Axos Financial, Inc. Reports Record Third Quarter 2020 Earnings

Axos Financial, Inc. (NYSE: AX) (“Axos”), parent company of Axos Bank (the “Bank”), today announced financial results for the third fiscal quarter ended March 31, 2020. Net income was $56.1 million, an increase of 44.4% from $38.8 million for the quarter ended March 31, 2019. Earnings attributable to Axos’ common stockholders were $56.0 million or $0.91 per diluted share for the third quarter of fiscal 2020, an increase of 44.5% from $38.7 million or $0.63 per diluted share for the third quarter ended March 31, 2019.

Adjusted earnings and adjusted earnings per diluted common share (“adjusted EPS”), non-GAAP measures, which excludes non-cash amortization expenses and non-recurring costs related to mergers and acquisitions, and other non-recurring costs increased 11.9% to $57.7 million and increased 11.9% to $0.94, respectively, for the quarter ended March 31, 2020 compared to $51.5 million and $0.84, respectively, for the quarter ended March 31, 2019.

Third Quarter Fiscal 2020 Financial Summary

For the nine months ended March 31, 2020, net income was a record $138.1 million, an increase of 20.6% over net income of $114.5 million for the nine months ended March 31, 2019. Earnings attributable to Axos’ common stockholders were $137.9 million or $2.23 per diluted share for the nine months ended March 31, 2020, an increase of 21.9% from $114.3 million or $1.83 per diluted share for the nine months ended March 31, 2019. Record earnings for the fiscal third quarter and for the nine months ended March 31, 2020 were primarily the result of growth in the Bank’s loan and lease portfolio.

“We maintained strong profitability and efficiency in a volatile environment,” stated Greg Garrabrants, President and Chief Executive Officer of Axos. “Our team members and management team adjusted quickly to accommodate the needs of our clients, employees and partners across our consumer, commercial and securities businesses. Our record quarterly earnings, strong capital ratios and credit metrics are a direct result of our diverse and efficient business model and our culture of execution.”

Other Highlights

• Total assets reached $12.2 billion, up $1.3 billion or 11.8% compared to March 31, 2019
• Loan and lease portfolio grew by $1.3 billion or 14.0% compared to March 31, 2019
• Loan and lease originations for the three months ended March 31, 2020 were approximately $2.9 billion, up 14.8% compared to the quarter ended March 31, 2019
• Total deposits increased by $0.9 billion, up 10.5% from March 31, 2019
• Net interest margin was 4.90% compared to 4.84% in the three months ended March 31, 2019; net interest margin for the banking business segment was 4.97% compared to 4.94% in the March 31, 2019 period
• Efficiency ratio for the banking business segment was 33.21% compared to 35.26% in the March 31, 2019 period
• Net annualized charge-offs of 3 basis points compared to 4 basis points in the March 31, 2019 period
• Provision for loan loss reserves was $28.5 million, up $9.5 million from $19.0 million in the March 31, 2019 period
• Return on average common stockholders’ equity was 18.65% for the three months ended March 31, 2020
• Book value increased to $19.77 per share, up 17.1% from March 31, 2019

Third Quarter Fiscal 2020 Income Statement Summary

During the quarter ended March 31, 2020, Axos earned $56.0 million or $0.91 per diluted share compared to $38.7 million, or $0.63 per diluted share for the quarter ended March 31, 2019. Net interest income increased $19.4 million or 15.1% for the quarter ended March 31, 2020 compared to March 31, 2019, primarily due to $1.5 billion growth in average-earning assets at the Bank.

The loan and lease loss provision was $28.5 million for the quarter ended March 31, 2020 compared to $19.0 million for the quarter ended March 31, 2019. The increase in the provision is primarily the result of additional provision for Refund Advance loans consistent with increased originations in the loan product and the changes in economic and business conditions, resulting from the COVID-19 pandemic, including in the hospitality, retail and oil & gas sectors.

For the third quarter ended March 31, 2020, non-interest income was $31.5 million compared to $26.1 million for the three months ended March 31, 2019. The $5.4 million increase was the result of a $2.6 million increase in mortgage banking income, an increase of broker dealer fees of $1.3 million, a $0.8 million decrease in unrealized loss on securities, and a $0.7 million increase in prepayment penalty fee income.

Non-interest expense or operating costs decreased $10.0 million to $71.8 million for the quarter ended March 31, 2020 from $81.8 million for the three months ended March 31, 2019. The decrease was mainly a result of a prior year non-recurring charge of $15.3 million in our Securities Business bad debt reserve for an uncollectible receivable, partially offset by an increase in salaries and related expense of $2.5 million due to staffing additions from the acquisition of the Securities Business and to support growth in the Bank’s operations. Other operating expense increases included a $1.4 million increase in depreciation and amortization primarily due to amortization of intangibles and a $1.1 million increase in broker-dealer clearing charges.

