Axos Financial(AX) - 2025 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This part presents unaudited condensed consolidated financial statements, detailed notes, management's discussion, market risk, and controls ITEM 1. FINANCIAL STATEMENTS This section presents Axos Financial's unaudited condensed consolidated financial statements and detailed notes for specified periods Condensed Consolidated Balance Sheets (unaudited) This section details the company's financial position, including assets, liabilities, and equity, as of March 31, 2025, and June 30, 2024 Condensed Consolidated Balance Sheets | Metric | March 31, 2025 (in thousands) | June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :---------------------------- | :--------------------------- | :-------------------- | :--------- | | Total Assets | $23,981,154 | $22,855,334 | $1,125,820 | 4.9% | | Total Liabilities | $21,377,254 | $20,564,738 | $812,516 | 4.0% | | Total Stockholders' Equity | $2,603,900 | $2,290,596 | $313,304 | 13.7% | | Loans—net of allowance for credit losses | $20,193,630 | $19,231,385 | $962,245 | 5.0% | | Total Deposits | $20,136,714 | $19,359,217 | $777,497 | 4.0% | Condensed Consolidated Statements of Income (unaudited) This section outlines revenues, expenses, and net income for the three and nine months ended March 31, 2025, and 2024 Condensed Consolidated Statements of Income (3 Months Ended Mar 31) | Metric | 3 Months Ended Mar 31, 2025 (in thousands) | 3 Months Ended Mar 31, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :--------------------------------- | :--------------------------------- | :-------------------- | :--------- | | Net Interest Income | $275,464 | $261,606 | $13,858 | 5.3% | | Provision for Credit Losses | $14,500 | $6,000 | $8,500 | 141.7% | | Non-Interest Income | $33,373 | $33,163 | $210 | 0.6% | | Non-Interest Expense | $146,261 | $133,228 | $13,033 | 9.8% | | Net Income | $105,206 | $110,720 | $(5,514) | (5.0)% | | Basic EPS | $1.84 | $1.94 | $(0.10) | (5.2)% | | Diluted EPS | $1.81 | $1.91 | $(0.10) | (5.2)% | Condensed Consolidated Statements of Income (9 Months Ended Mar 31) | Metric | 9 Months Ended Mar 31, 2025 (in thousands) | 9 Months Ended Mar 31, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :--------------------------------- | :--------------------------------- | :-------------------- | :--------- | | Net Interest Income | $847,611 | $701,367 | $146,244 | 20.9% | | Provision for Credit Losses | $40,748 | $26,500 | $14,248 | 53.8% | | Non-Interest Income | $89,781 | $191,799 | $(102,018) | (53.2)% | | Non-Interest Expense | $439,046 | $375,573 | $63,473 | 16.9% | | Net Income | $322,233 | $345,136 | $(22,903) | (6.6)% | | Basic EPS | $5.65 | $5.98 | $(0.33) | (5.5)% | | Diluted EPS | $5.55 | $5.88 | $(0.33) | (5.6)% | Condensed Consolidated Statements of Comprehensive Income (unaudited) This section presents total comprehensive income, including net income and other comprehensive income components Condensed Consolidated Statements of Comprehensive Income (3 Months Ended Mar 31) | Metric | 3 Months Ended Mar 31, 2025 (in thousands) | 3 Months Ended Mar 31, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :--------------------------------- | :--------------------------------- | :-------------------- | :--------- | | Net Income | $105,206 | $110,720 | $(5,514) | (5.0)% | | Other Comprehensive Income (Loss) | $(1,894) | $855 | $(2,749) | (321.5)% | | Comprehensive Income | $103,312 | $111,575 | $(8,263) | (7.4)% | Condensed Consolidated Statements of Comprehensive Income (9 Months Ended Mar 31) | Metric | 9 Months Ended Mar 31, 2025 (in thousands) | 9 Months Ended Mar 31, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :--------------------------------- | :--------------------------------- | :-------------------- | :--------- | | Net Income | $322,233 | $345,136 | $(22,903) | (6.6)% | | Other Comprehensive Income (Loss) | $3,579 | $3,546 | $33 | 0.9% | | Comprehensive Income | $325,812 | $348,682 | $(22,870) | (6.6)% | Condensed Consolidated Statements of Stockholders' Equity (unaudited) This section details changes in stockholders' equity components for the three and nine months ended March 31, 2025, and 2024 Condensed Consolidated Statements of Stockholders' Equity | Metric | March 31, 2025 (in