What happened

Shares of Axos Financial (NYSE:AX) rose 16.9% during October, according to data from S&P Global Market Intelligence.

The small-cap bank posted some terrific results in late October which handily beat expectations, sending shares of this beaten-down bank stock back up toward pre-pandemic levels.

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Image source: Getty Images.

So what

Axos was born in the digital age in 2000; in fact, it used to be called "Bank of the Internet," touting its branchless model well ahead of its time. That digital prowess may have helped the company through the current environment.

In the third quarter, revenue surged 30.7% to $163.2 million, $20.5 million ahead of analyst expectations, and earnings per share of $0.88 beat expectations by a whopping $0.20. Axos was actually able to grow its loan portfolio, thanks to lots of refinancing and homebuying activity as competitors backed away.

On the liability side, the company also lowered interest costs on deposits, due to both lower rates overall and some lower-rate deposit acquisitions last year. Interestingly, the company borrowed subordinated debt at 4.75% in order to buy back its stock during the quarter, as Axos is small enough that it isn't subject to repurchase restrictions imposed by the Federal Reserve earlier this year.

CEO Greg Garrabrants said on the earnings call: "Our conservative underwriting with an emphasis on retained asset values with low loan to values on our balance sheet continues to serve us well as real estate values are holding up in most markets."

Now what

Axos began as a jumbo mortgage lender to high-net-worth individuals, but it has since diversified its loan offerings to commercial and industrial loans, and consumer loans such as auto and unsecured personal loans; it even bought a broker-dealer last year.

It appears as though these newer businesses are going well, complementing a currently strong core mortgage business, as strong housing and refinancing markets are doing very well compared with the rest of the economy. Though the stock has basically doubled from its March lows, Axos still trades at around 8.9 times earnings, making it a value stock to watch in the small-cap space.

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