What happened

Shares of Axos Financial (AX -0.74%) were trading sharply higher on Thursday, after the company reported better-than-expected earnings for the third quarter of fiscal 2020. In early trading, shares were up 13%. As of 12:30 p.m. EDT today, they were still up around 7%.

So what

With bank stocks, investors need to keep an eye on net interest margin (NIM), a metric where Axos has traditionally excelled. This is the revenue generated from the difference between the rates at which a bank lends money and that at which it borrows. When the Federal Reserve dropped interest rates to near zero earlier this year, the assumption was Axos' NIM would fall.

A red percentage sign among white dollar signs.

Image source: Getty Images.

It did fall, but not by much. Axos' NIM in the banking business was 3.85%, only slightly down from 3.9% last year. Furthermore, the company targets NIM between 3.8% and 4% long term, and management kept that guidance.

Investors were also uncertain about housing loans going into the earnings report. Many borrowers are missing payments due to the economic uncertainty surrounding COVID-19. But Axos' management said that it's handling things on a case-by-case basis. Loans currently in forbearance are just a small percentage of the overall portfolio.

Through loan portfolio growth and excellent cost control, Axos Financial delivered net income of $56 million, which was up a whopping 44% year over year.

Now what

Besides these encouraging results from Q3, investors today are likely pleased with Axos' guidance. Along with the aforementioned NIM forecast, the company expects loan growth to remain stable.

One of the only disappointments involved a possible dividend. Axos doesn't currently pay a dividend, but was strongly considering implementing one in the near term. Due to economic uncertainty, however, it's decided against starting one at this time.