Balance Sheet Summary

Axos’ total assets increased $939.7 million, or 8.4%, to $12,159.9 million, as of March 31, 2020, up from $11,220.2 million at June 30, 2019. The increase in total assets was primarily due to an increase in loan portfolio growth of $990.8 million on a net basis, primarily from portfolio loan originations of $5,493.3 million less principal repayments and other adjustments of $4,502.5 million. Total liabilities increased by $828.3 million, or 8.2%, to $10,975.5 million at March 31, 2020, up from $10,147.2 million at June 30, 2019. The increase in total liabilities primarily resulted from an increase in deposits of $584.2 million and a $312.0 million increase in advances from the FHLB, partially offset by $121.8 million decrease in securities loaned. Stockholders’ equity increased by $111.4 million, or 10.4%, to $1,184.5 million at March 31, 2020 from $1,073.1 million at June 30, 2019. The increase was primarily the result of $138.1 million in net income, $12.1 million of vesting and issuance of RSUs and stock-based compensation expense, partially offset by $35.8 million of common stock repurchases and $0.2 million of dividends declared on preferred stock.

The Bank’s Tier 1 core capital to adjusted average assets ratio was 8.72% at March 31, 2020, which is at a seasonally reduced level as a result of carrying increased amounts of short-term tax related assets. At March 31, 2019, the Tier 1 core capital to adjusted average assets ratio was 8.68%.

Conference Call

A conference call and webcast will be held on Wednesday, April 29, 2020 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 may be accessed at Axos’ website, http://www.axosfinancial.com. For those unable to listen to the live broadcast, a replay will be available until May 29, 2020, at Axos’ website and telephonically by dialing toll-free number 877-660-6853, passcode 13701354.

About Axos Financial, Inc. and Subsidiaries

The condensed consolidated financial statements include the accounts of Axos Financial, Inc. (“Axos”) and its wholly owned subsidiaries, Axos Bank (the “Bank”) and Axos Nevada Holding, LLC (the “Axos Nevada Holding” and collectively, the “Company”). Axos Nevada Holding wholly owns its subsidiary Axos Securities, LLC, which wholly owns subsidiaries Axos Clearing, LLC, a clearing broker dealer, Axos Invest, Inc., a registered investment advisor, and Axos Invest LLC, an introducing broker dealer. With approximately $12.2 billion in assets, Axos Bank provides consumer and business banking products through its low-cost distribution channels and affinity partners. Axos Clearing LLC 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 and the S&P SmallCap 600® Index. For more information on Axos Bank, please visit axosbank.com.

Segment Reporting

The Company determines reportable segments based on what separate financial information is available and what segment results are evaluated regularly by the Chief Executive Officer in deciding how to allocate resources and in assessing performance. 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.

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 GAAP, this report includes non-GAAP financial measures such as adjusted earnings, adjusted earnings per common share, and tangible book value per common share. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited. Readers should be aware of these limitations and should be cautious as to their use of such measures. Although we believe the non-GAAP financial measures disclosed in this report 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 net income without the after-tax impact of non-recurring acquisition-related costs (including amortization of intangible assets related to acquisitions), and excess FDIC expense, and other costs (unusual or non-recurring charges), as “adjusted earnings,” a non-GAAP financial measure. Excess FDIC expense is defined as the higher insurance costs associated with increased levels of short-term brokered deposits in anticipation of the acquisition of deposits from Nationwide Bank. Adjusted earnings per diluted common share (“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 the Bank’s operating performance. Excluding the non-recurring acquisition related costs, excessive FDIC expense, and other costs provides investors with an understanding of Axos’ business without these non-recurring costs.

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

We define book value adjusted for goodwill and other intangible assets as tangible book value (“tangible book value”), a non-GAAP financial measure. Tangible book value is calculated using common stockholders’ equity minus mortgage 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 to tangible book value (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 the effects on our business of the current novel coronavirus pandemic (“COVID-19”), Axos’ financial prospects and other projections of its performance and asset quality, Axos’ ability to continue to grow profitably and increase its business, Axos’ ability to successfully integrate its recent acquisitions and realize the anticipated benefits of the transactions, Axos’ ability to continue to diversify its lending and deposit franchises and the anticipated timing and financial performance of other offerings, initiatives, and acquisitions. 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 uncertainties surrounding the severity, duration, and effects of the COVID-19 pandemic, changes in the interest rate environment, inflation, government regulation, general economic conditions, conditions in the real estate markets in which we operate, risks associated with credit quality, the outcome and effects of pending class action litigation filed against the Company and other factors beyond our control. These and other risks and uncertainties detailed in Axos’ periodic reports filed with the Securities and Exchange Commission could cause actual results to differ materially from those expressed or implied in any forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. All forward-looking statements are qualified in their entirety by this cautionary statement, and Axos undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this press release.

The following tables set forth certain selected financial data concerning the periods indicated:

View source version on businesswire.com: https://www.businesswire.com/news/home/20200429005847/en/