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| BOFI > SEC Filings for BOFI > Form 10-Q on 8-Nov-2012 | All Recent SEC Filings |
8-Nov-2012
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 of our operations.
This discussion and analysis should be read in conjunction with our financial
information in our Annual Report on Form 10-K for the year ended June 30, 2012,
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," "intend," "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 we operate 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 discussed 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, 2012, which has been filed with the Securities and
Exchange Commission. We undertake 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 BofI Federal Bank, a diversified financial services company with $2.6 billion in assets that provides innovative banking and lending products and services to approximately 40,000 customers through our scalable low cost distribution channels. BofI Holding, Inc.'s common stock is listed on the NASDAQ Global Select Market and is a component of the Russell 3000 Index.
BofI Federal Bank is a federal savings bank wholly-owned by our company and
regulated by the Office of the Comptroller of the Currency (OCC). The parent
company, BofI Holding, Inc., is a unitary savings and loan holding company
regulated by the Board of Governors of the Federal Reserve System.
We originate small- to medium-size multifamily and single-family mortgage loans.
We also purchase loans and mortgage-backed securities. We source our deposit
products, including time deposits and interest bearing demand and savings
accounts from low-cost channels including; direct retail over the internet,
affinity and affiliate programs and wholesale programs. 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
The following discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements and the notes
thereto, which 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, 2012 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 for the fiscal year end June 30, 2012.
Use of Non-GAAP Financial Measures
In addition to the results presented in accordance with GAAP, this report
includes non-GAAP financial measures such as core earnings. Core earnings
exclude realized and unrealized gains and losses associated with our securities
portfolios. Excluding these gains and losses provides investors with an
understanding of our Bank's core lending and mortgage banking business. Non-GAAP
financial measures have inherent limitations, are not required to be uniformly
applied and are not audited. Readers should be aware of these limitations and
should be cautious as their use of such measures. Although we believe the
non-GAAP financial measures disclosed in this report enhance investors'
understanding of its business and performance, these non-GAAP measures should
not be consider in isolation, or as a substitute for GAAP basis financial
measures.
SELECTED FINANCIAL DATA
The following tables set forth certain selected financial data concerning the
periods indicated:
BofI HOLDING, INC. AND SUBSIDIARY
SELECTED CONSOLIDATED FINANCIAL INFORMATION
September 30, June 30, September 30,
(Dollars in thousands) 2012 2012 2011
Selected Balance Sheet Data:
Total assets $ 2,617,319 $ 2,386,845 $ 2,097,042
Loans-net of allowance for loan losses 1,912,999 1,720,563 1,443,860
Loans held for sale, at fair value 52,433 38,469 40,478
Loans held for sale, lower of cost or market 69,567 40,712 8,721
Allowance for loan losses 10,171 9,636 8,008
Securities-trading 6,439 5,838 5,248
Securities-available-for-sale 160,378 164,159 156,130
Securities-held-to-maturity 300,039 313,032 350,066
Total deposits 1,852,971 1,615,088 1,494,158
Securities sold under agreements to repurchase 120,000 120,000 130,000
Advances from the FHLB 404,000 422,000 287,000
Subordinated debentures and other borrowings 5,155 5,155 5,155
Total stockholders' equity 214,706 206,620 166,493
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BofI HOLDING, INC. AND SUBSIDIARY
SELECTED CONSOLIDATED FINANCIAL INFORMATION
At or for the Three Months Ended
September 30,
(Dollars in thousands, except per share data) 2012 2011
Selected Income Statement Data:
Interest and dividend income $ 30,989 $ 27,765
Interest expense 8,504 9,588
Net interest income 22,485 18,177
Provision for loan losses 2,550 2,363
Net interest income after provision for loan losses 19,935 15,814
Non-interest income 6,761 4,570
Non-interest expense 11,532 9,552
Income before income tax expense 15,164 10,832
Income tax expense 6,175 4,299
Net income $ 8,989 $ 6,533
Net income attributable to common stock $ 8,912 $ 6,407
Per Share Data:
Net income:
Basic $ 0.73 $ 0.59
Diluted $ 0.67 $ 0.58
Book value per common share $ 16.36 $ 14.29
Tangible book value per common share $ 16.36 $ 14.29
Weighted average number of shares outstanding:
Basic 12,191,062 10,923,701,000
Diluted 13,253,283 11,180,070,000
Common shares outstanding at end of period 12,813,171 10,485,953,000
Common shares issued at end of period 13,647,741 11,223,365,000
Performance Ratios and Other Data:
Loan originations for investment $ 279,697 $ 252,626
Loan originations for sale 254,796 90,369
Loan purchases 1,541 -
Return on average assets 1.44 % 1.28 %
Return on average common stockholders' equity 18.46 % 17.28 %
Interest rate spread1 3.58 % 3.51 %
Net interest margin2 3.70 % 3.65 %
Efficiency ratio 39.43 % 41.99 %
Capital Ratios:
Equity to assets at end of period 8.20 % 7.94 %
Tier 1 leverage (core) capital to adjusted tangible assets3 8.20 % 8.08 %
Tier 1 risk-based capital ratio3 12.83 % 12.89 %
Total risk-based capital ratio3 13.44 % 13.50 %
Tangible capital to tangible assets3 8.20 % 8.08 %
Asset Quality Ratios:
Net annualized charge-offs to average loans outstanding 0.42 % 0.43 %
Non-performing loans to total loans 1.07 % 0.79 %
Non-performing assets to total assets 0.82 % 0.80 %
Allowance for loan losses to total loans at end of period 0.53 % 0.55 %
Allowance for loan losses to non-performing loans 48.96 % 69.98 %
_________________________
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RESULTS OF OPERATIONS
Comparison of the Three Months Ended September 30, 2012 and September 30, 2011
For the three months ended September 30, 2012, we had net income of $9.0 million
compared to net income of $6.5 million for the three months ended September 30,
2011. Net income attributable to common stockholders was $8.9 million or $0.67
per diluted share compared to net income attributable to common shareholders of
$6.4 million or $0.58 per diluted share for the three months ended September 30,
2012 and 2011, respectively.
