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 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 endedMarch 31, 2022 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$16.1 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 the
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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 ofMarch 31, 2022 , 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. 30
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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 throughMarch 31, 2022 .
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.
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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 Nine Months Ended
March 31, March 31,
(Dollars in thousands, except per
share amounts) 2022 2021 2022 2021
Net income $ 61,823 $ 53,645 $ 182,820 $ 161,452
Acquisition-related costs 2,803 2,511 8,676 7,665
Tax effects of adjustments (811) (740) (2,534) (2,285)
Adjusted earnings (Non-GAAP)
$ 188,962 $ 166,832 Adjusted EPS (Non-GAAP)$ 1.05 $ 0.92 $ 3.12 $ 2.76 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:
March 31,
(Dollars in thousands) 2022 2021
Common stockholders' equity $ 1,585,585 Less: mortgage servicing rights, carried at fair value 23,519
16,631
Less: goodwill and other intangible assets 159,150
118,133
Tangible common stockholders' equity (Non-GAAP)
Common shares outstanding at end of period 59,662,795
59,237,765
Tangible book value per common share (Non-GAAP)
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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
March 31, June 30, March 31,
(Dollars in thousands) 2022 2021 2021
Selected Balance Sheet Data:
Total assets $
16,080,950
13,093,603 11,414,814 11,711,215
Loans held for sale, carried at fair value 19,611 29,768 61,500
Loans held for sale, lower of cost or fair value 11,182 12,294 13,371
Allowance for credit losses - loans 143,372 132,958 138,107
Securities-trading 366 1,983 254
Securities-available-for-sale 229,510 187,335 218,962
Securities borrowed 274,644 619,088 543,538
Customer, broker-dealer and clearing receivables 510,561 369,815 351,063
Total deposits 12,733,002 10,815,797 11,612,501
Advances from the FHLB 152,500 353,500 172,500
Borrowings, subordinated notes and debentures 381,682 221,358 365,753
Securities loaned 447,748 728,988 649,837
Customer, broker-dealer and clearing payables 543,905 535,425 483,677
Total stockholders' equity 1,585,585 1,400,936 1,345,650
Capital Ratios:
Equity to assets at end of period 9.86 % 9.82 % 9.08 %
Axos Financial, Inc. :
Tier 1 leverage (core) capital to adjusted average assets 9.43 % 8.82 % 8.99 %
Common equity tier 1 capital (to risk-weighted assets) 10.23 % 11.36 % 10.86 %
Tier 1 capital (to risk-weighted assets) 10.23 % 11.36 % 10.86 %
Total capital (to risk-weighted assets) 13.30 % 13.78 % 13.32 %
Axos Bank:
Tier 1 leverage (core) capital to adjusted average assets 10.51 % 9.45 % 9.56 %
Common equity tier 1 capital (to risk-weighted assets) 11.43 % 12.28 % 11.74 %
Tier 1 capital (to risk-weighted assets) 11.43 % 12.28 % 11.74 %
Total capital (to risk-weighted assets) 12.24 % 13.21 % 12.71 %
Axos Clearing, LLC:
Net capital $ 39,109 $ 35,950 33,845
Excess capital $ 31,612 $ 27,904 26,338
Net capital as a percentage of aggregate debit items 10.43 % 8.94 % 9.02 %
Net capital in excess of 5% aggregate debit items $ 20,369 $ 15,836 15,077
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AXOS FINANCIAL, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL INFORMATION
At or for the Three Months Ended At or for the Nine Months Ended
March 31, March 31,
(Dollars in thousands, except per share
data) 2022 2021 2022 2021
Selected Income Statement Data:
Interest and dividend income $ 160,181 $ 155,674 $ 475,567 $ 460,942
Interest expense 10,643 20,005 33,819 63,854
Net interest income 149,538 135,669 441,748 397,088
Provision for credit losses 4,500 2,700 12,500 22,500
Net interest income after provision for 145,038 429,248 374,588
credit losses 132,969
Non-interest income 28,774 23,887 86,263 88,460
Non-interest expense 86,819 80,807 257,269 232,650
Income before income tax expense 86,993 76,049 258,242 230,398
Income tax expense 25,170 22,404 75,422 68,946
Net income $ 61,823 $ 53,645 $ 182,820 $ 161,452
Net income attributable to common stock $ 61,823 $ 53,645 $ 182,820 $ 161,262
Per Common Share Data:
Net income:
Basic $ 1.04 $ 0.91 $ 3.07 $ 2.72
Diluted $ 1.02 $ 0.89 $ 3.02 $ 2.67
Adjusted earnings (Non-GAAP) $ 1.05 $ 0.92 $ 3.12 $ 2.76
Book value $ 26.58 $ 22.72 $ 26.58 $ 22.72
Tangible book value (Non-GAAP) $ 23.51 $ 20.44 $ 23.51 $ 20.44
Weighted average number of common shares
outstanding:
Basic 59,542,128 59,118,884 59,476,488 59,225,409
Diluted 60,611,959 60,482,733 60,605,486 60,453,220
Common shares outstanding at end of period 59,662,795 59,237,765 59,662,795 59,237,765
Common shares issued at end of period 68,617,410 67,902,239 68,617,410 67,902,239
Performance Ratios and Other Data:
Loan originations for investment $ 2,363,599 $ 1,189,750 $ 6,981,749 $ 4,430,540
Loan originations for sale $ 166,327 $ 418,618 $ 569,614 $ 1,349,683
Return on average assets 1.59 % 1.52 % 1.63 % 1.55 %
Return on average common stockholders' 16.90 %
equity 15.89 % 16.12 % 16.33 %
Interest rate spread1 3.84 % 3.73 % 3.93 % 3.69 %
Net interest margin2 4.02 % 3.96 % 4.11 % 3.91 %
Net interest margin2 - Banking Business 4.33 % 4.09 %
Segment 4.21 % 4.23 %
Efficiency ratio3 51.26 % 50.64 % 48.72 % 47.91 %
Efficiency ratio3 - Banking Business
Segment 39.79 % 42.33 % 39.70 % 40.90 %
Asset Quality Ratios:
Net annualized charge-offs to average loans 0.05 % 0.03 % 0.02 % 0.09 %
Non-performing loans to total loans 1.05 % 1.14 % 1.05 % 1.14 %
Non-performing assets to total assets 0.87 % 0.96 % 0.87 % 0.96 %
Allowance for credit losses - loans to
total loans held for investment at end of 1.08 % 1.16 % 1.08 % 1.16 %
period
Allowance for credit losses - loans to 103.33 % 101.84 % 103.33 % 101.84 %
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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RESULTS OF OPERATIONS
Comparison of the Three and Nine Months Ended
