Axos Financial Inc.

01/28/2025 | Press release | Distributed by Public on 01/28/2025 15:10

Quarterly Report for Quarter Ending December 31, 2024 (Form 10-Q)

ax-20241231
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2024
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-37709
AXOS FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0867444
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
9205 West Russell Road, Suite 400, Las Vegas, NV 89148
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (858) 649-2218
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common stock, $0.01 par value AX New York Stock Exchange
__________________________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The number of shares outstanding of the registrant's common stock on the last practicable date: 57,098,476 shares of common stock, $0.01 par value per share, as of January 17, 2025.
Table of Contents
AXOS FINANCIAL, INC.
INDEX
Page
PART I - FINANCIAL INFORMATION
1
ITEM 1. FINANCIAL STATEMENTS
1
Condensed Consolidated Balance Sheets (unaudited)
1
Condensed Consolidated Statements of Income (unaudited)
2
Condensed Consolidated Statements of Comprehensive Income (unaudited)
3
Condensed Consolidated Statements of Stockholders' Equity (unaudited)
4
Condensed Consolidated Statements of Cash Flows (unaudited)
6
Notes to Condensed Consolidated Financial Statements (unaudited)
8
1. Summary of Significant Accounting Policies
8
2. Fair Value
10
3. Available-for-Sale Securities
15
4. Loans & Allowance for Credit Losses
17
5. Derivatives
23
6. Offsetting of Derivatives and Securities Financing Agreements
24
7. Stockholders' Equity and Stock-Based Compensation
25
8. Earnings per Common Share
27
9. Commitments and Contingencies
27
10. Segment Reporting and Revenue Information
28
11. Borrowings, Subordinated Notes and Debentures
30
12. Other Assets
30
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
32
USE OF NON-GAAP MEASURES
34
SELECTED FINANCIAL INFORMATION
35
RESULTS OF OPERATIONS
37
SEGMENT RESULTS
42
FINANCIAL CONDITION
44
LIQUIDITY
47
CAPITAL RESOURCES AND REQUIREMENTS
48
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
49
ITEM 4. CONTROLS AND PROCEDURES
52
PART II - OTHER INFORMATION
53
ITEM 1. LEGAL PROCEEDINGS
53
ITEM 1A. RISK FACTORS
53
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
53
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
53
ITEM 4. MINE SAFETY DISCLOSURES
53
ITEM 5. OTHER INFORMATION
53
ITEM 6. EXHIBITS
54
SIGNATURES
55
Table of Contents
PART I - FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
AXOS FINANCIAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except par value)
December 31,
2024
June 30,
2024
ASSETS
Cash and cash equivalents $ 2,438,073 $ 1,979,979
Restricted cash
235,358 205,797
Total cash, cash equivalents and restricted cash
2,673,431 2,185,776
Trading securities
241 353
Available-for-sale securities
97,848 141,611
Stock of regulatory agencies 34,298 21,957
Loans held for sale, carried at fair value 25,436 16,482
Loans-net of allowance for credit losses of $270,605 as of December 31, 2024 and $260,542 as of June 30, 2024
19,486,727 19,231,385
Servicing rights, carried at fair value
28,045 28,924
Securities borrowed 114,672 67,212
Customer, broker-dealer and clearing receivables 298,887 240,028
Goodwill and other intangible assets-net 137,570 141,769
Other assets 812,267 779,837
TOTAL ASSETS $ 23,709,422 $ 22,855,334
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest-bearing $ 2,989,759 $ 2,975,631
Interest bearing 16,945,145 16,383,586
Total deposits 19,934,904 19,359,217
Advances from the Federal Home Loan Bank 60,000 90,000
Borrowings, subordinated notes and debentures 358,692 325,679
Securities loaned 135,258 74,177
Customer, broker-dealer and clearing payables 309,593 301,127
Accounts payable and other liabilities 389,013 414,538
Total liabilities 21,187,460 20,564,738
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY:
Common stock-$0.01 par value; 150,000,000 shares authorized; 70,571,332 shares issued and 57,097,632 shares outstanding as of December 31, 2024; 70,221,632 shares issued and 56,894,565 shares outstanding as of June 30, 2024
706 702
Additional paid-in capital 528,862 510,232
Accumulated other comprehensive income (loss)-net of income tax
3,007 (2,466)
Retained earnings 2,402,644 2,185,617
Treasury stock, at cost; 13,473,700 shares as of December 31, 2024 and 13,327,067 shares as of June 30, 2024
(413,257) (403,489)
Total stockholders' equity 2,521,962 2,290,596
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 23,709,422 $ 22,855,334
See accompanying notes to the condensed consolidated financial statements.
1
Table of Contents
AXOS FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
(Dollars in thousands, except earnings per common share) 2024 2023 2024 2023
INTEREST AND DIVIDEND INCOME:
Loans, including fees $ 410,868 $ 357,852 $ 849,097 $ 684,826
Securities borrowed and customer receivables 6,450 5,467 12,721 10,462
Investments and other
38,750 31,344 78,512 63,327
Total interest and dividend income 456,068 394,663 940,330 758,615
INTEREST EXPENSE:
Deposits 170,859 160,181 358,128 306,291
Advances from the Federal Home Loan Bank 507 530 1,036 1,059
Securities loaned 480 1,010 1,020 1,459
Other borrowings 4,123 4,336 7,999 10,045
Total interest expense 175,969 166,057 368,183 318,854
Net interest income 280,099 228,606 572,147 439,761
Provision for credit losses 12,248 13,500 26,248 20,500
Net interest income, after provision for credit losses 267,851 215,106 545,899 419,261
NON-INTEREST INCOME:
Broker-dealer fee income 11,039 12,519 22,099 24,996
Advisory fee income 7,982 7,362 15,927 15,581
Banking and service fees 9,813 10,061 18,426 18,411
Mortgage banking and servicing rights income
(1,797) 753 (1,347) 4,631
Prepayment penalty fee income 762 1,037 1,303 2,620
Gain on acquisition
- 92,397 - 92,397
Total non-interest income 27,799 124,129 56,408 158,636
NON-INTEREST EXPENSE:
Salaries and related costs 74,097 58,883 148,390 114,694
Data and operational processing
19,314 18,326 38,299 34,410
Depreciation and amortization 7,031 6,488 14,481 12,366
Advertising and promotional 11,045 9,794 25,298 20,169
Professional services 9,072 5,976 18,967 15,787
Occupancy and equipment 4,206 4,001 8,524 7,847
FDIC and regulatory fees 6,992 3,935 12,948 8,384
Broker-dealer clearing charges 4,299 5,948 8,606 9,960
General and administrative expense 9,264 8,488 17,272 18,728
Total non-interest expense 145,320 121,839 292,785 242,345
INCOME BEFORE INCOME TAXES 150,330 217,396 309,522 335,552
INCOME TAXES 45,643 65,625 92,495 101,136
NET INCOME $ 104,687 $ 151,771 $ 217,027 $ 234,416
Basic earnings per common share $ 1.83 $ 2.65 $ 3.81 $ 4.04
Diluted earnings per common share $ 1.80 $ 2.62 $ 3.72 $ 3.98
See accompanying notes to the condensed consolidated financial statements.
2
Table of Contents
AXOS FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
(Dollars in thousands) 2024 2023 2024 2023
NET INCOME $ 104,687 $ 151,771 $ 217,027 $ 234,416
Net unrealized gain (loss) from available-for-sale securities, net of income tax (784) 2,469 535 2,691
Net unrealized gain (loss) on cash flow hedges, net of income tax 4,556 - 4,938 -
Other comprehensive income (loss) 3,772 2,469 5,473 2,691
COMPREHENSIVE INCOME $ 108,459 $ 154,240 $ 222,500 $ 237,107
See accompanying notes to the condensed consolidated financial statements.
3
Table of Contents
AXOS FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
For the Three Months Ended December 31, 2024
Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss), Net of Income Tax Retained Earnings Treasury
Stock
Total
Number of Shares
(Dollars in thousands) Issued Treasury Outstanding Amount
BALANCE-September 30, 2024
70,562,333 (13,470,117) 57,092,216 $ 706 $ 520,795 $ (765) $ 2,297,957 $ (412,965) $ 2,405,728
Net income - - - - - - 104,687 - 104,687
Other comprehensive income (loss) - - - - - 3,772 - - 3,772
Stock-based compensation activity 8,999 (3,583) 5,416 - 8,067 - - (292) 7,775
BALANCE-December 31, 2024
70,571,332 (13,473,700) 57,097,632 $ 706 $ 528,862 $ 3,007 $ 2,402,644 $ (413,257) $ 2,521,962
For the Six Months Ended December 31, 2024
Common Stock Additional Paid-in Capital Accumulated
Other
Comprehensive
Income (Loss),
Net of Income Tax
Retained Earnings Treasury
Stock
Total
Number of Shares
(Dollars in thousands) Issued Treasury Outstanding Amount
BALANCE-June 30, 2024
70,221,632 (13,327,067) 56,894,565 $ 702 $ 510,232 $ (2,466) $ 2,185,617 $ (403,489) $ 2,290,596
Net income - - - - - - 217,027 - 217,027
Other comprehensive income (loss) - - - - - 5,473 - - 5,473
Stock-based compensation activity 349,700 (146,633) 203,067 4 18,630 - - (9,768) 8,866
BALANCE-December 31, 2024
70,571,332 (13,473,700) 57,097,632 $ 706 $ 528,862 $ 3,007 $ 2,402,644 $ (413,257) $ 2,521,962
See accompanying notes to the condensed consolidated financial statements.
4
Table of Contents
AXOS FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
For the Three Months Ended December 31, 2023
Common Stock Additional Paid-in Capital
Accumulated Other Comprehensive Income (Loss), Net of Income Tax
Retained Earnings
Treasury
Stock
Total
Number of Shares
(Dollars in thousands) Issued Treasury Outstanding Amount
BALANCE-September 30, 2023
69,826,263 (11,322,287) 58,503,976 $ 698 $ 486,676 $ (6,388) $ 1,818,254 $ (323,032) $ 1,976,208
Net income - - - - - - 151,771 - 151,771
Other comprehensive income (loss) - - - - - 2,469 - - 2,469
Purchase of treasury stock - (1,607,301) (1,607,301) - - - - (58,650) (58,650)
Stock-based compensation activity 2,446 (744) 1,702 - 6,592 - - (166) 6,426
BALANCE-December 31, 2023
69,828,709 (12,930,332) 56,898,377 $ 698 $ 493,268 $ (3,919) $ 1,970,025 $ (381,848) $ 2,078,224
For the Six Months Ended December 31, 2023
Common Stock Additional Paid-in Capital
Accumulated
Other
Comprehensive
Income (Loss),
Net of Income Tax
Retained Earnings
Treasury
Stock
Total
Number of Shares
(Dollars in thousands) Issued Treasury Outstanding Amount
BALANCE-June 30, 2023
69,465,446 (10,522,411) 58,943,035 $ 695 $ 479,878 $ (6,610) $ 1,735,609 $ (292,413) $ 1,917,159
Net income - - - - - - 234,416 - 234,416
Other comprehensive income (loss) - - - - - 2,691 - - 2,691
Purchase of treasury stock - (2,255,509) (2,255,509) - - - - (83,186) (83,186)
Stock-based compensation activity 363,263 (152,412) 210,851 3 13,390 - - (6,249) 7,144
BALANCE-December 31, 2023
69,828,709 (12,930,332) 56,898,377 $ 698 $ 493,268 $ (3,919) $ 1,970,025 $ (381,848) $ 2,078,224
See accompanying notes to the condensed consolidated financial statements.
5
Table of Contents
AXOS FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
(Dollars in thousands) 2024 2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 217,027 $ 234,416
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 14,481 12,365
Other accretion and amortization (58,723) (12,006)
Stock-based compensation expense 19,855 13,393
Trading activity 112 429
Provision for credit losses 26,248 20,500
Deferred income taxes (15,419) 21,032
Origination of loans held for sale (136,396) (96,910)
Unrealized and realized gains on loans held for sale (1,495) (3,854)
Proceeds from sale of loans held for sale 133,064 107,846
Change in the fair value of servicing rights 1,278 (1,955)
Gain on FDIC Loan Purchase - (92,397)
Gain on repurchase of subordinated notes (604) -
Net change in assets and liabilities which provide (use) cash:
Securities borrowed (47,460) (10,837)
Customer, broker-dealer and clearing receivables (58,859) 108,217
Other assets 96,702 (47,390)
Securities loaned 61,081 (4,340)
Customer, broker-dealer and clearing payables 8,466 (76,592)
Accounts payable and other liabilities (26,060) (19,183)
Net cash provided by operating activities 233,298 152,734
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (22,382) (9,612)
Proceeds from sale and repayment of available-for-sale securities 67,004 5,952
Purchase of stock of regulatory agencies (12,446) -
Net change in loans held for investment (438,254) (877,550)
Proceeds from sale of loans originally classified as held for investment 223,011 -
Proceeds from sale of other real estate owned and repossessed assets 999 3,420
Purchase of BOLI policies (100,000) -
Purchase of loans and leases, net of discounts and premiums (1,100) (841,408)
Purchases of furniture, equipment, software and intangibles (23,870) (17,031)
Purchases of other investments (7,801) (7,148)
Distributions received from other investments 81 1,508
Net cash used in investing activities (314,758) (1,741,869)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 575,687 1,080,804
Repayments of the Federal Home Loan Bank term advances (30,000) -
Net (repayment) proceeds of other borrowings 45,000 (21,200)
Payments related to settlement of restricted stock units (9,769) (6,249)
Purchase of treasury stock - (82,583)
Repurchase of subordinated notes (11,803) -
Net cash provided by financing activities 569,115 970,772
6
Table of Contents
AXOS FINANCIAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
(Dollars in thousands) 2024 2023
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
487,655 (618,363)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH-Beginning of year
$ 2,185,776 $ 2,382,086
CASH, CASH EQUIVALENTS AND RESTRICTED CASH-End of period
$ 2,673,431 $ 1,763,723
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid on interest-bearing liabilities 367,008 323,042
Income taxes paid 89,508 84,436
Transfers to other real estate and repossessed vehicles from loans held for investment 1,142 3,301
Transfers from loans held for investment to loans held for sale 227,539 2,783
Operating lease liabilities from obtaining right of use assets 2,111 5,767
Non-cash LIHTC investments - 25,000
See accompanying notes to the condensed consolidated financial statements.
7
Table of Contents
AXOS FINANCIAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED DECEMBER 31, 2024 AND 2023
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The condensed consolidated financial statements include the accounts of Axos Financial, Inc. and its wholly owned subsidiaries ("Axos" or the "Company"). Axos Bank (the "Bank"), its wholly owned subsidiaries, the activities of two lending-related trust entities and certain other lending activity constitute the Banking Business Segment, and Axos Securities, LLC and its wholly owned subsidiaries constitute the Securities Business Segment. All significant intercompany balances and transactions have been eliminated in consolidation. The Notes to the Condensed Consolidated Financial Statements are an integral part of the Company's financial statements. On December 7, 2023, the Company acquired from the Federal Deposit Insurance Corporation ("FDIC") two loan portfolios with an aggregate unpaid principal balance of $1.3 billion at a 37% discount to par. For additional information on the "FDIC Loan Purchase," see Note 2-"Acquisitions"in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2024 ("2024 Form 10-K") filed with the Securities and Exchange Commission ("SEC").
The accompanying interim condensed consolidated financial statements, presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"), are unaudited and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of financial condition and results of operations for the interim periods. All adjustments are of a normal and recurring nature. Certain amounts reported in prior periods have been reclassified to conform with the current presentation. Results for the three and six months ended December 31, 2024 are not necessarily indicative of results that may be expected for any other interim period or for the year as a whole. Certain information and note disclosures normally included in the audited annual financial statements prepared in accordance with GAAP have been condensed or not repeated herein pursuant to the rules and regulations of the SEC with respect to interim financial reporting. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended June 30, 2024 included in the 2024 Form 10-K.
Significant Accounting Policies
For further information regarding the Company's significant accounting policies, see Note 1-"Organizations and Summary of Significant Accounting Policies"in the 2024 Form 10-K. During the six months ended December 31, 2024, there were no significant updates to the Company's significant accounting policies, other than as noted below and the adoption of the accounting standards noted herein.
Stock of Regulatory Agencies.The Bank is a member of the Federal Home Loan Bank ("FHLB") system and the Federal Reserve System (the "Federal Reserve"). FHLB members are required to own a certain amount of FHLB stock based on the level of borrowings and other factors while Federal Reserve members are required to own a certain amount of Federal Reserve Bank stock based on the member's equity capital and surplus. FHLB and Federal Reserve Bank stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Additionally, Axos Clearing, LLC is a member of the Depository Trust & Clearing Corporation ("DTCC"), a financial services company providing clearing and settlement services to the financial markets. Members are required to own a certain amount of DTCC stock based on the clearing levels and other factors. DTCC stock is valued based on information provided by the DTCC, classified as a restricted security, and periodically evaluated for impairment based on the ultimate recovery of carrying value.
Comprehensive Income. Comprehensive income consists of net income and other comprehensive income ("OCI"). OCI includes unrealized gains and losses on available-for-sale securities and gains and losses on derivatives in designated cash flow hedge accounting relationships.
Derivatives.Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as freestanding derivatives. The Company enters into forward commitments for the future delivery of mortgage loans when interest rate locks are entered into, in order to economically hedge the change in interest rates resulting from its commitments to fund the loans. Changes in the fair values of these derivatives are included in "Mortgage banking and servicing rights income" on the condensed Consolidated Statements of Income.
The Company makes markets in interest rate swap and cap derivatives to facilitate customer demand. The Company enters into offsetting derivative transactions to offset its interest rate risk associated with this customer transaction activity. The
8
Table of Contents
Company acquired as part of the FDIC Loan Purchase certain customer-facing interest rate derivatives and related market-facing derivatives which offset the Company's interest rate risk. For additional information on these derivatives see Note 2- "Acquisitions"in the 2024 Form 10-K and Note 5- "Derivatives."Changes in the fair values of these derivatives, and related fees, are included in "Banking and service fees" on the condensed Consolidated Statements of Income.
