AXOS FINANCIAL, INC. The following discussion provides information about the results of operations, financial condition, liquidity, off balance sheet items and capital resources ofAxos Financial, Inc. and subsidiaries (collectively, "we", "us" or the "Company"). This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of our operations. This discussion and analysis should be read in conjunction with our financial information in our Annual Report on Form 10-K for the year endedJune 30, 2021 , and the interim unaudited condensed consolidated financial statements and notes thereto contained in this report. Some matters discussed in this report may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as such, may involve risks and uncertainties. These forward-looking statements can be identified by the use of terminology such as "estimate," "project," "anticipate," "expect," "intend," "believe," "will," or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. These forward-looking statements relate to, among other things, the effects on our business of the current novel coronavirus pandemic ("COVID-19"), the Company's financial prospects and other projections of its performance and asset quality, our ability to continue to grow profitably and increase its business, our ability to continue to diversify lending and deposit franchises, and the anticipated timing and financial performance of other offerings, initiatives, and acquisitions, expectations of the environment in which we operate and projections of future performance. Forward-looking statements are inherently unreliable and actual results may vary. Factors that could cause actual results to differ from these forward-looking statements include uncertainties surrounding the severity, duration, and effects of the COVID-19 pandemic, our ability to successfully integrate acquisitions and realize the anticipated benefits of the transactions, changes in the interest rate environment, inflation, government regulation, general economic conditions, changes in the competitive marketplace, conditions in the real estate markets in which we operate, risks associated with credit quality, the outcome and effects of pending class action litigation filed against the Company and other risk factors discussed under the heading "Item 1A. Risk Factors" of this Quarterly Report on Form 10-Q for the quarter endedDecember 31, 2021 and in our Annual Report on Form 10-K for the year endedJune 30, 2021 , which has been filed with theSecurities and Exchange Commission . We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All written and oral forward-looking statements made in connection with this report, which are attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing information. General Our Company, the holding company forAxos Bank (the "Bank"), is a diversified financial services company with approximately$15.5 billion in assets that provides consumer and business banking products through its online, low-cost distribution channels and affinity partners. Our Bank has deposit and loan customers nationwide including consumer and business checking, savings and time deposit accounts and financing for single family and multifamily residential properties, small-to-medium size businesses in target sectors, and automobiles. Our Bank generates fee income from consumer and business products including fees from loans originated for sale and transaction fees earned from processing payment activity. Our securities products and services are offered throughAxos Clearing LLC ("Axos Clearing") and its business division Axos Advisor Services ("AAS"), formerly E*TRADE Advisor Services, andAxos Invest, Inc. ("Axos Invest"), which generate interest and fee income by providing comprehensive securities clearing and custody services to introducing broker-dealers and registered investment advisor correspondents and digital investment advisory services to retail investors, respectively.Axos Financial, Inc.'s common stock is listed on theNew York Stock Exchange and is a component of the Russell 2000® Index, the KBW Nasdaq Financial Technology Index, the S&P SmallCap 600® Index, the KBW Nasdaq Financial Technology Index, and theTravillian Tech-Forward Bank Index. Our Bank is a federal savings bank wholly-owned by our Company and regulated by theOffice of the Comptroller of the Currency ("OCC"), and theFederal Deposit Insurance Corporation ("FDIC") as its deposit insurer. The Bank must file reports with the OCC and theFDIC concerning its activities and financial condition. As a depository institution with more than$10 billion in assets, our Bank and our affiliates are subject to direct supervision by theConsumer Financial Protection Bureau . Axos Clearing is a broker-dealer registered with theSEC and theFinancial Industry Regulatory Authority, Inc. ("FINRA").Axos Invest is a Registered Investment Advisor under the Investment Advisers Act of 1940, that is registered with theSEC , andAxos Invest LLC is an introducing broker-dealer that is registered with theSEC andFINRA . 30 -------------------------------------------------------------------------------- Table of Contents Segment Information The Company determines reportable segments based on what separate financial information is available and what segment results are evaluated regularly by the Chief Executive Officer in deciding how to allocate resources and in assessing performance. We operate through two segments: Banking Business and Securities Business. Banking Business. The Banking Business includes a broad range of banking services including online banking, concierge banking, and mortgage, vehicle and unsecured lending through online and telephonic distribution channels to serve the needs of consumer and small businesses nationally. Our deposit products consist of demand, savings, money market and time deposit accounts. In addition, the Banking Business focuses on providing deposit products nationwide to industry verticals (e.g., Title and Escrow), cash management products to a variety of businesses, and commercial & industrial and commercial real estate lending to clients. The Banking Business also includes a bankruptcy trustee and fiduciary service that provides specialized software and consulting services to Chapter 7 bankruptcy and non-Chapter 7 trustees and fiduciaries. We distribute our loan products through our retail, correspondent and wholesale channels, and the loans we retain are primarily first mortgages secured by single family real property and by multifamily real property as well as commercial & industrial loans to businesses. Our investment securities consist of agency and non-agency mortgage-backed securities, municipal securities and other non-agency debt securities. We believe our flexibility to adjust our asset generation channels has been a competitive advantage allowing us to avoid markets and products where credit fundamentals are poor or risks and rewards are not sufficient to support our required return on equity. Securities Business. The Securities Business includes the Clearing Broker-Dealer, Registered Investment Advisor custody business, Registered Investment Advisor, and Introducing Broker-Dealer lines of businesses. These lines of business offer products independently to their own customers as well as to Banking Business clients. The products offered by the lines of business in the Securities Business primarily generate net interest income and non-banking service fee income. Securities services includes fully disclosed clearing services through Axos Clearing toFINRA - andSEC -registered member firms for trade execution and clearance as well as back-office services such as record keeping, trade and performance reporting, accounting, general back-office support, securities and margin lending, reorganization assistance and custody of securities. We provide financing to our brokerage customers for their securities trading activities through margin loans that are collateralized by securities, cash, or other acceptable collateral. Securities lending activities include borrowing and lending securities with other broker-dealers. These activities involve borrowing securities to cover short sales and to complete transactions in which clients have failed to deliver securities by the required settlement date, and lending securities to other broker dealers for similar purposes. Through the RIA custody business, we provide a proprietary, turnkey technology platform for custody services for our RIA customers. This platform provides fee income and service that complement our securities business products, while also generating low cost core deposits.Axos Invest includes our digital wealth management business, which provides our retail customers with self-directed trading and investment management services through a comprehensive and flexible technology platform. Segment results are compiled based upon the management reporting system, which assigns balance sheet and income statement items to each of the business segments. The process is designed around the organizational and management structure and, accordingly, the results derived are not necessarily comparable with similar information published by other financial institutions or in accordance with generally accepted accounting principles. The Company evaluates performance and allocates resources based on profit or loss from operations. There are no material inter-segment sales or transfers. Certain corporate administration costs and income taxes have not been allocated to the reportable segments. Therefore, in order to reconcile the two segments to the unaudited condensed consolidated totals, we include parent-only activities and intercompany eliminations. COVID-19 Impact The Company has closely monitored the rapid developments of and uncertainties caused by the COVID-19 pandemic. In response to the changes in economic and business conditions as a result of the COVID-19 pandemic, the Company continues to take the necessary and appropriate actions to support customers, employees, partners and shareholders. The Company took proactive measures to manage loans that became delinquent during the economic downturn as a result of the COVID-19 pandemic. As ofDecember 31, 2021 , no loans were on forbearance status for a forbearance granted from any prior date. Any forbearance granted out of COVID-19 was for six months or less. 31 -------------------------------------------------------------------------------- Table of Contents The Company will continue to monitor uncertainties caused by and developments of COVID-19. Mergers and Acquisitions From time to time we undertake acquisitions or similar transactions consistent with our Company's operating and growth strategies. OnAugust 2, 2021 Axos Clearing, LLC , acquired certain assets and liabilities of E*TRADE Advisor Services ("EAS"), the registered investment advisor custody business of Morgan Stanley. This business was rebranded as Axos Advisors Services ("AAS"). AAS adds incremental fee income, a turnkey technology platform used by independent registered investment advisors for trading and custody services, and low-cost deposits that can be used to generate fee income from other