Market Overview

BofI Holding, Inc. Reports Second Quarter 2018 Results

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Loan Portfolio up 15.6% Year-over-Year to $7.9 billion

BofI Holding, Inc. (NASDAQ:BOFI) ("BofI"), parent company of
BofI Federal Bank (the "Bank"), today announced financial results for
the second fiscal quarter ended December 31, 2017. Net income was $31.7
million, a decrease of 2.0% from $32.3 million for the quarter ended
December 31, 2016. Net income decreased as a result of the 2017 Tax Cut
and Jobs Act ("Tax Act"), which caused BofI to incur an $8.0 million
one-time charge from the revaluation of its deferred tax assets and
liabilities. Earnings attributable to BofI's common stockholders were
$31.6 million or $0.49 per diluted share for the second quarter of
fiscal 2018, a decrease of 2.0% from $32.2 million or $0.50 per diluted
share for the second quarter ended December 31, 2016. Non-GAAP net
income and non-GAAP earnings attributable to common stockholders
excluding the deferred tax revaluation were $39.7 million and $39.6
million, respectively, or $0.61 per diluted share for the second quarter
of fiscal 2018, an increase of 22.9% from the second quarter ended
December 31, 2016.

Second Quarter Fiscal 2018 Financial Summary:

  GAAP   Non-GAAP1

Adjusted for Deferred Tax Revaluation

Three Months Ended December 31   Three Months Ended December 31  
(Dollars in thousands, except per share data)   Q2 Fiscal 2018   Q2 Fiscal 2017   % Change   Q2 Fiscal 2018   Q2 Fiscal 2017   % Change
Net interest income $ 84,213   $ 76,361 10.3 % $ 84,213   $ 76,361 10.3 %
Non-interest income $ 17,099 $ 16,700 2.4 % $ 17,099 $ 16,700 2.4 %
Net income $ 31,658 $ 32,300 (2.0 )% $ 39,690 $ 32,300 22.9 %
Net income attributable to common stockholders $ 31,580 $ 32,222 (2.0 )% $ 39,612 $ 32,222 22.9 %
Diluted EPS   $ 0.49     $ 0.50     (2.0 )%   $ 0.61     $ 0.50     22.0 %

1 See "Use of Non-GAAP Financial Measures"

"Our net loan balances grew by over $360 million, or 19% annualized, in
the second quarter as a result of strong originations in single family
lending, commercial specialty real estate lending, commercial and
multifamily lender finance, and equipment leasing," stated Greg
Garrabrants, President and Chief Executive Officer of BofI. "Our already
strong capital and returns will be further boosted by the Tax Act, even
after we reinvest a portion of the savings in further growth enabling
investments."

"This quarter we started redeploying some of our excess capital, buying
back approximately $28 million of our common stock at a weighted average
price of $28.20 per share," said Andy Micheletti, Executive Vice
President and Chief Financial Officer of BofI. "Excluding the one-time
deferred tax valuation charge, net income attributable to common
stockholders would have been approximately $39.6 million, or $0.61 per
share, and considering a full quarter's weighting impact of our share
repurchases, our ROA and ROE would have been 1.87% and 18.54%,
respectively, for the quarter ended December 31, 2017. With our Tier 1
leverage ratio of 10.26% at quarter end, our seasonally highest earnings
quarter in March, and the reduced corporate tax rates from the Tax Act,
we have ample flexibility to continue delivering shareholder returns
through a variety of vehicles."

For the six months ended December 31, 2017, net income was a record
$64.0 million, an increase of 4.6% over net income of $61.2 million for
the six months ended December 31, 2016. Earnings attributable to BofI's
common stockholders were $63.9 million or $0.98 per diluted share for
the six months ended December 31, 2017, an increase of 4.3% from $61.0
million or $0.94 per diluted share for the six months ended December 31,
2016. Earnings for the quarter and for the six months ended December 31,
2017 were primarily the result of growth in the Bank's loan and lease
portfolio.