For the three months endedMarch 31, 2022 , we had net income of$61.8 million compared to net income of$53.6 million for the three months endedMarch 31, 2021 . Net income attributable to common stockholders was$61.8 million or$1.02 per diluted share for the three months endedMarch 31, 2022 compared to net income attributable to common shareholders of$53.6 million , or$0.89 per diluted share for the three months endedMarch 31, 2021 . For the nine months endedMarch 31, 2022 , we had net income of$182.8 million compared to net income of$161.5 million for the nine months endedMarch 31, 2021 . Net income attributable to common stockholders was$182.8 million , or$3.02 per diluted share for the nine months endedMarch 31, 2022 compared to net income attributable to common shareholders of$161.3 million , or$2.67 per diluted share for the nine months endedMarch 31, 2021 . 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 15.2% to$63.8 million and 14.1% to$1.05 , respectively, for the quarter endedMarch 31, 2022 compared to$55.4 million and$0.92 , respectively, for the quarter endedMarch 31, 2021 . Adjusted earnings and adjusted EPS increased 13.3% to$189.0 million and 13.0% to$3.12 , respectively, for the nine months endedMarch 31, 2022 compared to$166.8 million and$2.76 , respectively, for the nine months endedMarch 31, 2021 . Net Interest Income Net interest income for the three and nine months endedMarch 31, 2022 totaled$149.5 million and$441.7 million , an increase of 10.2% and 11.2%, compared to net interest income of$135.7 million and$397.1 million for the three and nine months endedMarch 31, 2021 , respectively. The increase for the three and nine 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 nine months endedMarch 31, 2022 , average non-interest bearing deposits increased$2,001.2 million and$1,628.7 million , respectively, primarily from the deposits acquired through the acquisition of AAS. Total interest and dividend income during the three and nine months endedMarch 31, 2022 increased 2.9% to$160.2 million and 3.2% to$475.6 million , compared to$155.7 million and$460.9 million during the three and nine months endedMarch 31, 2021 , respectively. The increase in interest and dividend income for the three months endedMarch 31, 2022 was primarily attributable to the growth in average earning assets from loan originations, partially offset by reduced yields on loans. The average balance of loans increased by 10.7% for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . The increase in interest and dividend income for the nine months endedMarch 31, 2022 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 8.2% and 35.6%, respectively, for the nine months endedMarch 31, 2022 compared to the nine months endedMarch 31, 2021 . Total interest expense was$10.6 million for the three months endedMarch 31, 2022 , a decrease of$9.4 million or 46.8% as compared with the three months endedMarch 31, 2021 . Total interest expense was$33.8 million for the nine months endedMarch 31, 2022 , a decrease of$30.0 million or 47.0% as compared with the nine months endedMarch 31, 2021 . The decrease in the average cost of funds rate for the three months endedMarch 31, 2022 compared to 2021 was primarily due to 16 basis point decrease on interest-bearing demand and savings deposits due to decreases in prevailing deposit rates across the industry and a 64 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 nine months endedMarch 31, 2022 compared to 2021 was primarily due to a 22 basis point decrease on interest-bearing demand and savings deposits due to decreases in prevailing deposit rates across the industry and a 71 basis point decrease in the nine month average rates paid on time deposits, due to higher rate time deposits maturing. During the three and nine months endedMarch 31, 2022 , average non-interest bearing deposits increased$2,001.2 million and$1,628.7 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 6 basis points to 4.02% for the three months endedMarch 31, 2022 from 3.96% for the three months endedMarch 31, 2021 , and increased 20 basis points to 4.11% for the nine months endedMarch 31, 2022 from 3.91% for the nine months endedMarch 31, 2021 . During the three and nine months endedMarch 31, 2022 , the primary contributors to the 6 and 20 basis point increases, respectively, was the increase in non-interest bearing deposits which increased$2,001.2 million and$1,628.7 million , respectively, primarily from the deposits acquired through the acquisition of AAS and decreased rates on interest-bearing deposits. 35
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Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents information regarding (i) average balances;
(ii) the total amount of interest income from interest-earning assets and the
weighted average yields on such assets; (iii) the total amount of interest
expense on interest-bearing liabilities and the weighted average rates paid on
such liabilities; (iv) net interest income; (v) interest rate spread; and
(vi) net interest margin:
For the Three Months Ended
March 31,
2022 2021
Interest Average Yields Interest Average Yields
Average Income/ Earned/Rates Average Income/ Earned/Rates(Dollars in thousands) Balance1 Expense Paid2 Balance1 Expense Paid2 Assets: Loans3, 4$ 12,842,705 $ 153,873 4.79 %$ 11,600,551 $ 147,936 5.10 % Interest-earning deposits in other financial institutions 1,286,665 671 0.21 % 1,267,091 482 0.15 % Mortgage-backed and other investment securities4 162,400 1,546 3.81 % 214,712 2,590 4.83 % Securities borrowed and margin lending5 563,018 3,833 2.72 % 616,774 4,453 2.89 % Stock of the regulatory agencies 21,333 258 4.84 % 20,612 213 4.13 % Total interest-earning assets 14,876,121 160,181 4.31 % 13,719,740 155,674 4.54 % Non-interest-earning assets 731,997 413,297 Total assets$ 15,608,118 $ 14,133,037 Liabilities and Stockholders' Equity: Interest-bearing demand and savings$ 6,922,600 $ 3,808 0.22 %$ 7,083,540 $ 6,691 0.38 % Time deposits 1,194,452 3,116 1.04 % 1,748,271 7,343 1.68 % Securities loaned 365,808 152 0.17 % 443,502 453 0.41 % Advances from the FHLB 289,289 973 1.35 % 194,564 992 2.04 % Borrowings, subordinated notes and debentures 295,910 2,594 3.51 % 413,858 4,526 4.37 % Total interest-bearing liabilities 9,068,059 10,643 0.47 % 9,883,735 20,005 0.81 % Non-interest-bearing demand deposits 4,210,508 2,209,297 Other non-interest-bearing liabilities 772,800 708,542 Stockholders' equity 1,556,751 1,331,463 Total liabilities and stockholders' equity$ 15,608,118 $ 14,133,037 Net interest income$ 149,538 $ 135,669 Interest rate spread6 3.84 % 3.73 % Net interest margin7 4.02 % 3.96 % 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$26.3 million and$27.1 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 2022 and 2021 three-month periods, respectively. 5Margin lending is the significant component of the asset titled customer, broker-dealer and clearing receivables on the unaudited condensed consolidated balance sheets. 6Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities. 7Net interest margin represents annualized net interest income as a percentage of average interest-earning assets. 36
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Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents information regarding (i) average balances;
(ii) the total amount of interest income from interest-earning assets and the
weighted average yields on such assets; (iii) the total amount of interest
expense on interest-bearing liabilities and the weighted average rates paid on
