UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT UNDERPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Periodquarterly period ended December 31, 20202021
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☐ | TRANSITION REPORT UNDERPURSUANT 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)
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Delaware | | 33-0867444 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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9205 West Russell Road, STESuite 400, Las Vegas, NV 89148
(Address of principal executive offices) (zip code)
Registrant’s telephone number, including area code: (858) 649-2218
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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 |
6.25% Subordinated Notes Due 2026 | AXO | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
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.
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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: 59,077,14559,501,899 shares of common stock, $0.01 par value per share, as of January 22, 2021.20, 2022.
AXOS FINANCIAL, INC.
INDEX
PART I – FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| (Dollars in thousands, except par and stated value) | (Dollars in thousands, except par and stated value) | December 31, 2020 | | June 30, 2020 | (Dollars in thousands, except par and stated value) | December 31, 2021 | | June 30, 2021 |
ASSETS | ASSETS | | | | ASSETS | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 1,129,898 | | | $ | 1,756,477 | | Cash and cash equivalents | $ | 858,732 | | | $ | 715,624 | |
Cash segregated for regulatory purposes | Cash segregated for regulatory purposes | 313,297 | | | 194,042 | | Cash segregated for regulatory purposes | 259,626 | | | 322,153 | |
| Total cash, cash equivalents, and cash segregated | Total cash, cash equivalents, and cash segregated | 1,443,195 | | | 1,950,519 | | Total cash, cash equivalents, and cash segregated | 1,118,358 | | | 1,037,777 | |
Securities: | Securities: | | Securities: | |
Trading | Trading | 362 | | | 105 | | Trading | 1,223 | | | 1,983 | |
Available-for-sale | Available-for-sale | 209,828 | | | 187,627 | | Available-for-sale | 139,581 | | | 187,335 | |
| Stock of regulatory agencies | Stock of regulatory agencies | 20,612 | | | 20,610 | | Stock of regulatory agencies | 20,368 | | | 19,995 | |
Loans held for sale, carried at fair value | Loans held for sale, carried at fair value | 64,287 | | | 51,995 | | Loans held for sale, carried at fair value | 27,428 | | | 29,768 | |
Loans held for sale, lower of cost or fair value | Loans held for sale, lower of cost or fair value | 13,769 | | | 44,565 | | Loans held for sale, lower of cost or fair value | 11,446 | | | 12,294 | |
Loans and leases—net of allowance for credit losses of $136.4 million as of December 31, 2020 and $75.8 million as of June 30, 2020 | 11,609,584 | | | 10,631,349 | | |
Loans—net of allowance for credit losses of $140.5 million as of December 31, 2021 and $133.0 million as of June 30, 2021 | | Loans—net of allowance for credit losses of $140.5 million as of December 31, 2021 and $133.0 million as of June 30, 2021 | 12,607,179 | | | 11,414,814 | |
| Mortgage servicing rights, carried at fair value | Mortgage servicing rights, carried at fair value | 14,314 | | | 10,675 | | Mortgage servicing rights, carried at fair value | 20,110 | | | 17,911 | |
Other real estate owned and repossessed vehicles | Other real estate owned and repossessed vehicles | 6,296 | | | 6,408 | | Other real estate owned and repossessed vehicles | 251 | | | 6,782 | |
| Goodwill and other intangible assets—net | Goodwill and other intangible assets—net | 120,644 | | | 125,389 | | Goodwill and other intangible assets—net | 161,954 | | | 115,972 | |
Securities borrowed | Securities borrowed | 317,571 | | | 222,368 | | Securities borrowed | 534,243 | | | 619,088 | |
Customer, broker-dealer and clearing receivables | Customer, broker-dealer and clearing receivables | 264,572 | | | 220,266 | | Customer, broker-dealer and clearing receivables | 429,634 | | | 369,815 | |
Other assets | Other assets | 308,233 | | | 380,024 | | Other assets | 476,172 | | | 432,031 | |
TOTAL ASSETS | TOTAL ASSETS | $ | 14,393,267 | | | $ | 13,851,900 | | TOTAL ASSETS | $ | 15,547,947 | | | $ | 14,265,565 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | | LIABILITIES AND STOCKHOLDERS’ EQUITY | |
Deposits: | Deposits: | | Deposits: | |
Non-interest bearing | Non-interest bearing | $ | 2,201,932 | | | $ | 1,936,661 | | Non-interest bearing | $ | 3,847,461 | | | $ | 2,474,424 | |
Interest bearing | Interest bearing | 9,261,204 | | | 9,400,033 | | Interest bearing | 8,421,711 | | | 8,341,373 | |
Total deposits | Total deposits | 11,463,136 | | | 11,336,694 | | Total deposits | 12,269,172 | | | 10,815,797 | |
| Advances from the Federal Home Loan Bank | Advances from the Federal Home Loan Bank | 182,500 | | | 242,500 | | Advances from the Federal Home Loan Bank | 157,500 | | | 353,500 | |
Borrowings, subordinated notes and debentures | Borrowings, subordinated notes and debentures | 418,480 | | | 235,789 | | Borrowings, subordinated notes and debentures | 260,435 | | | 221,358 | |
| Securities loaned | Securities loaned | 362,170 | | | 255,945 | | Securities loaned | 578,762 | | | 728,988 | |
Customer, broker-dealer and clearing payables | Customer, broker-dealer and clearing payables | 475,473 | | | 347,614 | | Customer, broker-dealer and clearing payables | 528,796 | | | 535,425 | |
Accounts payable and accrued liabilities and other liabilities | Accounts payable and accrued liabilities and other liabilities | 204,026 | | | 202,512 | | Accounts payable and accrued liabilities and other liabilities | 230,125 | | | 209,561 | |
Total liabilities | Total liabilities | 13,105,785 | | | 12,621,054 | | Total liabilities | 14,024,790 | | | 12,864,629 | |
| STOCKHOLDERS’ EQUITY: | STOCKHOLDERS’ EQUITY: | | STOCKHOLDERS’ EQUITY: | |
Preferred stock—$0.01 par value; 1,000,000 shares authorized: | Preferred stock—$0.01 par value; 1,000,000 shares authorized: | | Preferred stock—$0.01 par value; 1,000,000 shares authorized: | |
Series A—$10,000 stated value and liquidation preference per share; 0 shares issued and outstanding as of December 31, 2020 and 515 shares issued and outstanding as of June 30, 2020 | 0 | | | 5,063 | | |
| Common stock—$0.01 par value; 150,000,000 shares authorized; 67,668,664 shares issued and 59,072,822 shares outstanding as of December 31, 2020; 67,323,053 shares issued and 59,612,635 shares outstanding as of June 30, 2020 | 677 | | | 673 | | |
| Common stock—$0.01 par value; 150,000,000 shares authorized; 68,376,837 shares issued and 59,498,575 shares outstanding as of December 31, 2021; 68,069,321 shares issued and 59,317,944 shares outstanding as of June 30, 2021 | | Common stock—$0.01 par value; 150,000,000 shares authorized; 68,376,837 shares issued and 59,498,575 shares outstanding as of December 31, 2021; 68,069,321 shares issued and 59,317,944 shares outstanding as of June 30, 2021 | 684 | | | 681 | |
Additional paid-in capital | Additional paid-in capital | 420,895 | | | 411,873 | | Additional paid-in capital | 441,061 | | | 432,550 | |
Accumulated other comprehensive income (loss)—net of tax | Accumulated other comprehensive income (loss)—net of tax | 1,251 | | | (937) | | Accumulated other comprehensive income (loss)—net of tax | 1,344 | | | 2,507 | |
Retained earnings | Retained earnings | 1,079,828 | | | 1,009,299 | | Retained earnings | 1,308,725 | | | 1,187,728 | |
Treasury stock, at cost; 8,595,842 shares as of December 31, 2020 and 7,710,418 shares as of June 30, 2020 | (215,169) | | | (195,125) | | |
Treasury stock, at cost; 8,878,262 shares as of December 31, 2021 and 8,751,377 shares as of June 30, 2021 | | Treasury stock, at cost; 8,878,262 shares as of December 31, 2021 and 8,751,377 shares as of June 30, 2021 | (228,657) | | | (222,530) | |
Total stockholders’ equity | Total stockholders’ equity | 1,287,482 | | | 1,230,846 | | Total stockholders’ equity | 1,523,157 | | | 1,400,936 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 14,393,267 | | | $ | 13,851,900 | | TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 15,547,947 | | | $ | 14,265,565 | |
See accompanying notes to the condensed consolidated financial statements.
