BofI Holding (NYSE:AX) today reported earnings of $1.20 per diluted share in its first fiscal quarter of 2015, handily topping the average analyst estimate of just $1.14 per share. Net income surged 46.5% from the year-ago period.
Digging a little deeper
The parent company of Bank of Internet is still in growth mode. It reported that total assets grew to over $4.8 billion, up $422 million from last quarter and $1.54 billion from last year.
BofI is not only growing quickly, but growing more efficiently. Its average cost of interest bearing liabilities fell 0.25% from the year-ago period, more than offsetting the 0.13% decrease in average yields on its assets.
The bank's lower cost of funding is partly fueled by its focus on attracting "core" savings and checking deposits. Checking account balances grew by 17.2%, and savings account balances grew 7.2% sequentially. BofI Holding pays between 0.68%-0.73% on checking and savings accounts compared to 1.71% for its average time deposits (CDs).
Checking in on loan quality
The big question for any fast-growing financial stock is whether underwriting quality and fast growth can coexist. So far, BofI Holding's strategy of focusing primarily on jumbo loans is producing very few loan losses.
Only 0.62% of loans are currently nonperforming, and net annualized charge-offs to average loans came in at 0.04%.
Its companywide loan-to-value ratios of 55% remain some of the lowest of any banking. Said another way, BofI Holding's average loan balance is equal to 55% of the value of the collateral -- that's great!
Deposits, efficiency, and returns -- oh my!
Unfortunately, BofI Holding's acquisition of H&R Block's bank won't close in 2014, and it won't close in time for tax season. BofI Holding had previously hoped to close the acquisition before tax season to capture the benefit of $450 million-$550 million in low-cost deposits from federal tax refunds.
And while the setback may temporarily hamper improvements in its funding costs, BofI Holding's noninterest expenses are impressively low. The bank's efficiency ratio of 34.81% this quarter was once again under management's long-term goal of 35%. That helped it achieve above-average annualized returns on assets of 1.56%, in line with ROAs at exemplary banks like Wells Fargo and U.S. Bancorp.
Tangible book value per share grew to $27.52 per share, up $7.41, or nearly 35%, from the year-ago period. Fast-growth in tangible book value is due in part to the company's policy of retaining all its earnings, and its stock issuance at high multiples of book value. The company issued over 280,000 shares during its first fiscal quarter to support its growth.
The foolish takeaway
BofI Holding's quarter was impressive. The company's fast-growing core deposits and improving cost of funds should help the company turn its above-average efficiency into above-average returns for shareholders.
Meanwhile, the bank's credit metrics from LTV to nonperforming loans look as good as they ever have. It all boiled down to returns in excess of 18% annualized on tangible book value, placing BofI Holding among the top tier of publicly traded bank stocks.