Axos Financial, Inc. — Form 10-Q Summary
Business context and reporting period
This unaudited filing covers the quarter and six months ended December 31, 2023—Axos’s fiscal second quarter and first half of fiscal 2024. Axos operates Banking Business and Securities Business segments, with $21.6 billion in assets and approximately $34.4 billion of assets under custody or administration at Axos Clearing.
Financial performance and condition
| Metric | Quarter ended Dec. 31, 2023 | Prior-year quarter |
|---|---|---|
| Interest and dividend income | $394.7 million | $279.6 million |
| Net interest income | $228.6 million | $199.9 million |
| Provision for credit losses | $13.5 million | $3.0 million |
| Non-interest income | $124.1 million | $28.3 million |
| Non-interest expense | $121.8 million | $108.0 million |
| Net income | $151.8 million | $81.6 million |
| Diluted EPS | $2.62 | $1.35 |
| Adjusted diluted EPS (non-GAAP) | $1.60 | $1.38 |
Quarterly net interest margin was 4.55%, versus 4.49%; the interest-rate spread was 3.58%, versus 3.64%. The efficiency ratio was 34.54%, versus 47.33%; the current period includes a substantial acquisition gain. For the six months, net income was $234.4 million, diluted EPS was $3.98, and adjusted EPS was $3.00.
At December 31, 2023, total assets were $21.6 billion, up 6.3% from June 30, 2023. Net loans were $18.3 billion, deposits $18.2 billion, and total liabilities $19.5 billion. Deposits increased $1.1 billion; interest-bearing demand and savings balances rose while time and non-interest-bearing deposits declined. Borrowings totaled $431.1 million, including $90.0 million of FHLB advances. Stockholders’ equity was $2.08 billion; tangible book value per share (non-GAAP) was $33.45.
For the six months, operating cash flow was $147.1 million, investing cash outflow was $1.74 billion, and financing cash inflow was $970.8 million. Cash and regulatory-segregated cash together were $1.76 billion, down from $2.38 billion at June 30. Management reported $2.70 billion of immediately available FHLB borrowing capacity, an additional $4.08 billion available with collateral, and $3.14 billion available at the Federal Reserve discount window. The Company and Bank exceeded applicable minimum capital requirements and were classified as well capitalized. At the Company, CET1 was 10.97% and total capital was 13.79%; at the Bank, the respective ratios were 12.26% and 13.25%.
Material changes versus comparable periods
- Net interest income increased 14.4% year over year for the quarter, as loan yields and average balances increased. Higher deposit rates and balances drove interest expense up 108.4%, partly offsetting asset-income growth.
- Non-interest income included a $92.4 million gain from the FDIC loan purchase. Excluding that unusual gain, reported GAAP net income growth was substantially less pronounced; adjusted EPS was $1.60 versus $1.38.
- On December 7, Axos acquired two FDIC loan portfolios with $1.3 billion aggregate unpaid principal balance for a fair value of $901.5 million. The purchase generated the $92.4 million gain and included $341.3 million of PCD loans. Axos stated that the purchase discount is expected to produce yields above its pre-acquisition portfolio yield.
- Gross loans rose to $18.9 billion from $16.7 billion at fiscal year-end, including growth in multifamily/commercial mortgage and commercial and industrial loans. The allowance for loan losses rose to $251.7 million from $166.7 million, substantially reflecting the acquired PCD loans and portfolio growth.
- Nonaccrual loans increased to $122.5 million, or 0.65% of gross loans, from $87.2 million, or 0.52%. Net annualized charge-offs remained low at 0.02% for the six-month period.
- Axos repurchased $83.2 million of shares during the six months, reducing shares outstanding; $20.5 million remained under the announced repurchase program at December 31.
Outlook, risks, contingencies, and unusual items
The filing provides no specific earnings or financial guidance. Management describes liquidity sources as stable and adequate and says approximately 90% of Bank deposits were insured or collateralized. However, $1.9 billion of deposits exceeded the FDIC insurance limit or were not collateralized. Unfunded loan-origination commitments totaled $3.50 billion, mostly variable-rate; commitments are not necessarily expected cash requirements.
Key sensitivities include deposit pricing and retention, interest-rate changes, credit performance, real-estate markets, economic conditions, regulation, and acquisition integration. The company’s modeled first-12-month net interest income increased 10.3% under an instantaneous 200-basis-point rate rise and declined 8.2% under a 200-basis-point decline; management cautions that modeled outcomes are not forecasts and depend on assumptions.
Two litigation matters remain notable. Axos is appealing a judgment in the MUFG Union Bank matter and maintained a $16 million accrual recorded in fiscal 2023; the appeal outcome is uncertain. A derivative action was amended in January 2024, and Axos states that the eventual loss, if any, cannot be reasonably estimated. The filing also reports implementation of a new ERP system during the quarter, with related internal-control changes; management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether recurring earnings and loan yields support performance after separating the $92.4 million FDIC acquisition gain and related credit provision.
- Credit quality trends, including the increase in nonaccrual loans, commercial real-estate exposures, and adequacy of the allowance following the FDIC portfolio purchase.
- Deposit mix, pricing, uninsured or uncollateralized balances, and continued access to the stated contingent liquidity sources.
- Progress on the MUFG appeal and derivative litigation, including any changes to accruals or loss disclosures.
- Post-quarter capital, liquidity, and credit developments, as well as effects of the ERP implementation and share repurchases.