Business Wire | Jul 29, 2020 04:06PM EDT

Axos Financial, Inc. Announces Record Net Income of $183.4 Million for Fiscal 2020

Jul. 29, 2020

SAN DIEGO--(BUSINESS WIRE)--Jul. 29, 2020--Axos Financial, Inc. (NYSE: AX) ("Axos"), parent company of Axos Bank (the "Bank"), today announced unaudited financial results for the fourth fiscal quarter and full fiscal year ended June 30, 2020. Net income for the quarter was $45.3 million, an increase of 11.5% over net income of $40.6 million for the quarter ended June 30, 2019. Earnings attributable to Axos' common stockholders were $45.2 million or $0.75 per diluted share for the fourth quarter of fiscal 2020, an increase of 11.5% from $40.6 million or $0.66 per diluted share for the fourth quarter ended June 30, 2019.

Adjusted earnings and adjusted earnings per diluted common share ("adjusted EPS"), non-GAAP measures, which exclude non-cash amortization expenses, non-recurring costs related to mergers and acquisitions, and other non-recurring costs increased 11.6% to $47.1 million and 14.7% to $0.78, respectively, for the quarter ended June 30, 2020 compared to $42.2 million and $0.68, respectively, for the quarter ended June 30, 2019.

Fourth Quarter Fiscal 2020 Financial Summary:

Three Months Ended June 30,

(Dollars in thousands, except per share 2020 2019 %data) Change

Net interest income $ 117,272 $ 100,437 16.8 %

Non-interest income $ 28,702 $ 23,224 23.6 %

Net income $ 45,300 $ 40,634 11.5 %

Adjusted Earnings (Non-GAAP)^1 $ 47,052 $ 42,158 11.6 %

Net income attributable to common $ 45,223 $ 40,557 11.5 %stockholders

Diluted EPS $ 0.75 $ 0.66 13.6 %

Adjusted EPS (Non-GAAP)^1 $ 0.78 $ 0.68 14.7 %

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

For the fiscal year ended June 30, 2020, net income was a record $183.4 million, an increase of 18.2% over net income of $155.1 million for the twelve months ended June 30, 2019. Earnings attributable to Axos' common stockholders were $183.1 million or $2.98 per diluted share for the twelve months ended June 30, 2020, an increase of 18.3% from $154.8 million or $2.48 per diluted share for the twelve months ended June 30, 2019. Record earnings for the fiscal year ended June 30, 2020 were primarily the result of growth in the Bank's loan and lease portfolio, growth in mortgage banking income and a full year's activity in broker-dealer fee income. Operating expenses increased to support growth of the bank due to higher levels of loan originations and deposit activities.

"We delivered another strong quarter, with double digit percentage increases in net interest income and non-interest income and disciplined expense controls resulting in a 22.8% increase in our pretax income," stated Greg Garrabrants, President and Chief Executive Officer of Axos. "We continue to grow our deposit balances while reducing our funding costs, as reflected in the $2.2 billion sequential increase in our checking and savings balances and 52 basis point decline in our interest-bearing liabilities costs. The reduction in funding costs helped drive our net interest margin higher to 3.89% compared to 3.81% in fourth quarter of 2019."

"Excluding the H&R Block seasonal loan products, our annualized net charge-offs to total loans and leases were 5 basis points for the fourth fiscal quarter of fiscal 2020," said Andy Micheletti, Executive Vice President and Chief Financial Officer of Axos. "We ended the quarter with approximately $75.8 million of loan loss reserves, representing 71 basis points of total loans and leases. We remain well-capitalized, with a Tier 1 leverage ratio of 9.25% at the bank and 8.97% at the holding company on June 30, 2020."

