Axos Financial Inc

RESULTS OF OPERATIONS

Comparison of the Three Months Ended September 30, 2024 and 2023

For the three months ended September 30, 2024, we had net income of $112.3 million, or $1.93 per diluted share, compared to net income of $82.6 million, or $1.38 per diluted share, for the three months ended September 30, 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 September 30, 2024, net interest income totaled $292.0 million, an increase of $80.9 million, or 38.3%, compared to net interest income of $211.2 million for the three months ended September 30, 2023. For the three months ended September 30, 2024, net interest margin increased by 81 basis points compared to the net interest margin of 4.36% for the three months ended September 30, 2023.

For the three months ended September 30, 2024, total interest and dividend income increased 33.1% from the three months ended September 30, 2023, primarily due to a $111.3 million increase in interest income from loans, attributable to a $2.8 billion increase in average balances and a 116 basis point increase in rates earned, as well as higher discount accretion.

For the three months ended September 30, 2024, total interest expense increased 25.8% from the three months ended September 30, 2023, primarily due to a $43.5 million increase in interest expense from demand and savings deposits, attributable to a $3.1 billion increase in average balances and a 29 basis point increase in rates paid.

Provision for Credit Losses

The provision for credit losses was $14.0 million for the three months ended September 30, 2024, compared to $7.0 million for the three months ended September 30, 2023. 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 $11.5 million for the three months ended September 30, 2024, 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 increases in specific reserves, mainly in the commercial & industrial - non-RE portfolio. The provision for credit losses for unfunded lending commitments of $2.5 million for the three months ended September 30, 2024, 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 September 30, 2024, non-interest income decreased by $5.9 million, or 17.1%, primarily due to decreases of:

•$3.4 million in mortgage banking and servicing rights income, primarily attributable to the absence of a $1.9 million fair value gain in the prior year quarter and a decrease in the fair value of servicing rights in the current quarter on lower interest rates;

•$1.4 million in broker-dealer fee income, primarily attributable to lower balances on cash sorting balances at non-affiliated banks; and

• $1.0 million in prepayment penalty fee income.

Non-Interest Expense

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

For the three months ended September 30, 2024, non-interest expense increased $27.0 million, or 22.4%, primarily due to increases of:

•$18.5 million in salaries and related costs primarily due to increased headcount and salaries, as the Bank continues to expand its commercial lending and deposit businesses and compliance and risk personnel; and

•$3.9 million in advertising and promotional expenses primarily due to deposit marketing.

Provision for Income Taxes

Income tax expense was $46.9 million for the three months ended September 30, 2024, compared to $35.5 million for three months ended September 30, 2023. Our effective income tax rates for the three months ended September 30, 2024 and 2023 were 29.43% and 30.05%, respectively.