Other Highlights:

  • Total assets reached $8,916.0 million, up $748.1 million or 9.2%
    compared to December 31, 2016
  • Loan and lease portfolio grew by $1,063.0 million or 15.6% compared to
    December 31, 2016
  • Loan and lease originations for the three months ended December 31,
    2017 were $2,054.5 million, up 22.2% compared to the quarter ended
    December 31, 2016
  • Deposits grew by $782.6 million, or 11.8% compared to December 31, 2016
  • Net interest margin increased 5 basis points to 3.94% for the six
    months ended December 31, 2017 and was stable at 4.00% for the quarter
    ended December 31, 2017 compared to December 31, 2016
  • Asset quality remains strong with total non-performing assets of 0.44%
    of total assets at December 31, 2017
  • Return on average common stockholders' equity was 14.37% for the three
    months ended December 31, 2017
  • Tangible book value increased to $13.70 per share, up $1.98 per share
    compared to December 31, 2016

Second Quarter Fiscal 2018 Income Statement Summary

During the quarter ended December 31, 2017, BofI earned $31.7 million or
$0.49 per diluted share compared to $32.3 million, or $0.50 per diluted
share for the quarter ended December 31, 2016. Net interest income
increased $7.9 million or 10.3% for the quarter ended December 31, 2017
compared to December 31, 2016, due to the $788.2 million growth in
average-earning assets.

The loan and lease loss provision was $4.0 million for the quarter ended
December 31, 2017 compared to $4.1 million for the quarter ended
December 31, 2016. The decrease in the provision is primarily the result
of a lower level of net charge-offs and a change in the mix of loans and
leases, partially offset by loan growth during the three months ended
December 31, 2017.

For the second quarter ended December 31, 2017, non-interest income was
$17.1 million compared to $16.7 million for the three months ended
December 31, 2016. The increase year over year was the result of
increased banking service fees and other income of $1.7 million,
primarily due to increased fees related to seasonal H&R Block-branded
products and service fee income, a $0.9 million reduction in unrealized
loss on securities, a $0.5 million increase in prepayment penalty fee
income, partially offset by a $1.8 million decrease in realized gain on
securities and a $0.8 million decrease in mortgage banking income.

Non-interest expense or operating costs increased $7.5 million to $40.8
million for the quarter ended December 31, 2017 from $33.3 million for
the three months ended December 31, 2016. The increase was mainly a
result of an increase in salaries and related expense of $4.4 million as
a result of staffing increases to support growth in lending and
information technology infrastructure development. Other operating
expense increases include an increase in advertising and promotional of
$1.8 million, an increase of $1.0 million in data processing and
internet and an increase of $0.5 million in depreciation and
amortization. The increases in the other operating costs are primarily
to support loan and deposit growth, as well as data processing, software
and marketing initiatives.

Balance Sheet Summary

BofI's total assets increased $414.3 million, or 4.9%, to $8,916.0
million, as of December 31, 2017, up from $8,501.7 million at June 30,
2017. The loan portfolio increased $499.9 million on a net basis,
primarily from portfolio loan originations of $2,328.7 million less
principal repayments and other adjustments of $1,828.8 million.
Investment securities decreased $81.1 million primarily due to sales and
principal repayments. Total liabilities increased by $374.9 million, or
4.9%, to $8,042.3 million at December 31, 2017, up from $7,667.4 million
at June 30, 2017. The increase in total liabilities resulted primarily
from growth in deposits of $493.7 million, partially offset by a
decrease in FHLB borrowings of $97.0 million. Stockholders' equity
increased by $39.4 million, or 4.7%, to $873.7 million at December 31,
2017 from $834.2 million at June 30, 2017. The increase was primarily
the result of $64.0 million in net income, $3.9 million of vesting and
issuance of RSUs and stock-based compensation expense, partially offset
by $28.3 million in stock repurchases and $0.2 million of dividends
declared on preferred stock.

The Bank's Tier 1 core capital to adjusted average assets ratio was
10.26% at December 31, 2017.

Conference Call

A conference call and webcast will be held on Tuesday, January 30, 2018
at 5:00 PM Eastern / 2:00 PM Pacific. Analysts and investors may dial in
and participate in the question/answer session. To access the call,
please dial: 877-407-8293. The conference call will be webcast live and
may be accessed at BofI's website, http://www.bofiholding.com.
For those unable to listen to the live broadcast, a replay will be
available until Friday, March 2, 2018, at BofI's website and
telephonically by dialing toll-free number 877-660-6853, passcode
13674938.

