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What changed in Axos Financial, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Axos Financial, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+452 added−609 removedSource: 10-K (2023-08-29) vs 10-K (2022-09-08)

Top changes in Axos Financial, Inc.'s 2023 10-K

452 paragraphs added · 609 removed · 342 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

132 edited+28 added−61 removed121 unchanged
Biggest changeThe following table sets forth the composition of our loan portfolio in amounts and percentages by type of loan at the end of each fiscal year-end for the last three years: At June 30, 2022 2021 2020 (Dollars in thousands) Amount Percent Amount Percent Amount Percent Single Family - Mortgage & Warehouse $ 3,988,462 28.0 % $ 4,359,472 37.8 % $ 4,722,304 44.2 % Multifamily and Commercial Mortgage 2,877,680 20.2 % 2,470,454 21.4 % 2,263,054 21.1 % Commercial Real Estate 4,781,044 33.5 % 3,180,453 27.5 % 2,297,920 21.5 % Commercial & Industrial - Non-RE 2,028,128 14.2 % 1,123,869 9.7 % 885,320 8.3 % Auto & Consumer 567,228 4.0 % 362,180 3.1 % 341,365 3.1 % Other 11,134 0.1 % 58,316 0.5 % 193,479 1.8 % Total loans held for investment $ 14,253,676 100.0 % $ 11,554,744 100.0 % $ 10,703,442 100.0 % Allowance for credit losses (148,617) (132,958) (75,807) Unamortized premiums/discounts, net of deferred loan fees (13,998) (6,972) 3,714 Net loans held for investment $ 14,091,061 $ 11,414,814 $ 10,631,349 The following table sets forth the amount of loans maturing in our total loans held for investment based on the contractual terms to maturity: Term to Contractual Maturity (Dollars in thousands) Less Than Three Months Over Three Months Through One Year Over One Year Through Five Years Over 5 Years Through 15 Years Over 15 Years Total June 30, 2022 $ 553,013 $ 1,587,126 $ 5,135,709 $ 1,765,334 $ 5,212,494 $ 14,253,676 5 The following table sets forth the amount of our loans at June 30, 2022 that are due after June 30, 2023 and indicates whether they have fixed, floating or adjustable interest rates: (Dollars in thousands) Fixed Floating or Adjustable 1 Total Single Family - Mortgage & Warehouse $ 133,825 $ 3,561,884 $ 3,695,709 Multifamily and Commercial Mortgage 52,421 2,793,940 2,846,361 Commercial Real Estate 209,084 2,955,961 3,165,045 Commercial & Industrial - Non-RE 286,349 1,546,297 1,832,646 Auto & Consumer 563,993 — 563,993 Other 9,783 — 9,783 Total $ 1,255,455 $ 10,858,082 $ 12,113,537 1 Included in this category are hybrid mortgages (e.g., 5/1 adjustable rate mortgages) that carry a fixed rate for an introductory term before transitioning to an adjustable rate.
Biggest changeThe following table sets forth the composition of our loan portfolio in amounts and percentages by type of loan at the end of each fiscal year-end for the last three years: At June 30, 2023 2022 2021 (Dollars in thousands) Amount Percent Amount Percent Amount Percent Single Family - Mortgage & Warehouse $ 4,173,833 25.1 % $ 3,988,462 28.0 % $ 4,359,472 37.8 % Multifamily and Commercial Mortgage 3,082,225 18.5 % 2,877,680 20.2 % 2,470,454 21.4 % Commercial Real Estate 6,199,818 37.2 % 4,781,044 33.5 % 3,180,453 27.5 % Commercial & Industrial - Non-RE 2,639,650 15.8 % 2,028,128 14.2 % 1,123,869 9.7 % Auto & Consumer 546,264 3.3 % 567,228 4.0 % 362,180 3.1 % Other 10,236 0.1 % 11,134 0.1 % 58,316 0.5 % Total loans held for investment $ 16,652,026 100.0 % $ 14,253,676 100.0 % $ 11,554,744 100.0 % Allowance for credit losses (166,680) (148,617) (132,958) Unamortized premiums/discounts, net of deferred loan fees (28,618) (13,998) (6,972) Net loans held for investment $ 16,456,728 $ 14,091,061 $ 11,414,814 The following table sets forth the amount of loans maturing in our total loans held for investment based on the contractual terms to maturity: Term to Contractual Maturity as of June 30, 2023 (Dollars in thousands) Less Than Three Months Over Three Months Through One Year Over One Year Through Five Years Over 5 Years Through 15 Years Over 15 Years Total Single Family - Mortgage & Warehouse $ 37,797 $ 241,782 $ 22,533 $ 102,283 $ 3,769,438 $ 4,173,833 Multifamily and Commercial Mortgage $ 30,500 $ 8,969 $ 53,431 $ 1,656,148 $ 1,333,177 $ 3,082,225 Commercial Real Estate $ 658,275 $ 1,737,823 $ 3,787,275 $ — $ 16,445 $ 6,199,818 Commercial & Industrial - Non-RE $ 12,111 $ 287,269 $ 2,236,808 $ 86,669 $ 16,793 $ 2,639,650 Auto & Consumer $ 233 $ 2,772 $ 213,869 $ 329,390 $ — $ 546,264 Other $ 5,892 $ 77 $ 3,572 $ 653 $ 42 $ 10,236 Total $ 744,808 $ 2,278,692 $ 6,317,488 $ 2,175,143 $ 5,135,895 $ 16,652,026 5 Table of Cont ents The following table sets forth the amount of our loans at June 30, 2023 that are due after June 30, 2024 and indicates whether they have fixed or floating/adjustable interest rates: (Dollars in thousands) Fixed Floating/ Adjustable 1 Total Single Family - Mortgage & Warehouse $ 162,216 $ 3,732,038 $ 3,894,254 Multifamily and Commercial Mortgage 50,685 2,992,071 3,042,756 Commercial Real Estate 79,745 3,723,975 3,803,720 Commercial & Industrial - Non-RE 228,327 2,111,943 2,340,270 Auto & Consumer 543,259 — 543,259 Other 4,267 — 4,267 Total $ 1,068,499 $ 12,560,027 $ 13,628,526 1 Included in this category are hybrid mortgages (e.g., 5/1 adjustable rate mortgages) that carry a fixed rate for an introductory term before transitioning to an adjustable rate.
In evaluating multifamily or commercial real estate credit, we consider all relevant factors including the outside financial assets of the material owners or partners, payment history at the Bank or other financial institutions, and the management / ownership experience with similar properties or businesses.
In evaluating multifamily or commercial real estate credit, we consider all relevant factors, including the outside financial assets of the material owners or partners, payment history at the Bank or other financial institutions, and the experience of management and/or ownership with similar properties or businesses.
The FDIC administers a deposit insurance fund (the “DIF”) that insures depositors in certain types of accounts up to a prescribed amount for the loss of any such depositor’s respective deposits due to the failure of an FDIC member depository institution.
Insurance of Deposit Accounts . The FDIC administers a deposit insurance fund (the “DIF”) that insures depositors in certain types of accounts up to a prescribed amount for the loss of any such depositor’s respective deposits due to the failure of an FDIC member depository institution.
The Economic Growth, Regulatory Relief, and Consumer Protection Act set the asset threshold for enhanced prudential standards and stress testing at $100 billion of total consolidated assets. Based on asset levels at June 30, 2022, neither the Company nor the Bank are subject to stress test regulations.
The Economic Growth, Regulatory Relief, and Consumer Protection Act set the asset threshold for enhanced prudential standards and stress testing at $100 billion of total consolidated assets. Based on asset levels at June 30, 2022, neither the Company nor the Bank are subject to enhanced stress test regulations.
Savings associations are additionally authorized to make loans to one borrower by order of its regulator, in an amount not to exceed the lesser of $30.0 million or 30% of unimpaired capital and surplus for the purpose of developing residential housing, if the following specified conditions are met: • The savings association is in compliance with its fully phased-in capital requirements; • The loans comply with applicable loan-to-value requirements; and • The aggregate amount of loans made under this authority does not exceed 150% of unimpaired capital and surplus.
Savings associations are additionally authorized to make loans to one borrower by order of its regulator, in an amount not to exceed the lesser of $30.0 million or 30% of unimpaired capital and surplus for the purpose of developing domestic residential housing, if the following specified conditions are met: • The savings association is in compliance with its fully phased-in capital requirements; • The loans comply with applicable loan-to-value requirements; and • The aggregate amount of loans made under this authority does not exceed 150% of unimpaired capital and surplus.
We separate ourselves from the competition through our excellence in customer service, including a highly attentive and dedicated workforce, while providing an expanding range of clearing and advisory products and services. 15 SUPERVISION AND REGULATION GENERAL We are subject to comprehensive regulation under state and federal laws.
We separate ourselves from the competition through our excellence in customer service, including a highly attentive and dedicated workforce, while providing an expanding range of clearing and advisory products and services. SUPERVISION AND REGULATION GENERAL We are subject to comprehensive regulation under state and federal laws.
The Regulatory Capital Rules require banking organizations (i.e., both the Company and the Bank) to maintain a minimum “common equity Tier 1” (or “CET1”) ratio of 4.5%, a Tier 1 risk-based capital ratio of 6.0%, a total risk-based capital ratio of 8.0%, and a minimum leverage ratio of 4.0% (calculated as Tier 1 capital to average consolidated assets).
The Regulatory Capital Rules require banking organizations (i.e., both the Company and the Bank) to maintain a minimum “common equity Tier 1” (“CET1”) ratio of 4.5%, a Tier 1 risk-based capital ratio of 6.0%, a total risk-based capital ratio of 8.0%, and a minimum leverage ratio of 4.0% (calculated as Tier 1 capital to average consolidated assets).
We attempt to mitigate these risks through the structuring of these lending products, adhering to underwriting policies in evaluating the management of the business and the credit-worthiness of borrowers and guarantors. Automobile Lending Our automobile lending division originates prime and subprime loans to customers secured by new and used automobiles (“autos”).
We attempt to mitigate these risks through the structuring of these lending products, adhering to underwriting policies in evaluating the management of the business and the credit-worthiness of borrowers and guarantors. Auto Our automobile lending division originates prime and subprime loans to customers secured by new and used automobiles (“autos”).
The OCC has the power to require a savings association to divest any subsidiary or terminate any activity conducted by a subsidiary that the OCC 20 determines to pose a serious threat to the financial safety, soundness or stability of the savings association or to be otherwise inconsistent with sound banking practices. Consumer Laws and Regulations .
The OCC has the power to require a savings association to divest any subsidiary or terminate any activity conducted by a subsidiary that the OCC determines to pose a serious threat to the financial safety, soundness or stability of the savings association or to be otherwise inconsistent with sound banking practices. Consumer Laws and Regulations .
Our broker-dealers’ margin lending is regulated by the Federal Reserve Board’s restrictions on lending in connection with client purchases and short sales of securities, and FINRA rules also require our broker-dealers to impose maintenance requirements based on the value of securities contained in margin accounts.
Our broker-dealers’ margin lending is regulated by the Federal Reserve Board’s restrictions on lending in connection with client purchases and short sales of securities, and FINRA rules require our broker-dealers to impose maintenance requirements based on the value of securities contained in margin accounts.
Significant new rules and regulations continue to arise as a result of the Dodd-Frank Act, including the implementation of a more stringent fiduciary standard for broker-dealers and increased regulation of investment advisers. 22 Compliance with these provisions could result in increased costs.
Significant new rules and regulations continue to arise as a result of the Dodd-Frank Act, including the implementation of a more stringent fiduciary standard for broker-dealers and increased regulation of investment advisers. Compliance with these provisions could result in increased costs.
In addition, adequately capitalized 18 institutions may accept brokered deposits only with a waiver from the FDIC, but are subject to restrictions on the interest rates that can be paid on such deposits. Undercapitalized institutions may not accept, renew or roll-over brokered deposits.
In addition, adequately capitalized institutions may accept brokered deposits only with a waiver from the FDIC, but are subject to restrictions on the interest rates that can be paid on such deposits. Undercapitalized institutions may not accept, renew or roll-over brokered deposits.
For all multifamily and commercial real estate loans, we rely primarily on the cash flow from the underlying property as the expected source of repayment; often the Bank obtains personal guarantees from all material owners or partners of the borrower.
For all multifamily and commercial real estate loans, we rely primarily on the cash flow from the underlying property as the expected source of repayment. Additionally, the Bank often obtains personal guarantees from all material owners or partners of the borrower.
No regulatory approval is required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve. 17 Volcker Rule.
No regulatory approval is required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve. Volcker Rule.
Broker-dealers are also regulated by state securities administrators in those jurisdictions where they do business. Regulators may conduct periodic examinations and review reports of our operations, controls, supervision, performance, and financial condition.
Broker-dealers are regulated by state securities administrators in those jurisdictions where they do business. Regulators may conduct periodic examinations and review reports of our operations, controls, supervision, performance, and financial condition.
We also undertake measures to control access to and/or disclosure of our trade secrets and other confidential and proprietary information. Policing unauthorized use of our intellectual property, trade secrets and other proprietary information is difficult and litigation may be necessary to enforce our intellectual property rights.
We undertake measures to control access to and/or disclosure of our trade secrets and other confidential and proprietary information. Policing unauthorized use of our intellectual property, trade secrets and other proprietary information is difficult and litigation may be necessary to enforce our intellectual property rights.
At the core of our infrastructure, we have designed and implemented secure and scalable hardware solutions to ensure we meet the needs of our business. Our customer experiences were designed to address the needs of a digital 14 bank and its customers.
At the core of our infrastructure, we have designed and implemented secure and scalable hardware solutions to ensure we meet the needs of our business. Our customer experiences were designed to address the needs of a digital bank and its customers.
Generally, a broker-dealer’s net capital is net worth plus qualified subordinated debt less deductions for non-allowable (or non-liquid) assets and other adjustments and operational charges. At June 30, 2022, our broker-dealers were in compliance with applicable net capital requirements. The SEC, FINRA and other regulatory organizations impose rules that require notification when net capital falls below certain predefined thresholds.
Generally, a broker-dealer’s net capital is net worth plus qualified subordinated debt less deductions for non-allowable (or non-liquid) assets and other adjustments and operational charges. At June 30, 2023, our broker-dealers were in compliance with applicable net capital requirements. The SEC, FINRA and other regulatory organizations impose rules that require notification when net capital falls below certain predefined thresholds.
These rules also dictate the ratio of debt-to-equity in the regulatory capital composition of a broker-dealer, and constrain the ability of a broker-dealer to expand its business under certain circumstances.
These rules dictate the ratio of debt-to-equity in the regulatory capital composition of a broker-dealer, and constrain the ability of a broker-dealer to expand its business under certain circumstances.
We provide a proprietary, turnkey technology platform for custody services to our registered investment advisor customers. This platform provides fee income and services that complement our securities business products, while also generating low cost core deposits. We assist our brokerage customers in managing their cash balances and earn a fee through an insured bank deposit cash sweep program.
We provide a proprietary, turnkey technology platform for custody services to our registered investment advisor customers. This platform provides fee income and services that complement our Securities Business products, while also generating low cost core deposits. We assist our brokerage customers in managing their cash balances and earn a fee through an insured bank deposit cash sorting program.
However, there is a specific exception for loans by financial institutions, such as the Bank, to its executive officers and directors that are made in compliance with federal banking laws. Under such laws, our authority to extend credit to executive officers, directors, and 10% or more shareholders (“insiders”), as well as entities such persons control, is limited.
However, there is a specific exception for loans by financial institutions, such as the Bank, to its executive officers and directors that are made in compliance with federal banking laws. Under such laws, our authority to extend credit to executive officers, directors, and 10% or more stockholders (“insiders”), as well as entities such persons control, is limited.
Competition for those deposits comes from a wide variety of other banks, savings institutions, and credit unions. Money market funds, full-service securities brokerage firms and financial technology companies also compete with us for these funds. The Bank competes for these deposits by offering superior service and a variety of deposit accounts at competitive rates.
Competition for those deposits comes from a wide variety of other banks, savings institutions, and credit unions. Money market funds, full-service securities brokerage firms and financial technology companies also compete for these funds. The Bank competes for these deposits by offering superior service and a variety of deposit accounts at competitive rates.
CRE Loans are originated by our sales force dedicated to commercial lending by contacting borrowers directly or by working with third-party partners or brokers to businesses secured by first liens on single family, multifamily, condominium, office, retail, mixed-use, hospitality, undeveloped or to-be-redeveloped land or small business loans.
CRE loans are originated by our sales force dedicated to commercial lending by contacting borrowers directly or by working with third-party partners or brokers to businesses secured by first liens on single family, multifamily, condominium, office, retail, mixed-use, hospitality, undeveloped or to-be-redeveloped land.
We are integrating our clearing and wealth management platforms with our banking platform to create an easy-to-use platform for customers’ banking and investing needs. Additionally, our securities clearing and custody businesses generates additional low-cost deposits, which serve as a source of funding for our Bank.
We are integrating our custody and wealth management platforms with our banking platform to create an easy-to-use platform for customers’ banking and investing needs. Additionally, our securities clearing and custody businesses generate additional low-cost deposits, which serve as a source of funding for our Bank.
As of June 30, 2022, the capital ratios of both the Company and the Bank exceeded the minimums necessary to be considered “well-capitalized” under the currently enacted capital adequacy requirements, including after implementation of the deductions and other adjustments to CET1 on a fully phased-in basis.
As of June 30, 2023, the capital ratios of both the Company and the Bank exceeded the minimums necessary to be considered “well-capitalized” under the currently enacted capital adequacy requirements, including after implementation of the deductions and other adjustments to CET1 on a fully phased-in basis.
We originate single family mortgage loans for consumers through multiple channels on a retail, wholesale and correspondent basis. • Retail. We originate single family mortgage loans direct to consumers through our relationships with large affinity groups, leads from referral partners, portfolio retention, cross-selling and acquiring leads from third parties. • Wholesale.
We originate single family mortgage loans for consumers through multiple channels on a retail, wholesale and correspondent basis. • Retail. We originate single family mortgage loans directly to consumers through our relationships with large affinity groups, leads from referral partners, portfolio retention, cross-selling and acquiring leads from third parties. • Wholesale.
Our online consumer banking platform is full-featured with quick and secure access to activity, statements and other features including: • Purchase Rewards. Customers can earn cash back by using their VISA ® Debit Card at select merchants; • Mobile Banking.
Our online consumer and small business banking platform is full-featured with quick and secure access to activity, statements and other features including: • Purchase Rewards. Customers can earn cash back by using their VISA ® Debit Card at select merchants; • Mobile Banking.
Axos Bank is not subject to any such individual minimum regulatory capital requirement and the Bank’s regulatory capital exceeded all minimum regulatory capital requirements as of June 30, 2022. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” Stress Testing.
Axos Bank is not subject to any such individual minimum regulatory capital requirement and the Bank’s regulatory capital exceeded all minimum regulatory capital requirements as of June 30, 2023. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” Stress Testing.
Because we do not incur the significantly higher fixed operating costs inherent in a branch-based distribution system, the Bank is able to rapidly grow our deposits and assets by providing a better value to our customers and by expanding our low-cost distribution channels.
Because we do not incur the significantly higher fixed operating costs inherent in a branch-based distribution system, the Bank is able to grow deposits by providing a better value to our customers and by expanding our low-cost distribution channels.
The following tables set forth the average balance, the interest expense and the average rate paid on each type of deposit at the end of each of the last three fiscal years: For the Fiscal Year Ended June 30, 2022 2021 2020 (Dollars in thousands) Average Balance Interest Expense Avg. Rate Paid Average Balance Interest Expense Avg.
The following tables set forth the average balance, the interest expense and the average rate paid on each type of deposit at the end of each of the last three fiscal years: For the Fiscal Year Ended June 30, 2023 2022 2021 (Dollars in thousands) Average Balance Interest Expense Avg. Rate Paid Average Balance Interest Expense Avg.
Treasury Department Office of Foreign Assets Control. The OFAC-administered sanctions targeting countries take many different forms.
Treasury Department Office of Foreign Assets Control (“OFAC”). The OFAC-administered sanctions targeting countries take many different forms.
We had no asset-backed, sub-prime RMBS or bank pooled trust preferred securities at June 30, 2022. We manage the credit risk of our non-agency securities by purchasing those securities which we believe have the most favorable blend of historic credit performance and remaining credit enhancements including subordination, over collateralization, excess spread and purchase discounts.
We had no asset-backed securities, sub-prime RMBS or bank pooled trust preferred securities at June 30, 2023. We manage the credit risk of our non-agency securities by purchasing securities which we believe have the most favorable blend of historic credit performance and remaining credit enhancements including subordination, over collateralization, excess spread and purchase discounts.
