filing for 2015 Q3 as indicated in the request metadata. BofI was the holding company for BofI Federal Bank, a branchless financial services business serving consumer and business customers nationwide.
Financial performance
Amounts below are in millions of dollars unless stated otherwise; comparisons are with the same 2015 period.
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Net interest income | $69.6, up 37.3% | $191.9, up 33.6% |
| Provision for loan and lease losses | $2.0, versus $2.9 | $7.8, versus $8.3 |
| Non-interest income | $23.3, versus $8.4 | $49.3, versus $20.3 |
| Non-interest expense | $29.4, versus $20.3 | $79.8, versus $56.7 |
| Net income | $35.9, versus $21.1 | $89.6, versus $58.3 |
| Diluted earnings per share | $0.56, versus $0.34 | $1.39, versus $0.95 |
| Net interest margin | 3.85%, unchanged | 3.97%, up 7 basis points |
| Efficiency ratio | 31.66%, versus 34.46% | 33.08%, versus 34.60% |
For the nine months, operating cash flow was $103.2 million, investing cash outflow was $1,206.2 million, and financing cash inflow was $1,775.7 million. Cash and cash equivalents ended at $895.6 million.
Financial position and material changes
- At March 31, 2016, total assets were $7.71 billion, up 32.3% from June 30, 2015. Net loans and leases were $6.03 billion, up 22.4%; gross loans and leases were $6.10 billion.
- Deposits were $6.05 billion, up 35.9% from June 30, 2015. Non-interest-bearing deposits were $913.6 million. Brokered deposits totaled $781.6 million.
- Total borrowings were $949.2 million, including $858.0 million in FHLB advances and $56.2 million in subordinated notes and debentures. In March, the company issued $51 million of 6.25% subordinated notes due 2026.
- Stockholders’ equity was $653.3 million; equity to assets was 8.48%. The company and bank reported capital ratios above applicable “well capitalized” thresholds.
- Non-performing loans and leases were $24.0 million, or 0.39% of gross loans and leases, down from $30.8 million, or 0.62%, at June 30, 2015. The allowance was $36.9 million, 0.61% of gross loans and leases.
- On March 31, the Bank agreed to acquire approximately $140 million of equipment leases from Pacific Western Equipment Finance. It also acquired approximately $419 million of H&R Block Bank deposits in August 2015 and began providing H&R Block-branded financial services.
- A four-for-one stock split was completed in November 2015; prior share and per-share data were restated. A $100 million share repurchase authorization was approved in March 2016; no shares were repurchased under it during the quarter.
Management commentary, outlook and risks
Management attributed net interest income growth mainly to loan and lease portfolio expansion and higher loan yields. Fee income increased substantially with H&R Block-branded products, while expenses rose with staffing, technology investment, customer growth and H&R Block program volumes. Management stated that H&R Block-related fee income and expenses are seasonal, typically peaking in the fiscal third quarter, and that results for the three and nine months ended March 31 are not indicative of full-year results. The filing provides no specific earnings or financial guidance.
Management considered the allowance adequate but noted future provisions depend on ongoing credit-risk assessment and could rise. Interest-rate sensitivity analysis estimated first-12-month net interest income would increase 7.8% under an immediate 200-basis-point rate increase and decline 4.3% under a 200-basis-point decrease; these are model estimates based on assumptions, not forecasts.
The company and certain executives faced a consolidated putative securities class action and five shareholder derivative actions related to allegations concerning disclosures, internal controls and financial statements. The company disputed the allegations and said it was vigorously defending the cases; an unfavorable outcome could materially affect results, cash flows or financial condition. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the issuer and reporting period: the supplied document is BofI Holding’s March 31, 2016 Form 10-Q, despite the Axos Financial/2015 Q3 metadata.
- Assess the sustainability of H&R Block-related fees and the effect of their seasonality on revenue, expenses and deposits.
- Review deposit composition, including brokered deposits, deposit maturities and the company’s reliance on FHLB advances and other borrowings.
- Track loan growth, credit quality, allowance adequacy and acquired equipment-lease performance.
- Monitor the securities and litigation matters, potential costs or outcomes, and the terms and use of the $100 million repurchase authorization.