Additionally, the Company applies hedge accounting to certain derivative instruments for interest rate risk management purposes. The Company uses such derivative instruments to hedge forecasted variable cash flows from floating-rate deposits. For designated cash flow hedges, changes in the fair value of the derivatives are initially recorded in OCI and subsequently recognized in earnings once the hedged item affects earnings. Derivative gains and losses reclassified to earnings are recognized in interest expense on the condensed Consolidated Statements of Income, consistent with the hedged floating-rate deposits.
Hedge accounting relationships, including the associated risk management objective and strategy, are formally documented at inception. Additionally, the effectiveness of hedge accounting relationships is monitored throughout the duration of the hedge period. Hedge accounting treatment is discontinued either when the derivative is terminated, when it is determined that a derivative is not expected to be, or has ceased to be, effective as a hedge or if the Company removes the cash flow hedge designation. If a hedge accounting relationship is terminated, the amount in accumulated other comprehensive income ("AOCI") is recognized in earnings when the cash flows that were originally hedged affect earnings. However, if the original hedged transaction is deemed probable not to occur, the corresponding amount in AOCI is immediately recognized in income.
Derivative assets and liabilities are not subject to any counterparty netting and are presented at fair value on a gross basis in "Other assets" and "Accounts payable and other liabilities", respectively, in the condensed Consolidated Balance Sheets. Cash flows related to derivative assets and liabilities are presented in "Net change in assets and liabilities which provide (use) cash-Other Assets" and "Net change in assets and liabilities which provide (use) cash-Accounts payable and other liabilities," respectively, in the condensed Consolidated Statements of Cash Flows.
New Accounting Standards
Recently Adopted Accounting Standards
On July 1, 2024, the Company adopted Accounting Standards Update ("ASU") 2023-02 which permits an election, if certain conditions are met, to account for tax equity investments using the proportional amortization method, which was previously limited to low-income housing tax credit ("LIHTC") investments. As the Company's tax equity investments solely comprise LIHTC investments accounted for under the proportional amortization method, there was no impact on its financial condition or results of operations upon adoption. For additional information on the Company's LIHTC investments, see Note 12 - "Other Assets."
Accounting Standards Issued But Not Yet Adopted
In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07, which requires disclosure of significant business segment expenses and a description of the composition of other segment expenses by business segment. The ASU also requires disclosure of the title and position of the chief operating decision maker and an explanation of how the chief operating decision maker uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources. This standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company does not expect any significant impact on its financial condition or results of operations upon adoption.
In December 2023, the FASB issued ASU 2023-09, which requires further granularity on the disclosure of income taxes, including:
Certain prescribed line items in the income tax rate reconciliation presented both in dollar and percentage terms;
Income taxes paid, income before income taxes and income taxes disaggregated by federal, state and foreign taxes; and
Further disaggregation of income taxes paid by any individual jurisdiction equal to or exceeding five percent of total income taxes paid.
This standard is effective for fiscal years beginning after December 15, 2024. The Company does not expect any significant impact on its financial condition or results of operations upon adoption.
9
Table of Contents
In November 2024, the FASB issued ASU 2024-03, which requires disaggregation of operating expenses by relevant expense caption on the statement of income into prescribed categories, including employee compensation, depreciation and intangible asset amortization. The standard is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. The Company does not expect any significant impact on its financial condition or results of operations upon adoption.
2. FAIR VALUE
The following tables set forth the Company's financial assets and liabilities measured at fair value on a recurring basis at December 31, 2024 and June 30, 2024. Assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement:
December 31, 2024
(Dollars in thousands) Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
ASSETS:
Trading securities
$ 241 $ - $ 241
Available-for-sale securities:
Agency MBS 46,904 - 46,904
Non-Agency MBS - 47,412 47,412
Municipal 3,532 - 3,532
Total-Available-for-sale securities:
$ 50,436 $ 47,412 $ 97,848
Loans held for sale $ 25,436 $ - $ 25,436
Servicing rights $ - $ 28,045 $ 28,045
Other assets-Derivative instruments1
$ 16,363 $ - $ 16,363
LIABILITIES:
Accounts payable and other liabilities-Derivative instruments $ 83,957 $ - $ 83,957
1Other assets - Derivative instruments are presented net of $78.0 million of variation margin on centrally-cleared derivatives as of December 31, 2024.
June 30, 2024
(Dollars in thousands) Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
ASSETS:
Trading securities $ 353 $ - $ 353
Available-for-sale securities:
Agency MBS
27,259 - 27,259
Non-Agency MBS
- 110,928 110,928
Municipal 3,424 - 3,424
Total-Available-for-sale securities: $ 30,683 $ 110,928 $ 141,611
Loans held for sale $ 16,482 $ - $ 16,482
Servicing rights $ - $ 28,924 $ 28,924
Other assets-Derivative instruments
$ 106,796 $ - $ 106,796
LIABILITIES:
Accounts payable and other liabilities-Derivative instruments $ 102,949 $ - $ 102,949
10
Table of Contents
The following tables present additional information about assets measured at fair value on a recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
For the Three Months Ended
December 31, 2024
(Dollars in thousands)
Available-for-sale Securities:
Non-Agency MBS
Servicing Rights1
Total
Opening balance $ 91,309 $ 27,335 $ 118,644
Total gains or losses for the period:
Included in earnings-Mortgage banking and servicing rights income - 487 487
Included in other comprehensive income (394) - (394)
Purchases, retentions, issues, sales and settlements:
Purchases/Retentions - 223 223
Settlements (43,503) - (43,503)
Closing balance $ 47,412 $ 28,045 $ 75,457
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period $ - $ 487 $ 487
For the Six Months Ended
December 31, 2024
(Dollars in thousands)
Available-for-sale Securities:
Non-Agency MBS
Servicing Rights1
Total
Opening Balance $ 110,928 $ 28,924 $ 139,852
Total gains or losses for the period:
Included in earnings-Mortgage banking and servicing rights income - (1,364) (1,364)
Included in other comprehensive income 388 - 388
Purchases, retentions, issues, sales and settlements:
Purchases/Retentions - 485 485
Settlements (63,904) - (63,904)
Closing balance $ 47,412 $ 28,045 $ 75,457
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period $ - $ (1,364) $ (1,364)
1 Earnings from servicing rights were attributable to: time and payoffs, representing a decrease in servicing rights value due to passage of time, including the impact from both regularly scheduled loan principal payments and loans that were paid down or paid off during the period of $0.7 millionand $0.9 million for the three and six months ended December 31, 2024, respectively, and an increase in servicing rights value resulting from market-driven changes in interest rates of $1.1 million for the three months ended December 31, 2024 and a decrease of $0.5 million for the six months ended December 31, 2024. Additions to servicing rights were related to purchases and servicing rights retained upon sale of loans held for sale.
For the Three Months Ended
December 31, 2023
(Dollars in thousands)
Available-for-sale Securities:
Non-Agency MBS
Servicing Rights1
Total
Opening balance $ 206,076 $ 29,338 $ 235,414
Total gains or losses for the period:
Included in earnings-Mortgage banking and servicing rights income - (1,494) (1,494)
Included in other comprehensive income 1,876 - 1,876
Purchases, retentions, issues, sales and settlements:
Purchases/Retentions - 199 199
Settlements (244) - (244)
Closing balance $ 207,708 $ 28,043 $ 235,751
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period $ - $ (1,494) $ (1,494)
11
Table of Contents
For the Six Months Ended
December 31, 2023
(Dollars in thousands)
Available-for-sale Securities:
Non-Agency MBS
Servicing Rights1
Total
Opening Balance $ 205,005 $ 25,443 $ 230,448
Total gains or losses for the period:
Included in earnings-Mortgage banking and servicing rights income - 365 365
Included in other comprehensive income 3,191 - 3,191
Purchases, retentions, issues, sales and settlements:
Purchases/Retentions - 2,235 2,235
Settlements (488) - (488)
Closing balance $ 207,708 $ 28,043 $ 235,751
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period $ - $ 365 $ 365
1 Earnings from servicing rights were attributable to: time and payoffs, representing a decrease in servicing rights value due to passage of time, including the impact from both regularly scheduled loan principal payments and loans that were paid down or paid off during the period of $0.3 million and $0.5 million for the three and six months ended December 31, 2023, and a decrease in servicing rights value resulting from market-driven changes in interest rates of $1.2 million for the three months ended December 31, 2023 and an increase of $0.9 million for the six months ended December 31, 2023. Additions to servicing rights were related to purchases and servicing rights retained upon sale of loans held for sale.
The table below summarizes the quantitative information about Level 3 fair value measurements:
December 31, 2024
(Dollars in thousands) Fair Value Valuation Technique Unobservable Input
Range (Weighted Average)1
Available-for-sale securities: Non-Agency MBS
$ 47,412 Discounted Cash Flow
Projected Constant Prepayment Rate,
Projected Constant Default Rate,
Projected Loss Severity,
Discount Rate over SOFR Swaps,
Credit Enhancement
0.0 to 72.7% (32.9%)
0.0 to 6.4% (2.2%)
0.0 to 68.9% (30.1%)
2.5 to 4.6% (2.6%)
0.2 to 96.8% (27.2%)
Servicing Rights
$ 28,045 Discounted Cash Flow Projected Constant Prepayment Rate,
Life (in years),
Discount Rate
6.7 to 58.1% (10.4%)
0.0 to 11.1 (8.5)
9.5 to 11.2% (9.8%)
June 30, 2024
(Dollars in thousands) Fair Value Valuation Technique Unobservable Input
Range (Weighted Average)1
Available-for-sale securities: Non-Agency MBS $ 110,928 Discounted Cash Flow
Projected Constant Prepayment Rate,
Projected Constant Default Rate,
Projected Loss Severity,
Discount Rate over SOFR Swaps,
Credit Enhancement
0.0 to 72.1% (38.0%)
0.0 to 13.7% (2.8%)
0.0 to 68.9% (32.9%)
2.5 to 4.9% (2.5%)
0.0 to 64.9% (22.8%)
Servicing Rights
$ 28,924 Discounted Cash Flow Projected Constant Prepayment Rate,
Life (in years),
Discount Rate
5.5 to 95.2% (11.8%)
0.4 to 14.9 (7.9)
9.5 to 11.2% (9.8%)
1 The weighted average for Available-for-sale securities: Non-agency MBS is based on the relative fair value of the securities and for Servicing Rights is based on the relative unpaid principal of the loans being serviced.
For non-agency mortgage-backed securities, a significant increase (decrease) in default rate, loss severity (potentially offset by the level of credit enhancement) or discount rate in isolation would result in a significantly lower (higher) fair value measurement, while a significant increase in the voluntary prepayment rate would result in a significant increase in fair value if the security is valued below par value, or a significant decrease in fair value if the security is valued above par value. Generally, a change in the assumptions used for the default rate is accompanied by a directionally opposite change in the assumption used for the voluntary prepayment rate.
For servicing rights, significant increases in the voluntary prepayment rate or discount rate in isolation would result in a significantly lower fair value measurement, while a significant increase in expected life in isolation would result in a significantly higher fair value measurement. Generally, a change in the voluntary prepayment rate is accompanied by a directionally opposite change in expected life.
The aggregate fair value of loans held for sale, carried at fair value, the contractual balance (including accrued interest), and the unrealized gain were:
12
Table of Contents
(Dollars in thousands) December 31, 2024 June 30, 2024
Aggregate fair value $ 25,436 $ 16,482
Contractual balance 25,160 15,966
Unrealized gain $ 276 $ 516
The total interest income and amount of gains and losses from changes in fair value included in earnings for loans held for sale, carried at fair value, were:
For the Three Months Ended December 31, For the Six Months Ended December 31,
(Dollars in thousands) 2024 2023 2024 2023
Interest income $ 249 $ 141 $ 537 $ 330
Change in fair value (384) 33 (367) (96)
Total $ (135) $ 174 $ 170 $ 234
13
Table of Contents
Fair Value of Financial Instruments
Carrying amounts and estimated fair values of financial instruments at December 31, 2024 and June 30, 2024 were:
December 31, 2024
Fair Value
(Dollars in thousands) Carrying
Amount
Level 1 Level 2 Level 3 Total Fair Value
Financial assets:
Cash, cash equivalents and restricted cash
$ 2,673,431 $ 2,673,431 $ - $ - $ 2,673,431
Trading securities
241 - 241 - 241
Available-for-sale securities
97,848 - 50,436 47,412 97,848
Stock of regulatory agencies 34,298 - 34,298 - 34,298
Loans held for sale, at fair value 25,436 - 25,436 - 25,436
Loans held for investment-net 19,486,727 - - 19,661,657 19,661,657
Securities borrowed 114,672 - - 113,565 113,565
Customer, broker-dealer and clearing receivables 298,887 - - 296,997 296,997
Servicing rights
28,045 - - 28,045 28,045
Other assets - derivative instruments1
16,363 - 16,363 - 16,363
Financial liabilities:
Total deposits 19,934,904 - 19,604,164 - 19,604,164
Advances from the Federal Home Loan Bank 60,000 - 55,042 - 55,042
Borrowings, subordinated notes and debentures 358,692 - 320,993 - 320,993
Securities loaned 135,258 - - 134,594 134,594
Customer, broker-dealer and clearing payables 309,593 - - 309,593 309,593
Accounts payable and other liabilities - derivative instruments
83,957 - 83,957 - 83,957
1Other Assets - Derivative Assets are presented net of $78.0 million of variation margin on centrally-cleared derivatives as of December 31, 2024.
June 30, 2024
Fair Value
(Dollars in thousands) Carrying
Amount
Level 1 Level 2 Level 3 Total Fair Value
Financial assets:
Cash, cash equivalents and restricted cash
$ 2,185,776 $ 2,185,776 $ - $ - $ 2,185,776
Trading securities
353 - 353 - 353
Available-for-sale securities
141,611 - 30,683 110,928 141,611
Stock of regulatory agencies
21,957 - 21,957 - 21,957
Loans held for sale, at fair value 16,482 - 16,482 - 16,482
Loans held for investment-net 19,231,385 - - 19,209,442 19,209,442
Securities borrowed 67,212 - - 71,480 71,480
Customer, broker-dealer and clearing receivables 240,028 - - 249,317 249,317
Servicing rights
28,924 - - 28,924 28,924
Other assets - derivative instruments
106,796 - 106,796 - 106,796
Financial liabilities:
Total deposits 19,359,217 - 19,217,281 - 19,217,281
Advances from the Federal Home Loan Bank 90,000 - 84,201 - 84,201
Borrowings, subordinated notes and debentures 325,679 - 302,487 - 302,487
Securities loaned 74,177 - - 74,021 74,021
Customer, broker-dealer and clearing payables 301,127 - - 301,127 301,127
Accounts payable and other liabilities - derivative instruments
102,949 - 102,949 - 102,949
The carrying amount represents the estimated fair value for cash, cash equivalents and restricted cash, stock of regulatory agencies, interest-bearing deposits, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans or deposits that reprice frequently and fully. For fixed rate loans, deposits, borrowings or subordinated debt and for variable rate loans, deposits, borrowings or subordinated debt with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. A discussion of the methods of valuing trading securities, available-for-sale securities, loans held for sale and derivatives can be found in Note 3-"Fair Value" in the 2024 Form 10-K. The fair value of off-balance sheet items is not considered material.
14
Table of Contents
3. AVAILABLE-FOR-SALE SECURITIES
The amortized cost and fair value of available-for-sale securities were:
December 31, 2024
(Dollars in thousands) Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
Mortgage-backed securities (MBS):
Agency1
$ 49,176 $ 61 $ (2,333) $ 46,904
Non-agency2
46,755 933 (276) 47,412
Total mortgage-backed securities 95,931 994 (2,609) 94,316
Municipal 3,856 - (324) 3,532
Total available-for-sale securities
$ 99,787 $ 994 $ (2,933) $ 97,848
June 30, 2024
(Dollars in thousands) Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
Mortgage-backed securities (MBS):
Agency1
$ 29,835 $ 83 $ (2,659) $ 27,259
Non-agency2
110,658 838 (568) 110,928
Total mortgage-backed securities 140,493 921 (3,227) 138,187
Municipal 3,788 - (364) 3,424
Total available-for-sale securities
$ 144,281 $ 921 $ (3,591) $ 141,611
1 Includes securities guaranteed by Ginnie Mae, a U.S. government agency, and the government sponsored enterprises Fannie Mae and Freddie Mac.
2 Private sponsors of securities collateralized primarily by first-lien mortgage loans on commercial properties or by pools of 1-4 family residential first mortgages. Primarily super senior securities secured by prime, Alt-A or pay-option ARM mortgages.
The Company evaluates available-for-sale securities in an unrealized loss position based on an analysis of a number of factors, including, but not limited to: (1) the credit characteristics of the securities, such as the forecasted cash flows, credit ratings, credit enhancement, and government agency or government-sponsored enterprise backing, as applicable, and (2) whether the Company intends to sell or will be required to sell any of the securities before recovering the amortized cost basis. Based on its analysis, the Company determined the unrealized losses on available-for-sale securities are primarily driven by the increase in interest rates since the securities were purchased and, accordingly, no credit losses were recognized on available-for-sale securities in the three and six months ended December 31, 2024 and December 31, 2023. There was no amount in the allowance for credit losses for available-for-sale securities at December 31, 2024 and June 30, 2024.
The face amounts of available-for-sale securities pledged to secure borrowings were $0.7 million and $0.8 million as of December 31, 2024 and June 30, 2024.
There were no sales of available-for-sale securities during the three months and six months ended December 31, 2024. The Company sold a $4.8 million available-for-sale security with no realized gain or loss during the three and six months ended December 31, 2023.