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.
In addition, the Banking Business focuses on providing deposit products nationwide to industry verticals (e.g., Title and Escrow), treasury management products to a variety of businesses, and commercial & industrial and commercial real estate lending to clients.
The sales force team members operate regionally both as retail originators for apartment owners and wholesale representatives to other mortgage brokers. 3 Commercial Real Estate Secured We originate loans across the U.S. secured by real estate properties under a variety of structures that we classify as commercial real estate (“CRE”).
The sales force team members operate regionally both as retail originators for apartment owners and wholesale representatives to other mortgage brokers. 3 Table of Cont ents Commercial Real Estate We originate loans across the U.S. secured by real estate properties under a variety of structures that we classify as commercial real estate (“CRE”).
Axos Invest, Inc. is subject to the requirements of the Investment Advisers Act of 1940, as amended, and the Investment Company Act of 1940, as amended, and is subject to examination by the SEC. The following information describes aspects of the material laws and regulations applicable to the Company.
Axos Invest, Inc. is subject to the requirements of the Investment Advisers Act of 1940, as amended (the “Advisers Act”), and the Investment Company Act of 1940, as amended, and is subject to examination by the SEC. The following information describes aspects of the material laws and regulations applicable to the Company.
The ratio of the loan amount to the value of the property securing the loan is called the loan-to-value ratio (“LTV”). The following table shows the LTVs of our loan portfolio on weighted-average and median bases at June 30, 2022.
The ratio of the loan amount to the value of the property securing the loan is called the loan-to-value ratio (“LTV”). The following table shows the LTVs of our loan portfolio on weighted-average and median bases at June 30, 2023.
Residential mortgage-backed security yields and maturities include impact of expected prepayments and other timing factors such as interest rate forward curve. 2 Includes securities guaranteed by Ginnie Mae, a U.S. government agency, and the government sponsored enterprises Fannie Mae and Freddie Mac. 3 Private sponsors of securities collateralized primarily by pools of 1-4 family residential first mo prime, Alt-A or pay-option ARM mortgages.
Residential mortgage-backed security yields and maturities include impact of expected prepayments and other timing factors such as interest rate forward curve. 2 Includes securities guaranteed by Ginnie Mae, a U.S. government agency, and the government sponsored enterprises Fannie Mae and Freddie Mac. 3 Private sponsors of securities collateralized primarily by pools of 1-4 family residential, Alt-A or pay-option ARM mortgages and commercial mortgages.
Our distribution channels for our bank deposit and lending products include: • A national online banking brand with tailored products targeted to specific consumer segments; • Affinity groups where we gain access to the affinity group’s members, and our exclusive relationships with financial advisory firms; • A commercial banking division focused on providing deposit products and loans to specific nationwide industry verticals (e.g., Homeowners’ Associations) and small and medium size businesses; • Commission-based lending sales force that operates from home, San Diego, and Salt Lake City and originates single and multifamily mortgage loans and commercial and industrial loans and leases to qualified businesses; • A bankruptcy and non-bankruptcy trustee and fiduciary services team that operates from our Kansas City office focused on specialized software and consulting services that provide deposits; and • Inside sales teams that originate loans and deposits from self-generated leads, third-party purchase leads, and from our retention and cross-sell of our existing customer base from both our Banking business and Securities business. 2 Banking Business - Asset Origination and Fee Income Businesses The Bank has built diverse loan origination and fee income businesses that generate targeted financial returns through our digital distribution channels.
Our distribution channels for our bank deposit and lending products include: • A national online banking brand with tailored products targeted to specific consumer segments; • Affinity groups where we gain access to the affinity group’s members, and our exclusive relationships with financial advisory firms; • A commercial banking division focused on providing deposit products and loans to specific nationwide industry verticals (e.g., Homeowners’ Associations) and small and medium size businesses; • Commission-based lending sales force that operates from remote locations, San Diego, Los Angeles and Salt Lake City and originates single and multifamily mortgage loans, commercial real estate and commercial and industrial loans and leases to qualified businesses; • A bankruptcy and non-bankruptcy trustee and fiduciary services team that operates from our Kansas City office focused on specialized software and consulting services that provide deposits; and • Inside sales teams that originate loans and deposits from self-generated leads, third-party purchase leads, and from our retention and cross-sell of our existing customer base from both our Banking Business and Securities Business. 2 Table of Cont ents Banking Business - Asset Origination and Fee Income Businesses The Bank has built diverse loan origination and fee income businesses that generate targeted financial returns through our digital distribution channels.
In evaluating the underlying property, we consider the recurring net operating income of the property before debt service and depreciation, the ratio of net operating income to debt service and the ratio of the loan amount to the appraised value. Lending Limits .
In evaluating the underlying property, we consider the recurring net operating income of the property before debt service and depreciation, the ratio of net operating income to debt service and the ratio of the loan amount to the appraised value.
TECHNOLOGY Our technology is built on a collection of enterprise and client platforms that have been purchased, developed in-house or integrated with software systems to provide products and services to our customers. The implementation of our technology has been conducted using industry best-practices and using standardized approaches in system design, software development, testing and delivery.
TECHNOLOGY Our technology is built on a collection of enterprise and client platforms that have been purchased, developed in-house or integrated with software systems to provide products and services to our customers. The implementation of our technology has been conducted using industry best-practices and using standardized approaches in system design, software development, 12 Table of Cont ents testing and delivery.
HUMAN CAPITAL At June 30, 2022, we had 1,335 full-time employees, which does not include seasonal internship employees. None of our employees are represented by a labor union or are subject to a collective bargaining agreement. We have not experienced any work stoppage and consider our relations with our employees to be satisfactory.
HUMAN CAPITAL At June 30, 2023, we had 1,455 full-time employees, which does not include seasonal internship employees. None of our employees are represented by a labor union or are subject to a collective bargaining agreement. We have not experienced any work stoppage and consider our relations with our employees to be satisfactory.
If a financial holding company fails to continue to meet any of the prerequisites for financial holding company status, including those described above, the Federal Reserve may order the company to divest its subsidiary banks or discontinue or divest investments in companies engaged in activities permissible only for a bank holding company that has elected to be treated as a financial holding company.
If a financial holding company fails to continue to meet any of the prerequisites for 15 Table of Cont ents financial holding company status, including those described above, the Federal Reserve may order the company to divest its subsidiary banks or discontinue or divest investments in companies engaged in activities permissible only for a bank holding company that has elected to be treated as a financial holding company.
Violations of laws, rules and regulations governing a broker-dealer’s actions could result in censure, penalties and fines, the issuance of cease-and-desist orders, the restriction, suspension, or expulsion from the securities industry of such broker-dealer, its registered representatives, officers or employees, or other similar adverse consequences.
Violations of laws, rules and regulations governing a broker-dealer’s actions could result in censure, penalties and 20 Table of Cont ents fines, the issuance of cease-and-desist orders, the restriction, suspension, or expulsion from the securities industry of such broker-dealer, its registered representatives, officers or employees, or other similar adverse consequences.
A capital conservation buffer of 2.5% above each of these levels is required for banking institutions to avoid restrictions on their ability to make capital distributions, including the payment of dividends. The Regulatory Capital Rules provide for a number of deductions from and adjustments to CET1.
A capital conservation buffer of 2.5% above each of these levels is required for banking institutions to avoid restrictions on their ability to make capital distributions, including the payment of dividends. 14 Table of Cont ents The Regulatory Capital Rules provide for a number of deductions from and adjustments to CET1.
Axos Clearing competes directly with numerous other financial advisory and investment banking firms, broker-dealers and banks, including large national and major regional firms and smaller niche companies, some of whom are not broker-dealers and, therefore, are not subject to the broker-dealer regulatory framework.
Axos Clearing competes directly with numerous other financial advisory and investment banking firms, broker-dealers and banks, including 13 Table of Cont ents large national and major regional firms and smaller niche companies, some of whom are not broker-dealers and, therefore, are not subject to the broker-dealer regulatory framework.
Office of Foreign Assets Control Regulation The Bank and its affiliated broker-dealers are also required to comply with the U.S. Treasury’s Office of Foreign Assets Control imposed economic sanctions that affect transactions with designated foreign countries, nationals, individuals, entities and others. These are typically known as the “OFAC” rules, based on their administration by the U.S.
Office of Foreign Assets Control Regulation and Anti-Corruption The Bank and its affiliated broker-dealers are also required to comply with the U.S. Treasury’s Office of Foreign Assets Control imposed economic sanctions that affect transactions with designated foreign countries, nationals, individuals, entities and others. These are typically known as the “OFAC rules,” based on their administration by the U.S.
This test may be met either by maintaining a specified level of portfolio assets in qualified thrift investments as specified by the HOLA, or by meeting the definition of a “domestic building and loan association” under the Internal Revenue Code of 1986, as amended, or the “Code”.
This test may be met either by maintaining a specified level of portfolio assets in qualified thrift investments as specified by the HOLA, or by meeting the definition of a “domestic building and loan association,” (“DBLA”) under the Internal Revenue Code of 1986, as amended, (the “Code”).
For additional information, please see Note 19 (Minimum Regulatory Capital Requirements) to the financial statements filed with this report. Source of Strength . The Dodd-Frank Act extends the Federal Reserve “source of strength” doctrine to savings and loan holding companies.
For additional information, please see Note 19 - “Minimum Regulatory Capital Requirements” to the financial statements filed with this report. Source of Strength . The Dodd-Frank Act extends the Federal Reserve “source of strength” doctrine to savings and loan holding companies.
The mobile experience is easy and seamless; and • Cash Deposit Through Reload @ the Register. Customers can visit any Walmart, Safeway, ACE Cash Express, CVS Pharmacy, Dollar General, Dollar Tree, Family Dollar, Kroger, Rite Aid, 7-Eleven and Walgreens, and ask to load cash into their account at the register. A fee is applied.
The mobile experience is easy and seamless; and 9 Table of Cont ents • Cash Deposit Through Reload @ the Register. Customers can visit any Walmart, Safeway, ACE Cash Express, CVS Pharmacy, Dollar General, Dollar Tree, Family Dollar, Kroger, Rite Aid, 7-Eleven and Walgreens, and ask to load cash into their account at the register. A fee is applied.
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, 2022. This cumulative amount will then be phased out of regulatory capital over the next three years.
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, 2022. This cumulative amount will then be phased out of regulatory capital over the following three years beginning July 1, 2022.
Our long-term business plan includes the following principal objectives: • Maintain an annualized return on average common stockholders’ equity of 17.0% or better; • Annually increase average interest-earning assets by 12% or more; and • Maintain an annualized efficiency ratio at the Bank to a level 40% or lower. 1 Segment Information We operate through two operating segments: Banking Business and Securities Business.
Our long-term business plan includes the following principal objectives: • Maintain an annualized return on average common stockholders’ equity of 17.0% or better; • Annually increase average interest-earning assets by 12% or more; and • Maintain an annualized efficiency ratio at the Bank of 40% or lower. 1 Table of Cont ents Segment Information We operate through two operating segments: Banking Business and Securities Business.
Commercial & Industrial - Non-Real Estate (Non-RE) Comprising the majority of this portfolio are commercial and industrial non-real estate, asset-backed loans, lines of credit and term loans made to commercial borrowers secured by commercial assets, including, but not limited to, receivables, inventory and equipment.
Commercial & Industrial - Non-Real Estate (“Non-RE”) Comprising the majority of this portfolio are commercial and industrial non-real estate, asset-backed loans, lines of credit, term loans and leases made to commercial borrowers secured by commercial assets, including, but not limited to, receivables, inventory and equipment.
We also continue to make significant investments in enhancing our cyber defense capabilities to mitigate the risks from the full spectrum of emerging cybersecurity threats.
We also continue to make significant investments in enhancing our cyber defense capabilities to mitigate the risks from the full spectrum of emerging information security threats.
The required percentage of qualified thrift investments under the HOLA is 65% of “portfolio assets” (defined as total assets less: (i) specified liquid assets up to 20% of total assets; (ii) intangibles, including goodwill; and (iii) the value of property used to conduct business).
The required percentage of qualified thrift investments under the HOLA is 65% of “portfolio assets” (defined as total assets less: (i) specified liquid assets up to 20% of total assets; (ii) intangibles, including goodwill; and (iii) the value of property used to conduct business) and under the DBLA is at least 60% of the amount of total assets.
Depository institutions with more than $10 billion in assets and their affiliates are subject to direct supervision by the CFPB, including any applicable examination, enforcement and reporting requirements the CFPB may establish. As of June 30, 2022, we had $17.4 billion in total assets, placing the Bank under the direct supervision and oversight of the CFPB.
Depository institutions with more than $10 billion in assets and their affiliates are subject to direct supervision by the CFPB, including any applicable examination, enforcement and reporting requirements the CFPB may establish. As of June 30, 2023, we had $20.3 billion in total assets, placing the Bank under the direct supervision and oversight of the CFPB.
The rules of the Municipal Securities Rulemaking Board, which are enforced by the SEC and FINRA, apply to the municipal securities activities of Axos Clearing, and the Axos Invest broker-dealer.
The rules of the Municipal Securities Rulemaking Board, which are enforced by the SEC and FINRA, apply to the municipal securities activities of Axos Clearing and Axos Invest LLC.
The Banking Business has 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 consumers and small businesses nationally.
The Banking Business has a broad range of banking services including online banking, concierge banking, and mortgage, vehicle and unsecured lending through online, low-cost distribution channels to serve the needs of consumers and businesses nationally.
Our Bank’s charter allows us to conduct banking operations in all fifty states, and our online presence allows us increased flexibility to target a large number of loan and deposit customers based on demographics, geography and service needs.
Our Bank’s charter allows us to conduct banking operations in all fifty states, as well as Puerto Rico, and our online presence allows for increased flexibility to target a large number of loan and deposit customers based on demographics, geography and service needs.
Because risk-adjusted returns available on acquisitions may exceed returns available through retaining assets from our origination channels, we have elected to purchase loans and securities (see discussion below) from time to time. Some of our loans and security acquisitions were purchased at discounts to par value, which enhance our effective yield through accretion into income in subsequent periods.
Because risk-adjusted returns available on acquisitions may exceed returns available through retaining assets from our origination channels, we have elected to purchase loans and securities from time to time. Some of our loans and securities were purchased at discounts to par value, which enhance our effective yield through accretion into income in subsequent periods. Loan Portfolio Composition .
Our general policy is to not accrue interest on loans and leases past due 90 days or more, unless the individual borrower circumstances dictate otherwise. See Management’s Discussion and Analysis — “Asset Quality and Allowance for credit Losses” for a history of non-performing assets and allowance for credit losses. Investment Securities Portfolio.
Our general policy is to not accrue interest on loans and leases past due 90 days or more, unless the individual borrower circumstances dictate otherwise. See Management’s Discussion and Analysis — “Asset Quality and Allowance for Credit Losses - Loans” for additional information on non-performing assets and the allowance for credit losses. Investment Securities Portfolio.
Axos classifies each investment security according to our intent to hold the security to maturity, trade the security at fair value or make the security available-for-sale. We invest available funds in government and high-grade non-agency securities.
Axos classifies each investment security according to our intent to hold the security to maturity, trade the security in the near term or make the security available-for-sale. We invest available funds in government and high-grade non-agency securities.
Our broker-dealers must also comply with the USA PATRIOT Act and other rules and regulations, including FINRA requirements, designed to fight international money laundering and to block terrorist access to the U.S. financial system. We are required to have systems and procedures to ensure compliance with such laws and regulations .
Our broker-dealers must comply with the USA PATRIOT Act and other rules and regulations, including FINRA requirements, designed to fight international money laundering and to block terrorist access to the U.S. financial system. We are required to have systems and procedures to ensure compliance with such laws and regulations . Form Customer Relationship Summary (“Form CRS”).
The information below does not purport to be complete and is qualified in its entirety by reference to all applicable laws and regulations. In addition, new and amended legislation, rules and regulations governing the Company are introduced from time to time by the U.S. government and its various agencies.
The information below does not purport to be complete and is qualified in its entirety by reference to all applicable laws and regulations. In addition, new and amended legislation, rules and regulations governing the Company are introduced from time to time by the U.S. government and its various agencies, including in response to recent highly-publicized bank failures.
At June 30, 2022, we provided services to 275 financial organizations, including correspondent broker-dealers and registered investment advisors. 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.
At June 30, 2023, we provided services to 291 financial organizations, including correspondent broker-dealers and registered investment advisors. We provide margin loans, which are collateralized by securities, cash, or other acceptable collateral, to our brokerage customers for their securities trading activities.
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 pre-tax profit or loss from operations. There are no material inter-segment sales or transfers.
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 pre-tax profit or loss from operations in conjunction with its corporate strategy.
Axos Financial, Inc.’s common stock is listed on the New York Stock Exchange and is a component of the Russell 2000 ® Index, the S&P SmallCap 600 ® Index, the KBW Nasdaq Financial Technology Index, and the Travillian Tech-Forward Bank Index.
Our common stock is listed on the New York Stock Exchange under the ticker symbol “AX” 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 the Travillian Tech-Forward Bank Index.
Our mortgage servicing business includes collecting loan payments, applying principal and interest payments to the loan balance, managing escrow funds for the payment of mortgage-related expenses, such as taxes and insurance, responding to customer inquiries, counseling delinquent mortgagors and supervising foreclosures.
We warehouse our mortgage banking loans and sell to investors as conventional, government and non-agency loans. Our mortgage servicing business includes collecting loan payments, applying principal and interest payments to the loan balance, managing escrow funds for the payment of mortgage-related expenses, such as taxes and insurance, responding to customer inquiries, counseling delinquent mortgagors and supervising foreclosures.
REGULATION OF BANKING BUSINESS General . As a federally-chartered savings and loan association whose deposit accounts are insured by the FDIC, Axos Bank is subject to extensive regulation by the OCC and FDIC. The Bank is also subject to regulation by the CFPB with respect to federal consumer financial laws.
REGULATION OF BANKING BUSINESS General . As a federally-chartered savings and loan association whose deposit accounts are insured by the FDIC, Axos Bank is subject to extensive regulation by the OCC, FDIC and the CFPB with respect to federal consumer financial laws. The following discussion summarizes some of the principal areas of regulation applicable to the Bank and its operations.
Certain transactions with affiliates are required to be secured by collateral in an amount and of a type described in federal law. The purchase of low quality assets from affiliates is generally prohibited.
The aggregate amount of covered transactions with all affiliates is limited to 20% of a savings institution’s capital and surplus. Certain transactions with affiliates are required to be secured by collateral in an amount and of a type described in federal law. The purchase of low quality assets from affiliates is generally prohibited.
Multifamily and Commercial Mortgage We originate adjustable-rate multifamily residential mortgage loans and project-based multifamily real-estate-secured loans with interest rates that adjust based on the American Interbank Offered Rate (“Ameribor”) or the Secured Overnight Financing Rate (“SOFR”). We hold existing adjustable-rate multifamily residential mortgage loans and project-based multifamily real-estate-secured loans with interest rates that adjust based on U.S.
Multifamily and Commercial Mortgage Multifamily and Commercial Mortgage loans include adjustable-rate multifamily residential mortgage loans and project-based multifamily real-estate-secured loans with interest rates that adjust based on the Secured Overnight Financing Rate (“SOFR”), the American Interbank Offered Rate (“Ameribor”) or other interest rate indices.
The California Privacy Act, which covers businesses that obtain or access personal information on California resident consumers, grants consumers enhanced privacy rights and control over their personal information and imposes significant requirements on covered companies with respect to consumer data privacy rights.
The California Consumer Privacy Act of 2018 (as amended by the California Privacy Rights Act), which covers businesses that collect and use personal information on California resident consumers, grants consumers enhanced privacy rights and control over their personal information and imposes significant requirements on covered companies with respect to consumer data privacy rights.
Our available-for-sale securities portfolio of $262.5 million at June 30, 2022 is composed of approximately 9.6% agency residential mortgage-backed securities (“RMBS”) and other debt securities issued by the government-sponsored enterprises primarily, Fannie Mae and Freddie Mac (each, a “GSE” and, together, the “GSEs”); 49.8% Alt-A, private-issue super senior, first-lien RMBS; 2.6% Pay-Option ARM, private-issue super senior first-lien RMBS; 18.8% commercial mortgage-backed securities (“CMBS”); 1.2% Municipal securities and 18.0% whole business securities.
Our available-for-sale securities portfolio of $232.4 million at June 30, 2023 is composed of approximately 67.6% Alt-A, private-issue super senior, first-lien residential mortgage-backed securities (“RMBS”); 18.2% commercial mortgage-backed securities (“CMBS”); 10.3% agency RMBS and other debt securities issued by the government-sponsored enterprises primarily, Fannie Mae and Freddie Mac (each, a “GSE” and, together, the “GSEs”); 2.4% pay-option adjustable-rate mortgages (“ARMs”), private-issue super senior first-lien RMBS; and 1.5% municipal securities.