About BofI Holding, Inc. and BofI Federal Bank

BofI Holding, Inc. is the holding company for BofI Federal Bank, a
nationwide bank that provides financing for single and multifamily
residential properties, small-to-medium size businesses in target
sectors, and selected specialty finance receivables. With approximately
$8.9 billion in assets, BofI Federal Bank provides consumer and business
banking products through its low-cost distribution channels and affinity
partners. BofI Holding, Inc.'s common stock is listed on the NASDAQ
Global Select Market under the symbol "BOFI" and is a component of the
Russell 2000® Index, the S&P SmallCap 600®
Index, and the KBW Nasdaq Financial Technology Index. For more
information on BofI Federal Bank, please visit bofifederalbank.com.

Use of Non-GAAP Financial Measures

In addition to the results presented in accordance with GAAP, this
report includes non-GAAP financial measures that adjust our net income,
net income attributable to common stockholders and diluted earnings per
common share ("EPS") calculations for the one-time charge from the
revaluation of BofI's deferred tax assets and liabilities as a result of
the enactment of the 2017 Tax Cut and Jobs Act, which we believe
provides useful information about the Company's operating performance.
We previously reported a non-GAAP financial measure titled "adjusted
earnings" that excluded realized and unrealized gains and losses
associated with our securities portfolio, net of tax. The adjusted
earnings financial measure was removed this period because it no longer
provided useful information for management and did not enhance
investors' understanding of the business and its performance due to the
insignificant nature of the adjustments in recent history. 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 to 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 considered in isolation, or as a
substitute for GAAP basis financial measures. Below is a reconciliation
of GAAP net income, net income attributable to common stockholders and
diluted EPS to the non-GAAP calculations adjusted for the deferred tax
revaluation:

  Three Months Ended
December 31, 2017
(Dollars in thousands)   GAAP  

Deferred Tax
Adjustment

 

Non-GAAP Adjusted
for Deferred Tax
Revaluation

Net income $ 31,658   $ 8,032   $ 39,690
Net income attributable to common stockholders $ 31,580 $ 8,032 $ 39,612
Diluted EPS   $ 0.49     $ 0.12     $ 0.61
 

For the non-GAAP financial measures of ROA and ROE used in Mr.
Micheletti's quote above, the statutory federal tax rate used was 21.0%,
which is the Company's tax rate for the quarter ended December 31, 2017.
Based on the changes in the Tax Act, our federal corporate statutory tax
rate will be 28.1% for the quarters ending March 31, 2018 and June 30,
2018, and 21.0% for the year ending June 30, 2019.

Forward-Looking Safe Harbor Statement

This press release contains forward-looking statements that involve
risks and uncertainties, including without limitation statements
relating to BofI's financial prospects and other projections of its
performance and asset quality, BofI's ability to grow and increase its
business, diversify its lending, the outcome and effects of pending
class action litigation filed against the Company, and the anticipated
timing and financial performance of offerings, initiatives or
acquisitions. These forward-looking statements are made on the basis of
the views and assumptions of management regarding future events and
performance as of the date of this press release. Actual results and the
timing of events could differ materially from those expressed or implied
in such forward-looking statements as a result of risks and
uncertainties, including without limitation changes in interest rates,
inflation, government regulation, general economic conditions,
conditions in the real estate markets in which we operate and other
factors beyond our control. These and other risks and uncertainties
detailed in BofI's periodic reports filed with the Securities and
Exchange Commission could cause actual results to differ materially from
those expressed or implied in any forward-looking statements. You are
cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this press release. All
forward-looking statements are qualified in their entirety by this
cautionary statement, and BofI undertakes no obligation to revise or
update any forward-looking statements to reflect events or circumstances
after the date of this press release.

The following tables set forth certain selected financial data
concerning the periods indicated:

     
BOFI HOLDING, INC. AND SUBSIDIARY
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Unaudited – dollars in thousands)
 
    December 31,
2017
June 30,
2017
December 31,
2016
Selected Balance Sheet Data:
Total assets $ 8,915,959 $ 8,501,680 $ 8,167,876
Loans and leases—net of allowance for loan and lease losses 7,874,431 7,374,493 6,811,470
Loans held for sale, at fair value 24,499 18,738 33,990
Loans held for sale, lower of cost or fair value 7,067 6,669 15,905
Allowance for loan and lease losses 45,606 40,832 40,928
Securities—trading 8,327 8,151
Securities—available-for-sale 191,725 264,470 379,734
Total deposits 7,393,233 6,899,507 6,610,674
Securities sold under agreements to repurchase 20,000 35,000
Advances from the FHLB 543,000 640,000 665,000
Subordinated notes and debentures and other 54,503 54,463 56,408
Total stockholders' equity 873,663 834,247 753,671
 