Other Highlights:

* Net interest margin was 3.89%, up 8 basis points from 3.81% for the three months ended June 30, 2019 * Efficiency ratio for the Banking Business Segment was 41.02% compared to 43.21% for the three months ended June 30, 2019 * Total assets reached $13.9 billion, up $2.6 billion or 23.5% compared to June 30, 2019 * Loan and lease portfolio grew by $1,249.2 million or 13.3% compared to June 30, 2019 * Loan and lease originations for investment for the three months ended June 30, 2020 were $1,317.8 million compared to $1,501.4 million for the quarter ended June 30, 2019, including approximately $167.2 million of Paycheck Protection Program ("PPP") loans * Loan originations for sale were up 16.4% for the three months ended June 30, 2020, to $315.3 million compared to $270.9 million for the quarter ended June 30, 2019 * Deposits grew by $2,353.5 million or 26.2% compared to June 30, 2019 * Strong mortgage banking results contributed to non-interest income increasing 23.6% compared to the three months ended June 30, 2019 * Return on average common stockholders' equity was 14.71% for the three months ended June 30, 2020 * Total non-performing assets were 0.68% of total assets and non-performing loans and leases equal to 0.82% of total loans at June 30, 2020 * Book value increased to $20.56 per share, up 17.7% compared to June 30, 2019

Fourth Quarter Fiscal 2020 Income Statement Summary

During the quarter ended June 30, 2020, Axos earned $45.3 million or $0.75 per diluted share compared to $40.6 million, or $0.66 per diluted share for the quarter ended June 30, 2019. Net interest income increased $16.8 million or 16.8% for the quarter ended June 30, 2020 compared to June 30, 2019, primarily due to the lower cost of deposits and borrowing resulting from interest rate reductions and increase in non-interest-bearing liabilities.

The loan and lease loss provision was $6.5 million for the quarter ended June 30, 2020 compared to $2.8 million for the quarter ended June 30, 2019. The increase was primarily due to additional provisions for changes in economic and business conditions resulting from the COVID-19 pandemic, overall loan portfolio growth, and changes in the loan mix.

For the fourth quarter ended June 30, 2020, non-interest income was $28.7 million compared to $23.2 million for the three months ended June 30, 2019. The increase year over year was primarily the result of an increase in mortgage banking fee income of $10.4 million partially offset by a decrease in banking service fees of $2.4 million and a decrease in broker-dealer fee income of $1.0 million.

Non-interest expense or operating costs increased $6.0 million to $71.5 million for the quarter ended June 30, 2020 from $65.5 million for the three months ended June 30, 2019. The increase was mainly a result of an increase in compensation expense of $3.5 million related to staffing added since June 30, 2019 to support growth of the Bank's operations. Additional contributors to the increase in operating expenses were an increase in depreciation and amortization of $1.9 million, primarily due to the amortization of intangibles, an increase in data processing of $1.5 million, due to software initiatives and enhancements to the Bank's core processing system, and an increase of $0.4 million in broker-dealer clearing charges.

Our effective tax rate was 33.31% for the three months ended June 30, 2020 compared to 26.55% for the three months ended June 30, 2019. The increase in the tax rate for the three months ended June 30, 2020, is primarily due to a write off of a deferred tax asset for stock compensation that isn't expected to be realized in the future, which resulted in $2.0 million of additional expense for the three months ended June 30, 2020.

Full Year Fiscal 2020 Highlights

* Net income reached a record $183.4 million, an increase of 18.2% compared to the fiscal year ended June 30, 2019 * Loan and lease originations for investment for the fiscal year ended June 30, 2020 were $6,811.2 million, down 1.0% compared to the fiscal year ended June 30, 2019 * Loan originations for sale for the fiscal year ended June 30, 2020 were $1,601.6 million, up 8.8% compared to the fiscal year ended June 30, 2019 * Net interest margin for the Banking Business increased to 4.19% for the fiscal year ended June 30, 2020 compared to 4.14% for the fiscal year ended June 30, 2019 * Efficiency for the Banking Business was 39.81% for the fiscal year ended June 30, 2020 compared to 40.51% for the fiscal year ended June 30, 2019 * Return on average assets remained strong at 1.53% for the fiscal year ended June 30, 2020