thousands) | June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :---------------------------- | :--------------------------- | :-------------------- | :--------- | | Total Stockholders' Equity | $2,603,900 | $2,290,596 | $313,304 | 13.7% | | Retained Earnings | $2,507,850 | $2,185,617 | $322,233 | 14.7% | | Treasury Stock | $(445,676) | $(403,489) | $(42,187) | 10.5% | | Accumulated Other Comprehensive Income (Loss) | $1,113 | $(2,466) | $3,579 | (145.1)% | Condensed Consolidated Statements of Cash Flows (unaudited) This section outlines cash flows from operating, investing, and financing activities for the nine months ended March 31, 2025, and 2024 Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | 9 Months Ended Mar 31, 2025 (in thousands) | 9 Months Ended Mar 31, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :--------------------------------- | :--------------------------------- | :-------------------- | :--------- | | Net Cash Provided by Operating Activities | $306,979 | $268,506 | $38,473 | 14.3% | | Net Cash Used in Investing Activities | $(992,292) | $(2,162,131) | $1,169,839 | (54.1)% | | Net Cash Provided by Financing Activities | $757,231 | $1,857,450 | $(1,100,219) | (59.2)% | | Net Change in Cash, Cash Equivalents and Restricted Cash | $71,918 | $(36,175) | $108,093 | (298.8)% | Notes to Condensed Consolidated Financial Statements (unaudited) This section provides detailed explanations and disclosures for financial statements, covering policies, fair value, loans, and equity 1. Summary of Significant Accounting Policies This section outlines the basis of presentation, consolidation, loan portfolio acquisition, and key accounting policies - On December 7, 2023, Axos acquired two loan portfolios from the FDIC with an aggregate unpaid principal balance of $1.3 billion at a 37% discount[23] - Comprehensive income includes net income and other comprehensive income (OCI), such as unrealized gains and losses on available-for-sale securities and gains and losses on derivatives in designated cash flow hedge accounting relationships[27] - The Company uses derivatives for hedging mortgage loan commitments, market making in interest rate swaps and caps, and managing interest rate risk from floating-rate deposits[28][29][31] - The Company adopted ASU 2023-02 (tax equity investments) with no significant impact and does not expect significant impact from ASU 2023-07 (segment expenses) and ASU 2023-09 (income tax disclosures) upon their future adoption[34][35][36][38] 2. Fair Value This section presents recurring fair value measurements of financial assets and liabilities, categorized by input levels Fair Value Measurements | Metric | March 31, 2025 (in thousands) | June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :---------------------------- | :--------------------------- | :-------------------- | :--------- | | Total Available-for-Sale Securities | $79,958 | $141,611 | $(61,653) | (43.5)% | | Servicing Rights | $27,585 | $28,924 | $(1,339) | (4.6)% | | Other Assets—Derivative Instruments | $16,155 | $106,796 | $(90,641) | (84.9)% | - Key unobservable inputs for Level 3 Non-Agency MBS include Projected Constant Prepayment Rate (0.0-30.0%), Projected Constant Default Rate (0.0-3.0%), Projected Loss Severity (0.0-68.9%), and Discount Rate over SOFR Swaps (2.5-4.9%)[41] - Key unobservable inputs for Level 3 Servicing Rights include Projected Constant Prepayment Rate (3.5-26.2%), Life (2.3-11.6 years), and Discount Rate (9.5-11.2%)[41] 3. Available-for-Sale Securities This section details amortized cost and fair value of available-for-sale securities, including unrealized gains/losses and maturity Total Available-for-Sale Securities | Metric | March 31, 2025 (in thousands) | June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :---------------------------- | :--------------------------- | :-------------------- | :--------- | | Total Available-for-Sale Securities | $79,958 | $141,611 | $(61,653) | (43.5)% | - Unrealized losses on available-for-sale securities are primarily driven by the increase in interest rates, with no credit losses recognized[49] - Available-for-sale securities pledged to secure borrowings were $0.7 million as of March 31, 2025[50] Maturity Distribution of Available-for-Sale Securities (Amortized Cost) as of