Business Wire | Jan 28, 2021 04:05PM EST

Axos Financial, Inc. Reports Record Fiscal Second Quarter 2021 Results

Jan. 28, 2021

SAN DIEGO--(BUSINESS WIRE)--Jan. 28, 2021--Axos Financial, Inc. (NYSE: AX) ("Axos"), parent company of Axos Bank (the "Bank"), today announced financial results for the second fiscal quarter ended December 31, 2020. Net income was $54.8 million, an increase of 32.7% from $41.3 million for the quarter ended December 31, 2019. Earnings attributable to Axos' common stockholders were $54.7 million or $0.91 per diluted share for the second quarter of fiscal 2021, an increase of 32.6% from $41.2 million or $0.67 per diluted share for the second quarter ended December 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 31.7% to $56.6 million and increased 36.2% to $0.94, respectively, for the quarter ended December 31, 2020 compared to $42.9 million and $0.69, respectively, for the quarter ended December 31, 2019.

Second Quarter Fiscal 2021 Financial Summary:

Three Months Ended December 31

(Dollars in thousands, except per share Q2 Fiscal Q2 Fiscal %data) 2021 2020 Change

Net interest income $ 134,092 $ 108,420 23.7 %

Non-interest income $ 28,718 $ 21,207 35.4 %

Net income $ 54,785 $ 41,295 32.7 %

Adjusted earnings (Non-GAAP)^1 $ 56,566 $ 42,949 31.7 %

Net income attributable to common $ 54,672 $ 41,217 32.6 %stockholders

Diluted EPS $ 0.91 $ 0.67 35.8 %

Adjusted EPS (Non-GAAP)^1 $ 0.94 $ 0.69 36.2 %

^1 See "Use of Non-GAAP Financial Measures"

For the six months ended December 31, 2020, net income was a record $107.8 million, an increase of 31.3% over net income of $82.1 million for the six months ended December 31, 2019. Earnings attributable to Axos' common stockholders were $107.6 million or $1.79 per diluted share for the six months ended December 31, 2020, an increase of 31.4% from $81.9 million or $1.32 per diluted share for the six months ended December 31, 2019. Record earnings for the fiscal second quarter and for the six months ended December 31, 2020 were primarily the result of growth in the Bank's loan and lease portfolio, exceptional performance in mortgage banking and lower deposit rates paid.

"We achieved record second quarter earnings, despite maintaining a conservative level of loan loss reserves," stated Greg Garrabrants, President and Chief Executive Officer of Axos. "Net interest income and non-interest income increased by more than 20% year-over-year as a result of solid loan growth and mortgage banking fees, as well as strong net interest margin expansion. With a diverse set of lending and fee-based businesses, we feel good about our ability to generate good risk-adjusted returns for our shareholders."

Other Highlights

* Total assets grew to $14.4 billion, up $2.1 billion or 17.3% compared to December 31, 2019

* Loan and lease portfolio grew by $1.5 billion or 14.5% compared to December 31, 2019

* Net interest income increased 5.3% linked quarter and 23.7% year-over-year to $134.1 million

* Net interest margin increased 7 basis points to 3.94% in the three months ended December 31, 2020 compared to 3.87% in the three months ended December 31, 2019; net interest margin for the banking business segment increased 17 basis points to 4.11% in the three months ended December 31, 2020 compared to 3.94% in the three months ended December 31, 2019

* Efficiency ratio for the banking business segment was 40.45% in the three months ended December 31, 2020 compared to 43.81% in the three months ended December 31, 2019

* Net annualized charge-offs to average loans and leases of 16 basis points compared to 17 basis points in the December 31, 2019 period

* No loans were in forbearance or deferral at December 31, 2020

* Return on average common stockholders' equity was 17.30% for the three months ended December 31, 2020

* Book value increased to $21.79 per share, up 15.7% from December 31, 2019

* Repurchased approximately $4.0 million of common stock at an average price of $23.43 per share in the three months ended December 31, 2020

Second Quarter Fiscal 2021 Income Statement Summary

During the quarter ended December 31, 2020, Axos earned $54.7 million or $0.91 per diluted share compared to $41.2 million, or $0.67 per diluted share for the quarter ended December 31, 2019. Net interest income increased $25.7 million or 23.7% for the quarter ended December 31, 2020 compared to December 31, 2019, primarily due to $2.4 billion growth in average-earning assets and a reduction in rates paid on interest-bearing demand and savings deposits due to decreases in prevailing deposits rates across the industry.

The provision for credit losses was $8.0 million for the quarter ended December 31, 2020 compared to $4.5 million for the quarter ended December 31, 2019. The increase in the provision was mainly attributable to loan growth, changes in loan mix and a change in the methodology of determining the provision for credit loss from the historical incurred loss model to a current expected loss model based upon the life of the loan.