15
Table of Contents
Securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were:
December 31, 2024
Available-for-sale securities in loss position for
Less Than
12 Months
More Than
12 Months
Total
(Dollars in thousands) Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
MBS:
Agency
$ 9,102 $ (21) $ 16,479 $ (2,312) $ 25,581 $ (2,333)
Non-agency - - 44,866 (276) 44,866 (276)
Total MBS 9,102 (21) 61,345 (2,588) 70,447 (2,609)
Municipal - - 3,532 (324) 3,532 (324)
Total available-for-sale securities
$ 9,102 $ (21) $ 64,877 $ (2,912) $ 73,979 $ (2,933)
June 30, 2024
Available-for-sale securities in loss position for
Less Than
12 Months
More Than
12 Months
Total
(Dollars in thousands) Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
MBS:
Agency
$ 2,644 $ (31) $ 19,298 $ (2,628) $ 21,942 $ (2,659)
Non-agency 15 - 78,364 (568) 78,379 (568)
Total MBS 2,659 (31) 97,662 (3,196) 100,321 (3,227)
Municipal - - 3,424 (364) 3,424 (364)
Total available-for-sale securities
$ 2,659 $ (31) $ 101,086 $ (3,560) $ 103,745 $ (3,591)
The following table sets forth the expected maturity distribution of our mortgage-backed securities, which is based on assumed prepayment rates, and the maturity distribution of our non-MBS, which is based on the contractual maturity:
As of December 31, 2024
(Dollars in thousands) Total Amount Due Within One Year Due after One but within Five Years Due after Five but within Ten Years Due After Ten Years
MBS:
Agency $ 49,176 $ 10,960 $ 30,660 $ 5,769 $ 1,787
Non-Agency $ 46,755 $ 42,981 $ 1,277 $ 1,288 $ 1,209
Total MBS $ 95,931 $ 53,941 $ 31,937 $ 7,057 $ 2,996
Municipal $ 3,856 $ - $ - $ - $ 3,856
Available-for-sale-Amortized cost
$ 99,787 $ 53,941 $ 31,937 $ 7,057 $ 6,852
Available-for-sale-Fair value $ 97,848 $ 53,456 $ 30,918 $ 6,768 $ 6,706
16
Table of Contents
4. LOANS & ALLOWANCE FOR CREDIT LOSSES
The Company categorizes the loan portfolio into five segments: Single Family - Mortgage & Warehouse, Multifamily and Commercial Mortgage, Commercial Real Estate, Commercial & Industrial - Non Real Estate ("Non-RE") and Auto & Consumer. For further detail of the segments of the Company's loan portfolio, see Note 1-"Organizations and Summary of Significant Accounting Policies"in the 2024 Form 10-K.
The following table sets forth the composition of the loan portfolio:
(Dollars in thousands) December 31, 2024 June 30, 2024
Single Family - Mortgage & Warehouse $ 4,149,778 $ 4,178,832
Multifamily and Commercial Mortgage1
3,430,948 3,861,931
Commercial Real Estate1
6,214,834 6,088,622
Commercial & Industrial - Non-RE 5,809,877 5,241,766
Auto & Consumer 420,937 431,660
Total gross loans 20,026,374 19,802,811
Allowance for credit losses - loans (270,605) (260,542)
Unaccreted premiums (discounts) and loan fees (269,042) (310,884)
Total net loans $ 19,486,727 $ 19,231,385
1Includes purchased credit deteriorated ("PCD") loans of $281.3 million and $284.0 million in Multifamily and Commercial Mortgage and $44.5 million and $44.5 million in Commercial Real Estate as of December 31, 2024 and June 30, 2024, respectively. For further detail on PCD loans, see Note 1-"Organizations and Summary of Significant Accounting Policies" in the 2024 Form 10-K.
Accrued interest receivableon loans held for investments totaled $111.3 million and $119.8 million as of December 31, 2024 and June 30, 2024, respectively.
At December 31, 2024 and June 30, 2024, the Company pledged certain loans totaling $4,326.2 million and $4,942.8 million, respectively, to the FHLB and $8,129.0 million and $8,197.2 million, respectively, to the Federal Reserve Bank of San Francisco ("FRBSF").
The following table presents loan-to-value ("LTV") for the Company's real estate loans outstanding as of December 31, 2024:
Total Real Estate Loans Single Family - Mortgage & Warehouse Multifamily and Commercial Mortgage Commercial Real Estate
Weighted-Average LTV 47.5 % 55.7 % 51.0 % 40.1 %
Median LTV 52.0 % 53.0 % 49.0 % 43.9 %
The following table presents the components of the provision for credit losses:
For the Three Months Ended December 31,
For the Six Months Ended December 31,
(Dollars in thousands)
2024 2023 2024 2023
Provision for credit losses - loans
$ 11,748 $ 12,500 $ 23,248 $ 18,250
Provision for credit losses - unfunded lending commitments
500 1,000 3,000 2,250
Total provision for credit losses
$ 12,248 $ 13,500 $ 26,248 $ 20,500
The following tables summarize activity in the allowance for credit losses - loans by portfolio segment:
For the Three Months Ended December 31, 2024
(Dollars in thousands) Single Family-Mortgage & Warehouse Multifamily and Commercial Mortgage Commercial Real Estate Commercial & Industrial - Non-RE Auto & Consumer Total
Balance at October 1, 2024
$ 17,453 $ 65,608 $ 95,032 $ 76,555 $ 9,206 $ 263,854
Provision (benefit) for credit losses - loans (1,355) (6,334) 7,422 8,030 3,985 11,748
Charge-offs - (3,197) - (130) (2,495) (5,822)
Recoveries 6 - - - 819 825
Balance at December 31, 2024
$ 16,104 $ 56,077 $ 102,454 $ 84,455 $ 11,515 $ 270,605
17
Table of Contents
For the Three Months Ended December 31, 2023
(Dollars in thousands) Single Family-Mortgage & Warehouse Multifamily and Commercial Mortgage Commercial Real Estate Commercial & Industrial - Non-RE Auto & Consumer Total
Balance at October 1, 2023
$ 17,426 $ 15,874 $ 71,355 $ 54,592 $ 11,623 $ 170,870
Allowance for credit losses at acquisition of PCD loans - 58,972 11,125 - - 70,097
Provision (benefit) for credit losses - loans (2,080) 3,507 (4,702) 14,695 1,080 12,500
Charge-offs - - - (86) (2,321) (2,407)
Recoveries 10 - - - 679 689
Balance at December 31, 2023
$ 15,356 $ 78,353 $ 77,778 $ 69,201 $ 11,061 $ 251,749
For the Six Months Ended December 31, 2024
(Dollars in thousands) Single Family-Mortgage & Warehouse Multifamily and Commercial Mortgage Commercial Real Estate Commercial & Industrial - Non-RE Auto & Consumer Total
Balance at July 1, 2024
$ 16,943 $ 70,771 $ 87,780 $ 76,032 $ 9,016 $ 260,542
Provision (benefit) for credit losses - loans (891) (8,140) 14,674 11,585 6,020 23,248
Charge-offs - (6,554) - (3,162) (5,344) (15,060)
Recoveries 52 - - - 1,823 1,875
Balance at December 31, 2024
$ 16,104 $ 56,077 $ 102,454 $ 84,455 $ 11,515 $ 270,605
For the Six Months Ended December 31, 2023
(Dollars in thousands) Single Family-Mortgage & Warehouse Multifamily and Commercial Mortgage Commercial Real Estate Commercial & Industrial - Non-RE Auto & Consumer Total
Balance at July 1, 2023
$ 17,503 $ 16,848 $ 72,755 $ 46,347 $ 13,227 $ 166,680
Allowance for credit losses at acquisition of PCD loans - 58,972 11,125 - - 70,097
Provision (benefit) for credit losses - loans (2,090) 2,533 (6,102) 22,940 969 18,250
Charge-offs (80) - - (86) (4,602) (4,768)
Recoveries 23 - - - 1,467 1,490
Balance at December 31, 2023
$ 15,356 $ 78,353 $ 77,778 $ 69,201 $ 11,061 $ 251,749
For the three and six months ended December 31, 2024, the allowance for credit losses for loans increased as a result of the provision for credit losses, partially offset by net charge-offs. The provision for credit losses was primarily due to the quantitative impact of macroeconomic variables in the allowance for credit losses model, primarily the U.S. unemployment rate and commercial real estate mortgage rates, as well as loan growth, increases in specific reserves and certain qualitative adjustments, mainly in the commercial & industrial - non-RE portfolio.
Loan products within each portfolio contain varying collateral types which impact the estimate of the loss given default utilized in the calculation of the allowance for credit losses for loans. For further discussion of the model method of estimating expected lifetime credit losses, see Note 1-"Organizations and Summary of Significant Accounting Policies"in the 2024 Form 10-K.
The following tables present a summary of the activity in the allowance for credit losses for off-balance sheet lending commitments:
18
Table of Contents
Three Months Ended December 31,
(Dollars in thousands) 2024 2023
Balance at October 1,
$ 12,723 $ 11,723
Provision for credit losses - unfunded lending commitments
500 1,000
Balance at December 31,
$ 13,223 $ 12,723
Six Months Ended December 31,
(Dollars in thousands) 2024 2023
Balance at July 1,
$ 10,223 $ 10,473
Provision for credit losses - unfunded lending commitments
3,000 2,250
Balance at December 31,
$ 13,223 $ 12,723
The increase in the allowance for off-balance sheet lending commitments for the three and six months ended December 31, 2024, was primarily driven by unfunded lending commitment growth, primarily in the commercial & industrial - non-RE portfolio.
Credit Quality Disclosures.The following tables provide the composition of loans that are performing and nonaccrual by portfolio segment:
December 31, 2024
(Dollars in thousands) Single Family-Mortgage & Warehouse Multifamily and Commercial Mortgage Commercial Real Estate Commercial & Industrial - Non-RE Auto & Consumer Total
Performing $ 4,080,208 $ 3,381,791 $ 6,155,068 $ 5,739,018 $ 418,757 $ 19,774,842
Nonaccrual 69,570 49,157 59,766 70,859 2,180 251,532
Total $ 4,149,778 $ 3,430,948 $ 6,214,834 $ 5,809,877 $ 420,937 $ 20,026,374
Nonaccrual loans to total loans 1.26 %
June 30, 2024
(Dollars in thousands) Single Family-Mortgage & Warehouse Multifamily and Commercial Mortgage Commercial Real Estate Commercial & Industrial - Non-RE Auto & Consumer Total
Performing $ 4,133,121 $ 3,826,877 $ 6,062,520 $ 5,237,746 $ 429,188 $ 19,689,452
Nonaccrual 45,711 35,054 26,102 4,020 2,472 113,359
Total $ 4,178,832 $ 3,861,931 $ 6,088,622 $ 5,241,766 $ 431,660 $ 19,802,811
Nonaccrual loans to total loans 0.57 %
There were no nonaccrual loans without an allowance for credit losses as of December 31, 2024 and June 30, 2024. There was no interest income recognized on nonaccrual loans in the three and six months ended December 31, 2024 and 2023. Loans reaching 90 days past due are generally placed on nonaccrual status and risk rated as substandard or doubtful. Loans not yet reaching 90 days past due may be placed on nonaccrual status based on management's assessment of the aging of contractual principal amounts due, among other factors.
Credit Quality Indicators. The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends. In addition to the borrower's primary source of repayment, in its risk rating process the Company considers all available sources of repayment, including obligor guaranties and liquidations of pledged collateral, where individually or together such sources would fully repay the loan on a timely basis. The Company analyzes loans individually by classifying the loans based on credit risk. The Company uses the following internally-defined risk ratings:
Pass.Loans where repayment in full is expected through any of the borrower's sources of repayment.
Special Mention.Loans where any credit risk is not considered significant yet require management's attention given certain currently identified characteristics of the borrower, collateral securing the loan and the obligor's net worth and paying capacity. If the identified credit risks are not adequately monitored or mitigated, the loan may weaken and the Company's credit position with respect to the loan may deteriorate in the future.
Substandard.Loans where currently identified characteristics of the borrower, collateral securing the loan and the obligor's net worth and paying capacity, taken together, could jeopardize the repayment of the debt. A loan not fully supported by at least one available source of repayment and involves a distinct possibility that the Company will sustain some loss in that
19
Table of Contents
loan if the weakness is not cured. A loan supported by a guaranty, collateral sufficient to incentivize a sale or refinance, or cash flow that is sufficient for timely repayment in full will not be classified as substandard even if the loan has a well-defined weakness in other sources of repayment.
Doubtful.Loans reflecting the same characteristics as those classified as substandard, but for which repayment in full in accordance with the contractual terms is currently considered highly unlikely.
The Company reviews and grades loans following a continuous review process, featuring coverage of all loan types and business lines at least quarterly. Continuous reviewing provides more effective risk monitoring because it immediately tests for potential impacts caused by changes in personnel, policy, products or underwriting standards.
20
Table of Contents
The following tables present the composition of loans by portfolio segment, fiscal year of origination and credit quality indicator, and the amount of year-to-date gross charge-offs.
December 31, 2024
Loans Held for Investment by Fiscal Year of Origination
Revolving Loans Total
(Dollars in thousands) 2025 2024 2023 2022 2021 Prior
Single Family-Mortgage & Warehouse
Pass $ 228,407 $ 358,736 $ 502,219 $ 1,107,651 $ 464,983 $ 848,732 $ 500,009 $ 4,010,737
Special Mention - 4,119 1,455 19,542 2,978 22,172 8,551 58,817
Substandard - 1,200 5,704 15,602 5,832 51,886 - 80,224
Doubtful - - - - - - - -
Total 228,407 364,055 509,378 1,142,795 473,793 922,790 508,560 4,149,778
Year-to-date gross charge-offs - - - - - - - -
Multifamily and Commercial Mortgage
Pass 22,417 29,290 652,116 981,431 468,493 1,099,774 - 3,253,521
Special Mention - - 23,199 58,964 4,340 25,096 - 111,599
Substandard - - - 16,035 2,000 47,793 - 65,828
Doubtful - - - - - - - -
Total 22,417 29,290 675,315 1,056,430 474,833 1,172,663 - 3,430,948
Year-to-date gross charge-offs - - - - - 6,554 - 6,554
Commercial Real Estate
Pass 1,517,172 1,592,351 1,031,855 883,495 143,351 30,000 881,147 6,079,371
Special Mention - 53,875 - - - - - 53,875
Substandard - - - 43,525 5,000 29,191 3,872 81,588
Doubtful - - - - - - - -
Total 1,517,172 1,646,226 1,031,855 927,020 148,351 59,191 885,019 6,214,834
Year-to-date gross charge-offs - - - - - - - -
Commercial & Industrial - Non-RE
Pass 462,836 831,133 405,020 148,634 46,117 41,238 3,552,851 5,487,829
Special Mention - 16,271 - - - - 7,213 23,484
Substandard - 14,065 34,532 127,126 3,665 2,989 106,187 288,564
Doubtful - - - 10,000 - - - 10,000
Total 462,836 861,469 439,552 285,760 49,782 44,227 3,666,251 5,809,877
Year-to-date gross charge-offs - - 130 - 1,032 - 2,000 3,162
Auto & Consumer
Pass 74,619 57,408 93,350 141,743 32,646 18,154 - 417,920
Special Mention 16 27 204 349 91 1 - 688
Substandard - 225 504 976 156 468 - 2,329
Doubtful - - - - - - - -
Total 74,635 57,660 94,058 143,068 32,893 18,623 - 420,937
Year-to-date gross charge-offs 18 281 1,620 2,395 704 326 - 5,344
Total
Pass 2,305,451 2,868,918 2,684,560 3,262,954 1,155,590 2,037,898 4,934,007 19,249,378
Special Mention 16 74,292 24,858 78,855 7,409 47,269 15,764 248,463
Substandard - 15,490 40,740 203,264 16,653 132,327 110,059 518,533
Doubtful - - - 10,000 - - - 10,000
Total $ 2,305,467 $ 2,958,700 $ 2,750,158 $ 3,555,073 $ 1,179,652 $ 2,217,494 $ 5,059,830 $ 20,026,374
As a % of total gross loans 11.5% 14.8% 13.7% 17.7% 5.9% 11.1% 25.3% 100.0%
Total year-to-date gross charge-offs $ 18 $ 281 $ 1,750 $ 2,395 $ 1,736 $ 6,880 $ 2,000 $ 15,060
21
Table of Contents
June 30, 2024
Loans Held for Investment by Fiscal Year of Origination
Revolving Loans Total
(Dollars in thousands) 2024 2023 2022 2021 2020 Prior
Single Family-Mortgage & Warehouse
Pass $ 491,822 $ 590,060 $ 1,200,230 $ 487,132 $ 291,047 $ 720,049 $ 256,778 $ 4,037,118
Special Mention 31,000 - 24,489 665 6,591 26,873 - 89,618
Substandard - 283 6,728 - 14,720 30,365 - 52,096
Doubtful - - - - - - - -
Total 522,822 590,343 1,231,447 487,797 312,358 777,287 256,778 4,178,832
Year-to-date gross charge-offs - - - - - 172 - 172
Multifamily and Commercial Mortgage
Pass 36,058 700,163 994,004 595,299 510,341 811,184 - 3,647,049
Special Mention - 29,325 46,194 17,478 9,011 10,277 - 112,285
Substandard - 13,489 12,509 15,507 41,013 20,079 - 102,597
Doubtful - - - - - - - -
Total 36,058 742,977 1,052,707 628,284 560,365 841,540 - 3,861,931
Year-to-date gross charge-offs - - - - 640 - - 640
Commercial Real Estate
Pass 1,952,001 1,419,399 1,456,643 221,061 7,741 53,000 866,686 5,976,531
Special Mention - - 27,452 - - - - 27,452
Substandard - 5,600 43,700 5,000 - 30,339 - 84,639
Doubtful - - - - - - - -
Total 1,952,001 1,424,999 1,527,795 226,061 7,741 83,339 866,686 6,088,622
Year-to-date gross charge-offs - - - - - - - -
Commercial & Industrial - Non-RE
Pass 991,497 458,454 238,397 44,923 10,422 12,867 3,295,425 5,051,985
Special Mention - 1,613 731 1,818 - - 5,349 9,511
Substandard - 34,433 122,729 1,031 - 2,988 19,089 180,270
Doubtful - - - - - - - -
Total 991,497 494,500 361,857 47,772 10,422 15,855 3,319,863 5,241,766
Year-to-date gross charge-offs - - - - - 84 - 84
Auto & Consumer
Pass 65,766 114,615 177,043 43,287 13,402 14,056 - 428,169
Special Mention 33 213 422 176 - 61 - 905
Substandard 142 547 1,264 410 114 109 - 2,586
Doubtful - - - - - - - -
Total 65,941 115,375 178,729 43,873 13,516 14,226 - 431,660
Year-to-date gross charge-offs 202 3,471 5,212 1,556 303 269 - 11,013
Total
Pass 3,537,144 3,282,691 4,066,317 1,391,702 832,953 1,611,156 4,418,889 19,140,852
Special Mention 31,033 31,151 99,288 20,137 15,602 37,211 5,349 239,771
Substandard 142 54,352 186,930 21,948 55,847 83,880 19,089 422,188
Doubtful - - - - - - - -
Total $ 3,568,319 $ 3,368,194 $ 4,352,535 $ 1,433,787 $ 904,402 $ 1,732,247 $ 4,443,327 $ 19,802,811
As a % of total gross loans 18.0% 17.0% 22.0% 7.2% 4.6% 8.8% 22.4% 100%
Total year-to-date gross charge-offs $ 202 $ 3,471 $ 5,212 $ 1,556 $ 943 $ 525 $ - $ 11,909
22
Table of Contents
The following tables provide the aging of loans by portfolio segment:
December 31, 2024
(Dollars in thousands) Current 30-59 Days 60-89 Days 90+ Days Total
Single Family-Mortgage & Warehouse $ 4,063,877 $ 21,352 $ 12,671 $ 51,878 $ 4,149,778
Multifamily and Commercial Mortgage 3,373,736 8,557 14,818 33,837 3,430,948
Commercial Real Estate 6,126,947 15,000 3,185 69,702 6,214,834
Commercial & Industrial - Non-RE 5,784,695 7,588 - 17,594 5,809,877
Auto & Consumer 413,813 5,502 767 855 420,937
Total $ 19,763,068 $ 57,999 $ 31,441 $ 173,866 $ 20,026,374
As a % of total gross loans 98.68 % 0.29 % 0.16 % 0.87 % 100 %
June 30, 2024
(Dollars in thousands) Current 30-59 Days 60-89 Days 90+ Days Total
Single Family-Mortgage & Warehouse $ 4,070,186 $ 46,387 $ 18,401 $ 43,858 $ 4,178,832
Multifamily and Commercial Mortgage 3,795,387 13,074 8,554 44,916 3,861,931
Commercial Real Estate 6,024,470 - 25,950 38,202 6,088,622
Commercial & Industrial - Non-RE
5,240,734 - - 1,032 5,241,766
Auto & Consumer 424,555 4,644 996 1,465 431,660
Total $ 19,555,332 $ 64,105 $ 53,901 $ 129,473 $ 19,802,811
As a % of total gross loans 98.75 % 0.33 % 0.27 % 0.65 % 100 %
Loans reaching 90 or more days past due are generally placed on nonaccrual. As of December 31, 2024 and June 30, 2024, there were loans of $34.7 million and $20.2 million, respectively, over 90 days past due and still accruing interest as the Company expects to collect the principal and interest amounts due.
