Le Lézard
Classified in: Business, Covid-19 virus
Subjects: EARNINGS, Conference Call, Webcast

Axos Financial, Inc. Reports Fiscal First Quarter 2021 Results


Axos Financial, Inc. (NYSE: AX) ("Axos"), parent company of Axos Bank (the "Bank"), today announced unaudited financial results for the first fiscal quarter ended September 30, 2020. Net income was $53.0 million, an increase of 30.0% from $40.8 million for the quarter ended September 30, 2019. Earnings attributable to Axos' common stockholders was $52.9 million or $0.88 per diluted share for the first quarter of fiscal 2021, an increase of 30.1% from $40.7 million and 33.3% from $0.66 per diluted share for the first quarter ended September 30, 2019.

Adjusted earnings and adjusted earnings per diluted common share ("adjusted EPS"), non-GAAP measures, which exclude non-cash amortization expenses and non-recurring costs related to mergers and acquisitions, and other non-recurring costs increased 30.7% to $54.8 million and 33.8% to $0.91, respectively, for the quarter ended September 30, 2020 compared to $42.0 million and $0.68, respectively, for the quarter ended September 30, 2019.

First Quarter Fiscal 2021 Financial Summary

 

Three Months Ended
September 30

 

 

(Dollars in thousands, except per share data)

Q1 Fiscal 2021

 

Q1 Fiscal 2020

 

% Change

Net interest income

$

127,327

 

 

$

103,303

 

 

23.3

%

Non-interest income

$

35,855

 

 

$

21,536

 

 

66.5

%

Net income

$

53,022

 

 

$

40,786

 

 

30.0

%

Adjusted earnings (Non-GAAP)1

$

54,841

 

 

$

41,971

 

 

30.7

%

Net income attributable to common stockholders

$

52,945

 

 

$

40,709

 

 

30.1

%

Diluted EPS

$

0.88

 

 

$

0.66

 

 

33.3

%

Adjusted EPS (Non-GAAP)1

$

0.91

 

 

$

0.68

 

 

33.8

%

1 See "Use of Non-GAAP Financial Measures"

 

 

 

 

 

Net income growth was the result of increases in net interest income attributable to loan portfolio growth and lower interest costs as well as growth in mortgage banking income in non-interest income.

"Our diverse consumer and commercial banking and securities businesses continue to generate strong earnings growth, as reflected in the 33.3% and 14.7% year-over-year increases in our earnings per share and our book value per share, respectively," stated Greg Garrabrants, President and Chief Executive Officer of Axos. "We achieved a record quarter in mortgage banking as a result of 148% year-over-year increase in single-family agency loan originations and robust gain-on-sale margins. Additionally, we added to our strong capital position by issuing $175 million of subordinated debt at an attractive rate. We remain focused on prudently managing our credit and capital and growing our lending and fee-based businesses."

"Our credit quality remains healthy, with none of our loans on forbearance and only $5.3 million of loans on deferral at September 30, 2020. We adopted the CECL accounting standard this quarter, and our day 1 increase to our allowance and reserve for credit losses totaled $53.0 million," stated Andy Micheletti, Executive Vice President and Chief Financial Officer of Axos. "Our loan loss provision this quarter ended September 30, 2020, was $11.8 million, consisting of $6.5 million for H&R Block Refund Advance loans due to IRS processing delays, and $5.3 million for our non-RA loans. We ended the quarter with $132.9 million in our allowance for credit losses, representing 1.2% of our total loan and lease balances. Due to the highly collateralized and low loan-to-values of our secured loan portfolios, we believe we are well positioned from a credit perspective for a variety of economic scenarios."

Other Highlights

First Quarter Fiscal 2021 Income Statement Summary

For the three months ended September 30, 2020, Axos net income attributable to common stockholders was $52.9 million or $0.88 per diluted common share compared to $40.7 million, or $0.66 per diluted share for the three months ended September 30, 2019. Net interest income increased $24.0 million or 23.3% for the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019, due to an increase in average earning assets and a reduction in the rates paid on interest-bearing demand and savings deposits due to decreases in market deposit rates across the industry.

The provision for credit losses was $11.8 million for the quarter ended September 30, 2020 compared to $2.7 million for the quarter ended September 30, 2019. The increase resulted from seasonal tax product loans, Refund Advance that continue to have delays in collections due to IRS processing delays, growth in the loan and lease portfolio, changes in macroeconomic factors due to the effects of COVID-19 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 first quarter ended September 30, 2020, non-interest income was $35.9 million compared to $21.5 million for the three months ended September 30, 2019. The $14.3 million increase was the result of a $16.8 million increase in mortgage banking income, partially offset by a decrease of $3.5 million in gain on sale ? other.

Non-interest expense, comprised of various operating expenses, increased $10.0 million to $75.5 million for the quarter ended September 30, 2020 from $65.5 million for the three months ended September 30, 2019. The change was primarily driven by increases of $4.4 million in professional services, $2.5 million in FDIC and regulatory fees, $1.9 million in salary and payroll costs due to growth in Bank staffing, partially offset by a decrease of $1.2 million in advertising and promotional costs.