March 31, 2025 | Maturity Period | Amount (in thousands) | | :-------------- | :-------------------- | | Due Within One Year | $35,970 | | Due after One but within Five Years | $31,609 | | Due after Five but within Ten Years | $6,826 | | Due After Ten Years | $6,642 | 4. Loans & Allowance for Credit Losses This section breaks down the loan portfolio by segment, details allowance for credit losses, and credit quality indicators Loan Portfolio Segment | Loan Portfolio Segment | March 31, 2025 (in thousands) | June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :---------------------------- | :--------------------------- | :-------------------- | :--------- | | Single Family - Mortgage & Warehouse | $4,194,821 | $4,178,832 | $15,989 | 0.4% | | Multifamily and Commercial Mortgage | $3,340,618 | $3,861,931 | $(521,313) | (13.5)% | | Commercial Real Estate | $6,356,559 | $6,088,622 | $267,937 | 4.4% | | Commercial & Industrial - Non-RE | $6,389,964 | $5,241,766 | $1,148,198 | 21.9% | | Auto & Consumer | $447,294 | $431,660 | $15,634 | 3.6% | | Total Gross Loans | $20,729,256 | $19,802,811 | $926,445 | 4.7% | | Allowance for Credit Losses - Loans | $279,950 | $260,542 | $19,408 | 7.5% | | Nonaccrual Loans | $185,060 | $113,359 | $71,701 | 63.2% | - The provision for credit losses was $14.5 million for the three months and $40.7 million for the nine months ended March 31, 2025, primarily driven by loan growth in the commercial & industrial - non-RE portfolio and macroeconomic variables[54][146] - Nonaccrual loans to total loans increased to 0.89% at March 31, 2025, from 0.57% at June 30, 2024[59][168] 5. Derivatives This section provides notional amounts and fair values of derivative instruments, including hedging and non-hedging types Derivative Instruments | Metric | March 31, 2025 (in thousands) | June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :---------------------------- | :--------------------------- | :-------------------- | :--------- | | Total Notional Amount of Derivatives | $2,998,209 | $2,435,874 | $562,335 | 23.1% | | Derivative Assets (Fair Value) | $16,155 | $106,796 | $(90,641) | (84.9)% | | Derivative Liabilities (Fair Value) | $72,642 | $102,949 | $(30,307) | (29.4)% | - Approximately $2.7 million of pre-tax net gain related to cash flow hedges recorded in AOCI is expected to be recognized in income over the next 12 months[75] 6. Offsetting of Derivatives and Securities Financing Agreements This section presents information on offsetting derivative instruments and securities financing agreements, including collateral Offsetting of Derivatives and Securities Financing Agreements | Metric | March 31, 2025 (in thousands) | June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :---------------------------- | :--------------------------- | :-------------------- | :--------- | | Securities Borrowed (Gross Assets) | $91,915 | $67,212 | $24,703 | 36.7% | | Securities Loaned (Gross Liabilities) | $111,094 | $74,177 | $36,917 | 49.8% | | Other Assets - Derivative Assets (Net of Variation Margin) | $16,155 | $106,796 | $(90,641) | (84.9)% | - Derivative assets are presented net of $63.2 million of variation margin on centrally-cleared derivatives as of March 31, 2025[78] 7. Stockholders' Equity and Stock-Based Compensation This section discusses the equity incentive plan, RSU changes, common stock repurchases, and accumulated other comprehensive income - Total compensation cost not yet recognized related to non-vested awards was $74.8 million, expected to be recognized over a weighted-average period of 1.4 years[81] Common Stock Repurchases | Period | Total Repurchase (in thousands) | Number of Shares Repurchased | Average Price Paid Per Share | | :--------------------------------- | :------------------------------ | :--------------------------- | :--------------------------- | | 3 Months Ended Mar 31, 2025 | $27,870 | 434,327 | $64.17 | | 9 Months Ended Mar 31, 2025 | $27,870 | 434,327 | $64.17 | | 9 Months Ended Mar 31, 2024 | $83,781 | 2,267,610 | $36.95 | - As of March 31, 2025, there was $78.7 million of share repurchase authorization remaining[82] - The company entered into an equity distribution agreement on January 28, 2025, to issue and sell up to $150 million of common stock in at-the-market offerings, with no shares