Single family mortgage loans in process of foreclosure were $28.8 million and $20.1 million as of December 31, 2024 and June 30, 2024, respectively.
Loan Modifications to Borrowers Experiencing Financial Difficulty.The Company may grant certain modifications of loans to borrowers experiencing financial difficulty, which effective following the adoption of ASU 2022-02, are reported as financial difficulty modifications ("FDMs"). The Company's modification programs provide various modifications to borrowers experiencing financial difficulty which may include interest rate reductions, term extensions, payment delays and/or principal forgiveness. For the three and six months ended December 31, 2024 and 2023, there were no FDMs.
5. DERIVATIVES
For additional information on the Company's derivative instruments, see Note 1-"Organizations and Summary of Significant Accounting Policies",Note 3-"Fair Value"and Note 6-"Derivatives" in the 2024 Form 10-K and Note 2-"Fair Value."
The following table presents the notional amounts and fair values of the Company's derivative instruments. While the notional amounts give an indication of the volume of the Company's derivatives activity, the notional amounts significantly exceed, in the Company's view, the possible losses that could arise from such transactions. For most derivative contracts, the notional amount is not exchanged, rather it is a reference amount used to calculate payments. As of June 30, 2024, there were no derivatives designated in hedge accounting relationships.
December 31, 2024
June 30, 2024
Fair Value Fair Value
(Dollars in thousands) Notional Amount Derivative Assets Derivative Liabilities Notional Amount Derivative Assets Derivative Liabilities
Derivatives designated as hedging instruments
Interest rate contracts $ 400,000 $ 7,428 $ - $ - $ - $ -
Derivatives not designated as hedging instruments
Interest rate contracts1
2,593,540 8,935 83,957 2,435,874 106,796 102,949
Total derivatives $ 2,993,540 $ 16,363 $ 83,957 $ 2,435,874 $ 106,796 $ 102,949
1 Derivative assets are presented net of $78.0 million of variation margin on centrally-cleared derivatives as of December 31, 2024.
23
Table of Contents
Derivatives designated as hedging instruments
The following table presents pre-tax gains/(losses) on derivative instruments used in cash flow hedge accounting relationships.
For the Three Months Ended December 31,
For the Six Months Ended December 31,
(Dollars in thousands) 2024 2023 2024 2023
Amounts recorded in OCI $ 8,073 $ - $ 8,626
Amounts reclassified from AOCI to income (1,478) - (1,478)
Total change in OCI for period $ 6,595 $ - $ 7,148 $ -
The Company did not experience any forecasted transactions that failed to occur during the three and six months ended December 31, 2024 or 2023. There are no amounts excluded from the assessment of hedge effectiveness.
As of December 31, 2024, the Company expects that approximately $3.5 million of pre-tax net gain related to cash flow hedges recorded in AOCI will be recognized in income over the next 12 months. The maximum length of time over which forecasted transactions are hedged is approximately 2.7 years.
Derivatives not designated as hedging instruments
The following table presents the pre-tax gains/(losses) related to the Company's derivative instrument activity recognized in the Condensed Consolidated Statements of Income:
For the Three Months Ended December 31,
For the Six Months Ended December 31,
(Dollars in thousands)
2024 2023 2024 2023
Banking and service fees
$ (185) $ 50 $ (1,557) $ 390
Mortgage banking and servicing rights income (134) 231 (385) 508
6. OFFSETTING OF DERIVATIVES AND SECURITIES FINANCING AGREEMENTS
The Company enters into derivatives transactions as part of its mortgage banking activities, market making activity in interest rate swap and cap derivatives to facilitate customer demand and hedging activities related to interest rate risk management, and enters into securities borrowed and securities loaned transactions to facilitate customer match-book activity, cover short positions and support customer securities lending. For additional information on offsetting see Note 7-"Offsetting of Derivatives and Securities Financing Agreements" in the 2024 Form 10-K.
The following tables present information about the offsetting of these instruments and related collateral amounts:
December 31, 2024
(Dollars in thousands) Gross Assets / Liabilities Amounts Offset Net Balance Sheet Amount
Amounts Not Offset2
Net Assets / Liabilities
Assets:
Securities borrowed $ 114,672 $ - $ 114,672 $ 114,672 $ -
Other Assets - Derivative Assets1
16,363 - 16,363 15,221 1,142
Liabilities:
Securities loaned $ 135,258 $ - $ 135,258 $ 135,258 $ -
Accounts Payable and Other Liabilities - Derivative Liabilities 83,957 - 83,957 1,147 82,810
24
Table of Contents
June 30, 2024
(Dollars in thousands) Gross Assets / Liabilities Amounts Offset Net Balance Sheet Amount
Amounts Not Offset2
Net Assets / Liabilities
Assets:
Securities borrowed $ 67,212 $ - $ 67,212 $ 67,212 $ -
Other Assets - Derivative Assets
106,796 - 106,796 18,524 88,272
Liabilities:
Securities loaned $ 74,177 $ - $ 74,177 $ 74,177 $ -
Accounts Payable and Other Liabilities - Derivative Liabilities 102,949 - 102,949 414 102,535
1Other Assets - Derivative Assets are presented net of $78.0 million of variation margin on centrally-cleared derivatives as of December 31, 2024.
2 Amounts not offset reflect cash collateral received on Derivative Assets of $14.2 million and $18.1 million as of December 31, 2024 and June 30, 2024, respectively, and cash collateral placed on Derivative Liabilities of $0.1 million as of December 31, 2024. There was no cash collateral placed on Derivative Liabilities as of June 30, 2024.
The securities loaned transactions represent equities with an overnight and open maturity classification as of both periods presented.
7. STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION
The Company has an equity incentive plan, the Amended and Restated 2014 Stock Incentive Plan (the "2014 Plan"), which provides for the granting of non-qualified and incentive stock options, restricted stock and restricted stock units, stock appreciation rights and other awards to employees, directors and consultants. The Company also has an employment agreement with its Chief Executive Officer that provides for an award of restricted stock units. For additional information regarding the Company's stock-based compensation plans, see Note 16-"Stock-Based Compensation" in the 2024 Form 10-K.
At December 31, 2024, 1,251,191 shares of common stock were authorized for future awards under the 2014 Plan. As of December 31, 2024, the total compensation cost not yet recognized related to non-vested awards was $56.6 million, which is expected to be recognized over a weighted-average period of 1.3 years.
The following table presents the status and changes in RSUs:
RSUs
Weighted-Average
Grant-Date Fair Value
Non-vested balance at June 30, 2024
1,541,194 $ 43.95
Granted 703,218 64.68
Vested (349,700) 42.63
Forfeited (52,114) 47.06
Non-vested balance at December 31, 2024
1,842,598 $ 52.02
The total fair value of shares vested for the three and six months ended December 31, 2024 was $0.7 million and $23.2 million, respectively. The total fair value of shares vested for the three and six months ended December 31, 2023 was $0.1 million and $14.9 million, respectively.
Common Stock Repurchases.
The following table presents common stock repurchases:
For the Three Months Ended December 31,
For the Six Months Ended December 31,
(Dollars in thousands except per share data)
2024 2023 2024 2023
Total repurchase
$ - $ 58,650 $ - $ 83,186
Number of shares repurchased
- 1,607,301 - 2,255,509
Average price paid per share
$ - $ 36.49 $ - $ 36.88
As of December 31, 2024, there was $106.5 million of share repurchase authorization remaining. The share repurchase program will continue in effect until terminated by the Board of Directors of the Company. For additional information regarding the Company's share repurchase program, see Note 15-"Stockholders' Equity"in the 2024 Form 10-K.
At-the-Market Equity Offering
On January 28, 2025, the Company entered into an equity distribution agreement pursuant to which the Company may issue and sell through distribution agents from time to time shares of the Company's common stock in at-the-market offerings
25
Table of Contents
with an aggregate offering price of up to $150,000,000. The Company will issue the stock pursuant to a previously effective registration statement and a prospectus supplement filed with the SEC on January 28, 2025.
Accumulated Other Comprehensive Income
AOCI includes the after-tax change in unrealized gains and losses on investment securities and cash flow hedging activities.
For the Three Months Ended December 31, 2024
(Dollars in thousands) Unrealized gain (loss) on available-for-sale securities Cash flow hedges Accumulated other comprehensive income
Balance at September 30, 2024
$ (1,147) $ 382 $ (765)
Other comprehensive income/(loss) (784) 4,556 3,772
Balance at December 31, 2024
$ (1,931) $ 4,938 $ 3,007
For the Three Months Ended December 31, 2023
(Dollars in thousands) Unrealized gain (loss) on available-for-sale securities Cash flow hedges Accumulated other comprehensive income
Balance at September 30, 2023
$ (6,388) $ - $ (6,388)
Other comprehensive income/(loss) 2,469 - 2,469
Balance at December 31, 2023
$ (3,919) $ - $ (3,919)
For the Six Months Ended December 31, 2024
(Dollars in thousands) Unrealized gain (loss) on available-for-sale securities Cash flow hedges Accumulated other comprehensive income
Balance at June 30, 2024
$ (2,466) $ - $ (2,466)
Other comprehensive income/(loss) 535 4,938 5,473
Balance at December 31, 2024
$ (1,931) $ 4,938 $ 3,007
For the Six Months Ended December 31, 2023
(Dollars in thousands) Unrealized gain (loss) on available-for-sale securities Cash flow hedges Accumulated other comprehensive income
Balance at June 30, 2023
$ (6,610) $ - $ (6,610)
Other comprehensive income/(loss) 2,691 - 2,691
Balance at December 31, 2023
$ (3,919) $ - $ (3,919)
The following table presents the pre-tax and after-tax changes in the components of other comprehensive income.
For the Three Months Ended
December 31, 2024
For the Three Months Ended
December 31, 2023
(Dollars in thousands) Pre-tax Tax effect After-tax Pre-tax Tax effect After-tax
Unrealized gain/(loss) on investment securities:
Net unrealized gains/(losses) arising during the period $ (1,153) $ 369 $ (784) $ 3,527 $ (1,058) $ 2,469
Reclassification adjustment for realized (gains)/losses included in net income - - - - - -
Net change $ (1,153) $ 369 $ (784) $ 3,527 $ (1,058) $ 2,469
Cash flow hedges:
Net unrealized gains/(losses) arising during the period $ 8,073 $ (2,496) $ 5,577 $ - $ - $ -
Reclassification adjustment for realized (gains)/losses included in net income (1,478) 457 (1,021) - - -
Net change 6,595 (2,039) 4,556 - - -
Total other comprehensive income/(loss) $ 5,442 $ (1,670) $ 3,772 $ 3,527 $ (1,058) $ 2,469
26
Table of Contents
For the Six Months Ended
December 31, 2024
For the Six Months Ended
December 31, 2023
(Dollars in thousands) Pre-tax Tax effect After-tax Pre-tax Tax effect After-tax
Unrealized gain/(loss) on investment securities:
Net unrealized gains/(losses) arising during the period $ 731 $ (196) $ 535 $ 3,861 $ (1,170) $ 2,691
Reclassification adjustment for realized (gains)/losses included in net income - - - - - -
Net change $ 731 $ (196) $ 535 $ 3,861 $ (1,170) $ 2,691
Cash flow hedges:
Net unrealized gains/(losses) arising during the period $ 8,626 $ (2,667) $ 5,959 $ - $ - $ -
Reclassification adjustment for realized (gains)/losses included in net income (1,478) 457 (1,021) - - -
Net change 7,148 (2,210) 4,938 - - -
Total other comprehensive income $ 7,879 $ (2,406) $ 5,473 $ 3,861 $ (1,170) $ 2,691
8. EARNINGS PER COMMON SHARE
The following table presents the calculation of basic and diluted earnings per common share ("EPS"):
Three Months Ended Six Months Ended
December 31, December 31,
(Dollars in thousands, except per share data) 2024 2023 2024 2023
Earnings Per Common Share
Net income $ 104,687 $ 151,771 $ 217,027 $ 234,416
Average common shares issued and outstanding 57,094,153 57,216,621 57,014,412 58,082,830
Earnings per common share $ 1.83 $ 2.65 $ 3.81 $ 4.04
Diluted Earnings Per Common Share
Average common shares issued and outstanding 57,094,153 57,216,621 57,014,412 58,082,830
Dilutive effect of average unvested RSUs 1,131,853 716,213 1,248,511 847,597
Average dilutive common shares outstanding
58,226,006 57,932,834 58,262,923 58,930,427
Diluted earnings per common share $ 1.80 $ 2.62 $ 3.72 $ 3.98
Weighted average antidilutive common stock equivalents (excluded from the computation of EPS) 32,933 1,598 17,333 837
For further information regarding the Company's EPS calculation, see Note 17-"Earnings per Common Share"in the 2024 Form 10-K.
9. COMMITMENTS AND CONTINGENCIES
Credit-Related Financial Instruments. The Company is a party to credit-related financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are commitments to extend credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheets.
The Company's exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance-sheet instruments. The following table presents a summary of off-balance sheet commitments.
Commitments to extend credit are agreements to lend to a customer so long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management's credit evaluation of the customer. For single family loans classified as held for sale, the Company matches unfunded commitments to originate loans with commitments to sell loans. The Company also has standby letters of credit commitments.
In addition, the Company has $33.8 million of commitments to contribute capital to LIHTC investments included in "Accounts payable and other liabilities" on the Consolidated Balance Sheets. See Note 12-"Other Assets"for additional information on LIHTC investments.
27
Table of Contents
(dollars in thousands) December 31, 2024
Commitments to fund loans $ 4,184,973
Commitments to sell loans $ 2,585
Standby letters of credit $ 9,814
Commitments to contribute capital $ 3,513
In the normal course of business, Axos Clearing LLC's ("Axos Clearing") customer activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose Axos Clearing to off-balance-sheet risk in the event the customer or other broker is unable to fulfill its contracted obligations and Axos Clearing has to purchase or sell the financial instrument underlying the contract at a loss. Axos Clearing's clearing agreements with broker-dealers for which it provides clearing services requires them to indemnify Axos Clearing if customers fail to satisfy their contractual obligation.
Litigation.A consolidated derivative action, In re BofI Holding, Inc., Case No. 15cv2722 GPC (KSC), is pending before the United States District Court for the Southern District of California (the "Derivative Action"). The complaint in the Derivative Action sets forth allegations made in a related employment action, Erhart v. BofI Holding Inc., No. 15cv2287 BAS (NLS) (S.D. Cal.) (the "Employment Action") brought by a former employee of the Company and was stayed pending resolution of the Employment Action. On October 4, 2023, the court hearing the Employment Action entered a final amended judgment awarding damages and attorneys' fees to the plaintiff. The defendant filed a Notice of Appeal from the Employment Action judgment and all orders merged therein, and the parties have filed opening and responsive briefs and an oral argument was held on January 15, 2025. On January 2, 2024, the Derivative Action plaintiff filed a Third Amended Complaint. On March 5, 2024, the court stayed the case until resolution of the appeal in the Employment Action. The Derivative Action defendants dispute, and intend to vigorously defend against, the allegations raised in the Third Amended Complaint. The Derivative Action plaintiff seeks damages on behalf of the Company with respect to the Employment Action and also seeks damages on behalf of the Company in connection with a now settled securities class action that was also based upon allegations made in the Employment Action and settled within available insurance coverage without attribution of wrongdoing to the Company, its management, or its directors.
In view of the inherent difficulty of predicting the final outcome of the Employment Action it is not possible to reasonably predict or estimate the eventual loss or range of loss, if any, related thereto.