For the second quarter ended December 31, 2020, non-interest income was $28.7 million compared to $21.2 million for the three months ended December 31, 2019. The $7.5 million increase was mainly the result of an $8.4 million increase in mortgage banking income, a $0.7 million increase in broker dealer fees and a $0.5 million increase in banking and service fees, partially offset by a decrease of $1.8 million in gain in sale - other, as certain sales of Emerald Advance loans to H&R Block in the three months ended December 31, 2019 did not recur in the three months ended December 31, 2020, and a decrease of $0.4 million in prepayment penalty fee income.

Non-interest expense increased $9.3 million to $76.3 million for the three months ended December 31, 2020 compared to $67.0 million for the three months ended December 31, 2019. The increase was mainly the result of a $4.2 million increase to salary and payroll costs due to growth in Bank staffing, a $2.5 million increase in professional services, a $2.3 million increase in data processing to support operational growth, and a $1.7 million increase in FDIC and regulatory fees, partially offset by a decrease of $1.5 million to general and administrative expense.

Balance Sheet Summary

Axos' total assets increased $541.4 million, or 3.9%, to $14.4 billion, at December 31, 2020, up from $13.9 billion at June 30, 2020. The increase in total assets was primarily due to an increase of $978.2 million in net loans and leases held for investment, partially offset by a decrease in cash and cash equivalents of $507.3 million. Total liabilities increased $484.7 million, primarily from increased borrowings of $182.7 million, an increase in customer, broker-dealer and clearing payables of $127.9 million, growth in deposits of $126.4 million, and an increase of $106.2 million in securities loaned, partially offset by a decrease of $60.0 million in advances from the FHLB.

The Bank's Tier 1 core capital to adjusted average assets ratio was 9.08% at December 31, 2020. At December 31, 2019, the Bank's Tier 1 core capital to adjusted average assets ratio was 9.16%.

Conference Call

A conference call and webcast will be held on Thursday, January 28, 2021 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 February 28, 2021, at Axos' website and telephonically by dialing toll-free number 877-660-6853, passcode 13714588.

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 $14.4 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(r) Index, the KBW Nasdaq Financial Technology Index, and the S&P SmallCap 600(r) Index. For more information on Axos Bank, please visit axosbank.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.

The following tables present the operating results of the segments:

Three Months Ended December 31, 2020

(Dollars in Banking Securities Corporate/ Axosthousands) Business Business Eliminations Consolidated

Net interest income $ 132,166 $ 4,260 $ (2,334 ) $ 134,092

Provision for credit 8,000 - - 8,000 losses

Non-interest income 22,295 6,572 (149 ) 28,718

Non-interest expense 62,474 11,312 2,511 76,297

Income before taxes $ 83,987 $ (480 ) $ (4,994 ) $ 78,513

Three Months Ended December 31, 2019

(Dollars in thousands)

Banking Business

Securities Business

Corporate/Eliminations

Axos Consolidated

Net interest income

$

105,340

$

4,037

$

(957

)

$

108,420

Provision for credit losses

4,500

-

-

4,500

Non-interest income

16,225

6,284

(1,302

)

21,207

Non-interest expense

53,253

10,455

3,257

66,965

Income before taxes

$

63,812

$

(134

)

$

(5,516

)

$

58,162

Three Months Ended December 31, 2019

(Dollars in Banking Securities Corporate/ Axosthousands) Business Business Eliminations Consolidated

Net interest income $ 105,340 $ 4,037 $ (957 ) $ 108,420

Provision for credit 4,500 - - 4,500 losses

Non-interest income 16,225 6,284 (1,302 ) 21,207

Non-interest expense 53,253 10,455 3,257 66,965

Income before taxes $ 63,812 $ (134 ) $ (5,516 ) $ 58,162

Six Months Ended December 31, 2020

(Dollars in thousands)

Banking Business

Securities Business

Corporate/Eliminations

Axos Consolidated

Net interest income

$

255,174

$

9,154

$

(2,909

)

$

261,419

Provision for credit losses

19,800

-

-

19,800

Non-interest income

52,507

12,356

(290

)

64,573

Non-interest expense

123,691

22,664

5,488

151,843

Income before taxes

$

164,190

$

(1,154

)

$

(8,687

)

$

154,349

Six Months Ended December 31, 2020

(Dollars in Banking Securities Corporate/ Axosthousands) Business Business Eliminations Consolidated

Net interest income $ 255,174 $ 9,154 $ (2,909 ) $ 261,419

Provision for credit 19,800 - - 19,800 losses

Non-interest income 52,507 12,356 (290 ) 64,573

Non-interest expense 123,691 22,664 5,488 151,843

Income before taxes $ 164,190 $ (1,154 ) $ (8,687 ) $ 154,349

Six Months Ended December 31, 2019

(Dollars in thousands)

