Financial Performance - Axos Financial, Inc. reported net income of $58.4 million for the three months ended September 30, 2022, compared to $60.2 million for the same period in 2021, reflecting a decrease of approximately 3%[128] - Adjusted earnings for the same period were $71.6 million, up from $62.2 million year-over-year, representing an increase of about 15%[128] - The adjusted earnings per diluted common share increased to $1.18 from $1.03, marking a growth of approximately 14.6%[128] - Net income for the three months ended September 30, 2022, was $58.4 million, or $0.97 per diluted share, compared to $60.2 million, or $0.99 per diluted share for the same period in 2021[137] Assets and Equity - Common stockholders' equity rose to $1.7 billion as of September 30, 2022, compared to $1.46 billion a year earlier, indicating an increase of about 16.5%[129] - The Company has approximately $18.4 billion in total assets, indicating a diversified financial services portfolio[117] - Total assets increased to $18.4 billion as of September 30, 2022, compared to $14.9 billion as of September 30, 2021[133] - Total assets increased to $17,640.6 million in 2022 from $14,502.4 million in 2021, representing a growth of 21.4%[1] Income and Expenses - Net interest income increased by 23.1% to $180.5 million for the three months ended September 30, 2022, compared to $146.6 million for the same period in 2021[138] - Total interest and dividend income rose by 41.4% to $223.8 million for the three months ended September 30, 2022, compared to $158.3 million in the same period of 2021[139] - Total non-interest expenses increased to $116.1 million in 2022 from $84.4 million in 2021, marking a rise of 37.5%[1] - Non-interest income was $27.2 million for the three months ended September 30, 2022, compared to $26.7 million for the same period in 2021[135] Loans and Credit Losses - Provision for credit losses was $8.75 million for the three months ended September 30, 2022, compared to $4.0 million for the same period in 2021[135] - The average balance of loans increased by 26.6% for the three months ended September 30, 2022, compared to the same period in 2021[139] - Net loans held for investment rose 8.0% to $15.2 billion at September 30, 2022, up from $14.1 billion at June 30, 2022, driven by loan originations of $2.5 billion[177] - The provision for credit losses was $8.8 million for the three months ended September 30, 2022, compared to $4.0 million for the same period in 2021[185] Banking and Securities Segments - The Banking Business segment focuses on online banking and lending services, while the Securities Business segment includes clearing and advisory services[120] - For the three months ended September 30, 2022, the Banking Business segment reported income before taxes of $80.9 million, a decrease from $90.3 million in the same period of 2021, attributed to increased non-interest expenses and provisions for credit losses[162] - The Securities Business segment reported income before taxes of $8.9 million for the three months ended September 30, 2022, compared to $9 thousand in the same period of 2021, due to higher non-interest income[172] Regulatory and Capital Adequacy - The Company is subject to regulation by the Federal Reserve and the OCC, ensuring compliance with financial standards[117] - The Company and Bank met all capital adequacy requirements as of September 30, 2022, and were classified as "well capitalized" under regulatory standards[204] - The Tier 1 capital ratio was 9.97% as of September 30, 2022, compared to 9.86% as of June 30, 2022[206] Market and Risk Exposure - The Securities Business is exposed to market risk primarily due to fluctuations in interest rates and market prices, impacting customer transactions and trading activities[221] - The net present value of assets decreased by 4.1% to $1,856,089 thousand with a 200 basis point increase in interest rates[220]

[Business Overview](index=5&type=section&id=Item%201.%20Business) Axos Financial, Inc. is a diversified financial services holding company with over **$17.4 billion** in assets, focused on technology-driven growth and strong financial targets [Company Profile and Strategy](index=5&type=section&id=Overview) Axos Financial, Inc. is a diversified financial services holding company with over **$17.4 billion** in assets, focused on technology-driven growth and strong financial targets - As of June 30, 2022, Axos Financial had total assets of **$17.4 billion**, loans of **$14.1 billion**, and deposits of **$13.9 billion**[10](index=10&type=chunk) - The company's long-term business objectives include maintaining an annualized return on average common stockholders' equity of **17.0%** or better, increasing average interest-earning assets by **12%** or more annually, and maintaining an annualized efficiency ratio at the Bank of **40%** or lower[12](index=12&type=chunk) [Business Segments](index=6&type=section&id=Segment%20Information) The