bank partners or to fund loan growth atAxos Bank . The purchase price of$54.8 million consisted entirely of cash consideration paid upon acquisition and working capital adjustments. The acquisition is accounted for as a business combination under the acquisition method of accounting. Accordingly, tangible and intangible assets acquired (and liabilities assumed) are recorded at their estimated fair values as of the date of acquisition. The Company allocated the purchase price to the tangible and intangible assets acquired based on information available throughDecember 31, 2021 . Critical Accounting Policies The following discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements and the notes thereto, which have been prepared in accordance with accounting principles generally accepted inthe United States of America . The preparation of these unaudited condensed consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the unaudited condensed consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various factors and circumstances. We believe that our estimates and assumptions are reasonable under the circumstances. However, actual results may differ significantly from these estimates and assumptions that could have a material effect on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods. Our significant accounting policies and practices are described in greater detail in Note 1 - "Summary of Significant Accounting Policies" and under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" contained in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission for the fiscal year endedJune 30, 2021 . USE OF NON-GAAP FINANCIAL MEASURES In addition to the results presented in accordance with GAAP, this report includes the non-GAAP financial measures adjusted earnings, adjusted earnings per common share, and tangible book value per common share. Non-GAAP financial measures have inherent limitations, may not be comparable to similarly titled measures used by other companies and are not audited. Readers should be aware of these limitations and should be cautious as to their reliance on such measures. Although we believe the non-GAAP financial measures disclosed in this report enhance investors' understanding of our business and performance, these non-GAAP measures should not be considered in isolation, or as a substitute for GAAP basis financial measures. We define "adjusted earnings", a non-GAAP financial measure, as net income without the after-tax impact of non-recurring acquisition-related costs (including amortization of intangible assets related to acquisitions), and other costs (unusual or non-recurring charges). Adjusted earnings per diluted common share ("adjusted EPS"), a non-GAAP financial measure, is calculated by dividing non-GAAP adjusted earnings by the average number of diluted common shares outstanding during the period. We believe the non-GAAP measures of adjusted earnings and adjusted EPS provide useful information about the Company's operating performance. We believe excluding the non-recurring acquisition related costs, and other costs (unusual or non-recurring charges) provides investors with an alternative understanding of Axos' business without these non-recurring costs. 32 -------------------------------------------------------------------------------- Table of Contents Below is a reconciliation of net income, the nearest compatible GAAP measure, to adjusted earnings and adjusted EPS (Non-GAAP) for the periods shown: Three Months Ended Six Months Ended December 31, December 31, (Dollars in thousands, except per share amounts) 2021 2020 2021 2020 Net income$ 60,787 $ 54,785 $ 120,997 $ 107,807 Acquisition-related costs 3,026 2,552 5,872 5,154 Tax effects of adjustments (896) (771) (1,723) (1,554)
Adjusted earnings (Non-GAAP)
$ 125,146 $ 111,407 Adjusted EPS (Non-GAAP)$ 1.04 $ 0.94 $ 2.06 $ 1.85 We define "tangible book value", a non-GAAP financial measure, as book value adjusted for goodwill and other intangible assets. Tangible book value is calculated using common stockholders' equity minus mortgage servicing rights, goodwill and other intangible assets. Tangible book value per common share, a non-GAAP financial measure, is calculated by dividing tangible book value by the common shares outstanding at the end of the period. We believe tangible book value per common share is useful in evaluating the Company's capital strength, financial condition, and ability to manage potential losses. Below is a reconciliation of total stockholders' equity, the nearest compatible GAAP measure, to tangible book value (Non-GAAP) as of the dates indicated: December 31, (Dollars in thousands) 2021 2020 Common stockholders' equity$ 1,523,157
Less: mortgage servicing rights, carried at fair value 20,110
14,314
Less: goodwill and other intangible assets 161,954
120,644
Tangible common stockholders' equity (Non-GAAP)
Common shares outstanding at end of period 59,498,575
59,072,822
Tangible book value per common share (Non-GAAP)
33
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Table of Contents
SELECTED FINANCIAL DATA
The following tables set forth certain selected financial data concerning the
periods indicated:
AXOS FINANCIAL, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL INFORMATION
December 31, June 30, December 31,
(Dollars in thousands) 2021 2021 2020
Selected Balance Sheet Data:
Total assets $
15,547,947
12,607,179 11,414,814 11,609,584
Loans held for sale, carried at fair value 27,428 29,768 64,287
Loans held for sale, lower of cost or fair value 11,446 12,294 13,769
Allowance for credit losses - loans 140,489 132,958 136,393
Securities-trading 1,223 1,983 362
Securities-available-for-sale 139,581 187,335 209,828
Securities borrowed 534,243 619,088 317,571
Customer, broker-dealer and clearing receivables 429,634 369,815 264,572
Total deposits 12,269,172 10,815,797 11,463,136
Advances from the FHLB 157,500 353,500 182,500
Borrowings, subordinated notes and debentures 260,435 221,358 418,480
Securities loaned 578,762 728,988 362,170
Customer, broker-dealer and clearing payables 528,796 535,425 475,473
Total stockholders' equity 1,523,157 1,400,936 1,287,482
Capital Ratios:
Equity to assets at end of period 9.80 % 9.82 % 8.95 %
Axos Financial, Inc. :
Tier 1 leverage (core) capital to adjusted average assets 9.42 % 8.82 % 8.68 %
Common equity tier 1 capital (to risk-weighted assets) 10.08 % 11.36 % 10.85 %
Tier 1 capital (to risk-weighted assets) 10.08 % 11.36 % 10.85 %
Total capital (to risk-weighted assets) 12.16 % 13.78 % 13.88 %
Axos Bank:
Tier 1 leverage (core) capital to adjusted average assets 10.13 % 9.45 % 9.08 %
Common equity tier 1 capital (to risk-weighted assets) 10.91 % 12.28 % 11.45 %
Tier 1 capital (to risk-weighted assets) 10.91 % 12.28 % 11.45 %
Total capital (to risk-weighted assets) 11.73 % 13.21 % 12.44 %
Axos Clearing, LLC:
Net capital $ 39,453 $ 35,950 34,417
Excess capital $ 32,171 $ 27,904 28,941
Net capital as a percentage of aggregate debit items 10.84 % 8.94 % 12.57 %
Net capital in excess of 5% aggregate debit items $ 21,249 $ 15,836 20,726
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AXOS FINANCIAL, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL INFORMATION
At or for the Three Months Ended At or for the Six Months Ended
December 31, December 31,
(Dollars in thousands, except per share
data) 2021 2020 2021 2020
Selected Income Statement Data:
Interest and dividend income $ 157,076 $ 155,379 $ 315,386 $ 305,268
Interest expense 11,508 21,287 23,176 43,849
Net interest income 145,568 134,092 292,210 261,419
Provision for credit losses 4,000 8,000 8,000 19,800
Net interest income after provision for 284,210 241,619
credit losses 141,568 126,092
Non-interest income 30,787 28,718 57,489 64,573
Non-interest expense 86,019 76,297 170,450 151,843
Income before income tax expense 86,336 78,513 171,249 154,349
Income tax expense 25,549 23,728 50,252 46,542
Net income $ 60,787 $ 54,785 $ 120,997 $ 107,807
Net income attributable to common stock $ 60,787 $ 54,672 $ 120,997 $ 107,617
Per Common Share Data:
Net income:
Basic $ 1.02 $ 0.93 $ 2.04 $ 1.82
Diluted $ 1.00 $ 0.91 $ 1.99 $ 1.79
Adjusted earnings (Non-GAAP) $ 1.04 $ 0.94 $ 2.06 $ 1.85
Book value $ 25.60 $ 21.79 $ 25.60 $ 21.79
Tangible book value (Non-GAAP) $ 22.54 $ 19.51 $ 22.54 $ 19.51
Weighted average number of common shares
outstanding:
Basic 59,496,489 59,049,697 59,443,667 59,278,672
Diluted 60,755,981 60,040,723 60,749,383 60,196,516
Common shares outstanding at end of 59,498,575 59,072,822
period 59,498,575 59,072,822
Common shares issued at end of period 68,376,837 67,668,664 68,376,837 67,668,664 Performance Ratios and Other Data: Loan originations for investment$ 2,525,871 $ 1,909,978 $ 4,618,150 $ 3,240,790 Loan originations for sale$ 193,320 $ 490,261 $ 403,287 $ 931,065 Return on average assets 1.63 % 1.57 % 1.65 % 1.56 % Return on average common stockholders' 16.51 % 17.21 % equity 16.29 % 17.30 % Interest rate spread1 3.90 % 3.71 % 3.97 % 3.67 % Net interest margin2 4.10 % 3.94 % 4.16 % 3.89 % Net interest margin2 - Banking Business 4.39 % 4.01 % Segment 4.30 % 4.11 % Efficiency ratio3 48.78 % 46.86 % 48.74 % 46.58 % Efficiency ratio3 - Banking Business Segment 39.39 % 40.45 % 39.66 % 40.20 % Asset Quality Ratios: Net annualized charge-offs to average 0.01 % 0.12 % loans 0.01 % 0.16 % Non-performing loans to total loans 1.14 % 1.44 % 1.14 % 1.44 % Non-performing assets to total assets 0.94 % 1.22 % 0.94 % 1.22 % Allowance for credit losses - loans to total loans held for investment at end of 1.10 % 1.16 % 1.10 % 1.16 %
period
Allowance for credit losses - loans to 96.27 % 80.58 % 96.27 % 80.58 %
non-performing loans
1 Interest rate spread represents the difference between the annualized
weighted average yield on interest-earning assets and the annualized weighted
average
rate paid on interest-bearing liabilities.
2 Net interest margin represents annualized net interest income as a percentage
of average interest-earning assets.
3 Efficiency ratio represents non-interest expense as a percentage of the
aggregate of net interest income and non-interest income.
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Table of Contents
RESULTS OF OPERATIONS
Comparison of the Three and Six Months Ended December 31, 2021 and 2020
For the three months ended December 31, 2021 , we had net income of $60.8 million
compared to net income of $54.8 million for the three months ended December 31,
2020 . Net income attributable to common stockholders was $60.8 million or $1.00
per diluted share for the three months ended December 31, 2021 compared to net
income attributable to common shareholders of $54.7 million , or $0.91 per
diluted share for the three months ended December 31, 2020 . For the six months
ended December 31, 2021 , we had net income of $121.0 million compared to net
income of $107.8 million for the six months ended December 31, 2020 . Net income
attributable to common stockholders was $121.0 million , or $1.99 per diluted
share for the six months ended December 31, 2021 compared to net income
attributable to common shareholders of $107.6 million , or $1.79 per diluted
share for the six months ended December 31, 2020 .