Banking Business

Securities Business

Corporate/Eliminations

Axos Consolidated

Net interest income

$

204,812

$

9,183

$

(2,272

)

$

211,723

Provision for credit losses

7,200

-

-

7,200

Non-interest income

32,015

12,685

(1,957

)

42,743

Non-interest expense

103,886

21,519

7,027

132,432

Income before taxes

$

125,741

$

349

$

(11,256

)

$

114,834

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 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 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 "adjusted earnings", a non-GAAP financial measure, as net income without the after-tax impact of non-recurring acquisition-related costs and other costs (unusual or non-recurring charges), as adjusted earnings, a non-GAAP financial measure. 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. We believe excluding the non-recurring acquisition related costs and other (unusual or non-recurring) 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:

Six Months Ended December 31, 2019

(Dollars in Banking Securities Corporate/ Axosthousands) Business Business Eliminations Consolidated

Net interest income $ 204,812 $ 9,183 $ (2,272 ) $ 211,723

Provision for credit 7,200 - - 7,200 losses

Non-interest income 32,015 12,685 (1,957 ) 42,743

Non-interest expense 103,886 21,519 7,027 132,432

Income before taxes $ 125,741 $ 349 $ (11,256 ) $ 114,834

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 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 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 "adjusted earnings", a non-GAAP financial measure, as net income without the after-tax impact of non-recurring acquisition-related costs and other costs (unusual or non-recurring charges), as adjusted earnings, a non-GAAP financial measure. 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. We believe excluding the non-recurring acquisition related costs and other (unusual or non-recurring) 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:

Three Months Ended Six Months Ended

December 31, December 31,

(Dollars inthousands, except 2020 2019 2020 2019 per share amounts)

Net income $ 54,785 $ 41,295 $ 107,807 $ 82,081

Acquisition-related 2,552 2,330 5,154 3,977 costs

Income taxes (771 ) (676 ) (1,554 ) (1,134 )

Adjusted earnings $ 56,566 $ 42,949 $ 111,407 $ 84,924 (Non-GAAP)

Adjusted EPS $ 0.94 $ 0.69 $ 1.85 $ 1.37 (Non-GAAP)

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 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 per common share (Non-GAAP) as of the dates indicated:

December 31,

(Dollars in thousands, except per share amounts) 2020 2019

Total stockholders' equity $ 1,287,482 $ 1,160,752

Less: preferred stock - 5,063

Common stockholders' equity 1,287,482 1,155,689

Less: mortgage servicing rights, carried at fair 14,314 11,262 value

Less: goodwill and other intangible assets 120,644 130,534

Tangible common stockholders' equity (Non-GAAP) $ 1,152,524 $ 1,013,893

Common shares outstanding at end of period 59,072,822 61,338,386

Tangible book value per common share (Non-GAAP) $ 19.51 $ 16.53

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' ability to continue to grow profitably and increase its business, 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, Axos' ability to successfully integrate acquisitions and realize the anticipated benefits of the transactions, 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:

AXOS FINANCIAL, INC. AND SUBSIDIARIES

SELECTED CONSOLIDATED FINANCIAL INFORMATION

(Unaudited - dollars in thousands)

December 31, June 30, December 31, 2020 2020 2019

Selected Balance Sheet Data:

Total assets $ 14,393,267 $ 13,851,900 $ 12,269,288

Loans and leases-net of 11,609,584 10,631,349 10,141,397 allowance for credit losses

Loans held for sale, carried 64,287 51,995 36,092 at fair value

Loans held for sale, lower of 13,769 44,565 3,430 cost or fair value

Allowance for credit losses - 136,393 75,807 59,514 loans

Securities-trading 362 105 1,740

Securities-available-for-sale 209,828 187,627 208,026

Securities borrowed 317,571 222,368 168,114

Customer, broker-dealer and 264,572 220,266 244,379 clearing receivables

Total deposits 11,463,136 11,336,694 10,114,340

Advances from the FHLB 182,500 242,500 257,500

Borrowings, subordinated notes 418,480 235,789 62,233 and debentures

Securities loaned 362,170 255,945 206,199

Customer, broker-dealer and 475,473 347,614 305,669 clearing payables

Total stockholders' equity 1,287,482 1,230,846 1,160,752



Capital Ratios:

Equity to assets at end of 8.95 % 8.89 % 9.46 %period

Axos Financial, Inc.:

Tier 1 leverage (core) capital 8.68 % 8.97 % 8.88 %to adjusted average assets

Common equity tier 1 capital 10.85 % 11.22 % 11.29 %(to risk-weighted assets)