issued yet[83] - Accumulated other comprehensive income (loss) shifted from a loss of $(2.466) million at June 30, 2024, to a gain of $1.113 million at March 31, 2025, reflecting changes in unrealized gains/losses on available-for-sale securities and cash flow hedges[85] 8. Earnings per Common Share This section presents basic and diluted earnings per common share calculations for the three and nine months ended March 31, 2025, and 2024 Earnings per Common Share (3 Months Ended Mar 31) | Metric | 3 Months Ended Mar 31, 2025 | 3 Months Ended Mar 31, 2024 | Change | | :--------------------------------- | :-------------------------- | :-------------------------- | :----- | | Basic EPS | $1.84 | $1.94 | $(0.10) | | Diluted EPS | $1.81 | $1.91 | $(0.10) | Earnings per Common Share (9 Months Ended Mar 31) | Metric | 9 Months Ended Mar 31, 2025 | 9 Months Ended Mar 31, 2024 | Change | | :--------------------------------- | :-------------------------- | :-------------------------- | :----- | | Basic EPS | $5.65 | $5.98 | $(0.33) | | Diluted EPS | $5.55 | $5.88 | $(0.33) | 9. Commitments and Contingencies This section discloses off-balance-sheet commitments and details legal proceedings, including derivative actions and class actions Off-Balance Sheet Commitments as of March 31, 2025 | Commitment Type | Amount (in thousands) | | :-------------- | :-------------------- | | Commitments to fund loans | $5,191,149 | | Commitments to sell loans | $5,298 | | Standby letters of credit | $1,988 | | Commitments to contribute capital | $3,514 | - The company has $29.0 million of commitments to contribute capital to LIHTC investments included in 'Accounts payable and other liabilities'[92] - A consolidated derivative action is pending, stayed until resolution of an appeal in a related employment action, where the appellate court affirmed the jury's verdict on February 6, 2025[94] - The company paid all amounts owed under the MUFG Union Bank, N.A. judgment on March 21, 2025, at an amount less than previously accrued[95] - Three putative class action lawsuits (UFB Actions) are pending, alleging false or misleading rate representations; arbitration was compelled in each, but one arbitration proceeding dismissed claims, remanding the case to the District Court; the Company intends to vigorously defend[96] 10. Segment Reporting and Revenue Information This section provides financial information for the Banking and Securities Business Segments, including non-interest income details Banking Business Segment (3 Months Ended March 31, 2025 vs. 2024) | Metric | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | % Change | | :------------------ | :------------------ | :------------------ | :-------------------- | :--------- | | Net interest income | $272,260 | $258,435 | $13,825 | 5.3% | | Non-interest income | $12,666 | $11,908 | $758 | 6.4% | | Non-interest expense | $118,325 | $104,959 | $13,366 | 12.7% | | Income before taxes | $152,101 | $159,384 | $(7,283) | (4.6)% | Securities Business Segment (3 Months Ended March 31, 2025 vs. 2024) | Metric | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | % Change | | :------------------ | :------------------ | :------------------ | :-------------------- | :--------- | | Net interest income | $6,942 | $7,133 | $(191) | (2.7)% | | Non-interest income | $30,611 | $32,746 | $(2,135) | (6.5)% | | Non-interest expense | $28,416 | $32,488 | $(4,072) | (12.5)% | | Income before taxes | $9,137 | $7,391 | $1,746 | 23.6% | - Total non-interest income for the nine months ended March 31, 2025, decreased by $102.0 million (53.2%) to $89.8 million, primarily due to the absence of the gain on the FDIC Loan Purchase in the prior year period[102][148] 11. Borrowings, Subordinated Notes and Debentures This section details subordinated notes, including repurchases and non-cash gains on extinguishment for the nine months ended March 31, 2025 - On July 15, 2024, the Company repurchased $3.0 million par value of its 4.00% Fixed-to-Floating Rate Subordinated Notes due March 1, 2032, for $2.6 million, resulting in a $0.4 million pre-tax non-cash gain[103] - On September 27, 2024, the Company repurchased $9.5 million par value of its 4.875% Fixed-to-Floating Rate Subordinated Notes due October 1, 2030, for $9.2 million, resulting in a $0.2 million