such liabilities; (iv) net interest income; (v) interest rate spread; and
(vi) net interest margin:
For the Nine Months Ended
March 31,
2022 2021
Interest Average Yields Interest Average Yields
Average Income/ Earned/Rates Average Income/ Earned/Rates(Dollars in thousands) Balance1 Expense Paid2 Balance1 Expense Paid2 Assets: Loans3, 4$ 12,202,523 $ 452,518 4.94 %$ 11,281,748 $ 436,445 5.16 % Interest-earning deposits in other financial institutions 1,232,100 1,904 0.21 % 1,491,437 1,482 0.13 % Mortgage-backed and other investment securities4 152,623 4,304 3.76 % 202,327 8,184 5.39 % Securities borrowed and margin lending5 718,956 16,050 2.98 % 530,384 14,196 3.57 % Stock of the regulatory agencies 20,845 791 5.06 % 20,611 635 4.11 % Total interest-earning assets 14,327,047 475,567 4.43 % 13,526,507 460,942 4.54 % Non-interest-earning assets 624,184 379,629 Total assets$ 14,951,231 $ 13,906,136 Liabilities and Stockholders' Equity: Interest-bearing demand and savings$ 6,683,286 $ 11,674 0.23 %$ 7,117,471 $ 23,913 0.45 % Time deposits 1,297,870 10,767 1.11 % 1,889,983 25,770 1.82 % Securities loaned 489,189 621 0.17 % 380,035 832 0.29 % Advances from the FHLB 285,547 2,962 1.38 % 224,119 3,690 2.20 % Borrowings, subordinated notes and debentures 264,523 7,795 3.93 % 366,407 9,649 3.51 % Total interest-bearing liabilities 9,020,415 33,819 0.50 % 9,978,015 63,854 0.85 % Non-interest-bearing demand deposits 3,678,067 2,049,366 Other non-interest-bearing liabilities 760,083 603,999 Stockholders' equity 1,492,666 1,274,756 Total liabilities and stockholders' equity$ 14,951,231 $ 13,906,136 Net interest income$ 441,748 $ 397,088 Interest rate spread6 3.93 % 3.69 % Net interest margin7 4.11 % 3.91 % 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$27.3 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 2022 and 2021 nine-month periods, respectively. 5Margin lending is the significant component of the asset titled customer, broker-dealer and clearing receivables on the unaudited condensed consolidated balance sheets. 6Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities. 7Net interest margin represents annualized net interest income as a percentage of average interest-earning assets. 37 -------------------------------------------------------------------------------- Table of Contents Average Balances, Net Interest Income, Yields Earned and Rates Paid The following table sets forth the effects of changing rates and volumes on our net interest income. Information is provided with respect to (i) effects on interest income and interest expense attributable to changes in volume (changes in volume multiplied by prior rate); (ii) effects on interest income and interest expense attributable to changes in rate (changes in rate multiplied by prior volume). The change in interest due to both volume and rate has been allocated proportionally to both, based on their relative absolute values. For the Three Months Ended For the Nine Months Ended March 31, March 31, 2022 vs 2021 2022 vs 2021 Increase (Decrease) Due to Increase (Decrease) Due to Total Total Increase Increase (Dollars in thousands) Volume Rate (Decrease) Volume Rate (Decrease) Increase / (decrease) in interest income: Loans$ 15,257 $ (9,320) $ 5,937 $ 35,013 $ (18,940) $ 16,073 Interest-earning deposits in other financial institutions 7 182 189 (301) 723 422 Mortgage-backed and other investment securities (559) (485) (1,044) (1,739) (2,141) (3,880) Securities borrowed and margin lending (370) (250) (620) 4,470 (2,616) 1,854 Stock of the regulatory agencies 7 38 45 7 149 156$ 14,342 $ (9,835) $ 4,507 $ 37,450 $ (22,825) $ 14,625 Increase / (decrease) in interest expense: Interest-bearing demand and savings $ (148)$ (2,735) $ (2,883) $ (1,357) $ (10,882) $ (12,239) Time deposits (1,919) (2,308) (4,227) (6,682) (8,321) (15,003) Securities loaned (70) (231) (301) 194 (405) (211) Advances from the FHLB 385 (404) (19) 860 (1,588) (728) Borrowings, subordinated notes and debentures (1,143) (789) (1,932) (2,910) 1,056 (1,854)$ (2,895) $ (6,467) $ (9,362) $ (9,895) $ (20,140)
$ (30,035) Provision for Credit Losses The provision for credit losses was$4.5 million for the three months endedMarch 31, 2022 compared to$2.7 million for the three months endedMarch 31, 2021 . The provision for credit losses was$12.5 million for the nine months endedMarch 31, 2022 compared to$22.5 million for the nine months endedMarch 31, 2021 . The increase in the provision for the three months endedMarch 31, 2022 was due to growth in the loan portfolio. The decrease in the provision for the nine months endedMarch 31, 2022 was due to favorable changes in economic and business conditions resulting from reduced levels of disruptions from the COVID-19 pandemic betweenMarch 31, 2021 andMarch 31, 2022 , partially offset by loan growth and changes in loan mix. 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." 38
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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 Nine Months Ended
March 31, March 31,
(Dollars in thousands) 2022 2021 Inc (Dec) 2022 2021 Inc (Dec)
Prepayment penalty fee income $ 2,793 $ 1,342 $ 1,451 $ 9,073 $ 4,289 $ 4,784
Gain on sale - other 61 214 (153) 106 704 (598)
Mortgage banking income 5,729 9,037 (3,308) 15,594 39,255 (23,661)
Broker-dealer fee income 12,913 7,942 4,971 39,046 19,931 19,115
Banking and service fees 7,278 5,352 1,926 22,444 24,281 (1,837)
Total non-interest income $ 28,774 $ 23,887 $ 4,887 $ 86,263 $ 88,460 $ (2,197)
Non-interest income increased $4.9 million to $28.8 million for the three months
ended March 31, 2022 compared to the three months ended March 31, 2021 . The
increase was primarily the result of a $5.0 million increase in broker-dealer
fee income driven by custody and mutual fund fees earned by the newly acquired
AAS division, an increase of $1.9 million in banking and service fees, and an
increase of $1.5 million in prepayment penalty fee income, partially offset by a
decrease of $3.3 million in mortgage banking income. Mortgage banking income for
the three months ended March 31, 2022 included a mortgage servicing rights fair
market value adjustment of approximately $3.0 million due to expected higher
interest rates and slower mortgage prepayments. The fair value adjustment for
the three months ended March 31, 2021 was $0.5 million . Non-interest income
decreased $2.2 million to $86.3 million for the nine months ended March 31, 2022
compared to the nine months ended March 31, 2021 . The change was primarily the
result of a $23.7 million decrease in mortgage banking income and a $1.8 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
nine months ended March 31, 2022 , partially offset by a $19.1 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 $4.8 million in prepayment
penalty fee income.