company operates through its Banking Business, offering diverse digital services, and its Securities Business, providing clearing, custody, and advisory services [Banking Business](index=6&type=section&id=BANKING%20BUSINESS) The Banking Business offers a wide range of online and concierge banking, lending, and specialized deposit products, primarily through digital channels - The Banking Business provides a wide range of services including online and concierge banking, mortgage, vehicle, and unsecured lending, focusing on deposit products for specific industry verticals and commercial lending[14](index=14&type=chunk) - The bank utilizes diverse distribution channels, including a national online brand, affinity groups, a commercial banking division, a remote lending sales force, and specialized fiduciary services to generate loans and deposits[19](index=19&type=chunk) [Securities Business](index=16&type=section&id=SECURITIES%20BUSINESS) The Securities Business, through Axos Clearing and Axos Invest, provides clearing, custody, and digital advisory services to financial organizations and retail customers - The Securities Business, through Axos Clearing, offers fully disclosed clearing services to **275** financial organizations, including broker-dealers and RIAs, as of June 30, 2022[72](index=72&type=chunk) - Through Axos Invest, the company provides both self-directed trading and digital advisory services to retail customers, integrated into its universal digital banking platform[75](index=75&type=chunk) [Loan Portfolio](index=7&type=section&id=Banking%20Business%20-%20Asset%20Origination%20and%20Fee%20Income%20Businesses) The company's diverse loan portfolio, concentrated in Commercial Real Estate and California, shows strong commercial growth with a conservative **56%** weighted average LTV Loan Portfolio Composition (in thousands) | Loan Type | 2022 Amount (in thousands) | 2022 Percent | 2021 Amount (in thousands) | 2021 Percent | 2020 Amount (in thousands) | 2020 Percent | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Single Family - Mortgage & Warehouse | $3,988,462 | 28.0% | $4,359,472 | 37.8% | $4,722,304 | 44.2% | | Multifamily and Commercial Mortgage | $2,877,680 | 20.2% | $2,470,454 | 21.4% | $2,263,054 | 21.1% | | Commercial Real Estate | $4,781,044 | 33.5% | $3,180,453 | 27.5% | $2,297,920 | 21.5% | | Commercial & Industrial - Non-RE | $2,028,128 | 14.2% | $1,123,869 | 9.7% | $885,320 | 8.3% | | Auto & Consumer | $567,228 | 4.0% | $362,180 | 3.1% | $341,365 | 3.1% | | Other | $11,134 | 0.1% | $58,316 | 0.5% | $193,479 | 1.8% | | **Total loans held for investment** | **$14,253,676** | **100.0%** | **$11,554,744** | **100.0%** | **$10,703,442** | **100.0%** | - The real estate mortgage loan portfolio is heavily concentrated in California, which accounts for **45.4%** of the total portfolio (**35.2%** in Southern California and **10.2%** in Northern California), with New York as the next largest concentration at **26.0%**[39](index=39&type=chunk) Loan-to-Value (LTV) Ratios by Portfolio at June 30, 2022 | | Total Real Estate Mortgage Loans | Single Family - Mortgage & Warehouse | Multifamily and Commercial Mortgage | Commercial Real Estate | | :--- | :--- | :--- | :--- | :--- | | Weighted Average LTV | 56% | 57% | 53% | 58% | | Median LTV | 54% | 56% | 50% | 26% | - The bank's lending limit to a single borrower was **$258.8 million** as of June 30, 2022, with the largest outstanding loan balance being **$190.0 million**[45](index=45&type=chunk) [Deposit Portfolio](index=13&type=section&id=Banking%20Business%20-%20Deposit%20Generation) Total deposits reached **$13.9 billion** as of June 30, 2022, driven by strong growth in non-interest-bearing deposits, with the average rate paid on interest-bearing deposits decreasing Total Deposits by Type (in thousands) | Deposit Type | June 30, 2022 (in thousands) | June 30, 2021 (in thousands) | June 30, 2020 (in thousands) | | :--- | :--- | :--- | :--- | | Non-interest-bearing | $5,033,970 | $2,474,424 | $1,936,661 | | Interest-bearing demand | $3,611,889 | $3,369,845 | $3,456,127 | | Savings | $4,245,555 | $3,458,687 | $3,697,188 | | Time deposits | $1,055,008 | $1,512,841 | $2,246,718 | | **Total deposits** | **$13,946,422** | **$10,815,797** | **$11,336,694** | - The average rate paid on total interest-bearing deposits decreased to **0.42%** in fiscal year 2022, compared to **0.67%** in 2021 and **1.73%** in 2020[66](index=66&type=chunk) - At June 30, 2022, consumer and business deposits represented **53.7%** and **46.3%** of total deposits, respectively[60](index=60&type=chunk) [Funding and Borrowings](index=17&type=section&id=BORROWINGS) Axos utilizes FHLB advances, lines of credit, and subordinated notes for funding, with significant borrowing capacity and recent subordinated note issuances - As of June 30, 2022, the bank had **$117.5 million** in FHLB advances outstanding, with an additional **$2.0 