Balance Sheet Summary

Axos' total assets increased $2,631.7 million, or 23.5%, to $13,851.9 million, as of June 30, 2020, up from $11,220.2 million at June 30, 2019. The loan and lease portfolio increased $1,249.2 million on a net basis, primarily from portfolio loan and lease originations and purchases of $6,811.2 million, less principal repayments and other adjustments of $5,562.0 million. Total cash increased by $1,093.2 million primarily due to increased deposits. Total liabilities increased by $2,473.9 million, or 24.4%, to $12,621.1 million at June 30, 2020, up from $10,147.2 million at June 30, 2019. The increase in total liabilities resulted primarily from growth in deposits of $2,353.5 million. Stockholders' equity increased by $157.8 million, or 14.7%, to $1,230.8 million at June 30, 2020 from $1,073.1 million at June 30, 2019. The increase was primarily the result of $183.4 million in net income and $14.5 million of vesting and issuance of RSUs and stock-based compensation expense, partially offset by $38.9 million of stock repurchases, $1.0 million of unrealized loss in other comprehensive income, net of tax, and $0.3 million of dividends declared on preferred stock.

The Bank's Tier 1 core capital to adjusted average assets ratio was 9.25% at June 30, 2020.

Conference Call

A conference call and webcast will be held on Wednesday, July 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 August 29, 2020, at Axos' website and telephonically by dialing toll-free number 877-660-6853, passcode 13706636.

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 ("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 $13.9 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 and the S&P SmallCap 600(r) Index. For more information on Axos Bank, please visit axosbank.com.

SEGMENT REPORTING

The Company determines reportable segments based on the services offered, the significance of the services offered, the significance of those services to the Company's financial condition and operating results and the CEO's evaluation of the operating results of those services in deciding how to allocate resources and assess 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 and reconciliations:

For the Three Months Ended June 30, 2020

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

Net interest income $ 114,264 $ 3,493 $ (485 ) $ 117,272

Provision for loan 6,500 - - 6,500 losses

Non-interest income 23,100 5,730 (128 ) 28,702

Non-interest expense 56,348 10,869 4,327 71,544

Income (Loss) before $ 74,516 $ (1,646 ) $ (4,940 ) $ 67,930 income taxes

For the Three Months Ended June 30, 2019

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

Net interest income $ 96,936 $ 4,614 $ (1,113 ) $ 100,437

Provision for loan 2,800 - - 2,800 losses

Non-interest income 16,454 7,001 (231 ) 23,224

Non-interest expense 49,001 11,152 5,383 65,536

Income (Loss) before $ 61,589 $ 463 $ (6,727 ) $ 55,325 income taxes

Twelve Months Ended June 30, 2020

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

Net interest income $ 464,448 $ 16,630 $ (3,467 ) $ 477,611

Provision for loan 42,200 - - 42,200 losses

Non-interest income 80,374 24,817 (2,204 ) 102,987

Non-interest expense 216,895 43,525 15,346 275,766

Income (Loss) before $ 285,727 $ (2,078 ) $ (21,017 ) $ 262,632 income taxes

Twelve Months Ended June 30, 2019

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

Net interest income $ 404,500 $ 7,564 $ (3,459 ) $ 408,605

Provision for loan 27,350 - - 27,350 losses

Non-interest income 70,917 12,071 (231 ) 82,757

Non-interest expense 192,588 34,430 24,188 251,206

Income (Loss) before $ 255,479 $ (14,795 ) $ (27,878 ) $ 212,806 income taxes

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, 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, 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 that we incurred associated with increased levels of short-term brokered deposits in anticipation of the acquisition of deposits from Nationwide Bank. In the fiscal year ended June 30, 2019 the other costs are due to a $15.3 million bad debt expense related to a correspondent customer of our clearing broker-dealer. 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' core business.