Transactions with Related Parties . The authority of the Bank to engage in transactions with “affiliates” (i.e., any company that controls or is under common control with it, including the Company and any non-depository institution subsidiaries) is limited by federal law.
The authority of the Bank to engage in transactions with “affiliates” (i.e., any company that controls or is under common control with it, including the Company and any non-depository institution subsidiaries) is limited by federal law. The aggregate amount of covered transactions with any individual affiliate is limited to 10% of the capital and surplus of the savings institution.
Each FHLB is financed primarily from the sale of consolidated obligations of the FHLB system. Each FHLB makes available loans or advances to its members in compliance with the policies and procedures established by the Board of Directors of the individual FHLB.
Each FHLB makes available loans or advances to its members in compliance with the policies and procedures established by the Board of Directors of the individual FHLB.
The states vary in the extent to which they permit interstate savings and loan holding company acquisitions. Financial Holding Company. In August 2018 the Company received approval from the Federal Reserve Bank of San Francisco and became a savings and loan holding company that is treated as a financial holding company under the rules and regulations of the Federal Reserve.
The states vary in the extent to which they permit interstate savings and loan holding company acquisitions. Financial Holding Company. The Company operates as a savings and loan holding company that is treated as a financial holding company under the rules and regulations of the Federal Reserve.
We generate deposit customer relationships through our distribution channels including websites, sales teams, online advertising, print and digital advertising, financial advisory firms, affinity partnerships and lending businesses which generate escrow deposits and other operating funds .
We generate deposit customer relationships through our distribution channels including websites, sales teams, software company affiliates, online advertising, print and digital advertising, financial advisory firms, affinity partnerships and lending businesses .
In addition, the Company and the Bank elected the CECL five-year transition guidance for calculating regulatory capital ratios on July 1, 2020 16 and the June 30, 2022 ratios include this election.
In addition, the Company and the Bank elected the current expected credit losses (“CECL”) five-year transition guidance for calculating regulatory capital ratios on July 1, 2020 and the June 30, 2023 ratios include this election.
The repeal creates uncertainty regarding the ability of nonbank loan purchasers to collect interest on loans originated by a national bank or federal savings bank as originally agreed. Privacy Standards and Cybersecurity .
The repeal creates uncertainty regarding the ability of nonbank loan purchasers to collect interest on loans originated by a national bank or federal savings bank as originally agreed, which may impact the Company’s decision to participate in this type of lending in the future. Privacy Standards and Cybersecurity .
Our loans carry a fixed interest rate for periods ranging from three to eight years and generate interest income and fees. 4 Consumer Lending We originate fixed rate unsecured loans to individual borrowers in all fifty states. We offer loans between $5,000 and $50,000 with terms of thirty-six, forty-eight, sixty and seventy-two months to well qualified borrowers.
Our loans carry a fixed interest rate for periods ranging from three to eight years and generate interest income and fees. 4 Table of Cont ents Consumer We originate fixed rate unsecured loans to well-qualified, individual borrowers in all fifty states. We offer loans between $7,000 and $50,000 with terms that range between 36 months and 72 months.
Our web site address is http://www.axosfinancial.com, and we make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments thereto available on our website free of charge. 23
Our web site address is http://www.axosfinancial.com, and we make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, amendments thereto and various other documents, including documents to comply with our obligations under Regulation FD, available on our website free of charge.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

101 edited+41 added−36 removed101 unchanged
Biggest changeWhile the national economy and most regions have improved since the onset of the COVID-19 pandemic, we now operate in an uncertain economic environment due to, among other things, the continuing effects of the COVID-19 pandemic, in addition to a variety of other reasons for economic uncertainty, including but not limited to trade policies and tariffs, geopolitical tensions, including escalating military tensions in Europe as a result of Russia’s invasion of Ukraine, concerns about high inflation, rising interest rates, the national debt, the stability of the European Union (“EU”), including Britain’s exit from the EU, and volatile energy prices.
Biggest changeWe operate in an uncertain economic environment due to a variety of other reasons including, but not limited to, trade policies and tariffs, geopolitical tensions, including escalating military tensions in Europe as a result of Russia’s invasion of Ukraine, volatile energy prices and uncertain continuing effects of the coronavirus (“COVID-19”) pandemic.
The monetary policies of the Federal Reserve, implemented through open market operations, the federal funds rate targets, the discount rate for banking borrowings and reserve requirements, affect prevailing interest rates. A material change in any of these policies could have a material impact on us or our customers (including borrowers), and therefore on our results of operations.
The monetary policies of the Federal Reserve, implemented through open market operations, the federal funds rate targets, and the discount rate for banking borrowings and reserve requirements, affect prevailing interest rates. A material change in any of these policies could have a material impact on us or our customers (including borrowers), and therefore on our results of operations.
Our broker-dealer business subjects us to a number of risks and challenges, including risks related to our ability to integrate the acquired operations and the associated internal controls and regulatory functions into our current operations; our ability to retain key personnel of the acquired operations; our ability to limit the outflow of acquired deposits and successfully retain and manage acquired assets; our ability to retain existing correspondents who may choose to perform their own clearing services, move their clearing business to one of our competitors or exit the business; our ability to attract new customers and generate new assets in areas not previously served; and the possible assumption of risks and liabilities related to litigation or regulatory proceedings involving the acquired operations.
Our broker-dealer business subjects us to a number of risks and challenges, including risks related to our ability to integrate the acquired operations and the associated internal controls and regulatory functions into our current operations; our ability to retain key personnel; our ability to limit the outflow of acquired deposits and successfully retain and manage acquired assets; our ability to retain existing correspondents who may choose to perform their own clearing services, move their clearing business to one of our competitors or exit the business; our ability to attract new customers and generate new assets in areas not previously served; and the possible assumption of risks and liabilities related to litigation or regulatory proceedings involving the acquired operations.
To the extent that the we or our customers experience increases in costs, reductions in the value of assets, constraints on operations or similar concerns driven by changes in regulation relating to climate change, it could have an adverse effect on our business, prospects, financial condition and results of operations.
To the extent that we or our customers experience increases in costs, reductions in the value of assets, constraints on operations or similar concerns driven by changes in regulation relating to climate change, it could have an adverse effect on our business, prospects, financial condition and results of operations.
Natural disasters, acts of war or terrorism, civil unrest, public health issues, or other adverse external events could each negatively impact our business operations or the stability of our deposit base, cause significant property damage, adversely impact the values of collateral securing our loans and/or interrupt our borrowers’ abilities to conduct their business in a manner 33 to support their debt obligations, which could result in losses and increased provisions for credit losses.
Natural disasters, acts of war or terrorism, civil unrest, public health issues, or other adverse external events could each negatively impact our business operations or the stability of our deposit base, cause significant property damage, adversely impact the values of collateral securing our loans and/or interrupt our borrowers’ abilities to conduct their business in a manner to support their debt obligations, which could result in losses and increased provisions for credit losses.
To manage the expected growth of our operations and personnel, we will be required to manage multiple aspects of the business simultaneously, including among other things: (i) improve existing and implement new transaction processing, operational and financial systems, procedures and controls; (ii) maintain effective credit scoring and underwriting guidelines; (iii) maintain sufficient levels of regulatory capital; and (iv) expand our employee base and train and manage this growing employee base.
To manage the expected growth of our operations and personnel, we will be required to manage multiple aspects of the business simultaneously, including among other things: (i) improve existing and implement new transaction processing, operational and financial systems, procedures and controls; (ii) maintain effective credit scoring and underwriting guidelines; (iii) maintain sufficient levels of regulatory capital and liquidity; and (iv) expand our employee base and train and manage this growing employee base.
In addition, our credit risk may be exacerbated when the collateral held by us cannot be liquidated or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due to us. There is no assurance that any such losses would not materially and adversely affect our results of operations.
In addition, our credit risk may be exacerbated when the collateral held by us cannot be liquidated, liquidated timely or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due to us. There is no assurance that any such losses would not materially and adversely affect our results of operations.
If we become subject to significant environmental liabilities, our business, prospects, financial condition and results of operations could be adversely affected. Technology Risks in our Online Business We depend on third-party service providers for our core banking and securities transactions technology, and interruptions in or terminations of their services could materially impair the quality of our services.
If we become subject to significant environmental liabilities, our business, prospects, financial condition and results of operations could be adversely affected. Technology Risks We depend on third-party service providers for our core banking and securities transactions technology, and interruptions in or terminations of their services could materially impair the quality of our services.
We must also comply with federal anti-money laundering, bank secrecy, tax withholding and reporting, and various consumer protection statutes and regulations. A considerable amount of management time and resources is devoted to oversight of, and development and implementation of controls and procedures relating to, compliance with these laws, regulations and policies.
We must also comply with federal anti-money laundering, bank secrecy, tax withholding and reporting, and various consumer protection statutes and regulations. A considerable amount of management time and resources is devoted to oversight of, and development, implementation and execution of controls and procedures relating to, compliance with these laws, regulations and policies.
If such interruption or delay were to continue for a substantial period of time, our business, prospects, financial condition and results of operations could be adversely affected. 34 Privacy concerns relating to our technology could damage our reputation and deter current and potential customers from using our products and services.
If such interruption or delay were to continue for a substantial period of time, our business, prospects, financial condition and results of operations could be adversely affected. Privacy concerns relating to our technology could damage our reputation and deter current and potential customers from using our products and services.
Any systems failure or compromise of our security that results in the release of our customers’ data could seriously limit the adoption of our products and services, as well as harm our reputation and brand and, therefore, our business. We may also need to expend significant resources to protect against security breaches.
Any systems failure or compromise of our security that results in the release of our customers’ data could seriously limit the adoption of our products and services, as well as harm our reputation and brand and, therefore, our business. We may need to expend significant resources to protect against security breaches.
The Company accounts for goodwill and other intangible assets in accordance with generally accepted accounting principles (“GAAP”), which, in general, requires that goodwill not be amortized, but rather that it be tested for impairment at least annually at the reporting unit level using the two step approach.
The Company accounts for goodwill and other intangible assets in accordance with generally accepted accounting principles (“GAAP”), which, in general, requires that goodwill not be amortized, but rather tested for impairment at least annually at the reporting unit level using the two step approach.
In order to compete profitably, we may need to reduce the rates we offer on loans and leases and investments and increase the rates we offer on deposits, which actions may adversely affect our business, prospects, financial condition and results of operations. 32 To remain competitive, we believe we must successfully implement our business strategy.
In order to compete profitably, we may need to reduce the rates we offer on loans and leases and investments and increase the rates we offer on deposits, which actions may adversely affect our business, prospects, financial condition and results of operations. To remain competitive, we believe we must successfully implement our business strategy.
In addition, to access our products and services, our customers use personal computers, smartphones, tablets, and other mobile devices that are beyond our control environment. Additionally, outside parties may attempt to fraudulently induce employees or customers to disclose sensitive information in order to gain access to our data or our customers’ data.
In addition, to access our products and services, our customers use personal computers, smartphones, tablets, and other mobile devices that are beyond our control environment. Outside parties may attempt to fraudulently induce employees or customers to disclose sensitive information in order to gain access to our data or our customers’ data.
We also may not succeed in anticipating or keeping pace with future technology needs, the technology demands of customers, or the competitive landscape for technology. If we are not able to anticipate and keep pace with existing and future technology needs, our business, financial results, or reputation could be negatively impacted.
We may not succeed in anticipating or keeping pace with future technology needs, the technology demands of customers, or the competitive landscape for technology. If we are not able to anticipate and keep pace with existing and future technology needs, our business, financial results, or reputation could be negatively impacted.
Any such breach or unauthorized access could result in significant legal and financial exposure, damage to our reputation, and a loss of confidence in the security 35 of our products and services that could potentially have an adverse effect on our business.
Any such breach or unauthorized access could result in significant legal and financial exposure, damage to our reputation, and a loss of confidence in the security of our products and services that could potentially have an adverse effect on our business.
Our broker-dealer business also exposes us to other risks and uncertainties that are common in the securities industry, including intense competition, and potentially new areas and types of litigation including lawsuits based on allegations concerning our correspondents.
Our broker-dealer business exposes us to other risks and uncertainties that are common in the securities industry, including intense competition, and potentially new areas and types of litigation including lawsuits based on allegations concerning our correspondents.
General market fluctuations; industry factors; political conditions; and general economic conditions and events, such as economic slowdowns, recessions, interest rate changes, or credit loss trends, could also cause our common stock price to decrease regardless of operating results.
General market fluctuations; industry factors; political conditions; and general economic conditions and events, such as economic slowdowns, recessions, interest rate changes, or credit loss trends, could cause our common stock price to decrease regardless of operating results.
A significant economic downturn could result in increases in our level of non-performing loans and leases and/or reduce demand for our products and services, which could have an adverse effect on our results of operations.
A significant or sustained economic downturn could result in increases in our level of non-performing loans and leases and/or reduce demand for our products and services, which could have an adverse effect on our results of operations.
The CFPB has also been directed to write rules identifying practices or acts that are unfair, deceptive or abusive in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.
The CFPB has been directed to write rules identifying practices or acts that are unfair, deceptive or abusive in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.
Testing for impairment of goodwill and other intangible assets is performed annually and involves the identification of reporting units and the estimation of fair values. The estimation 29 of fair values involves a high degree of judgment and subjectivity in the assumptions used.
Testing for impairment of goodwill and other intangible assets is performed annually and involves the identification of reporting units and the estimation of fair values. The estimation of fair values involves a high degree of judgment and subjectivity in the assumptions used.
These requirements typically specify the minimum level of net capital a broker-dealer must maintain and also mandate that a significant part of its assets be kept in relatively liquid form.
These requirements typically specify the minimum level of net capital a broker-dealer must maintain and mandate that a significant part of its assets be kept in relatively liquid form.
These provisions include: • supermajority voting provisions providing that certain sections of our Certificate of Incorporation and our By-laws may not be amended or repealed by our stockholders without the affirmative vote of the holders of at least 75% of the voting power, and requiring the affirmative vote of the holders of at least 75% of the voting power to remove a director or directors and only for cause; 36 • our classified Board of Directors, which may tend to discourage a third-party from making a tender offer or otherwise attempting to obtain control of us since the classification of our Board of Directors generally increases the difficulty of replacing a majority of directors; • advance notice provisions requiring stockholders seeking to nominate candidates to be elected as directors at an annual meeting or to bring business before an annual meeting to comply with the written procedure specified in our By-laws; • the inability of stockholders to act by written consent or to call special meetings; • the ability of our Board of Directors to make, alter or repeal our by-laws; • the ability of our Board of Directors to designate the terms of and issue new series of preferred stock without stockholder approval; • the additional shares of authorized common stock and preferred stock available for issuance under our Certificate of Incorporation, which could be issued at such times, under such circumstances and with such terms and conditions as to impede a change in control.
These provisions include: • supermajority voting provisions providing that certain sections of our Certificate of Incorporation and our By-laws may not be amended or repealed by our stockholders without the affirmative vote of the holders of at least 75% of the voting power, and requiring the affirmative vote of the holders of at least 75% of the voting power to remove a director or directors and only for cause; • our classified Board of Directors, which may tend to discourage a third-party from making a tender offer or otherwise attempting to obtain control of us since the classification of our Board of Directors generally increases the difficulty of replacing a majority of directors; 35 Table of Cont ents • advance notice provisions requiring stockholders seeking to nominate candidates to be elected as directors at an annual meeting or to bring business before an annual meeting to comply with the written procedure specified in our By-laws; • the inability of stockholders to act by written consent or to call special meetings; • the ability of our Board of Directors to make, alter or repeal our by-laws; • the ability of our Board of Directors to designate the terms of and issue new series of preferred stock without stockholder approval; • the additional shares of authorized common stock and preferred stock available for issuance under our Certificate of Incorporation, which could be issued at such times, under such circumstances and with such terms and conditions as to impede a change in control.
The Financial Crimes Enforcement Network (“FinCEN”), a bureau of the United States Department of Treasury, is authorized to impose significant civil money penalties for violations of those 26 requirements and has engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and the Internal Revenue Service.
The Financial Crimes Enforcement Network, a bureau of the United States Department of Treasury, is authorized to impose significant civil money penalties for violations of those requirements and has engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and the Internal Revenue Service.
To the extent that we fail to adequately address the risks associated with C&I lending, we may experience increases in levels of non-performing loans and leases and be forced to incur additional loan and lease loss provision expense, which would adversely affect our net interest income and capital levels and reduce our profitability.
To the extent that we fail to adequately address the risks associated with non-residential lending, particularly in C&I lending, we may experience increases in levels of non-performing loans and leases and be forced to incur additional loan and lease loss provision expense, which would adversely affect our net interest income and capital levels and reduce our profitability.
We also face the risk that the anticipated benefits of any acquisition may not be realized fully or at all, or within the time period expected. As a public company, we face the risk of shareholder lawsuits and other related or unrelated litigation, particularly if we experience declines in the price of our common stock.
We also face the risk that the anticipated benefits of any acquisition may not be realized fully or at all, or within the time period expected. As a public company, we face the risk of stockholder lawsuits and other related or unrelated litigation, particularly if we experience declines in the price of our common stock.
Our success depends on, among other things: • Having a large and increasing number of customers who use our bank for their banking needs; • Our ability to attract, hire and retain key personnel as our business grows; • Our ability to secure additional capital as needed; • The relevance of our products and services to customer needs and demands and the rate at which we and our competitors introduce or modify new products and services; • Our ability to offer products and services with fewer employees than competitors; • The satisfaction of our customers with our customer service; • Ease of use of our websites and smartphone applications; • Our ability to provide a secure and stable technology platform for financial services that provides us with reliable and effective operational, financial and information systems; and • Integration of our broker-dealer and registered investment-advisory businesses.
Our success depends on, among other things: • Having a large and increasing number of customers who use our bank for their banking needs; • Our ability to attract, hire and retain key personnel as our business grows; • Our ability to secure additional capital as needed; • The relevance of our products and services to customer needs and demands and the rate at which we and our competitors introduce or modify new products and services; • Our ability to offer products and services with fewer employees than competitors; • The satisfaction of our customers with our customer service; • Ease of use of our websites and smartphone applications; 31 Table of Cont ents • Our ability to provide a secure and stable technology platform for financial services that provides us with reliable and effective operational, financial and information systems; and • Integration of our broker-dealer and registered investment-advisory businesses.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have material adverse reputational consequences for us.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could have material adverse reputational consequences for us.
System enhancements and updates may also create risks associated with implementing new systems and integrating them with existing ones. Due to the complexity and interconnectedness of information technology systems, the process of enhancing our layers of defense can itself create a risk of systems disruptions and security issues.
System enhancements and updates may create risks associated with implementing new systems and integrating them with existing ones. Due to the complexity and interconnectedness of information technology systems, the process of enhancing our layers of defense can create a risk of systems disruptions and security issues.
In addition, acquiring other banks, asset pools or deposits may involve risks such as exposure to potential asset quality issues, disruption to our normal business activities and diversion of management’s time and attention due to integration and conversion efforts.
In addition, acquiring other companies, asset pools or deposits may involve risks such as exposure to potential asset quality issues, disruption to our normal business activities and diversion of management’s time and attention due to integration and conversion efforts.
Our business strategy depends on our ability to remain competitive. There is strong competition for customers from existing banks and other types of financial institutions. Technology and other changes allow parties to complete financial transactions through alternative methods rather than through banks.
Our business strategy depends on our ability to remain competitive. There is strong competition for customers from existing financial institutions. Technology and other changes allow parties to complete financial transactions through alternative methods rather than through banks.
There may also be risks that exist, or that develop in the future, that we have not appropriately anticipated, identified or mitigated, including when processes are changed or new products and services are introduced.
There may also be risks that exist, or that develop in the future, that we have not appropriately anticipated, identified or mitigated, including when processes or technology is changed or new products and services are introduced.
Our common stock price may fluctuate significantly due to a variety of factors that include the following: • actual or expected variations in quarterly results of operations; • recommendations by securities analysts; • operating and stock price performance of comparable companies, as deemed by investors; • news reports relating to trends, concerns, and other issues in the financial services industry; • perceptions in the marketplace about our company or competitors; • new technology used, or services offered, by competitors; • significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments by, or involving, our Company or competitors; • failure to integrate acquisitions or realize expected benefits from acquisitions; • changes in government regulations; and • geopolitical conditions, such as acts or threats of terrorism or military action.