billion** immediately available and a further **$3.9 billion** available with additional collateral[77](index=77&type=chunk) - The bank has access to the Federal Reserve Bank discount window with a total borrowing capacity of approximately **$2.8 billion** as of June 30, 2022, none of which was outstanding[78](index=78&type=chunk) - In February 2022, the company issued **$150.0 million** of **4.0%** Fixed-to-Floating Rate Subordinated Notes due 2032, following a **$175.0 million** issuance of notes due 2030 in September 2020[85](index=85&type=chunk)[83](index=83&type=chunk) [Mergers and Acquisitions](index=18&type=section&id=MERGERS%20AND%20ACQUISITIONS) Axos Clearing, LLC acquired E*TRADE Advisor Services (EAS) for **$54.8 million** in cash, rebranding it as AAS to enhance fee income and deposits - Axos Clearing, LLC acquired E*TRADE Advisor Services (EAS) on August 2, 2021, for a cash purchase price of **$54.8 million**, rebranding the business as Axos Advisor Services (AAS)[87](index=87&type=chunk) [Supervision and Regulation](index=20&type=section&id=SUPERVISION%20AND%20REGULATION) Axos Financial, Inc. operates under extensive regulation by the Federal Reserve, OCC, FDIC, SEC, and FINRA, adhering to stringent capital and consumer protection rules - Axos Financial, Inc. is a financial holding company regulated by the Federal Reserve, while Axos Bank is a federal savings bank regulated by the OCC and FDIC[98](index=98&type=chunk)[100](index=100&type=chunk) - The company and the bank are subject to Basel III capital rules, requiring minimum CET1, Tier 1, and Total risk-based capital ratios, plus a capital conservation buffer, exceeding 'well-capitalized' thresholds as of June 30, 2022[101](index=101&type=chunk)[103](index=103&type=chunk)[106](index=106&type=chunk) - With over **$10 billion** in assets, the Bank is subject to direct supervision by the Consumer Financial Protection Bureau (CFPB) and is impacted by the Durbin Amendment, which reduces debit card interchange fees[133](index=133&type=chunk)[134](index=134&type=chunk) - The company's broker-dealer subsidiaries are subject to extensive regulation, including the SEC's Net Capital Rule (Rule 15c3-1) and Customer Protection Rule (Rule 15c3-3)[143](index=143&type=chunk)[147](index=147&type=chunk)[150](index=150&type=chunk) [Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) The company faces diverse risks including macroeconomic shifts, regulatory changes, operational challenges, and technology vulnerabilities inherent in its financial services business [Macroeconomic and Market Risks](index=28&type=section&id=Risks%20Relating%20to%20Macroeconomic%20Conditions) The company's performance is highly sensitive to macroeconomic conditions, especially interest rate changes and economic downturns, with significant exposure to LIBOR transition risk - Changes in interest rates directly affect net interest income, with the Federal Reserve's rate increases in 2022 to combat inflation being a key factor[155](index=155&type=chunk) - As of June 30, 2022, approximately **$9.1 billion**, or **64%** of the total loan portfolio, was indexed to LIBOR, which is set to be discontinued after June 30, 2023, creating transition risk[164](index=164&type=chunk) - The business is susceptible to economic downturns, with a high concentration of loans (**45.4%**) secured by real estate in California, making it vulnerable to that state's economy[158](index=158&type=chunk)[179](index=179&type=chunk) [Regulatory and Legal Risks](index=30&type=section&id=Risks%20Relating%20to%20Regulation%20of%20our%20Business) Operating in a highly regulated industry exposes Axos to risks from changing laws, regulations, and enforcement activities by multiple agencies, potentially leading to increased costs or litigation - The company is subject to extensive oversight from multiple federal and state regulators, and changes in regulations could increase costs or restrict growth[170](index=170&type=chunk)[171](index=171&type=chunk) - The broker-dealer and investment advisory businesses are subject to risks of censure, fines, or suspension from the SEC and FINRA for violations of securities laws[175](index=175&type=chunk) - The company is subject to shareholder lawsuits, including class actions and derivative actions, which can be costly and time-consuming to defend[240](index=240&type=chunk) [Business and Operational Risks](index=33&type=section&id=Risks%20Relating%20to%20our%20Business%20Operations) The company faces operational risks from accounting estimates like ACL, the growing C&I loan portfolio, broker-dealer market and credit risks, and challenges in managing rapid growth - The allowance for credit losses (ACL) is a critical accounting estimate, and an insufficient allowance, especially for the growing C&I portfolio, could materially harm earnings and capital[190](index=190&type=chunk)[191](index=191&type=chunk) - The broker-dealer business is subject to market