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| BOFI > SEC Filings for BOFI > Form 10-Q on 6-May-2009 | All Recent SEC Filings |
6-May-2009
Quarterly Report
The following discussion provides information about the results of operations, financial condition, liquidity, off balance sheet items, contractual obligations and capital resources of BofI Holding, Inc. and subsidiary. This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results ofour operations. This discussion and analysis should be read in conjunction with our financial information in our Annual Report on Form 10-K and the interim unaudited condensed consolidated financial statements and notes thereto contained in this report.
Some matters discussed in this report may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as such, may involve risks and uncertainties. These forward-looking statements can be identified by the use of terminology such as "estimate," "project," "anticipate," "expect," "intends," "believe," "will," or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. These forward-looking statements relate to, among other things, expectations of the environment in which the Company operates and projections of future performance. Forward-looking statements are inherently unreliable and actual results may vary. Factors that could cause actual results to differ from these forward-looking statements include economic conditions, changes in the interest rate environment, changes in the competitive marketplace, risks associated with credit quality and other risk factors summarized in Part II, Item 1A under the heading "Risk Factors" in this report, and discussed in greater detail under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations - Factors That May Affect Our Performance" in our Annual Report on Form 10-K for the year ended June 30, 2008, which has been filed with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All written and oral forward-looking statements made in connection with this report, which are attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing information.
General
Our company, BofI Holding, Inc., is the holding company for Bank of Internet USA, a consumer-focused, nationwide savings bank operating primarily over the Internet. We offer loans and deposits in all 50 states to our customers directly through our websites, including www.BankofInternet.com, www.BofI.com, and www.Apartmentbank.com. We are a unitary savings and loan holding company and, along with Bank of Internet USA, are subject to primary federal regulation by the Office of Thrift Supervision, or "OTS".
Using online applications on our websites, our customers apply for deposit products, including time deposits, interest-bearing demand accounts (including interest-bearing checking accounts) and savings accounts (including money market savings accounts). We originate small- to medium-size multifamily and single-family mortgage loans and secured consumer loans, primarily home equity and vehicle loans. More recently, we increased our efforts to purchase single family and multifamily loans. We also purchase mortgage-backed securities. We manage our cash and cash equivalents based upon our need for liquidity, and we seek to minimize the assets we hold as cash and cash equivalents by investing our excess liquidity in higher yielding assets such as mortgage loans or mortgage-backed securities.
Critical Accounting Policies
Our consolidated financial statements and the notes thereto, have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various factors and circumstances. We believe that our estimates and assumptions are reasonable under the circumstances. However, actual results may differ significantly from these estimates and assumptions that could have a material effect on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods.
Our significant accounting policies and practices are described in greater detail in Note 1 to our June 30, 2008 audited consolidated financial statements and under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Selected Financial Data
The following tables set forth certain selected financial data concerning the periods indicated:
BofI HOLDING, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Dollars in thousands, except per share data)
March 31, June 30, March 31,
2009 2008 2008
Selected Balance Sheet Data:
Total Assets $ 1,249,189 $ 1,194,245 $ 1,110,104
Loans-net of allowance for loan losses 627,472 631,413 599,198
Allowance for loan losses 3,956 2,710 2,067
Investment securities 562,067 510,014 462,076
Total deposits 693,983 570,704 590,042
Securities sold under agreements to repurchase 130,000 130,000 130,000
Advances from the FHLB 310,980 398,966 302,448
Federal Reserve Discount Window and other borrowings 25,155 5,155 5,155
Total Stockholders' equity 85,153 83,082 76,940