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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 Nine Months Ended
March 31, March 31,
(Dollars in thousands) 2022 2021 Inc (Dec) 2022 2021 Inc (Dec)
Salaries and related costs $ 43,133 $ 38,545
12,274 10,171 2,103 36,565 27,772 8,793
Advertising and promotional 3,357 4,261 (904) 10,131 10,600 (469)
Depreciation and amortization 6,061 5,865 196 18,574 17,913 661
Professional services 4,346 5,712 (1,366) 14,834 17,340 (2,506)
Occupancy and equipment 3,742 3,096 646 10,265 9,239 1,026
FDIC and regulatory fees 3,115 3,107 8 7,856 8,400 (544)
Broker-dealer clearing charges 3,561 3,278 283 11,244 7,986 3,258
General and administrative expense 7,230 6,772 458 23,951 18,033 5,918
Total non-interest expenses $ 86,819 $ 80,807 Non-interest expense, which is comprised of compensation, data processing, depreciation and amortization, advertising and promotional, professional services, occupancy and equipment,FDIC and regulatory fees, broker-dealer clearing charges and other operating expenses, was$86.8 million for the three months endedMarch 31, 2022 , compared to$80.8 million for the three months endedMarch 31, 2021 . Non-interest expense was$257.3 million for the nine months endedMarch 31, 2022 , up from$232.7 million for the nine months endedMarch 31, 2021 . The increases for the three and nine months endedMarch 31, 2022 were generally due to the addition of AAS and the expansion of Bank operations specifically in areas related to lending and deposits. Total salaries and related costs increased$4.6 million to$43.1 million for the three months endedMarch 31, 2022 compared to$38.5 million for the three months endedMarch 31, 2021 and increased$8.5 million to$123.8 million for the nine months endedMarch 31, 2022 compared to$115.4 million for the nine months endedMarch 31, 2021 . The increases in compensation expense for the three and nine months endedMarch 31, 2022 were primarily due to increased staffing levels as a result of the AAS acquisition. Our staff increased to 1,294 from 1,152, or 12.3% betweenMarch 31, 2022 and 2021.
Data processing expense increased
Advertising and promotional expense decreased$0.9 million and$0.5 million for the three and nine months endedMarch 31, 2022 , compared to the three and nine months endedMarch 31, 2021 , respectively. Fluctuations are mainly the result of changes in mortgage lead generation and deposit marketing costs. Depreciation and amortization expense increased$0.2 million and$0.7 million for the three and nine months endedMarch 31, 2022 , compared to the three and nine months endedMarch 31, 2021 , respectively. The increases for the three and nine months endedMarch 31, 2022 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 decreased$1.4 million and decreased$2.5 million for the three and nine months endedMarch 31, 2022 , compared to the three and nine months endedMarch 31, 2021 , respectively. Professional services charges decreased due primarily to lower legal expense during the three and nine months endedMarch 31, 2022 . Occupancy and equipment expense increased by$0.6 million and$1.0 million for the three and nine months endedMarch 31, 2022 compared to the three and nine months endedMarch 31, 2021 , respectively. The changes for the three and nine months endedMarch 31, 2022 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. Our cost ofFDIC and regulatory fees was flat and decreased$0.5 million for the three and nine months endedMarch 31, 2022 , compared to the three and nine month period last year, respectively. The decrease 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 . 40
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Broker-dealer clearing charges increased$0.3 million and$3.3 million for the three and nine months endedMarch 31, 2022 compared to the three and nine months endedMarch 31, 2021 , respectively. The increases were attributable to the acquisition of AAS and increased clearing charges due to higher activity during the three and nine months endedMarch 31, 2022 . Other general and administrative costs increased by$0.5 million and$5.9 million for the three and nine months endedMarch 31, 2022 , compared to the three and nine months endedMarch 31, 2021 , respectively. The increase in the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 was primarily due to a$1.0 million provision to the unfunded loan commitment liability. The increase in the nine months endedMarch 31, 2022 as compared toMarch 31, 2021 was primarily due to a$4.0 million provision to the unfunded loan commitment liability and increased travel costs of$1.5 million .
Provision for Income Taxes
Our effective income tax rates (income tax provision divided by net income before income tax) for the three months endedMarch 31, 2022 and 2021 were 28.93% and 29.46%, respectively. Our effective income tax rates for the nine months endedMarch 31, 2022 and 2021 were 29.21% and 29.92%, respectively. The change in effective income tax rates between periods are primarily the result of changes in tax benefits from stock compensation.
SEGMENT RESULTS
Our Company determines reportable segments based on what separate financial
information is available and what segment results are evaluated regularly by the
Chief Executive Officer in deciding how to allocate resources and in assessing
performance. The Company operates through two operating segments: Banking
Business and Securities Business. In order to reconcile the two segments to the
unaudited condensed consolidated totals, the Company includes parent-only
activities and intercompany eliminations. The following tables present the
operating results of the segments:
For the Three Months Ended
Banking Securities
(Dollars in thousands) Business Business Corporate/Eliminations Axos Consolidated Net interest income$ 147,828 $ 3,377 $ (1,667) $ 149,538 Provision for credit losses 4,500 - - 4,500 Non-interest income 15,741 15,609 (2,576) 28,774 Non-interest expense 65,076 20,242 1,501 86,819 Income before taxes$ 93,993 $ (1,256) $ (5,744) $ 86,993 For the Three Months Ended March 31, 2021 Banking
Securities
(Dollars in thousands) Business Business Corporate/Eliminations Axos Consolidated Net interest income$ 135,096 $ 3,847 $ (3,274) $ 135,669 Provision for credit losses 2,700 - - 2,700 Non-interest income 16,201 8,369 (683) 23,887 Non-interest expense 64,040 13,282 3,485 80,807 Income before taxes$ 84,557 $ (1,066) $ (7,442) $ 76,049 For the Nine Months Ended March 31, 2022 Securities (Dollars in thousands) Banking Business Business Corporate/Eliminations Axos Consolidated Net interest income$ 432,328 $ 14,059 $ (4,639) $ 441,748 Provision for credit losses 12,500 - - 12,500 Non-interest income 46,864 45,169 (5,770) 86,263 Non-interest expense 190,250 61,169 5,850 257,269 Income before taxes$ 276,442 $ (1,941) $ (16,259) $ 258,242 41
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For the Nine Months Ended March 31, 2021
Securities
(Dollars in thousands) Banking Business Business Corporate/Eliminations Axos Consolidated
Net interest income $ 390,268 $ 13,002 $ (6,182) $ 397,088
Provision for credit losses 22,500 - - 22,500
Non-interest income 68,708 20,725 (973) 88,460
Non-interest expense 187,733 35,946 8,971 232,650
Income before taxes $ 248,743 $ (2,219) $ (16,126) $ 230,398
Banking Business
For the three months ended March 31, 2022 , our Banking Business segment had
income before taxes of $94.0 million compared to income before taxes of $84.6
million for the three months ended March 31, 2021 . For the nine months ended
March 31, 2022 , we had income before taxes of $276.4 million compared to income
before taxes of $248.7 million for the nine months ended March 31, 2021 . For the
three months ended March 31, 2021 , 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,
partially offset by a decrease in mortgage banking, compared to the three months
ended March 31, 2021 . For the nine months ended March 31, 2021 , 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 nine months
ended March 31, 2021 .