Adjusted earnings and adjusted EPS, non-GAAP measures, which exclude
non-recurring costs related to mergers and acquisitions (including amortization
of intangible assets related to acquisitions), increased 11.2% to $62.9 million
and 10.6% to $1.04 , respectively, for the quarter ended December 31, 2021
compared to $56.6 million and $0.94 , respectively, for the quarter ended
December 31, 2020 . Adjusted earnings and adjusted EPS increased 12.3% to $125.1
million and 11.4% to $2.06 , respectively, for the six months ended December 31,
2021 compared to $111.4 million and $1.85 , respectively, for the six months
ended December 31, 2020 .
Net Interest Income
Net interest income for the three and six months ended December 31, 2021 totaled
$145.6 million and $292.2 million , an increase of 8.6% and 11.8%, compared to
net interest income of $134.1 million and $261.4 million for the three and six
months ended December 31, 2020 , respectively. The increase for the three and six
months were primarily due to increased average earnings assets from net loan
portfolio growth and reduced rates paid on interest-bearing demand and savings
deposits and time deposits, partially offset by reduced yields on interest
earning assets. During the three and six months ended December 31, 2021 , average
non-interest bearing deposits increased $1,695.0 million and $1,460.0 million ,
respectively, primarily from the deposits acquired through the acquisition of
AAS.
Total interest and dividend income during the three and six months ended
December 31, 2021 increased 1.1% to $157.1 million and 3.3% to $315.4 million ,
compared to $155.4 million and $305.3 million during the three and six months
ended December 31, 2020 , respectively. The increase in interest and dividend
income for the three and six months ended December 31, 2021 was primarily
attributable to the growth in average earning assets from loan originations and
securities borrowed and margin lending, partially offset by reduced yields on
loans and securities borrowed and margin lending. The average balance of loans
and securities borrowed increased by 6.2% and 41.1%, respectively, for the three
months ended December 31, 2021 compared to the three months ended December 31,
2020 . The average balance of loans and securities borrowed increased by 6.9% and
62.9%, respectively, for the six months ended December 31, 2021 compared to the
six months ended December 31, 2020 .
Total interest expense was $11.5 million for the three months ended December 31,
2021 , a decrease of $9.8 million or 45.9% as compared with the three months
ended December 31, 2020 . Total interest expense was $23.2 million for the six
months ended December 31, 2021 , a decrease of $20.7 million or 47.1% as compared
with the six months ended December 31, 2020 . The decrease in the average cost of
funds rate for the three months ended December 31, 2021 compared to 2020 was
primarily due to 19 basis point decrease on interest-bearing demand and savings
deposits due to decreases in prevailing deposit rates across the industry and a
66 basis point decrease in the three month average rates paid on time deposits,
due to higher rate time deposits maturing. The decrease in the average cost of
funds rate for the six months ended December 31, 2021 compared to 2020 was
primarily due to a 24 basis point decrease on interest-bearing demand and
savings deposits due to decreases in prevailing deposit rates across the
industry and a 75 basis point decrease in the six month average rates paid on
time deposits, due to higher rate time deposits maturing. During the three and
six months ended December 31, 2021 , average non-interest bearing deposits
increased $1,695.0 million and $1,460.0 million , respectively, primarily from
the deposits acquired through the acquisition of AAS.
Net interest margin, defined as annualized net interest income divided by
average earning assets, increased 16 basis points to 4.10% for the three months
ended December 31, 2021 from 3.94% for the three months ended December 31, 2020 ,
and increased 27 basis points to 4.16% for the six months ended December 31,
2021 from 3.89% for the six months ended December 31, 2020 . During the three and
six months ended December 31, 2021 , the primary contributors to the 16 and 27
basis point increases, respectively, was the increase in non-interest bearing
deposits increased $1,695.0 million and $1,460.0 million , respectively,
primarily from the deposits acquired through the acquisition of AAS and
decreased rates on interest-bearing deposits.
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Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents information regarding (i) average balances;
(ii) the total amount of interest income from interest-earning assets and the
weighted average yields on such assets; (iii) the total amount of interest
expense on interest-bearing liabilities and the weighted average rates paid on
such liabilities; (iv) net interest income; (v) interest rate spread; and
(vi) net interest margin:
For the Three Months Ended
December 31,
2021 2020
Interest Average Yields Interest Average Yields
Average Income/ Earned/Rates Average Income/ Earned/Rates(Dollars in thousands) Balance1 Expense Paid2 Balance1 Expense Paid2 Assets: Loans3, 4$ 12,116,565 $ 149,469 4.93 %$ 11,409,942 $ 147,085 5.16 % Interest-earning deposits in other financial institutions 1,247,675 642 0.21 % 1,495,760 493 0.13 % Mortgage-backed and other investment securities4 139,711 1,338 3.83 % 202,363 2,917 5.77 % Securities borrowed and margin lending5 686,920 5,366 3.12 % 486,692 4,666 3.83 % Stock of the regulatory agencies 20,519 261 5.11 % 20,611 218 4.23 % Total interest-earning assets 14,211,390 157,076 4.42 % 13,615,368 155,379 4.56 % Non-interest-earning assets 676,030 363,373 Total assets$ 14,887,420 $ 13,978,741 Liabilities and Stockholders' Equity: Interest-bearing demand and savings$ 6,587,348 $ 4,299 0.26 %$ 7,215,813 $ 8,131 0.45 % Time deposits 1,333,848 3,506 1.05 % 1,860,058 7,964 1.71 % Securities loaned 439,035 218 0.20 % 305,900 255 0.33 % Advances from the FHLB 272,033 973 1.43 % 234,649 1,326 2.26 % Borrowings, subordinated notes and debentures 262,781 2,512 3.82 % 429,833 3,611 3.36 % Total interest-bearing liabilities 8,895,045 11,508 0.52 % 10,046,253 21,287 0.85 % Non-interest-bearing demand deposits 3,734,029 2,039,064 Other non-interest-bearing liabilities 765,946 624,220 Stockholders' equity 1,492,400 1,269,204 Total liabilities and stockholders' equity$ 14,887,420 $ 13,978,741 Net interest income$ 145,568 $ 134,092 Interest rate spread6 3.90 % 3.71 % Net interest margin7 4.10 % 3.94 % 1Average balances are obtained from daily data. 2Annualized. 3Loans include loans held for sale, loan premiums and unearned fees. 4Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees. Loan fee income is not significant Loans include average balances of$26.5 million and$27.3 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 2021 and 2020 three-month periods, respectively. 5Margin lending is the significant component of the asset titled customer, broker-dealer and clearing receivables on the unaudited condensed consolidated balance sheets. 6Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities. 7Net interest margin represents annualized net interest income as a percentage of average interest-earning assets. 37
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Table of Contents
Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents information regarding (i) average balances;
(ii) the total amount of interest income from interest-earning assets and the
weighted average yields on such assets; (iii) the total amount of interest
expense on interest-bearing liabilities and the weighted average rates paid on
such liabilities; (iv) net interest income; (v) interest rate spread; and
(vi) net interest margin:
For the Six Months Ended
December 31,
2021 2020
Interest Average Yields Interest Average Yields
Average Income/ Earned/Rates Average Income/ Earned/Rates(Dollars in thousands) Balance1 Expense Paid2 Balance1 Expense Paid2 Assets: Loans3, 4$ 11,889,439 $ 298,645 5.02 %$ 11,125,812 $ 288,509 5.19 % Interest-earning deposits in other financial institutions 1,205,409 1,233 0.20 % 1,601,170 1,000 0.12 % Mortgage-backed and other investment securities4 148,000 2,759 3.73 % 196,270 5,594 5.70 % Securities borrowed and margin lending5 795,231 12,217 3.07 % 488,129 9,743 3.99 % Stock of the regulatory agencies 20,607 532 5.17 % 20,610 422 4.10 % Total interest-earning assets 14,058,686 315,386 4.49 % 13,431,991 305,268 4.55 % Non-interest-earning assets 587,794 363,165 Total assets$ 14,646,480 $ 13,795,156 Liabilities and Stockholders' Equity: Interest-bearing demand and savings$ 6,568,907 $ 7,866 0.24 %$ 7,134,068 $ 17,222 0.48 % Time deposits 1,348,454 7,651 1.13 % 1,959,299 18,427 1.88 % Securities loaned 549,538 469 0.17 % 304,251 379 0.25 % Advances from the FHLB 283,717 1,989 1.40 % 238,574 2,698 2.26 % Borrowings, subordinated notes and debentures 249,170 5,201 4.17 % 343,198 5,123 2.99 % Total interest-bearing liabilities 8,999,786 23,176 0.52 % 9,979,390 43,849 0.88 % Non-interest-bearing demand deposits 3,431,150 1,971,139 Other non-interest-bearing liabilities 749,781 593,835 Stockholders' equity 1,465,763 1,250,792 Total liabilities and stockholders' equity$ 14,646,480 $ 13,795,156 Net interest income$ 292,210 $ 261,419 Interest rate spread6 3.97 % 3.67 % Net interest margin7 4.16 % 3.89 % 1Average balances are obtained from daily data. 2Annualized. 3Loans include loans held for sale, loan premiums and unearned fees. 4Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees. Loan fee income is not significant. Loans include average balances of$26.6 million and$27.4 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 2021 and 2020 six-month periods, respectively. 5Margin lending is the significant component of the asset titled customer, broker-dealer and clearing receivables on the unaudited condensed consolidated balance sheets. 6Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities. 7Net interest margin represents annualized net interest income as a percentage of average interest-earning assets. 38 -------------------------------------------------------------------------------- Table of Contents Average Balances, Net Interest Income, Yields Earned and Rates Paid The following table sets forth the effects of changing rates and volumes on our net interest income. Information is provided with respect to (i) effects on interest income and interest expense attributable to changes in volume (changes in volume multiplied by prior rate); (ii) effects on interest income and interest expense attributable to changes in rate (changes in rate multiplied by prior volume). The change in interest due to both volume and rate has been allocated proportionally to both, based on their relative absolute values.: For the Three Months Ended For the Six Months Ended December 31, December 31, 2021 vs 2020 2021 vs 2020 Increase (Decrease) Due to Increase (Decrease) Due to Total Total Increase Increase (Dollars in thousands) Volume Rate (Decrease) Volume Rate (Decrease) Increase / (decrease) in interest income: Loans$ 9,016 $ (6,632) $ 2,384 $ 19,665 $ (9,529) $ 10,136 Interest-earning deposits in other financial institutions (96) 245 149 (283) 516 233 Mortgage-backed and other investment securities (758) (822) (1,580) (1,179) (1,657) (2,836) Securities borrowed and margin lending 1,674 (974) 700 5,097 (2,623) 2,474 Stock of the regulatory agencies (1) 45 44 - 111 111$ 9,835 $ (8,138) $ 1,697 $ 23,300 $ (13,182) $ 10,118 Increase / (decrease) in interest expense: Interest-bearing demand and savings $ (655)$ (3,177) $ (3,832) $ (1,313) $ (8,043) $ (9,356) Time deposits (1,886) (2,572) (4,458) (4,727) (6,049) (10,776) Securities loaned 85 (122) (37) 239 (149) 90 Advances from the FHLB 188 (541) (353) 446 (1,155) (709) Borrowings, subordinated notes and debentures (1,544) 445 (1,099) (1,628) 1,706 78$ (3,812) $ (5,967) $ (9,779) $ (6,983) $ (13,690)
