Axos: A Very Profitable Business At An Attractive Price

Core Viewpoint - Axos Financial, Inc. is a diversified financial services company with strong growth potential, solid solvency, and liquidity, making it an attractive investment opportunity at its current price [1]. Business & Portfolio - Axos has $21.6 billion in assets, $18.2 billion in deposits, and a market cap of $2.95 billion [2]. - The loan portfolio generates 69% of total revenue, with 75.8% being commercial loans and 77.74% of those being real estate loans [3]. - Key markets for real estate loans include California (41.3%), New York (25.2%), and Florida (8%) [3]. - Management aims for a return on equity (ROE) of 17% or better, 12% annual growth in interest-earning assets, and an efficiency ratio of 40% or lower [3]. Performance - The loan portfolio yield increased to 8.18%, net interest income rose to $215.1 million (9.24% increase), and interest revenue reached $394.6 million (41.15% increase) [6]. - The efficiency ratio improved to 30.96%, and tangible book value increased by 25% to $33.45 per share [6]. - The company repurchased $59 million worth of shares, representing 2.8% of shares outstanding [6]. Outlook - Management expects high single-digit to low double-digit organic growth in the loan portfolio in the coming quarters [7]. - The purchase of two commercial real estate loan pools from the FDIC, with a combined unpaid principal balance of ~$1.25 billion, is expected to enhance net interest margin (NIM) [7]. - NIM is projected to expand by 40-50 basis points over the next 4 to 6 quarters [7]. Solvency & Liquidity - Axos is "well capitalized" under Basel III, with a Tier 1 leverage ratio of 9.39% and a common equity tier 1 ratio of 10.97% [9]. - The weighted average cost of total deposits is 3.64%, and the loan portfolio shows low credit risk, with only 1.15% rated as Special Mention [9]. Valuation - The forward earnings multiple is lower than the 5-year mean, suggesting the stock is undervalued [10]. - The earnings yield is 12.5%, and the book value per share has significantly increased over the last decade [12]. - The current price level offers a potential upside based on historical valuation metrics [12].