The 2 Biggest Things to Know From BofI Holding's Earnings
BofI Holding, Inc. (NASDAQ: BOFI) reported its second-quarter financial and operating results after market close on Jan. 30, and the market responded favorably when trading resumed on the 31st, with shares climbing over 13% at one point before cooling off later in the day.
On the surface, the online bank's results may not look that great, with earnings down 2%. But like the vast majority of banks, BofI's GAAP results were negatively affected in the quarter following the recently passed federal tax overhaul. Adjusted for that one-time charge, BofI's earnings grew at a higher rate than we've seen in several quarters. Furthermore, the net benefit of the new tax law is set to boost earnings from here out.
But management isn't just resting on its laurels; it already has plans to accelerate investments in driving even more growth by taking some of that tax savings and reinvesting in expanding the bank's operations. Let's examine what that plan is, and what it means for the company.
Image source: Getty Images.
BofI was even more profitable than usual
Here's a closer look at BofI's financial performance in the quarter, both on a GAAP basis, and adjusted for the one-time impact of the tax legislation on deferred tax assets:
| GAAP | Adjusted for Deferred Tax Asset Revaluation | |||||
|---|---|---|---|---|---|---|
| Metric | Q2 2018 | Q2 2017 | Change (YoY) | Q2 2018 | Q2 2017 | Change (YoY) |
| Net income attributable to shareholders | $31,580 | $32,222 | (2%) | $39,612 | $32,222 | 22.9% |
| Net interest income | $84,213 | $76,361 | 10.3% | $84,213 | $76,361 | 10.3% |
| Net non-interest income | $17,099 | $16,700 | 2.4% | $17,099 | $16,700 | 2.4% |
| Earnings per share | $0.49 | $0.50 | (2%) | $0.61 | $0.50 | 22% |
| Tangible book value per share | $13.70 | $11.72 | 16.9% | n/a | n/a | n/a |
| Efficiency ratio | 40.28% | 35.78% | (11.2%) | n/a | n/a | n/a |
| Return on assets | 1.49% | 1.66% | 11.4% | 1.87% | 1.66% | (11.2%) |
| Return on equity | 14.37% | 17.49% | 21.7% | 18.65% | 17.49% | (6.2%) |
Data source: BofI Holdings. Net income figures in thousands.
The new federal tax law will significantly benefit BofI over the long term, but the bank had to write down the value of deferred tax assets on its balance sheet in the quarter by $8.03 million, resulting in the difference between GAAP and adjusted results.
BofI's profit surged in the quarter, while return on assets and return on equity both improved at double-digit rates. Furthermore, CEO Greg Garrabrants said the long-term goal for ROE is now 18% or higher, up from 15%, with the primary driver the lower corporate tax rate.
BofI's earnings boost was largely a result of increased lending activity. The loan and lease portfolio grew by $1.1 billion, up 15.6% year over year on $2.1 billion in originations. Total assets were up 9.2% to $8.9 billion. Deposits were up 11.8%, a $783 million increase.