pre-tax non-cash gain[103] - These non-cash gains are recorded in 'General and administrative expense' in the condensed Consolidated Statements of Income[103] 12. Other Assets This section describes the composition and financial impact of 'Other Assets,' including BOLI and LIHTC investments - The Company purchased $100 million of BOLI policies on the lives of certain executives during the nine months ended March 31, 2025[104] LIHTC Investments Financial Impact (9 Months Ended March 31) | Metric | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :------------------ | :------------------ | :-------------------- | :--------- | | Net benefit (expense) included in income tax expense | $835 | $926 | $(91) | (9.8)% | LIHTC Investments on Balance Sheet | Metric | March 31, 2025 (in thousands) | June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :---------------------------- | :--------------------------- | :-------------------- | :--------- | | LIHTC investments | $61,472 | $65,873 | $(4,401) | (6.7)% | | LIHTC unfunded commitments | $28,980 | $40,617 | $(11,637) | (28.6)% | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on financial performance, condition, liquidity, and capital resources, including non-GAAP measures - Axos Financial, Inc. is a technology-driven, diversified financial services company with approximately $24.0 billion in assets and $37.1 billion of assets under custody and/or administration[112] - The company operates through two segments: the Banking Business Segment (consumer and commercial banking) and the Securities Business Segment (clearing, custody, and investment advisory services)[112][119][120] - Axos Financial, Inc. and its subsidiaries are supervised and regulated by the Federal Reserve, OCC, FDIC, SEC, and FINRA[113][114][116] - On December 7, 2023, the Company acquired two loan portfolios from the FDIC with an aggregate unpaid principal balance of $1.3 billion at a 37% discount, expected to yield higher returns[117] USE OF NON-GAAP MEASURES This section explains non-GAAP financial measures, including adjusted earnings, EPS, and tangible book value, with reconciliations - Adjusted earnings (Non-GAAP) is defined as net income without the after-tax impact of non-recurring acquisition-related items and other unusual costs[124] - Adjusted EPS (Non-GAAP) is calculated by dividing non-GAAP adjusted earnings by the average number of diluted common shares outstanding[124] - Tangible book value (Non-GAAP) is defined as book value adjusted for goodwill and other intangible assets, and tangible book value per common share is calculated by dividing tangible book value by common shares outstanding[125] Adjusted Earnings and EPS (Non-GAAP) Reconciliation | Metric | 3 Months Ended Mar 31, 2025 (in thousands) | 3 Months Ended Mar 31, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :--------------------------------- | :--------------------------------- | :-------------------- | :--------- | | Net Income (GAAP) | $105,206 | $110,720 | $(5,514) | (5.0)% | | Adjusted Earnings (Non-GAAP) | $105,011 | $112,655 | $(7,644) | (6.8)% | | Diluted EPS (GAAP) | $1.81 | $1.91 | $(0.10) | (5.2)% | | Adjusted EPS (Non-GAAP) | $1.81 | $1.94 | $(0.13) | (6.7)% | | Metric | 9 Months Ended Mar 31, 2025 (in thousands) | 9 Months Ended Mar 31, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :--------------------------------- | :--------------------------------- | :-------------------- | :--------- | | Net Income (GAAP) | $322,233 | $345,136 | $(22,903) | (6.6)% | | Adjusted Earnings (Non-GAAP) | $324,997 | $289,292 | $35,705 | 12.3% | | Diluted EPS (GAAP) | $5.55 | $5.88 | $(0.33) | (5.6)% | | Adjusted EPS (Non-GAAP) | $5.60 | $4.93 | $0.67 | 13.6% | SELECTED FINANCIAL INFORMATION This section provides a comprehensive overview of key financial data, including balance sheet items, capital, and performance ratios Selected Balance Sheet Data | Metric | March 31, 2025 (in thousands) | June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :---------------------------- | :--------------------------- | :-------------------- | :--------- | | Total assets | $23,981,154 | $22,855,334 | $1,125,820 | 4.9% | | Total deposits | $20,136,714 | $19,359,217 | $777,497 | 4.0% | | Book value per common share | $45.79 | $40.26 | $5.53 | 13.7% | | Tangible