Our common stock price may fluctuate significantly due to a variety of factors that include the following: • actual or expected variations in quarterly results of operations; • recommendations by securities analysts; • operating and stock price performance of comparable companies, as deemed by investors; • news reports relating to trends, concerns, and other issues in the financial services industry, including recent highly-publicized bank failures; • perceptions in the marketplace about our Company or competitors; • new technology used, or services offered, by competitors; • significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments by, or involving, our Company or competitors; • failure to integrate acquisitions or realize expected benefits from acquisitions; • changes in government regulations; and • geopolitical conditions, such as acts or threats of terrorism or military action.
In addition, the broker-dealer business may subject us to new risks related to the movement of equity prices. For example, if securities prices decline rapidly, the value of our collateral could fall below the amount of the indebtedness secured by these securities, and in rapidly appreciating markets, credit risk may increase due to short positions.
In addition, the broker-dealer business may subject us to risks related to the movement of equity prices. For example, if securities prices decline rapidly, the value of our collateral could fall below the amount of the indebtedness secured by these securities, and in rapidly appreciating markets, our risk of loss may increase due to short positions.
We may seek to do so through the issuance of, among other things, our common stock or securities convertible into our common stock, which could dilute existing shareholders’ interests in the Company.
We may seek to do so through the issuance of, among other things, our common stock or securities convertible into our common stock, which could dilute existing stockholders’ interests in the Company.
If an actual or perceived breach of our security occurs, including those of our third-party vendors, such as hacking or identity theft, it could cause serious negative consequences, including significant disruption of our operations, misappropriation of confidential information, or damage to computers or systems, and may result in violations of applicable privacy and other laws, financial loss and loss of confidence in our security measures .
If an actual or perceived breach of our security occurs, including those of our third-party vendors, such as hacking or identity theft, it could 34 Table of Cont ents cause serious negative consequences, including significant disruption of our operations, misappropriation of confidential information, or damage to computers or systems, and may result in violations of applicable privacy and other laws, financial loss and loss of confidence in our security measures.
If our policies, procedures and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions such as restrictions on our ability to pay dividends and the necessity to obtain regulatory approval to proceed with acquisitions and other strategic transactions, which could negatively impact our business, financial condition, results of operations and prospects.
If our policies, procedures and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions such as restrictions on our ability to pay dividends and the necessity to obtain regulatory 24 Table of Cont ents approval to proceed with acquisitions and other strategic transactions, which could negatively impact our business, financial condition, results of operations and prospects.
A decline of real estate values or decline of the credit position of our borrowers in California would have a material adverse effect on our business, prospects, financial condition and results of operations. Many of our mortgage loans are multifamily residential loans and defaults on such loans would harm our business.
A decline of real estate values or decline of the credit position of our borrowers could have a material adverse effect on our business, prospects, financial condition and results of operations. Many of our mortgage loans are multifamily residential loans and defaults on such loans would harm our business.
In addition, the federal Bank Secrecy Act, the USA PATRIOT Act, and similar laws and regulations require financial institutions, among other duties, to institute and maintain effective anti-money laundering programs and to file suspicious activity and currency transaction reports as appropriate.
The Bank Secrecy Act, the USA PATRIOT Act, and similar laws and regulations require financial institutions, among other duties, to institute and maintain effective anti-money laundering programs and to file suspicious activity and currency transaction reports as appropriate.
The brand identities that we have developed will significantly contribute to the success of our business. Maintaining and enhancing the “Axos Bank” brands (including our other trade styles and trade names) is critical to expanding our customer base.
The brand identities that we have developed will significantly contribute to the success of our business. Maintaining and enhancing the “Axos” brands (including our other trade styles and trade names) is critical to expanding our customer base.
In addition, interest rate volatility can affect the value of our loans and leases, investments and other interest-rate sensitive assets and our ability to realize gains on the sale or resolution of these assets. There can be no assurance that we will be able to successfully manage our interest rate risk.
In addition, interest rate volatility can affect the value of our loans and leases, investments and other interest-rate sensitive assets and our ability to realize gains on the sale or resolution of these assets, which in turn may affect our liquidity. There can be no assurance that we will be able to successfully manage our interest rate risk.
Other types of cybersecurity attacks may include computer viruses, malicious or destructive code, denial-of-service attacks, ransomware or ransom demands to not expose security vulnerabilities in the Company’s systems or the systems of third parties.
Other types of information security incidents may include computer viruses, malicious or destructive code, denial-of-service attacks, ransomware or ransom demands to not expose security vulnerabilities in the Company’s systems or the systems of third parties.
If we fail to maintain and enhance our brands generally, or if we incur excessive expenses in these efforts, our business, financial condition and results of operations may be adversely affected. Our reputation and business could be damaged by negative publicity. Reputational risk, including as a result of negative publicity, is inherent in our business.
If we fail to maintain and enhance our brands generally, or if we incur excessive expenses in these efforts, our business, financial condition and results of operations may be adversely affected. Our reputation and business could be damaged by negative publicity. Reputational risk is inherent in our business.
Our loans are generally secured by single family, multifamily and commercial real estate properties, each initially having a fair market value generally greater than the amount of the loan secured.
Our loans are generally secured by single family, multifamily and commercial real estate properties or other commercial assets, each initially having a fair market value generally greater than the amount of the loan secured.
If our security measures are breached, or if our services are subject to cybersecurity attacks that degrade or deny the ability of customers to access our products and services, our products and services may be perceived as not being secure, customers may curtail or stop using our products and services, and we may incur significant legal and financial exposure.
If our security measures are breached, or if our services are subject to information security incidents that degrade or deny the ability of customers to access our products and services, our products and services may be perceived as not being secure, customers may curtail or stop using our products and services, and we may incur significant legal and financial exposure.
The value or market price of our common stock could decline due to any of these identified or other risks, and you could lose all or part of your investment. This Annual Report on Form 10-K is qualified in its entirety by these risk factors. Risks Relating to Macroeconomic Conditions Changes in interest rates could adversely affect our performance.
The value or market price of our common stock could decline due to any of these identified or other risks, and you could lose all or part of your investment. This report is qualified in its entirety by these risk factors. Risks Relating to Macroeconomic Conditions Changes in interest rates could adversely affect our performance.
The market transition away from LIBOR to an alternative reference rate is complex and could have a range of adverse effects on our business, financial condition and results of operations.
The market transition away from LIBOR to alternative reference rates is complex and could have a range of adverse effects on our business, financial condition and results of operations.
If real estate values decrease or more of our borrowers experience financial difficulties, we will experience increased charge-offs, as the proceeds resulting from foreclosure may be significantly lower than the amounts outstanding on such loans.
If real estate values decrease or more of our borrowers experience financial difficulties, we will experience increased charge-offs, as the proceeds resulting from foreclosure may be significantly lower than the amounts outstanding on such loans and the time to foreclose may be extended.
Any material weaknesses or significant deficiencies in our internal control over financial reporting or restatement of our financial statements could have a material adverse effect on our business, results of operations, reputation, and financial condition. 37 ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Any material weaknesses or significant deficiencies in our internal control over financial reporting or restatement of our financial statements could have a material adverse effect on our business, results of operations, reputation, and financial condition. 36 Table of Cont ents ITEM 1B. UNRESOLVED STAFF COMMENTS None.
See “Regulation of Securities Business.” Policies and regulations enacted by the Consumer Financial Protection Bureau may negatively impact our residential mortgage loan business and compliance risk.
See “Regulation of Securities Business.” 25 Table of Cont ents Policies and regulations enacted by the Consumer Financial Protection Bureau may negatively impact our residential mortgage loan business and compliance risk.
In addition, declining real estate values frequently accompany periods of economic downturn or recession and increasing unemployment, all of which can lead to lower demand for mortgage loans of the types we originate.
In addition, declining real estate values frequently accompany periods of economic downturn or recession and increasing unemployment, all of which can lead to lower demand for mortgage loans of the types we originate and impact the ability of borrowers to repay their loans.
Accordingly, higher premiums are charged to banks that have lower capital ratios or higher risk profiles, including increased commercial and industrial lending, declining credit quality metrics, and increased brokered deposits and higher levels of borrowing.
FDIC insurance premiums are risk based, and accordingly, higher premiums are charged to banks that have lower capital ratios or higher risk profiles, including increased construction and development and commercial and industrial lending, declining credit quality metrics, and increased brokered deposits and higher levels of borrowing.
Our ability to attract deposits could be negatively impacted by a public perception of our financial prospects or by increased deposit rates available at troubled institutions suffering from shortfalls in liquidity. The FHLB advances and the FRBSF discount window are subject to regulation and other factors beyond our control.
Our ability to attract deposits could be negatively impacted by a public perception of our financial prospects or by increased deposit rates available at troubled institutions suffering from shortfalls in liquidity. The FHLB advances and the Federal Reserve Bank of San Francisco (“FRBSF”) discount window are subject to regulation and other factors beyond our control.
We are exposed to risk of environmental liability with respect to properties to which we take title. In the course of our business, we may foreclose and take title to real estate, including commercial real estate, and could be subject to environmental liabilities with respect to those properties.
In the course of our business, we may foreclose and take title to real estate, including commercial real estate, and could be subject to environmental liabilities with respect to those properties.
In addition, further regulation could increase the assessment rate we are required to pay to the FDIC, adversely affecting our earnings. It is very difficult to predict future changes in regulation or the competitive impact that any such changes would have on our business.
In addition, further regulation, including in response to recent highly-publicized bank failures, could increase the assessment rate we are required to pay to the FDIC, adversely affecting our earnings. It is very difficult to predict future changes in regulation or the competitive impact that any such changes would have on our business.
Our broker-dealer and investment advisory businesses subjects us to regulatory risks. Our broker-dealer and investment advisory business subjects us to regulation by the SEC, FINRA and other SROs and state securities commissions, among other regulatory bodies.
Our broker-dealer and investment advisory businesses subjects us to regulatory risks. Our broker-dealer and investment advisory business subjects us to regulation by the SEC, FINRA, other self-regulatory organizations (“SROs”), state securities commissions, and other regulatory bodies.
Liquidity is essential to our business and the inability to raise funds through deposits, borrowings, equity and debt offerings, or other sources could have a materially adverse effect on our liquidity.
Liquidity and access to adequate funding cannot be assured. Liquidity is essential to our business and the inability to raise funds through deposits, borrowings, equity and debt offerings, or other sources could have a materially adverse effect on our liquidity.
If our risk management framework does not effectively identify and control our risks, we could suffer unexpected losses or be adversely affected, and that could have a material adverse effect on our business, results of operations and financial condition. Higher FDIC assessments could negatively impact profitability. FDIC insurance premiums are “risk based”.
If our risk management framework does not effectively identify and control our risks, we could suffer unexpected losses or be adversely affected, and that could have a material adverse effect on our business, results of operations and financial condition. 28 Table of Cont ents Higher FDIC assessments could negatively impact profitability.
There is also increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control (“OFAC”). Federal and state bank regulators also have focused on compliance with the Bank Secrecy Act and anti-money laundering regulations.
There is also increased scrutiny of compliance with the rules enforced by the OFAC. Federal and state bank regulators have focused on compliance with the Bank Secrecy Act and anti-money laundering regulations.
During the last three fiscal years we have sold approximately $2.8 billion of residential mortgage loans to Fannie Mae and Freddie Mac and into MBS’s guaranteed by Ginnie Mae. As of June 30, 2022, approximately 9.6% of our securities portfolio consisted of RMBS issued or guaranteed by these GSEs.
During the last three fiscal years we have sold approximately $2.2 billion of residential mortgage loans to Fannie Mae and Freddie Mac and into MBS guaranteed by Ginnie Mae. As of June 30, 2023, approximately 10.3% of our securities portfolio consisted of RMBS issued or guaranteed by these GSEs.
Our security measures may be breached due to the actions of organized crime, hackers, terrorists, nation-states, activists and other outside parties, employee error, failure to follow security procedures, malfeasance, or otherwise and, as a result, an unauthorized party may obtain access to our data or our customers’ data.
These procedures cannot assure we will be fully protected from a cybersecurity incident. Our security measures may be breached due to the actions of organized crime, hackers, terrorists, nation-states, activists and other outside parties, employee error, failure to follow security procedures, malfeasance, or otherwise. As a result, an unauthorized party may obtain access to our data or our customers’ data.
However, large, unanticipated, or rapid increases in market interest rates may have an adverse impact on our net interest income and could decrease our mortgage refinancing business and related fee income, and could cause an increase in delinquencies and non-performing loans and leases in our adjustable-rate loans.
While we manage the sensitivity of our assets and liabilities, large, unanticipated, or rapid increases in market interest rates may have an adverse impact on our net interest income and could decrease our mortgage refinancing business and related fee income, and could cause an increase in delinquencies and non-performing loans and leases in our adjustable-rate loans.
At June 30, 2022, our multifamily residential loans were $2,085.1 million or 15% of our loan portfolio. The payment on such loans is typically dependent on the cash flows generated by the projects, which are affected by the supply and demand for multifamily residential units and commercial property within the relative market.
At June 30, 2023, our multifamily residential loans were $3.1 billion or 18.5% of our loan portfolio. The payment on such loans is typically dependent on the cash flows generated by the projects, which are affected by the supply and demand for multifamily residential units and commercial property within the relative market.
Defaults by borrowers could result in losses that exceed our loan and lease loss reserves. We have originated or purchased many of our loans and leases recently, so we do not have sufficient repayment experience to be certain whether the established allowance for loan and lease losses is adequate.
Defaults by borrowers could result in losses that exceed our loan and lease loss reserves. We may not have sufficient repayment experience to be certain whether the established allowance for loan and lease losses is adequate for certain types of loans and leases.
The securities lending and securities trading and execution businesses also subject us to credit risk if a counterparty fails to perform or if collateral securing the counterparty’s obligations is insufficient. In securities transactions generally, we will be subject to credit risk during the period between the execution of a trade and the settlement by the customer.
The securities lending and securities trading and execution businesses subject us to risk of loss if a counterparty fails to perform or if collateral securing the counterparty’s obligations is insufficient. In securities transactions generally, we may be subject to market risk during the period between the execution of a trade and its settlement.
General factors related to the financial services industry such as a severe disruption in financial markets, a decrease in industry expectations, or a decrease in business activity due to political or environmental events may impair our access to liquidity. We rely primarily upon deposits and FHLB advances.
General factors related to the financial services industry such as a severe disruption in financial markets, a decrease in industry expectations, or a decrease in business activity due to political or environmental events may impair our access to liquidity.
Negative publicity can result from actual or alleged conduct in a number of areas, including legal and regulatory compliance, lending practices, corporate governance, litigation, inadequate protection of customer data, illegal or unauthorized acts taken by third parties that supply products or services to us, and ethical behavior of our employees.
Negative publicity or reputational harm can result from actual or alleged conduct in a number of areas, including legal and regulatory compliance, lending practices, corporate governance, litigation, inadequate protection of customer data, illegal or unauthorized acts taken by third parties that supply products or services to us, the behavior of our employees, the customers with whom we have chosen to do business and negative publicity for other financial institutions.
Competition for employees is intense in many areas of the financial services industry, and there is a risk that we will not be able to successfully attract, assimilate or retain sufficiently qualified personnel. If we fail to attract and retain the necessary personnel, our business, prospects, financial condition and results of operations could be adversely affected.
Competition for employees is intense in many areas of the financial services industry, and there is a risk that we will not be able to successfully attract, assimilate or retain sufficiently qualified personnel.
New or amended laws, rules and regulations could impact our operations, increase our capital requirements or substantially restrict our growth and adversely affect our ability to operate profitably by making compliance much more difficult or expensive, restricting our ability to originate or sell loans, or further restricting the amount of interest or other charges or fees earned on loans or other products.
New or amended laws, rules, regulations and policies, including potential changes under consideration in response to recent highly-publicized bank failures, could impact our operations, increase our capital requirements or substantially restrict our growth and adversely affect our ability to operate profitably by making compliance more difficult or expensive, restrict our ability to originate or sell loans, or impact the amount of interest or other charges or fees earned on loans or other products.
We are required by regulatory authorities to maintain adequate levels of capital to support our operations. In addition, we may elect to raise additional capital to support the growth of our business or to finance acquisitions, if any, or we may elect to raise additional capital for other reasons.
In addition, we may elect to raise additional capital to support the growth of our business or to finance acquisitions, if any, or we may elect to raise additional capital for other reasons.
Financial services institutions are interrelated as a result of trading, clearing, counterparty and other relationships. We have exposure to many different counterparties, and we routinely execute transactions with counterparties in the financial industry, including brokers-dealers, other commercial banks, investment banks, mutual and hedge funds, and other financial institutions.
We have exposure to many different counterparties, and we routinely execute transactions with counterparties in the financial industry, including brokers-dealers, other commercial banks, investment banks, mutual and hedge funds, and other financial institutions.
Any decision to change the structure, mandate or overall business practices of the GSEs and/or the relationship among the GSEs, the government and the private mortgage loan markets, or any failure by the GSEs to satisfy their obligations with respect to their RMBS, could have a material adverse effect on our business, financial condition and results of operations.
Any decision to change the structure, mandate or overall business practices of the GSEs and/or the relationship among the GSEs, the government and the private mortgage loan markets, or any failure by the GSEs to satisfy their obligations with respect to their RMBS, could have a material adverse effect on our business, financial condition and results of operations. 26 Table of Cont ents Commercial and industrial and commercial real estate loans may expose our company to greater financial and credit risk than other loans.
These changes can be difficult to predict and can materially impact how we record and report our financial condition and results of operations. If our allowance for credit losses, particularly in growing areas of lending such as commercial and industrial (“C&I”) is not sufficient to cover actual credit losses, our earnings, capital adequacy and overall financial condition may suffer materially.
These changes can be difficult to predict and can materially impact how we record and report our financial condition and results of operations. 27 Table of Cont ents If our allowance for credit losses is not sufficient to cover actual credit losses, our earnings, capital adequacy and overall financial condition may suffer materially.
Allegations of violations of securities laws or FINRA rules, even if not ultimately asserted or proved, could substantially impact our results of operations and lead to reputational harm. 30 Our broker-dealer business is also subject to the net capital requirements of the SEC, FINRA and various self-regulatory organizations.
Allegations of violations of securities laws or FINRA rules, even if not ultimately asserted or proved, could substantially impact our results of operations and lead to reputational harm. The regulatory environment in which our broker dealer business operates is subject to frequent change.
There is increased public awareness and concern by governmental organizations on a variety of environmental, social, and sustainability matters, including climate change. This increased awareness may include more prescriptive reporting of environmental, social, and governance metrics, and other compliance requirements. Further legislation and regulatory requirements could increase the operating expenses of, or otherwise adversely impact, us and our customers.
There is increased public awareness and concern by governmental organizations on a variety of environmental, social, and sustainability matters, including climate change. This increased awareness may include more prescriptive reporting of environmental, social, and governance metrics, and other compliance requirements.
If we cannot raise additional capital when needed or on terms acceptable to us, it may have a material adverse effect on our financial condition, results of operations and prospects.
If we cannot raise additional capital when needed or on terms acceptable to us, it may have a material adverse effect on our financial condition, results of operations and prospects. In addition, raising equity capital will have a dilutive effect on the equity interests of our existing stockholders and may cause our stock price to decline.
If we are not able to maintain our levels of profitability by deploying growth in our deposits in profitable assets or investments, our net interest margin and overall level of profitability will decrease and our stock price may decline. We face strong competition for customers and may not succeed in implementing our business strategy.
If we are not able to maintain our levels of profitability by deploying deposits in profitable assets or investments, our net interest margin and overall level of profitability will decrease and our stock price may decline. We depend on the accuracy and completeness of information about customers .
Generally, all loans we originated since 2017 have contract language that allow us to replace LIBOR with an alternative index. All of our variable rate mortgage loans underwritten for the U.S. Government Agencies (FNMA, FHLMC & FHA/VA) after December 31, 2020 have used SOFR as the benchmark index.
All of our variable rate mortgage loans underwritten for the U.S. Government Agencies (FNMA, FHLMC & FHA/VA) after December 31, 2020 have used SOFR as the benchmark index.
In addition, as nearly all of our products and services are smartphone and internet-based, the amount of data we store for our customers on our servers (including personal information) has been increasing and will continue to increase.
Employee errors or misconduct could subject the Company to civil claims for negligence or regulatory enforcement actions, including fines and restrictions on our business. As nearly all of our products and services are smartphone and internet-based, the amount of data we store for our customers on our servers (including personal information) has been increasing and will continue to increase.
We may have to establish a larger allowance for loan and lease losses in the future if, in our judgment, it becomes necessary. Any increase in our allowance for loan and lease losses would increase our expenses and consequently may adversely affect our profitability, capital adequacy and overall financial condition.