risk from equity price movements, credit risk from counterparty failures, and increased litigation risk, as evidenced by a **$15.3 million** bad debt expense in March 2019 from a correspondent default[198](index=198&type=chunk) - The company's planned digital asset subsidiary (Axos Digital Assets LLC) will face risks from cryptocurrency price volatility, cybersecurity vulnerabilities, and evolving regulations[201](index=201&type=chunk) - The company's ability to manage its substantial growth in assets and deposits is critical; failure to deploy new deposits into profitable assets could decrease profitability[206](index=206&type=chunk)[207](index=207&type=chunk) [Technology and Security Risks](index=38&type=section&id=Technology%20Risks%20in%20our%20Online%20Business) As a primarily online bank, Axos is heavily reliant on technology, facing significant risks from third-party provider dependence and cybersecurity threats - The company relies on third-party service providers for core banking and securities transaction technology, and any interruption could materially impair services[222](index=222&type=chunk)[223](index=223&type=chunk) - Cybersecurity attacks (e.g., hacking, ransomware) pose a significant risk of data breaches, which could lead to financial loss, litigation, and loss of customer confidence[229](index=229&type=chunk)[230](index=230&type=chunk)[231](index=231&type=chunk) - Failure to effectively implement new technology initiatives or anticipate future technology demands could adversely affect business and financial results[232](index=232&type=chunk)[233](index=233&type=chunk) [Management's Discussion and Analysis (MD&A)](index=46&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides a comprehensive analysis of Axos Financial's financial condition and results of operations, highlighting key performance drivers and balance sheet changes [Financial Highlights and Overview](index=46&type=section&id=OVERVIEW) Axos reported **$240.7 million** net income in FY2022, an **11.6%** increase, driven by higher net interest income, strong asset and deposit growth, and the AAS acquisition Key Financial Performance | Metric | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Net Income (in millions) | $240.7 | $215.7 | $183.4 | | Diluted EPS | $3.97 | $3.56 | $2.98 | | Total Assets (in billions) | $17.4 | $14.3 | $13.9 | | Net Interest Income (in millions) | $607.2 | $538.7 | $477.6 | | Return on Average Assets | 1.57% | 1.52% | 1.53% | | Return on Average Common Equity | 15.61% | 16.51% | 15.65% | - Total assets grew by **$3.1 billion** (**22.0%**) in fiscal 2022, primarily due to strong loan originations in commercial real estate and C&I lending[265](index=265&type=chunk) - The acquisition of E*TRADE Advisor Services (AAS) on August 2, 2021, was a key event, contributing to higher advisory fee income[263](index=263&type=chunk)[266](index=266&type=chunk) [Results of Operations](index=52&type=section&id=RESULTS%20OF%20OPERATIONS) Profitability improved in FY2022 with net interest income rising to **$607.2 million**, driven by loan growth and lower funding costs, alongside increased non-interest income from AAS [Comparison of Fiscal Years 2022 and 2021](index=52&type=section&id=COMPARISON%20OF%20THE%20FISCAL%20YEARS%20ENDED%20JUNE%2030,%202022%20AND%20JUNE%2030,%202021) FY2022 saw net interest income increase by **$68.4 million** to **$607.2 million**, driven by asset growth and lower funding costs, with non-interest income rising due to AAS - Net interest income increased by **$68.4 million** (**12.7%**) to **$607.2 million** in FY2022. This was driven by a **$937.4 million** increase in average interest-earning assets, while interest expense decreased by **$26.6 million** due to a lower cost of funds and a **$1.7 billion** increase in non-interest bearing deposits[261](index=261&type=chunk)[285](index=285&type=chunk)[286](index=286&type=chunk) - Provision for credit losses decreased to **$18.5 million** from **$23.8 million**, reflecting favorable changes in economic conditions post-COVID-19, partially offset by loan growth[288](index=288&type=chunk) Non-Interest Income Breakdown (in thousands) | Category | FY 2022 (in thousands) | FY 2021 (in thousands) | | :--- | :--- | :--- | | Prepayment penalty fee income | $13,303 | $7,166 | | Mortgage banking income | $19,033 | $42,150 | | Advisory fee income | $29,230 | $— | | Broker-dealer fee income | $22,880 | $26,317 | | Banking and service fees | $28,752 | $29,137 | | **Total non-interest income** | **$113,363** | **$105,261** | - Non-interest expense increased by **$47.6 million** (**15.1%**) to **$362.1 million**, driven by the AAS acquisition, a **14.6%** increase in full-time staff, higher data processing costs, and a one-time **$11.0 million** charge for a contractual claim[292](index=292&type=chunk)[294](index=294&type=chunk) [Comparison of Fiscal Years 2021 and 