Axos Financial, Inc. (NYSE: AX) (“Axos” or the “Company”) today announced unaudited financial results for the second fiscal quarter ended December 31, 2023. Net income was $151.8 million, an increase of 86.1% from $81.6 million for the quarter ended December 31, 2022. Diluted earnings per share was $2.62, an increase of $1.27, or 94.1%, as compared to diluted earnings per share of $1.35 for the quarter ended December 31, 2022.

Adjusted earnings and adjusted earnings per diluted common share (“Adjusted EPS”), non-GAAP measures, which exclude non-cash amortization expenses, non-recurring items related to mergers and acquisitions, including certain gains and provisions resulting from the Company’s FDIC Loan Purchase (as described below), and other non-recurring costs increased $9.1 million to $92.5 million and increased $0.22 to $1.60, respectively, for the quarter ended December 31, 2023, compared to $83.4 million and $1.38, respectively, for the quarter ended December 31, 2022.

Second Quarter Fiscal 2024 Financial Summary

For the six months ended December 31, 2023, net income was $234.4 million, an increase of 67.5% from net income of $140.0 million for the six months ended December 31, 2022. Diluted earnings per share were $3.98 for the six months ended December 31, 2023, an increase of $1.67, or 72.3%, as compared to diluted earnings per share of $2.31 for the six months ended December 31, 2022.

“Our record second quarter earnings were driven by strong organic loan and deposit growth, further net interest margin expansion, disciplined expense management and a gain associated with an opportunistic loan purchase from the FDIC,” stated Greg Garrabrants, President and Chief Executive Officer of Axos. “Excluding the one-time gain and the provision for credit losses associated with the FDIC Loan Purchase, diluted EPS was up 15.7% year-over-year. Our strong returns, margins and excess capital provide us with flexibility to allocate capital to opportunities where we see the best risk-adjusted returns.”

“Our credit quality remains resilient, with annualized net charge-offs to average loans declining by 3 basis points year-over-year to 0.02% in the quarter ended December 31, 2023,” stated Derrick Walsh, Executive Vice President and Chief Financial Officer of Axos. “Our provision for credit losses was $13.5 million this quarter to account for our strong organic loan growth and the FDIC loan purchase. Additionally, we added approximately $75 million of allowance for credit losses for the FDIC loans we purchased, bringing our total allowance for credit losses to 1.33% of total loans held for investment.”

Other Highlights

• Net interest margin was 4.55% for the quarter ended December 31, 2023 compared to 4.49% for the quarter ended December 31, 2022
• Net loans for investment totaled $18.3 billion at December 31, 2023, an increase of $1.8 billion, or 22.0% annualized, from $16.5 billion at June 30, 2023
• Total deposits were $18.2 billion at December 31, 2023, an increase of $1.1 billion, or 12.6% annualized, from $17.1 billion at June 30, 2023
• Completed the purchase from the Federal Deposit Insurance Corporation (“FDIC”) of two performing commercial real estate and multi-family loan pools with a combined unpaid principal balance of approximately $1.25 billion at 63% of par value (the “FDIC Loan Purchase”), and recognized a $65 million after-tax gain on the purchase in the quarter ended December 31, 2023 while increasing the allowance for credit losses by $75 million
• Approximately 90% of total deposits were FDIC-insured or collateralized at December 31, 2023
• After-tax net unrealized losses of $3.3 million on the available-for-sale securities portfolio, less than 0.5% of stockholders’ equity at December 31, 2023
• Net annualized charge-offs to average loans was 0.02% for the quarter ended December 31, 2023, down from 0.04% for the prior quarter and 0.05% for the quarter ended December 31, 2022
• Total capital to risk-weighted assets was 13.79% for Axos Financial, Inc. at December 31, 2023, up from 13.82% at June 30, 2023
• Book value increased to $36.53 per share, from $29.79 at December 31, 2022, an increase of 22.6%
• Repurchased $58.7 million of common stock during the quarter ended December 31, 2023 at an average price of $36.49 per share