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 Nine Months Ended
March 31, 2022 March 31, 2021 March 31, 2022 March 31, 2021
Efficiency ratio 39.79 % 42.33 % 39.70 % 40.90 %
Return on average assets 1.84 % 1.81 % 1.89 % 1.80 %
Interest rate spread 4.06 % 4.05 % 4.17 % 3.90 %
Net interest margin 4.21 % 4.23 % 4.33 % 4.09 %
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.
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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
March 31,
2022 2021
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$ 12,804,231 $ 153,363 4.79 %$ 11,556,228 $ 147,264 5.10 % Interest-earning deposits in other financial institutions 1,042,552 483 0.19 % 949,259 230 0.10 % Mortgage-backed and other investment securities4 185,952 1,661 3.57 % 242,422 2,733 4.51 % Stock of the regulatory agencies 18,215 258 5.67 % 17,250 212 4.92 % Total interest-earning assets 14,050,950 155,765 4.43 % 12,765,159 150,439 4.71 % Non-interest-earning assets 297,950 161,541 Total assets$ 14,348,900 $ 12,926,700 Liabilities and Stockholders' Equity: Interest-bearing demand and savings$ 6,999,385 $ 3,848 0.22 %$ 7,256,096 $ 6,904 0.38 % Time deposits 1,194,452 3,116 1.04 % 1,748,271 7,343 1.68 % Advances from the FHLB 289,289 973 1.35 % 194,564 992 2.04 % Borrowings, subordinated notes and debentures 33 - - % 120,037 104 0.35 % Total interest-bearing liabilities 8,483,159 7,937 0.37 % 9,318,968 15,343 0.66 % Non-interest-bearing demand deposits 4,269,702 2,239,439 Other non-interest-bearing liabilities 135,237 119,605 Stockholders' equity 1,460,802 1,248,688 Total liabilities and stockholders' equity$ 14,348,900 $ 12,926,700 Net interest income$ 147,828 $ 135,096 Interest rate spread5 4.06 % 4.05 % Net interest margin6 4.21 % 4.23 % 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$26.3 million and$27.1 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 2022 and 2021 three-month periods, respectively. 5Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities. 6Net interest margin represents annualized net interest income as a percentage of average interest-earning assets. 43
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Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents our Banking Business segment's information
regarding (i) average balances; (ii) the total amount of interest income from
interest-earning assets and the weighted average yields on such assets;
(iii) the total amount of interest expense on interest-bearing liabilities and
the weighted average rates paid on such liabilities; (iv) net interest income;
(v) interest rate spread; and (vi) net interest margin:
For the Nine Months Ended
March 31,
2022 2021
Interest Average Yields Interest Average Yields
Average Income/ Earned/Rates Average Income/ Earned/Rates(Dollars in thousands) Balance1 Expense Paid2 Balance1 Expense Paid2 Assets: Loans3, 4$ 12,163,066 $ 451,166 4.95 %$ 11,234,740 $ 434,269 5.15 % Interest-earning deposits in other financial institutions 961,393 1,196 0.17 % 1,245,733 946 0.10 % Mortgage-backed and other investment securities4 176,570 4,665 3.52 % 233,946 8,661 4.94 % Stock of the regulatory agencies 17,811 788 5.90 % 17,250 631 4.88 % Total interest-earning assets 13,318,840 457,815 4.58 % 12,731,669 444,507 4.66 % Non-interest-earning assets 295,401 157,825 Total assets$ 13,614,241 $ 12,889,494 Liabilities and Stockholders' Equity: Interest-bearing demand and savings$ 6,742,803 $ 11,758 0.23 %$ 7,248,839 $ 24,413 0.45 % Time deposits 1,297,870 10,767 1.11 % 1,889,983 25,770 1.82 % Advances from the FHLB 285,547 2,962 1.38 % 224,119 3,690 2.20 % Borrowings, subordinated notes and debentures 113 - - % 139,925 366 0.35 % Total interest-bearing liabilities 8,326,333 25,487 0.41 % 9,502,866 54,239 0.76 % Non-interest-bearing demand deposits 3,760,771 2,070,747 Other non-interest-bearing liabilities 142,212 127,079 Stockholders' equity 1,384,925 1,188,802 Total liabilities and stockholders' equity$ 13,614,241 $ 12,889,494 Net interest income$ 432,328 $ 390,268 Interest rate spread5 4.17 % 3.90 % Net interest margin6 4.33 % 4.09 % 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$27.3 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 2022 and 2021 nine-month periods, respectively. 5Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities. 6Net interest margin represents annualized net interest income as a percentage of average interest-earning assets. 44 -------------------------------------------------------------------------------- Table of Contents Average Balances, Net Interest Income, Yields Earned and Rates Paid The following table sets forth the effects of changing rates and volumes on our net interest income for our Banking Business segment. Information is provided with respect to (i) effects on interest income and interest expense attributable to changes in volume (changes in volume multiplied by prior rate); (ii) effects on interest income and interest expense attributable to changes in rate (changes in rate multiplied by prior volume). The change in interest due to both volume and rate has been allocated proportionally to both, based on their relative absolute values. For the Three Months Ended For the Nine Months Ended March 31, March 31, 2022 vs 2021 2022 vs 2021 Increase (Decrease) Due to Increase (Decrease) Due to Total Total Increase Increase (Dollars in thousands) Volume Rate (Decrease) Volume Rate
(Decrease)
Increase / (decrease) in interest income: Loans$ 15,364 $ (9,265) $ 6,099 $ 34,423 $ (17,526)
Interest-earning deposits in other financial institutions 25 228 253 (260) 510 250 Mortgage-backed and other investment securities (566) (506) (1,072) (1,840) (2,156)
(3,996)
Stock of the regulatory agencies, at cost 13 33 46 22 135 157
$ 14,836 $ (9,510) $ 5,326 $ 32,345 $ (19,037) $ 13,308
Increase / (decrease) in interest expense:
Interest-bearing demand and savings $ (237) $ (2,819) $ (3,056) $ (1,581) $ (11,074) $ (12,655)
Time deposits (1,919) (2,308) (4,227) (6,682) (8,321) (15,003)
Advances from the FHLB 385 (404) (19) 860 (1,588) (728)
Borrowings, subordinated notes and
debentures (52) (52) (104) (183) (183) (366)
$ (1,823) $ (5,583) $ (7,406) $ (7,586) $ (21,166) $ (28,752)
The Banking Business segment's net interest income for the three and nine months
ended March 31, 2022 totaled $147.8 million and $432.3 million , an increase of
9.4% and an increase of 10.8%, compared to net interest income of $135.1 million
and $390.3 million for the three and nine months ended March 31, 2021 ,
respectively. The increase for the three and nine months ended March 31, 2022
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 $0.5 million to
$15.7 million and decreased $21.8 million to $46.9 million for the three and
nine months ended March 31, 2022 compared to the three and nine months ended
March 31, 2021 , respectively. The $0.5 million decrease for the three months
ended March 31, 2022 compared to the three months ended March 31, 2021 , was
mainly the result of decreased mortgage banking income of $3.3 million and
partially offset by increases in banking and service fees of $1.6 million and
prepayment penalty fee income of $1.5 million . The $21.8 million decrease for
the nine months ended March 31, 2022 compared to the nine months ended March 31,
2021 , was mainly the result of decreased mortgage banking income of $23.7
million and decreased banking and service fees of $2.4 million from Emerald
Prepaid Mastercard® and Refund Transfer products associated with H&R Block that
did not recur for the nine months ended March 31, 2022 , partially offset by
increases in prepayment penalty fee income of $4.8 million .