On October 26, 2022, a jury verdict was reached in the case of MUFG Union Bank, N.A. v. Axos Bank, et al, awarding damages to MUFG Union Bank, N.A. Judgment on such verdict was initially entered on June 5, 2023, and a corrected judgment was entered on June 20, 2023. The Company filed a Notice of Appeal to the Supreme Court of the State of New York Appellate Division (the "Appellate Division") on July 6, 2023, and the plaintiff filed a Notice of Cross-Appeal on July 20, 2023. The Appellate Division held oral arguments on the appeal and cross-appeal on March 5, 2024. On March 26, 2024, the Appellate Division entered an order vacating the finding of liability and award of $2.5 million in damages for plaintiff's breach of contract claim as well as the associated prejudgment interest. In addition, the Appellate Division rejected plaintiff's cross appeal. On July 18, 2024, the Appellate Division denied defendants' motion for leave to appeal and plaintiff's cross-motion for re-argument or leave to appeal the March 26, 2024 order. On August 19, 2024, the Company and the plaintiff each filed a motion for leave to appeal with the New York Court of Appeals. Oppositions to each motion were filed on September 3, 2024. The Company recorded a $16 million accrued expense in "Accounts payable and other liabilities" on the Consolidated Balance Sheets and in "General and administrative expense" on the Consolidated Statement of Income as of and for the fiscal year ended June 30, 2023, respectively. Given the uncertainty of the appellate process and other factors that are unknown or currently unquantifiable, the Company maintained its accrual at December 31, 2024.
10. SEGMENT REPORTING AND REVENUE INFORMATION
Segment Reporting. The operating segments reported below are the segments of the Company for which separate financial information is available and for which segment results are evaluated regularly by the Chief Executive Officer in deciding how to allocate resources and in assessing performance. The operating segments and segment results of the Company are determined based upon the management reporting system, which assigns balance sheet and income statement items to each of the business segments.
The Company evaluates performance and allocates resources based on pre-tax profit or loss from operations. Certain corporate administration costs have not been allocated to the reportable segments. The Company operates through two operating segments: Banking Business Segment and Securities Business Segment. Inter-segment transactions are eliminated in consolidation and primarily include non-interest income earned by the Securities Business Segment and non-interest expense incurred by the Banking Business Segment for cash sorting fees related to deposits sourced from Securities Business Segment
28
Table of Contents
customers. For more information on the Company's operating segments, see Note 22-"Segment Reporting"in the 2024 Form 10-K.
In order to reconcile the two segments to the consolidated totals, the Company includes corporate activities and intercompany eliminations. The following tables present the operating results, goodwill, and assets of the segments:
For the Three Months Ended December 31, 2024
(Dollars in thousands) Banking
Business
Securities Business Corporate/Eliminations Axos Consolidated
Net interest income $ 276,720 $ 7,007 $ (3,628) $ 280,099
Provision for credit losses 12,248 - - 12,248
Non-interest income 2,948 29,004 (4,153) 27,799
Non-interest expense 114,536 28,178 2,606 145,320
Income before taxes $ 152,884 $ 7,833 $ (10,387) $ 150,330
For the Three Months Ended December 31, 2023
(Dollars in thousands) Banking
Business
Securities Business Corporate/Eliminations Axos Consolidated
Net interest income $ 226,635 $ 6,080 $ (4,109) $ 228,606
Provision for credit losses 13,500 - - 13,500
Non-interest income 103,779 32,641 (12,291) 124,129
Non-interest expense 102,282 27,968 (8,411) 121,839
Income before taxes $ 214,632 $ 10,753 $ (7,989) $ 217,396
For the Six Months Ended December 31, 2024
(Dollars in thousands) Banking
Business Segment
Securities Business Segment Corporate/Eliminations Axos Consolidated
Net interest income $ 565,212 $ 14,274 $ (7,339) $ 572,147
Provision for credit losses 26,248 - - 26,248
Non-interest income 11,538 58,906 (14,036) 56,408
Non-interest expense 232,851 56,269 3,665 292,785
Income before taxes $ 317,651 $ 16,911 $ (25,040) $ 309,522
For the Six Months Ended December 31, 2023
(Dollars in thousands) Banking
Business Segment
Securities Business Segment Corporate/Eliminations Axos Consolidated
Net interest income $ 435,854 $ 11,622 $ (7,715) $ 439,761
Provision for credit losses 20,500 - - 20,500
Non-interest income 116,336 67,196 (24,896) 158,636
Non-interest expense 203,068 55,491 (16,214) 242,345
Income before taxes $ 328,622 $ 23,327 $ (16,397) $ 335,552
As of December 31, 2024
(Dollars in thousands) Banking
Business Segment
Securities Business Segment Corporate/Eliminations Axos Consolidated
Goodwill $ 35,721 $ 59,953 $ 1,999 $ 97,673
Total Assets $ 22,919,817 $ 751,415 $ 38,190 $ 23,709,422
As of June 30, 2024
(Dollars in thousands) Banking
Business Segment
Securities Business Segment Corporate/Eliminations Axos Consolidated
Goodwill $ 35,721 $ 59,953 $ 1,999 $ 97,673
Total Assets $ 22,165,627 $ 649,254 $ 40,453 $ 22,855,334
29
Table of Contents
Revenue Information. The following presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Accounting Standards Codification ("ASC") 606 for the periods indicated. For additional information on the Company's recognition of revenue and ASC 606, see Note 1-"Organizations and Summary of Significant Accounting Policies"in the 2024 Form 10-K.
For the Three Months Ended
For the Six Months Ended
December 31, December 31,
(Dollars in thousands) 2024 2023 2024 2023
Advisory fee income $ 7,982 $ 7,362 $ 15,927 $ 15,581
Broker-dealer clearing fees 5,706 6,068 10,778 11,603
Deposit service fees 2,537 2,414 3,310 3,094
Card fees 683 732 1,606 1,414
Bankruptcy trustee and fiduciary service fees 1,106 1,397 2,395 2,791
Non-interest income (in-scope of ASC 606) 18,014 17,973 34,016 34,483
Non-interest income (out-of-scope of ASC 606) 9,785 106,156 22,392 124,153
Total non-interest income $ 27,799 $ 124,129 $ 56,408 $ 158,636
11. BORROWINGS, SUBORDINATED NOTES AND DEBENTURES
Subordinated Notes. On July 15, 2024, the Company paid $2.6 million to repurchase $3.0 million par value of its 4.00% Fixed-to-Floating Rate Subordinated Notes due March 1, 2032 resulting in a pre-tax non-cash gain on extinguishment of $0.4 million, after accounting for unamortized issuance costs and accrued interest. On September 27, 2024, the Company paid $9.2 million to repurchase $9.5 million par value of its 4.875% Fixed-to-Floating Rate Subordinated Notes due October 1, 2030 resulting in a pre-tax non-cash gain on extinguishment of $0.2 million, after accounting for unamortized issuance costs and accrued interest. The non-cash gains are recorded in "General and administrative expense" in the condensed Consolidated Statements of Income for the six months ended December 31, 2024. For additional information on borrowings, see Note 13-"Borrowings, Subordinated Notes and Debentures"in the 2024 Form 10-K.
12. OTHER ASSETS
"Other Assets" in the Consolidated Balance Sheets primarily comprises bank-owned life insurance ("BOLI"), accrued interest receivable, derivatives, net deferred income tax assets, furniture, equipment and software, right-of-use lease assets, LIHTC investments and other receivables. For additional information on other assets, see Note 9-"Other Assets"in the 2024 Form 10-K. For additional information on accrued interest receivable, see Note 4-"Loans & Allowance for Credit Losses,"for additional information on derivatives, see Note 5-"Derivatives."
BOLI. The Company purchased $100 million of BOLI policies on the lives of certain executives of the Company during the three months ended December 31, 2024. The Company is the owner and sole beneficiary of the policies.
LIHTC Investments.The Company recognized the following income and tax benefits for its LIHTC investments.
For the Three Months Ended December 31,
For the Six Months Ended December 31,
(Dollars in thousands) 2024 2023 2024 2023
Tax credits recognized $ 1,386 $ 891 $ 2,806 $ 1,741
Other tax benefits recognized 156 311 468 624
Amortization (1,247) (819) (2,653) (1,667)
Net benefit (expense) included in income tax expense 295 383 621 698
Other income (loss) included in banking and service fees - 2 - 2
Net benefit (expense) included in the Consolidated Statements of Income $ 295 $ 385 $ 621 $ 700
30
Table of Contents
The Company recognized the following investments on its balance sheets.
(Dollars in thousands) As of December 31, 2024 As of June 30, 2024
LIHTC investments $ 63,059 $ 65,873
LIHTC unfunded commitments1
$ 33,817 $ 40,617
1LIHTC unfunded commitments are included in "Accounts Payable and Other Liabilities" on the Consolidated Balance Sheets.
For the three months ended December 31, 2024 and 2023, there have been no significant modifications or events that resulted in the change in the nature of the LIHTC investments or any changes in the relationship with the underlying project.
For the three months ended December 31, 2024 and 2023, there has been no impairment loss recognized from the forfeiture or ineligibility of income tax credits.
31
Table of Contents
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides information about the results of operations, financial condition, liquidity, and capital resources of Axos Financial, Inc. and subsidiaries (collectively, "we", "us" or the "Company"). This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of our operations. This discussion and analysis should be read in conjunction with our financial information in our 2024 Form 10-K, and the interim unaudited condensed consolidated financial statements and notes thereto contained in this report.
Some matters discussed in this report may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as such, may involve risks and uncertainties. These forward-looking statements can be identified by the use of terminology such as "estimate," "project," "anticipate," "expect," "intend," "believe," "will," or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. These forward-looking statements relate to, among other things, the Company's financial prospects and other projections of our performance and asset quality, our deposit balances and capital ratios, our ability to continue to grow profitably and increase our business, our ability to continue to diversify lending and deposit franchises, the anticipated timing and financial performance of other offerings, initiatives, and acquisitions, expectations of the environment in which we operate and projections of future performance. Actual results and the timing of events could differ materially from those expressed or implied in such forward-looking statements as a result of risks and uncertainties, including without limitation our ability to successfully integrate acquisitions and realize the anticipated benefits of the transactions, changes in the interest rate environment, monetary policy, inflation, government regulation, general economic conditions, changes in the competitive marketplace, conditions in the real estate markets in which we operate, risks associated with credit quality, our ability to attract and retain deposits and access other sources of liquidity, and the outcome and effects of litigation and other factors beyond our reasonable control. These and other risks and uncertainties are discussed under the heading "Item 1A. Risk Factors" herein and in our 2024 Form 10-K, which has been filed with the SEC, could cause actual results to differ materially from those expressed or implied in any forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this report. All forward-looking statements are qualified in their entirety by this cautionary statement, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All written and oral forward-looking statements made in connection with this report, which are attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing information.
General
Our Company is a technology-driven, diversified financial services company with approximately $23.7 billion in assets and approximately $37.7 billion of assets under custody and/or administration at Axos Clearing LLC ("Axos Clearing"). Our client-centric, technology platforms provide secure and scalable banking, clearing and custody, and investment advisory solutions to retail and business customers. Axos Bank (the "Bank") provides consumer and commercial banking products through its digital online and mobile banking platforms, low-cost distribution channels and affinity partners. Our Bank offers deposit and lending products to customers nationwide including consumer and business checking, savings and time deposit accounts and single family and multifamily residential mortgages, commercial real estate mortgages and loans, fund and lender finance loans, asset-based loans, auto loans and other consumer loans. Our Bank generates non-interest income from consumer and business products, including fees from loans originated for sale, deposit account service fees, prepayment fees, as well as technology and payment transaction processing fees. We offer securities products and services to independent registered investment advisors ("RIAs") and introducing broker dealers ("IBDs") through Axos Clearing and Axos Advisor Services ("AAS") and direct-to-consumer securities trading and digital investment management products through Axos Invest, Inc. ("Axos Invest"). AAS and Axos Clearing generate interest and fee income by providing comprehensive securities custody services to RIAs and clearing, stock lending and margin lending services to IBDs, respectively. Axos Invest generates fee income from self-directed securities trading and margin lending and fee income from digital wealth management services to consumers. 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, and the Travillian Tech-Forward Bank Index.
Axos Financial, Inc. is supervised and regulated as a savings and loan holding company that has elected to be treated as a financial holding company by the Board of Governors of the Federal Reserve System (the "Federal Reserve") and is required to file reports with, comply with the rules and regulations of, and is subject to examination by, the Federal Reserve.
Our Bank is a federal savings association, which has elected to operate as a covered savings association. The Bank is regulated by the Office of the Comptroller of the Currency ("OCC"), and the Federal Deposit Insurance Corporation ("FDIC")
32
Table of Contents
as its deposit insurer. The Bank must file reports with the OCC and the FDIC concerning its activities and financial condition. As a depository institution with more than $10 billion in assets, our Bank and our affiliates are subject to direct supervision by the Consumer Financial Protection Bureau.
Axos Clearing is a broker-dealer registered with the SEC and the Financial Industry Regulatory Authority, Inc. ("FINRA"). Axos Invest is a Registered Investment Advisor under the Investment Advisers Act of 1940, that is registered with the SEC. Axos Invest LLC is an IBD that is registered with the SEC and FINRA.
FDIC Loan Purchase
On December 7, 2023, the Company acquired from the FDIC two loan portfolios with an aggregate unpaid principal balance of $1.3 billion at a 37% discount to par. Given the level of discount at which the loans were purchased, the yield over the remaining life of the loans is expected to exceed that of the Company's existing loan portfolio prior to the FDIC Loan Purchase. For additional information on the FDIC Loan Purchase, see Note 2-"Acquisitions"in the 2024 Form 10-K.
Segment Information
The Company determines reportable segments based on what separate financial information is available and what segment results are evaluated regularly by the Chief Executive Officer in deciding how to allocate resources and in assessing performance. We operate through two segments: the Banking Business Segment and the Securities Business Segment.
Banking Business Segment.The Banking Business Segment includes 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 small businesses nationally. In addition, the Banking Business Segment 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 Banking Business Segment includes a bankruptcy trustee and fiduciary service that provides specialized software and consulting services to Chapter 7 bankruptcy and non-Chapter 7 trustees and fiduciaries.
Securities Business Segment. The Securities Business Segment includes the clearing broker-dealer, registered investment advisor custody business, and introducing broker-dealer lines of businesses. These lines of business offer products independently to their own customers as well as to Banking Business Segment clients.
Critical Accounting Estimates
The following discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements and the notes thereto, which have been prepared in accordance with GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the unaudited condensed consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various factors and circumstances. We believe our estimates and assumptions are reasonable under the circumstances. However, actual results may differ significantly from these estimates and assumptions and could have a material effect on the carrying value of assets and liabilities, our results of operations and/or our cash flows.
Critical accounting estimates are those 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. Our critical accounting estimates are described in detail in the 2024 Form 10-K in Note 1-"Organizations and Summary of Significant Accounting Policies"and Item 7-"Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates."
33
Table of Contents
USE OF NON-GAAP FINANCIAL MEASURES
In addition to the results presented in accordance with GAAP, this report includes the non-GAAP financial measures adjusted earnings, adjusted earnings per common share ("Adjusted EPS"), and tangible book value per common share. Non-GAAP financial measures have inherent limitations, may not be comparable to similarly titled measures used by other companies and are not audited. Readers should be aware of these limitations and should be cautious as to their reliance on such measures. As noted below with respect to each measure, we believe the non-GAAP financial measures disclosed in this report enhance investors' understanding of our business and performance, and our management uses these non-GAAP measures when it internally evaluates the performance of our business and makes operating decisions. 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 items, (including amortization of intangible assets related to acquisitions) and other costs (unusual or non-recurring charges). Adjusted EPS, a non-GAAP financial measure, is calculated by dividing non-GAAP adjusted earnings by the average number of diluted common shares outstanding during the period. We believe the non-GAAP measures of adjusted earnings and adjusted EPS provide useful information about the Company's operating performance. We believe excluding the non-recurring acquisition-related costs, and other costs provides investors with an alternative understanding of our core business.
Below is a reconciliation of net income, the nearest comparable GAAP measure, to adjusted earnings and adjusted EPS (Non-GAAP):
For the Three Months Ended December 31,
For the Six Months Ended December 31,
(Dollars in thousands, except per share data) 2024 2023 2024 2023
Net income $ 104,687 $ 151,771 $ 217,027 $ 234,416
FDIC Loan Purchase - Gain on purchase - (92,397) - (92,397)
FDIC Loan Purchase - Provision for credit losses - 4,648 - 4,648
Acquisition-related costs
1,645 2,780 4,199 5,570
Income tax effect (503) 25,650 (1,255) 24,811
Adjusted earnings (Non-GAAP) $ 105,829 $ 92,452 $ 219,971 $ 177,048
Average dilutive common shares outstanding 58,226,006 57,932,834 58,262,923 58,930,427
Diluted EPS $ 1.80 $ 2.62 $ 3.72 $ 3.98
FDIC Loan Purchase - Gain on purchase - (1.59) - (1.57)
FDIC Loan Purchase - Provision for credit losses - 0.08 - 0.08
Acquisition-related costs 0.03 0.05 0.07 0.09
Income tax effect (0.01) 0.44 (0.02) 0.42
Adjusted EPS (Non-GAAP) $ 1.82 $ 1.60 $ 3.77 $ 3.00
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 servicing rights, goodwill and other intangible assets. Tangible book value per common share, a non-GAAP financial measure, is calculated by dividing tangible book value by the common shares outstanding at the end of the period. We believe tangible book value per common share is useful in evaluating the Company's capital strength, financial condition, and ability to manage potential losses.