We may have to establish a larger allowance for loan and lease losses in the future if, in our judgment, it becomes necessary.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur offices in Las Vegas consist of a total of approximately 30,000 square feet under leases that expire September 30, 2027 and our San Diego facilities consist of a total of approximately 182,000 square feet under leases that expire June 30, 2030.
Biggest changeOur offices in Las Vegas consist of a total of approximately 30,000 square feet under leases that expire August 31, 2027 and our San Diego facilities consist of a total of approximately 186,000 square feet under leases that expire June 30, 2030.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeNone of such matters are expected to have a material adverse effect on the Company’s financial condition, results of operations or business. For additional information on legal proceedings, refer to Note 18 - “Commitments, Contingencies, and Off-Balance-Sheet Activities.” ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 38 PART II
Biggest changeNone of such matters are expected to have a material adverse effect on the Company’s financial condition, results of operations or business. For additional information on legal proceedings, refer to Note 18 - “Commitments, Contingencies, and Off-Balance-Sheet Activities.” ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 37 Table of Cont ents PART II
ITEM 3. LEGAL PROCEEDINGS We may from time to time become a party to other claims or litigation that arise in the ordinary course of business, such as claims to enforce liens, claims involving the origination and servicing of loans, and other issues related to the business of the Bank.
ITEM 3. LEGAL PROCEEDINGS We may from time to time become a party to other claims or litigation that arise in the ordinary course of business, such as claims to enforce liens, claims involving the origination and servicing of loans, and other issues related to the Company’s operations.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe Company declared dividends to holders of its Series A preferred stock totaling $0.1 million and $0.3 million for the years ended June 30, 2021 and 2020, respectively. Dividends declared for the year ended June 30, 2021 were less than prior years as the Series A preferred stock was redeemed before the full year.
Biggest changeThere were no dividends declared for the year ended June 30, 2023 and June 30, 2022 as the Series A preferred stock was redeemed during fiscal year 2021. The Company declared dividends to holders of its Series A preferred stock totaling $0.1 million for the year ended June 30, 2021. ISSUER PURCHASES OF EQUITY SECURITIES Common Stock Repurchases.
Purchases were made in open-market transactions. 2 In October 2021, the stockholders of the Company approved the amended and restated 2014 Stock Incentive Plan, which, among other changes permitted net settlement of stock issuances related to equity awards for purposes of payment of a grantee’s minimum income tax obligation.
Purchases were made in open-market transactions. 3 In October 2021, the stockholders of the Company approved the amended and restated 2014 Stock Incentive Plan, which, among other changes permitted net settlement of stock issuances related to equity awards for purposes of payment of a grantee’s minimum income tax obligation.
EQUITY COMPENSATION PLAN INFORMATION The following table provides information regarding the aggregate number of securities to be issued under all of our stock option and equity based compensation plans upon exercise of outstanding options, warrants and other rights and their weighted-average exercise prices as of June 30, 2022.
EQUITY COMPENSATION PLAN INFORMATION The following table provides information regarding the aggregate number of securities to be issued under all of our stock option and equity based compensation plans upon exercise of outstanding options, warrants and other rights and their weighted-average exercise prices as of June 30, 2023.
Net Settlement of Restricted Stock Unit Awards. In October 2021, the stockholders of the Company approved the amended and restated 2014 Stock Incentive Plan, which, among other changes, permitted net settlement of stock issuances related to equity awards for purposes of payment of a grantee’s minimum income tax obligation.
In October 2021, the stockholders of the Company approved the amended and restated 2014 Stock Incentive Plan, which, among other changes, permitted net settlement of stock issuances related to equity awards for purposes of payment of a grantee’s minimum income tax obligation.
Our Board of Directors has never declared or paid any cash dividends on our common stock and does not expect to do so in the foreseeable future. Our ability to pay dividends, should our Board of Directors elect to do so, depends largely upon the ability of the Bank to declare and pay dividends to us.
Our Board of Directors has never declared or paid any cash dividends on our common stock and does not expect to do so in the foreseeable future. Our ability to pay dividends, should our Board of Directors elect to do so, depends largely upon the ability of our subsidiaries to declare and pay dividends to us.
NYSE Index, and (ii) the banks included in the total return for the ABA NASDAQ Community Bank Index (“ABAQ”). The graph assumes $100 was invested in AX common stock, in U.S. NYSE Composite Total Return Index (ticker: NYATR) and in ABAQ Total Return Index (ticker: XABQ) on June 30, 2017. The indexes assume reinvestment of dividends.
NYSE Index, and (ii) the banks included in the ABA NASDAQ Community Bank Total Return Index (ticker: XABQ). The graph assumes $100 was invested in AX common stock, in U.S. NYSE Composite Total Return Index (ticker: NYATR) and in ABA NASDAQ Community Bank Total Return Index (ticker: XABQ) on June 30, 2018. The indexes assume reinvestment of dividends.
Plan Category (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (b) Weighted-average exercise price of outstanding options and units granted (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) Equity compensation plans approved by security holders — $ — 1,883,720 Equity compensation plans not approved by security holders N/A N/A N/A Total — $ — 1,883,720 40 COMPANY STOCK PERFORMANCE The following graph compares the total return of our common stock over the last five fiscal years, starting June 30, 2017 through June 30, 2022, with that of (i) the companies included in the total return for the U.S.
Plan Category (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (b) Weighted-average exercise price of outstanding options and units granted (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) Equity compensation plans approved by security holders — $ — 1,426,865 Equity compensation plans not approved by security holders N/A N/A N/A Total — $ — 1,426,865 39 Table of Cont ents COMPANY STOCK PERFORMANCE The following graph compares the total return of our common stock over the last five fiscal years, starting June 30, 2018 through June 30, 2023, with that of (i) the companies included in the total return for the U.S.
During the fiscal year ended June 30, 2022, there were 330,396 restricted stock unit award shares which were retained by the Company and converted to cash at the average rate of $43.83 per share to fund the grantee’s income tax obligations. 39 The following table sets forth our market repurchases of Axos common stock and the Axos common shares retained in connection with net settlement of restricted stock unit awards during the fourth fiscal quarter ended June 30, 2022.
During the fiscal year ended June 30, 2023, there were 214,807 restricted stock unit award shares which were retained by the Company and converted to cash at the average rate of $40.24 per share to fund the grantee’s income tax obligations. 38 Table of Cont ents The following table sets forth our market repurchases of Axos common stock and the Axos common shares retained in connection with net settlement of restricted stock unit awards during the fourth fiscal quarter ended June 30, 2023.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the New York Stock Exchange under the symbol “AX”. There were 59,970,728 shares of common stock outstanding held by approximately 42,000 holders of record as of September 6, 2022.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the New York Stock Exchange under the symbol “AX”. There were 59,984,909 shares of common stock outstanding as of August 25, 2023 held by approximately 43,000 holders of record.
The share repurchase program will continue in effect until terminated by the Board of Directors of the Company. Shares of common stock repurchased under this plan will be held as treasury shares. Under the 2016 authorization, the Company repurchased a total of $100 million or 3,567,051 common shares at an average price of $28.03 per share.
The share repurchase program will continue in effect until terminated by the Board of Directors of the Company. Shares of common stock repurchased under this plan will be held as treasury shares.
The share repurchase program will continue in effect until terminated by the Board of Directors of the Company.
The share repurchase authorization is in addition to the existing share repurchase plan announced on August 6, 2019. The share repurchase program will continue in effect until terminated by the Board of Directors of the Company.
Period Number of Shares Purchased Average Price Paid Per Shares Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs Stock Repurchases 1 (dollars in thousands) Quarter Ended June 30, 2022 April 1, 2022 to April 30, 2022 — $ — — $ — May 1, 2022 to May 31, 2022 — — — — June 1, 2022 to June 30, 2022 — — — — For the Three Months Ended June 30, 2022 — $ — — $ 52,764 Stock Retained in Net Settlement 2 April 1, 2022 to April 30, 2022 381 May 1, 2022 to May 31, 2022 522 June 1, 2022 to June 30, 2022 126,255 For the Three Months Ended June 30, 2022 127,158 1 On August 2, 2019,, the Board of Directors of the Company authorized a program to repurchase up to $100 million of common stock.
Period Number of Shares Purchased Average Price Paid Per Shares Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs Stock Repurchases 1, 2 (dollars in thousands) Quarter Ended June 30, 2023 April 1, 2023 to April 30, 2023 243,063 $ 37.42 243,063 $ 112,219,372 May 1, 2023 to May 31, 2023 228,611 37.37 228,611 103,677,065 June 1, 2023 to June 30, 2023 406 38.35 406 103,661,495 For the Three Months Ended June 30, 2023 472,080 $ 37.39 472,080 $ 103,661,495 Stock Retained in Net Settlement 3 April 1, 2023 to April 30, 2023 421 May 1, 2023 to May 31, 2023 1,225 June 1, 2023 to June 30, 2023 63,276 For the Three Months Ended June 30, 2023 64,922 1 On April 27, 2023, the Company announced a program to repurchase up to $100 million of its common stock.
ISSUER PURCHASES OF EQUITY SECURITIES Common Stock Repurchases. On March 17, 2016, the Board of Directors of the Company authorized a program to repurchase up to $100 million of common stock and extended the program by an additional $100 million on August 2, 2019.
On August 6, 2019 the Company announced a program to repurchase up to $100 million of its common stock, and on April 27, 2023, the Company announced a program to repurchase an additional $100 million of its common stock.
Under the 2019 authorization the Company has repurchased a total of $47.2 million or 2,399,853 common shares at an average price of $19.68 per share and there remains $52.8 million under the plan. The Company accounts for treasury stock using the cost method as a reduction of shareholders’ equity in the accompanying Consolidated Financial Statements.
Under the 2019 authorization, the Company has repurchased a total of $96.3 million or 3,721,014 common shares at an average price of $25.89 per share and there remains $3.7 million of availability under the plan. There have been no purchases under the 2023 authorization.
Removed
Cumulative Return as of June 30, 2017 2018 2019 2020 2021 2022 Axos $ 100.00 $ 172.47 $ 114.88 $ 93.09 $ 195.57 $ 151.14 NYSE 100.00 108.94 116.64 109.06 155.13 138.86 XABQ 100.00 111.02 100.28 76.29 121.62 114.23 ITEM 6. [Reserved] 41
Added
The Company accounts for treasury stock using the cost method as a reduction of stockholders’ equity in the accompanying Consolidated Financial Statements. Net Settlement of Restricted Stock Unit Awards.
Added
No purchases have been made under the 2023 authorization. 2 On August 6, 2019, the Company announced a program to repurchase up to $100 million of common stock. The share repurchase program will continue in effect until terminated by the Board of Directors of the Company.
Added
Cumulative Return as of June 30, 2018 2019 2020 2021 2022 2023 Axos $ 100.00 $ 66.61 $ 53.97 $ 113.40 $ 87.63 $ 96.41 NYSE 100.00 107.07 100.11 142.41 127.47 143.24 XABQ 100.00 90.33 68.72 109.55 102.89 84.90

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

92 edited+38 added−169 removed16 unchanged
Biggest changeAt or for the Fiscal Years Ended June 30, (Dollars in thousands, except per share amounts) 2022 2021 2020 Selected Balance Sheet Data: Total assets $ 17,401,165 $ 14,265,565 $ 13,851,900 Loans, net of allowance for credit losses 14,091,061 11,414,814 10,631,349 Loans held for sale, carried at fair value 4,973 29,768 51,995 Loans held for sale, lower of cost or fair value 10,938 12,294 44,565 Allowance for credit losses 148,617 132,958 75,807 Securities—trading 1,758 1,983 105 Securities—available for sale 262,518 187,335 187,627 Securities borrowed 338,980 619,088 222,368 Customer, broker-dealer and clearing receivables 417,417 369,815 220,266 Total deposits 13,946,422 10,815,797 11,336,694 Advances from the FHLB 117,500 353,500 242,500 Borrowings, subordinated debentures and other borrowings 445,244 221,358 235,789 Securities loaned 474,400 728,988 255,945 Customer, broker-dealer and clearing payables 511,654 535,425 347,614 Total stockholders’ equity 1,642,973 1,400,936 1,230,846 Selected Income Statement Data: Interest and dividend income $ 659,728 $ 617,863 $ 622,839 Interest expense 52,570 79,121 145,228 Net interest income 607,158 538,742 477,611 Provision for credit losses 18,500 23,750 42,200 Net interest income after provision for credit losses 588,658 514,992 435,411 Non-interest income 113,363 105,261 102,987 Non-interest expense 362,062 314,510 275,766 Income before income tax expense 339,959 305,743 262,632 Income tax expense 99,243 90,036 79,194 Net income $ 240,716 $ 215,707 $ 183,438 Net income attributable to common stock $ 240,716 $ 215,518 $ 183,129 Per Common Share Data: Net income: Basic $ 4.04 $ 3.64 $ 3.01 Diluted $ 3.97 $ 3.56 $ 2.98 Adjusted earnings per common share (Non-GAAP 1 ) $ 4.23 $ 3.68 $ 3.10 Book value per common share $ 27.48 $ 23.62 $ 20.56 Tangible book value per common share (Non-GAAP 1 ) $ 24.45 $ 21.36 $ 18.28 Weighted average number of common shares outstanding: Basic 59,523,626 59,229,495 60,794,555 Diluted 60,610,954 60,519,611 61,437,635 Common shares outstanding at end of period 59,777,949 59,317,944 59,612,635 45 At or for the Fiscal Years Ended June 30, (Dollars in thousands, except per share amounts) 2022 2021 2020 Performance Ratios and Other Data: Loan originations for investment $ 10,366,796 $ 6,471,864 $ 6,797,971 Loan originations for sale $ 656,487 $ 1,608,700 $ 1,601,579 Loan purchases $ 31,667 $ 3,619 $ — Return on average assets 1.57 % 1.52 % 1.53 % Return on average common stockholders’ equity 15.61 % 16.51 % 15.65 % Interest rate spread 2 3.91 % 3.70 % 3.65 % Net interest margin 3 4.13 % 3.92 % 4.12 % Net interest margin - Banking segment only 3 4.36 % 4.11 % 4.19 % Efficiency ratio 4 50.25 % 48.84 % 47.50 % Efficiency ratio - Banking segment only 4 41.61 % 41.95 % 39.81 % Capital Ratios: Equity to assets at end of period 9.44 % 9.82 % 8.89 % Axos Financial, Inc.: Tier 1 leverage (core) capital to adjusted average assets 9.25 % 8.82 % 8.97 % Common equity tier 1 capital (to risk-weighted assets) 9.86 % 11.36 % 11.22 % Tier 1 capital (to risk-weighted assets) 9.86 % 11.36 % 11.27 % Total capital (to risk-weighted assets) 12.73 % 13.78 % 12.64 % Axos Bank: Tier 1 leverage (core) capital to adjusted average assets 10.65 % 9.45 % 9.25 % Common equity tier 1 capital (to risk-weighted assets) 11.24 % 12.28 % 11.79 % Tier 1 capital (to risk-weighted assets) 11.24 % 12.28 % 11.79 % Total capital (to risk-weighted assets) 12.01 % 13.21 % 12.62 % Axos Clearing: Net capital $ 38,915 $ 35,950 $ 34,022 Excess capital $ 32,665 $ 27,904 $ 29,450 Net capital as percentage of aggregate debit item 12.45 % 8.94 % 14.88 % Net capital in excess of 5% aggregate debit item $ 23,290 $ 15,836 $ 22,593 Asset Quality Ratios: Net annualized charge-offs (recoveries) to average loans outstanding 5 0.02 % 0.12 % 0.23 % Net annualized charge-offs (recoveries) to average loans outstanding excluding tax products 5 0.02 % 0.07 % 0.08 % Non-performing loans and leases to total loans 0.83 % 1.26 % 0.82 % Non-performing assets to total assets 0.68 % 1.07 % 0.68 % Allowance for credit losses - loans to total loans held for investment at end of period 1.04 % 1.15 % 0.71 % Allowance for credit losses - loans to non-performing loans 125.74 % 91.57 % 86.20 % 1 See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Use of Non-GAAP Financial Measures.” 2 Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities. 3 Net interest margin represents net interest income as a percentage of average interest-earning assets. 4 Efficiency ratio represents non-interest expense as a percentage of the aggregate of net interest income and non-interest income. 5 Net charge-offs do not include any amounts transferred to loans held for sale. 46 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 Fiscal Years Ended June 30, 2022 2021 2020 (Dollars in thousands) Average Balance 1 Interest Income / Expense Average Yields Earned / Rates Paid Average Balance 1 Interest Income / Expense Average Yields Earned / Rates Paid Average Balance 1 Interest Income / Expense Average Yields Earned / Rates Paid Assets: Loans 2,3 $ 12,576,873 $ 626,628 4.98 % $ 11,332,020 $ 584,410 5.16 % $ 10,149,867 $ 582,748 5.74 % Interest-earning deposits in other financial institutions 1,233,983 4,501 0.36 % 1,600,811 2,185 0.14 % 833,612 10,906 1.31 % Investment securities 176,951 6,952 3.93 % 192,420 9,560 4.97 % 217,598 11,061 5.08 % Securities borrowed and margin lending 4 687,363 20,512 2.98 % 613,735 20,466 3.33 % 362,063 16,585 4.58 % Stock of the regulatory agencies 21,844 1,135 5.20 % 20,588 1,242 6.03 % 28,776 1,539 5.35 % Total interest-earning assets 14,697,014 $ 659,728 4.49 % 13,759,574 $ 617,863 4.49 % 11,591,916 $ 622,839 5.37 % Non-interest-earning assets 658,494 394,085 395,789 Total assets $ 15,355,508 $ 14,153,659 $ 11,987,705 Liabilities and Stockholders’ Equity: Interest-bearing demand and savings $ 6,773,321 $ 20,053 0.30 % $ 7,204,698 $ 29,031 0.40 % $ 4,844,700 $ 66,883 1.38 % Time deposits 1,226,774 13,567 1.11 % 1,825,795 31,498 1.73 % 2,482,151 60,033 2.42 % Securities loaned 469,051 1,124 0.24 % 412,385 1,496 0.36 % 247,420 679 0.27 % Advances from the FHLB 349,796 4,625 1.32 % 211,077 4,672 2.21 % 747,358 11,988 1.60 % Borrowings, subordinated notes and debentures 302,454 13,201 4.36 % 340,699 12,424 3.65 % 103,652 5,645 5.45 % Total interest-bearing liabilities 9,121,396 52,570 0.58 % 9,994,654 79,121 0.79 % 8,425,281 145,228 1.72 % Non-interest-bearing demand deposits 3,927,195 2,182,009 1,990,005 Other non-interest-bearing liabilities 764,542 671,581 397,506 Stockholders’ equity 1,542,375 1,305,415 1,174,913 Total liabilities and stockholders’ equity $ 15,355,508 $ 14,153,659 $ 11,987,705 Net interest income $ 607,158 $ 538,742 $ 477,611 Interest rate spread 5 3.91 % 3.70 % 3.65 % Net interest margin 6 4.13 % 3.92 % 4.12 % 1 Average balances are obtained from daily data. 2 Loans includes loans held for sale, loan premiums, discounts and unearned fees. 3 Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees.