2020](index=58&type=section&id=COMPARISON%20OF%20THE%20FISCAL%20YEARS%20ENDED%20JUNE%2030,%202021%20AND%20JUNE%2030,%202020) FY2021 saw net interest income increase by **$61.1 million** to **$538.7 million**, primarily due to a sharp decrease in interest expense, with provision for credit losses declining - Net interest income increased by **$61.1 million** (**12.8%**) to **$538.7 million** in FY2021, as a **$66.1 million** decrease in interest expense more than offset a **$5.0 million** decline in interest income, with the average rate paid on interest-bearing liabilities falling sharply from **1.72%** to **0.79%**[314](index=314&type=chunk)[317](index=317&type=chunk)[318](index=318&type=chunk) - Provision for credit losses decreased to **$23.8 million** from **$42.2 million**, primarily due to non-recurring provisions for Refund Advance loans in FY2020[319](index=319&type=chunk) - Non-interest income increased slightly to **$105.3 million**, with a **$21.5 million** increase in mortgage banking income largely offset by a **$17.1 million** decrease in banking service fees due to the termination of the H&R Block partnership[322](index=322&type=chunk) [Segment Performance Analysis](index=54&type=section&id=SEGMENT%20RESULTS) The Banking Business remains the primary profit driver, with **$366.1 million** pre-tax income in FY2022, while the Securities Business reported a wider pre-tax loss Segment Pre-Tax Income (Loss) (in thousands) | Segment | FY 2022 (in thousands) | FY 2021 (in thousands) | | :--- | :--- | :--- | | Banking Business | $366,135 | $328,564 | | Securities Business | $(2,365) | $(1,722) | | Corporate/Eliminations | $(23,811) | $(21,099) | | **Total Income Before Taxes** | **$339,959** | **$305,743** | [Banking Business Segment](index=55&type=section&id=Banking%20Business) The Banking segment's pre-tax income grew **11.4%** to **$366.1 million** in FY2022, driven by a **13.3%** increase in net interest income, with an improved efficiency ratio - The Banking segment's pre-tax income grew **11.4%** to **$366.1 million** in FY2022, driven by a **13.3%** increase in net interest income to **$597.8 million**[299](index=299&type=chunk)[306](index=306&type=chunk) Banking Segment Key Performance Ratios | Ratio | June 30, 2022 | June 30, 2021 | | :--- | :--- | :--- | | Efficiency ratio | 41.61% | 41.95% | | Return on average assets | 1.64% | 1.76% | | Net interest margin | 4.36% | 4.11% | [Securities Business Segment](index=57&type=section&id=Securities%20Business) The Securities segment's non-interest income more than doubled to **$64.1 million** in FY2022 due to the AAS acquisition, despite a **74.6%** increase in non-interest expense - The Securities segment's non-interest income more than doubled to **$64.1 million** in FY2022 from **$27.6 million** in FY2021, primarily due to **$28.3 million** in new custody and mutual fund fees from the AAS acquisition[310](index=310&type=chunk)[311](index=311&type=chunk) - Non-interest expense for the segment increased by **74.6%** to **$84.0 million**, largely due to higher salaries and other costs associated with the integration of AAS[312](index=312&type=chunk) Axos Clearing Key Metrics | Metric | FY 2022 (in thousands) | FY 2021 (in thousands) | | :--- | :--- | :--- | | FDIC insured program balances (end of period) | $3,452,358 | $730,248 | | Customer margin balances (end of period) | $285,894 | $327,148 | | Total tickets | 1,236,292 | 2,053,362 | [Analysis of Financial Condition](index=65&type=section&id=COMPARISON%20OF%20FINANCIAL%20CONDITION%20AT%20JUNE%2030,%202022%20AND%20JUNE%2030,%202021) The balance sheet expanded significantly in FY2022, with total assets growing **22.0%** to **$17.4 billion**, primarily funded by increased deposits and retained earnings - Total assets increased by **$3.1 billion** to **$17.4 billion** at June 30, 2022, from **$14.3 billion** at June 30, 2021[349](index=349&type=chunk) - Total liabilities increased by **$2.9 billion**, driven by a **$3.1 billion** growth in deposits, while FHLB advances decreased by **$0.2 billion**[349](index=349&type=chunk) - Stockholders' equity increased by **$242.0 million** to **$1.6 billion**, primarily due to **$240.7 million** in net income[349](index=349&type=chunk)[350](index=350&type=chunk) [Asset Quality and Allowance for Credit Losses](index=67&type=section&id=ASSET%20QUALITY%20AND%20ALLOWANCE%20FOR%20CREDIT%20LOSSES%20-%20LOANS) Asset quality improved in FY2022, with total non-performing assets decreasing to **$119.0 million**, and the ACL increasing to **$148.6 million** (**1.04%** of total loans) Non-Performing Assets (in thousands) | Category | June 30, 2022 (in thousands) | June 30, 2021 (in thousands) | June 30, 2020 (in thousands) | | :--- | :--- | :--- | :--- | | Total non-performing loans | $118,194 | $145,195 | $87,941 | | Foreclosed real estate & repossessed vehicles | $798 | $6,782 | $6,408 | | **Total non-performing assets** | **$118,992** | **$151,977** | **$94,349** | | NPA as % of Total Assets | 