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

Three Months Ended Twelve Months Ended

June 30, June 30,

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

Net income $ 45,300 $ 40,634 $ 183,438 $ 155,131

Acquisition-related costs 2,627 2,075 10,108 6,714

Excess FDIC expense - - - 1,111

Other costs - - - 15,299

Income taxes (875 ) (551 ) (3,048 ) (6,267 )

Adjusted earnings $ 47,052 $ 42,158 $ 190,498 $ 171,988 (Non-GAAP)

Adjusted EPS (Non-GAAP) $ 0.78 $ 0.68 $ 3.10 $ 2.75

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:

June 30,

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

Total stockholders' equity $ 1,230,846 $ 1,073,050

Less: preferred stock 5,063 5,063

Common stockholders' equity 1,225,783 1,067,987

Less: mortgage servicing rights, carried at fair 10,675 9,784 value

Less: goodwill and other intangible assets 125,389 134,893

Tangible common stockholders' equity (Non-GAAP) $ 1,089,719 $ 923,310

Common shares outstanding at end of period 59,612,635 61,128,817

Tangible book value per common share (Non-GAAP) $ 18.28 $ 15.10

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 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:

AXOS FINANCIAL, INC. AND SUBSIDIARIES

SELECTED CONSOLIDATED FINANCIAL INFORMATION

(Unaudited - dollars in thousands)

(Dollars in thousands) June 30, June 30, June 30, 2020 2019 2018

Selected Balance Sheet Data:

Total assets $ 13,851,900 $ 11,220,238 $ 9,539,504

Loans and leases-net ofallowance for loan and lease 10,631,349 9,382,124 8,432,289 losses

Loans held for sale, at fair 51,995 33,260 35,077 value

Loans held for sale, lower of 44,565 4,800 2,686 cost or fair value

Allowance for loan and lease 75,807 57,085 49,151 losses

Securities-trading 105 - -

Securities-available-for-sale 187,627 227,513 180,305

Securities borrowed 222,368 144,706 -

Customer, broker-dealer and 220,266 203,192 - clearing receivables

Total deposits 11,336,694 8,983,173 7,985,350

Advances from the FHLB 242,500 458,500 457,000

Borrowings, subordinated notes 235,789 168,929 54,552 and debentures

Securities loaned 255,945 198,356 -

Customer, broker-dealer and 347,614 238,604 - clearing payables

Total stockholders' equity 1,230,846 1,073,050 960,513



Capital Ratios:

Equity to assets at end of 8.89 % 9.56 % 10.07 %period

Axos Financial, Inc.:

Tier 1 leverage (core) capital 8.97 % 8.75 % 9.45 %to adjusted average assets

Common equity tier 1 capital 11.22 % 11.43 % 13.27 %(to risk-weighted assets)

Tier 1 capital (to 11.27 % 11.49 % 13.34 %risk-weighted assets)

Total capital (to risk-weighted 12.64 % 12.91 % 14.84 %assets)

Axos Bank:

Tier 1 leverage (core) capital 9.25 % 9.21 % 8.88 %to adjusted average assets

Common equity tier 1 capital 11.79 % 12.14 % 12.53 %(to risk-weighted assets)

Tier 1 capital (to 11.79 % 12.14 % 12.53 %risk-weighted assets)

Total capital (to risk-weighted 12.62 % 12.89 % 13.27 %assets)

Axos Clearing, LLC:

Net capital $ 34,022 $ 25,027 N/A

Excess capital $ 29,450 $ 21,199 N/A

Net capital as a percentage of 14.88 % 13.08 % N/Aaggregate debit items

Net capital in excess of 5% $ 22,593 $ 15,458 N/Aaggregate 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 At or for the Fiscal year Ended ending

June 30, June 30,

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

Selected Income Statement Data:

