Business context and reporting period
This is BofI Holding, Inc.’s unaudited Form 10-Q for the quarter and six months ended December 31, 2015 (fiscal Q2 2016). The filing identifies the registrant as BofI Holding, Inc., not Axos Financial, Inc.; investors should verify the company and filing identity against the requested metadata. BofI operated BofI Federal Bank, a branchless bank offering consumer and business deposits and loans. The company completed a four-for-one stock split in November 2015; comparative share and per-share figures were restated.
Financial performance and condition
- Quarterly earnings: Net income was $28.1 million, up from $19.4 million year over year; diluted EPS was $0.44 versus $0.32. For the six months, net income was $53.7 million versus $37.2 million and diluted EPS was $0.84 versus $0.62.
- Net interest and margins: Quarterly net interest income rose 31.3% to $63.2 million; six-month net interest income rose 31.5% to $122.3 million. Net interest margin increased to 4.10% for the quarter from 3.85%, and to 4.07% for six months from 3.91%.
- Other income and costs: Quarterly non-interest income increased to $16.2 million from $6.7 million, while non-interest expense rose to $27.4 million from $18.9 million. Six-month figures were $26.0 million and $50.4 million, respectively. The quarterly increase in other income included higher banking service fees and gains on sales; compensation and operating costs also increased.
- Returns and efficiency: Six-month return on average assets was 1.73% versus 1.55%; return on average common equity was 18.55% versus 18.85%. The efficiency ratio improved to 33.96% from 34.67%.
- Balance sheet: Total assets were $6.66 billion at December 31, up 14.4% from June 30; net loans were $5.65 billion, deposits $5.20 billion, and stockholders’ equity $613.3 million. Cash and cash equivalents were $284.4 million.
- Credit quality: The allowance for loan losses was $35.1 million, or 0.61% of gross loans, versus $28.3 million and 0.53% at June 30. Non-performing loans were $26.5 million, or 0.46% of loans, down from $30.8 million and 0.62%. Management said the allowance was adequate but noted future provisions depend on ongoing risk assessments.
- Funding and liquidity: Borrowings totaled $798.2 million, mainly $758.0 million of FHLB advances. The company reported $1.73 billion of immediately available FHLB borrowing capacity, $35 million in unused unsecured federal funds lines, and $7.1 million available at the Federal Reserve discount window. Brokered deposits were $1.14 billion. Operating cash flow for the six months was $69.4 million; investing cash outflow was $784.5 million and financing cash inflow was $776.7 million.
- Capital: At December 31, the bank’s Tier 1 leverage ratio was 9.34%, common equity Tier 1 ratio 14.36%, and total capital ratio 15.20%. The filing states the company and bank met capital requirements and were “well capitalized.”
Material changes and notable items
- Loans grew 14.5% from June 30, primarily through originations; deposits rose 16.8%. The loan portfolio’s largest categories were single-family mortgages and multifamily real estate loans.
- The August 31 acquisition added approximately $419 million of H&R Block Bank deposits. Management attributed much of the growth in deposit accounts and certain service-fee income to H&R Block-branded products and services.
- Quarterly and six-month non-interest income benefited from gains on sale—other, including sales of correspondent loans and structured-settlement receivables. These items, along with securities gains and losses, make reported income less directly comparable to core lending performance.
- The company completed a $50 million gross at-the-market equity offering by December 31. It also authorized more common shares in connection with the stock split.
Outlook, risks, and contingencies
The filing provides no specific earnings or growth guidance. Management said it believed liquidity sources were stable and adequate for anticipated needs and that it could raise deposits and borrowings as needed. It cautioned that results may vary with economic conditions, interest rates, competition, and credit quality. Interest-rate sensitivity analyses showed modeled net interest income declines of 4.9% in the first 12 months under a 200-basis-point rate decrease and modeled market value of equity declines under both rising and falling rate scenarios; management cautioned that these models rely on assumptions and are not forecasts.
Two purported securities class actions and three shareholder derivative actions were disclosed, alleging securities-law violations and breaches of fiduciary duty related to allegations in a former employee lawsuit. The company and named defendants disputed the allegations and said they would vigorously defend the actions. The filing does not provide a clear estimate of potential losses. Valuation of certain securities and other assets relies on Level 3, unobservable inputs, including projected defaults, prepayments, loss severities, and discount rates. The filing also notes that $404.0 million of time deposits were due within one year and that replacement funding could cost more.
Important facts for investors to verify
- Confirm the issuer and filing: the supplied document is for BofI Holding, Inc., while the request names Axos Financial, Inc.
- Assess how much earnings growth came from recurring net interest income versus H&R Block-related fees, other asset-sale gains, and securities marks.
- Review deposit mix and retention, including brokered deposits, acquired H&R Block accounts, and near-term time-deposit maturities.
- Track loan growth, allowance adequacy, non-performing assets, and the performance of expanding commercial, warehouse, factoring, and consumer loan categories.
- Monitor the class and derivative litigation, related costs, and any subsequent disclosures of material outcomes or contingencies.
- Evaluate sensitivity to interest rates and assumptions underlying Level 3 asset valuations, alongside regulatory capital and liquidity capacity.