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | | Six Months Ended |
| | December 31, | | December 31, | | December 31, | | December 31, |
(Dollars in thousands, except earnings per common share) | (Dollars in thousands, except earnings per common share) | 2020 | | 2019 | | 2020 | | 2019 | (Dollars in thousands, except earnings per common share) | 2021 | | 2020 | | 2021 | | 2020 |
INTEREST AND DIVIDEND INCOME: | INTEREST AND DIVIDEND INCOME: | | | | | | | | INTEREST AND DIVIDEND INCOME: | | | | | | | |
Loans and leases, including fees | $ | 147,085 | | | $ | 136,602 | | | $ | 288,509 | | | $ | 270,489 | | |
Loans, including fees | | Loans, including fees | $ | 149,469 | | | $ | 147,085 | | | $ | 298,645 | | | $ | 288,509 | |
Securities borrowed and customer receivables | Securities borrowed and customer receivables | 4,666 | | | 3,865 | | | 9,743 | | | 9,207 | | Securities borrowed and customer receivables | 5,366 | | | 4,666 | | | 12,217 | | | 9,743 | |
Investments | Investments | 3,628 | | | 6,821 | | | 7,016 | | | 13,937 | | Investments | 2,241 | | | 3,628 | | | 4,524 | | | 7,016 | |
Total interest and dividend income | Total interest and dividend income | 155,379 | | | 147,288 | | | 305,268 | | | 293,633 | | Total interest and dividend income | 157,076 | | | 155,379 | | | 315,386 | | | 305,268 | |
INTEREST EXPENSE: | INTEREST EXPENSE: | | | | | | | | INTEREST EXPENSE: | | | | | | | |
Deposits | Deposits | 16,095 | | | 32,914 | | | 35,649 | | | 71,720 | | Deposits | 7,805 | | | 16,095 | | | 15,517 | | | 35,649 | |
Advances from the Federal Home Loan Bank | Advances from the Federal Home Loan Bank | 1,326 | | | 4,495 | | | 2,698 | | | 6,259 | | Advances from the Federal Home Loan Bank | 973 | | | 1,326 | | | 1,989 | | | 2,698 | |
Securities loaned | Securities loaned | 255 | | | 163 | | | 379 | | | 449 | | Securities loaned | 218 | | | 255 | | | 469 | | | 379 | |
Other borrowings | Other borrowings | 3,611 | | | 1,296 | | | 5,123 | | | 3,482 | | Other borrowings | 2,512 | | | 3,611 | | | 5,201 | | | 5,123 | |
Total interest expense | Total interest expense | 21,287 | | | 38,868 | | | 43,849 | | | 81,910 | | Total interest expense | 11,508 | | | 21,287 | | | 23,176 | | | 43,849 | |
Net interest income | Net interest income | 134,092 | | | 108,420 | | | 261,419 | | | 211,723 | | Net interest income | 145,568 | | | 134,092 | | | 292,210 | | | 261,419 | |
Provision for credit losses | Provision for credit losses | 8,000 | | | 4,500 | | | 19,800 | | | 7,200 | | Provision for credit losses | 4,000 | | | 8,000 | | | 8,000 | | | 19,800 | |
Net interest income, after provision for credit losses | Net interest income, after provision for credit losses | 126,092 | | | 103,920 | | | 241,619 | | | 204,523 | | Net interest income, after provision for credit losses | 141,568 | | | 126,092 | | | 284,210 | | | 241,619 | |
NON-INTEREST INCOME: | NON-INTEREST INCOME: | | | | | | | | NON-INTEREST INCOME: | | | | | | | |
| Prepayment penalty fee income | Prepayment penalty fee income | 1,579 | | | 2,006 | | | 2,947 | | | 3,418 | | Prepayment penalty fee income | 3,294 | | | 1,579 | | | 6,280 | | | 2,947 | |
Gain on sale – other | Gain on sale – other | 156 | | | 1,924 | | | 490 | | | 5,746 | | Gain on sale – other | 28 | | | 156 | | | 45 | | | 490 | |
Mortgage banking income | Mortgage banking income | 10,651 | | | 2,224 | | | 30,218 | | | 5,018 | | Mortgage banking income | 4,612 | | | 10,651 | | | 9,865 | | | 30,218 | |
Broker-dealer fee income | Broker-dealer fee income | 6,287 | | | 5,555 | | | 11,989 | | | 11,211 | | Broker-dealer fee income | 14,367 | | | 6,287 | | | 26,133 | | | 11,989 | |
Banking and service fees | Banking and service fees | 10,045 | | | 9,498 | | | 18,929 | | | 17,350 | | Banking and service fees | 8,486 | | | 10,045 | | | 15,166 | | | 18,929 | |
Total non-interest income | Total non-interest income | 28,718 | | | 21,207 | | | 64,573 | | | 42,743 | | Total non-interest income | 30,787 | | | 28,718 | | | 57,489 | | | 64,573 | |
NON-INTEREST EXPENSE: | NON-INTEREST EXPENSE: | | NON-INTEREST EXPENSE: | | | | | | | |
Salaries and related costs | Salaries and related costs | 38,199 | | | 33,958 | | | 76,822 | | | 70,675 | | Salaries and related costs | 39,979 | | | 38,199 | | | 80,716 | | | 76,822 | |
Data processing | Data processing | 9,673 | | | 7,410 | | | 17,601 | | | 15,221 | | Data processing | 12,199 | | | 9,673 | | | 24,291 | | | 17,601 | |
Depreciation and amortization | Depreciation and amortization | 5,862 | | | 6,040 | | | 12,048 | | | 11,264 | | Depreciation and amortization | 6,785 | | | 5,862 | | | 12,513 | | | 12,048 | |
Advertising and promotional | Advertising and promotional | 3,783 | | | 4,043 | | | 6,339 | | | 7,833 | | Advertising and promotional | 3,402 | | | 3,783 | | | 6,774 | | | 6,339 | |
Professional services | Professional services | 5,629 | | | 3,112 | | | 11,628 | | | 4,701 | | Professional services | 5,943 | | | 5,629 | | | 10,488 | | | 11,628 | |
Occupancy and equipment | Occupancy and equipment | 3,132 | | | 3,122 | | | 6,143 | | | 5,960 | | Occupancy and equipment | 3,342 | | | 3,132 | | | 6,523 | | | 6,143 | |
FDIC and regulatory fees | FDIC and regulatory fees | 2,601 | | | 939 | | | 5,293 | | | 1,130 | | FDIC and regulatory fees | 2,475 | | | 2,601 | | | 4,741 | | | 5,293 | |
Broker-dealer clearing charges | Broker-dealer clearing charges | 2,451 | | | 1,860 | | | 4,708 | | | 3,868 | | Broker-dealer clearing charges | 3,678 | | | 2,451 | | | 7,683 | | | 4,708 | |
General and administrative expense | General and administrative expense | 4,967 | | | 6,481 | | | 11,261 | | | 11,780 | | General and administrative expense | 8,216 | | | 4,967 | | | 16,721 | | | 11,261 | |
Total non-interest expense | Total non-interest expense | 76,297 | | | 66,965 | | | 151,843 | | | 132,432 | | Total non-interest expense | 86,019 | | | 76,297 | | | 170,450 | | | 151,843 | |
INCOME BEFORE INCOME TAXES | INCOME BEFORE INCOME TAXES | 78,513 | | | 58,162 | | | 154,349 | | | 114,834 | | INCOME BEFORE INCOME TAXES | 86,336 | | | 78,513 | | | 171,249 | | | 154,349 | |
INCOME TAXES | INCOME TAXES | 23,728 | | | 16,867 | | | 46,542 | | | 32,753 | | INCOME TAXES | 25,549 | | | 23,728 | | | 50,252 | | | 46,542 | |
NET INCOME | NET INCOME | $ | 54,785 | | | $ | 41,295 | | | $ | 107,807 | | | $ | 82,081 | | NET INCOME | $ | 60,787 | | | $ | 54,785 | | | $ | 120,997 | | | $ | 107,807 | |
NET INCOME ATTRIBUTABLE TO COMMON STOCK | NET INCOME ATTRIBUTABLE TO COMMON STOCK | $ | 54,672 | | | $ | 41,217 | | | $ | 107,617 | | | $ | 81,926 | | NET INCOME ATTRIBUTABLE TO COMMON STOCK | $ | 60,787 | | | $ | 54,672 | | | $ | 120,997 | | | $ | 107,617 | |
COMPREHENSIVE INCOME | COMPREHENSIVE INCOME | $ | 55,691 | | | $ | 40,515 | | | $ | 109,995 | | | $ | 81,818 | | COMPREHENSIVE INCOME | $ | 60,131 | | | $ | 55,691 | | | $ | 119,834 | | | $ | 109,995 | |
Basic earnings per common share | Basic earnings per common share | $ | 0.93 | | | $ | 0.67 | | | $ | 1.82 | | | $ | 1.34 | | Basic earnings per common share | $ | 1.02 | | | $ | 0.93 | | | $ | 2.04 | | | $ | 1.82 | |
Diluted earnings per common share | Diluted earnings per common share | $ | 0.91 | | | $ | 0.67 | | | $ | 1.79 | | | $ | 1.32 | | Diluted earnings per common share | $ | 1.00 | | | $ | 0.91 | | | $ | 1.99 | | | $ | 1.79 | |