Below is a reconciliation of total stockholders' equity, the nearest comparable GAAP measure, to tangible book value (Non-GAAP):
(Dollars in thousands, except per share data) December 31,
2024
June 30,
2024
December 31,
2023
Common stockholders' equity $ 2,521,962 $ 2,290,596 $ 2,078,224
Less: servicing rights, carried at fair value 28,045 28,924 28,043
Less: goodwill and other intangible assets-net 137,570 141,769 146,793
Tangible common stockholders' equity (Non-GAAP) $ 2,356,347 $ 2,119,903 $ 1,903,388
Common shares outstanding at end of period 57,097,632 56,894,565 56,898,377
Book value per common share 44.17 40.26 36.53
Less: servicing rights, carried at fair value per common share 0.49 0.51 0.49
Less: goodwill and other intangible assets-net per common share 2.41 2.49 2.59
Tangible book value per common share (Non-GAAP) $ 41.27 $ 37.26 $ 33.45
34
Table of Contents
SELECTED FINANCIAL INFORMATION
(Dollars in thousands, except per share data) December 31,
2024
June 30,
2024
December 31,
2023
Selected Balance Sheet Data:
Total assets $ 23,709,422 $ 22,855,334 $ 21,623,764
Loans-net of allowance for credit losses 19,486,727 19,231,385 18,264,354
Loans held for sale, carried at fair value 25,436 16,482 13,468
Allowance for credit losses 270,605 260,542 251,749
Trading securities 241 353 329
Available-for-sale securities 97,848 141,611 239,812
Securities borrowed 114,672 67,212 145,176
Customer, broker-dealer and clearing receivables 298,887 240,028 265,857
Total deposits 19,934,904 19,359,217 18,203,912
Advances from the Federal Home Loan Bank 60,000 90,000 90,000
Borrowings, subordinated notes and debentures 358,692 325,679 341,086
Securities loaned 135,258 74,177 155,492
Customer, broker-dealer and clearing payables 309,593 301,127 368,885
Total stockholders' equity $ 2,521,962 $ 2,290,596 $ 2,078,224
Common shares outstanding at end of period 57,097,632 56,894,565 56,898,377
Common shares issued at end of period 70,571,332 70,221,632 69,828,709
Per Common Share Data:
Book value per common share $ 44.17 $ 40.26 $ 36.53
Tangible book value per common share (Non-GAAP)1
$ 41.27 $ 37.26 $ 33.45
Capital Ratios:
Equity to assets at end of period 10.64 % 10.02 % 9.61 %
Axos Financial, Inc.:
Tier 1 leverage (to adjusted average assets) 10.02 % 9.43 % 9.39 %
Common equity tier 1 capital (to risk-weighted assets) 12.42 % 12.01 % 10.97 %
Tier 1 capital (to risk-weighted assets) 12.42 % 12.01 % 10.97 %
Total capital (to risk-weighted assets) 15.23 % 14.84 % 13.79 %
Axos Bank:
Tier 1 leverage (to adjusted average assets) 9.85 % 9.74 % 10.22 %
Common equity tier 1 capital (to risk-weighted assets) 12.67 % 12.74 % 12.26 %
Tier 1 capital (to risk-weighted assets) 12.67 % 12.74 % 12.26 %
Total capital (to risk-weighted assets) 13.86 % 13.81 % 13.25 %
Axos Clearing LLC:
Net capital $ 83,932 $ 101,462 $ 103,454
Excess capital $ 78,282 $ 96,654 $ 98,397
Net capital as a percentage of aggregate debit items 29.71 % 42.21 % 40.92 %
Net capital in excess of 5% aggregate debit items $ 69,805 $ 89,442 $ 90,812
35
Table of Contents
For the Three Months Ended December 31,
For the Six Months Ended December 31,
(Dollars in thousands, except per share data) 2024 2023 2024 2023
Selected Income Statement Data:
Interest and dividend income $ 456,068 $ 394,663 $ 940,330 $ 758,615
Interest expense 175,969 166,057 368,183 318,854
Net interest income 280,099 228,606 572,147 439,761
Provision for credit losses 12,248 13,500 26,248 20,500
Net interest income, after provision for credit losses 267,851 215,106 545,899 419,261
Non-interest income 27,799 124,129 56,408 158,636
Non-interest expense 145,320 121,839 292,785 242,345
Income before income taxes 150,330 217,396 309,522 335,552
Income taxes 45,643 65,625 92,495 101,136
Net income $ 104,687 $ 151,771 $ 217,027 $ 234,416
Weighted average number of common shares outstanding:
Basic 57,094,153 57,216,621 57,014,412 58,082,830
Diluted 58,226,006 57,932,834 58,262,923 58,930,427
Per Common Share Data:
Net income:
Basic $ 1.83 $ 2.65 $ 3.81 $ 4.04
Diluted $ 1.80 $ 2.62 $ 3.72 $ 3.98
Adjusted earnings per common share (Non-GAAP)1
$ 1.82 $ 1.60 $ 3.77 $ 3.00
Performance Ratios and Other Data:
Growth in loans held for investment, net $ 206,118 $ 1,309,313 $ 255,342 $ 1,807,626
Loan originations for sale $ 66,826 $ 44,325 $ 136,396 $ 96,910
Return on average assets 1.74 % 2.90 % 1.83 % 2.29 %
Return on average common stockholders' equity 16.97 % 30.39 % 18.02 % 23.72 %
Interest rate spread2
3.91 % 3.58 % 4.01 % 3.48 %
Net interest margin3
4.83 % 4.55 % 5.00 % 4.46 %
Net interest margin3- Banking Business Segment
4.87 % 4.62 % 5.04 % 4.54 %
Efficiency ratio4
47.20 % 34.54 % 46.58 % 40.50 %
Efficiency ratio4- Banking Business Segment
40.95 % 30.96 % 40.37 % 36.78 %
Asset Quality Ratios:
Net annualized charge-offs to average loans 0.10 % 0.04 % 0.13 % 0.04 %
Nonaccrual loans to total loans 1.26 % 0.65 % 1.26 % 0.65 %
Non-performing assets to total assets 1.06 % 0.60 % 1.06 % 0.60 %
Allowance for credit losses - loans to total loans held for investment
1.37 % 1.33 % 1.37 % 1.33 %
Allowance for credit losses - loans to nonaccrual loans5
107.58 % 205.50 % 107.58 % 205.50 %
1See "Use of Non-GAAP Financial Measures."
2 Interest rate spread represents the difference between the annualized weighted average yield on interest-earning assets and the annualized weighted average rate paid on interest-bearing liabilities.
3 Net interest margin represents annualized 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.
5The decrease in the Allowance for credit losses - loans to nonaccrual loans is primarily attributable to the change in nonaccrual loans. For additional information on non-accrual loans, see "Financial Condition" herein.
36
Table of Contents
RESULTS OF OPERATIONS
Comparison of the Three and Six Months Ended December 31, 2024 and 2023
For the three months ended December 31, 2024, we had net income of $104.7 million, or $1.80 per diluted share, compared to net income of $151.8 million, or $2.62 per diluted share, for the three months ended December 31, 2023. For the six months ended December 31, 2024, we had net income of $217.0 million, or $3.72 per diluted share, compared to net income of $234.4 million, or $3.98 per diluted share, for the six months ended December 31, 2023.
Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents information regarding (i) average balances; (ii) the total amount of interest income from interest-earning assets and the weighted average yields on such assets; (iii) the total amount of interest expense on interest-bearing liabilities and the weighted average rates paid on such liabilities; (iv) net interest income; (v) interest rate spread; and (vi) net interest margin:
For the Three Months Ended,
December 31, 2024 December 31, 2023
(Dollars in thousands)
Average
Balance1
Interest
Income/
Expense
Average Yields
Earned/Rates
Paid2
Average
Balance1
Interest
Income/
Expense
Average Yields
Earned/Rates
Paid2
Assets:
Loans3, 4
$ 19,643,375 $ 410,868 8.37 % $ 17,499,840 $ 357,852 8.18 %
Non-purchased loans
18,681,035 377,376 8.08 % 17,241,605 345,905 8.02 %
Purchased loans5
962,340 33,492 13.92 % 258,235 11,947 18.51 %
Interest-earning deposits in other financial institutions 3,063,487 36,649 4.79 % 2,023,446 27,737 5.48 %
Mortgage-backed and other securities4
125,692 1,567 4.99 % 238,470 3,200 5.37 %
Securities borrowed and margin lending6
335,965 6,450 7.68 % 336,919 5,467 6.49 %
Stock of the regulatory agencies 29,598 534 7.22 % 17,250 407 9.44 %
Total interest-earning assets 23,198,117 456,068 7.86 % 20,115,925 394,663 7.85 %
Non-interest-earning assets 826,732 810,366
Total assets $ 24,024,849 $ 20,926,291
Liabilities and Stockholders' Equity:
Interest-bearing demand and savings $ 16,352,350 $ 161,394 3.95 % $ 13,931,565 $ 150,107 4.31 %
Time deposits 933,244 9,465 4.06 % 1,002,116 10,074 4.02 %
Securities loaned 113,904 480 1.69 % 181,690 1,010 2.23 %
Advances from the FHLB 87,066 507 2.33 % 90,000 530 2.35 %
Borrowings, subordinated notes and debentures 320,782 4,123 5.14 % 349,862 4,336 4.96 %
Total interest-bearing liabilities 17,807,346 175,969 3.95 % 15,555,233 166,057 4.27 %
Non-interest-bearing demand deposits 2,937,572 2,682,261
Other non-interest-bearing liabilities 812,877 690,854
Stockholders' equity 2,467,054 1,997,943
Total liabilities and stockholders' equity $ 24,024,849 $ 20,926,291
Net interest income $ 280,099 $ 228,606
Interest rate spread7
3.91 % 3.58 %
Net interest margin8
4.83 % 4.55 %
1.Average balances are obtained from daily data.
2.Annualized.
3.Loans include loans held for sale, loan premiums and unearned fees.
4.Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees.
5.Purchased loans include loans, loan discounts and unearned fees related to the FDIC Loan Purchase.
6.Margin lending is the significant component of the asset titled customer, broker-dealer and clearing receivables on the unaudited Condensed Consolidated Balance Sheets.
7.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.
8.Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
37
Table of Contents
For the Six Months Ended,
December 31, 2024 December 31, 2023
(Dollars in thousands)
Average
Balance1
Interest
Income/
Expense
Average Yields
Earned/Rates
Paid2
Average
Balance1
Interest
Income/
Expense
Average Yields
Earned/Rates
Paid2
Assets:
Loans3, 4
$ 19,545,195 $ 849,097 8.69 % $ 17,075,797 $ 684,826 8.02 %
Non-purchased loans
18,574,872 759,835 8.18 % 16,945,974 672,879 7.94 %
Purchased loans5
970,323 89,262 18.40 % 129,823 11,947 18.51 %
Interest-earning deposits in other financial institutions 2,871,995 74,073 5.16 % 2,058,407 56,247 5.47 %
Mortgage-backed and other securities4
134,240 3,527 5.25 % 235,929 6,336 5.37 %
Securities borrowed and margin lending6
324,521 12,721 7.84 % 334,105 10,462 6.26 %
Stock of the regulatory agencies 24,305 912 7.50 % 17,250 744 8.63 %
Total interest-earning assets 22,900,256 940,330 8.21 % 19,721,488 758,615 7.69 %
Non-interest-earning assets 811,450 768,570
Total assets $ 23,711,706 $ 20,490,058
Liabilities and Stockholders' Equity:
Interest-bearing demand and savings $ 16,134,067 $ 339,209 4.20 % $ 13,389,681 $ 284,465 4.25 %
Time deposits 902,560 18,919 4.19 % 1,087,896 21,826 4.01 %
Securities loaned 105,560 1,020 1.93 % 185,198 1,459 1.58 %
Advances from the FHLB 88,534 1,036 2.34 % 90,000 1,059 2.35 %
Borrowings, subordinated notes and debentures 322,239 7,999 4.96 % 384,892 10,045 5.22 %
Total interest-bearing liabilities 17,552,960 368,183 4.20 % 15,137,667 318,854 4.21 %
Non-interest-bearing demand deposits 2,954,332 2,672,180
Other non-interest-bearing liabilities 795,059 703,876
Stockholders' equity 2,409,355 1,976,335
Total liabilities and stockholders' equity $ 23,711,706 $ 20,490,058
Net interest income $ 572,147 $ 439,761
Interest rate spread7
4.01 % 3.48 %
Net interest margin8
5.00 % 4.46 %
1.Average balances are obtained from daily data.
2.Annualized.
3.Loans include loans held for sale, loan premiums and unearned fees.
4.Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees.
5.Purchased loans include loans, loan discounts and unearned fees related to the FDIC Loan Purchase.
6.Margin lending is the significant component of the asset titled customer, broker-dealer and clearing receivables on the unaudited Condensed Consolidated Balance Sheets.
7.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.
8.Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
38
Table of Contents
Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table sets forth the effects of changing rates and volumes on our net interest income. Information is provided with respect to (i) effects on interest income and interest expense attributable to changes in volume (changes in volume multiplied by prior rate); and (ii) effects on interest income and interest expense attributable to changes in rate (changes in rate multiplied by prior volume). The change in interest due to both volume and rate has been allocated proportionally to each based on the relative changes attributable to volume and changes attributable to rate.
For the Three Months Ended
For the Six Months Ended
December 31, December 31,
2024 vs 2023
2024 vs 2023
Increase (Decrease) Due to Increase (Decrease) Due to
(Dollars in thousands) Volume Rate Total
Increase
(Decrease)
Volume Rate Total
Increase
(Decrease)
Increase (decrease) in interest income:
Loans $ 44,565 $ 8,450 $ 53,015 $ 104,122 $ 60,149 $ 164,271
Non-purchased loans
19,384 12,086 31,470 26,736 60,220 86,956
Purchased loans1
25,181 (3,636) 21,545 77,386 (71) 77,315
Interest-earning deposits in other financial institutions 12,765 (3,853) 8,912 21,172 (3,346) 17,826
Mortgage-backed and other securities (1,420) (213) (1,633) (2,670) (139) (2,809)
Securities borrowed and margin lending (15) 998 983 (309) 2,568 2,259
Stock of the regulatory agencies 240 (112) 128 274 (106) 168
Total increase (decrease) in interest income $ 56,135 $ 5,270 $ 61,405 $ 122,589 $ 59,126 $ 181,715
Increase (decrease) in interest expense:
Interest-bearing demand and savings $ 24,558 $ (13,271) $ 11,287 $ 58,103 $ (3,359) $ 54,744
Time deposits (707) 98 (609) (3,851) 944 (2,907)
Securities loaned (320) (212) (532) (717) 278 (439)
Advances from the FHLB (18) (4) (22) (19) (4) (23)
Borrowings, subordinated notes and debentures (368) 154 (214) (1,567) (479) (2,046)
Total increase (decrease) in interest expense $ 23,145 $ (13,235) $ 9,910 $ 51,949 $ (2,620) $ 49,329
1 Purchased loans include loans, loan discounts and unearned fees related to the FDIC Loan Purchase.
Net Interest Income
For the three months ended December 31, 2024, net interest income totaled $280.1 million, an increase of $51.5 million, or 22.5%, compared to net interest income of $228.6 million for the three months ended December 31, 2023. For the three months ended December 31, 2024, net interest margin increased by 28 basis points compared to the net interest margin of 4.55% for the three months ended December 31, 2023.
For the three months ended December 31, 2024, total interest and dividend income increased 15.6% from the three months ended December 31, 2023, primarily due to a $53.0 million increase in interest income on loans, mainly attributable to higher loan balances, and a $8.9 million increase in interest income on interest-earning deposits at other financial institutions.
For the three months ended December 31, 2024, total interest expense increased 6.0% from the three months ended December 31, 2023, primarily due to a $11.3 million increase in interest expense on demand and savings deposits, reflecting higher deposit balances, partially offset by lower rates paid.
For the six months ended December 31, 2024, net interest income totaled $572.1 million, an increase of $132.4 million, or 30.1%, compared to net interest income of $439.8 million for the six months ended December 31, 2023. For the six months ended December 31, 2024, net interest margin increased by 54 basis points compared to the net interest margin of 4.46% for the six months ended December 31, 2023.
For the six months ended December 31, 2024, total interest and dividend income increased 24.0% from the six months ended December 31, 2023, primarily due to a $164.3 million increase in interest income on loans, attributable to higher loan balances and higher rates earned, and a $17.8 million increase in interest income on interest-earning deposits at other financial institutions.
For the six months ended December 31, 2024, total interest expense increased 15.5% from the six months ended December 31, 2023, primarily due to a $54.7 million increase in interest expense on demand and savings deposits, mainly reflecting higher deposit balances.
39
Table of Contents
Provision for Credit Losses
The provision for credit losses was $12.2 million and $26.2 million for the three and six months ended December 31, 2024, respectively, compared to $13.5 million and $20.5 million for the three and six months ended December 31, 2023, respectively. The provision for credit losses consists of provisions for both funded loans and for unfunded lending commitments. The provision for credit losses for funded loans was $11.7 million and $23.2 million for the three and six months ended December 31, 2024, respectively, and was primarily due to the quantitative impact of macroeconomic variables in the allowance for credit losses model, primarily the U.S. unemployment rate and commercial real estate mortgage rates, as well as loan growth, increases in specific reserves and certain qualitative adjustments, mainly in the commercial & industrial - non-RE portfolio. The provision for credit losses for unfunded lending commitments of $0.5 million and $3.0 million for the three and six months ended December 31, 2024, respectively, was primarily driven by unfunded lending commitment growth, primarily in the commercial & industrial - non-RE portfolio. Provisions for credit losses are charged to income to bring the allowance for credit losses for loans and unfunded lending commitments to a level deemed appropriate by management based on the factors discussed under the heading "Financial Condition-Asset Quality and Allowance for Credit Losses - Loans."
Non-Interest Income
The following table sets forth information regarding our non-interest income:
For the Three Months Ended
For the Six Months Ended
December 31, December 31,
(Dollars in thousands) 2024 2023 Inc (Dec) 2024 2023 Inc (Dec)
Broker-dealer fee income $ 11,039 $ 12,519 $ (1,480) $ 22,099 $ 24,996 $ (2,897)
Advisory fee income 7,982 7,362 620 15,927 15,581 346
Banking and service fees 9,813 10,061 (248) 18,426 18,411 15
Mortgage banking and servicing rights income (1,797) 753 (2,550) (1,347) 4,631 (5,978)
Prepayment penalty fee income 762 1,037 (275) 1,303 2,620 (1,317)
Gain on acquisition - 92,397 (92,397) - 92,397 (92,397)
Total non-interest income $ 27,799 $ 124,129 $ (96,330) $ 56,408 $ 158,636 $ (102,228)
40
Table of Contents
For the three months ended December 31, 2024, non-interest income decreased by $96.3 million, or 77.6%, primarily due to the absence of the gain on the FDIC Loan Purchase in the prior year period, as well as decreases of:
$2.6 million in mortgage banking and servicing rights income, primarily attributable to losses related to loans sold, partially offset by a favorable servicing rights fair value adjustment in the current period; and
$1.5 million in broker-dealer fee income, primarily attributable to lower average cash-sorting balances.
For the six months ended December 31, 2024, non-interest income decreased by $102.2 million, or 64.4%, primarily due to the absence of the gain on the FDIC Loan Purchase in the prior year period, as well as decreases of:
$6.0 million in mortgage banking and servicing rights income, primarily attributable to losses related to loans sold and the absence of a $1.9 million fair value gain in the prior year period; and
$2.9 million in broker-dealer fee income, primarily attributable to lower average cash-sorting balances.
