UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended September 30, 2018

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-51201

AXOS FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

Delaware	33-0867444
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
4350 La Jolla Village Drive, Suite 140, San Diego, CA	92122
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (858) 350-6200

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.

Large accelerated filer  x	Accelerated filer  o	Non-accelerated filer  ¨	Smaller reporting company  o
Emerging growth company  o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    ¨  Yes    x  No

The number of shares outstanding of the registrant’s common stock on the last practicable date: 62,831,830 shares of common stock, $0.01 par value per share, as of October 19, 2018.

AXOS FINANCIAL, INC.

INDEX

	Page
PART I – FINANCIAL INFORMATION	1
ITEM 1.       FINANCIAL STATEMENTS	1
Condensed Consolidated Balance Sheets (unaudited) as of September 30, 2018 and June 30, 2018	1
Condensed Consolidated Statements of Income (unaudited) for the three months ended September 30, 2018 and 2017	2
Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three months ended September 30, 2018 and 2017	3
Condensed Consolidated Statement of Stockholders’ Equity (unaudited) for the three months ended September 30, 2018	4
Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended September 30, 2018 and 2017	5
Notes to Condensed Consolidated Financial Statements	6
ITEM 2.        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	40
SELECTED FINANCIAL DATA	43
RESULTS OF OPERATIONS	45
FINANCIAL CONDITION	51
LIQUIDITY	57
OFF-BALANCE SHEET COMMITMENTS AND CONTRACTUAL OBLIGATIONS	57
CAPITAL RESOURCES AND REQUIREMENTS	58
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	59
ITEM 3:       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS	61
ITEM 4:       CONTROLS AND PROCEDURES	61
PART II – OTHER INFORMATION	63
ITEM 1.       LEGAL PROCEEDINGS	63
ITEM 1A.    RISK FACTORS	63
ITEM 2.       UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	63
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	63
ITEM 4.     MINE SAFETY DISCLOSURES	63
ITEM 5.       OTHER INFORMATION	63
ITEM 6.       EXHIBITS	64
SIGNATURES	65

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AXOS FINANCIAL, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands, except par and stated value)	September 30, 2018			June 30, 2018
ASSETS
Cash and due from banks	$	533,869		$	622,750
Federal funds sold	100			100
Total cash and cash equivalents	533,969			622,850
Securities:
Available-for-sale	202,727			180,305
Stock of the Federal Home Loan Bank, at cost	69,660			17,250
Loans held for sale, carried at fair value	30,916			35,077
Loans held for sale, lower of cost or fair value	6,078			2,686
Loans and leases—net of allowance for loan and lease losses of $50,120 as of September 30, 2018 and $49,151 as of June 30, 2018	8,654,500			8,432,289
Accrued interest receivable	35,951			26,729
Furniture, equipment and software—net	22,283			21,454
Mortgage servicing rights, carried at fair value	11,216			10,752
Cash surrender value of life insurance	6,404			6,358
Other real estate owned and repossessed vehicles	9,497			9,591
Deferred income tax	17,925			17,957
Goodwill and other intangible assets—net	67,139			67,788
Other assets	123,255			88,418
TOTAL ASSETS	$	9,791,520		$	9,539,504
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing	$	861,362		$	1,015,355
Interest bearing	5,216,226			6,969,995
Total deposits	6,077,588			7,985,350
Advances from the Federal Home Loan Bank	2,580,000			457,000
Subordinated notes and debentures and other	54,588			54,552
Accrued interest payable	2,353			1,753
Accounts payable and accrued liabilities and other liabilities	76,744			80,336
Total liabilities	8,791,273			8,578,991
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS’ EQUITY:
Preferred stock—$0.01 par value; 1,000,000 shares authorized:
Series A—$10,000 stated value and liquidation preference per share; 515 shares issued and outstanding as of September 30, 2018 and June 30, 2018	5,063			5,063
Common stock—$0.01 par value; 150,000,000 shares authorized; 66,043,642 shares issued and 62,831,731 shares outstanding as of September 30, 2018; 65,796,060 shares issued and 62,688,064 shares outstanding as of June 30, 2018	660			658
Additional paid-in capital	373,364			366,515
Accumulated other comprehensive income (loss)—net of tax	(407		)	(613		)
Retained earnings	708,112			671,348
Treasury stock, at cost; 3,211,911 shares as of September 30, 2018 and 3,107,996 shares as of June 30, 2018	(86,545		)	(82,458		)
Total stockholders’ equity	1,000,247			960,513
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	9,791,520		$	9,539,504

See accompanying notes to the condensed consolidated financial statements.