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BofI HOLDING, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Dollars in thousands, except per share data)
At or for the Three Months At or for the Nine Months
Ended March 31, Ended March 31,
2009 2008 2009 2008
Selected Income Statement Data:
Interest and dividend income $ 18,541 $ 16,174 $ 57,225 $ 44,767
Interest expense 10,066 11,513 32,169 33,714
Net interest income 8,475 4,661 25,056 11,053
Provision for loan losses 1,200 835 2,830 1,104
Net interest income after provision
for loan losses 7,275 3,826 22,226 9,949
Non-interest income (loss) 300 1,023 (7,610 ) 1,804
Non-interest expense 3,190 3,138 8,675 7,698
Income before income tax expense 4,385 1,711 5,941 4,055
Income tax expense 1,791 693 2,403 1,639
Net income $ 2,594 $ 1,018 $ 3,538 $ 2,416
Net income attributable to common
stock $ 2,421 $ 940 $ 3,021 $ 2,184
Per Share Data:
Net income:
Basic $ 0.30 $ 0.11 $ 0.37 $ 0.26
Diluted $ 0.30 $ 0.11 $ 0.37 $ 0.26
Book value per common share $ 9.37 $ 8.67 $ 9.37 $ 8.67
Tangible book value per common share $ 9.37 $ 8.67 $ 9.37 $ 8.67
Weighted average number of shares
outstanding:
Basic 8,028,785 8,274,065 8,163,940 8,258,763
Diluted 8,063,107 8,376,032 8,218,843 8,374,990
Common shares outstanding at end of
period 8,035,997 8,287,590 8,035,997 8,287,590
Common shares issued at end of period 8,642,723 8,607,090 8,642,723 8,607,090
Performance Ratios and Other Data:
Loan originations $ 3,590 $ 8,873 $ 31,432 $ 58,603
Loan originations for sale 33,376 - 40,102 516
Loan purchases 2,237 110,416 51,862 141,018
Return on average assets 0.85 % 0.38 % 0.39 % 0.31 %
Return on average stockholders'
equity 13.18 % 5.10 % 5.61 % 4.10 %
Interest rate spread1 2.61 % 1.44 % 2.59 % 1.13 %
Net interest margin2 2.82 % 1.76 % 2.83 % 1.45 %
Efficiency ratio3 36.35 % 55.20 % 49.72 % 59.90 %
Capital Ratios:
Equity to assets at end of period 6.82 % 6.93 % 6.82 % 6.93 %
Tier 1 leverage (core) capital to
adjusted tangible assets4 6.89 % 7.13 % 6.89 % 7.13 %
Tier 1 risk-based capital ratio4 14.50 % 13.49 % 14.50 % 13.49 %
Total risk-based capital ratio4 15.17 % 13.84 % 15.17 % 13.84 %
Tangible capital to tangible assets4 6.89 % 7.13 % 6.89 % 7.13 %
Asset Quality Ratios:
Net charge-offs to average loans
outstanding 0.10 % 0.05 % 0.25 % 0.09 %
Nonperforming loans to total loans 0.30 % 0.09 % 0.30 % 0.09 %
Allowance for loan losses to total
loans held for investment 0.63 % 0.34 % 0.63 % 0.34 %
Allowance for loan losses to
nonperforming loans 2.1 X 3.7 X 2.1 X 3.7 X
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1 Interest rate spread represents the difference between the annualized weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.
2 Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
3 Efficiency ratio represents noninterest expense as a percentage of the aggregate of net interest income and noninterest income. For the nine months ended March 31, 2009, without the loss of $7.902 million in noninterest income due to the loss on sale of FNMA preferred stock, the efficiency ratio would have been 34.22%.
4 Reflects regulatory capital ratios of Bank of Internet USA only.
RESULTS OF OPERATIONS - Comparison of the Three Months and Nine Months Ended March 31, 2009 and 2008
For the three months ended March 31, 2009, we had net income of $2,594,000 compared to net income of $1,018,000 for the three months ended March 31, 2008. Net income attributable to common stock holders was $2,421,000 or $0.30 per diluted share compared to $940,000 or $0.11 per diluted share for the three months ended March 31, 2009 and 2008, respectively.
Other key comparisons between our operating results for the quarters ended March 31, 2009 and 2008 are:
• Net interest income increased $3,814,000 in the 2009 quarter due to a 13.4% increase in average earning assets primarily from loan pool purchases and mortgage-backed securities. In addition, our net interest margin increased 106 basis points in the quarter ended March 31, 2009 compared to March 31, 2008, as the earning rates on loans increased while the rates paid on time deposits and borrowings decreased.
• The loan loss provision was $1,200,000 for the March 31, 2009 quarter compared to $835,000 for the quarter ended March 31, 2008. The increased loan loss provision was due primarily to the growth in our loan portfolio, general declines in housing values and increased charge-offs on RV loans.
• Non-interest income decreased $723,000 for the March 31, 2009 quarter compared to the quarter ended March 31, 2008. During the March 31, 2009 quarter, we recorded a fair value loss to our trading securities of $350,000 and had $528,000 in gain on sale of single family first mortgages. A gain of $881,000 was recorded on the sale of government agency mortgage backed-securities in the March 31, 2008 quarter.