0.68% | 1.10% | 0.68% | Allowance for Credit Losses (ACL) Roll-Forward (in thousands) | | FY 2022 (in thousands) | FY 2021 (in thousands) | | :--- | :--- | :--- | | Beginning Balance | $132,958 | $75,807 | | Effect of ASC 326 Adoption | — | $47,300 | | Provision for credit losses | $18,500 | $23,750 | | Charge-offs | $(4,428) | $(16,558) | | Recoveries | $1,587 | $2,659 | | **Ending Balance** | **$148,617** | **$132,958** | - The ACL as a percentage of total loans held for investment was **1.04%** at June 30, 2022, compared to **1.15%** at June 30, 2021[363](index=363&type=chunk) [Liquidity and Capital Resources](index=69&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company maintains a strong liquidity and capital position, with significant borrowing capacity and both the holding company and bank exceeding 'well-capitalized' thresholds Regulatory Capital Ratios (Company) at June 30, 2022 | Ratio | Actual | Minimum Requirement | Minimum to be Well Capitalized | | :--- | :--- | :--- | :--- | | Tier 1 leverage ratio | 9.25% | 4.00% | N/A | | Common equity tier 1 capital ratio | 9.86% | 7.00%* | N/A | | Tier 1 risk-based capital ratio | 9.86% | 8.50%* | N/A | | Total risk-based capital ratio | 12.73% | 10.50%* | N/A | *Includes capital conservation buffer. Regulatory Capital Ratios (Bank) at June 30, 2022 | Ratio | Actual | Minimum Requirement | Minimum to be Well Capitalized | | :--- | :--- | :--- | :--- | | Tier 1 leverage ratio | 10.65% | 4.00% | 5.00% | | Common equity tier 1 capital ratio | 11.24% | 7.00%* | 6.50% | | Tier 1 risk-based capital ratio | 11.24% | 8.50%* | 8.00% | | Total risk-based capital ratio | 12.01% | 10.50%* | 10.00% | *Includes capital conservation buffer. - Axos Clearing maintained excess net capital of **$32.7 million** above its requirement as of June 30, 2022[387](index=387&type=chunk) [Market Risk Analysis](index=72&type=section&id=QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company's primary market risk is interest rate risk, actively monitored through NII and MVE sensitivity analyses, indicating an asset-sensitive position Net Interest Income (NII) Sensitivity at June 30, 2022 | Rate Shock | NII Change (First 12 Months) | NII Change (Next 12 Months) | | :--- | :--- | :--- | | Up 200 bps | +9.2% | +10.2% | | Down 100 bps | -5.0% | -5.8% | Market Value of Equity (MVE) Sensitivity at June 30, 2022 | Rate Shock | MVE Change from Base | MVE as % of Assets | | :--- | :--- | :--- | | Up 300 bps | -8.8% | 11.2% | | Up 200 bps | -4.6% | 11.5% | | Up 100 bps | -1.3% | 11.8% | | Down 100 bps | -2.0% | 11.5% | [Non-GAAP Financial Measures](index=66&type=section&id=USE%20OF%20NON-GAAP%20FINANCIAL%20MEASURES) The company uses non-GAAP measures like adjusted earnings and tangible book value to provide alternative performance views, with FY2022 adjusted earnings at **$256.5 million** Reconciliation of Net Income to Adjusted Earnings (Non-GAAP) (in thousands) | | FY 2022 (in thousands) | FY 2021 (in thousands) | FY 2020 (in thousands) | | :--- | :--- | :--- | :--- | | Net income | $240,716 | $215,707 | $183,438 | | Acquisition-related costs | $11,355 | $9,826 | $10,108 | | Other costs | $10,975 | $— | $— | | Tax effect of adjustments | $(6,519) | $(2,894) | $(3,048) | | **Adjusted earnings (Non-GAAP)** | **$256,527** | **$222,639** | **$190,498** | Reconciliation to Tangible Book Value per Share (Non-GAAP) | (in thousands, except per share) | June 30, 2022 (in thousands) | June 30, 2021 (in thousands) | June 30, 2020 (in thousands) | | :--- | :--- | :--- | :--- | | Total stockholders' equity | $1,642,973 | $1,400,936 | $1,230,846 | | Less: Goodwill and intangibles, MSRs, etc. | $(181,618) | $(133,883) | $(141,064) | | **Tangible common stockholders' equity** | **$1,461,355** | **$1,267,053** | **$1,089,719** | | Common shares outstanding | 59,777,949 | 59,317,944 | 59,612,635 | | **Tangible book value per common share** | **$24.45** | **$21.36** | **$18.28** | [Shareholder and Other Information](index=43&type=section&id=PART%20II) This section covers common equity market information, legal proceedings, and the company's internal controls and procedures for financial reporting [Market for Common Equity and Shareholder Matters](index=43&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Axos common stock trades on the NYSE, with the company retaining earnings for growth and a **$52.8 million** stock repurchase program remaining - The company has a stock repurchase program with **$52.8 million** remaining under its authorization as of June 30, 2022, with no shares repurchased in the fourth quarter of fiscal 2022[248](index=248&type=chunk)[252](index=252&type=chunk) - The company does not pay cash dividends on its common stock and intends to retain earnings to finance growth[246](index=246&type=chunk) - During fiscal year 2022, **330,396** restricted stock unit award shares were retained by the company to fund grantees' income tax