$ (20,673) Provision for Credit Losses The provision for credit losses was$4.0 million for the three months endedDecember 31, 2021 compared to$8.0 million for the three months endedDecember 31, 2020 . The provision for credit losses was$8.0 million for the six months endedDecember 31, 2021 compared to$19.8 million for the six months endedDecember 31, 2020 . The decreases in the provision for the three and six months endedDecember 31, 2021 were due to favorable changes in economic and business conditions resulting from reduced levels of disruptions from the COVID-19 pandemic betweenDecember 31, 2020 andDecember 31, 2021 , partially offset by loan growth and changes in loan mix. The Provisions for credit losses for the three and six months endedDecember 31, 2021 were primarily comprised of provisions in commercial real estate and consumer and auto due to growth in these segments of the loan portfolio. Provisions for credit losses are charged to income to bring the allowance for credit losses - loans to a level deemed appropriate by management based on the factors discussed under "Financial Condition-Asset Quality and Allowance for Credit Losses - Loans." 39 -------------------------------------------------------------------------------- Table of Contents Non-Interest Income The following table sets forth information regarding our non-interest income for the periods shown: For the Three Months Ended For the Six Months Ended December 31, December 31, (Dollars in thousands) 2021 2020 Inc (Dec) 2021 2020 Inc (Dec) Prepayment penalty fee income$ 3,294 $ 1,579 $ 1,715 $ 6,280 $ 2,947 $ 3,333 Gain on sale - other 28 156 (128) 45 490 (445) Mortgage banking income 4,612 10,651 (6,039) 9,865 30,218 (20,353) Broker-dealer fee income 14,367 6,287 8,080 26,133 11,989 14,144 Banking and service fees 8,486 10,045 (1,559) 15,166 18,929 (3,763) Total non-interest income$ 30,787 $ 28,718 $ 2,069 $ 57,489 $ 64,573 $ (7,084) Non-interest income increased$2.1 million to$30.8 million for the three months endedDecember 31, 2021 compared to the three months endedDecember 31, 2020 . The increase was primarily the result of an$8.1 million increase in broker-dealer fee income driven by custody and mutual fund fees earned by the newly acquired AAS division and an increase of$1.7 million in prepayment penalty fee income, partially offset by a decrease of$6.0 million mortgage banking income and a decrease of$1.6 million in banking and service fees, from Emerald Prepaid Mastercard® and Refund Transfer products associated with H&R Block that did not recur for the three months endedDecember 31, 2021 . Non-interest income decreased$7.1 million to$57.5 million for the six months endedDecember 31, 2021 compared to the six months endedDecember 31, 2020 . The change was primarily the result of a$20.4 million decrease in mortgage banking income and a$3.8 million decrease in banking and service fees, from Emerald Prepaid Mastercard® and Refund Transfer products associated with H&R Block that did not recur in the six months endedDecember 31, 2021 , partially offset by a$14.1 million increase in broker-dealer fee income driven by custody and mutual fund fees earned by the newly acquired AAS division and an increase of$3.3 million in prepayment penalty fee income. 40 -------------------------------------------------------------------------------- Table of Contents Non-Interest Expense The following table sets forth information regarding our non-interest expense for the periods shown: For the Three Months Ended For the Six Months Ended December 31, December 31, (Dollars in thousands) 2021 2020 Inc (Dec) 2021 2020 Inc (Dec) Salaries and related costs$ 39,979 $ 38,199
12,199 9,673 2,526 24,291 17,601 6,690
Advertising and promotional 3,402 3,783 (381) 6,774 6,339 435
Depreciation and amortization 6,785 5,862 923 12,513 12,048 465
Professional services 5,943 5,629 314 10,488 11,628 (1,140)
Occupancy and equipment 3,342 3,132 210 6,523 6,143 380
FDIC and regulatory fees 2,475 2,601 (126) 4,741 5,293 (552)
Broker-dealer clearing charges 3,678 2,451 1,227 7,683 4,708 2,975
General and administrative expense 8,216 4,967 3,249 16,721 11,261 5,460
Total non-interest expenses $ 86,019 $ 76,297 Non-interest expense, which is comprised of compensation, data processing, depreciation and amortization, advertising and promotional, professional services, occupancy and equipment,FDIC and regulator fees, broker-dealer clearing charges and other operating expenses, was$86.0 million for the three months endedDecember 31, 2021 , compared to$76.3 million for the three months endedDecember 31, 2020 . Non-interest expense was$170.5 million for the six months endedDecember 31, 2021 , up from$151.8 million for the six months endedDecember 31, 2020 . The increases for the three and six months endedDecember 31, 2021 were generally due to the addition of AAS and the expansion of the Company specifically in areas related to lending and deposits. Total salaries and related costs increased$1.8 million to$40.0 million for the three months endedDecember 31, 2021 compared to$38.2 million for the three months endedDecember 31, 2020 and increased$3.9 million to$80.7 million for the six months endedDecember 31, 2021 compared to$76.8 million for the six months endedDecember 31, 2020 . The increases in compensation expense for the three and six months endedDecember 31, 2021 were primarily due to increased staffing levels as a result of the AAS acquisition. Our staff increased to 1,280 from 1,157, or 10.6% betweenDecember 31, 2021 and 2020. Data processing expense increased$2.5 million for the three months endedDecember 31, 2021 compared to three months endedDecember 31, 2020 , and increased$6.7 million for the six months endedDecember 31, 2021 compared to the six month period endedDecember 31, 2020 , primarily due to enhancements to customer interfaces and the Company's core processing systems. Advertising and promotional expense decreased$0.4 million and increased$0.4 million for the three and six months endedDecember 31, 2021 , compared to the three and six months endedDecember 31, 2020 , respectively. Fluctuations are mainly the result of changes in lead generation and deposit marketing costs. Depreciation and amortization expense increased$0.9 million and$0.5 million for the three and six months endedDecember 31, 2021 , compared to the three and six months endedDecember 31, 2020 , respectively. The increases for the three and six months endedDecember 31, 2021 were primarily due to amortization of intangibles as a result of the AAS acquisition and depreciation on lending platform enhancements and infrastructure development. Professional services expense increased$0.3 million and decreased$1.1 million for the three and six months endedDecember 31, 2021 , compared to the three and six months endedDecember 31, 2020 , respectively. Professional services charges increased due primarily to increased legal expense during the three months endedDecember 31, 2021 . The decreased for the six months endedDecember 31, 2021 , was primarily the result of lower legal expense, compared to the six months endedDecember 31, 2020 . Occupancy and equipment expense increased by$0.2 million and$0.4 million for the three and six months endedDecember 31, 2021 compared to the three and six months endedDecember 31, 2020 , respectively. The changes for the three and six months endedDecember 31, 2021 are primarily due to annual cost increases in our office space lease agreements and the addition of an assumed office space lease for our AAS employees. 41
-------------------------------------------------------------------------------- Table of Contents Our cost ofFDIC and regulatory fees decreased$0.1 million and$0.6 million for the three and six months endedDecember 31, 2021 , compared to the three and six month period last year, respectively. The decreases were due to favorable fluctuations in the Bank's assessment rate. As anFDIC -insured institution, the Bank is required to pay deposit insurance premiums to theFDIC . Broker-dealer clearing charges increased$1.2 million and$3.0 million for the three and six months endedDecember 31, 2021 compared to the three and six months endedDecember 31, 2020 , respectively. The increases were attributable to the acquisition of AAS and increased clearing charges due to higher activity during the three and six months endedDecember 31, 2021 . Other general and administrative costs increased by$3.2 million and$5.5 million for the three and six months endedDecember 31, 2021 , compared to the three and six months endedDecember 31, 2020 , respectively. The increase in the three months endedDecember 31, 2021 as compared to the three months endedDecember 31, 2020 was primarily due to a$1.0 million provision to allowance for credit losses of unfunded commitments, compared to a$1.0 million reduction in the 2020 period, increased loan processing costs, and increased travel costs. The increase in the six months endedDecember 31, 2021 as compared toDecember 31, 2020 was primarily due to a$3.0 million provision to allowance for credit losses of unfunded commitments, increased loan processing costs and increased travel costs. Provision for Income Taxes Our effective income tax rates (income tax provision divided by net income before income tax) for the three months endedDecember 31, 2021 and 2020 were 29.59% and 30.22%, respectively. Our effective income tax rates for the six months endedDecember 31, 2021 and 2020 were 29.34% and 30.15%, respectively. The change in effective income tax rates between periods are primarily the result of changes in tax benefits from stock compensation. SEGMENT RESULTS Our Company determines reportable segments based on what separate financial information is available and what segment results are evaluated regularly by the Chief Executive Officer in deciding how to allocate resources and in assessing performance. The Company operates through two operating segments: Banking Business and Securities Business. In order to reconcile the two segments to the unaudited condensed consolidated totals, the Company includes parent-only activities and intercompany eliminations. The following tables present the operating results of the segments:
For the Three Months Ended
Securities
(Dollars in thousands) Banking Business Business Corporate/Eliminations Axos Consolidated Net interest income$ 142,259 $ 4,506 $ (1,197) $ 145,568 Provision for credit losses 4,000 - - 4,000 Non-interest income 16,295 16,454 (1,962) 30,787 Non-interest expense 62,449 21,654 1,916 86,019 Income before taxes$ 92,105 $ (694) $ (5,075) $ 86,336 For the Three Months Ended December 31, 2020
Securities
(Dollars in thousands) Banking Business Business Corporate/Eliminations Axos Consolidated Net interest income$ 132,166 $ 4,260 $ (2,334) $ 134,092 Provision for credit losses 8,000 - - 8,000 Non-interest income 22,295 6,572 (149) 28,718 Non-interest expense 62,474 11,312 2,511 76,297 Income before taxes$ 83,987 $ (480) $ (4,994) $ 78,513 42
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For the Six Months Ended
Banking Securities
(Dollars in thousands) Business Business Corporate/Eliminations Axos Consolidated Net interest income$ 284,500 $ 10,682 $ (2,972) $ 292,210 Provision for credit losses 8,000 - - 8,000 Non-interest income 31,123 29,560 (3,194) 57,489 Non-interest expense 125,174 40,927 4,349 170,450 Income before taxes$ 182,449 $ (685) $ (10,515) $ 171,249 For the Six Months Ended December 31, 2020 Banking
Securities
(Dollars in thousands) Business Business Corporate/Eliminations Axos Consolidated Net interest income$ 255,174 $ 9,154 $ (2,909) $ 261,419 Provision for credit losses 19,800 - - 19,800 Non-interest income 52,507 12,356 (290) 64,573 Non-interest expense 123,691 22,664 5,488 151,843 Income before taxes$ 164,190 $ (1,154) $ (8,687) $ 154,349 Banking Business For the three months endedDecember 31, 2021 , our Banking Business segment had income before taxes of$92.1 million compared to income before taxes of$84.0 million for the three months endedDecember 31, 2020 . For the six months endedDecember 31, 2021 , we had income before taxes of$182.4 million compared to income before taxes of$164.2 million for the six months endedDecember 31, 2020 . For the three and six months endedDecember 31, 2020 , the increase in income before taxes was mainly due to an increase in net interest income primarily from a decline in rates of interest-bearing demand and savings deposits and time deposits and a decrease in provision for credit losses, partially offset by a decrease in mortgage banking, compared to the three and six months endedDecember 31, 2020 . We consider the ratios shown in the table below to be key indicators of the performance of our Banking Business segment: At or for the Three Months Ended At or for the Six Months Ended December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020 Efficiency ratio 39.39 % 40.45 % 39.66 % 40.20 % Return on average assets 1.92 % 1.80 % 1.92 % 1.79 % Interest rate spread 4.14 % 3.93 % 4.23 % 3.82 % Net interest margin 4.30 % 4.11 % 4.39 % 4.01 % Our Banking Business segment's net interest margin exceeds our consolidated net interest margin. Our consolidated net interest margin includes certain items that are not reflected in the calculation of our net interest margin within our Banking Business and reduce our consolidated net interest margin, such as the borrowing costs at our Parent Company and the yields and costs associated with certain items within interest-earning assets and interest-bearing liabilities in our Securities Business, including items related to securities financing operations that typically decrease net interest margin. 43 -------------------------------------------------------------------------------- Table of Contents Average Balances, Net Interest Income, Yields Earned and Rates Paid The following table presents our Banking Business segment's 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: For the Three Months Ended December 31, 2021 2020 Interest Average Yields Interest Average Yields Average Income/ Earned/Rates Average Income/ Earned/Rates
(Dollars in thousands) Balance1 Expense Paid2 Balance1 Expense Paid2 Assets: Loans3, 4$ 12,076,831 $ 148,960 4.93 %$ 11,364,115 $ 146,327 5.15 % Interest-earning deposits in other financial institutions 963,533 376 0.16 % 1,239,160 324 0.10 % Mortgage-backed and other investment securities4 163,417 1,458 3.57 % 232,518 3,072 5.28 % Stock of the regulatory agencies 17,402 260 5.98 % 17,250 216 5.01 % Total interest-earning assets 13,221,183 151,054 4.57 % 12,853,043 149,939 4.67 % Non-interest-earning assets 301,502 159,802 Total assets$ 13,522,685 $ 13,012,845 Liabilities and Stockholders' Equity: Interest-bearing demand and savings$ 6,619,803 $ 4,316 0.26 %$ 7,391,544 $ 8,354 0.45 % Time deposits 1,333,848 3,506 1.05 % 1,860,058 7,964 1.71 % Advances from the FHLB 272,033 973 1.43 % 234,649 1,326 2.26 % Borrowings, subordinated notes and debentures 261 - - % 147,354 130 0.35 % Total interest-bearing liabilities 8,225,945 8,795 0.43 % 9,633,605 17,774 0.74 % Non-interest-bearing demand deposits 3,784,965 2,057,615 Other non-interest-bearing liabilities 131,229 126,001 Stockholders' equity 1,380,546 1,195,624 Total liabilities and stockholders' equity$ 13,522,685 $ 13,012,845 Net interest income$ 142,259 $ 132,165 Interest rate spread5 4.14 % 3.93 % Net interest margin6 4.30 % 4.11 % 1Average balances are obtained from daily data. 2Annualized. 3Loans include loans held for sale, loan premiums and unearned fees. 4Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees. Loan fee income is not significant. Loans include average balances of$26.5 million and$27.3 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 2021 and 2020 three-month periods, respectively. 5Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities. 6Net interest margin represents annualized net interest income as a percentage of average interest-earning assets. 44 -------------------------------------------------------------------------------- Table of Contents Average Balances, Net Interest Income, Yields Earned and Rates Paid The following table presents our Banking Business segment's information regarding (i) average balances; (ii) the total amount of interest income from interest-earning assets and the weighted average yields on such assets; (iii) the total amount of interest expense on interest-bearing liabilities and the weighted average rates paid on such liabilities; (iv) net interest income; (v) interest rate spread; and (vi) net interest margin: For the Six Months Ended December 31, 2021 2020 Interest Average Yields Interest Average Yields Average Income/ Earned/Rates Average Income/ Earned/Rates
(Dollars in thousands) Balance1 Expense Paid2 Balance1 Expense Paid2 Assets: Loans3, 4$ 11,849,452 $ 297,803 5.03 %$ 11,077,492 $ 287,005 5.18 % Interest-earning deposits in other financial institutions 921,695 713 0.15 % 1,390,747 716 0.10 % Mortgage-backed and other investment securities4 171,981 3,004 3.49 % 229,799 5,928 5.16 % Stock of the regulatory agencies 17,613 530 6.02 % 17,250 419 4.86 % Total interest-earning assets 12,960,741 302,050 4.66 % 12,715,288 294,068 4.63 % Non-interest-earning assets 294,156 156,007 Total assets$ 13,254,897 $ 12,871,295 Liabilities and Stockholders' Equity: Interest-bearing demand and savings$ 6,617,301 $ 7,910 0.24 %$ 7,245,289 $ 17,509 0.48 % Time deposits 1,348,454 7,651 1.13 % 1,959,299 18,427 1.88 % Advances from the FHLB 283,717 1,989 1.40 % 238,574 2,698 2.26 % Borrowings, subordinated notes and debentures 152 - - % 149,653 262 0.35 % Total interest-bearing liabilities 8,249,624 17,550 0.43 % 9,592,815 38,896 0.81 % Non-interest-bearing demand deposits 3,511,837 1,988,235 Other non-interest-bearing liabilities 141,222 130,736 Stockholders' equity 1,352,214 1,159,509 Total liabilities and stockholders' equity$ 13,254,897 $ 12,871,295 Net interest income$ 284,500 $ 255,172 Interest rate spread5 4.23 % 3.82 % Net interest margin6 4.39 % 4.01 % 1Average balances are obtained from daily data. 2Annualized. 3Loans include loans held for sale, loan premiums and unearned fees. 4Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees. Loan fee income is not significant. Loans include average balances of$26.6 million and$27.4 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 2021 and 2020 six-month periods, respectively. 5Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities. 6Net interest margin represents annualized net interest income as a percentage of average interest-earning assets. 45 -------------------------------------------------------------------------------- Table of Contents Average Balances, Net Interest Income, Yields Earned and Rates Paid The following table sets forth the effects of changing rates and volumes on our net interest income for our Banking Business segment. Information is provided with respect to (i) effects on interest income and interest expense attributable to changes in volume (changes in volume multiplied by prior rate); (ii) effects on interest income and interest expense attributable to changes in rate (changes in rate multiplied by prior volume). The change in interest due to both volume and rate has been allocated proportionally to both, based on their relative absolute values.: For the Three Months Ended For the Six Months Ended December 31, December 31, 2021 vs 2020 2021 vs 2020 Increase (Decrease) Due to Increase (Decrease) Due to Total Total Increase Increase (Dollars in thousands) Volume Rate (Decrease) Volume Rate
(Decrease)
Increase / (decrease) in interest income: Loans$ 9,002 $ (6,369) $ 2,633 $ 19,367 $ (8,569)
Interest-earning deposits in other financial institutions (87) 139 52 (282) 279 (3) Mortgage-backed and other investment securities (772) (842) (1,614) (1,279) (1,645)
(2,924)
Stock of the regulatory agencies, at cost 2 42 44 9 102 111
$ 8,145 $ (7,030) $ 1,115 $ 17,815 $ (9,833) $ 7,982
Increase / (decrease) in interest expense:
Interest-bearing demand and savings $ (800) $ (3,238) $ (4,038) $ (1,418) $ (8,181) $ (9,599)
Time deposits (1,886) (2,572) (4,458) (4,727) (6,049) (10,776)
Advances from the FHLB 188 (541) (353) 446 (1,155) (709)
Borrowings, subordinated notes and
debentures (65) (65) (130) (131) (131) (262)
$ (2,563) $ (6,416) $ (8,979) $ (5,830) $ (15,516) $ (21,346)
The Banking Business segment's net interest income for the three and six months
ended December 31, 2021 totaled $142.3 million and $284.5 million , an increase
of 7.6% and an increase of 11.5%, compared to net interest income of $132.2
million and $255.2 million for the three and six months ended December 31, 2020 ,
respectively. The increase for the three and six months ended December 31, 2021
was primarily due to the reduction in the rates paid on interest-bearing demand
and savings deposits, and increased interest income due to growth in the loan
portfolio, partially offset by reduced yields on interest earning assets.
