Axos Financial Inc

RESULTS OF OPERATIONS

Comparison of the Three and Nine Months Ended March 31, 2024 and 2023

For the three months ended March 31, 2024, we had net income of $110.7 million, or $1.91 per diluted share, compared to net income of $79.9 million, or $1.32 per diluted share, for the three months ended March 31, 2023. For the nine months ended March 31, 2024, we had net income of $345.1 million, or $5.88 per diluted share, compared to net income of $219.8 million, or $3.63 per diluted share, for the nine months ended March 31, 2023.

The following table presents information regarding (i) average balances; (ii) the total amount of interest income from interest-earning assets and the weighted average yields on such assets; (iii) the total amount of interest expense on interest-bearing liabilities and the weighted average rates paid on such liabilities; (iv) net interest income; (v) interest rate spread; and (vi) net interest margin:

6 Margin lending is the significant component of the asset titled customer, broker-dealer and clearing receivables on the unaudited Condensed Consolidated Balance Sheets.

7 Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.

8 Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.

1. Average balances are obtained from daily data.

2. Annualized.

3. Loans include loans held for sale, loan premiums and unearned fees.

4. Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees.

5. Purchased loans include loans, loan discounts and unearned fees related to the FDIC Loan Purchase.

6. Margin lending is the significant component of the asset titled customer, broker-dealer and clearing receivables on the unaudited Condensed Consolidated Balance Sheets.

7. Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.

8. Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.

The following table sets forth the effects of changing rates and volumes on our net interest income. Information is provided with respect to (i) effects on interest income and interest expense attributable to changes in volume (changes in volume multiplied by prior rate); and (ii) effects on interest income and interest expense attributable to changes in rate (changes in rate multiplied by prior volume). The change in interest due to both volume and rate has been allocated proportionally to each based on the relative changes attributable to volume and changes attributable to rate.

1 Purchased loans include loans, loan discounts and unearned fees related to the FDIC Loan Purchase.

Net Interest Income

For the three months ended March 31, 2024, net interest income totaled $261.6 million, an increase of $62.6 million, or 31.5%, compared to net interest income of $199.0 million for the three months ended March 31, 2023. For the three months ended March 31, 2024, net interest margin increased by 45 basis points compared to the net interest margin of 4.42% for the three months ended March 31, 2023.

For the three months ended March 31, 2024, total interest and dividend income increased 44.3% from the three months ended March 31, 2023, primarily due to a $125.4 million increase in interest income from loans, attributable to a 158 basis point increase in rates earned and a $2.9 billion increase in average balances.

For the three months ended March 31, 2024, total interest expense increased 67.9% from the three months ended March 31, 2023, primarily due to a $75.5 million increase in interest expense from demand and savings deposits, attributable to a 107 basis point increase in rates paid and a $4.2 billion increase in average balances.

For the nine months ended March 31, 2024, net interest income totaled $701.4 million, an increase of $122.0 million and 21.1% compared to net interest income of $579.4 million for the nine months ended March 31, 2023. For the nine months ended March 31, 2024 net interest margin increased by 20 basis points compared to the net interest margin of 4.41% for the nine months ended March 31, 2023.

For the nine months ended March 31, 2024, total interest and dividend income increased 48.3% from the nine months ended March 31, 2023, primarily due to a $346.2 million increase in interest income from loans, attributable to a 179 basis point increase in rates earned and a $2.3 billion increase in average balances.

For the nine months ended March 31, 2024, total interest expense increased 116.5% from the nine months ended March 31, 2023, primarily due to a $267.2 million increase in interest expense from demand and savings deposits, attributable to a 174 basis point increase in rates paid and a $4.4 billion increase in average balances.

Provision for Credit Losses

The provision for credit losses was $6.0 million and $26.5 million for the three and nine months ended March 31, 2024, respectively, compared to $5.5 million and $17.3 million for the three and nine months ended March 31, 2023, respectively. The provision for credit losses consists of provisions for both funded loans and for unfunded lending commitments. The provision for credit losses for funded loans was $9.0 million and $27.3 million for the three and nine months ended March 31, 2024, respectively. The provision for credit losses for the three months ended March 31, 2024 was primarily due to loan growth in the Commercial & Industrial - Non-RE portfolio and an increase in the Commercial Real Estate portfolio reflecting changes in the underlying macroeconomic variables. For the nine months ended March 31, 2024, the increase in the provision for credit losses was primarily due to loan growth in the Commercial & Industrial - Non-RE portfolio and the loans acquired in the FDIC Loan Purchase. The provision for credit losses for unfunded commitments benefit of $3.0 million and $0.8 million for the three and nine months ended March 31, 2024, respectively, was primarily driven by a change in the underlying mix of Commercial & Industrial - Non-RE unfunded commitments. Provisions for credit losses are charged to income to bring the allowance for credit losses for loans and unfunded lending commitments to a level deemed appropriate by management based on the factors discussed under the heading “Financial Condition—Asset Quality and Allowance for Credit Losses - Loans.”

Non-Interest Income

The following table sets forth information regarding our non-interest income:

For the three and nine months ended March 31, 2024, non-interest income increased by $0.9 million or 2.8% and $104.0 million, or 118.49%, respectively.

For the three months ended March 31, 2024, increased advisory fee income, primarily attributable to higher mutual fund fee income, and increased mortgage banking and servicing rights income, primarily due to higher gains on loan sales, were partially offset by a decrease in broker-dealer fee income primarily attributable to lower cash sorting balances at non-affiliated banks.

For the nine months ended March 31, 2024, the increase in non-interest income is primarily attributable to a $92.4 million gain on the FDIC Loan Purchase completed in the three months ended December 31, 2023, an increase in broker-dealer fee income due to higher rates earned on cash sorting balances at non-affiliated banks and an increase in advisory fee income attributable to higher mutual fund fee income.

Non-Interest Expense

The following table sets forth information regarding our non-interest expense:

For the three months ended March 31, 2024, non-interest expense increased $22.2 million, or 20.0%, primarily due to increases of:

•$14.4 million in salaries and related costs primarily due to increased headcount and salaries;

•$2.4 million in data and operational processing expense primarily due to enhancements of core processing systems, customer interfaces and clearing and custody technology programs; and

•$2.3 million in professional services primarily due to increased legal and consulting services.

The increases were partially offset by a $1.5 million decrease in advertising and promotional expense primarily due to reduced deposit marketing expenses.

For the nine months ended March 31, 2024, non-interest expense increased $40.4 million, or 12.1%, primarily due to increases of:

•$32.4 million in salaries and related costs primarily due to increased headcount and salaries;

•$8.2 million in data and operational processing expense primarily due to enhancements of core processing systems, customer interfaces and clearing and custody technology programs; and

•$4.5 million in broker-dealer clearing charges primarily due to higher mutual fund clearing fees and corporate actions.

The increases were partially offset by $12.4 million decrease in general and administrative expenses, primarily reflecting the absence of a $16.0 million accrual in the prior year first quarter for an adverse legal judgment that has not been finalized.

Provision for Income Taxes

Income tax expense was $44.8 million and $146.0 million for the three and nine months ended March 31, 2024, respectively, compared to $34.8 million and $94.9 million for three and nine months ended March 31, 2023, respectively. Our effective income tax rates for the three months ended March 31, 2024 and 2023 were 28.82% and 30.37%, respectively. Our effective income tax rates for the nine months ended March 31, 2024 and 2023 were 29.72% and 30.16%, respectively.