obligations[249](index=249&type=chunk) [Legal Proceedings](index=42&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in several legal proceedings, including class action and shareholder derivative lawsuits, with settlement agreements reached in two class action cases - The company has reached settlement agreements in two putative class action lawsuits (the Golden Case and the Mandalevy Case), which are pending final court approval, with the settlement amounts not material[680](index=680&type=chunk)[682](index=682&type=chunk) - Several shareholder derivative actions filed against the company and certain officers/directors have been consolidated, stayed, or dismissed, with some aspects remaining on appeal or remand[684](index=684&type=chunk)[685](index=685&type=chunk)[686](index=686&type=chunk) [Controls and Procedures](index=76&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting (ICFR) were effective as of June 30, 2022 - Management and the independent auditor, BDO USA, LLP, concluded that the company's internal control over financial reporting was effective as of June 30, 2022[416](index=416&type=chunk)[417](index=417&type=chunk) - The assessment of internal controls excluded the recently acquired E*TRADE Advisor Services (AAS) business, acquired on August 2, 2021, which is permissible for one year post-acquisition[416](index=416&type=chunk)[424](index=424&type=chunk)

Financial Data and Key Metrics Changes - The company reported net income of $57.9 million for Q4 2022, representing a year-over-year growth of 6.7%, and $240.7 million for the fiscal year, an increase of 11.6% [9] - Book value per share increased by 16.3% year-over-year to $27.48 [9] - Net interest margin for Q4 2022 was 4.21%, up 19 basis points from the previous quarter and 29 basis points from the same quarter last year [9][10] - The efficiency ratio for the banking business segment was 46.7% for Q4 2022, which would have been 40.6% excluding a one-time charge of $11 million [11][18] Business Line Data and Key Metrics Changes - Total loan originations for Q4 2022 were $3.2 billion, a 41% increase from $2.3 billion in the same quarter last year [12] - Ending net loans for investment balances were $14.1 billion, up 7.6% linked quarter and 30.4% annualized [9] - C&I loan originations were $2.1 billion, reflecting strong growth across various lending sectors [16] - Auto lending saw ending loan balances increase by 8.7% linked quarter [17] Market Data and Key Metrics Changes - Deposits grew by 9.5% linked quarter to $13.9 billion, with consumer deposits comprising 54% of total deposits [20] - Non-interest bearing deposits increased by approximately $900 million from the previous quarter, representing 36% of total deposits [10][21] - The weighted average demand and savings deposit costs were 29 basis points for Q4 2022, compared to 14 basis points in the previous quarter [21] Company Strategy and Development Direction - The company aims to maintain a net interest margin above its long-term target of 3.8% to 4% and expects mid-teens loan growth for fiscal 2023 [27][33] - Investments in technology and infrastructure are ongoing to enhance operational efficiency and support growth initiatives [36] - The company is focused on expanding its advisory services and increasing assets under custody, targeting a $1 billion growth in this area [51][33] Management's Comments on Operating Environment and Future Outlook - Management noted that while rising interest rates and economic uncertainty present challenges, the company is well-positioned due to its efficient operations and strong credit quality [16][30] - The outlook for loan growth remains positive, with expectations for continued demand across multiple loan categories [33] - Management anticipates that the net interest margin will remain stable, influenced by loan portfolio growth and advisory deposit levels [27][29] Other Important Information - The company added $6 million to its loan loss provision in Q4 2022, reflecting strong loan growth [31] - The total allowance for credit losses was $148.6 million, representing 1.04% of total loans [32] - The company has access to approximately $2 billion of Federal Home Loan Bank borrowings, providing additional liquidity [34] Q&A Session Summary Question: Growth and Competition - Management indicated that while growth is expected to continue, there may be reduced activity in the market due to financial tightening conditions, which have also reduced competition, particularly in the non-bank sector [46][48] Question: Deposit Growth from New Clients - Management targets $1 billion growth in assets under custody, primarily engaging with smaller RIAs, with expectations for meaningful growth over time [51] Question: On-Balance Sheet Deposits - Management discussed the regulatory limitations on certain cash components, indicating that some cash will likely remain off-balance sheet due to these restrictions [55] Question: Balance Sheet Management - Management confirmed the need to maintain a level of deposits at third-party banks to ensure access to those banks over time [60] Question: Expense Growth Rate - Management provided guidance on maintaining a banking efficiency ratio between 41% and 42%, with expected growth in non-interest expenses due to increased headcount and marketing efforts [72]