Biggest changeAt or for the Fiscal Years Ended June 30, (Dollars in thousands, except per share amounts) 2023 2022 2021 Selected Balance Sheet Data: Total assets $ 20,348,469 $ 17,401,165 $ 14,265,565 Loans, net of allowance for credit losses 16,456,728 14,091,061 11,414,814 Loans held for sale, carried at fair value 23,203 4,973 29,768 Loans held for sale, lower of cost or fair value 776 10,938 12,294 Allowance for credit losses 166,680 148,617 132,958 Securities—trading 758 1,758 1,983 Securities—available-for-sale 232,350 262,518 187,335 Securities borrowed 134,339 338,980 619,088 Customer, broker-dealer and clearing receivables 374,074 417,417 369,815 Total deposits 17,123,108 13,946,422 10,815,797 Advances from the FHLB 90,000 117,500 353,500 Borrowings, subordinated debentures and other borrowings 361,779 445,244 221,358 Securities loaned 159,832 474,400 728,988 Customer, broker-dealer and clearing payables 445,477 511,654 535,425 Total stockholders’ equity 1,917,159 1,642,973 1,400,936 Selected Income Statement Data: Interest and dividend income $ 1,157,138 $ 659,728 $ 617,863 Interest expense 374,017 52,570 79,121 Net interest income 783,121 607,158 538,742 Provision for credit losses 24,750 18,500 23,750 Net interest income after provision for credit losses 758,371 588,658 514,992 Non-interest income 120,488 113,363 105,261 Non-interest expense 447,115 362,062 314,510 Income before income tax expense 431,744 339,959 305,743 Income tax expense 124,579 99,243 90,036 Net income $ 307,165 $ 240,716 $ 215,707 Net income attributable to common stock $ 307,165 $ 240,716 $ 215,518 Per Common Share Data: Net income: Basic $ 5.15 $ 4.04 $ 3.64 Diluted $ 5.07 $ 3.97 $ 3.56 Adjusted earnings per common share (Non-GAAP 1 ) $ 5.39 $ 4.23 $ 3.68 Book value per common share $ 32.53 $ 27.48 $ 23.62 Tangible book value per common share (Non-GAAP 1 ) $ 29.51 $ 24.45 $ 21.36 Weighted-average number of common shares outstanding: Basic 59,691,541 59,523,626 59,229,495 Diluted 60,566,854 60,610,954 60,519,611 Common shares outstanding at end of period 58,943,035 59,777,949 59,317,944 45 Table of Cont ents At or for the Fiscal Years Ended June 30, (Dollars in thousands, except per share amounts) 2023 2022 2021 Performance Ratios and Other Data: Loan originations for investment $ 8,452,215 $ 10,366,796 $ 6,471,864 Loan originations for sale $ 160,607 $ 656,487 $ 1,608,700 Return on average assets 1.64 % 1.57 % 1.52 % Return on average common stockholders’ equity 17.22 % 15.61 % 16.51 % Interest rate spread 2 3.44 % 3.91 % 3.70 % Net interest margin 3 4.35 % 4.13 % 3.92 % Net interest margin - Banking segment only 3 4.48 % 4.36 % 4.11 % Efficiency ratio 4 49.48 % 50.25 % 48.84 % Efficiency ratio - Banking segment only 4 47.76 % 41.61 % 41.95 % Capital Ratios: Equity to assets at end of period 9.42 % 9.44 % 9.82 % Axos Financial, Inc.: Tier 1 leverage (to adjusted average assets) 8.96 % 9.25 % 8.82 % Common equity tier 1 capital (to risk-weighted assets) 10.94 % 9.86 % 11.36 % Tier 1 capital (to risk-weighted assets) 10.94 % 9.86 % 11.36 % Total capital (to risk-weighted assets) 13.82 % 12.73 % 13.78 % Axos Bank: Tier 1 leverage (to adjusted average assets) 9.68 % 10.65 % 9.45 % Common equity tier 1 capital (to risk-weighted assets) 11.63 % 11.24 % 12.28 % Tier 1 capital (to risk-weighted assets) 11.63 % 11.24 % 12.28 % Total capital (to risk-weighted assets) 12.50 % 12.01 % 13.21 % Axos Clearing LLC: Net capital $ 35,221 $ 38,915 $ 35,950 Excess capital $ 29,905 $ 32,665 $ 27,904 Net capital as percentage of aggregate debit item 13.25 % 12.45 % 8.94 % Net capital in excess of 5% aggregate debit item $ 21,930 $ 23,290 $ 15,836 Asset Quality Ratios: Net annualized charge-offs (recoveries) to average loans outstanding 0.04 % 0.02 % 0.12 % Net annualized charge-offs (recoveries) to average loans outstanding excluding tax products 0.04 % 0.02 % 0.07 % Non-performing loans and leases to total loans 0.52 % 0.83 % 1.26 % Non-performing assets to total assets 0.47 % 0.68 % 1.07 % Allowance for credit losses - loans to total loans held for investment at end of period 1.00 % 1.04 % 1.15 % Allowance for credit losses - loans to non-performing loans 191.23 % 125.74 % 91.57 % 1 See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Use of Non-GAAP Financial Measures.” 2 Interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average rate paid on interest-bearing liabilities. 3 Net interest margin represents net interest income as a percentage of average interest-earning assets. 4 Efficiency ratio represents non-interest expense as a percentage of the aggregate of net interest income and non-interest income. 46 Table of Cont ents 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 Fiscal Years Ended June 30, 2023 2022 2021 (Dollars in thousands) Average Balance 1 Interest Income / Expense Average Yields Earned / Rates Paid Average Balance 1 Interest Income / Expense Average Yields Earned / Rates Paid Average Balance 1 Interest Income / Expense Average Yields Earned / Rates Paid Assets: Loans 2,3 $ 15,571,290 $ 1,048,874 6.74 % $ 12,576,873 $ 626,628 4.98 % $ 11,332,020 $ 584,410 5.16 % Interest-earning deposits in other financial institutions 1,761,902 73,467 4.17 % 1,233,983 4,501 0.36 % 1,600,811 2,185 0.14 % Investment securities 259,473 14,669 5.65 % 176,951 6,952 3.93 % 192,420 9,560 4.97 % Securities borrowed and margin lending 4 388,386 18,657 4.80 % 687,363 20,512 2.98 % 613,735 20,466 3.33 % Stock of the regulatory agencies 20,936 1,471 7.03 % 21,844 1,135 5.20 % 20,588 1,242 6.03 % Total interest-earning assets 18,001,987 $ 1,157,138 6.43 % 14,697,014 $ 659,728 4.49 % 13,759,574 $ 617,863 4.49 % Non-interest-earning assets 735,783 658,494 394,085 Total assets $ 18,737,770 $ 15,355,508 $ 14,153,659 Liabilities and Stockholders’ Equity: Interest-bearing demand and savings $ 10,211,737 $ 305,655 2.99 % $ 6,773,321 $ 20,053 0.30 % $ 7,204,698 $ 29,031 0.40 % Time deposits 1,225,537 33,826 2.76 % 1,226,774 13,567 1.11 % 1,825,795 31,498 1.73 % Securities loaned 303,932 3,673 1.21 % 469,051 1,124 0.24 % 412,385 1,496 0.36 % Advances from the FHLB 423,612 12,644 2.98 % 349,796 4,625 1.32 % 211,077 4,672 2.21 % Borrowings, subordinated notes and debentures 362,733 18,219 5.02 % 302,454 13,201 4.36 % 340,699 12,424 3.65 % Total interest-bearing liabilities 12,527,551 $ 374,017 2.99 % 9,121,396 $ 52,570 0.58 % 9,994,654 $ 79,121 0.79 % Non-interest-bearing demand deposits 3,730,524 3,927,195 2,182,009 Other non-interest-bearing liabilities 695,617 764,542 671,581 Stockholders’ equity 1,784,078 1,542,375 1,305,415 Total liabilities and stockholders’ equity $ 18,737,770 $ 15,355,508 $ 14,153,659 Net interest income $ 783,121 $ 607,158 $ 538,742 Interest rate spread 5 3.44 % 3.91 % 3.70 % Net interest margin 6 4.35 % 4.13 % 3.92 % 1 Average balances are obtained from daily data. 2 Loans includes loans held for sale, loan premiums, discounts and unearned fees. 3 Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees. 4 Margin lending is the significant component of the asset titled customer, broker-dealer and clearing receivables on the audited consolidated balance sheets. 5 Interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average rate paid on interest-bearing liabilities. 6 Net interest margin represents net interest income as a percentage of average interest-earning assets. 47 Table of Cont ents RESULTS OF OPERATIONS Our results of operations depend on our net interest income, which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities.
Critical accounting policies and estimates are those that we consider most important to the portrayal of our financial condition and results of operations because they require our most difficult judgments, often as a result of the need to make estimates that are inherently uncertain. We have identified critical accounting policies and estimates below.
Critical accounting estimates are those that we consider most important to the portrayal of our financial condition and results of operations because they require our most difficult judgments, often as a result of the need to make estimates that are inherently uncertain. We have identified critical accounting policies and estimates below.
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); and (ii) effects on interest income and interest expense attributable to changes in rate (changes in rate multiplied by prior volume).
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); and (ii) effects on interest income and interest expense attributable to changes in rate (changes in rate multiplied by prior volume).
On March 31, 2021, the Company completed the redemption of $51.0 million aggregate principal amount of its Notes 2026. The Notes 2026 were redeemed for cash by the Company at 100% of their principal amount, plus accrued and unpaid interest, in accordance with the terms of the indenture governing the Notes 2026.
The 2026 Notes were redeemed for cash by the Company at 100% of their principal amount, plus accrued and unpaid interest, in accordance with the terms of the indenture governing the 2026 Notes. On March 31, 2021, the Company completed the redemption of $51.0 million aggregate principal amount of its 2026 Notes.
The Notes mature on October 1, 2030 and accrue interest at a fixed rate per annum equal to 4.875%, payable semi-annually in arrears on April 1 and October 1 of each year, commencing on April 1, 2021.
The 2030 Notes mature on October 1, 2030 and accrue interest at a fixed rate per annum equal to 4.875%, payable semi-annually in arrears on April 1 and October 1 of each year, commencing on April 1, 2021.
The Notes may be redeemed on or after October 1, 2025, which date may be extended at the Company’s discretion, at a redemption price equal to principal plus accrued and unpaid interest, subject to certain conditions.
The 2030 Notes may be redeemed on or after October 1, 2025, which date may be extended at the Company’s discretion, at a redemption price equal to principal plus accrued and unpaid interest, subject to certain conditions.
At June 30, 2022, our Company and Bank met all the capital adequacy requirements to which they were subject to and were “well capitalized” under the regulatory framework for prompt corrective action. Management believes that no conditions or events have occurred since June 30, 2022 that would materially adversely change the Company’s and Bank’s capital classifications.
At June 30, 2023, our Company and Bank met all the capital adequacy requirements to which they were subject to and were “well capitalized” under the regulatory framework for prompt corrective action. Management believes that no conditions or events have occurred since June 30, 2023 that would materially adversely change the Company’s and Bank’s capital classifications.
In the Securities business, interest is earned on margin loan balances, securities borrowed, and cash deposit balances. Interest expense is incurred from cash borrowed through bank lines and securities 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.
These tax credits reduced the effective tax rate by approximately 0.44% and 0.59%, respectively. SEGMENT RESULTS The Company determines reportable segments based on the services offered, the significance of the services offered, the significance of those services to the Company’s financial condition and operating results and management’s regular review of the operating results of those services.
These tax credits reduced the effective tax rate by approximately 0.45% and 0.44%, respectively. SEGMENT RESULTS The Company determines reportable segments based on the services offered, the significance of the services offered, the significance of those services to the Company’s financial condition and operating results and management’s regular review of the operating results of those services.
In March 2021, we filed a new shelf registration with the SEC which allows us to issue up to $400.0 million through the sale of debt securities, common stock, preferred stock and warrants. In February 2022, the Company completed the sale of $150.0 million aggregate principal amount of its 4.00% Fixed-to-Floating Rate Subordinated Notes (the “Notes”).
In March 2021, we filed a new shelf registration with the SEC which allows us to issue up to $400.0 million through the sale of debt securities, common stock, preferred stock and warrants. In February 2022, the Company completed the sale of $150.0 million aggregate principal amount of its 4.00% Fixed-to-Floating Rate Subordinated Notes (the “2032 Notes”).
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 purchase price of $54.8 million consisted entirely of cash consideration paid upon acquisition and working capital adjustments. This acquisition was 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.
LIQUIDITY AND CAPITAL RESOURCES Liquidity . For Axos Bank, our sources of liquidity include deposits, borrowings, payments and maturities of outstanding loans, sales of loans, maturities or gains on sales of investment securities and other short-term investments.
LIQUIDITY AND CAPITAL RESOURCES Liquidity . For Axos Bank, our sources of liquidity include deposits, borrowings, payments and maturities of outstanding loans, sales of loans, maturities or sales of investment securities and other short-term investments.
COMPARISON OF THE FISCAL YEARS ENDED JUNE 30, 2022 AND JUNE 30, 2021 Net Interest Income . The following table sets forth the effects of changing rates and volumes on our net interest income.
COMPARISON OF THE FISCAL YEARS ENDED JUNE 30, 2023 AND JUNE 30, 2022 Net Interest Income . The following table sets forth the effects of changing rates and volumes on our net interest income.
From and including March 1, 2027, to, but excluding March 1, 2032 or the date of early redemption, the Notes will bear interest at a floating rate per annum equal to a benchmark rate of the Three-Month Term SOFR plus a spread of 2.27 basis points, payable quarterly in arrears on March 1, June 1, September 1 and December 1 of each year, commencing on June 1, 2027.
From and including March 1, 2027, to, but excluding March 1, 2032 or the date of early redemption, the 2032 Notes will bear interest at a floating rate per annum equal to three-month term SOFR plus a spread of 227 basis points, payable quarterly in arrears on March 1, June 1, September 1 and December 1 of each year, commencing on June 1, 2027.
The Notes are obligations only of Axos Financial, Inc. The Notes mature on March 1, 2032 and accrue interest at a fixed rate per annum equal to 4.00%, payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2022.
The 2032 Notes are obligations only of Axos Financial, Inc. The 2032 55 Table of Cont ents Notes mature on March 1, 2032 and accrue interest at a fixed rate per annum equal to 4.00%, payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2022.
We are subject to federal and state income taxes, and our effective tax rates were 29.19%, 29.45% and 30.15% for the fiscal years ended June 30, 2022, 2021, and 2020, respectively. Other factors that affect our results of operations include expenses relating to data processing, advertising, depreciation, occupancy, professional services, and other miscellaneous expenses.
We are subject to federal and state income taxes, and our effective tax rates were 28.85%, 29.19% and 29.45% for the fiscal years ended June 30, 2023, 2022, and 2021, respectively. Other factors that affect our results of operations include expenses relating to data processing, advertising, depreciation, occupancy, professional services, and other miscellaneous expenses.
The Notes may be redeemed on or after March 1, 2027, which date may be extended at the Company’s discretion, at a redemption price equal to principal plus accrued and unpaid interest, subject to certain conditions. Fees and costs incurred in connection with the debt offering amortize to interest expense over the term of the Notes. Off-Balance Sheet Commitments .
The 2032 Notes may be redeemed on or after March 1, 2027, which date may be extended at the Company’s discretion, at a redemption price equal to principal plus accrued and unpaid interest, subject to certain conditions. Fees and costs incurred in connection with the debt offering amortize to interest expense over the term of the 2032 Notes.
The largest component of non-interest expense is salary and benefits, which is a function of the number of personnel, which increased to 1,335 full-time equivalent employees at June 30, 2022, from 1,165 full time employees at June 30, 2021.
The largest component of non-interest expense is salary and benefits, which is a function of the number of personnel, which increased to 1,455 full-time equivalent employees at June 30, 2023, from 1,335 full-time employees at June 30, 2022.
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 at Axos Bank.
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 at Axos Bank.
The loan portfolio increased $2.7 billion on a net basis, primarily from portfolio loan originations of $10.4 billion, less principal repayments and other adjustments of $7.7 billion. Total cash increased by $0.5 billion primarily due to increased deposits.
The loan portfolio increased $2.4 billion on a net basis, primarily from portfolio loan originations of $8.3 billion, less principal repayments and other adjustments of $5.9 billion. Total cash increased by $0.8 billion primarily due to increased deposits.
Our net interest income has increased as a result of the growth in our interest earning assets and is subject to competitive factors in online banking and other markets. Our net interest income is reduced by our estimate of credit loss provisions for our loan portfolio.
Our net interest income has increased primarily as a result of both increased rates earned on and growth in our interest-earning assets and is subject to competitive factors in online banking and other markets. Our net interest income is reduced by our estimate of credit loss provisions for our loan portfolio.
Axos Clearing has a $175.0 million committed unsecured line of credit available for limited purpose borrowing, which includes $100.0 million from Axos Financial, Inc. As of June 30, 2022, there was $53.1 million outstanding after elimination of intercompany balances. This credit facility bears interest at rates based on the Federal Funds rate and borrowings are due upon demand.
Axos Clearing has a $190.0 million unsecured line of credit available for limited purpose borrowing, which includes $100.0 million from Axos Financial, Inc. As of June 30, 2023, there was $15.7 million outstanding after elimination of intercompany balances. This credit facility bears interest at rates based on the Federal Funds rate and borrowings are due upon demand.
From and including October 1, 2025, to, but excluding October 1, 2030 or the date of early redemption, the Notes will bear interest at a floating rate per annum equal to a benchmark rate (which is expected to be the Three-Month Term Secured Overnight Financing Rate) plus a spread of 476 basis points, payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, commencing on January 2026.
From and including October 1, 2025, to, but excluding October 1, 2030 or the date of early redemption, the 2030 Notes will bear interest at a floating rate per annum equal to the three-month term SOFR plus a spread of 476 basis points, payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, commencing on January 2026.
FRBSF borrowings are collateralized by commercial loans, consumer loans and mortgage-backed securities pledged to the FRBSF. Based on loans and securities pledged at June 30, 2022, the Bank had a total borrowing capacity of approximately $2.8 billion, all of which was available for use.
The Bank can borrow from the discount window at the FRBSF. FRBSF borrowings are collateralized by commercial loans, consumer loans and mortgage-backed securities pledged to the FRBSF. Based on loans and securities pledged at June 30, 2023, the Bank had a total borrowing capacity of approximately $2.7 billion, all of which was available for use.
As a percentage of the outstanding loan balance, the Company’s allowance was 1.04% at June 30, 2022 and 1.15% at June 30, 2021. Provisions for credit losses were $18.5 million for fiscal 2022 and $23.8 million for fiscal 2021.
As a percentage of the outstanding loan balance, the Company’s allowance was 1.00% and 1.04% at June 30, 2023 and 2022, respectively. Provisions for credit losses were $24.8 million and $18.5 million for fiscal year 2023 and 2022, respectively.
At June 30, 2022, we had commitments to originate loans with an aggregate outstanding principal balance of $3,504.3 million, commitments to sell loans with an aggregate outstanding principal balance at the time of sale of $8.4 million, and no commitments to purchase loans, investment securities or any other unused lines of credit. See Item 3.
At June 30, 2023, we had unfunded commitments to originate loans with an aggregate outstanding principal balance of $2,917.6 million, commitments to sell loans with an aggregate outstanding principal balance at the time of sale of $24.9 millions, and no commitments to purchase loans, investment securities or any other unused lines of credit. See Item 3.
We also earn non-interest income primarily from mortgage banking activities, banking products and service activity, our Securities Business, prepaid card fee income, prepayment fee income from multifamily and commercial borrowers who repay their loans before maturity and from gains on sales of other loans and investment securities. Losses on investment securities reduce non-interest income.
We earn non-interest income primarily from mortgage banking activities, banking products and service activity, asset custody services, broker-dealer clearing and related services, prepayment fee income from multifamily and commercial borrowers who repay their loans before maturity and from gains on sales of other loans and investment securities. Losses on sales of investment securities reduce non-interest income.
The change in interest due to both volume and rate has been allocated proportionally to both, based on their relative absolute values.
The change in interest due to both volume and rate has been allocated proportionally to each based on the relative changes attributable to volume and changes attributable to rate.
Securities Business For the fiscal year ended June 30, 2022, our Securities Business segment had a loss before taxes of $2.4 million compared to the loss before taxes of $1.7 million for the fiscal year ended June 30, 2021.
Securities Business For the fiscal year ended June 30, 2023, our Securities Business segment had income before taxes of $59.6 million compared to the loss before taxes of $2.4 million for the fiscal year ended June 30, 2022.
On March 31, 2021, the Company completed the redemption of $51.0 million aggregate principal amount. The Notes 2026 were redeemed for cash by the Company at 100% of their principal amount, plus accrued and unpaid interest, in accordance with the terms of the indenture governing the Notes 2026.
The 2026 Notes were redeemed for cash by the Company at 100% of their principal amount, plus accrued and unpaid interest, in accordance with the terms of the indenture governing the 2026 Notes.
Securities Business Pursuant to the net capital requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Axos Clearing, is subject to the SEC Uniform Net Capital (Rule 15c3-1 of the Exchange Act).
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).
During the fiscal year ended June 30, 2019, $0.1 million of subordinated loans were repaid. The Company has made an indemnification claim against the $7.4 million remaining. 65 In September 2020, the Company completed the sale of $175.0 million aggregate principal amount of its 4.875% Fixed-to-Floating Rate Subordinated Notes due October 1, 2030 (the “Notes”).
The Company has made an indemnification claim against the $7.4 million remaining amount. In September 2020, the Company completed the sale of $175.0 million aggregate principal amount of its 4.875% Fixed-to-Floating Rate Subordinated Notes due October 1, 2030 (the “2030 Notes”).