The Banking Business segment's non-interest income decreased $6.0 million to
$16.3 million and decreased $21.4 million to $31.1 million for the three and six
months ended December 31, 2021 compared to the three and six months ended
December 31, 2020 , respectively. The net decrease was mainly the result of
decreased mortgage banking income and decreased banking and service fees from
Emerald Prepaid Mastercard® and Refund Transfer products associated with H&R
Block that did not recur for the six months ended December 31, 2021 , partially
offset by increases in prepayment penalty fee income for the three and six
months ended December 31, 2021 , as compared to the three and six months ended
December 31, 2020 .
The Banking Business segment's non-interest expense was flat for the three
months ended December 31, 2021 and increased $1.5 million for the six months
ended December 31, 2021 compared to the three and six months ended December 31,
2020 . For the three months ended December 31, 2021 compared to the three months
ended December 31, 2020 , non-interest expense was flat due to a $3.4 million
increase in other general and administrative expenses, partially offset by a
$3.3 million decrease of salaries and related expenses. For the six months ended
December 31, 2021 compared to the six months ended December 31, 2020 , the $1.5
million increase was primarily due to a $5.2 million increase in other general
and administrative expenses, a $4.8 million increase in data processing expense,
and a $2.9 million increase in advertising and promotional expense, partially
offset by a $6.4 million decrease of salaries and related expenses, a $2.1
million decrease in professional fees, a $1.3 million decrease in Depreciation
and amortization, a $0.7 million decrease in Occupancy and equipment, and a $0.5
million decrease in regulatory fees.
Securities Business
For the three months ended December 31, 2021 , our Securities Business segment
had a loss before taxes of $0.7 million compared to a loss before taxes of $0.5
million for the three months ended December 31, 2020 . For the six months ended
46
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December 31, 2021 , our Securities Business segment had a loss before taxes of
$0.7 million compared to a loss before taxes of $1.2 million for the six months
ended December 31, 2020 .
Net interest income for the three months ended December 31, 2021 , increased $0.2
million to $4.5 million compared to the three months ended December 31, 2020 .
Net interest income for the six months ended December 31, 2021 increased $1.5
million to $10.7 million compared to the six months ended December 31, 2020 . The
increases were primarily a result of increase in the average interest-earning
balance of securities borrowed and margin lending. In the Securities Business,
interest is earned through margin loan balances, securities borrowed, and cash
deposit balances. Interest expense is incurred from cash borrowed through bank
lines and securities lending.
Non-interest income during the three months ended December 31, 2021 , increased
$9.9 million to $16.5 million compared to the three months ended December 31,
2020 . The increases were primarily $8.0 million attributable to the addition of
AAS custody and mutual funds fees, an increase of $1.2 million in fees earned on
FDIC insured bank deposits, an increase of $0.3 million in correspondent fees,
and an increase of $0.2 million of clearing and custodial related fees.
Non-interest income during the six months ended December 31, 2021 increased
$17.2 million to $29.6 million compared to the six months ended December 31,
2020 . The increases were primarily $13.3 million attributable to the addition of
AAS custody and mutual funds fees, an increase of $2.1 million in fees earned on
FDIC insured bank deposits, an increase of $0.9 million in correspondent fees,
an increase of $0.6 million of clearing and custodial related fees, and an
increase of $0.2 million of clearing technology services.
Non-interest expense increased $10.3 million to $21.7 million for the three
months ended December 31, 2021 from the $11.3 million for the three months ended
December 31, 2020 . The increase was primarily related to an increase of $4.7
million in salaries and related expenses related to staffing and the acquisition
of AAS, an increase of $1.5 million in data processing, an increase of $1.3
million depreciation and amortization expense, and an increase of $1.2 million
in broker-dealer clearing charges. Non-interest expense increased $18.3 million
to $40.9 million for the six months ended December 31, 2021 , from $22.7 million
for the six months ended December 31, 2020 . The increase was primarily related
to an increase of $9.1 million in salaries and related expenses related to
staffing and the acquisition of AAS, an increase of $3.0 million in
broker-dealer clearing charges, an increase of $1.8 million in data processing,
an increase of $1.7 million depreciation and amortization expense, and an
increase of $1.1 million occupancy and equipment expense. The increases were
primarily the result of the addition of AAS.
Selected information concerning the Securities segment follows as of and for the
three months ended:
December 31,
(Dollars in thousands) 2021 2020
Compensation as a % of net revenue 39.9 % 33.2 %
FDIC insured program balances (end of period) $ 2,216,939 $ 772,801
Customer margin balances (end of period) $ 328,607 $ 231,189
Customer funds on deposit, including short credits (end
of period) $ 259,626 $ 313,297
Clearing:
Total tickets 2,113,270 1,314,534
Correspondents (end of period) 68 63
Securities lending:
Interest-earning assets - stock borrowed (end of period) $ 534,243 $ 317,571
Interest-bearing liabilities - stock loaned (end of
period) $ 578,762 $ 362,170
FINANCIAL CONDITION
Balance Sheet Analysis
Total assets increased $1,282.4 million , or 9.0%, to $15.5 billion , as of
December 31, 2021 , up from $14.3 billion at June 30, 2021 . The increase in total
assets was mainly due to an increase of $1,192.4 million in net loans held for
investment, an increase of $80.6 million in cash and cash equivalents, and an
increase of $59.8 million in customer, broker-dealer and clearing payables,
partially offset by a decrease of $84.8 million in securities borrowed. Total
liabilities increased $1,160.2 million , primarily due to growth in deposits of
$1,453.4 million , partially offset by a decrease of $196.0 million in advances
from the FHLB and a decrease of $150.2 million in securities loaned.
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Loans
Net loans held for investment increased 10.4% to $12.6 billion as of December
31, 2021 from $11.4 billion at June 30, 2021 . The increase in the loan portfolio
was primarily due to loan originations of $4.6 billion , partially offset by loan
repayments and other adjustments of $3.4 billion .