Other key comparisons between our operating results for the three months ended September 30, 2012 and 2011 are:
• Net interest income increased $4.3 million in the quarter ended September 30, 2012 due to a 22.0% increase in average earning assets primarily from loan originations. Our net interest margin increased 5 basis points in the quarter ended September 30, 2012 compared to September 30, 2011, with a decrease in the rates paid on deposits and borrowings of 54 basis points, partially offset by decreases in the rates earned on loans of 49 basis points and rates on securities of 60 basis points.
• Non-interest income increased $2.2 million for the quarter ended September 30, 2012 compared to the quarter ended September 30, 2011. The increase in non-interest income was primarily the result of a $1.7 million increase in gain on sale of loans held for sale and fair value gains from trading securities of $602,000, offset by impairment on investment securities of $874,000.
• Non-interest expense increased $2.0 million for the quarter ended September 30, 2012 compared to the quarter ended September 30, 2011 primarily due to a $1.7 increase in compensation attributed to increased staffing and office expansion.
We define net income without the after-tax impact of realized and unrealized securities gains and losses as adjusted earnings ("core earnings") which we believe provides useful information about the Bank's operating performance. Core earnings for the quarters ended September 30, 2012 and 2011, were $9.2 million and $6.8 million, respectively.
Below is a reconciliation of net income to core earnings:
Three Months Ended
September 30,
(Dollars in Thousands) 2012 2011
Net Income $ 8,989 $ 6,533
Realized securities gains - -
Unrealized securities losses 272 402
Tax provision (111 ) (164 )
Core Earnings $ 9,150 $ 6,771
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Net Interest Income
Net interest income for the quarter ended September 30, 2012 totaled $22.5
million, an increase of 23.7% compared to net interest income of $18.2 million
for the quarter ended September 30, 2011.
Total interest and dividend income during the quarter ended September 30, 2012
increased 11.6% to $31.0 million, compared to $27.8 million during the quarter
ended September 30, 2011. The increase in interest and dividend income for the
2012 quarter was attributable primarily to growth in average earning assets from
origination of loans. The average balance of loans increased 32.8% when compared
to the three-month period ended September 30, 2011. The increase in interest
income was partially offset by lower rates earned on loans and mortgage-backed
securities. The loan portfolio yield for the quarter ended September 30, 2012
decreased 49 basis points and the investment security portfolio yield decreased
60 basis points from the 2011 period. The net growth in average earning assets
for the three-month period was funded largely by increased deposits and to a
lesser extent borrowings.
Total interest expense was $8.5 million for the quarter ended September 30,
2012, a decrease of $1.1 million or 11.3% as compared with the same period in
2011. The average funding rate decreased by 54 basis points while average
interest-bearing liabilities grew 20.5%. Contributing to the decrease in the
average funding rate were decreases in the average rates for time deposits of 46
basis points and FHLB advances of 55 basis and demand and savings accounts of 11
basis points. Net interest margin, defined as net interest income divided by
average earning assets, increased by 5 basis points to 3.70% for the quarter
ended September 30, 2012, compared with 3.65% for the quarter ended
September 30, 2011.