The following table sets forth the changes in our allowance for credit losses, by portfolio class for the dates indicated: (Dollars in thousands) Single Family - Mortgage & Warehouse Multifamily and Commercial Mortgage Commercial Real Estate Auto & Consumer Commercial & Industrial - Non-RE Other Total Total Allowance as a % of Total Loans Balance at June 30, 2019 $ 22,290 $ 3,807 $ 14,632 $ 6,339 $ 9,544 $ 473 $ 57,085 0.60 % Provision for credit losses 3,546 793 6,420 7,429 4,542 19,470 42,200 Charge-offs (203) — — (5,047) (4,132) (16,451) (25,833) Recoveries 266 119 — 741 — 1,229 2,355 Balance at June 30, 2020 25,899 4,719 21,052 9,462 9,954 4,721 75,807 0.71 % Effect of Adoption of ASC 326 6,318 7,408 25,893 610 7,042 29 47,300 Provision for credit losses (3,242) 1,196 11,238 (1,354) 14,251 1,661 23,750 Charge-offs (2,502) (177) (255) (3,517) (2,833) (7,274) (16,558) Recoveries 131 — — 1,318 46 1,164 2,659 Balance at June 30, 2021 26,604 13,146 57,928 6,519 28,460 301 132,958 1.15 % Provision for credit losses (7,009) 1,332 11,411 10,492 2,544 (270) 18,500 Charge-offs (82) — — (4,024) (322) — (4,428) Recoveries 157 177 — 1,127 126 — 1,587 Balance at June 30, 2022 $ 19,670 $ 14,655 $ 69,339 $ 14,114 $ 30,808 $ 31 $ 148,617 1.04 % The following table sets forth our allowance for credit losses by portfolio class: At June 30, 2022 2021 2020 (Dollars in thousands) Amount of Allowance Loan Category as a % of Total Allowance Amount of Allowance Loan Category as a % of Total Allowance Amount of Allowance Loan Category as a % of Total Allowance Single Family - Mortgage & Warehouse $ 19,670 13.2 % $ 26,604 20.0 % $ 25,899 34.2 % Multifamily and Commercial Mortgage 14,655 9.9 % 13,146 9.9 % 4,719 6.2 % Commercial Real Estate 69,339 46.7 % 57,928 43.6 % 21,052 27.8 % Commercial & Industrial - Non-RE 30,808 20.7 % 28,460 21.4 % 9,954 13.1 % Auto & Consumer 14,114 9.5 % 6,519 4.9 % 9,462 12.5 % Other 31 — % 301 0.2 % 4,721 6.2 % Total $ 148,617 100.0 % $ 132,958 100.0 % $ 75,807 100.0 % The Company’s allowance for credit losses increased $15.7 million or 11.8% from June 30, 2021 to June 30, 2022.
The following table sets forth the changes in our allowance for credit losses, by portfolio class for the dates indicated: (Dollars in thousands) Single Family - Mortgage & Warehouse Multifamily and Commercial Mortgage Commercial Real Estate Commercial & Industrial - Non-RE Auto & Consumer Other Total Total Allowance as a % of Total Loans Balance at June 30, 2020 $ 25,899 $ 4,719 $ 21,052 $ 9,954 $ 9,462 $ 4,721 $ 75,807 0.71 % Effect of Adoption of ASC 326 6,318 7,408 25,893 7,042 610 29 47,300 Provision for credit losses (3,242) 1,196 11,238 14,251 (1,354) 1,661 23,750 Charge-offs (2,502) (177) (255) (2,833) (3,517) (7,274) (16,558) Recoveries 131 — — 46 1,318 1,164 2,659 Balance at June 30, 2021 26,604 13,146 57,928 28,460 6,519 301 132,958 1.15 % Provision for credit losses (7,009) 1,332 11,411 2,544 10,492 (270) 18,500 Charge-offs (82) — — (322) (4,024) — (4,428) Recoveries 157 177 — 126 1,127 — 1,587 Balance at June 30, 2022 19,670 14,655 69,339 30,808 14,114 31 148,617 1.04 % Provision for credit losses (2,302) 2,193 3,416 15,521 5,938 (16) 24,750 Charge-offs (314) — — — (9,142) — (9,456) Recoveries 449 — — 18 2,302 — 2,769 Balance at June 30, 2023 $ 17,503 $ 16,848 $ 72,755 $ 46,347 $ 13,212 $ 15 $ 166,680 1.00 % Net Charge-Offs to Average Loans - Year Ended June 30, 2023 — % — % — % — % 1.12 % — % 0.04 % Net Charge-Offs (Recoveries) to Average Loans - Year Ended June 30, 2022 — % (0.01) % — % 0.01 % 0.60 % — % 0.02 % Net Charge-Offs to Average Loans - Year Ended June 30, 2021 0.05 % 0.01 % 0.01 % 0.30 % 0.67 % 3.96 % 0.12 % The Company’s allowance for credit losses increased $18.1 million or 12.2% from June 30, 2022 to June 30, 2023.
Consolidated and Bank Capital 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 consolidated financial statements.
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 consolidated financial statements. The Federal Reserve establishes capital requirements for our Company and the OCC has similar requirements for our Bank.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES The following discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements and the notes thereto, which have been prepared in accordance with accounting principles generally accepted in the United States of America.
There were no other significant acquisitions undertaken during fiscal years 2023, 2022 or 2021. CRITICAL ACCOUNTING ESTIMATES The following discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements and the notes thereto, which have been prepared in accordance with accounting principles generally accepted in the United States of America.
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. 66 Information presented for June 30, 2022, reflects the Basel III capital requirements for both our Company and Bank.
The following tables present regulatory capital information for our Company and Bank. Information presented for June 30, 2023, reflects the Basel III capital requirements for both our Company and Bank.
The 61 increase was largely the result of $240.7 million in net income for the fiscal year, $6.8 million vesting and issuance of RSUs and stock-based compensation expense, partially offset by a $5.4 million unrealized loss in other comprehensive income, net of tax.
The increase was largely the result of $307.2 million in net income for the fiscal year and $20.0 million vesting and issuance of RSUs and stock-based compensation expense, partially offset by $49.3 million from purchases of treasury stock and a $3.7 million unrealized loss in other comprehensive income, net of tax.
At June 30, 2022, the Company had a deposit requirement of $29.1 million and maintained a deposit of $36.3 million. On July 1, 2022, Axos Clearing made a withdrawal of $6.1 million of excess deposits. At June 30, 2021, the Company had a deposit requirement of $73.6 million and maintained a deposit of $71.0 million.
On July 1, 2023, Axos Clearing did not have to make a deposit to satisfy the deposit requirement. At June 30, 2022, the Company calculated a deposit requirement of $29.1 million and maintained a deposit of $36.3 million. On July 1, 2022, Axos Clearing made a withdrawal of $6.1 million of excess deposits.
Net charge-offs for other decreased $9.1 million for fiscal 2021, primarily due to a $6.3 million decrease in Refund Advance charge-offs and a $0.9 million decrease in net charge-offs for unsecured consumer loans. 64 Between June 30, 2021 and 2022, the Bank’s total allowance for credit losses as a proportion of the loan portfolio decreased 11 basis points primarily due to updates in economic and business conditions and loan mix.
The decrease year-over-year was primarily due to decreases in net charge-offs of $6.1 million in the fully reserved Refund Advance loan portfolio. Between June 30, 2022 and 2023, the Company’s total allowance for credit losses as a proportion of the loan portfolio decreased 4 basis points primarily due to updates in economic and business conditions and loan mix.
The decrease in non-performing assets during the fiscal year ended June 30, 2022 was substantially comprised of a decrease in non-performing loans of $27.0 million. Non-performing assets as a percentage of total assets decreased to 0.68% at June 30, 2022 from 1.10% at June 30, 2021.
The decrease in non-performing assets during the fiscal year ended June 30, 2023 was primarily the result of a decrease in non-performing loans of $31.0 million, mainly in single family mortgage loans. Non-performing assets as a percentage of total assets decreased to 0.47% at June 30, 2023 from 0.68% at June 30, 2022.
Total liabilities increased by $2.9 billion or 22.5%, to $15.8 billion at June 30, 2022, up from $12.9 billion at June 30, 2021. The increase in total liabilities resulted primarily from growth in deposits of $3.1 billion, partially offset by decreased securities loaned of $0.3 billion and decreased advances from the Federal Home Loan Bank of $0.2 billion.
Total liabilities increased by $2.7 billion or 17.0%, to $18.4 billion at June 30, 2023, up from $15.8 billion at June 30, 2022. The increase in total liabilities resulted primarily from growth in deposits of $3.2 billion, partially offset by decreased securities loaned of $0.3 billion and decreased borrowings, subordinated notes and debentures of $0.1 billion.
In January 2019, we issued subordinated notes totaling $7.5 million, to the principal stockholders of COR Securities in an equal principal amount, with a maturity of 15 months, to serve as the source of payment of indemnification obligations of the principal stakeholders of COR Securities under the Merger Agreement. Interest accrues at a rate of 6.25% per annum.
(“COR Securities”) in an equal principal amount, with a maturity of 15 months, to serve as the source of payment of indemnification obligations of the principal stakeholders of COR Securities under the Merger Agreement. Interest accrues at a rate of 6.25% per annum. During the fiscal year ended June 30, 2019, $0.1 million of subordinated loans were repaid.
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 provides investors with an alternative understanding of Axos’ business.
We believe excluding the non-recurring acquisition related costs, and other costs provides investors with an alternative understanding of Axos’ business.
The Company’s and Bank’s capital amounts, capital ratios and requirements were as follows: Minimum Capital Requirement Minimum Capital Requirement with Capital Buffer Minimum to Be Well Capitalized June 30, (Dollars in thousands) 2022 2021 2020 Regulatory Capital Ratios (Company): Tier 1 leverage ratio 9.25 % 8.82 % 8.97 % 4.00 % 4.00 % N/A Common equity tier 1 capital ratio 9.86 % 11.36 % 11.22 % 4.50 % 7.00 % N/A Tier 1 risk-based capital ratio 9.86 % 11.36 % 11.27 % 6.00 % 8.50 % N/A Total risk-based capital ratio 12.73 % 13.78 % 12.64 % 8.00 % 10.50 % N/A Regulatory Capital Ratios (Bank): Tier 1 leverage ratio 10.65 % 9.45 % 9.25 % 4.00 % 4.00 % 5.00 % Common equity tier 1 capital ratio 11.24 % 12.28 % 11.79 % 4.50 % 7.00 % 6.50 % Tier 1 risk-based capital ratio 11.24 % 12.28 % 11.79 % 6.00 % 8.50 % 8.00 % Total risk-based capital ratio 12.01 % 13.21 % 12.62 % 8.00 % 10.50 % 10.00 % At June 30, 2022, the Company and Bank were in compliance with the capital conservation buffer requirement.
Beginning with fiscal year 2023, this cumulative amount is phased out of regulatory capital at 25% per year until it is 100% phased out of regulatory capital beginning in fiscal year 2026. 56 Table of Cont ents The Company’s and Bank’s capital ratios and requirements were as follows: Minimum Capital Requirement Minimum Capital Requirement with Capital Buffer Minimum to Be Well Capitalized June 30, 2023 2022 2021 Regulatory Capital Ratios (Company): Tier 1 leverage ratio 8.96 % 9.25 % 8.82 % 4.00 % 4.00 % N/A Common equity tier 1 capital ratio 10.94 % 9.86 % 11.36 % 4.50 % 7.00 % N/A Tier 1 risk-based capital ratio 10.94 % 9.86 % 11.36 % 6.00 % 8.50 % N/A Total risk-based capital ratio 13.82 % 12.73 % 13.78 % 8.00 % 10.50 % N/A Regulatory Capital Ratios (Bank): Tier 1 leverage ratio 9.68 % 10.65 % 9.45 % 4.00 % 4.00 % 5.00 % Common equity tier 1 capital ratio 11.63 % 11.24 % 12.28 % 4.50 % 7.00 % 6.50 % Tier 1 risk-based capital ratio 11.63 % 11.24 % 12.28 % 6.00 % 8.50 % 8.00 % Total risk-based capital ratio 12.50 % 12.01 % 13.21 % 8.00 % 10.50 % 10.00 % Axos Clearing Capital Requirements.
The following table sets forth information regarding our non-interest expense for the periods shown: For the Fiscal Year Ended June 30, (Dollars in thousands) 2022 2021 Salaries and related costs $ 167,390 $ 152,576 Data processing 50,159 40,719 Depreciation and amortization 24,596 24,124 Advertising and promotional 13,580 14,212 Occupancy and equipment 13,745 13,402 Professional services 22,482 22,241 Broker-dealer clearing charges 15,184 11,152 FDIC and regulator fees 11,823 10,603 General and administrative expenses 43,103 25,481 Total non-interest expense $ 362,062 $ 314,510 Non-interest expense totaled $362.1 million for the fiscal year ended June 30, 2022, an increase of $47.6 million compared to fiscal 2021.
The following table sets forth information regarding our non-interest expense for the periods shown: For the Fiscal Year Ended June 30, (Dollars in thousands) 2023 2022 Salaries and related costs $ 204,271 $ 167,390 Data processing 60,557 50,159 Depreciation and amortization 23,387 24,596 Advertising and promotional 37,150 13,580 Occupancy and equipment 15,647 13,745 Professional services 29,268 22,482 Broker-dealer clearing charges 13,433 15,184 FDIC and regulatory fees 15,534 11,823 General and administrative expenses 47,868 43,103 Total non-interest expense $ 447,115 $ 362,062 For fiscal year 2023, non-interest expense increased $85.1 million, or 23.5% compared to non-interest expense in fiscal year 2022.
Based on loans and securities pledged at June 30, 2022, we had a total borrowing availability of an additional $2.0 billion available immediately and an additional $3.9 billion available with additional collateral, for advances from the FHLB for terms up to ten years. The Bank can borrow from the discount window at the FRBSF.
Borrowings are collateralized by pledging certain mortgage loans and investment securities to the FHLB. Based on loans and securities pledged at June 30, 2023, we had a total borrowing availability of an additional $3.1 billion available immediately and an additional $4.5 billion available with additional collateral, for advances from the FHLB for terms of up to ten years.
As of June 30, 2022, there was $58.4 million outstanding. These credit facilities bear interest at rates based on the Federal Funds rate and borrowings are due upon demand. The weighted average interest rate on the borrowings at June 30, 2022 was 2.99%.
Axos Clearing has $150.0 million of secured lines of credit available for borrowing. As of June 30, 2023, there was $11.5 million outstanding. These credit facilities bear interest at rates based on the Federal Funds rate and borrowings are due upon demand. The weighted-average interest rate on the borrowings at June 30, 2023 was 7.0%.
We use cash generated through retail deposits, our largest funding source, to offset the cash utilized in lending and investing activities. Our short-term interest-earning investment securities are used to provide liquidity for lending and other operational requirements. As an additional source of funds, we have two credit agreements.
We use cash generated through retail deposits, our largest funding source, to offset the cash utilized in lending and investing activities. Our short-term interest-earning investment securities are used to provide liquidity for lending and other operational requirements. 54 Table of Cont ents Axos Bank can borrow up to 40% of its total assets from the FHLB.
The following table sets forth information regarding our non-interest income: For the Fiscal Year Ended June 30, (Dollars in thousands) 2022 2021 Prepayment penalty fee income $ 13,303 $ 7,166 Gain on sale – other 165 491 Mortgage banking income 19,033 42,150 Advisory fee income 29,230 — Broker-dealer fee income 22,880 26,317 Banking and service fees 28,752 29,137 Total non-interest income $ 113,363 $ 105,261 Non-interest income totaled $113.4 million for the fiscal year ended June 30, 2022 compared to non-interest income of $105.3 million for fiscal 2021.
The following table sets forth information regarding our non-interest income: For the Fiscal Year Ended June 30, (Dollars in thousands) 2023 2022 Broker-dealer fee income $ 46,503 $ 22,880 Advisory fee income 28,324 29,230 Banking and service fees 32,938 28,752 Mortgage banking income 7,101 19,198 Prepayment penalty fee income 5,622 13,303 Total non-interest income $ 120,488 $ 113,363 For fiscal year 2023, non-interest income increased $7.1 million, or 6.3% compared to non-interest income in fiscal year 2022.
Stockholders’ equity increased by $242.0 million, or 17.3%, to $1.6 billion at June 30, 2022, up from $1.4 billion at June 30, 2021.
Stockholders’ equity increased by $274.2 million, or 16.7%, to $1.9 billion at June 30, 2023, up from $1.6 billion at June 30, 2022.
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 the 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. 51 The following table presents our Banking 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 Fiscal Years Ended June 30, 2022 2021 (Dollars in thousands) Average Balance 1 Interest Income/ Expense Average Yields Earned/Rates Paid Average Balance 1 Interest Income/Expense Average Yields Earned/Rates Paid Assets: Loans 2,3 $ 12,539,502 $ 624,501 4.98 % $ 11,287,008 $ 581,504 5.15 % Interest-earning deposits in other financial institutions 953,490 3,189 0.33 % 1,329,029 1,359 0.10 % Investment securities 3 198,637 7,410 3.73 % 221,213 10,166 4.60 % Stock of the regulatory agencies, at cost 18,789 1,132 6.02 % 17,250 932 5.40 % Total interest-earning assets 13,710,418 636,232 4.64 % 12,854,500 593,961 4.62 % Non-interest-earning assets 296,228 172,712 Total Assets $ 14,006,646 $ 13,027,212 Liabilities and Stockholder's Equity: Interest-bearing demand and savings $ 6,843,840 $ 20,207 0.30 % $ 7,324,855 $ 29,626 0.40 % Time deposits 1,226,774 13,567 1.11 % 1,825,795 31,498 1.73 % Advances from the FHLB 349,796 4,625 1.32 % 211,077 4,672 2.21 % Borrowings, subordinated notes and debentures 93 — — % 116,255 406 0.35 % Total interest-bearing liabilities $ 8,420,503 $ 38,399 0.46 % $ 9,477,982 $ 66,202 0.70 % Non-interest-bearing demand deposits 4,012,615 2,209,932 Other non-interest-bearing liabilities 143,841 121,545 Stockholder's equity 1,429,687 1,217,753 Total Liabilities and Stockholders' Equity $ 14,006,646 $ 13,027,212 Net interest income $ 597,833 $ 527,759 Interest rate spread 4 4.18 % 3.92 % Net interest margin 5 4.36 % 4.11 % 1 Average balances are obtained from daily data. 2 Loans include loans held for sale, loan premiums and unearned fees. 3 Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees.
The following table presents our Banking 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 Fiscal Years Ended June 30, 2023 2022 (Dollars in thousands) Average Balance 1 Interest Income/ Expense Average Yields Earned/Rates Paid Average Balance 1 Interest Income/Expense Average Yields Earned/Rates Paid Assets: Loans 2,3 $ 15,548,042 $ 1,047,580 6.74 % $ 12,539,502 $ 624,501 4.98 % Interest-earning deposits in other financial institutions 1,510,076 64,707 4.29 % 953,490 3,189 0.33 % Investment securities 3 268,072 14,849 5.54 % 198,637 7,410 3.73 % Stock of the regulatory agencies, at cost 20,936 1,462 6.98 % 18,789 1,132 6.02 % Total interest-earning assets 17,347,126 1,128,598 6.51 % 13,710,418 636,232 4.64 % Non-interest-earning assets 345,535 296,228 Total Assets $ 17,692,661 $ 14,006,646 Liabilities and Stockholder's Equity: Interest-bearing demand and savings $ 10,299,234 $ 305,832 2.97 % $ 6,843,840 $ 20,207 0.30 % Time deposits 1,225,537 33,826 2.76 % 1,226,774 13,567 1.11 % Advances from the FHLB 423,612 12,644 2.98 % 349,796 4,625 1.32 % Borrowings, subordinated notes and debentures 36 — — % 93 — — % Total interest-bearing liabilities $ 11,948,419 $ 352,302 2.95 % $ 8,420,503 $ 38,399 0.46 % Non-interest-bearing demand deposits 3,789,607 4,012,615 Other non-interest-bearing liabilities 189,457 143,841 Stockholder's equity 1,765,178 1,429,687 Total Liabilities and Stockholders' Equity $ 17,692,661 $ 14,006,646 Net interest income $ 776,296 $ 597,833 Interest rate spread 4 3.56 % 4.18 % Net interest margin 5 4.48 % 4.36 % 1 Average balances are obtained from daily data. 2 Loans include loans held for sale, loan premiums and unearned fees. 3 Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees. 4 Interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average rate paid on interest-bearing liabilities. 5 Net interest margin represents annualized net interest income as a percentage of average interest-earning assets. 51 Table of Cont ents Net Interest Income .