See accompanying notes to the condensed consolidated financial statements.
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | | Six Months Ended |
| | December 31, | | December 31, | | December 31, | | December 31, |
(Dollars in thousands) | (Dollars in thousands) | 2020 | | 2019 | | 2020 | | 2019 | (Dollars in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
NET INCOME | NET INCOME | $ | 54,785 | | | $ | 41,295 | | | $ | 107,807 | | | $ | 82,081 | | NET INCOME | $ | 60,787 | | | $ | 54,785 | | | $ | 120,997 | | | $ | 107,807 | |
Net unrealized gain (loss) from available-for-sale securities, net of tax expense (benefit) of $437 and $(327) for the three and $940 and $(110) for the six months ended December 31, 2020 and 2019, respectively. | 906 | | | (780) | | | 2,188 | | | (263) | | |
Net unrealized gain (loss) from available-for-sale securities, net of tax expense (benefit) of $(274) and $437 for the three and $(488) and $940 for the six months ended December 31, 2021 and 2020, respectively. | | Net unrealized gain (loss) from available-for-sale securities, net of tax expense (benefit) of $(274) and $437 for the three and $(488) and $940 for the six months ended December 31, 2021 and 2020, respectively. | (656) | | | 906 | | | (1,163) | | | 2,188 | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | 906 | | | (780) | | | 2,188 | | | (263) | | Other comprehensive income (loss) | (656) | | | 906 | | | (1,163) | | | 2,188 | |
Comprehensive income | Comprehensive income | $ | 55,691 | | | $ | 40,515 | | | $ | 109,995 | | | $ | 81,818 | | Comprehensive income | $ | 60,131 | | | $ | 55,691 | | | $ | 119,834 | | | $ | 109,995 | |
See accompanying notes to the condensed consolidated financial statements.
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
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| For the Three Months Ended December 31, 2020 |
| Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss), Net of Income Tax | | Treasury Stock | | Total |
| | | | Number of Shares | | | | | | | |
(Dollars in thousands) | Shares | | Amount | | Issued | | Treasury | | Outstanding | | Amount | | | | | |
BALANCE—September 30, 2020 | 515 | | | $ | 5,063 | | | 67,622,935 | | | (8,407,001) | | | 59,215,934 | | | $ | 676 | | | $ | 416,285 | | | $ | 1,025,156 | | | $ | 345 | | | $ | (210,560) | | | $ | 1,236,965 | |
Net income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 54,785 | | | — | | | — | | | 54,785 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 906 | | | — | | | 906 | |
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Cash dividends on preferred stock | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (26) | | | — | | | — | | | (26) | |
Preferred stock - Series A redemption | (515) | | | (5,063) | | | — | | | — | | | — | | | — | | | — | | | (87) | | | — | | | — | | | (5,150) | |
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Purchase of treasury stock | — | | | — | | | — | | | (171,348) | | | (171,348) | | | — | | | — | | | — | | | — | | | (4,015) | | | (4,015) | |
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Stock-based compensation expense and restricted stock unit vesting | — | | | — | | | 45,729 | | | (17,493) | | | 28,236 | | | 1 | | | 4,610 | | | — | | | — | | | (594) | | | 4,017 | |
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BALANCE—December 31, 2020 | 0 | | | $ | 0 | | | 67,668,664 | | | (8,595,842) | | | 59,072,822 | | | $ | 677 | | | $ | 420,895 | | | $ | 1,079,828 | | | $ | 1,251 | | | $ | (215,169) | | | $ | 1,287,482 | |
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| For the Three Months Ended December 31, 2021 |
| Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss), Net of Income Tax | | Treasury Stock | | Total |
| | | | Number of Shares | | | | | | | |
(Dollars in thousands) | Shares | | Amount | | Issued | | Treasury | | Outstanding | | Amount | | | | | |
BALANCE—September 30, 2021 | — | | | $ | — | | | 68,370,617 | | | (8,875,984) | | | 59,494,633 | | | $ | 684 | | | $ | 436,528 | | | $ | 1,247,938 | | | $ | 2,000 | | | $ | (228,529) | | | $ | 1,458,621 | |
Net income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 60,787 | | | — | | | — | | | 60,787 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (656) | | | — | | | (656) | |
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| | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation expense and restricted stock unit vesting | — | | | — | | | 6,220 | | | (2,278) | | | 3,942 | | | — | | | 4,533 | | | — | | | — | | | (128) | | | 4,405 | |
| | | | | | | | | | | | | | | | | | | | | |
BALANCE—December 31, 2021 | — | | | $ | — | | | 68,376,837 | | | (8,878,262) | | | 59,498,575 | | | $ | 684 | | | $ | 441,061 | | | $ | 1,308,725 | | | $ | 1,344 | | | $ | (228,657) | | | $ | 1,523,157 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended December 31, 2020 |
| Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss), Net of Income Tax | | Treasury Stock | | Total |
| | | | Number of Shares | | | |
(Dollars in thousands) | Shares | | Amount | | Issued | | Treasury | | Outstanding | | Amount | |
BALANCE—June 30, 2020 | 515 | | | $ | 5,063 | | | 67,323,053 | | | (7,710,418) | | | 59,612,635 | | | $ | 673 | | | $ | 411,873 | | | $ | 1,009,299 | | | $ | (937) | | | $ | (195,125) | | | $ | 1,230,846 | |
Cumulative effect of change in accounting principle net of tax, adoption of ASU No. 2016-13 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (37,088) | | | — | | | — | | | (37,088) | |
Net income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 107,807 | | | — | | | — | | | 107,807 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,188 | | | — | | | 2,188 | |
| | | | | | | | | | | | | | | | | | | | | |
Cash dividends on preferred stock | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (103) | | | — | | | — | | | (103) | |
Preferred stock - Series A redemption | (515) | | | (5,063) | | | — | | | — | | | — | | | — | | | — | | | (87) | | | — | | | — | | | (5,150) | |
| | | | | | | | | | | | | | | | | | | | | |
Purchase of treasury stock | — | | | — | | | — | | | (753,597) | | | (753,597) | | | — | | | — | | | — | | | — | | | (16,757) | | | (16,757) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation expense and restricted stock unit vesting | — | | | — | | | 345,611 | | | (131,827) | | | 213,784 | | | 4 | | | 9,022 | | | — | | | — | | | (3,287) | | | 5,739 | |
| | | | | | | | | | | | | | | | | | | | | |
BALANCE—December 31, 2020 | 0 | | | $ | 0 | | | 67,668,664 | | | (8,595,842) | | | 59,072,822 | | | $ | 677 | | | $ | 420,895 | | | $ | 1,079,828 | | | $ | 1,251 | | | $ | (215,169) | | | $ | 1,287,482 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended December 31, 2021 |
| Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss), Net of Income Tax | | Treasury Stock | | Total |
| | | | Number of Shares | | | |
(Dollars in thousands) | Shares | | Amount | | Issued | | Treasury | | Outstanding | | Amount | |
BALANCE—June 30, 2021 | — | | | $ | — | | | 68,069,321 | | | (8,751,377) | | | 59,317,944 | | | $ | 681 | | | $ | 432,550 | | | $ | 1,187,728 | | | $ | 2,507 | | | $ | (222,530) | | | $ | 1,400,936 | |
| | | | | | | | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 120,997 | | | — | | | — | | | 120,997 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,163) | | | — | | | (1,163) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation expense and restricted stock unit vesting | — | | | — | | | 307,516 | | | (126,885) | | | 180,631 | | | 3 | | | 8,511 | | | — | | | — | | | (6,127) | | | 2,387 | |
| | | | | | | | | | | | | | | | | | | | | |
BALANCE—December 31, 2021 | — | | | $ | — | | | 68,376,837 | | | (8,878,262) | | | 59,498,575 | | | $ | 684 | | | $ | 441,061 | | | $ | 1,308,725 | | | $ | 1,344 | | | $ | (228,657) | | | $ | 1,523,157 | |
See accompanying notes to the condensed consolidated financial statements.
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
(Unaudited)
| | | | For the Three Months Ended December 31, 2019 | | For the Three Months Ended December 31, 2020 |
| | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss), Net of Income Tax | | Treasury Stock | | Total | | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss), Net of Income Tax | | Treasury Stock | | Total |
| | | Number of Shares | | | | | Number of Shares | | |
(Dollars in thousands) | (Dollars in thousands) | Shares | | Amount | | Issued | | Treasury | | Outstanding | | Amount | | (Dollars in thousands) | Shares | | Amount | | Issued | | Treasury | | Outstanding | | Amount | |
BALANCE—September 30, 2019 | 515 | | | $ | 5,063 | | | 66,837,037 | | | (5,549,442) | | | 61,287,595 | | | $ | 668 | | | $ | 394,904 | | | $ | 866,879 | | | $ | 533 | | | $ | (151,807) | | | $ | 1,116,240 | | |
BALANCE—September 30, 2020 | | BALANCE—September 30, 2020 | 515 | | | $ | 5,063 | | | 67,622,935 | | | (8,407,001) | | | 59,215,934 | | | $ | 676 | | | $ | 416,285 | | | $ | 1,025,156 | | | $ | 345 | | | $ | (210,560) | | | $ | 1,236,965 | |
Net income | Net income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 41,295 | | | — | | | — | | | 41,295 | | Net income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 54,785 | | | — | | | — | | | 54,785 | |
Other comprehensive income (loss) | Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (780) | | | — | | | (780) | | Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 906 | | | — | | | 906 | |
| Cash dividends on preferred stock | Cash dividends on preferred stock | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (78) | | | — | | | — | | | (78) | | Cash dividends on preferred stock | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (26) | | | — | | | — | | | (26) | |
| Preferred stock - Series A redemption | | Preferred stock - Series A redemption | (515) | | | (5,063) | | | — | | | — | | | — | | | — | | | — | | | (87) | | | — | | | — | | | (5,150) | |
Purchase of treasury stock | | Purchase of treasury stock | — | | | — | | | — | | | (171,348) | | | (171,348) | | | — | | | — | | | — | | | — | | | (4,015) | | | (4,015) | |
| Stock-based compensation expense and restricted stock unit vesting | Stock-based compensation expense and restricted stock unit vesting | — | | | — | | | 78,441 | | | (27,650) | | | 50,791 | | | 1 | | | 4,902 | | | — | | | — | | | (828) | | | 4,075 | | Stock-based compensation expense and restricted stock unit vesting | — | | | — | | | 45,729 | | | (17,493) | | | 28,236 | | | 1 | | | 4,610 | | | — | | | — | | | (594) | | | 4,017 | |
| BALANCE—December 31, 2019 | 515 | | | $ | 5,063 | | | 66,915,478 | | | (5,577,092) | | | 61,338,386 | | | $ | 669 | | | $ | 399,806 | | | $ | 908,096 | | | $ | (247) | | | $ | (152,635) | | | $ | 1,160,752 | | |
BALANCE—December 31, 2020 | | BALANCE—December 31, 2020 | — | | | $ | — | | | 67,668,664 | | | (8,595,842) | | | 59,072,822 | | | $ | 677 | | | $ | 420,895 | | | $ | 1,079,828 | | | $ | 1,251 | | | $ | (215,169) | | | $ | 1,287,482 | |
| | | For the Six Months Ended December 31, 2019 | | For the Six Months Ended December 31, 2020 |
| | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss), Net of Income Tax | | Treasury Stock | | Total | | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss), Net of Income Tax | | Treasury Stock | | Total |
| | | Number of Shares | | | | | Number of Shares | | |
(Dollars in thousands) | (Dollars in thousands) | Shares | | Amount | | Issued | | Treasury | | Outstanding | | Amount | | (Dollars in thousands) | Shares | | Amount | | Issued | | Treasury | | Outstanding | | Amount | |
BALANCE—June 30, 2019 | 515 | | | $ | 5,063 | | | 66,563,922 | | | (5,435,105) | | | 61,128,817 | | | $ | 666 | | | $ | 389,945 | | | $ | 826,170 | | | $ | 16 | | | $ | (148,810) | | | $ | 1,073,050 | | |
BALANCE—June 30, 2020 | | BALANCE—June 30, 2020 | 515 | | | $ | 5,063 | | | 67,323,053 | | | (7,710,418) | | | 59,612,635 | | | $ | 673 | | | $ | 411,873 | | | $ | 1,009,299 | | | $ | (937) | | | $ | (195,125) | | | $ | 1,230,846 | |
Cumulative effect of change in accounting principle net of tax, adoption of ASU No. 2016-13 | | Cumulative effect of change in accounting principle net of tax, adoption of ASU No. 2016-13 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (37,088) | | | — | | | — | | | (37,088) | |
Net income | Net income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 82,081 | | | — | | | — | | | 82,081 | | Net income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 107,807 | | | — | | | — | | | 107,807 | |
Other comprehensive income (loss) | Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (263) | | | — | | | (263) | | Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,188 | | | — | | | 2,188 | |
| Cash dividends on preferred stock | Cash dividends on preferred stock | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (155) | | | — | | | — | | | (155) | | Cash dividends on preferred stock | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (103) | | | — | | | — | | | (103) | |
| Preferred stock - Series A redemption | | Preferred stock - Series A redemption | (515) | | | (5,063) | | | — | | | — | | | — | | | — | | | — | | | (87) | | | — | | | — | | | (5,150) | |
Purchase of treasury stock | | Purchase of treasury stock | — | | | — | | | — | | | (753,597) | | | (753,597) | | | — | | | — | | | — | | | — | | | (16,757) | | | (16,757) | |
| Stock-based compensation expense and restricted stock unit vesting | Stock-based compensation expense and restricted stock unit vesting | — | | | — | | | 351,556 | | | (141,987) | | | 209,569 | | | 3 | | | 9,861 | | | — | | | — | | | (3,825) | | | 6,039 | | Stock-based compensation expense and restricted stock unit vesting | — | | | — | | | 345,611 | | | (131,827) | | | 213,784 | | | 4 | | | 9,022 | | | — | | | — | | | (3,287) | | | 5,739 | |
| BALANCE—December 31, 2019 | 515 | | | $ | 5,063 | | | 66,915,478 | | | (5,577,092) | | | 61,338,386 | | | $ | 669 | | | $ | 399,806 | | | $ | 908,096 | | | $ | (247) | | | $ | (152,635) | | | $ | 1,160,752 | | |
BALANCE—December 31, 2020 | | BALANCE—December 31, 2020 | — | | | $ | — | | | 67,668,664 | | | (8,595,842) | | | 59,072,822 | | | $ | 677 | | | $ | 420,895 | | | $ | 1,079,828 | | | $ | 1,251 | | | $ | (215,169) | | | $ | 1,287,482 | |
See accompanying notes to the condensed consolidated financial statements.