Interest and $ 144,143 $ 141,643 $ 622,839 $ 564,887 dividend income

Interest expense 26,871 41,206 145,228 156,282

Net interest 117,272 100,437 477,611 408,605 income

Provision for 6,500 2,800 42,200 27,350 loan losses

Net interestincome after 110,772 97,637 435,411 381,255 provision forloan losses

Non-interest 28,702 23,224 102,987 82,757 income

Non-interest 71,544 65,536 275,766 251,206 expense

Income beforeincome tax 67,930 55,325 262,632 212,806 expense

Income tax 22,630 14,691 79,194 57,675 expense

Net income $ 45,300 $ 40,634 $ 183,438 $ 155,131

Net incomeattributable to $ 45,223 $ 40,557 $ 183,129 $ 154,822 common stock



Per Share Data:

Net income:

Basic $ 0.76 $ 0.66 $ 3.01 $ 2.50

Diluted $ 0.75 $ 0.66 $ 2.98 $ 2.48

Book value per $ 20.56 $ 17.47 $ 20.56 $ 17.47 common share

Tangible bookvalue per common $ 18.28 $ 15.10 $ 18.28 $ 15.10 share (Non-GAAP)

Adjusted earningsper common share $ 0.78 $ 0.68 $ 3.10 $ 2.75 (Non-GAAP)



Weighted averagenumber of shares outstanding:

Basic 59,648,076 61,201,994 60,794,555 61,898,447

Diluted 60,158,545 61,634,848 61,437,635 62,382,065

Common sharesoutstanding at 59,612,635 61,128,817 59,612,635 61,128,817 end of period

Common sharesissued at end of 67,323,053 66,563,922 67,323,053 66,563,922 period



PerformanceRatios and Other Data:

Loan and leaseoriginations for $ 1,317,826 $ 1,501,357 $ 6,811,164 $ 6,934,259 investment

Loan originations $ 315,349 $ 270,905 $ 1,601,579 $ 1,471,906 for sale

Loan and lease $ - $ - $ - $ 11,009 purchases

Return on average 1.45 % 1.49 % 1.53 % 1.51 %assets

Return on averagecommon 14.71 % 15.49 % 15.65 % 15.40 %stockholders'equity

Interest rate 3.53 % 3.39 % 3.65 % 3.66 %spread^1

Net interest 3.89 % 3.81 % 4.12 % 4.07 %margin^2

Net interestmargin^2 - 3.95 % 3.87 % 4.19 % 4.14 %Banking BusinessSegment only

Efficiency ratio^ 49.01 % 53.00 % 47.50 % 51.12 %3

Efficiency ratio^3 - Banking 41.02 % 43.21 % 39.81 % 40.51 %Business Segmentonly



Asset Quality Ratios:

Net annualizedcharge-offs to 0.67 % 0.65 % 0.23 % 0.19 %average loans andleases

Net annualizedcharge-offs toaverage loans and 0.05 % 0.05 % 0.08 % 0.07 %leases, excludingseasonal tax loanproducts

Non-performingloans and leases 0.82 % 0.51 % 0.82 % 0.51 %to total loansand leases

Non-performingassets to total 0.68 % 0.50 % 0.68 % 0.50 %assets

Allowance forloan and leaselosses to totalloans and leases 0.71 % 0.60 % 0.71 % 0.60 %held forinvestment at endof period

Allowance forloan and leaselosses to 86.20 % 117.84 % 86.20 % 117.84 %non-performingloans and leases

^1. Interest rate spread represents the difference between the annualizedweighted average yield on interest-earning assets and the annualized weightedaverage rate paid on interest-bearing liabilities

^2. Net interest margin represents annualized net interest income as apercentage of average interest-earning assets

^3. Efficiency ratio represents non-interest expense as a percentage of theaggregate of net interest income and non-interest income.

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CONTACT: Investor Relations Contact: Johnny Lai, CFA VP, Corporate Development & Investor Relations 1-858-649-2218 jlai@axosfinancial.com