Axos Financial, Inc. — FY2022 Form 10-K
Period clarification: The filing is an annual report for the fiscal year ended June 30, 2022, compared principally with FY2021; it is not a 2021 Q4 filing. It does not provide a clear standalone Q4 results summary.
Business context
Axos is a digital-first financial services company operating Banking and Securities businesses. At June 30, 2022, it reported $17.4 billion in assets. Banking provides consumer and commercial deposits and lending; Securities provides clearing, custody and investment services. The August 2021 acquisition of E*TRADE Advisor Services, rebranded Axos Advisor Services (AAS), added custody fees, technology and deposits for $54.8 million in cash consideration.
Financial performance and position
| Metric | FY2022 / June 30, 2022 | FY2021 / June 30, 2021 |
|---|---|---|
| Net interest income | $607.2 million | $538.7 million |
| Non-interest income | $113.4 million | $105.3 million |
| Net income | $240.7 million | $215.7 million |
| Diluted EPS | $3.97 | $3.56 |
| Net interest margin | 4.13% | 3.92% |
| Efficiency ratio, consolidated | 50.25% | 48.84% |
| Total assets | $17.4 billion | $14.3 billion |
| Gross loans held for investment | $14.3 billion | $11.6 billion |
| Total deposits | $13.9 billion | $10.8 billion |
| Stockholders’ equity | $1.64 billion | $1.40 billion |
- Interest income rose 6.8% to $659.7 million, while interest expense fell 33.6% to $52.6 million. Growth in loans, lower deposit costs and more non-interest-bearing deposits drove higher net interest income.
- Credit-loss provision was $18.5 million, down from $23.8 million. The allowance for credit losses was $148.6 million, or 1.04% of gross loans, versus 1.15% a year earlier. Non-performing loans were 0.83% of loans, down from 1.26%.
- Operating cash flow was $210.3 million; investing cash flow was negative $2.78 billion; financing cash flow was positive $3.10 billion. Ending cash, cash equivalents and regulatory-segregated cash totaled $1.57 billion.
- At year-end, Axos had $117.5 million of FHLB advances and $445.2 million in borrowings, subordinated notes and debentures. It reported $2.0 billion of immediately available FHLB capacity, a further $3.9 billion with additional collateral, and approximately $2.8 billion of Federal Reserve borrowing capacity, with none outstanding.
- Both the Company and Bank were reported as well-capitalized. Company total risk-based capital was 12.73%; Bank total risk-based capital was 12.01%.
Material changes versus FY2021
- Assets grew 22.0%, mainly from loan growth and deposit inflows. CRE loans increased to $4.78 billion from $3.18 billion, and C&I non-real-estate loans increased to $2.03 billion from $1.12 billion.
- Non-interest income increased by $8.1 million: AAS contributed $29.2 million of advisory fees, while mortgage banking income fell $23.1 million as rates rose. Prepayment penalty income increased $6.1 million.
- Non-interest expense rose $47.6 million to $362.1 million, reflecting AAS and expanded operations, higher staffing and data-processing costs, and an approximately $11.0 million unusual charge related largely to resolution of a contractual claim. The filing separately identifies a $9.5 million one-time contractual-claim resolution.
- Consolidated net interest margin improved, but the consolidated efficiency ratio worsened. The Banking segment’s efficiency ratio was 41.61%, compared with 41.95%.
- FY2022 included $150 million of new 4.00% fixed-to-floating subordinated notes due 2032. Deposits rose by $3.13 billion; FHLB advances fell by $236 million.
Outlook, commentary and risks
- Management’s stated long-term objectives are annualized return on average common equity of at least 17%, annual growth in average interest-earning assets of at least 12%, and a Banking-segment efficiency ratio of 40% or less. FY2022 return on average common equity was 15.61%; the filing gives no specific earnings or EPS guidance.
- Management cited inflation, rising interest rates, supply-chain constraints and geopolitical uncertainty in its credit-loss assumptions. The filing warns that rate changes can affect funding costs, net interest income, mortgage activity, asset values and borrower performance.
- Approximately 64% of the loan portfolio, or $9.1 billion, referenced LIBOR at June 30, 2022. The company was preparing for replacement benchmarks and borrower communications ahead of LIBOR cessation.
- Real-estate concentration is material: approximately 45.4% of the mortgage portfolio was secured by California property. Management also highlights growing CRE and C&I exposures, which may have higher credit risk and less seasoned performance histories.
- Other risks include deposit competition and funding access, cybersecurity and third-party technology dependence, regulation, and the planned digital-assets business. The digital-assets subsidiary’s proposed retail platform and stablecoin were future plans, not reported operating results.
- Two shareholder class-action settlements had preliminary court approval, with final approval hearings scheduled after year-end; the company said the agreed settlement amounts were not material. A separate one-time contractual-claim resolution was recorded in FY2022.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The AAS acquisition was excluded from management’s and the auditor’s internal-control assessment under the one-year acquisition exclusion; AAS represented 27% of non-interest income.
Important facts for investors to verify
- Confirm the reporting period: the filing covers FY2022, not 2021 Q4; standalone quarterly figures are not clearly provided.
- Review loan growth and underwriting quality, especially CRE, C&I and California real-estate concentration, alongside allowance coverage and non-performing loans.
- Assess the effects of rising rates on deposit pricing, net interest margin, mortgage income and the large LIBOR-linked loan balance.
- Evaluate whether AAS can sustain fee and deposit contributions as integration continues, and note that its internal controls were outside the audited control assessment.
- Reconcile the unusual contractual-claim expense across the filing and track final court approval and any ultimate costs of pending litigation.
- Compare the long-term operating targets with current results, particularly return on equity and the Banking efficiency ratio; treat targets as objectives, not near-term guidance.