The Banking Business segment's non-interest expense for the three and nine
months ended March 31, 2022 increased $1.0 million and $2.5 million ,
respectively, compared to the three and nine months ended March 31, 2021 . For
the three months ended March 31, 2022 compared to the three months ended
March 31, 2021 , non-interest expense increased $1.0 million mainly the result of
a $1.5 million increase in data processing and a $1.0 million increase in
salaries and related costs, partially offset by a $1.0 million decrease in
depreciation and amortization. For the nine months ended March 31, 2022 compared
to the nine months ended March 31, 2021 , the $2.5 million increase was primarily
due to a $5.7 million increase in other general and administrative expenses, a
$6.2 million increase in data processing expense, and a $3.8 million increase in
advertising and promotional expense, partially offset by a $5.4 million decrease
of salaries and related expenses, a $2.9 million decrease in professional fees,
a $2.4 million decrease in depreciation and amortization, and a $1.1 million
decrease in regulatory fees.
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Securities Business
For the three months endedMarch 31, 2022 , our Securities Business segment had a loss before taxes of$1.3 million compared to a loss before taxes of$1.1 million for the three months endedMarch 31, 2021 . For the nine months endedMarch 31, 2022 , our Securities Business segment had a loss before taxes of$1.9 million compared to a loss before taxes of$2.2 million for the nine months endedMarch 31, 2021 . Net interest income for the three months endedMarch 31, 2022 , decreased$0.5 million to$3.4 million compared to the three months endedMarch 31, 2021 . Net interest income for the nine months endedMarch 31, 2022 increased$1.1 million to$14.1 million compared to the nine months endedMarch 31, 2021 . The changes were primarily a result of fluctuations 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 endedMarch 31, 2022 , increased$7.2 million to$15.6 million compared to the three months endedMarch 31, 2021 . The increases were primarily$7.7 million attributable to the addition of AAS custody and mutual funds fees, an increase of$2.3 million in fees earned onFDIC insured bank deposits, partially offset by a decrease of$1.8 million in correspondent fees, and a decrease of$1.2 million of clearing and custodial related fees. Non-interest income during the nine months endedMarch 31, 2022 increased$24.4 million to$45.2 million compared to the nine months endedMarch 31, 2021 . The increases were primarily$21.1 million attributable to the addition of AAS custody and mutual funds fees, an increase of$4.3 million in fees earned onFDIC insured bank deposits, partially offset by a decrease of$0.9 million in correspondent fees, a decrease of$0.6 million of clearing and custodial related fees. Non-interest expense increased$7.0 million to$20.2 million for the three months endedMarch 31, 2022 from the$13.3 million for the three months endedMarch 31, 2021 . The increase was primarily related to an increase of$3.0 million in salaries and related expenses related to staffing and the acquisition of AAS, an increase of$1.2 million depreciation and amortization expense, an increase of$0.9 million in occupancy and equipment, an increase of$0.7 million in data processing. Non-interest expense increased$25.2 million to$61.2 million for the nine months endedMarch 31, 2022 , from$35.9 million for the nine months endedMarch 31, 2021 . The increase was primarily related to an increase of$12.1 million in salaries and related expenses related to staffing and the acquisition of AAS, an increase of$3.3 million in broker-dealer clearing charges, an increase of$2.9 million depreciation and amortization expense, an increase of$2.5 million in data processing, an increase of$2.0 million occupancy and equipment expense, and an increase of$1.0 million advertising and promotional expense. The increases were primarily the result of the addition of AAS. Selected information concerning the Securities segment follows as of and for the three months ended: March 31, (Dollars in thousands) 2022 2021 Compensation as a % of net revenue 36.7 % 32.4 % FDIC insured program balances (end of period)$ 824,494 $ 794,614 Customer margin balances (end of period)$ 294,983 $ 310,695 Customer funds on deposit, including short credits (end of period)$ 250,966 $ 294,903 Clearing: Total tickets 1,495,617 1,998,293 Correspondents (end of period) 68 64 Securities lending: Interest-earning assets - stock borrowed (end of period)$ 274,644 $ 543,538 Interest-bearing liabilities - stock loaned (end of period)$ 447,748 $ 649,837 46
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Table of Contents FINANCIAL CONDITION Balance Sheet Analysis Total assets increased$1.8 billion , or 12.7%, to$16.1 billion , as ofMarch 31, 2022 , up from$14.3 billion atJune 30, 2021 . The increase in total assets was mainly due to an increase of$1.7 billion in net loans held for investment, an increase of$211.5 million in cash and cash equivalents, and an increase of$140.7 million in customer, broker-dealer and clearing receivables, partially offset by a decrease of$344.4 million in securities borrowed. Total liabilities increased$1.6 billion , primarily due to growth in deposits of$1.9 billion , partially offset by a decrease of$201.0 million in advances from the FHLB and a decrease of$281.2 million in securities loaned.