Second Quarter Fiscal 2024 Income Statement Summary

Net income was $151.8 million and earnings per diluted common share was $2.62 for the three months ended December 31, 2023, compared to net income of $81.6 million and earnings per diluted common share of $1.35 for the three months ended December 31, 2022. Net interest income increased $28.7 million or 14.4% for the three months ended December 31, 2023 compared to the three months ended December 31, 2022, primarily due to an increase in interest income from loans attributable to higher rates earned and higher average balances, partially offset by higher rates paid and higher average interest-bearing deposit balances.

The provision for credit losses was $13.5 million for the three months ended December 31, 2023, compared to $3.0 million for the three months ended December 31, 2022. The provision for credit losses for the three months ended December 31, 2023, was primarily due to loan growth in the Commercial & Industrial - Non-RE portfolio and the loans acquired in the FDIC Loan Purchase.

Non-interest income increased to $124.1 million for the three months ended December 31, 2023, compared to $28.3 million for the three months ended December 31, 2022. The increase was primarily due to a $92.4 million pre-tax gain on the FDIC Loan Purchase and an increase in broker-dealer fee income.

Non-interest expense, comprised of various operating expenses, increased $13.8 million to $121.8 million for the three months ended December 31, 2023 from $108.0 million for the three months ended December 31, 2022. The increase was primarily due to increased salaries and related costs, data and operational processing expense and broker-dealer clearing charges.

Balance Sheet Summary

Axos’ total assets increased by $1.3 billion, or 6.3%, to $21.6 billion, at December 31, 2023, from $20.3 billion at June 30, 2023, primarily due to an increase of $1.8 billion in loans, partially offset by a decrease in cash of $0.6 billion. Total liabilities increased by $1.1 billion, or 6.0%, to $19.5 billion at December 31, 2023, from $18.4 billion at June 30, 2023, primarily due to an increase of $1.1 billion in deposits. Stockholders’ equity increased by approximately $0.2 billion, or 8.4%, to $2.1 billion at December 31, 2023 from $1.9 billion at June 30, 2023. The increase was primarily the result of net income of $234.4 million, partially offset by purchases of common stock of $83.2 million under the share repurchase program.

Conference Call

A conference call and webcast will be held on Tuesday, January 30, 2024 at 5:00 PM Eastern / 2:00 PM Pacific. Analysts and investors may dial in and participate in the question/answer session. To access the call, please dial: 877-407-8293. The conference call will be webcast live, and both the webcast and the earnings supplement may be accessed at Axos’ website, investors.axosfinancial.com. For those unable to listen to the live broadcast, a replay will be available until February 29, 2024, at Axos’ website and telephonically by dialing toll-free number 877-660-6853, passcode 13743449.

About Axos Financial, Inc. and Subsidiaries

Axos Financial, Inc., with approximately $21.6 billion in consolidated assets as of December 31, 2023, is the holding company for Axos Bank, Axos Clearing LLC and Axos Invest, Inc. Axos Bank provides consumer and business banking products nationwide through its low-cost distribution channels and affinity partners. Axos Clearing LLC (including its business division Axos Advisor Services), with approximately $34.4 billion of assets under custody and/or administration as of December 31, 2023, and Axos Invest, Inc., provide comprehensive securities clearing services to introducing broker-dealers and registered investment advisor correspondents, and digital investment advisory services to retail investors, respectively. Axos Financial, Inc.’s common stock is listed on the NYSE under the symbol “AX” and is a component of the Russell 2000® Index, the S&P SmallCap 600® Index, the KBW Nasdaq Financial Technology Index, and the Travillian Tech-Forward Bank Index. For more information on Axos Financial, Inc., please visit http://investors.axosfinancial.com.