book value per common share (Non-GAAP) | $42.91 | $37.26 | $5.65 | 15.2% | Capital Ratios (Axos Financial, Inc. as of March 31, 2025) | Ratio | Value | | :--------------------------------- | :---- | | Tier 1 leverage | 10.45% | | Common equity tier 1 capital | 12.39% | | Tier 1 capital | 12.39% | | Total capital | 15.21% | Performance Ratios | Metric | 3 Months Ended Mar 31, 2025 | 3 Months Ended Mar 31, 2024 | Change (bps) | | :--------------------------------- | :-------------------------- | :-------------------------- | :----------- | | Net interest margin | 4.78% | 4.87% | (9) | | Efficiency ratio | 47.36% | 45.20% | 216 | | Nonaccrual loans to total loans | 0.89% | 0.63% | 26 | | Metric | 9 Months Ended Mar 31, 2025 | 9 Months Ended Mar 31, 2024 | Change (bps) | | :--------------------------------- | :-------------------------- | :-------------------------- | :----------- | | Net interest margin | 4.93% | 4.61% | 32 | | Efficiency ratio | 46.84% | 42.05% | 479 | | Nonaccrual loans to total loans | 0.89% | 0.63% | 26 | RESULTS OF OPERATIONS This section compares financial results for the three and nine months ended March 31, 2025, and 2024, focusing on income and expenses - Net income decreased by 5.0% for the three months and 6.6% for the nine months ended March 31, 2025, compared to the prior year periods[130] - Net interest income increased by 5.3% for the three months and 20.9% for the nine months ended March 31, 2025[140][143] - Net interest margin decreased by 9 basis points to 4.78% for the three months ended March 31, 2025, but increased by 32 basis points to 4.93% for the nine months ended March 31, 2025[140][143] - Provision for credit losses increased to $14.5 million for the three months and $40.7 million for the nine months ended March 31, 2025, primarily due to loan growth in the commercial & industrial - non-RE portfolio and macroeconomic factors[146] - Non-interest income increased by 0.6% for the three months but decreased by 53.2% for the nine months ended March 31, 2025, mainly due to the absence of the FDIC Loan Purchase gain in the prior year[148] - Non-interest expense increased by 9.8% for the three months and 16.9% for the nine months ended March 31, 2025, driven by higher salaries, data processing, and FDIC fees[149][151] SEGMENT RESULTS This section presents operating results for the Banking and Securities Business Segments, highlighting key performance indicators Banking Business Segment Performance (3 Months Ended March 31) | Metric | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | % Change | | :------------------ | :------------------ | :------------------ | :-------------------- | :--------- | | Income before taxes | $152,101 | $159,384 | $(7,283) | (4.6)% | | Net interest income | $272,260 | $258,435 | $13,825 | 5.3% | | Non-interest income | $12,666 | $11,908 | $758 | 6.4% | | Non-interest expense | $118,325 | $104,959 | $13,366 | 12.7% | Securities Business Segment Performance (3 Months Ended March 31) | Metric | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | % Change | | :------------------ | :------------------ | :------------------ | :-------------------- | :--------- | | Income before taxes | $9,137 | $7,391 | $1,746 | 23.6% | | Net interest income | $6,942 | $7,133 | $(191) | (2.7)% | | Non-interest income | $30,611 | $32,746 | $(2,135) | (6.5)% | | Non-interest expense | $28,416 | $32,488 | $(4,072) | (12.5)% | FINANCIAL CONDITION This section analyzes the balance sheet, focusing on changes in assets, liabilities, loans, and asset quality - Total assets increased by $1.1 billion (4.9%) to $24.0 billion at March 31, 2025, and total liabilities increased by $0.8 billion (4.0%) to $21.4 billion[165] - Total gross loans increased by $926.4 million (4.7%) to $20.7 billion at March 31, 2025[166] - Non-performing assets increased to $188.9 million at March 31, 2025, from $115.8 million at June 30, 2024, primarily due to a $71.7 million increase in nonaccrual loans, mainly in the commercial & industrial - non-RE portfolio[168] - Non-performing assets as a percentage of total assets increased to 0.79% at March 31, 2025, from 0.51% at June 30, 2024[168] - Total available-for-sale securities decreased to $80.0 million at March 31, 2025, from $141.6 million at June 30, 2024[169] - Total deposits