Non-Interest Expense
The following table sets forth information regarding our non-interest expense:
For the Three Months Ended
For the Six Months Ended
December 31, December 31,
(Dollars in thousands) 2024 2023 Inc (Dec) 2024 2023 Inc (Dec)
Salaries and related costs $ 74,097 $ 58,883 $ 15,214 $ 148,390 $ 114,694 $ 33,696
Data and operational processing 19,314 18,326 988 38,299 34,410 3,889
Depreciation and amortization 7,031 6,488 543 14,481 12,366 2,115
Advertising and promotional 11,045 9,794 1,251 25,298 20,169 5,129
Professional services 9,072 5,976 3,096 18,967 15,787 3,180
Occupancy and equipment 4,206 4,001 205 8,524 7,847 677
FDIC and regulatory fees 6,992 3,935 3,057 12,948 8,384 4,564
Broker-dealer clearing charges 4,299 5,948 (1,649) 8,606 9,960 (1,354)
General and administrative expense 9,264 8,488 776 17,272 18,728 (1,456)
Total non-interest expense $ 145,320 $ 121,839 $ 23,481 $ 292,785 $ 242,345 $ 50,440
For the three months ended December 31, 2024, non-interest expense increased $23.5 million, or 19.3%, primarily due to increases of:
$15.2 million in salaries and related costs primarily due to increased headcount and salaries;
$3.1 million in professional services primarily due to higher consulting and legal expenses; and
$3.1 million in FDIC and regulatory fees primarily due to higher FDIC assessments.
For the six months ended December 31, 2024, non-interest expense increased $50.4 million, or 20.8%, primarily due to increases of:
$33.7 million in salaries and related costs primarily due to increased headcount and salaries; and
$5.1 million in advertising and promotional expenses primarily due to higher marketing expenses, including deposit marketing expense;
$4.6 million in FDIC and regulatory fees primarily due to higher FDIC assessments; and
$3.9 million in data and operational processing primarily due to continued investments in technology.
Provision for Income Taxes
Income tax expense was $45.6 million and $92.5 million for the three and six months ended December 31, 2024, respectively, compared to $65.6 million and $101.1 million for three and six months ended December 31, 2023, respectively. Our effective income tax rates for the three months ended December 31, 2024 and 2023 were 30.36% and 30.19%. Our effective income tax rates for the six months ended December 31, 2024 and 2023 were 29.88% and 30.14%, respectively.
41
Table of Contents
SEGMENT RESULTS
Our Company determines reportable segments based on the services offered, the significance of the services offered, the significance of those services to our Company's financial condition and operating results and management's regular review of the operating results of those services. Our Company operates through two operating segments: the Banking Business Segment and the Securities Business Segment. In order to reconcile the two segments to the consolidated totals, our Company includes corporate activities and intercompany eliminations. Inter-segment transactions are eliminated in consolidation and primarily include non-interest income earned by the Securities Business Segment and non-interest expense incurred by the Banking Business Segment for cash sorting fees related to deposits sourced from Securities Business Segment customers.
The following tables present the operating results of the segments:
For the Three Months Ended December 31, 2024
(Dollars in thousands) Banking
Business Segment
Securities Business Segment Corporate/Eliminations Axos Consolidated
Net interest income $ 276,720 $ 7,007 $ (3,628) $ 280,099
Provision for credit losses 12,248 - - 12,248
Non-interest income 2,948 29,004 (4,153) 27,799
Non-interest expense 114,536 28,178 2,606 145,320
Income before income taxes $ 152,884 $ 7,833 $ (10,387) $ 150,330
For the Three Months Ended December 31, 2023
(Dollars in thousands) Banking
Business Segment
Securities Business Segment Corporate/Eliminations Axos Consolidated
Net interest income $ 226,635 $ 6,080 $ (4,109) $ 228,606
Provision for credit losses 13,500 - - 13,500
Non-interest income 103,779 32,641 (12,291) 124,129
Non-interest expense 102,282 27,968 (8,411) 121,839
Income before income taxes $ 214,632 $ 10,753 $ (7,989) $ 217,396
For the Six Months Ended December 31, 2024
(Dollars in thousands) Banking
Business
Securities Business Corporate/Eliminations Axos Consolidated
Net interest income $ 565,212 $ 14,274 $ (7,339) $ 572,147
Provision for credit losses 26,248 - - 26,248
Non-interest income 11,538 58,906 (14,036) 56,408
Non-interest expense 232,851 56,269 3,665 292,785
Income before income taxes $ 317,651 $ 16,911 $ (25,040) $ 309,522
For the Six Months Ended December 31, 2023
(Dollars in thousands) Banking
Business
Securities Business Corporate/Eliminations Axos Consolidated
Net interest income $ 435,854 $ 11,622 $ (7,715) $ 439,761
Provision for credit losses 20,500 - - 20,500
Non-interest income 116,336 67,196 (24,896) 158,636
Non-interest expense 203,068 55,491 (16,214) 242,345
Income before income taxes $ 328,622 $ 23,327 $ (16,397) $ 335,552
42
Table of Contents
Banking Business Segment
For the three months ended December 31, 2024, our Banking Business Segment had income before income taxes of $152.9 million, compared to income before income taxes of $214.6 million for the prior year period. For the six months ended December 31, 2024, our Banking Business Segment had income before income taxes of $317.7 million, compared to income before income taxes of $328.6 million for the prior year period.
For the three and six months ended December 31, 2024, the Banking Business Segment's net interest income increased $50.1 million, or 22.10%, and $129.4 million, or 29.68%, respectively, compared to net interest income for the three and six months ended December 31, 2023, respectively. The increase in net interest income was primarily due to an increase in interest income on loans and interest-earning deposits at other financial institutions, partially offset by higher interest expense on demand and savings deposits.
For the three and six months ended December 31, 2024, the Banking Business Segment's non-interest income decreased $100.8 million, or 97.2%, and $104.8 million, or 90.1%, respectively, compared to non-interest income for the three and six months ended December 31, 2023. The decrease in non-interest income for the three and six months ended December 31, 2024 was primarily due to absence of the gain on the FDIC Loan Purchase in the current period.
For the three and six months ended December 31, 2024, the Banking Business Segment's non-interest expense increased $12.3 million, or 12.0%, and $29.8 million, or 14.7%, respectively, compared to non-interest expense for the three and six months ended December 31, 2023. The increase in non-interest expense for the three months ended December 31, 2024 was primarily due to higher salaries and related costs primarily due to increased headcount and salaries.
We consider the ratios shown in the table below to be key indicators of the performance of our Banking Business Segment:
For the Three Months Ended December 31,
For the Six Months Ended December 31,
2024 2023 2024 2023
Efficiency ratio 40.95 % 30.96 % 40.37 % 36.78 %
Return on average assets 1.87 % 2.81 % 2.02 % 2.24 %
Interest rate spread 3.96 % 3.63 % 4.05 % 3.53 %
Net interest margin 4.87 % 4.62 % 5.04 % 4.54 %
Our Banking Business Segment's net interest margin exceeds our consolidated net interest margin. Our consolidated net interest margin includes certain items that are not reflected in the calculation of our net interest margin within our Banking Business Segment and reduce our consolidated net interest margin, such as the borrowing costs at our Company and the yields and costs associated with certain items within interest-earning assets and interest-bearing liabilities in our Securities Business Segment, including items related to securities financing operations.
Securities Business Segment
For the three and six months ended December 31, 2024, our Securities Business Segment had income before income taxes of $7.8 million and $16.9 million, respectively, compared to income before income taxes of $10.8 million and $23.3 million, respectively, for the three and six months ended December 31, 2023.
For the three months ended December 31, 2024, net interest income increased $0.9 million, or 15.2%, and for the six months ended December 31, 2024, net interest income increased $2.7 million, or 22.8%, respectively, compared to the prior year period. The increases were primarily driven by increased securities borrowing activity in the current year periods.
For the three months ended December 31, 2024, non-interest income decreased $3.6 million, or 11.1%, and for the six months ended December 31, 2024, non-interest income decreased $8.3 million, or 12.3%, respectively, compared to the prior year period. The decreases were primarily driven by lower broker-dealer fee income as a result of lower cash sorting balances in the current year periods.
For the three months ended December 31, 2024, non-interest expense increased $0.2 million or 0.8%, and for the six months ended December 31, 2024, non-interest expense increased $0.8 million, or 1.4%, respectively, compared to the prior year period.
43
Table of Contents
The following table provides selected information for Axos Clearing:
(Dollars in thousands) December 31, 2024 June 30, 2024
FDIC insured deposit program balances at banks $ 1,359,139 $ 1,289,105
Margin balances $ 274,486 $ 219,848
Cash reserves for the benefit of customers $ 126,821 $ 113,676
Securities lending:
Interest-earning assets - securities borrowed $ 114,672 $ 67,212
Interest-bearing liabilities - securities loaned $ 135,258 $ 74,177
FINANCIAL CONDITION
Balance Sheet Analysis
Our total assets increased $0.9 billion, or 3.7%, to $23.7 billion at December 31, 2024, from $22.9 billion at June 30, 2024, primarily attributable to an increase in cash and cash equivalents and loans. Our total liabilities increased $0.6 billion, or 3.0%, to $21.2 billion at December 31, 2024 from $20.6 billion at June 30, 2024, primarily attributable to higher deposit balances.
Loans and Allowance for Credit Losses - Loans
The following table sets forth the composition of the loan portfolio:
December 31, 2024 June 30, 2024
(Dollars in thousands) Amount Percent Amount Percent
Single Family - Mortgage & Warehouse $ 4,149,778 20.7 % $ 4,178,832 21.1 %
Multifamily and Commercial Mortgage1
3,430,948 17.1 % 3,861,931 19.5 %
Commercial Real Estate1
6,214,834 31.1 % 6,088,622 30.7 %
Commercial & Industrial - Non-RE 5,809,877 29.0 % 5,241,766 26.5 %
Auto & Consumer 420,937 2.1 % 431,660 2.2 %
Total gross loans 20,026,374 100.0 % 19,802,811 100.0 %
Allowance for credit losses - loans (270,605) (260,542)
Unaccreted discounts and loan fees (269,042) (310,884)
Total net loans $ 19,486,727 $ 19,231,385
1Includes PCD loans of $281.3 million and $284.0 million in Multifamily and Commercial Mortgage and $44.5 million and $44.5 million in Commercial Real Estate as of December 31, 2024 and June 30, 2024, respectively. For further detail on PCD loans, see Note 1-"Summary of Significant Accounting Policies" in the 2024 Form 10-K.
Management establishes an allowance for credit losses based upon its evaluation of the expected lifetime credit losses related to the amortized cost basis of loans on the balance sheet. The net charge-off rate for the three months ended December 31, 2024 was 0.10%, compared to 0.04% for the three months ended December 31, 2023. The increase in the net charge-off rate was primarily driven by higher net charge-offs in the multifamily and commercial mortgage portfolio. For additional information regarding the Company's allowance for credit losses, see Note 4-"Loans & Allowance for Credit Losses" in the accompanying interim condensed consolidated financial statements. For a discussion of the provision for credit losses for the three and six months ended December 31, 2024, see Item 2-"Management's Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations." We believe that the lower average LTV in the loan portfolio will continue to result in future lower average mortgage loan charge-offs when compared to many other comparable banks.
44
Table of Contents
Asset Quality
Non-performing Assets.Loans reaching 90 days past due are generally placed on nonaccrual status. Loans not yet reaching 90 days past due may be placed on nonaccrual status based on management's assessment of the aging of contractual principal amounts due, among other factors. For an aging analysis of the Company's loans held for investment as of December 31, 2024 and June 30, 2024, see Note 4-"Loans & Allowance for Credit Losses" in the accompanying interim condensed consolidated financial statements. Non-performing assets include nonaccrual loans plus other real estate owned and repossessed vehicles.
Non-performing assets consisted of the following:
(Dollars in thousands) December 31, 2024 June 30, 2024 Increase (Decrease)
Non-performing assets:
Nonaccrual loans:
Single Family - Mortgage & Warehouse $ 69,570 $ 45,711 $ 23,859
Multifamily and Commercial Mortgage 49,157 35,054 14,103
Commercial Real Estate 59,766 26,102 33,664
Commercial & Industrial - Non-RE 70,859 4,020 66,839
Auto & Consumer 2,180 2,472 (292)
Total nonaccrual loans $ 251,532 $ 113,359 $ 138,173
Foreclosed real estate 75 1,840 (1,765)
Repossessed vehicles-Autos
581 610 (29)
Total non-performing assets $ 252,188 $ 115,809 $ 136,379
Total nonaccrual loans as a percentage of total loans 1.26 % 0.57 % 0.69 %
Total non-performing assets as a percentage of total assets 1.06 % 0.51 % 0.55 %
Our non-performing assets increased to $252.2 million at December 31, 2024 from $115.8 million at June 30, 2024, primarily as a result of an increase in non-accrual loans of $138.2 million, partially offset by a decrease in other real estate owned and repossessed vehicles of $1.8 million. Non-performing assets as a percentage of total assets increased to 1.06% at December 31, 2024 from 0.51% at June 30, 2024.
Available-for-Sale Securities
Total available-for-sale securities were $97.8 million as of December 31, 2024, compared with $141.6 million at June 30, 2024. During the six months ended December 31, 2024, we purchased $22.4 million of securities and received principal repayments of $67.0 million. The remainder of the change for the available-for-sale securities portfolio is attributable to changes in the fair value of the securities.
Deposits
Deposits increased by $0.6 billion, or 3.0%, to $19.9 billion at December 31, 2024, from $19.4 billion at June 30, 2024. As of December 31, 2024 compared with June 30, 2024, interest-bearing demand and savings increased $629.2 million and non-interest-bearing deposits increased by $14.1 million, while time deposits decreased $67.6 million.
The following table sets forth the composition of the deposit portfolio:
December 31, 2024 June 30, 2024
(Dollars in thousands) Amount Amount
Non-interest-bearing $ 2,989,759 $ 2,975,631
Interest-bearing demand and savings $ 16,074,678 $ 15,445,490
Time deposits 870,467 938,096
Total interest bearing $ 16,945,145 $ 16,383,586
Total deposits1
$ 19,934,904 $ 19,359,217
1 Total deposits includes brokered deposits of $1,570.8 million and $1,611.6 million as of December 31, 2024 and June 30, 2024, respectively, which include brokered time deposits of $400.0 million and $400.0 million as of December 31, 2024 and June 30, 2024, respectively.
45
Table of Contents
The following table sets forth the number of deposit accounts by type:
December 31, 2024 June 30, 2024 December 31, 2023
Non-interest-bearing 48,930 55,772 47,846
Interest-bearing checking and savings accounts 527,590 495,070 461,293
Time deposits 3,631 4,696 5,682
Total number of deposit accounts
580,151 555,538 514,821
Total Bank deposits that exceeded the FDIC insurance limit of $250,000 or were not collateralized at December 31, 2024 and June 30, 2024 were $2.2 billion and $2.1 billion, respectively. The maturities of time deposits that exceeded the FDIC insurance limit were as follows:
(Dollars in thousands) December 31, 2024
3 months or less $ 148,902
3 months to 6 months 183,537
6 months to 12 months 6,640
Over 12 months 3,479
Total $ 342,558
Borrowings
The following table sets forth the composition of our borrowings and the interest rates:
December 31, 2024 June 30, 2024 December 31, 2023
(Dollars in thousands) Balance
Weighted Average Rate
Balance
Weighted Average Rate
Balance
Weighted Average Rate
FHLB Advances $ 60,000 2.07 % $ 90,000 2.32 % $ 90,000 2.32 %
Borrowings, subordinated notes and debentures 358,692 4.86 % 325,679 4.57 % 341,086 4.61 %
Total borrowings $ 418,692 4.46 % $ 415,679 4.08 % $ 431,086 4.13 %
Weighted average cost of borrowings during the quarter 4.54 % 4.61 % 4.43 %
Borrowings as a percent of total assets 1.77 % 1.82 % 1.99 %
We regularly use advances from the FHLB to manage our interest rate risk and, to a lesser extent, manage our liquidity position. Generally, FHLB advances with terms between three and ten years have been used to fund the origination of loans and to provide us with interest rate risk protection should rates rise. On July 15, 2024, the Company paid $2.6 million to repurchase $3.0 million par value of its 4.00% Fixed-to-Floating Rate Subordinated Notes due March 1, 2032. On September 27, 2024, the Company paid $9.2 million to repurchase $9.5 million par value of its 4.875% Fixed-to-Floating Rate Subordinated Notes due October 1, 2030. For additional information see Note 11-"Borrowings, Subordinated Notes and Debentures" in the accompanying interim condensed consolidated financial statements.
Stockholders' Equity
Stockholders' equity increased $231.4 million to $2,522.0 million at December 31, 2024, compared to $2,290.6 million at June 30, 2024. The increase was primarily the result of net income for the six months ended December 31, 2024 of $217.0 million.
46
Table of Contents
LIQUIDITY
Cash flow information is as follows:
For the Six Months Ended
December 31,
(Dollars in thousands) 2024 2023
Operating Activities $ 233,298 $ 152,734
Investing Activities $ (314,758) $ (1,741,869)
Financing Activities $ 569,115 $ 970,772
During the six months ended December 31, 2024, we had net cash inflows from operating activities of $233.3 million compared to inflows of $152.7 million for the six months ended December 31, 2023. Net operating cash inflows and outflows fluctuate primarily due to the timing of the following: originations of loans held for sale, proceeds from loan sales, securities borrowed and loaned, and customer, broker-dealer and clearing receivables and payables and changes in other assets and payables.
Net cash outflows from investing activities totaled $314.8 million for the six months ended December 31, 2024, while outflows totaled $1,741.9 million for the six months ended December 31, 2023. The decrease in outflows was primarily due to absence of the FDIC Loan Purchase and a lower net change in loans held for investment in the six months ended December 31, 2024 as compared to the six months ended December 31, 2023.
Net cash inflows from financing activities totaled $569.1 million for the six months ended December 31, 2024, compared to net cash inflows from financing activities of $970.8 million for the six months ended December 31, 2023. The decrease in net cash inflows from financing was primarily driven by lower net increase in deposits during the six months ended December 31, 2024.