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | Six Months Ended | | Six Months Ended |
| | December 31, | | December 31, |
(Dollars in thousands) | (Dollars in thousands) | 2020 | | 2019 | (Dollars in thousands) | 2021 | | 2020 |
CASH FLOWS FROM OPERATING ACTIVITIES: | CASH FLOWS FROM OPERATING ACTIVITIES: | | | | CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net income | Net income | $ | 107,807 | | | $ | 82,081 | | Net income | $ | 120,997 | | | $ | 107,807 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Accretion and amortization on securities, net | Accretion and amortization on securities, net | (13) | | | 483 | | Accretion and amortization on securities, net | (211) | | | (13) | |
Net accretion of discounts on loans and leases | Net accretion of discounts on loans and leases | (2,684) | | | (606) | | Net accretion of discounts on loans and leases | (3,239) | | | (2,684) | |
Amortization of borrowing costs | Amortization of borrowing costs | 284 | | | 104 | | Amortization of borrowing costs | 277 | | | 284 | |
| Amortization of operating lease right of use asset | Amortization of operating lease right of use asset | 5,310 | | | 5,235 | | Amortization of operating lease right of use asset | 4,947 | | | 5,310 | |
Stock-based compensation expense | Stock-based compensation expense | 9,026 | | | 9,864 | | Stock-based compensation expense | 8,514 | | | 9,026 | |
| Trading activity | | Trading activity | 760 | | | 42 | |
| Provision for credit losses | Provision for credit losses | 19,800 | | | 7,200 | | Provision for credit losses | 8,000 | | | 19,800 | |
| Deferred income taxes | Deferred income taxes | (8,354) | | | (1,414) | | Deferred income taxes | (1,468) | | | (8,354) | |
Origination of loans held for sale | Origination of loans held for sale | (931,065) | | | (994,004) | | Origination of loans held for sale | (403,287) | | | (931,065) | |
Unrealized (gain) loss on loans held for sale | Unrealized (gain) loss on loans held for sale | 104 | | | 23 | | Unrealized (gain) loss on loans held for sale | 150 | | | 104 | |
Gain on sales of loans held for sale | Gain on sales of loans held for sale | (30,708) | | | (10,764) | | Gain on sales of loans held for sale | (9,910) | | | (30,708) | |
Proceeds from sale of loans held for sale | Proceeds from sale of loans held for sale | 949,009 | | | 999,908 | | Proceeds from sale of loans held for sale | 415,291 | | | 949,009 | |
Amortization and change in fair value of mortgage servicing rights | Amortization and change in fair value of mortgage servicing rights | 4,045 | | | 1,272 | | Amortization and change in fair value of mortgage servicing rights | 1,087 | | | 4,045 | |
(Gain) loss on sale of other real estate and foreclosed assets | (Gain) loss on sale of other real estate and foreclosed assets | (38) | | | (71) | | (Gain) loss on sale of other real estate and foreclosed assets | (358) | | | (38) | |
Depreciation and amortization | Depreciation and amortization | 12,048 | | | 11,264 | | Depreciation and amortization | 12,513 | | | 12,048 | |
Net changes in assets and liabilities which provide (use) cash: | Net changes in assets and liabilities which provide (use) cash: | | Net changes in assets and liabilities which provide (use) cash: | |
| Securities borrowed | Securities borrowed | (95,203) | | | (23,408) | | Securities borrowed | 84,845 | | | (95,203) | |
Customer, broker-dealer and clearing receivables | Customer, broker-dealer and clearing receivables | (44,306) | | | (41,187) | | Customer, broker-dealer and clearing receivables | (56,142) | | | (44,306) | |
Other assets | Other assets | 60,576 | | | 29,481 | | Other assets | (109,751) | | | 60,534 | |
| Securities loaned | Securities loaned | 106,225 | | | 7,843 | | Securities loaned | (150,226) | | | 106,225 | |
Customer, broker-dealer and clearing payables | Customer, broker-dealer and clearing payables | 127,859 | | | 67,065 | | Customer, broker-dealer and clearing payables | (6,629) | | | 127,859 | |
Accounts payable and other liabilities | Accounts payable and other liabilities | (5,305) | | | (21,715) | | Accounts payable and other liabilities | 7,067 | | | (5,305) | |
Net cash provided by (used in) operating activities | 284,417 | | | 128,654 | | |
Net cash provided (used) by operating activities | | Net cash provided (used) by operating activities | (76,773) | | | 284,417 | |
CASH FLOWS FROM INVESTING ACTIVITIES: | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Purchases of investment securities | Purchases of investment securities | (57,725) | | | (139,490) | | Purchases of investment securities | (12,286) | | | (57,725) | |
| Proceeds from sales of securities | | Proceeds from sales of securities | 75,022 | | | — | |
Proceeds from repayment of securities | Proceeds from repayment of securities | 56,147 | | | 157,703 | | Proceeds from repayment of securities | 58,601 | | | 56,147 | |
Purchase of stock of regulatory agencies | Purchase of stock of regulatory agencies | (2) | | | (27,532) | | Purchase of stock of regulatory agencies | (13,631) | | | (2) | |
Proceeds from redemption of stock of regulatory agencies | Proceeds from redemption of stock of regulatory agencies | 0 | | | 27,532 | | Proceeds from redemption of stock of regulatory agencies | 13,631 | | | — | |
Origination of loans and leases held for investment | (2,530,229) | | | (2,766,687) | | |
Proceeds from sale of loans and leases held for investment | 15,711 | | | 14,587 | | |
Origination of loans held for investment | | Origination of loans held for investment | (4,636,661) | | | (2,530,229) | |
Proceeds from sale of loans held for investment | | Proceeds from sale of loans held for investment | 36,943 | | | 15,711 | |
Mortgage warehouse loans activity, net | Mortgage warehouse loans activity, net | (710,561) | | | (130,231) | | Mortgage warehouse loans activity, net | 18,511 | | | (710,561) | |
Proceeds from sales of other real estate owned and repossessed assets | Proceeds from sales of other real estate owned and repossessed assets | 584 | | | 412 | | Proceeds from sales of other real estate owned and repossessed assets | 7,454 | | | 584 | |
