Axos Financial Inc

RESULTS OF OPERATIONS

Comparison of the Three and Six Months Ended December 31, 2024 and 2023

For the three months ended December 31, 2024, we had net income of $104.7 million, or $1.80 per diluted share, compared to net income of $151.8 million, or $2.62 per diluted share, for the three months ended December 31, 2023. For the six months ended December 31, 2024, we had net income of $217.0 million, or $3.72 per diluted share, compared to net income of $234.4 million, or $3.98 per diluted share, for the six months ended December 31, 2023.

Average Balances, Net Interest Income, Yields Earned and Rates Paid

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:

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.

Average Balances, Net Interest Income, Yields Earned and Rates Paid

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 December 31, 2024, net interest income totaled $280.1 million, an increase of $51.5 million, or 22.5%, compared to net interest income of $228.6 million for the three months ended December 31, 2023. For the three months ended December 31, 2024, net interest margin increased by 28 basis points compared to the net interest margin of 4.55% for the three months ended December 31, 2023.

For the three months ended December 31, 2024, total interest and dividend income increased 15.6% from the three months ended December 31, 2023, primarily due to a $53.0 million increase in interest income on loans, mainly attributable to higher loan balances, and a $8.9 million increase in interest income on interest-earning deposits at other financial institutions.

For the three months ended December 31, 2024, total interest expense increased 6.0% from the three months ended December 31, 2023, primarily due to a $11.3 million increase in interest expense on demand and savings deposits, reflecting higher deposit balances, partially offset by lower rates paid.

For the six months ended December 31, 2024, net interest income totaled $572.1 million, an increase of $132.4 million, or 30.1%, compared to net interest income of $439.8 million for the six months ended December 31, 2023. For the six months ended December 31, 2024, net interest margin increased by 54 basis points compared to the net interest margin of 4.46% for the six months ended December 31, 2023.

For the six months ended December 31, 2024, total interest and dividend income increased 24.0% from the six months ended December 31, 2023, primarily due to a $164.3 million increase in interest income on loans, attributable to higher loan balances and higher rates earned, and a $17.8 million increase in interest income on interest-earning deposits at other financial institutions.

For the six months ended December 31, 2024, total interest expense increased 15.5% from the six months ended December 31, 2023, primarily due to a $54.7 million increase in interest expense on demand and savings deposits, mainly reflecting higher deposit balances.

Provision for Credit Losses

The provision for credit losses was $12.2 million and $26.2 million for the three and six months ended December 31, 2024, respectively, compared to $13.5 million and $20.5 million for the three and six months ended December 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 $11.7 million and $23.2 million for the three and six months ended December 31, 2024, respectively, and was primarily due to the quantitative impact of macroeconomic variables in the allowance for credit losses model, primarily the U.S. unemployment rate and commercial real estate mortgage rates, as well as loan growth, increases in specific reserves and certain qualitative adjustments, mainly in the commercial & industrial - non-RE portfolio. The provision for credit losses for unfunded lending commitments of $0.5 million and $3.0 million for the three and six months ended December 31, 2024, respectively, was primarily driven by unfunded lending commitment growth, primarily in the commercial & industrial - non-RE portfolio. 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 months ended December 31, 2024, non-interest income decreased by $96.3 million, or 77.6%, primarily due to the absence of the gain on the FDIC Loan Purchase in the prior year period, as well as decreases of:

•$2.6 million in mortgage banking and servicing rights income, primarily attributable to losses related to loans sold, partially offset by a favorable servicing rights fair value adjustment in the current period; and

•$1.5 million in broker-dealer fee income, primarily attributable to lower average cash-sorting balances.

For the six months ended December 31, 2024, non-interest income decreased by $102.2 million, or 64.4%, primarily due to the absence of the gain on the FDIC Loan Purchase in the prior year period, as well as decreases of:

•$6.0 million in mortgage banking and servicing rights income, primarily attributable to losses related to loans sold and the absence of a $1.9 million fair value gain in the prior year period; and

•$2.9 million in broker-dealer fee income, primarily attributable to lower average cash-sorting balances.

Non-Interest Expense

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

For the three months ended December 31, 2024, non-interest expense increased $23.5 million, or 19.3%, primarily due to increases of:

•$15.2 million in salaries and related costs primarily due to increased headcount and salaries;

•$3.1 million in professional services primarily due to higher consulting and legal expenses; and

•$3.1 million in FDIC and regulatory fees primarily due to higher FDIC assessments.

For the six months ended December 31, 2024, non-interest expense increased $50.4 million, or 20.8%, primarily due to increases of:

•$33.7 million in salaries and related costs primarily due to increased headcount and salaries; and

•$5.1 million in advertising and promotional expenses primarily due to higher marketing expenses, including deposit marketing expense;

•$4.6 million in FDIC and regulatory fees primarily due to higher FDIC assessments; and

•$3.9 million in data and operational processing primarily due to continued investments in technology.

Provision for Income Taxes

Income tax expense was $45.6 million and $92.5 million for the three and six months ended December 31, 2024, respectively, compared to $65.6 million and $101.1 million for three and six months ended December 31, 2023, respectively. Our effective income tax rates for the three months ended December 31, 2024 and 2023 were 30.36% and 30.19%. Our effective income tax rates for the six months ended December 31, 2024 and 2023 were 29.88% and 30.14%, respectively.