The following table sets forth the composition of the loan portfolio as of the
dates indicated:
December 31, 2021 June 30, 2021
(Dollars in thousands) Amount Percent Amount Percent
Single Family - Mortgage & Warehouse $ 4,281,646 33.5 % $ 4,359,472 37.8 %
Multifamily and Commercial Mortgage 2,483,932 19.5 % 2,470,454 21.4 %
Commercial Real Estate 3,857,367 30.2 % 3,180,453 27.5 %
Commercial & Industrial - Non-RE 1,631,811 12.8 % 1,123,869 9.7 %
Auto & Consumer 478,636 3.8 % 362,180 3.1 %
Other 22,282 0.2 % 58,316 0.5 %
Total gross loans 12,755,674 100.0 % 11,554,744 100.0 %
Allowance for credit losses - loans (140,489) (132,958)
Unaccreted discounts and loan fees (8,006) (6,972) Total net loans$ 12,607,179 $ 11,414,814 The Bank originates some single family interest only loans with terms that include repayments that are less than the repayments for fully amortizing loans. The Bank's lending guidelines for interest only loans are adjusted for the increased credit risk associated with these loans by requiring borrowers with such loans to borrow at LTVs that are lower than standard amortizing ARM loans and by calculating debt to income ratios for qualifying borrowers based upon a fully amortizing payment, not the interest only payment. The Bank monitors and performs reviews of interest only loans. Adverse trends reflected in the Company's delinquency statistics, grading and classification of interest only loans would be reported to management and the Board of Directors. As ofDecember 31, 2021 , the Company had$1.1 billion of interest only mortgage loans. Asset Quality and Allowance for Loan and Lease Losses Non-performing Assets Non-performing loans are comprised of loans past due 90 days or more on nonaccrual status and other nonaccrual loans. Non-performing assets include non-performing loans plus other real estate owned and repossessed vehicles. AtDecember 31, 2021 , our non-performing loans totaled$145.9 million , or 1.14% of total gross loans and our non-performing loans and foreclosed assets or "non-performing assets" totaled$146.2 million , or 0.94% of total assets. Non-performing assets consisted of the following as of the dates indicated: (Dollars in thousands) December 31, 2021 June 30, 2021 Inc (Dec) Non-performing assets: Non-accrual loans and leases: Single Family - Mortgage & Warehouse$ 122,326 $ 105,708 $ 16,618 Multifamily and Commercial Mortgage 7,688 20,428 (12,740) Commercial Real Estate 15,244 15,839 (595) Commercial & Industrial - Non-RE - 2,942 (2,942) Auto & Consumer 620 278 342 Other 55 - 55 Total non-performing loans 145,933 145,195 738 Foreclosed real estate - 6,547 (6,547) Repossessed-Auto and RV 251 235 16 Total non-performing assets$ 146,184
1.14 % 1.26 % (0.12) %
Total non-performing assets as a percentage of
total assets 0.94 % 1.07 % (0.13) %
48-------------------------------------------------------------------------------- Table of Contents Total non-performing assets decreased from$152.0 million atJune 30, 2021 to$146.2 million atDecember 31, 2021 . The decrease in non-performing assets of approximately$5.8 million , was primarily attributable to resolutions of multifamily and commercial mortgage loans, and foreclosed real estate. Non-performing single-family loans increased by$16.6 million . The Company ended forbearance for all single family mortgage borrowers during the quarter endedSeptember 30, 2020 . The weighted-average LTV of the non-performing single family mortgage loans was 56.5% as ofDecember 31, 2021 . The Bank had no performing troubled debt restructurings as ofDecember 31, 2021 andJune 30, 2021 . A troubled debt restructuring is a concession made to a borrower experiencing financial difficulties, typically permanent or temporary modifications of principal and interest payments or an extension of maturity dates. When a loan is delinquent and classified as a troubled debt restructuring, no interest is accrued until the borrower demonstrates over time (typically six months) that it can make payments. When a loan is considered a troubled debt restructuring and is on nonaccrual, it is considered non-performing and included in the table above. Allowance for Credit Losses - Loans OnJuly 1, 2020 , the Company adopted ASC 326. The update replaces the historical incurred loss model to a current expected loss model, resulting, generally, in earlier recognition of loss. Refer to Note 1 - Summary of Significant Accounting Policies in our Annual Report on Form 10-K for the fiscal year endedJune 30, 2021 for greater detail on the accounting adoption along with detail of the processes and approaches involved in determining the allowance for credit losses under the new guidance. The following table reflects management's allocation of the allowance for credit losses - loans by loan category and the ratio of each loan category to total loans as of the dates indicated: December 31, 2021 June 30, 2021 Amount Allocation Amount Allocation of as a % of of as a % of (Dollars in thousands) Allowance Allowance Allowance Allowance Single Family Real Estate$ 25,580 18.2 %$ 26,604 20.0 % Multifamily Real Estate 13,628 9.7 % 13,146 9.9 % Commercial Real Estate 67,581 48.0 % 57,928 43.6 % Commercial and Industrial - Non-RE 22,716 16.2 % 28,460 21.4 % Consumer and Auto 10,921 7.8 % 6,519 4.9 % Other 63 0.1 % 301 0.2 % Total$ 140,489 100.0 %$ 132,958 100.0 % The provision for credit losses was$4.0 million and$8.0 million for the three months endedDecember 31, 2021 and 2020, respectively. The provision for credit losses was$8.0 million and$19.8 million for the six months endedDecember 31, 2021 and 2020, respectively. The decrease in the provision for credit losses for three and six months endedDecember 31, 2021 , were due to favorable changes in economic and business conditions resulting from reduced levels of disruptions from the COVID-19 pandemic betweenDecember 31, 2020 andDecember 31, 2021 , partially offset by loan growth and changes in loan mix. We believe that the lower average LTV in the Bank's mortgage loan portfolio will continue to result in future lower average mortgage loan charge-offs when compared to many other comparable banks. The resolution of the Bank's existing other real estate owned and non-performing loans should not have a significant adverse impact on our operating results.Investment Securities Total investment securities were$140.8 million as ofDecember 31, 2021 , compared with$189.3 million atJune 30, 2021 . During the six months endedDecember 31, 2021 , we purchased securities for$12.3 million and received principal repayments of approximately$58.6 million in our available-for-sale portfolio. The remainder of the change for the available-for-sale portfolio is attributable to accretion and other activities. 49 -------------------------------------------------------------------------------- Table of Contents Deposits Deposits increased a net$1.5 billion , or 13.4%, to$12.3 billion atDecember 31, 2021 , from$10.8 billion atJune 30, 2021 . Non-interest bearing deposits increased$1.4 billion , or 55.5%, to$3.8 billion atDecember 31, 2021 , fromJune 30, 2021 , primarily due to deposits provided by the AAS acquisition. Time deposits decreased$226.4 million as higher costing time deposits were run off. The following table sets forth the composition of the deposit portfolio as of the dates indicated: December 31, 2021 June 30, 2021 (Dollars in thousands) Amount Rate1 Amount Rate1 Non-interest bearing$ 3,847,461 - %$ 2,474,424 - % Interest bearing: Demand 3,620,686 0.16 % 3,369,845 0.15 % Savings 3,514,610 0.23 % 3,458,687 0.21 % Total interest-bearing demand and savings 7,135,296 0.20 % 6,828,532 0.18 % Time deposits:$250 and under2 877,488 1.26 % 1,070,139 1.30 % Greater than$250 408,927 0.45 % 442,702 1.03 % Total time deposits 1,286,415 1.01 % 1,512,841 1.22 % Total interest bearing2 8,421,711 0.32 % 8,341,373 0.37 % Total deposits$ 12,269,172 0.22 %$ 10,815,797 0.29 % 1 Based on weighted-average stated interest rates at end of period. 2 The total interest bearing includes brokered deposits of$415.3 million and$621.4 million as ofDecember 31, 2021 andJune 30, 2021 , respectively, of which$350.0 million and$380.0 million , respectively, are time deposits classified as$250 and under.
The following table sets forth the number of deposit accounts by type as of the date indicated:
December 31, 2021 June 30, 2021 December 31, 2020
Non-interest bearing, prepaid and other 39,698 36,726 30,068
Checking and savings accounts 342,127 336,068 314,145
Time deposits 10,234 12,815 15,797
Total number of deposit accounts 392,059 385,609 360,010
BorrowingsThe following table sets forth the composition of our borrowings and the interest rates at the dates indicated:
December 31, 2021 June 30, 2021 December 31, 2020
Weighted Average Weighted Average Weighted Average
(Dollars in thousands) Balance Rate Balance Rate Balance Rate
FHLB Advances $157,500 2.29 % $353,500 1.18 % $182,500 2.21 %
Borrowings, subordinated
notes and debentures 260,435 4.37 % 221,358 4.68 % 418,480 3.45 %
Total borrowings $417,935 3.59 % $574,858 0.73 % $600,980 3.07 %
Weighted average cost of
borrowings during the quarter 2.64 % 2.93 % 2.97 %
Borrowings as a percent of
total assets 2.69 % 4.03 % 4.18 %
At December 31, 2021 , total borrowings amounted to $417.9 million , down $156.9
million , or 27.3%, from June 30, 2021 and down $183.0 million or 30.5% from
December 31, 2020 . Borrowings as a percent of total assets were 2.69%, 4.03% and
4.18% at December 31, 2021 , June 30, 2021 and December 31, 2020 , respectively.
Weighted average cost of borrowings during the quarter were 2.64%, 2.93% and
2.97% for the quarters ended December 31, 2021 , June 30, 2021 and December 31,
2020 , respectively.
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We regularly use advances from the FHLB to manage our interest rate risk and, to
a lesser extent, manage our liquidity position. Generally, FHLB advances with
terms between three and ten years have been used to fund the purchase of single
family and multifamily mortgages and to provide us with interest rate risk
protection should rates rise.
Stockholders' Equity
Stockholders' equity increased $122.2 million to $1,523.2 million at
December 31, 2021 compared to $1,400.9 million at June 30, 2021 . The increase
was the result of our net income for the six months ended December 31, 2021 of
$121.0 million , stock compensation expense of $2.4 million , partially offset by
a $1.2 million decrease in other comprehensive income, net of tax.
During the three and six months ended December 31, 2021 , the Company did not
repurchase any common stock shares. The Company has $52.8 million remaining
under the Board authorized stock repurchase program.