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 September 30, 2012 and
2011:
For the three month period ended
September 30,
2012 2011
Interest Average Yields Interest Average Yields
Average Income/ Earned/Rates Average Income/ Earned/Rates
(Dollars in thousands) Balance2 Expense Paid1 Balance2 Expense Paid1
Assets:
Loans3, 4 $ 1,926,883 $ 25,208 5.23 % $ 1,450,927 $ 20,751 5.72 %
Federal funds sold 6,724 3 0.18 % 10,986 1 0.04 %
Interest-earning deposits
in other financial
institutions 307 - - % 230 - - %
Mortgage-backed and other
investment securities5 477,612 5,756 4.82 % 516,431 7,003 5.42 %
Stock of the FHLB, at cost 20,657 22 0.43 % 15,488 10 0.26 %
Total interest-earning
assets 2,432,183 30,989 5.10 % 1,994,062 27,765 5.57 %
Non-interest-earning
assets 65,707 45,964
Total assets $ 2,497,890 $ 2,040,026
Liabilities and
Stockholders' Equity:
Interest-bearing demand
and savings $ 739,572 $ 1,488 0.80 % $ 360,299 $ 816 0.91 %
Time deposits 960,332 4,049 1.69 % 1,061,215 5,711 2.15 %
Securities sold under
agreements to repurchase 120,000 1,339 4.46 % 130,000 1,445 4.45 %
Advances from the FHLB 418,685 1,587 1.52 % 305,935 1,580 2.07 %
Other borrowings 5,155 41 3.18 % 5,155 36 2.79 %
Total interest-bearing
liabilities 2,243,744 8,504 1.52 % 1,862,604 9,588 2.06 %
Non-interest-bearing
demand deposits 21,817 7,532
Other non-interest-bearing
liabilities 18,902 13,525
Stockholders' equity 213,427 156,365
Total liabilities and
stockholders' equity $ 2,497,890 $ 2,040,026
Net interest income $ 22,485 $ 18,177
Interest rate spread6 3.58 % 3.51 %
Net interest margin7 3.70 % 3.65 %
__________________________
1. Annualized.
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2. Average balances are obtained from daily data.
3. Loans include loans held for sale, loan premiums and unearned fees.
4. 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. Also, includes $33.3 million of Community Reinvestment Act loans which are taxed at a reduced rate.
5. Includes $5.5 million of municipal securities which are taxed at a reduced rate.
6. 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.
7. Net interest margin represents net interest income as a percentage of average interest-earning assets.
Average Balances, Net Interest Income, Yields Earned and Rates Paid The following table sets forth the effects of changing rates and volumes on our net interest income. Information is provided with respect to (i) effects on interest income and interest expense attributable to changes in volume (changes in volume multiplied by prior rate); (ii) effects on interest income and interest expense attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) changes in rate/volume (change in rate multiplied by change in volume) for the three months ended September 30, 2012 and 2011:
For the three months ended September 30,
2012 vs 2011
Increase (Decrease) Due to
Total
Increase
(Dollars in thousands) Volume Rate Rate/Volume (Decrease)
Increase/(decrease) in interest income:
Loans $ 6,806 $ (1,777 ) $ (572 ) $ 4,457
Federal funds sold - 4 (2 ) 2
Interest-earning deposits in other financial institutions - - - -
Mortgage-backed and other investment securities (526 ) (775 ) 54 (1,247 )
Stock of the FHLB, at cost 3 7 2 12
$ 6,283 $ (2,541 ) $ (518 ) $ 3,224
Increase/(decrease) in interest expense:
Interest-bearing demand and savings $ 863 $ (99 ) $ (92 ) $ 672
Time deposits (542 ) (1,220 ) 100 (1,662 )
Securities sold under agreements to repurchase (111 ) 3 2 (106 )
Advances from the FHLB 583 (421 ) (155 ) 7
Other borrowings - 5 - 5
$ 793 $ (1,732 ) $ (145 ) $ (1,084 )
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Provision for Loan Losses
The loan loss provision was $2.6 million and $2.4 million for the three months
ended September 30, 2012 and September 30, 2011. The increases in the provision
for the three months ended September 30, 2012 was a result of higher charge offs
of multifamily and commercial loans and overall increase in the loan portfolio.
Provisions for loan losses are charged to income to bring the allowance for loan
losses to a level deemed appropriate by management based on the factors
discussed under "Financial Condition-Asset Quality and Allowance for Loan
Losses."
Non-Interest Income
The following table sets forth information regarding our non-interest income for
the periods shown:
For the Three Months Ended
September 30,
(Dollars in Thousands) 2012 2011 Inc (Dec)
Realized gain on securities:
Sale of mortgage-backed securities $ - $ - $ -
Total realized gain on securities - - -
Other than temporary loss on securities:
Total impairment losses (2,872 ) (765 ) (2,107 )
Loss recognized in other comprehensive loss 1,998 168 1,830
Net impairment loss recognized in earnings (874 ) (597 ) (277 )
Fair value gain on trading securities 602 195 407
Total unrealized loss on securities (272 ) (402 ) 130
Prepayment penalty fee income 202 61 141
Mortgage banking income 6,456 4,785 1,671
Banking service fees and other income 375 126 249
Total non-interest income $ 6,761 $ 4,570 $ 2,191
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Non-interest income increased $2.2 million to $6.8 million from $4.6 million for the three months ended September 30, 2012 and 2011. The increase was primarily the result of higher mortgage banking income of $1.7 million, fair value gain on trading securities of $602,000, partially offset by impairment of securities of $0.9 million. The increase in mortgage banking income includes gains on sale of loans of $6.5 million and $4.8 million for the three months ended September 30, 2012 and 2011, respectively, due to an increase in origination volume of loans held for sale to $254.8 million from $90.4 million. Non-Interest Expense . . .
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