I took the time to listen to the BofI Holding, Inc (BOFI) Business Update Call from 10/14/15, then compared it to the transcript that the company provided in Exhibit 99.1 of an 8-K provided to the SEC on 10/15/15 (this transcript exhibit will henceforth be referred to as the "BOFI Transcript").
Before BOFI's management tries to accuse me of wrongdoing, let me make perfectly clear that all of this information was sourced from publicly available information.
I was shocked to discover that the BOFI Transcript differs substantially from the actual events that transpired on the call (Link to Webcast). The BOFI Transcript includes additions/omissions that, in my opinion, would likely be material to anyone analyzing BOFI's public filings and public statements. I looked at the transcripts compiled by both Bloomberg and Standard & Poors (I have not provided the transcript due to copyright laws), which were consistent with the aforementioned Webcast but materially different than the BOFI Transcript.
The differences went beyond stylistic tweaks. I encourage all investors to look through the information that I have provided and go through their own process of fact checking, as the information below is based on my own analysis and review of the situation and the information contained herein incorporates my opinions.
In my opinion, the modifications to the language appear to be too substantial to be simply explained away as accidental errors of omission or "lost in translation" mistakes.
I have included just a few of the most substantive and obvious differences in language:
When asked to opine on whether the OCC's investigation into Erhart's claims are ongoing:
09:55 mark - "But, the fact is that all of these were investigated, there is nothing ongoing..."
10:08 mark - "...You can take as absolute confirmation by the fact that we got those deals done…[10:18] that there is no continuity to this."
BOFI Transcript - "The OCC comes in and regularly reviews the Bank. If any of these things were true, we wouldn't have gotten our two acquisition deals done. You can take that as confirmation given that we got those deals done. One deal was done in the month that these allegations were made. We have great regulatory relations. We are under no regulatory orders, no regulatory restrictions on our business, and we continue to have great dialogue with our regulators. And there is no truth to any of these allegations that we did not provide information."
The words "there is nothing ongoing" do not appear in the BOFI Transcript. The words "there is no continuity to this" also do not appear in the BOFI transcript. So is the investigation ongoing or not? A reader of the financial statements would likely consider the existence of an OCC investigation (or lack thereof) to be material in light of last week's developments.
On the topic of the largest deposit account at the bank, the company responded:
15:39 mark - "The largest size is $30 million with a 10-31 exchange company."
BOFI Transcript - "The largest uninsured size is about $30 million with a 1031 exchange company."
The actual call never included the word "uninsured" yet this word somehow made its way into the transcript furnished by BOFI in its 8-K filing. The distinction could very well be relevant as the way the company is accounting for its 10-31 exchange deposits is a topic of interest for anyone analyzing deposit concentration. BOFI is likely aware that a single 10-31 exchange relationship can represent multiple underlying accounts, resulting in potential concentration issues due to the "brokered deposit" nature of a 10-31 relationship.
When asked to provide more detail on the largest account, the company responded:
15:54 mark - "Yes it is multiple underlying accounts."
BOFI Transcript - "Yes, it is multiple underlying customers."
The word "accounts" was replaced with the word "customers". Does this have any implication for deposit concentration from a financial statement perspective?
A question from KBW analyst Julianna Balicka regarding why the company switched external auditors some years ago:
49:26 mark - "I believe it was because of efficiency gains and fees from the auditors. But I just want to clarify before people make up new stories."
BOFI Transcript - "I believe it was because of efficiency gains from auditors, so I just want to clarify before people makeup news stories."
Julianna's question originally included the word "fees." The BOFI rendition of events stripped out the word "fees" completely.
The company's explanation for why the auditor was changed:
49:46 mark - "The switch was based on - it was partially based on fees."
BOFI Transcript - "So we had BDO for three years. This was based on the fact that they have a significantly greater number of local personnel in the area and they are a larger national firm."
Why did the discussion of fees being part of the basis for the auditor change not appear in BOFI's version of the events?
Please Note: There are several of these examples of changes to the transcript. I just highlighted the ones most relevant to you as an investor.
I hope that all investors take this matter seriously as it is grounded in well-supported evidence. It is "odd and unusual" at best and egregious at worst. Given the current allegations, buyers ought to be extra careful.
Stay tuned, as I will explore BOFI's Employee Mortgage Program and some of the related party loans BOFI has been making over the last several years within my next post.
This article was written by
Disclosure: I am/we are short BOFI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This letter represents the opinion of the author as of the date of this article. This letter is based upon public information available to the author. The author encourages all readers to do their own due diligence. This is not a recommendation to buy or sell a security.