Financial Data and Key Metrics Changes - Axos Financial reported a net income of $61.8 million for Q3 2022, with diluted earnings per share of $1.02, representing a year-over-year growth of 15.3% [9] - Book value per share increased by 17% to $26.58 compared to the previous year [9] - The efficiency ratio for the banking business was 39.79%, showing positive operating leverage due to strong net interest income growth [11][43] Business Line Data and Key Metrics Changes - Total loan originations for Q3 2022 were $2.5 billion, up 57% from $1.6 billion in the same period last year [14] - Ending loan balances increased by 3.9% linked-quarter to $13.1 billion, with strong growth in auto, commercial real estate, and C&I lending [9][14] - Mortgage banking income was $5.7 million, up from $4.6 million in the previous quarter, but down from $9 million in the same quarter last year due to lower refinancing activity [15] Market Data and Key Metrics Changes - Noninterest-bearing deposits increased by approximately $287.8 million from December 31, 2021, representing 33% of total deposits at March 31, 2022, up from 23% a year ago [10] - Total client deposits from custody and clearing businesses were approximately $2.9 billion, with $2.1 billion kept on Axos Bank's balance sheet [21] - The weighted average demand and savings deposits cost decreased to 22 basis points from 38 basis points year-over-year [20] Company Strategy and Development Direction - The company is focusing on improving operational efficiencies and scalability in its securities business, with a target to reduce costs by approximately $1 million annually through the conversion to self-clearing [73] - Axos Financial aims to leverage its diverse lending and deposit businesses to position itself favorably in a rising interest rate environment [22][25] - The integration of Axos Advisory Services is progressing well, with expectations of improved profitability in the securities business over time [31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving the higher end of the loan growth target for fiscal 2022, supported by strong demand across multiple loan categories [30] - The company remains cautious about the economic impact of interest rate increases on aggregate loan demand and is monitoring credit quality closely [66][70] - Management highlighted the importance of maintaining a strong capital position to support organic loan growth and potential acquisitions [33][45] Other Important Information - The company raised $150 million in subordinated debt to augment its capital ahead of anticipated rate increases [33] - The total allowance for credit losses was $143 million, representing 1.1% of total loans, which is approximately 22 times the annualized net charge-offs [29] Q&A Session Summary Question: What is the scalability of the AAS business and expected efficiency ratio? - Management acknowledged ongoing opportunities for process improvement and efficiency in the AAS business, with a target for positive income despite interest rate dependencies [48][49] Question: How are new clients responding to Axos Securities and market volatility? - Management noted that market volatility could act as a catalyst for RIAs to switch custodians, emphasizing the unique service offerings and technology integration provided by Axos [54][55] Question: What are the trends in new loan yields and competitive landscape? - Management indicated that new loan yields are expected to rise, particularly in the single-family sector, as the securitization market stabilizes [60][62]

Axos Financial, Inc. (NYSE:AX) Q2 2022 Earnings Conference Call January 27, 2022 5:00 PM ET Company Participants Johnny Lai - Vice President, Investor Relations & Corporate Development Gregory Garrabrants - President & Chief Executive Officer Andrew Micheletti - Executive Vice President, Finance Derrick Walsh - Executive Vice President & Chief Financial Officer Conference Call Participants Andrew Leisch - Piper Sandler Steve Moss - B. Riley Securities Michael Perito - KBW Disclaimer*: This transcript is des ...

Axos Financial, Inc. (NYSE:AX) Q1 2022 Earnings Conference Call October 28, 2021 5:00 PM ET Company Participants Johnny Lai - Vice President, Investor Relations & Corporate Development Greg Garrabrants - President & Chief Executive Officer Andy Micheletti - Executive Vice President, Finance Derrick Walsh - Executive Vice President & Chief Financial Officer Conference Call Participants Michael Perito - KBW Andrew Leisch - Piper Sandler Gary Tanner - D.A. Davidson Tim Coffey - Janney David Chiaverini - Wedbus ...