1

AXOS FINANCIAL, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)  

	Three Months Ended
	September 30,
(Dollars in thousands, except earnings per common share)	2018			2017
INTEREST AND DIVIDEND INCOME:
Loans and leases, including fees	$	116,593		$	97,575
Investments	6,204			5,936
Total interest and dividend income	122,797			103,511
INTEREST EXPENSE:
Deposits	28,681			17,318
Advances from the Federal Home Loan Bank	6,908			4,552
Other borrowings	929			1,091
Total interest expense	36,518			22,961
Net interest income	86,279			80,550
Provision for loan and lease losses	600			1,000
Net interest income, after provision for loan and lease losses	85,679			79,550
NON-INTEREST INCOME:
Realized gain (loss) on sale of securities	(133		)	282
Other-than-temporary loss on securities:
Total impairment (losses) gains	—			(194		)
Loss (gain) recognized in other comprehensive income	—			45
Net impairment loss recognized in earnings	—			(149		)
Fair value gain (loss) on trading securities	—			—
Total unrealized (loss) gain on securities	—			(149		)
Prepayment penalty fee income	904			1,069
Gain on sale – other	3,133			446
Mortgage banking income	1,815			4,708
Banking and service fees	10,824			6,984
Total non-interest income	16,543			13,340
NON-INTEREST EXPENSE:
Salaries and related costs	30,662			22,133
Data processing and internet	4,735			4,065
Advertising and promotional	4,425			2,966
Depreciation and amortization	3,016			1,748
Occupancy and equipment	1,602			1,481
Professional services	1,858			1,624
FDIC and regulatory fees	2,926			1,091
Real estate owned and repossessed vehicles	(55		)	69
General and administrative expense	3,753			2,843
Total non-interest expense	52,922			38,020
INCOME BEFORE INCOME TAXES	49,300			54,870
INCOME TAXES	12,459			22,487
NET INCOME	$	36,841		$	32,383
NET INCOME ATTRIBUTABLE TO COMMON STOCK	$	36,764		$	32,306
COMPREHENSIVE INCOME	$	37,047		$	31,423
Basic earnings per common share (revised for September 2017)	$	0.59		$	0.51
Diluted earnings per common share (revised for September 2017)	$	0.58		$	0.50

See accompanying notes to the condensed consolidated financial statements.

2

AXOS FINANCIAL, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended
	September 30,
(Dollars in thousands)	2018		2017
NET INCOME	$	36,841	$	32,383
Net unrealized gain (loss) from available-for-sale securities, net of tax expense (benefit) of $48 and $(720) for the three months ended September 30, 2018 and 2017, respectively.	112		(986		)
Other-than-temporary impairment on securities recognized in other comprehensive income, net of tax expense (benefit) of $0 and $19 for the three months ended September 30, 2018 and 2017, respectively.	—		26
Reclassification of net (gain) loss from available-for-sale securities included in income, net of tax expense (benefit) of $(39) and $0 for the three months ended September 30, 2018 and 2017, respectively.	94		—
Other comprehensive income (loss)	206		(960		)
Comprehensive income	$	37,047	$	31,423

See accompanying notes to the condensed consolidated financial statements.

3

AXOS FINANCIAL, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

	Preferred Stock			Common Stock						Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss), Net of Income Tax			Treasury Stock			Total
				Number of Shares
(Dollars in thousands)	Shares	Amount		Issued	Treasury		Outstanding	Amount
BALANCE—June 30, 2018	515	$	5,063	65,796,060	(3,107,996	)	62,688,064	$	658	$	366,515		$	671,348		$	(613	)	$	(82,458	)	$	960,513
Net income	—	—		—	—		—	—		—			36,841			—			—			36,841
Other comprehensive income (loss)	—	—		—	—		—	—		—			—			206			—			206
Cash dividends on preferred stock	—	—		—	—		—	—		—			(77		)	—			—			(77		)
Stock-based compensation expense	—	—		—	—		—	—		6,851			—			—			—			6,851
Restricted stock unit vesting and tax benefits	—	—		247,582	(103,915	)	143,667	2		(2		)	—			—			(4,087		)	(4,087		)
BALANCE—September 30, 2018	515	$	5,063	66,043,642	(3,211,911	)	62,831,731	$	660	$	373,364		$	708,112		$	(407	)	$	(