| Acquisition of business activity, net of cash paid | | Acquisition of business activity, net of cash paid | (54,761) | | | — | |
Purchases of loans and leases, net of discounts and premiums | Purchases of loans and leases, net of discounts and premiums | (1,471) | | | 0 | | Purchases of loans and leases, net of discounts and premiums | (30,153) | | | (1,471) | |
Principal repayments on loans and leases | 2,218,068 | | | 2,090,614 | | |
Principal repayments on loans | | Principal repayments on loans | 3,413,366 | | | 2,218,068 | |
Purchases of furniture, equipment, software and intangibles | Purchases of furniture, equipment, software and intangibles | (5,815) | | | (6,064) | | Purchases of furniture, equipment, software and intangibles | (8,730) | | | (5,815) | |
Net cash used in investing activities | Net cash used in investing activities | (1,015,293) | | | (779,156) | | Net cash used in investing activities | (1,132,694) | | | (1,015,293) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | |
Net increase (decrease) in deposits | 126,442 | | | 1,131,166 | | |
Proceeds from the Federal Home Loan Bank term advances | 0 | | | 60,000 | | |
Payments of the Federal Home Loan Bank term advances | (55,000) | | | (30,000) | | |
Net (repayment) proceeds of Federal Home Loan Bank other advances | (5,000) | | | (231,000) | | |
Net proceeds (repayments) of other borrowings | 10,155 | | | (106,800) | | |
| Tax payments related to settlement of restricted stock units | (3,287) | | | (3,825) | | |
Redemption of preferred stock, Series A | (5,150) | | | 0 | | |
Repurchase of treasury stock | (16,757) | | | 0 | | |
Cash dividends paid on preferred stock | (103) | | | (232) | | |
Payment of debt issuance costs | (2,748) | | | 0 | | |
Proceeds from issuance of subordinated notes | 175,000 | | | 0 | | |
Net cash provided by financing activities | 223,552 | | | 819,309 | | |
NET CHANGE IN CASH AND CASH EQUIVALENTS | (507,324) | | | 168,807 | | |
CASH AND CASH EQUIVALENTS—Beginning of year | $ | 1,950,519 | | | $ | 857,368 | | |
CASH AND CASH EQUIVALENTS—End of period | $ | 1,443,195 | | | $ | 1,026,175 | | |
| | SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | |
Interest paid on deposits and borrowed funds | $ | 41,194 | | | $ | 81,728 | | |
Income taxes paid | $ | 50,574 | | | $ | 27,671 | | |
Transfers to other real estate and repossessed vehicles | $ | 528 | | | $ | 446 | | |
Transfers from loans and leases held for investment to loans held for sale | $ | 8,680 | | | $ | 40,025 | | |
Transfers from loans held for sale to loans held for investment | $ | 27,739 | | | $ | 0 | | |
Loans and leases held for investment sold, cash not received | $ | 0 | | | $ | 28,742 | | |
Operating lease liabilities for obtaining right of use assets | $ | 0 | | | $ | 79,746 | | |
Impact of adoption of ASU No. 2016-13 on retained earnings | $ | 37,088 | | | $ | 0 | | |
|
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | |
| Six Months Ended |
| December 31, |
(Dollars in thousands) | 2021 | | 2020 |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Net increase in deposits | 1,453,375 | | | 126,442 | |
| | | |
Payments of the Federal Home Loan Bank term advances | (10,000) | | | (55,000) | |
Net (repayment) proceeds of Federal Home Loan Bank other advances | (186,000) | | | (5,000) | |
Net proceeds (repayments) of other borrowings | 38,800 | | | 10,155 | |
| | | |
| | | |
| | | |
Tax payments related to settlement of restricted stock units | (6,127) | | | (3,287) | |
Redemption of preferred stock, Series A | — | | | (5,150) | |
Repurchase of treasury stock | — | | | (16,757) | |
Cash dividends paid on preferred stock | — | | | (103) | |
Payment of debt issuance costs | — | | | (2,748) | |
Proceeds from issuance of subordinated notes | — | | | 175,000 | |
Net cash provided by financing activities | 1,290,048 | | | 223,552 | |
NET CHANGE IN CASH AND CASH EQUIVALENTS | 80,581 | | | (507,324) | |
CASH AND CASH EQUIVALENTS—Beginning of year | $ | 1,037,777 | | | $ | 1,950,519 | |
CASH AND CASH EQUIVALENTS—End of period | $ | 1,118,358 | | | $ | 1,443,195 | |
| | | |
| | | |
| | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | |
Interest paid on deposits and borrowed funds | $ | 23,429 | | | $ | 41,194 | |
Income taxes paid | 57,763 | | | 50,574 | |
Transfers to other real estate and repossessed vehicles | 342 | | | 528 | |
Transfers from loans held for investment to loans held for sale | 36,943 | | | 8,680 | |
Transfers from loans held for sale to loans held for investment | 794 | | | 27,739 | |
| | | |
Operating lease liabilities for obtaining right of use assets | 12,009 | | | — | |
Impact of adoption of ASU No. 2016-13 on retained earnings | — | | | 37,088 | |
| | | |
| | | |
| | | |
| | | |
| | | |
See accompanying notes to the condensed consolidated financial statements.
AXOS FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED DECEMBER 31, 20202021 AND 20192020
(Dollars in thousands, except per share and stated value amounts)
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The condensed consolidated financial statements include the accounts of Axos Financial, Inc. (“Axos”) and its wholly owned subsidiaries, Axos Bank (the “Bank”) and Axos Nevada Holding, LLC (the “Axos Nevada Holding”) and collectively, the “Company”. Axos Nevada Holding wholly owns its subsidiary Axosthe companies constituting the Securities LLC, which wholly owns subsidiaries Axos Clearing LLC (“Axos Clearing”), a clearing broker dealer, Axos Invest, Inc., a registered investment advisor, and Axos Invest LLC, an introducing broker dealer.Business segment. All significant intercompany balances and transactions have been eliminated in consolidation.
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. Results for the six months ended December 31, 20202021 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 omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“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, 20202021 included in our Annual Report on Form 10-K.