Balance Sheet Summary

Axos' total assets decreased $469.7 million, or 3.4%, to $13.4 billion, at September 30, 2020, from $13.9 billion at June 30, 2020. The decrease in total assets was primarily due to a decrease in cash held of $828.4 million, partially offset by an increase of $294.1 million in loans and leases held for investment.

Total liabilities decreased by $475.8 million, or 3.8%, to $12.1 billion at September 30, 2020, from $12.6 billion at June 30, 2020. The decrease in total liabilities primarily resulted from a decrease in deposits of $781.0 million, partially offset by an increase of $218.1 million in borrowings, subordinated notes and debentures, primarily due to the issuance of $175.0 million aggregate principal amount 4.875% Fixed-to-Floating Rate Subordinated Notes.

Stockholders' equity increased by $6.1 million, or 0.5%, to $1,237.0 million at September 30, 2020 from $1,230.8 million at June 30, 2020. The increase was primarily the result of $53.0 million in net income and stock compensation expense of $1.7 million, reduced by the $53.0 million CECL day 1 adjustment which reduced, after tax benefits, stockholders equity by $37.0 million and by $12.7 million due to common stock repurchases.

The Bank's Tier 1 core capital to adjusted average assets ratio was 8.83% at September 30, 2020. At September 30, 2019, the Tier 1 core capital to adjusted average assets ratio was 9.12%.

Conference Call

A conference call and webcast will be held on Thursday, October 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 November 29, 2020, at Axos' website and telephonically by dialing toll-free number 877-660-6853, passcode 13711601.

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 $13.4 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® Index and the S&P SmallCap 600® 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 September 30, 2020

(Dollars in thousands)

Banking
Business

 

Securities
Business

 

Corporate/Eliminations

 

Axos
Consolidated

Net interest income

$

123,008

 

 

$

4,894

 

 

 

$

(575

)

 

 

$

127,327

 

Provision for credit losses

11,800

 

 

?

 

 

 

?

 

 

 

11,800

 

Non-interest income

30,212

 

 

5,784

 

 

 

(141

)

 

 

35,855

 

Non-interest expense

61,217

 

 

11,352

 

 

 

2,977

 

 

 

75,546

 

Income before taxes

$

80,203

 

 

$

(674

)

 

 

$

(3,693

)

 

 

$

75,836

 

 

Three Months Ended September 30, 2019

(Dollars in thousands)

Banking

Business

 

Securities
Business

 

Corporate/Eliminations

 

Axos
Consolidated

Net interest income

$

99,472

 

 

$

5,146

 

 

$

(1,315

)

 

 

$

103,303

 

Provision for credit losses

2,700

 

 

?

 

 

?

 

 

 

2,700

 

Non-interest income

15,790

 

 

6,401

 

 

(655

)

 

 

21,536

 

Non-interest expense

50,633

 

 

11,064

 

 

3,770

 

 

 

65,467

 

Income before taxes

$

61,929

 

 

$

483

 

 

$

(5,740

)

 

 

$

56,672

 

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

 

September 30,

(Dollars in thousands, except per share amounts)

2020

 

2019

Net income

$

53,022

 

 

$

40,786

 

Acquisition-related costs

2,602

 

 

1,647

 

Income taxes

(783

)

 

(462

)

Adjusted earnings (Non-GAAP)

$

54,841

 

 

$

41,971

 

Adjusted EPS (Non-GAAP)

$

0.91

 

 

$

0.68

 

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, the nearest compatible GAAP measure, to tangible book value per common share (Non-GAAP) as of the dates indicated:

 

September 30,

(Dollars in thousands, except per share amounts)

2020

 

2019

Total stockholders' equity

$

1,236,965

 

 

$

1,116,240

 

Less: preferred stock

5,063

 

 

5,063

 

Common stockholders' equity

1,231,902

 

 

1,111,177

 

Less: mortgage servicing rights, carried at fair value

12,130

 

 

10,632

 

Less: goodwill and other intangible assets

122,817

 

 

133,147

 

Tangible common stockholders' equity (Non-GAAP)

$

1,096,955

 

 

$

967,398

 

Common shares outstanding at end of period

59,215,934

 

 

61,287,595

 

Tangible book value per common share (Non-GAAP)

$

18.52

 

 

$

15.78

 

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)

 

 

September 30,
2020

 

June 30,
2020

 

September 30,
2019

Selected Balance Sheet Data:

 

 

 

 

 

Total assets

$

13,382,238

 

 

$

13,851,900

 

 

$

11,770,861

 

Loans and leases?net of allowance for credit losses

10,925,450

 

 

10,631,349

 

 

9,784,217

 

Loans held for sale, carried at fair value

89,454

 

 

51,995

 

 

40,554

 

Loans held for sale, lower of cost or fair value

14,729

 

 

44,565

 

 

2,604

 

Allowance for credit losses - loans

132,915

 

 

75,807

 

 

59,227

 

Securities?trading

423

 

 

105

 

 

?