For the nine months ended March 31, 2009, we had net income of $3,538,000 compared to net income of $2,416,000 for the nine months ended March 31, 2008. Net income attributable to common stockholders was $3,021,000, or $0.37 per diluted share compared to $2,184,000, or $0.26 per diluted share for the nine months ended March 31, 2009 and 2008, respectively. Excluding the impact of a one-time loss on our investment in Fannie Mae preferred stock, we would have earned $8,248,000 for the nine months ended March 31, 2009, up $5,832,000 or 241.4% compared to the nine months ended March 2008. As a result of the U.S. Government's decision to place Fannie Mae in conservatorship and to suspend dividends to shareholders, our earnings were reduced by an after tax loss of $4,710,000 due to the sale of our investment in Fannie Mae preferred stock. On September 7, 2008, the U.S. Treasury, the Federal Reserve and the Federal Housing Finance Agency (FHFA) announced that the FHFA was putting Fannie Mae and Freddie Mac under conservatorship and giving management control to their regulator, the FHFA. The U.S. Treasury also announced that dividends on Fannie Mae and Freddie Mac common and preferred stock were eliminated. Based upon the government's decision, we sold our investment in Fannie Mae Preferred stock on September 8, 2008 at a pre-tax loss of $7,902,000.
Net Interest Income
Net interest income for the quarter ended March 31, 2009 totaled $8.5 million, an 80.9% increase compared to net interest income of $4.7 million for the quarter ended March 31, 2008. For the nine months ended March 31, 2009, net interest income was $25.1 million, up $14.0 million or 126.1% compared to the $11.1 million for the nine months ended March 31, 2008.
Total interest and dividend income during the quarter ended March 31, 2009 increased 14.2% to $18.5 million, compared to $16.2 million during the quarter ended March 31, 2008. For the nine months ended March 31, 2009, total interest and dividend income increased 27.7% to $57.2 million, compared to $44.8 million for the nine months ended in 2008. The increase in interest and dividend income for the quarter and the nine months was attributable primarily to growth in average earning assets from purchases of investment securities and loans. The average balance of investment securities (primarily mortgage-backed securities) increased 13.6% and 18.5% when compared for the three-month and the nine-month periods ended March 31, 2009 and 2008, respectively. The increase in interest income was also the result of our higher rates earned on new loans originated and purchased, amortization of discounts on purchases of loan pools as well as higher rates on new non-agency mortgage-backed securities purchased. The loan portfolio yield for the quarter ended March 31, 2009 increased 63 basis points offset by the investment security portfolio yield decrease of 41 basis points. The net growth in average earning assets for the three-month and the nine-month periods was funded largely by increased demand and savings accounts and increased short-term borrowings. Total interest expense decreased 12.2% to $10.1 million for the quarter ended March 31, 2009 compared with $11.5 million for the quarter ended March 31, 2008. For the nine months ended March 31, 2009, total interest expense decreased 4.5% to $32.2 million compared to $33.7 million for the nine months ended in 2008. The average funding rate decreased by 89 basis points for the nine-month comparison, despite a 17.3% growth in average balances. Contributing to the decrease in the average funding rate were decreases in the average rates for time deposits of 53 basis points, decreases in the average funding rates of demand and savings accounts of 82 basis points and decreases in the average rates of FHLB advances of 109 basis points when compared for the nine-month periods ended March 31, 2009 and 2008. Net interest margin, defined as net interest income divided by average earning assets, increased by 106 basis points to 2.82% for the quarter ended March 31, 2009, compared with 1.76% for the quarter ended March 31, 2008.
The improvement in the net interest margin has resulted from specific actions we have taken to manage our assets and liabilities, as well as general changes in the U.S. Treasury yield curve and loan risk premiums. Our specific actions include selling our agency mortgage-backed securities and replacing them with higher yielding loans and non-agency mortgage backed securities. In addition, we have lowered our deposit offering rates in an effort to take advantage of lower borrowing rates tied to U.S. Treasury rates. Since March of 2008, the Federal Reserve has reduced the short-term Fed funds rate by 200 basis points, to a range of 0.00 to 0.25% as of March 31, 2009. The rate cuts have reduced and will likely continue to reduce both our cost of funding through lower short-term borrowing rates and interest income on floating rate loans and securities.
Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents information regarding (i) average balances;
(ii) the total amount of interest income from interest-earning assets and the
weighted average yields on such assets; (iii) the total amount of interest
expense on interest-bearing liabilities and the weighted average rates paid on
such liabilities; (iv) net interest income; (v) interest rate spread; and
(vi) net interest margin for the three months ended March 31, 2009 and 2008:
For the Three Months Ended March 31,
2009 2008
Interest Rates Interest Rates
Average Income / Earned / Average Income / Earned /
Balance Expense Paid 1 Balance Expense Paid 1
(Dollars in thousands)
Assets
Loans 2 3 $ 646,251 $ 10,907 6.75 % $ 559,064 $ 8,559 6.12 %
Federal funds sold 3,711 1 0.11 % 17,880 154 3.45 %
Interest-bearing deposits in other
financial institutions 6,800 4 2.40 % 6,298 87 5.53 %
Investment securities 3 4 526,668 7,629 5.79 % 463,521 7,186 6.20 %
Stock of FHLB, at cost 7 18,854 - 0.00 % 13,690 188 5.49 %
Total interest-earning assets 1,202,284 18,541 6.17 % 1,060,453 16,174 6.10 %
Non-interest earning assets 22,383 13,302
Total assets $ 1,224,667 $ 1,073,755
Liabilities and Stockholders' Equity
Interest-bearing demand and savings $ 223,376 $ 1,212 2.17 % $ 68,786 $ 619 3.60 %
Time deposits 453,094 4,839 4.27 % 520,962 6,568 5.04 %
Securities sold under agreements to
repurchase 130,000 1,405 4.32 % 128,203 1,366 4.26 %
Advances from FHLB 315,933 2,545 3.22 % 264,465 2,870 4.34 %
Other borrowings 9,560 65 2.72 % 5,155 90 6.98 %
Total interest-bearing liabilities 1,131,963 10,066 3.56 % 987,571 11,513 4.66 %
Noninterest-bearing demand deposits 4,036 999
Other interest-free liabilities 5,358 6,461
Stockholders' equity 83,280 78,724
Total liabilities and stockholders'
equity $ 1,224,637 $ 1,073,755
Net interest income $ 8,475 $ 4,661
Net interest spread 5 2.61 % 1.44 %
Net interest margin 6 2.82 % 1.76 %
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1 Annualized
2 Loans include loans held for sale, loan premiums and unearned fees.
3 Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees. Loan fee income is not significant. The rate earned on loans does not include loan prepayment penalty income, which is classified as non-interest income.
4 All investments are taxable.
5 Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.
6 Net interest margin represents net interest income annualized as a percentage of average interest-earning assets.
7 The FHLBSF did not declare a dividend for the quarter ended March 31, 2009.
Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents information regarding (i) average balances;
(ii) the total amount of interest income from interest-earning assets and the
weighted average yields on such assets; (iii) the total amount of interest
expense on interest-bearing liabilities and the weighted average rates paid on
such liabilities; (iv) net interest income; (v) interest rate spread; and
(vi) net interest margin for the nine months ended March 31, 2009 and 2008:
For the Nine Months Ended March 31,
2009 2008
Interest Rates Interest Rates
Average Income / Earned / Average Income / Earned /
Balance Expense Paid 1 Balance Expense Paid 1
(Dollars in thousands)
Assets
Loans 2 3 $ 636,253 $ 31,141 6.53 % $ 525,362 $ 23,780 6.04 %
Federal funds sold 3,433 20 0.78 % 29,731 997 4.47 %
Interest-bearing deposits in other
financial institutions 5,754 26 0.60 % 9,437 371 5.24 %
Investment securities 3 4 516,380 25,844 6.67 % 435,688 19,079 5.84 %
Stock of FHLB, at cost 7 19,098 194 1.35 % 12,989 540 5.54 %
Total interest-earning assets 1,180,918 57,225 6.46 % 1,013,207 44,767 5.89 %
Non-interest earning assets 19,358 14,462
Total assets $ 1,200,276 $ 1,027,669
Liabilities and Stockholders' Equity
Interest-bearing demand and savings $ 167,162 $ 3,521 2.81 % $ 68,580 $ 1,866 3.63 %
Time deposits 441,000 15,125 4.57 % 517,816 19,817 5.10 %
Securities sold under agreements to
repurchase 130,000 4,257 4.37 % 114,691 3,746 4.35 %
Advances from FHLB 357,489 9,027 3.37 % 238,956 7,988 4.46 %
Other borrowings 12,718 239 2.51 % 5,155 297 7.68 %
Total interest-bearing liabilities 1,108,369 32,169 3.87 % 945,198 33,714 4.76 %
Noninterest-bearing demand deposits 4,088 1,011
Other interest-free liabilities 6,266 5,388
Stockholders' equity 81,553 76,072
Total liabilities and stockholders'
equity $ 1,200,276 $ 1,027,669
Net interest income $ 25,056 $ 11,053
Net interest spread 5 2.59 % 1.13 %
Net interest margin 6 2.83 % 1.45 %
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1 Annualized
2 Loans include loans held for sale, loan premiums and unearned fees.
3 Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees. Loan fee income is not significant. The rate earned on loans does not include loan prepayment penalty income, which is classified as non-interest income.
4 All investments are taxable.
5 Interest rate spread represents the difference between the weighted average . . .
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