Tier 1 capital (to 10.85 % 11.27 % 11.35 %risk-weighted assets)

Total capital (to 13.88 % 12.64 % 12.65 %risk-weighted assets)

Axos Bank:

Tier 1 leverage (core) capital 9.08 % 9.25 % 9.16 %to adjusted average assets

Common equity tier 1 capital 11.45 % 11.79 % 11.55 %(to risk-weighted assets)

Tier 1 capital (to 11.45 % 11.79 % 11.55 %risk-weighted assets)

Total capital (to 12.44 % 12.62 % 12.25 %risk-weighted assets)

Axos Clearing, LLC:

Net capital $ 34,417 $ 34,022 $ 31,917

Excess capital $ 28,941 $ 29,450 $ 27,056

Net capital as a percentage of 12.57 % 14.88 % 13.13 %aggregate debit items

Net capital in excess of 5% $ 20,726 $ 22,593 $ 19,765 aggregate debit items

AXOS FINANCIAL, INC. AND SUBSIDIARIES

SELECTED CONSOLIDATED FINANCIAL INFORMATION

(Unaudited - dollars in thousands, except per share data)

At or for the Three Months Ended

At or for the Six Months Ended

December 31,

December 31,

2020

2019

2020

2019

Selected Income Statement Data:

Interest and dividend income

$

155,379

$

147,288

$

305,268

$

293,633

Interest expense

21,287

38,868

43,849

81,910

Net interest income

134,092

108,420

261,419

211,723

Provision for credit losses

8,000

4,500

19,800

7,200

Net interest income after provision for credit losses

126,092

103,920

241,619

204,523

Non-interest income

28,718

21,207

64,573

42,743

Non-interest expense

76,297

66,965

151,843

132,432

Income before income tax expense

78,513

58,162

154,349

114,834

Income tax expense

23,728

16,867

46,542

32,753

Net income

$

54,785

$

41,295

$

107,807

$

82,081

Net income attributable to common stock

$

54,672

$

41,217

$

107,617

$

81,926

Per Common Share Data:

Net income:

Basic

$

0.93

$

0.67

$

1.82

$

1.34

Diluted

$

0.91

$

0.67

$

1.79

$

1.32

Adjusted earnings (Non-GAAP)

$

0.94

$

0.69

$

1.85

$

1.37

Book value

$

21.79

$

18.84

$

21.79

$

18.84

Tangible book value (Non-GAAP)

$

19.51

$

16.53

$

19.51

$

16.53

Weighted average number of common shares outstanding:

Basic

59,049,697

61,315,590

59,278,672

61,281,127

Diluted

60,040,723

61,938,988

60,196,516

61,900,633

Common shares outstanding at end of period

59,072,822

61,338,386

59,072,822

61,338,386

Common shares issued at end of period

67,668,664

66,915,478

67,668,664

66,915,478

Performance Ratios and Other Data:

Loan and lease originations for investment

$

1,909,978

$

1,435,152

$

3,240,790

$

2,896,918

Loan originations for sale

$

490,261

$

666,192

$

931,065

$

994,004

Return on average assets

1.57

%

1.42

%

1.56

%

1.43

%

Return on average common stockholders' equity

17.30

%

14.35

%

17.21

%

14.57

%

Interest rate spread1

3.71

%

3.37

%

3.67

%

3.35

%

Net interest margin2

3.94

%

3.87

%

3.89

%

3.81

%

Net interest margin2 - Banking Business Segment only

4.11

%

3.94

%

4.01

%

3.89

%

Efficiency ratio3

46.86

%

51.66

%

46.58

%

52.04

%

Efficiency ratio3 - Banking Business Segment only

40.45

%

43.81

%

40.20

%

43.87

%

Asset Quality Ratios:

Net annualized charge-offs to average loans and leases

0.16

%

0.17

%

0.12

%

0.10

%

Non-performing loans to total loans

1.44

%

0.52

%

1.44

%

0.52

%

Non-performing assets to total assets

1.22

%

0.49

%

1.22

%

0.49

%

Allowance for credit losses to total loans and leases held for investment at end of period

1.16

%

0.58

%

1.16

%

0.58

%

Allowance for credit losses to non-performing loans

80.58

%

112.85

%

80.58

%

112.85

%

1. Interest rate spread represents the difference between the annualized weighted average yield on interest-earning assets and the annualized weighted average rate paid on interest-bearing liabilities.2. Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.3Efficiency ratio represents non-interest expense as a percentage of the aggregate of net interest income and non-interest income.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210128006040/en/

CONTACT: Investor Relations Contact: Johnny Lai, CFA VP, Corporate Development & Investor Relations 858-649-2218 jlai@axosfinancial.com