Capital Ratios:
Equity to assets at end of period 9.80 % 9.81 % 9.23 %
BofI Holding, Inc:
Tier 1 leverage (core) capital to adjusted average assets 10.26 % 9.95 % 9.71 %
Common equity tier 1 capital (to risk-weighted assets) 14.39 % 14.66 % 14.51 %
Tier 1 capital (to risk-weighted assets) 14.48 % 14.75 % 14.61 %
Total capital (to risk-weighted assets) 16.08 % 16.38 % 16.39 %
BofI Federal Bank:
Tier 1 leverage (core) capital to adjusted average assets 10.26 % 9.60 % 9.36 %
Common equity tier 1 capital (to risk-weighted assets) 14.48 % 14.25 % 14.08 %
Tier 1 capital (to risk-weighted assets) 14.48 % 14.25 % 14.08 %
Total capital (to risk-weighted assets)   15.24 %   14.97 %   14.88 %
 
   
BOFI HOLDING, INC. AND SUBSIDIARY
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Unaudited – dollars in thousands, except per share data)
 
At or for the Three Months Ended At or for the Six Months Ended
December 31, December 31,
    2017   2016 2017   2016
Selected Income Statement Data:
Interest and dividend income $ 107,785 $ 94,301 $ 211,296 $ 181,781
Interest expense 23,572   17,940   46,533   35,640  
Net interest income 84,213 76,361 164,763 146,141
Provision for loan and lease losses 4,000   4,100   5,000   6,000  
Net interest income after provision for loan and lease losses 80,213 72,261 159,763 140,141
Non-interest income 17,099 16,700 30,439 31,432
Non-interest expense 40,809   33,300   78,829   66,178  
Income before income tax expense 56,503 55,661 111,373 105,395
Income tax expense 24,845   23,361   47,332   44,198  
Net income $ 31,658   $ 32,300   $ 64,041   $ 61,197  
Net income attributable to common stock $ 31,580 $ 32,222 $ 63,886 $ 61,042
 
Per Share Data:
Net income:
Basic $ 0.49 $ 0.50 $ 0.98 $ 0.94
Diluted $ 0.49 $ 0.50 $ 0.98 $ 0.94
Book value per common share $ 13.85 $ 11.82 $ 13.85 $ 11.82
Tangible book value per common share $ 13.70 $ 11.72 $ 13.70 $ 11.72
 
Weighted average number of shares outstanding:
Basic 64,984,333 64,861,540 65,014,704 64,724,972
Diluted 64,984,333 64,861,540 65,014,704 64,724,972
Common shares outstanding at end of period 62,720,641 63,359,001 62,720,641 63,359,001
Common shares issued at end of period 65,444,875 64,761,369 65,444,875 64,761,369
 
Performance Ratios and Other Data:
Loan and lease originations for investment $ 1,368,229 $ 1,071,713 $ 2,328,741 $ 1,996,883
Loan originations for sale $ 686,224 $ 609,361 $ 1,016,493 $ 844,456
Return on average assets 1.49 % 1.66 % 1.51 % 1.60 %
Return on average common stockholders' equity 14.37 % 17.49 % 14.80 % 17.05 %
Interest rate spread1 3.71 % 3.82 % 3.67 % 3.71 %
Net interest margin2 4.00 % 4.00 % 3.94 % 3.89 %
Efficiency ratio 40.28 % 35.78 % 40.38 % 37.27 %
 
Asset Quality Ratios:
Net annualized charge-offs to average loans and leases 0.03 % 0.05 % 0.01 % 0.03 %
Non-performing loans and leases to total loans and leases 0.38 % 0.50 % 0.38 % 0.50 %
Non-performing assets to total assets 0.44 % 0.43 % 0.44 % 0.43 %
Allowance for loan and lease losses to total loans and leases at end
of period
0.57 % 0.60 % 0.57 % 0.60 %
Allowance for loan and lease losses to non-performing loans and
leases
  152.08 %   118.42 %   152.08 %   118.42 %

1. Interest rate spread represents the difference between
the annualized weighted average yield on interest-earning assets and the
annualized 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

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