increased by $0.8 billion (4.0%) to $20.1 billion at March 31, 2025[170] - Total borrowings increased to $437.4 million at March 31, 2025, from $415.7 million at June 30, 2024[172] LIQUIDITY This section discusses cash flow activities and available liquidity sources, including borrowing capacities and deposit insurance - Net cash provided by operating activities was $307.0 million for the nine months ended March 31, 2025, an increase from $268.5 million in the prior year[174] - Net cash used in investing activities decreased significantly to $992.3 million for the nine months ended March 31, 2025, from $2,162.1 million in the prior year, primarily due to the absence of the FDIC Loan Purchase[175] - Net cash provided by financing activities decreased to $757.2 million for the nine months ended March 31, 2025, from $1,857.5 million in the prior year, mainly due to a lower net increase in deposits[176] - As of March 31, 2025, the Bank had $2,813.5 million immediately available from the FHLB and $7,554.3 million available from the FRBSF Discount Window[177][178] - Axos Clearing has a $150 million third-party secured line of credit (with $63.5 million outstanding) and a $110 million third-party unsecured line of credit (no outstanding amount)[179][180] - Management views liquidity sources as stable and adequate, with approximately 90% of total Bank deposits in insured or collateralized accounts[181] CAPITAL RESOURCES AND REQUIREMENTS This section details regulatory capital adequacy requirements and presents capital ratios for Axos Financial, Inc. and Axos Bank - Both Axos Financial, Inc. and Axos Bank met all capital adequacy requirements and were "well capitalized" under the regulatory framework for prompt corrective action as of March 31, 2025[185] - The Company and Bank elected the five-year CECL transition guidance for calculating regulatory capital, which is being phased out[186] - Both the Company and Bank were in compliance with the capital conservation buffer requirement at March 31, 2025[188] Regulatory Capital Ratios (Axos Financial, Inc.) | Ratio | March 31, 2025 | June 30, 2024 | "Well Capitalized" Ratio | Minimum Capital Ratio | | :----------------------------------------------- | :------------- | :------------ | :----------------------- | :-------------------- | | Tier 1 leverage | 10.45% | 9.43% | 5.00% | 4.00% | | Common equity tier 1 capital | 12.39% | 12.01% | 6.50% | 4.50% | | Tier 1 capital | 12.39% | 12.01% | 8.00% | 6.00% | | Total capital | 15.21% | 14.84% | 10.00% | 8.00% | Regulatory Capital Ratios (Axos Bank) | Ratio | March 31, 2025 | June 30, 2024 | "Well Capitalized" Ratio | Minimum Capital Ratio | | :------------------------------------ | :------------- | :------------ | :----------------------- | :-------------------- | | Tier 1 leverage | 10.14% | 9.74% | 5.00% | 4.00% | | Common equity tier 1 capital | 12.31% | 12.74% | 6.50% | 4.50% | | Tier 1 capital | 12.31% | 12.74% | 8.00% | 6.00% | | Total capital | 13.49% | 13.81% | 10.00% | 8.00% | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section discusses market risk exposure, primarily interest rate risk, and its measurement and management across segments - The company measures interest rate sensitivity as the difference between interest-earning assets and interest-bearing liabilities that mature or re-price within a given period, known as the interest rate sensitivity gap[192] Net Interest Income Sensitivity (Banking Business Segment, as of March 31, 2025) | Interest Rate Shock | First 12 Months (% Change from Base) | Next 12 Months (% Change from Base) | | :------------------ | :----------------------------------- | :---------------------------------- | | Up 200 basis points | 6.5% | 13.4% | | Up 100 basis points | 3.2% | 6.7% | | Down 100 basis points | (2.1)% | (4.8)% | | Down 200 basis points | (2.3)% | (7.2)% | Market Value of Equity (MVE) Sensitivity (as of March 31, 2025) | Interest Rate Shock | Percentage Change from Base | | :------------------ | :-------------------------- | | Up 200 basis points | 1.0% | | Up 100 basis points | 1.1% | | Down 100 basis points | (2.2)% | | Down 200 basis points | (4.4)% | - The Securities Business Segment is primarily exposed to interest rate risk from customer and correspondent margin loans and securities borrowing