Segment Reporting

The Company operates through two segments: Banking Business and Securities Business. In order to reconcile the two segments to the consolidated totals, the Company includes parent-only activities and intercompany eliminations. Inter-segment transactions are eliminated in consolidation and primarily include non-interest income earned by the Securities Business segment and non-interest expense incurred by the Banking Business segment for cash sorting fees related to deposits sourced from Securities Business segment customers, as well as interest expense paid by the Banking Business segment to each of the wholly-owned subsidiaries of the Company and to the Company itself for their operating cash held on deposit with the Business Banking segment.

The following tables present the operating results of the segments:

Use of Non-GAAP Financial Measures

In addition to the results presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), this release includes non-GAAP financial measures such as adjusted earnings, adjusted earnings per diluted common share, and tangible book value per common share. Non-GAAP financial measures have inherent limitations, may not be comparable to similarly titled measures used by other companies and are not audited. Readers should be aware of these limitations and should be cautious as to their reliance on such measures. Although we believe the non-GAAP financial measures disclosed in this release enhance investors’ understanding of our business and performance, these non-GAAP measures should not be considered in isolation, or as a substitute for GAAP basis financial measures.

We define “adjusted earnings”, a non-GAAP financial measure, as net income without the after-tax impact of non-recurring acquisition-related items (including amortization of intangible assets related to acquisitions) and other costs (unusual or non-recurring charges). Adjusted EPS, a non-GAAP financial measure, is calculated by dividing non-GAAP adjusted earnings by the average number of diluted common shares outstanding during the period. We believe the non-GAAP measures of adjusted earnings and Adjusted EPS provide useful information about Axos’ operating performance. We believe excluding the non-recurring acquisition-related costs, and other costs provides investors with an alternative understanding of Axos’ core business.

Below is a reconciliation of net income, the nearest compatible GAAP measure, to adjusted earnings and adjusted EPS (Non-GAAP) for the periods shown:

We define “tangible book value”, a non-GAAP financial measure, as book value adjusted for goodwill and other intangible assets. Tangible book value is calculated using common stockholders’ equity minus servicing rights, goodwill and other intangible assets. Tangible book value per common share, a non-GAAP financial measure, is calculated by dividing tangible book value by the common shares outstanding at the end of the period. We believe tangible book value per common share is useful in evaluating the Company’s capital strength, financial condition, and ability to manage potential losses.

Below is a reconciliation of total stockholders’ equity, the nearest compatible GAAP measure, to tangible book value per common share (non-GAAP) as of the dates indicated:

Forward-Looking Safe Harbor Statement

This press release contains forward-looking statements that involve risks and uncertainties, including without limitation statements relating to Axos’ financial prospects and other projections of its performance and asset quality, Axos’ deposit balances and capital ratios, Axos’ ability to continue to grow profitably and increase its business, Axos’ ability to continue to diversify its lending and deposit franchises, the anticipated timing and financial performance of other offerings, initiatives, and acquisitions, expectations of the environment in which Axos operates and projections of future performance. These forward-looking statements are made on the basis of the views and assumptions of management regarding future events and performance as of the date of this press release. Actual results and the timing of events could differ materially from those expressed or implied in such forward-looking statements as a result of risks and uncertainties, including without limitation Axos’ ability to successfully integrate acquisitions and realize the anticipated benefits of the transactions, changes in the interest rate environment, monetary policy, inflation, government regulation, general economic conditions, changes in the competitive marketplace, conditions in the real estate markets in which we operate, risks associated with credit quality, our ability to attract and retain deposits and access other sources of liquidity, and the outcome and effects of litigation and other factors beyond our control. These and other risks and uncertainties detailed in Axos’ periodic reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended June 30, 2023, could cause actual results to differ materially from those expressed or implied in any forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Axos undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All written and oral forward-looking statements made in connection with this press release, which are attributable to us or persons acting on Axos’ behalf are expressly qualified in their entirety by the foregoing information.

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