Loans
Net loans held for investment increased 14.7% to$13.1 billion as ofMarch 31, 2022 from$11.4 billion atJune 30, 2021 . The increase in the loan portfolio was primarily due to growth in demand for commercial real estate and C&I loans. The following table sets forth the composition of the loan portfolio as of the dates indicated: March 31, 2022 June 30, 2021 (Dollars in thousands) Amount Percent Amount Percent Single Family - Mortgage & Warehouse$ 3,972,103 30.0 %$ 4,359,472 37.8 % Multifamily and Commercial Mortgage 2,662,517 20.1 % 2,470,454 21.4 % Commercial Real Estate 4,293,032 32.5 % 3,180,453 27.5 % Commercial & Industrial - Non-RE 1,780,545 13.4 % 1,123,869 9.7 % Auto & Consumer 521,936 3.9 % 362,180 3.1 % Other 16,125 0.1 % 58,316 0.5 % Total gross loans 13,246,258 100.0 % 11,554,744 100.0 % Allowance for credit losses - loans (143,372)
(132,958)
Unaccreted discounts and loan fees (9,283) (6,972) Total net loans$ 13,093,603 $ 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 ofMarch 31, 2022 , the Company had$1.1 billion of interest only mortgage loans. 47
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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. AtMarch 31, 2022 , our non-performing loans totaled$138.8 million , or 1.05% of total gross loans and our non-performing loans and foreclosed assets or "non-performing assets" totaled$139.3 million , or 0.87% of total assets.
Non-performing assets consisted of the following as of the dates indicated:
(Dollars in thousands) March 31, 2022 June 30, 2021 Inc (Dec) Non-performing assets: Non-accrual loans and leases: Single Family - Mortgage & Warehouse$ 113,317 $ 105,708 $ 7,609 Multifamily and Commercial Mortgage 9,667 20,428 (10,761) Commercial Real Estate 14,952 15,839 (887) Commercial & Industrial - Non-RE - 2,942 (2,942) Auto & Consumer 446 278 168 Other 372 - 372 Total non-performing loans 138,754
145,195 (6,441)
Foreclosed real estate - 6,547 (6,547)
Repossessed-Auto and RV 564 235 329
Total non-performing assets $ 139,318
1.05 % 1.26 % (0.21) %
Total non-performing assets as a percentage of
total assets 0.87 % 1.07 % (0.20) %
Total non-performing assets decreased from $152.0 million at June 30, 2021 to
$139.3 million at March 31, 2022 . The decrease in non-performing assets of
approximately $12.7 million , was primarily attributable to resolutions of
multifamily, C&I - non-RE, and foreclosed real estate in response to improved
macro economic factors. Non-performing single-family loans increased by $7.6
million . The Company ended COVID-19 related forbearance for all single family
mortgage borrowers during the quarter ended September 30, 2020 . Any forbearance
granted out of COVID-19 was for six months or less. The weighted-average LTV of
the non-performing single family mortgage loans was 57.2% as of March 31, 2022 .
The Bank had no performing troubled debt restructurings as of March 31, 2022 and
June 30, 2021 . A troubled debt restructuring is a concession made to a borrower
experiencing financial difficulties, typically permanent or temporary
modifications of principal and interest payments or an extension of maturity
dates. When a loan is delinquent and classified as a troubled debt
restructuring, no interest is accrued until the borrower demonstrates over time
(typically six months) that it can make payments. When a loan is considered a
troubled debt restructuring and is on nonaccrual, it is considered
non-performing and included in the table above.
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Allowance for Credit Losses - Loans
OnJuly 1, 2020 , the Company adopted ASC 326. The update replaces the historical incurred loss model to a current expected loss model, resulting, generally, in earlier recognition of loss. Refer to Note 1 - Summary of Significant Accounting Policies in our Annual Report on Form 10-K for the fiscal year endedJune 30, 2021 for greater detail on the accounting adoption along with detail of the processes and approaches involved in determining the allowance for credit losses under the new guidance. The following table reflects management's allocation of the allowance for credit losses - loans by loan category and the ratio of each loan category to total loans as of the dates indicated: March 31, 2022 June 30, 2021 Amount Allocation Amount Allocation of as a % of of as a % of (Dollars in thousands) Allowance Allowance Allowance Allowance Single Family Real Estate$ 21,789 15.2 %$ 26,604 20.0 % Multifamily Real Estate 13,818 9.7 % 13,146 9.9 % Commercial Real Estate 69,829 48.7 % 57,928 43.6 % Commercial and Industrial - Non-RE 26,268 18.3 % 28,460 21.4 % Consumer and Auto 11,623 8.1 % 6,519 4.9 % Other 45 - % 301 0.2 % Total$ 143,372 100.0 %$ 132,958 100.0 % The provision for credit losses was$4.5 million for the three months endedMarch 31, 2022 compared to$2.7 million for the three months endedMarch 31, 2021 . The provision for credit losses was$12.5 million for the nine months endedMarch 31, 2022 compared to$22.5 million for the nine months endedMarch 31, 2021 . The increase in the provision for the three months endedMarch 31, 2022 was due to growth in the loan portfolio. The decrease in the provision for the nine months endedMarch 31, 2022 was due to favorable changes in economic and business conditions resulting from reduced levels of disruptions from the COVID-19 pandemic betweenMarch 31, 2021 andMarch 31, 2022 , 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.