 

Securities?available-for-sale

203,931

 

 

187,627

 

 

187,816

 

Securities borrowed

263,470

 

 

222,368

 

 

288,974

 

Customer, broker-dealer and clearing receivables

283,125

 

 

220,266

 

 

295,188

 

Total deposits

10,555,658

 

 

11,336,694

 

 

9,214,525

 

Advances from the FHLB

242,500

 

 

242,500

 

 

492,500

 

Borrowings, subordinated notes and debentures

453,843

 

 

235,789

 

 

133,681

 

Securities loaned

315,976

 

 

255,945

 

 

337,870

 

Customer, broker-dealer and clearing payables

369,428

 

 

347,614

 

 

298,501

 

Total stockholders' equity

1,236,965

 

 

1,230,846

 

 

1,116,240

 

 

 

 

 

 

 

Capital Ratios:

 

 

 

 

 

Equity to assets at end of period

9.24

%

 

8.89

%

 

9.48

%

Axos Financial, Inc.:

 

 

 

 

 

Tier 1 leverage (core) capital to adjusted average assets

8.52

%

 

8.97

%

 

8.76

%

Common equity tier 1 capital (to risk-weighted assets)

11.08

%

 

11.22

%

 

10.97

%

Tier 1 capital (to risk-weighted assets)

11.13

%

 

11.27

%

 

11.02

%

Total capital (to risk-weighted assets)

14.39

%

 

12.64

%

 

12.34

%

Axos Bank:

 

 

 

 

 

Tier 1 leverage (core) capital to adjusted average assets

8.83

%

 

9.25

%

 

9.12

%

Common equity tier 1 capital (to risk-weighted assets)

11.52

%

 

11.79

%

 

11.25

%

Tier 1 capital (to risk-weighted assets)

11.52

%

 

11.79

%

 

11.25

%

Total capital (to risk-weighted assets)

12.55

%

 

12.62

%

 

11.95

%

Axos Clearing, LLC:

 

 

 

 

 

Net capital

$

34,322

 

 

$

34,022

 

 

$

24,979

 

Excess capital

$

28,830

 

 

$

29,450

 

 

$

5,587

 

Net capital as a percentage of aggregate debit items

12.50

%

 

14.88

%

 

8.94

%

Net capital in excess of 5% aggregate debit items

$

20,590

 

 

$

22,593

 

 

$

11,012

 

AXOS FINANCIAL, INC. AND SUBSIDIARIES

SELECTED CONSOLIDATED FINANCIAL INFORMATION

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

 

 

At or for the Three Months Ended

 

September 30,

 

2020

 

2019

Selected Income Statement Data:

 

 

 

Interest and dividend income

$

149,889

 

 

$

146,345

 

Interest expense

22,562

 

 

43,042

 

Net interest income

127,327

 

 

103,303

 

Provision for credit losses

11,800

 

 

2,700

 

Net interest income after provision for credit losses

115,527

 

 

100,603

 

Non-interest income

35,855

 

 

21,536

 

Non-interest expense

75,546

 

 

65,467

 

Income before income tax expense

75,836

 

 

56,672

 

Income tax expense

22,814

 

 

15,886

 

Net income

$

53,022

 

 

$

40,786

 

Net income attributable to common stock

$

52,945

 

 

$

40,709

 

 

 

 

 

Per Common Share Data:

 

 

 

Net income:

 

 

 

Basic

$

0.89

 

 

$

0.66

 

Diluted

$

0.88

 

 

$

0.66

 

Adjusted earnings (Non-GAAP)

$

0.91

 

 

$

0.68

 

Book value

$

20.80

 

 

$

18.13

 

Tangible book value (Non-GAAP)

$

18.52

 

 

$

15.78

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

Basic

59,509,320

 

 

61,246,664

 

Diluted

59,926,784

 

 

61,779,525

 

Common shares outstanding at end of period

59,215,934

 

 

61,287,595

 

Common shares issued at end of period

67,622,935

 

 

66,837,037

 

 

 

 

 

Performance Ratios and Other Data:

 

 

 

Loan and lease originations for investment

$

1,330,812

 

 

$

1,461,766

 

Loan originations for sale

$

440,804

 

 

$

327,812

 

Return on average assets

1.56

%

 

1.44

%

Return on average common stockholders' equity

17.26

%

 

14.85

%

Interest rate spread1

3.62

%

 

3.35

%

Net interest margin2

3.84

%

 

3.77

%

Net interest margin2 ? Banking Business Segment only

3.91

%

 

3.83

%

Efficiency ratio3

46.30

%

 

52.44

%

Efficiency ratio3 ? Banking Business Segment only

39.95

%

 

43.93

%

 

 

 

 

Asset Quality Ratios:

 

 

 

Net annualized charge-offs to average loans and leases

0.07

%

 

0.02

%

Non-performing loans to total loans

1.56

%

 

0.57

%

Non-performing assets to total assets

1.33

%

 

0.54

%

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

1.20

%

 

0.60

%

Allowance for credit losses to non-performing loans

77.23

%

 

105.89

%

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.

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

 


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