7Significant Accounting Policies
As a result of contained in our Annual Report on Form 10-K filed with the change from adopting Accounting Standard Update (“ASU”) 2016-13, “Measurement of Credit Losses on Financial Instruments”Securities and all subsequent amendments that modified ASU 2016-13 (collectively, “ASC 326”) on July 1, 2020,Exchange Commission for the Company updated categorization of the loan portfolio. For comparability purposes, certain reclassifications have been made to the presentation of loan categories as offiscal year ended June 30, 2020 and as of and for the six months then ended December 31, 2019 to conform with current presentation adopted under ASC 326. The Company reclassified its loan categories to align with the segments adopted for the measurement of credit losses under ASC 326. The reclassification had no impact on the total loan balances or the allowance for credit losses - loans.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans and Leases - Carrying Amount |
(Dollars in thousands) | Single Family Real Estate Secured - Mortgage | Single Family Real Estate Secured - Warehouse | Single Family Real Estate Secured - Financing | Multifamily Real Estate Secured - Mortgage and Financing | Commercial Real Estate - Mortgage | Commercial & Industrial | Auto & RV - Secured | Other | Total |
Balance July 1, 2020 Pre-ASC 326 Adoption | $4,244,563 | $474,318 | $682,477 | $2,303,216 | $371,176 | $2,094,322 | $291,452 | $241,918 | $10,703,442 |
Commercial Real Estate - Mortgage to Multifamily and Commercial Mortgage | — | — | — | 371,176 | (371,176) | — | — | — | — |
Multifamily and Single Family Financing loans to Commercial Real Estate | — | — | (679,054) | (411,338) | 1,090,392 | — | — | — | — |
Real estate secured Commercial & Industrial to Commercial Real Estate | — | — | — | — | 1,207,528 | (1,207,528) | — | — | — |
Unsecured Consumer loans to Auto & Consumer | — | — | — | — | — | — | 49,913 | (49,913) | — |
Single Family Warehouse and Mortgage combined | 477,741 | (474,318) | (3,423) | — | — | — | — | — | — |
Other reclassifications | — | — | — | — | — | (1,474) | — | 1,474 | — |
Balance July 1, 2020 Post ASC 326 Adoption | $4,722,304 | $— | $— | $2,263,054 | $2,297,920 | $885,320 | $341,365 | $193,479 | $10,703,442 |
Loan Category Post-ASC 326 Adoption | Single Family - Mortgage & Warehouse | N/A | N/A | Multifamily and Commercial Mortgage | Commercial Real Estate | Commercial & Industrial - Non RE | Auto & Consumer | Other | Total |
2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for Credit Losses |
(Dollars in thousands) | Single Family Real Estate Secured - Mortgage | Single Family Real Estate Secured - Warehouse | Single Family Real Estate Secured - Financing | Multifamily Real Estate Secured - Mortgage and Financing | Commercial Real Estate - Mortgage | Commercial & Industrial | Auto & RV - Secured | Other | Total |
Balance July 1, 2020 Pre-ASC 326 Adoption | $24,041 | $1,860 | $5,094 | $6,318 | $1,456 | $22,863 | $5,738 | $8,437 | $75,807 |
Reclassification | 1,860 | (1,860) | (5,094) | (1,600) | 19,596 | (12,909) | 3,723 | (3,716) | — |
Balance July 1, 2020 Post Reclassification | $25,901 | $— | $— | $4,718 | $21,052 | $9,954 | $9,461 | $4,721 | $75,807 |
Loan Category Post-ASC 326 Adoption | Single Family - Mortgage & Warehouse | N/A | N/A | Multifamily and Commercial Mortgage | Commercial Real Estate | Commercial & Industrial - Non RE | Auto & Consumer | Other | Total |
Allowance for Credit Losses. The allowance for credit losses (“ACL”) is a valuation account that offsets the amortized cost basis of loans and net investment in leases. Under ASC 326, amortized cost is the basis on which the ACL is determined. Amortized cost is principal outstanding, net of any purchase premiums and discounts and net of any deferred loan fees and costs.
Credit losses are charged off when the Company believes that collectability of at least some portion of outstanding principal is unlikely. These charge-offs are recorded as a reversal, thereby reducing, the allowance for credit losses. Recoveries on loans previously charged off are recorded as a provision to, thereby increasing, the allowance for credit losses. The allowance for credit losses is maintained at a level needed to absorb expected credit losses over the contractual life, considering the effects of prepayments, of the loan portfolio as of the reporting date. Determining the adequacy of the allowance is complex and requires judgment by Management about the effect of matters that are inherently uncertain. As such, a future assessment of current conditions may require material adjustments to the allowance.
The Company’s process for determining expected life-time credit losses entails a loan-level, model-based approach and requires consideration of a broad range of relevant information relating to historical loss experience, current economic conditions as well as reasonable and supportable forecasts.
A credit loss is estimated for all loans. Consequently, the Company stratifies the full loan population into segments sharing similar characteristics to perform the evaluation of the credit loss collectively.
The Company defines a segment as the level at which the Company develops a systematic methodology to determine the allowance for credit losses. Additionally, the Company can further stratify loans of similar type, risk attributes and methods for monitoring credit risk. The Company categorizes the loan portfolio into six segments: Single Family - Mortgage & Warehouse, Multifamily and Commercial Mortgage, Commercial Real Estate, Commercial & Industrial - Non Real Estate, Auto & Consumer and Other – refer to Note 4 – “Loans & Allowance for Credit Losses” for further detail of the segments and classes within.
The method for estimating expected life-time credit losses includes, among other things, the following main components: 1) The use of a probability of default (“PD”)/loss given default (“LGD”) model; 2) defining a number of economic scenarios across the benign to adverse spectrum; 3) an initial and reasonable forecast period of one year for all loan segments; and 4) a reversion period of 18 months using a linear transition to historical loss rates for each loan pool. After the reversion period, the historical loss rate is applied over the remaining contractual life of loan.
Given the inherent limitations of a solely quantitative model, qualitative adjustments are included to arrive at the ending calculated loss amount in order to account for data points not captured from quantitative inputs alone.
Qualitative criteria we consider includes, among other things, the following:
•Regulatory and Legal - matters that may impact the timeliness and/or amounts of repayments;
•Concentration - portfolio composition and loan concentration;
•Collateral Dependency - changes in collateral values;
•Lending/Underwriting Standards - current lending policies and the effects of any new policies;
•Nature and Volume - loan production volume and mix;
•Loan Trends - credit performance trends, including a borrower’s financial condition and credit rating.
On a quarterly basis, Management convenes a Credit Review meeting in which current information and trends are collectively assessed to forecast future economic impact for purposes of assessing the adequacy of the ACL. The forecasted direction and magnitude of change with respect to future economic conditions is then assessed against the estimate in the model.
Accrued Interest. Accrued interest receivable is excluded from amortized cost and is presented separately in “Other Assets” on the unaudited Condensed Consolidated Balance Sheets. Additionally, the Company does not estimate an allowance for credit losses on accrued interest receivable as the Company has a policy to charge off accrued interest deemed uncollectible in a timely manner. When a loan is placed on non-accrual status, which occurs when a borrower becomes delinquent by 90 days, interest previously accrued, but not collected, is reversed against current period interest income.
Individually Assessed Loans. Credit loss is estimated for any individual loan on a collective basis, unless an individual loan’s credit characteristics has deteriorated below a range of the overall group, in which case the loan would then be individually assessed. Individually assessed loans are measured for credit loss based on present value of future expected cash flows, discounted at the loan’s effective interest rate or the fair value of the collateral, less estimated selling costs, if the loan is collateral-dependent.
Available-for-Sale Debt Securities. Unrealized credit losses will be recognized through an allowance for credit losses instead of an adjustment to amortized cost basis, eliminating the other-than-temporary impairment concept. For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not, that it will be required to sell the security before recovery of its amortized cost basis. If either criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through earnings. For available-for-sale debt securities that do not meet the above conditions, the Company evaluates at the individual security level whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, Management considers the extent to which fair value is less than amortized cost and unfavorable conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recognized for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. All other changes in fair value of the security that have not been recognized through an allowance for credit losses are recognized in other comprehensive income. Changes in the allowance for credit losses, if any, are recognized as a provision for (or reversal of) credit losses. Losses are charged against the allowance when management believes an available-for-sale investment security is uncollectible or when either of the criteria regarding intent or requirement to sell is met.
Loan Commitments. Loans commitments not unconditionally cancellable are subject to an estimate of credit loss under a current expected credit loss model. The Company’s process for determining the estimate of credit loss on loan commitments is the same as it is on loans. Refer to detail of Allowance on Credit Losses above.
New Accounting Standards
Accounting Standards Adopted During Fiscal 2021
Financial Instruments. Credit Losses. OnNo new accounting standards have yet been adopted for the fiscal year beginning July 1, 2020, the Company adopted ASC 326. The update replaces incurred loss models based on the probable recognition threshold with a current expected credit loss model to estimate all credit losses over the contractual life for financial instruments carried at amortized cost and certain off-balance sheet credit exposures, such as loan commitments. The new model requires consideration of a broader range of relevant information, such as historical loss experience, current economic conditions and reasonable and supportable forecasts. The change will generally result in earlier, accelerated loss recognition. For available-for-sale debt securities, unrealized credit losses will be recognized through an allowance for credit losses rather than as adjustment to amortized cost basis, eliminating the other-than-temporary impairment concept. No credit loss adjustment on available-for-sale debt securities resulted upon adoption of ASC 326.
The Company adopted this standard using the modified retrospective transition method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Prior period amounts are not retroactively adjusted. A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date.