activities, with rates generally fluctuating in parallel to funding sources[199][200][201] ITEM 4. CONTROLS AND PROCEDURES This section confirms the effectiveness of disclosure controls and procedures and reports no material changes to internal controls - The Company's disclosure controls and procedures were evaluated and deemed effective as of March 31, 2025, by the Chief Executive Officer and Chief Financial Officer[204] - There were no changes in the Company's internal control over financial reporting during the quarter ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[204] - Management acknowledges that control systems provide only reasonable, not absolute, assurance and are subject to inherent limitations, resource constraints, and potential deterioration[205] PART II – OTHER INFORMATION This part contains disclosures on legal proceedings, risk factors, equity sales, defaults, other information, and exhibits ITEM 1. LEGAL PROCEEDINGS This section refers to Note 9 for legal proceedings and confirms no material adverse effect from ordinary course claims - Information on legal proceedings is incorporated by reference from Note 9—"Commitments and Contingencies" in the accompanying interim condensed consolidated financial statements[208] - Other claims or litigation arising in the ordinary course of business are not expected to have a material adverse effect on the Company's financial condition, results of operations, or business[209] ITEM 1A. RISK FACTORS This section directs readers to the 2024 Form 10-K for comprehensive risk factors and acknowledges other unanticipated factors - Readers are encouraged to review the detailed risk factors under Item 1A—"Risk Factors" in the 2024 Form 10-K[210] - The company acknowledges that other factors may exist that cannot be anticipated or are not currently considered significant, which could cause actual results to differ materially[210] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES This section details common stock repurchases and shares retained from RSU net settlements for the three months ended March 31, 2025 Common Stock Repurchases (3 Months Ended March 31, 2025) | Period | Number of Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value of Shares that May Yet be Purchased (in thousands) | | :--------------------------------- | :------------------------- | :--------------------------- | :------------------------------------------------------------------------ | | January 1, 2025 to January 31, 2025 | 29,034 | $68.91 | $104,520 | | February 1, 2025 to February 28, 2025 | 38,660 | $66.60 | $101,945 | | March 1, 2025 to March 31, 2025 | 366,633 | $63.54 | $78,650 | | For the Three Months Ended March 31, 2025 | 434,327 | $64.17 | $78,650 | - The company retained 98,033 shares in net settlement of restricted stock unit awards for the three months ended March 31, 2025[212] - The share repurchase program will continue in effect until terminated by the Board of Directors, with $78.7 million of authorization remaining as of March 31, 2025[82][212] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This section confirms no defaults occurred upon senior securities - There were no defaults upon senior securities[213] ITEM 4. MINE SAFETY DISCLOSURES This section states that mine safety disclosures are not applicable to the company - This item is not applicable[214] ITEM 5. OTHER INFORMATION This section discloses no director or officer adopted or terminated Rule 10b5-1 trading arrangements - No director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the three months ended March 31, 2025[215] ITEM 6. EXHIBITS This section lists exhibits filed with Form 10-Q, including certifications, agreements, and XBRL documents - The exhibits include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[217] - The Equity Distribution Agreement, dated January 28, 2025, is filed as Exhibit 10.1[217] - Inline XBRL Instance Document and Taxonomy Extension Schema, Calculation, Label, Presentation, and Definition Documents are filed[217] SIGNATURES This section contains the signatures of authorized officers, certifying the report - The report was signed on April 30, 2025, by Gregory Garrabrants, President and Chief Executive Officer, and Derrick K. Walsh, Executive Vice President and Chief Financial Officer[221]