Total investment securities were$229.9 million as ofMarch 31, 2022 , compared with$189.3 million atJune 30, 2021 . During the nine months endedMarch 31, 2022 , we purchased securities for$107.3 million and received principal repayments of approximately$59.5 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
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Deposits
Deposits increased a net$1.9 billion , or 17.7%, to$12.7 billion atMarch 31, 2022 , from$10.8 billion atJune 30, 2021 . Non-interest bearing deposits increased$1.7 billion , or 67.1%, to$4.1 billion atMarch 31, 2022 , fromJune 30, 2021 , primarily due to deposits provided by the AAS acquisition. Time deposits decreased$471.4 million as higher costing time deposits were run off. The following table sets forth the composition of the deposit portfolio as of the dates indicated: March 31, 2022 June 30, 2021 (Dollars in thousands) Amount Rate1 Amount Rate1 Non-interest bearing$ 4,135,278 - %$ 2,474,424 - % Interest bearing: Demand 4,247,543 0.19 % 3,369,845 0.15 % Savings 3,308,736 0.23 % 3,458,687 0.21 % Total interest-bearing demand and savings 7,556,279 0.21 % 6,828,532 0.18 % Time deposits:$250 and under2 726,161 1.19 % 1,070,139 1.30 % Greater than$250 315,284 0.61 % 442,702 1.03 % Total time deposits 1,041,445 1.02 % 1,512,841 1.22 % Total interest bearing2 8,597,724 0.31 % 8,341,373 0.37 % Total deposits$ 12,733,002 0.21 %$ 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$803.0 million and$621.4 million as ofMarch 31, 2022 andJune 30, 2021 , respectively, of which$250.0 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: March 31, 2022 June 30, 2021 March 31, 2021 Non-interest bearing, prepaid and other 40,958 36,726 33,442 Checking and savings accounts 344,176 336,068 326,536 Time deposits 9,313 12,815 14,430 Total number of deposit accounts 394,447 385,609 374,408 Borrowings
The following table sets forth the composition of our borrowings and the interest rates at the dates indicated:
March 31, 2022 June 30, 2021 March 31, 2021
Weighted Average Weighted Average Weighted Average
(Dollars in thousands) Balance Rate Balance Rate Balance Rate
FHLB Advances $152,500 2.30 % $353,500 1.18 % $172,500 2.26 %
Borrowings, subordinated
notes and debentures 381,682 4.54 % 221,358 4.68 % 365,753 3.23 %
Total borrowings $534,182 3.90 % $574,858 2.53 % $538,253 2.92 %
Weighted average cost of
borrowings during the quarter 2.44 % 2.93 % 3.63 %
Borrowings as a percent of
total assets 3.32 % 4.03 % 3.63 %
At March 31, 2022 , total borrowings amounted to $534.2 million , down $40.7
million , or 7.1%, from June 30, 2021 and down $4.1 million or 0.8% from
March 31, 2021 . Borrowings as a percent of total assets were 3.32%, 4.03% and
3.63% at March 31, 2022 , June 30, 2021 and March 31, 2021 , respectively.
Weighted average cost of borrowings during the quarter were 2.44%, 2.93% and
3.63% for the quarters ended March 31, 2022 , June 30, 2021 and March 31, 2021 ,
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$184.6 million to$1,585.6 million atMarch 31, 2022 compared to$1,400.9 million atJune 30, 2021 . The increase was the result of our net income for the nine months endedMarch 31, 2022 of$182.8 million , stock compensation expense of$6.0 million , partially offset by a$4.1 million decrease in other comprehensive income, net of tax.
During the three and nine months ended
LIQUIDITY
Cash flow information is as follows:
For the Nine Months Ended
March 31,
(Dollars in thousands) 2022 2021
Operating Activities $ 65,210 $ 312,727
Investing Activities $ (1,719,834) $ (1,126,045)
Financing Activities $ 1,866,161 $ 305,754
During the nine months ended March 31, 2022 , we had net cash inflows from
operating activities of $65.2 million compared to inflows of $312.7 million for
the nine months ended March 31, 2021 , 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 $1,719.8 million for the
nine months ended March 31, 2022 , while outflows totaled $1,126.0 million for
the nine months ended March 31, 2021 . 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 $1,866.2 million for the nine
months ended March 31, 2022 , compared to net cash outflows from financing
activities of $305.8 million for the nine months ended March 31, 2021 . The
primary driver behind the increase in net cash inflows was increased deposits
provided in part, by the acquisition of AAS and by the net proceeds of $148.1
million of subordinated notes in the nine months ended March 31, 2022 .
During the nine months ended March 31, 2022 , 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 March 31,
2022 , the Company had $1,562.2 million available immediately and $2,783.9
million available with additional collateral. At March 31, 2022 , 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 March 31, 2022 , the Bank did not have any
borrowings outstanding and the amount available from this source was $2,800.6
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 March 31, 2022 , there was $18.0 million
outstanding. These credit facilities bear interest at rates based on the Federal
Funds rate and are due upon demand.
Axos Clearing has a $75.0 million committed unsecured line of credit available
for limited purpose borrowing. As of March 31, 2022 , there was $30.0 million
outstanding on this credit facility. 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
AtMarch 31, 2022 , we had commitments to originate loans with an aggregate outstanding principal balance of$2,820.3 million , and commitments to sell loans with an aggregate outstanding principal balance of$33.0 million . We have no commitments to purchase loans, investment securities or any other unused lines of credit. AtMarch 31, 2022 we had a commitment to fund an equity investment measured at fair value of$10 million . AtMarch 31, 2022 , no amounts had been funded related to the investment. 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
OurCompany 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. TheFederal 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 forMarch 31, 2022 , reflects the Basel III capital requirements that became effectiveJanuary 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. AtMarch 31, 2022 , 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 sinceMarch 31, 2022 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 theMarch 31, 2022 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 throughJune 30, 2023 . This cumulative amount will then be phased out of regulatory capital over the next three years. 52
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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
June 30, June 30, Capitalized" Minimum Capital
(Dollars in millions) March 31, 2022 2021 March 31, 2022 2021 Ratio Ratio
Regulatory Capital :
Tier 1 $ 1,459 $ 1,309 $ 1,505 $ 1,263
Common equity tier 1 $ 1,459 $ 1,309 $ 1,505 $ 1,263
Total capital (to
risk-weighted assets) $ 1,898 $ 1,588 $ 1,611 $ 1,358
Assets:
Average adjusted $ 15,477 $ 14,851 $ 14,319 $ 13,360
Total risk-weighted $ 14,267 $ 11,523 $
13,162
Regulatory Capital Ratios: Tier 1 leverage (core) capital to adjusted average assets 9.43 % 8.82 % 10.51 % 9.45 % 5.00 % 4.00 % Common equity tier 1 capital (to risk-weighted assets) 10.23 % 11.36 % 11.43 % 12.28 % 6.50 % 4.50 % Tier 1 capital (to risk-weighted assets) 10.23 % 11.36 % 11.43 % 12.28 % 8.00 % 6.00 % Total capital (to risk-weighted assets) 13.30 % 13.78 % 12.24 % 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. AtMarch 31, 2022 , 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 theSEC 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$250,000 or 2% of aggregate debit balances arising from client transactions, as defined. Under the alternate method, the Company may not repay subordinated debt, pay cash distributions, or make any unsecured advances or loans to its parent or employees if such payment would result in net capital of less than 5% of aggregate debit balances or less than 120% of its minimum dollar requirement.
The net capital positions of Axos Clearing were as follows:
(Dollars in thousands) March 31, 2022 June 30, 2021 Net capital$ 39,109 $ 35,950 Excess Capital$ 31,612 $ 27,904 Net capital as a percentage of aggregate debit items 10.43 % 8.94 %
Net capital in excess of 5% aggregate debit items
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. AtMarch 31, 2022 , the Company had a deposit requirement of$220.5 million and maintained a deposit of$224.6 million . OnApril 1, 2022 , the company made a deposit of$6.0 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). AtMarch 31, 2022 , the Company had a deposit requirement of$34.3 million and maintained a deposit of$26.4 million . OnJanuary 1, 2022 , the Company made a deposit in the amount of$8.9 million . 53
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