LIQUIDITY
Cash flow information is as follows:
For the Six Months Ended
December 31,
(Dollars in thousands) 2021 2020
Operating Activities $ (76,773) $ 284,417
Investing Activities $ (1,132,694) $ (1,015,293)
Financing Activities $ 1,290,048 $ 223,552
During the six months ended December 31, 2021 , we had net cash outflows from
operating activities of $76.8 million compared to inflows of $284.4 million for
the six months ended December 31, 2020 , primarily due to net income for each
period. Net operating cash inflows and outflows fluctuate primarily due to the
timing of the following: originations of loans held for sale, proceeds from loan
sales, securities borrowed and loaned, and customer, broker-dealer and clearing
receivables and payables, and changes in other assets and payables were the
primary drivers.
Net cash outflows from investing activities totaled $1,132.7 million for the six
months ended December 31, 2021 , while outflows totaled $1,015.3 million for the
six months ended December 31, 2020 . The increase in outflows was primarily due
to increased originations of loans partially offset by increased repayments on
loans and the $54.8 million acquisition of AAS.
Net cash inflows from financing activities totaled $1,290.0 million for the six
months ended December 31, 2021 , compared to net cash outflows from financing
activities of $223.6 million for the six months ended December 31, 2020 . The
primary driver behind the increase in net cash inflows was increased deposits
provided in part, by the acquisition of AAS for the six months ended
December 31, 2021 .
During the six months ended December 31, 2021 , the Bank could borrow up to 40.0%
of its total assets from the FHLB. Borrowings are collateralized by the pledge
of certain mortgage loans and investment securities to the FHLB. At December 31,
2021 , the Company had $1,939.2 million available immediately and $3,449.5
million available with additional collateral. At December 31, 2021 , we also had
two unsecured federal funds purchase lines with two different banks totaling
$175.0 million , under which no borrowings were outstanding.
The Bank has the ability to borrow short-term from the Federal Reserve Bank of
San Francisco Discount Window . At December 31, 2021 , the Bank did not have any
borrowings outstanding and the amount available from this source was $2,433.9
million . The credit line is collateralized by consumer loans and mortgage-backed
securities.
Axos Clearing has a total of $170.0 million in uncommitted secured lines of
credit for borrowing as needed. As of December 31, 2021 , there was $75.0 million
outstanding. These credit facilities bear interest at rates based on the Federal
Funds rate and are due upon demand.
Axos Clearing has a $50.0 million committed unsecured line of credit available
for limited purpose borrowing. As of December 31, 2021 , no borrowings were
outstanding. This credit facility bears interest at rates based on the Federal
Funds rate and are due upon demand.
We believe our liquidity sources to be stable and adequate for our anticipated
needs and contingencies for the next 12 months and beyond. We believe we have
the ability to increase our level of deposits and borrowings to address our
liquidity needs for the foreseeable future.
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OFF-BALANCE SHEET COMMITMENTS
At December 31, 2021 , we had commitments to originate loans with an aggregate
outstanding principal balance of $2,483.0 million , and commitments to sell loans
with an aggregate outstanding principal balance of $50.0 million . We have no
commitments to purchase loans, investment securities or any other unused lines
of credit.
In the normal course of business, Axos Clearing's customer activities involve
the execution, settlement, and financing of various customer securities
transactions. These activities may expose Axos Clearing to off-balance-sheet
risk in the event the customer or other broker is unable to fulfill its
contracted obligations and Axos Clearing has to purchase or sell the financial
instrument underlying the contract at a loss. Axos Clearing's clearing
agreements with broker-dealers for which it provides clearing services requires
them to indemnify Axos Clearing if customers fail to satisfy their contractual
obligation.
CAPITAL RESOURCES AND REQUIREMENTS
Our Company and Bank are subject to regulatory capital adequacy requirements
promulgated by federal bank regulatory agencies. Failure by our Company or Bank
to meet minimum capital requirements could result in certain mandatory and
discretionary actions by regulators that could have a material adverse effect on
our unaudited condensed consolidated financial statements. The Federal Reserve
establishes capital requirements for our Company and the OCC has similar
requirements for our Bank. The following tables present regulatory capital
information for our Company and Bank. Information presented for December 31,
2021 , reflects the Basel III capital requirements that became effective January
1, 2015 for both our Company and Bank. Under these capital requirements and the
regulatory framework for prompt corrective action, our Company and Bank must
meet specific capital guidelines that involve quantitative measures of our
Company and Bank's assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. Our Company's and Bank's
capital amounts and classifications are also subject to qualitative judgments by
regulators about components, risk weightings and other factors.
Quantitative measures established by regulation require our Company and Bank to
maintain certain minimum capital amounts and ratios. Federal bank regulators
require our Company and Bank maintain minimum ratios of core capital to adjusted
average assets of 4.0%, common equity tier 1 capital to risk-weighted assets of
4.5%, tier 1 capital to risk-weighted assets of 6.0% and total risk-based
capital to risk-weighted assets of 8.0%. To be "well capitalized," our Company
and Bank must maintain minimum leverage, common equity tier 1 risk-based, tier 1
risk-based and total risk-based capital ratios of at least 5.0%, 6.5%, 8.0% and
10.0%, respectively. At December 31, 2021 , our Company and Bank met all the
capital adequacy requirements to which they were subject and were "well
capitalized" under the regulatory framework for prompt corrective action.
Management believes that no conditions or events have occurred since
December 31, 2021 that would materially adversely change the Company's and
Bank's capital classifications. From time to time, we may need to raise
additional capital to support our Company's and Bank's further growth and to
maintain their "well capitalized" status.
The Company and Bank elected the CECL 5-year transition guidance for calculating
regulatory capital ratios and the December 31, 2021 ratios include this
election. This guidance allows an entity to add back to capital 100% of the
capital impact from the day one CECL transition adjustment and 25% of subsequent
increases to the allowance for credit losses through June 30, 2023 . This
cumulative amount will then be phased out of regulatory capital over the next
three years.
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The Company's and Bank's estimated capital amounts, capital ratios and capital
requirements under Basel III were as follows:
Axos Financial, Inc. Axos Bank "Well
December 31, June 30, December 31, June 30, Capitalized" Minimum Capital
(Dollars in millions) 2021 2021 2021 2021 Ratio Ratio
Regulatory Capital:
Tier 1 $ 1,390 $ 1,309 $ 1,366 $ 1,263
Common equity tier 1 $ 1,390 $ 1,309 $ 1,366 $ 1,263
Total capital (to
risk-weighted assets) $ 1,676 $ 1,588 $ 1,469 $ 1,358
Assets:
Average adjusted $ 14,755 $ 14,851 $ 13,491 $ 13,360
Total risk-weighted $ 13,781 $ 11,523 $ 12,523 $ 10,283
Regulatory Capital Ratios:
Tier 1 leverage (core) capital
to adjusted average assets 9.42 % 8.82 % 10.13 % 9.45 % 5.00 % 4.00 %
Common equity tier 1 capital
(to risk-weighted assets) 10.08 % 11.36 % 10.91 % 12.28 % 6.50 % 4.50 %
Tier 1 capital (to
risk-weighted assets) 10.08 % 11.36 % 10.91 % 12.28 % 8.00 % 6.00 %
Total capital (to
risk-weighted assets) 12.16 % 13.78 % 11.73 % 13.21 % 10.00 % 8.00 %
Basel III implemented a requirement for all banking organizations to maintain a
capital conservation buffer above the minimum risk-based capital requirements in
order to avoid certain limitations on capital distributions, stock repurchases
and discretionary bonus payments to executive officers. The capital conservation
buffer is exclusively composed of common equity tier 1 capital, and it applies
to each of the three risk-based capital ratios but not the leverage ratio. At
December 31, 2021 , our Company and Bank are in compliance with the capital
conservation buffer requirement, which sets the common equity tier 1 risk-based,
tier 1 risk-based and total risk-based capital ratio minimums to 7.0%, 8.5% and
10.5%, respectively.
Securities Business
Pursuant to the net capital requirements of the Exchange Act, Axos Clearing, is
subject to the SEC Uniform Net Capital (Rule 15c3-1 of the Exchange Act). Under
this rule, the Company has elected to operate under the alternate method and is
required to maintain minimum net capital of $250,000 or 2% of aggregate debit
balances arising from client transactions, as defined. Under the alternate
method, the Company may not repay subordinated debt, pay cash distributions, or
make any unsecured advances or loans to its parent or employees if such payment
would result in net capital of less than 5% of aggregate debit balances or less
than 120% of its minimum dollar requirement.
The net capital positions of Axos Clearing were as follows:
(Dollars in thousands) December 31, 2021 June 30, 2021
Net capital $ 39,453 $ 35,950
Excess Capital $ 32,171 $ 27,904
Net capital as a percentage of aggregate debit items 10.84 % 8.94 %
Net capital in excess of 5% aggregate debit items $ 21,249
Axos Clearing as a clearing broker, is subject to SEC Customer Protection Rule (Rule 15c3-3 of the Exchange Act) which requires segregation of funds in a special reserve account for the benefit of customers. AtDecember 31, 2021 , the Company had a deposit requirement of$224.1 million and maintained a deposit of$213.1 million . OnJanuary 3, 2022 , the company made a deposit of$11.0 million . Certain broker-dealers have chosen to maintain brokerage customer accounts at Axos Clearing. To allow these broker-dealers to classify their assets held by the Company as allowable assets in their computation of net capital, the Company computes a separate reserve requirement for Proprietary Accounts of Brokers (PAB). AtDecember 31, 2021 , the Company had a deposit requirement of$44.0 million and maintained a deposit of$46.5 million . OnJanuary 3, 2022 , the Company made a withdrawal in the amount of$2.5 million . 53
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