As of December 31, 2024, the Bank could borrow up to 35% of its total assets from the FHLB. Borrowings are collateralized by pledging certain mortgage loans and available-for-sale securities to the FHLB. At December 31, 2024, the Company had $2,839.1 million available immediately and $4,812.6 million available with additional collateral and the Company had $4,326.2 million of loans and $0.1 million of securities pledged to the FHLB. At December 31, 2024, we had $250.0 million in unsecured federal funds lines of credit with five major banks under which there were no borrowings outstanding.
The Bank has the ability to borrow short-term from the FRBSF Discount Window. At December 31, 2024, the Bank did not have any borrowings outstanding and the amount available from this source was $6,947.6 million. Borrowings are collateralized by pledging commercial loans and consumer loans. At December 31, 2024, we had $8,129.0 million of loans pledged to the FRBSF.
Axos Clearing has a $150 million third-party secured line of credit available for borrowing, as needed. As of December 31, 2024, there was no amount outstanding on this credit facility. This credit facility bears interest at rates based on the Federal Funds rate and is due upon demand.
Axos Clearing has a $110 million third-party unsecured line of credit available for limited purpose borrowing. As of December 31, 2024, there was $45 million amount outstanding on this credit facility. This credit facility bears interest at rates based on the Federal Funds rate and is due upon demand.
We view our liquidity sources to be stable and adequate for our anticipated needs and contingencies for both the short- and long-term. Due to the diversified sources of our deposits, while maintaining approximately 90% of our total Bank deposits in insured or collateralized accounts as of December 31, 2024, we believe we have the ability to increase our level of deposits, and have available other potential sources of funding, to address our liquidity needs for the foreseeable future.
For additional information on certain contractual and other obligations, see Note 9-"Commitments and Contingencies"and Note 12-"Other Assets"in the accompanying interim condensed consolidated financial statements and refer to Note 11-"Deposits,"Note 12-"Advances from the Federal Home Loan Bank"and Note 13-"Borrowings, Subordinated Notes and Debentures"in the 2024 Form 10-K.
On January 28, 2025, the Company entered into an equity distribution agreement pursuant to which the Company may issue and sell through distribution agents from time to time shares of the Company's common stock in at-the-market offerings with an aggregate offering price of up to $150,000,000. The Company will issue the stock pursuant to a previously effective registration statement and a prospectus supplement filed with the SEC on January 28, 2025.
47
Table of Contents
CAPITAL RESOURCES AND REQUIREMENTS
The Company and Bank are subject to regulatory capital adequacy requirements promulgated by federal bank regulatory agencies. Failure by the 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 the Company and the OCC has similar requirements for our Bank. The following tables present regulatory capital information for the Company and Bank. Information presented for December 31, 2024 reflects the Basel III capital requirements for both the Company and Bank. Under these capital requirements and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company and Bank's assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's and Bank's capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors. As part of its capital management, the Bank may pay dividends to the Company from time to time.
Quantitative measures established by regulation require the Company and Bank to maintain certain minimum capital amounts and ratios. Federal bank regulators require the Company and Bank to maintain minimum ratios of tier 1 capital to adjusted average assets of 4.0%, common equity tier 1 capital to risk-weighted assets of 4.5%, tier 1 capital to risk-weighted assets of 6.0% and total risk-based capital to risk-weighted assets of 8.0%. To be "well capitalized," the Company and Bank must maintain minimum leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios of at least 5.0%, 6.5%, 8.0% and 10.0%, respectively. At December 31, 2024, the Company and Bank met all the capital adequacy requirements to which they were subject and were "well capitalized" under the regulatory framework for prompt corrective action. Management believes that no conditions or events have occurred since December 31, 2024 that would materially adversely change the Company's and Bank's capital classifications. From time to time, we may need to raise additional capital to support the Company's and Bank's further growth and to maintain their "well capitalized" status.
The Company and Bank both elected the five-year current expected credit losses ("CECL") transition guidance for calculating regulatory capital and ratios. The amounts in the following table reflect this election. This guidance allowed an entity to add back to regulatory capital 100% of the impact of the day-one CECL transition adjustment and 25% of subsequent increases to the allowance for credit losses through June 30, 2022. In fiscal year 2025, this cumulative amount is phased out of regulatory capital at 75% and the cumulative amount will be 100% phased out of regulatory capital beginning in fiscal year 2026.
The Company's and Bank's capital ratios and requirements were as follows:
Axos Financial, Inc. Axos Bank "Well
Capitalized"
Ratio
Minimum Capital
Ratio
(Dollars in thousands)
December 31,
2024
June 30,
2024
December 31,
2024
June 30,
2024
Regulatory Capital:
Tier 1 $ 2,394,568 $ 2,167,781 $ 2,295,562 $ 2,181,426
Common equity tier 1 $ 2,394,568 $ 2,167,781 $ 2,295,562 $ 2,181,426
Total capital $ 2,937,826 $ 2,678,489 $ 2,510,421 $ 2,365,061
Assets:
Average adjusted $ 23,893,592 $ 22,979,871 $ 23,315,074 $ 22,391,541
Total risk-weighted $ 19,287,561 $ 18,049,571 $ 18,117,890 $ 17,128,880
Regulatory Capital Ratios:
Tier 1 leverage (to adjusted average assets) 10.02 % 9.43 % 9.85 % 9.74 % 5.00 % 4.00 %
Common equity tier 1 capital (to risk-weighted assets) 12.42 % 12.01 % 12.67 % 12.74 % 6.50 % 4.50 %
Tier 1 capital (to risk-weighted assets) 12.42 % 12.01 % 12.67 % 12.74 % 8.00 % 6.00 %
Total capital (to risk-weighted assets) 15.23 % 14.84 % 13.86 % 13.81 % 10.00 % 8.00 %
Basel III requires all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively composed of common equity tier 1 capital, and it applies to each of the three risk-based capital ratios but not the leverage ratio. At December 31, 2024 and June 30, 2024, our Company and Bank were in compliance with the capital conservation buffer requirement, which sets the common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratio minimums to7.0%,8.5%and10.5%, respectively.
48
Table of Contents
Securities Business
Pursuant to the net capital requirements of the Exchange Act, Axos Clearing is subject to the SEC Uniform Net Capital (Rule 15c3-1 of the Exchange Act). Under this rule, the Company has elected to operate under the alternate method and is required to maintain minimum net capital of $250,000 or 2% of aggregate debit balances arising from client transactions, as defined. Under the alternate method, the Company may not repay subordinated debt, pay cash distributions, or make any unsecured advances or loans to its parent or employees if such payment would result in net capital of less than 5% of aggregate debit balances or less than 120% of its minimum dollar requirement. As part of its capital management, Axos Clearing may make distributions to the Company from time to time.
The net capital position of Axos Clearing was as follows:
(Dollars in thousands) December 31, 2024 June 30, 2024
Net capital $ 83,932 $ 101,462
Excess Capital $ 78,282 $ 96,654
Net capital as a percentage of aggregate debit items 29.71 % 42.21 %
Net capital in excess of 5% aggregate debit items $ 69,805 $ 89,442
Axos Clearing, as a clearing broker, is subject to the SEC Customer Protection Rule (Rule 15c3-3 of the Exchange Act) which requires segregation of funds in a special reserve account for the exclusive benefit of customers ("Customer Reserve Bank Account") and proprietary accounts of brokers ("PAB Reserve Account"). As of December 31, 2024, Axos Clearing was in compliance with its Customer Reserve Bank Account and PAB Reserve Account deposit requirements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For further discussion of the Company's market risk, see Item 7A-"Quantitative and Qualitative Disclosures About Market Risk"in the 2024 Form 10-K.
We measure interest rate sensitivity as the difference between amounts of interest-earning assets and interest-bearing liabilities that mature or contractually re-price within a given period of time. The difference, or the interest rate sensitivity gap, provides an indication of the extent to which an institution's interest rate spread will be affected by changes in interest rates. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities and negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets.
Absent any subsequent asset and liability actions by management, in a rising interest rate environment, an institution with a positive gap would be in a better position than an institution with a negative gap to invest in higher yielding assets or to have its asset yields adjusted upward, which would cause the yield on its assets to increase at a faster pace than the cost of its interest-bearing liabilities. Conversely, absent any subsequent asset and liability actions by management, during a period of falling interest rates, an institution with a positive gap would tend to have its assets reprice at a faster rate than one with a negative gap, which would tend to reduce the growth in its net interest income.
49
Table of Contents
Banking Business Segment
The following table sets forth the amounts of interest earning assets and interest bearing liabilities that were outstanding at December 31, 2024 and the portions of each financial instrument that are expected to mature or reset interest rates in each future period:
Term to Repricing, Repayment, or Maturity at
December 31, 2024
(Dollars in thousands) Six Months or Less Over Six
Months Through
One Year
Over One
Year Through
Five Years
Over Five
Years
Total
Interest-earning assets:
Cash and cash equivalents $ 2,505,415 $ - $ - $ - $ 2,505,415
Available-for-sale securities1
63,964 4,232 17,835 11,817 97,848
Stock of the FHLB, at cost 29,598 - - - 29,598
Loans2
13,325,410 1,868,020 4,181,972 111,225 19,486,627
Loans held for sale 25,436 - - - 25,436
Total interest-earning assets 15,949,823 1,872,252 4,199,807 123,042 22,144,924
Non-interest-earning assets - - - - 774,893
Total assets $ 15,949,823 $ 1,872,252 $ 4,199,807 $ 123,042 $ 22,919,817
Interest-bearing liabilities:
Interest-bearing deposits3
$ 16,800,453 $ 45,214 $ 221,489 $ - $ 17,067,156
Advances from the FHLB - - 60,000 - 60,000
Total interest-bearing liabilities 16,800,453 45,214 281,489 - 17,127,156
Other non-interest-bearing liabilities - - - - 3,369,753
Stockholders' equity - - - - 2,422,908
Total liabilities and equity $ 16,800,453 $ 45,214 $ 281,489 $ - $ 22,919,817
Net interest rate sensitivity gap $ (850,630) $ 1,827,038 $ 3,918,318 $ 123,042 $ 5,017,768
Cumulative gap $ (850,630) $ 976,408 $ 4,894,726 $ 5,017,768 $ 5,017,768
Net interest rate sensitivity gap-as a % of total interest earning assets (3.84) % 8.25 % 17.69 % 0.56 % 22.66 %
Cumulative gap-as % of total cumulative interest earning assets
(3.84) % 4.41 % 22.10 % 22.66 % 22.66 %
1Comprised of U.S. government securities, mortgage-backed securities and other securities. The table reflects contractual repricing dates.
2Loans includes loan premiums, discounts and unearned fees. The table reflects either contractual repricing dates or expected maturities.
3The table assumes that the principal balances for demand deposits and savings accounts will reprice in the first year.
The above table provides an approximation of the projected re-pricing of assets and liabilities at December 31, 2024 on the basis of contractual maturities, adjusted for anticipated prepayments of principal and scheduled rate adjustments. The loan and securities prepayment rates reflected herein are primarily based on modeled cash flows. For the non-maturity deposit liabilities, we use decay rates and rate adjustments based upon our historical experience and the implied forward rate curve, respectively. Actual repayments of these instruments could vary substantially if future experience differs from our historical experience.
Although "gap" analysis is a useful measurement device available to management in determining the existence of interest rate exposure, its static focus as of a particular date makes it necessary to utilize other techniques in measuring exposure to changes in interest rates. For example, gap analysis is limited in its ability to predict trends in future earnings and makes no assumptions about changes in prepayment tendencies, deposit or loan maturity preferences or repricing time lags that may occur in response to a change in the interest rate environment.
50
Table of Contents
The following table indicates the sensitivity of net interest income movements to parallel instantaneous shocks in interest rates for the future 1-12 months' and 13-24 months' time periods. For purposes of modeling net interest income sensitivity the Company assumes no growth in the balance sheet other than for retained earnings:
As of December 31, 2024
First 12 Months Next 12 Months
(Dollars in thousands) Percentage Change from Base Percentage Change from Base
Up 200 basis points 5.5 % 12.3 %
Up 100 basis points
2.8 % 6.2 %
Down 100 basis points
(1.9) % (5.3) %
Down 200 basis points (2.4) % (9.1) %
We attempt to measure the effect market interest rate changes will have on the net present value of assets and liabilities, which is defined as market value of equity. We analyze the MVE sensitivity to an immediate parallel and sustained shift in interest rates derived from the underlying interest rate curves.
The following table indicates the sensitivity of MVE to the interest rate movement described above:
As of December 31, 2024
(Dollars in thousands) Percentage Change from Base
Up 200 basis points (1.2) %
Up 100 basis points 0.0 %
Down 100 basis points (1.2) %
Down 200 basis points (2.8) %
The computation of the prospective effects of hypothetical interest rate changes is based on numerous assumptions, including relative levels of interest rates, asset prepayments (including replacing floating rate loan run-off with loans having similar spread and floor features), runoffs in deposits and changes in repricing levels of deposits to general market rates, and should not be relied upon as indicative of actual results. Furthermore, these computations do not take into account any actions that we may undertake in response to future changes in interest rates. Those actions include, but are not limited to, making changes in loan and deposit interest rates and changes in our asset and liability mix.
Securities Business Segment
Our Securities Business Segment is exposed to market risk primarily due to its role as a financial intermediary in customer transactions, which may include purchases and sales of securities, securities lending activities, and in our trading activities, which are used to support sales, underwriting and other customer activities. We are subject to the risk of loss that may result from the potential change in value of a financial instrument as a result of fluctuations in interest rates, market prices, investor expectations and changes in credit ratings of the issuer.
Our Securities Business Segment is exposed to interest rate risk as a result of maintaining inventories of interest rate sensitive financial instruments and other interest-earning assets including customer and correspondent margin loans and securities borrowing activities. Our exposure to interest rate risk is also from our funding sources including customer and correspondent cash balances, bank borrowings and securities lending activities. Interest rates on customer and correspondent balances and securities produce a positive spread with rates generally fluctuating in parallel.
With respect to securities held, our interest rate risk is managed by setting and monitoring limits on the size and duration of positions and on the length of time securities can be held. The majority of the interest rates on customer and correspondent margin loans are indexed and can vary daily. Our funding sources are generally short term with interest rates that can vary daily.
As of December 31, 2024, Axos Clearing held municipal obligations classified as trading securities and had maturities greater than 10 years.
Our Securities Business Segment is engaged in various brokerage and trading activities that expose us to credit risk arising from potential non-performance from counterparties, customers or issuers of securities. This risk is managed by setting and monitoring position limits for each counterparty, conducting periodic credit reviews of counterparties, reviewing concentrations of securities and conducting business through central clearing organizations.
51
Table of Contents
Collateral underlying margin loans to customers and correspondents, and with respect to securities lending activities, is marked to market daily and additional collateral is obtained or refunded, as necessary.
ITEM 4.CONTROLS AND PROCEDURES
The Company's management, with the participation of its Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures, pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation, our Chief Executive Officer along with our Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In addition, there were no changes in the Company's internal control over financial reporting during the quarter ended December 31, 2024 (as defined in Exchange Act Rule 13a-15(f)) that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
Management, including the Company's Chief Executive Officer and Chief Financial Officer, does not expect that the Company's internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods is subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.
52
Table of Contents
PART II-OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
The information set forth in Note 9-"Commitments and Contingencies" in the accompanying interim condensed consolidated financial statements is incorporated herein by reference.
In addition, from time to time we may be 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 business operations. None of such matters are expected to have a material adverse effect on the Company's financial condition, results of operations or business.
ITEM 1A.RISK FACTORS
We face a variety of risks that are inherent in our business and our industry. These risks are described in more detail under Item 1A-"Risk Factors" in the 2024 Form 10-K. We encourage you to read these factors in their entirety. Moreover, other factors may also exist that we cannot anticipate or that we currently do not consider to be significant based on information that is currently available.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The table below sets forth our market repurchases of Axos common stock and the Axos common stock retained in connection with net settlement of restricted stock unit awards during the three months ended December 31, 2024.
(Dollars in thousands, except per share data) 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 Repurchases1
Quarter Ended December 31, 2024
October 1, 2024 to October 31, 2024 - $ - - $ 106,521
November 1, 2024 to November 30, 2024 - - - 106,521
December 1, 2024 to December 31, 2024 - - - 106,521
For the Three Months Ended December 31, 2024 - $ - - $ 106,521
Stock Retained in Net Settlement2
October 1, 2024 to October 31, 2024 86
November 1, 2024 to November 30, 2024 1,018
December 1, 2024 to December 31, 2024 2,479
For the Three Months Ended December 31, 2024 3,583
1On April 27, 2023, the Company announced a program to repurchase up to $100 million of its common stock and on February 12, 2024, the Company announced a program to repurchase up to $100 million of its common stock. The February 12, 2024 share repurchase authorization is in addition to the existing share repurchase plan announced on April 27, 2023. Both of the share repurchase programs will continue in effect until terminated by the Board of Directors of the Company.
2The Amended and Restated 2014 Stock Incentive Plan permits net settlement of stock issuances related to equity awards for purposes of payment of a grantee's minimum income tax obligation. Stock Retained in Net Settlement was purchased at the vesting price of the associated restricted stock unit.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
During the three months ended December 31, 2024, no director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.
53
Table of Contents
ITEM 6.EXHIBITS
Exhibit
Number
Description Incorporated By Reference to
31.1 Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith.
31.2 Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith.
32.1 Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith.
32.2 Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith.
101.INS Inline XBRL Instance Document The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH Inline XBRL Taxonomy Extension Schema Document Filed herewith.
101.CAL Inline XBRL Taxonomy Calculation Linkbase Document Filed herewith.
101.LAB Inline XBRL Taxonomy Label Linkbase Document Filed herewith.
101.PRE Inline XBRL Taxonomy Presentation Linkbase Document Filed herewith.
101.DEF Inline XBRL Taxonomy Definition Document Filed herewith.
104 Cover Page Interactive Data File Formatted as Inline XBRL and contained in Exhibit 101
54
Table of Contents
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Axos Financial, Inc.
Dated: January 28, 2025 By: /s/ Gregory Garrabrants
Gregory Garrabrants
President and Chief Executive Officer
(Principal Executive Officer)
Dated: January 28, 2025 By: /s/ Derrick K. Walsh
Derrick K. Walsh
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
55