The following tables present the operating results of the segments: Fiscal Year Ended June 30, 2022 (Dollars in thousands) Banking Business Securities Business Corporate/Eliminations Axos Consolidated Net interest income $ 597,833 $ 17,580 $ (8,255) $ 607,158 Provision for credit losses 18,500 — — 18,500 Non-interest income 60,881 64,069 (11,587) 113,363 Non-interest expense 274,079 84,014 3,969 362,062 Income (loss) before taxes $ 366,135 $ (2,365) $ (23,811) $ 339,959 Fiscal Year Ended June 30, 2021 (Dollars in thousands) Banking Business Securities Business Corporate/Eliminations Axos Consolidated Net interest income $ 527,760 $ 18,746 $ (7,764) $ 538,742 Provision for credit losses 23,750 — — 23,750 Non-interest income 79,150 27,627 (1,516) 105,261 Non-interest expense 254,596 48,095 11,819 314,510 Income (loss) before taxes $ 328,564 $ (1,722) $ (21,099) $ 305,743 50 Banking Business For the fiscal year ended June 30, 2022, we had pre-tax income of $366.1 million compared to pre-tax income of $328.6 million for the fiscal year ended June 30, 2021.
The following tables present the operating results of the segments: Fiscal Year Ended June 30, 2023 (Dollars in thousands) Banking Business Securities Business Corporate/Eliminations Axos Consolidated Net interest income $ 776,294 $ 21,042 $ (14,215) $ 783,121 Provision for credit losses 24,750 — — $ 24,750 Non-interest income 42,260 141,107 (62,879) $ 120,488 Non-interest expense 390,911 102,572 (46,368) $ 447,115 Income (loss) before taxes $ 402,893 $ 59,577 $ (30,726) $ 431,744 Fiscal Year Ended June 30, 2022 (Dollars in thousands) Banking Business Securities Business Corporate/Eliminations Axos Consolidated Net interest income $ 597,833 $ 17,580 $ (8,255) $ 607,158 Provision for credit losses 18,500 — — $ 18,500 Non-interest income 60,881 64,069 (11,587) $ 113,363 Non-interest expense 274,079 84,014 3,969 $ 362,062 Income (loss) before taxes $ 366,135 $ (2,365) $ (23,811) $ 339,959 Banking Business For the fiscal year ended June 30, 2023, we had pre-tax income of $402.9 million compared to pre-tax income of $366.1 million for the fiscal year ended June 30, 2022.
Our future borrowings will depend on the growth of our lending operations and our exposure to interest rate risk. We expect to continue to use deposits and advances from the FHLB as the primary sources of funding our future asset growth. Axos Clearing has $150.0 million uncommitted secured lines of credit available for borrowing.
At June 30, 2023 we had $3.7 billion of loans pledged to the FRBSF. Our future borrowings will depend on the growth of our lending operations and our exposure to interest rate risk. We expect to continue to use deposits and advances from the FHLB as the primary sources of funding our future asset growth.
On July 1, 2021, Axos Clearing made a deposit to satisfy the deposit requirement. 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).
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). At June 30, 2023, the Company calculated a deposit requirement of $26.8 million and maintained a deposit of $32.0 million.
Remaining unamortized deferred financing costs associated with such notes were expensed and included under Interest Expense - Other Borrowings in the Consolidated Statements of Income.
Remaining unamortized deferred financing costs associated with such notes were expensed and included under “Interest Expense - Other Borrowings in the Consolidated Statements of Income.” In January 2019, we issued subordinated notes totaling $7.5 million to the principal stockholders of Cor Securities Holdings, Inc.
See “Asset Quality and Allowance for Credit Losses - Loans” for discussion of our allowance for credit losses and the related loss provisions. Non-interest Income .
Provision for Credit Losses . For fiscal year 2023, provision for credit losses increased $6.3 million compared to the provision for credit losses in fiscal year 2022. See “Asset Quality and Allowance for Credit Losses - Loans” for discussion of our allowance for credit losses and the related loss provisions. 48 Table of Cont ents Non-interest Income .
The unsecured line of credit requires Axos Clearing operate in accordance with specific covenants surrounding capital and debt ratios. Axos Clearing was in compliance of all covenants as of June 30, 2022. In December 2004, we completed a transaction that resulted in $5.2 million of junior subordinated debentures for our company with a stated maturity date of February 23, 2035.
In December 2004, we completed a transaction that resulted in the issuance of $5.2 million of junior subordinated debentures for our company with a stated maturity date of February 23, 2035.
Under the alternate method, Axos Clearing 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. 67 The net capital position of Axos Clearing was as follows: (Dollars in thousands) June 30, 2022 June 30, 2021 Net capital $ 38,915 $ 35,950 Less: required net capital 6,250 8,046 Excess capital $ 32,665 $ 27,904 Net capital as a percentage of aggregate debit items 12.45 % 8.94 % Net capital in excess of 5% aggregate debit items $ 23,290 $ 15,836 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.
The net capital position of Axos Clearing was as follows: (Dollars in thousands) June 30, 2023 June 30, 2022 Net capital $ 35,221 $ 38,915 Less: required net capital 5,316 6,250 Excess capital $ 29,905 $ 32,665 Net capital as a percentage of aggregate debit items 13.25 % 12.45 % Net capital in excess of 5% aggregate debit items $ 21,930 $ 23,290 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.
At June 30, 2022, the Company had a deposit requirement of $286.9 million and maintained a deposit of $335.8 million. On July 1, 2022, Axos Clearing made a withdrawal of excess deposits of $39 million. At June 30, 2021, the Company had a deposit requirement of $258.1 million and maintained a deposit of $251.2 million.
At June 30, 2023, the Company calculated a deposit requirement of $169.5 million and maintained a deposit of $116.8 million. On July 5, 2023, Axos Clearing made a deposit of $81.0 million to satisfy the deposit requirement. At June 30, 2022, the Company calculated a deposit requirement of $286.9 million and maintained a deposit of $335.8 million.
For further information on Securities, refer to Note 1 - “Summary of Significant Accounting Policies” and Note 4 - “Securities”. Allowance for Credit Losses . The Company maintains an allowance for credit loss for the Company’s held-for-investment loan portfolio, excluding those loans measured at fair value in accordance with applicable accounting standards.
The Company maintains an allowance for credit losses for its held-for-investment loan and net investment in leases portfolio, excluding loans measured at fair value in accordance with applicable accounting standards, which represents management’s estimate of the expected lifetime credit losses on the loans and net investment in leases.
We consider the ratios shown in the table below to be key indicators of the performance of our Banking Business segment: Fiscal Year Ended June 30, 2022 June 30, 2021 Efficiency ratio 41.61 % 41.95 % Return on average assets 1.64 % 1.76 % Interest rate spread 4.18 % 3.92 % Net interest margin 4.36 % 4.11 % Our Banking segment’s net interest margin exceeds our consolidated net interest margin.
For the fiscal year ended June 30, 2023, the increase in pre-tax income was primarily related to the increase in net interest income due largely to growth in the volume and rates earned on loans and leases, primarily from commercial real estate and commercial & industrial lending, partially offset by an increase in volume and rates on interest-bearing demand and savings deposits. 50 Table of Cont ents We consider the ratios shown in the table below to be key indicators of the performance of our Banking Business segment: Fiscal Year Ended June 30, 2023 June 30, 2022 Efficiency ratio 47.76 % 41.61 % Return on average assets 1.60 % 1.64 % Interest rate spread 3.56 % 4.18 % Net interest margin 4.48 % 4.36 % Our Banking segment’s net interest margin exceeds our consolidated net interest margin.
Below is a reconciliation of net income, the nearest compatible GAAP measure, to adjusted earnings and adjusted EPS (Non-GAAP) for the periods shown: For Year Ended June 30, (Dollars in thousands, except per share amounts) 2022 2021 2020 Net income $ 240,716 $ 215,707 $ 183,438 Acquisition-related costs 11,355 9,826 10,108 Other costs 1 10,975 — — Tax effect of adjustments (6,519) (2,894) (3,048) Adjusted earnings (Non-GAAP) $ 256,527 $ 222,639 $ 190,498 Adjusted EPS (Non-GAAP) $ 4.23 $ 3.68 $ 3.10 1 Primarily one-time resolution of a contractual claim.
Below is a reconciliation of net income, the nearest compatible GAAP measure, to adjusted earnings and adjusted EPS (Non-GAAP) for the periods shown: For Year Ended June 30, (Dollars in thousands, except per share amounts) 2023 2022 2021 Net income $ 307,165 $ 240,716 $ 215,707 Acquisition-related costs 10,948 11,355 9,826 Other costs 1 16,000 10,975 — Income tax effect (7,776) (6,519) (2,894) Adjusted earnings (Non-GAAP) $ 326,337 $ 256,527 $ 222,639 Average dilutive common shares outstanding 60,566,854 60,610,954 60,519,611 Diluted EPS $ 5.07 $ 3.97 $ 3.56 Acquisition-related costs 0.18 0.19 0.16 Other costs 1 0.27 0.18 — Income tax effect (0.13) (0.11) (0.04) Adjusted EPS (Non-GAAP) $ 5.39 $ 4.23 $ 3.68 1 Other costs for the year ended June 30, 2023 include an accrual as a result of an adverse legal judgement that has not been finalized.
(“Axos”) and its wholly owned subsidiaries, Axos Bank (the “Bank”) and Axos Nevada Holding, LLC (“Axos Nevada Holding”), collectively, the “Company.” Axos Nevada Holding owns the companies constituting the Securities Business segment, including; Axos Securities, LLC, Axos Clearing LLC (“Axos Clearing”), a clearing broker-dealer, Axos Invest, Inc., a registered investment advisor, and Axos Invest LLC, an introducing broker-dealer.
Axos Nevada Holding owns the companies constituting the Securities Business segment, including; Axos Securities, LLC, Axos Clearing LLC (“Axos Clearing”), a clearing broker-dealer, Axos Invest, Inc., a registered investment advisor, and Axos Invest LLC, an introducing broker-dealer. With approximately $20.3 billion in assets, Axos Bank provides consumer and business banking products through its low-cost distribution channels and affinity partners.
Adjustment of scenario weighting away from the baseline scenario to more severe scenarios would increase the allowance for credit losses on the Company’s held-for-investment loan portfolio.
The Company periodically reviews and adjusts the weighting of scenarios based on Management’s ACL framework. Adjustment of scenario weighting away from the baseline scenario to the adverse scenario should increase the allowance for credit losses on the Company’s held-for-investment loan and net investment in leases portfolio, all else remaining equal.
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.
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 both elected the five-year CECL transition guidance for calculating regulatory capital and ratios. The amounts in the following table reflect this election.
We define “adjusted earnings” 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 nonrecurring charges). Adjusted earnings per diluted common share (“adjusted EPS”) is calculated by dividing non-GAAP adjusted earnings by the average number of diluted common shares outstanding during the period.
However, 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 nonrecurring charges).
Income tax expense was $99.2 million for the fiscal year ended June 30, 2022 compared to $90.0 million for fiscal 2021. Our effective tax rates were 29.19% and 29.45% for the fiscal years ended June 30, 2022 and 2021, respectively. The Company received federal and state tax credits for the years ended June 30, 2022 and 2021, respectively.
For fiscal year 2023, income tax expense increased $25.3 million, or 25.5% compared to income tax expense in fiscal year 2022. The fiscal year 2023 effective tax rate of 28.85%, decreased by 0.34% compared to fiscal year 2022. The Company received federal and state tax credits for the years ended June 30, 2023 and 2022, respectively.
At June 30, 2022, we also had $175.0 million in unsecured federal funds lines of credit with two major banks under which there were no borrowings outstanding. In the past, the Bank has used long-term borrowings to fund our loans and to minimize our interest rate risk.
As of June 30, 2023, the Company pledged $5,128.4 million of loans and $0.2 million of securities to the FHLB to secure its borrowings. At June 30, 2023, we had $225.0 million in unsecured federal funds lines of credit with four major banks under which there were no borrowings outstanding.
The following table provides our Securities Business operating results: For the Fiscal Year Ended June 30, (Dollars in thousands) 2022 2021 Net interest income $ 17,580 $ 18,746 Non-interest income 64,069 27,627 Non-interest expense 84,014 48,095 Income (Loss) before taxes $ (2,365) $ (1,722) Net interest income for the fiscal year ended June 30, 2022 was $17.6 million compared to $18.7 million for the fiscal year ended June 30, 2021.
The following table provides our Securities Business operating results: For the Fiscal Year Ended June 30, (Dollars in thousands) 2023 2022 Net interest income $ 21,042 $ 17,580 Non-interest income 141,107 64,069 Non-interest expense 102,572 84,014 Income (Loss) before taxes $ 59,577 $ (2,365) For the fiscal year 2023, the Securities Business’s net interest income increased $3.5 million, or 19.7% compared to fiscal year 2022, resulting in large part from an increase in the rates earned on interest bearing cash deposit balances and margin lending.
The decrease in non-interest income for the fiscal year ended June 30, 2022, was primarily the result of a decrease in mortgage banking income of $23.1 million driven by the increase in mortgage rates partially offset by an increase of $6.1 million in prepayment penalty fee income.
The decrease in non-interest income was primarily the result of increased prevailing market interest rates which caused decreases of $12.1 million in mortgage banking income and $7.7 million in prepayment penalty income, which were partially offset by a $1.1 million increase in banking and servicing fees.
Axos Financial, Inc.’s common stock is listed on the NYSE under the symbol “AX” and is a component of the Russell 2000 ® Index and the S&P SmallCap 600 ® Index. For more information on Axos Bank, please visit axosbank.com.
Axos Clearing and Axos Invest LLC, provide comprehensive securities clearing 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 the NYSE under the symbol “AX” and is a component of the Russell 2000 ® Index and the S&P SmallCap 600 ® Index.
USE OF NON-GAAP FINANCIAL MEASURES In addition to the results presented in accordance with GAAP, this report includes non-GAAP financial measures such as 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.
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.
Below is a reconciliation of total stockholders’ equity, the nearest compatible GAAP measure, to tangible book value (Non-GAAP) as of the dates indicated: At the Fiscal Years Ended June 30, (Dollars in thousands, except per share amounts) 2022 2021 2020 Total stockholders’ equity $ 1,642,973 $ 1,400,936 $ 1,230,846 Less: preferred stock — — 5,063 Common stockholders’ equity 1,642,973 1,400,936 1,225,783 Less: mortgage servicing rights, carried at fair value 25,213 17,911 10,675 Less: goodwill and intangible assets 156,405 115,972 125,389 Tangible common stockholders’ equity (Non-GAAP) $ 1,461,355 $ 1,267,053 $ 1,089,719 Common shares outstanding at end of period 59,777,949 59,317,944 59,612,635 Tangible book value per common share (Non-GAAP) $ 24.45 $ 21.36 $ 18.28 62 ASSET QUALITY AND ALLOWANCE FOR CREDIT LOSSES - LOANS Non-performing loans and foreclosed assets or “non-performing assets” consisted of the following: At June 30, (Dollars in thousands) 2022 2021 2020 Non-performing assets: Non-accrual loans: Single Family - Mortgage & Warehouse $ 66,424 $ 105,708 $ 84,030 Multifamily and Commercial Mortgage 33,410 20,428 3,425 Commercial Real Estate 14,852 15,839 — Total non-accrual loans secured by real estate 114,686 141,975 87,455 Commercial & Industrial - Non-RE 2,989 2,942 213 Auto & Consumer 439 278 273 Other 80 — — Total non-performing loans 118,194 145,195 87,941 Foreclosed real estate — 6,547 6,114 Repossessed vehicles 798 235 294 Total non-performing assets $ 118,992 $ 151,977 $ 94,349 Total non-performing loans as a percentage of total loans 0.83 % 1.26 % 0.82 % Total non-performing assets as a percentage of total assets 0.68 % 1.10 % 0.68 % Our non-performing assets decreased to $119.0 million at June 30, 2022 from $152.0 million at June 30, 2021.
ASSET QUALITY AND ALLOWANCE FOR CREDIT LOSSES - LOANS Non-performing loans and foreclosed assets or “non-performing assets” consisted of the following: At June 30, (Dollars in thousands) 2023 2022 2021 Non-performing assets: Non-accrual loans: Single Family - Mortgage & Warehouse $ 30,714 $ 66,424 $ 105,708 Multifamily and Commercial Mortgage 35,103 33,410 20,428 Commercial Real Estate 14,852 14,852 15,839 Commercial & Industrial - Non-RE 2,989 2,989 2,942 Auto & Consumer 1,457 439 278 Other 2,045 80 — Total non-accrual loans 87,160 118,194 145,195 Foreclosed real estate 6,966 — 6,547 Repossessed - Autos 1,133 798 235 Total non-performing assets $ 95,259 $ 118,992 $ 151,977 Total non-performing loans as a percentage of total loans 0.52 % 0.83 % 1.26 % Total non-performing assets as a percentage of total assets 0.47 % 0.68 % 1.10 % Our non-performing assets decreased to $95.3 million at June 30, 2023 from $119.0 million at June 30, 2022.
We define “tangible book value,” 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 is calculated by dividing tangible book value by the common shares outstanding at the end of the period.
Other costs for the year ended June 30, 2022 reflect a one-time resolution of a contractual claim. 43 Table of Cont ents 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.
On August 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”).
For more information on Axos Bank, please visit axosbank.com. MERGERS AND ACQUISITIONS From time to time we undertake acquisitions or similar transactions consistent with our operating and growth strategies. E*TRADE Advisor Services acquisition . On August 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.
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. Other costs for the year ended June 30, 2022 relate to resolution of a contractual claim and a legal charge, neither of which are indicative of normal operating costs of the core business.
Tangible book value per common share 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.
The increase in non-performing assets during the fiscal year ended June 30, 2021 compared to June 30, 2020 was comprised of an increase in non-performing loans of $57.3 million. The decrease in non-performing loans at June 30, 2022 is primarily the result of the resolution of challenges incurred by single family borrowers impacted by COVID-19.
The decrease in non-performing assets during the 53 Table of Cont ents fiscal year ended June 30, 2022 compared to June 30, 2021 was primarily due to a decrease in non-performing loans of $27.0 million, primarily single family mortgage loans. Allowance for Credit Losses - Loans .
Interest accrues at the rate of three-month LIBOR plus 2.4%, for a rate of 3.90% as of June 30, 2022, with interest paid quarterly. In March 2016, Axos completed the sale of $51.0 million aggregate principal amount of our 6.25% Subordinated Notes due February 28, 2026 (the “Notes 2026”).
In March 2016, Axos completed the sale of $51.0 million aggregate principal amount of our 6.25% Subordinated Notes due February 28, 2026 (the “2026 Notes”). On March 31, 2021, the Company completed the redemption of $51.0 million aggregate principal amount.
Goodwill and Other Intangible Assets . Estimates used to calculate fair value of a reporting unit change from year to year based on operating results, market conditions and other factors. Application of the goodwill impairment tests requires significant judgments, including estimation of future cash flows.
If the Company performs a quantitative test, management applies significant judgment in deriving valuation inputs, evaluating current operating results, estimating future cash flows, assessing market conditions and considering other factors. Factors used to calculate the fair value of a reporting unit are subject to uncertainty and can change from year to year based on availability and observability.
Selected information concerning Axos Clearing LLC follows as of or for the year ended: June 30, (Dollars in thousands) 2022 2021 Compensation as a % of net revenue 38.0 % 32.4 % FDIC insured program balances (end of period) $ 3,452,358 $ 730,248 Customer margin balances (end of period) $ 285,894 $ 327,148 Customer funds on deposit, including short credits (end of period) $ 372,112 $ 322,153 Clearing: Total tickets 1,236,292 2,053,362 Correspondents (end of period) 71 69 Securities lending: Interest-earning assets – stock borrowed (end of period) $ 338,980 $ 619,088 Interest-bearing liabilities – stock loaned (end of period) $ 474,400 $ 728,988 COMPARISON OF THE FISCAL YEARS ENDED JUNE 30, 2021 AND JUNE 30, 2020 Net Interest Income .
Selected information concerning Axos Clearing follows as of each date indicated: June 30, (Dollars in thousands) 2023 2022 FDIC insured program balances at banks $ 1,627,053 $ 3,452,358 Margin balances $ 205,880 $ 285,894 Cash reserves for the benefit of customers $ 149,059 $ 372,112 Securities lending: Interest-earning assets – stock borrowed $ 134,339 $ 338,980 Interest-bearing liabilities – stock loaned $ 159,832 $ 474,400 COMPARISON OF THE FISCAL YEARS ENDED JUNE 30, 2022 AND JUNE 30, 2021 For a comparison of our fiscal year 2022 results compared to 2021 results, see Part II, Item 7, “Comparison of the Fiscal Years Ended June 30, 2022 and June 30, 2021” in the Annual Report on Form 10-K for the year-ended June 30, 2022 filed with the SEC.

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