2021.
2. ACQUISITIONS
On August 2, 2021 the Company’s subsidiary, Axos Clearing, LLC, acquired certain assets and liabilities of E*TRADE Advisor Services (“EAS”), the registered investment advisor custody business of Morgan Stanley. This business was rebranded as Axos Advisor Services (“AAS”). AAS adds incremental fee income, a turnkey technology platform used by independent registered investment advisors for trading and custody services, and low cost deposits that can be used to generate fee income from other bank partners or to fund loan growth at Axos Bank. The initial purchase price of $54.6 million consisted entirely of cash consideration paid upon acquisition and working capital adjustments.
The Company incurred acquisition-related costs totaling $0.04 million for the six months ended December 31, 2021. There were no costs in the three months December 31, 2021. These costs are recognized in general and administrative expenses in the unaudited consolidated statements of income.
The acquisition is accounted for as a business combination under the acquisition method of accounting. Accordingly, tangible and intangible assets acquired (and liabilities assumed) are recorded at their estimated fair values as of the date of acquisition. The Company allocated the purchase price to the tangible and intangible assets acquired based on information available through December 31, 2021. The estimated fair values of the acquired assets and assumed liabilities are subject to refinement as additional information relative to closing date fair values becomes available. Any subsequent measurement period adjustments to the fair values of acquired assets and liabilities assumed, identifiable intangible assets, or other purchase accounting adjustments will result in adjustments to goodwill no later than within the first 12 months following the closing date of acquisition.
The preliminary allocation of the $54.6 million purchase price consists of $6.5 million of fair value of tangible assets acquired, $3.4 million of liabilities assumed, $27.1 million of identifiable intangible assets and $24.4 million of goodwill, all of which is expected to be deductible for tax purposes. In December 2021, the Company made a $0.2 million true-up payment based on working capital adjustments, which was recorded as an increase in the purchase price up to $54.8 million with no impact on goodwill or identifiable intangible assets. After the working capital true-up, the fair value of tangible assets acquired is $6.4 million and the fair value of liabilities acquired is $3.1 million. Identifiable intangible assets with a finite useful are amortized on a straight-line basis. Goodwill was calculated as the excess of consideration exchanged over the fair value of identifiable net assets acquired. The goodwill includes synergies expected to result from combining the acquired assets and liabilities with existing operations, coupling its custody platform with the Company existing product offerings and leveraging customer relationships through RIAs. The following table summarizes the fair value and useful life of each intangible asset acquired as of the acquisition date:
| | | | | | | | | | | |
($ in thousands) | Fair Value | | Useful Lives (Years) |
Trade Name | $ | 290 | | | 0.16 |
Proprietary Technology | 10,990 | | | 7 |
Customer Relationships | 15,650 | | | 14 |
Non-Compete Agreements | 130 | | | 1 |
| $ | 27,060 | | | |
The pro forma results of operations and the results of operations since the acquisition date have not been separately disclosed because the effects were not material to the consolidated financial statements.
3. FAIR VALUE
Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic 820, Fair Value Measurement, also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis at December 31, 20202021 and June 30, 2020.2021. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
| | | December 31, 2020 | | December 31, 2021 |
(Dollars in thousands) | (Dollars in thousands) | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total | (Dollars in thousands) | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
ASSETS: | ASSETS: | | | | | | | | ASSETS: | | | | | | | |
Securities—Trading: Municipal | Securities—Trading: Municipal | $ | 0 | | | $ | 362 | | | $ | 0 | | | $ | 362 | | Securities—Trading: Municipal | $ | — | | | $ | 1,223 | | | $ | — | | | $ | 1,223 | |
Securities—Available-for-Sale: | Securities—Available-for-Sale: | | | | | | | | Securities—Available-for-Sale: | | | | | | | |
Agency Debt1 | Agency Debt1 | $ | 0 | | | $ | 1,799 | | | $ | 0 | | | $ | 1,799 | | Agency Debt1 | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Agency RMBS1 | 0 | | | 16,975 | | | 0 | | | 16,975 | | |
Non-Agency RMBS2 | 0 | | | 0 | | | 17,135 | | | 17,135 | | |
Agency MBS1 | | Agency MBS1 | — | | | 29,231 | | | — | | | 29,231 | |
Non-Agency MBS2 | | Non-Agency MBS2 | — | | | — | | | 58,752 | | | 58,752 | |
Municipal | Municipal | 0 | | | 3,514 | | | 0 | | | 3,514 | | Municipal | — | | | 3,536 | | | — | | | 3,536 | |
Asset-backed securities and structured notes | Asset-backed securities and structured notes | 0 | | | 170,405 | | | 0 | | | 170,405 | | Asset-backed securities and structured notes | — | | | 48,062 | | | — | | | 48,062 | |
Total—Securities—Available-for-Sale | Total—Securities—Available-for-Sale | $ | 0 | | | $ | 192,693 | | | $ | 17,135 | | | $ | 209,828 | | Total—Securities—Available-for-Sale | $ | — | | | $ | 80,829 | | | $ | 58,752 | | | $ | 139,581 | |
Loans Held for Sale | Loans Held for Sale | $ | 0 | | | $ | 64,287 | | | $ | 0 | | | $ | 64,287 | | Loans Held for Sale | $ | — | | | $ | 27,428 | | | $ | — | | | $ | 27,428 | |
Mortgage servicing rights | Mortgage servicing rights | $ | 0 | | | $ | 0 | | | $ | 14,314 | | | $ | 14,314 | | Mortgage servicing rights | $ | — | | | $ | — | | | $ | 20,110 | | | $ | 20,110 | |
Other assets—Derivative instruments | Other assets—Derivative instruments | $ | 0 | | | $ | 0 | | | $ | 10,263 | | | $ | 10,263 | | Other assets—Derivative instruments | $ | — | | | $ | — | | | $ | 1,462 | | | $ | 1,462 | |
LIABILITIES: | LIABILITIES: | | | | | | | | LIABILITIES: | | | | | | | |
Other liabilities—Derivative instruments | Other liabilities—Derivative instruments | $ | 0 | | | $ | 0 | | | $ | 2,284 | | | $ | 2,284 | | Other liabilities—Derivative instruments | $ | — | | | $ | — | | | $ | 85 | | | $ | 85 | |
| | | June 30, 2020 | | June 30, 2021 |
(Dollars in thousands) | (Dollars in thousands) | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total | (Dollars in thousands) | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
ASSETS: | ASSETS: | | | | | | | | ASSETS: | | | | | | | |
Securities—Trading: Municipal
| Securities—Trading: Municipal
| $ | 0 | | | $ | 105 | | | $ | 0 | | | $ | 105 | | Securities—Trading: Municipal
| $ | — | | | $ | 1,983 | | | $ | — | | | $ | 1,983 | |
Securities—Available-for-Sale: | Securities—Available-for-Sale: | | | | | | | | Securities—Available-for-Sale: | | | | | | | |
Agency Debt1 | Agency Debt1 | $ | 0 | | | $ | 1,799 | | | $ | 0 | | | $ | 1,799 | | Agency Debt1 | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Agency RMBS1 | 0 | | | 16,826 | | | 0 | | | 16,826 | | |
Non-Agency RMBS2 | 0 | | | 0 | | | 18,332 | | | 18,332 | | |
Agency MBS1 | | Agency MBS1 | — | | | 23,913 | | | — | | | 23,913 | |
Non-Agency MBS2 | | Non-Agency MBS2 | — | | | — | | | 67,615 | | | 67,615 | |
Municipal | Municipal | 0 | | | 10,400 | | | 0 | | | 10,400 | | Municipal | — | | | 3,565 | | | — | | | 3,565 | |
Asset-backed securities and structured notes | Asset-backed securities and structured notes | 0 | | | 140,270 | | | 0 | | | 140,270 | | Asset-backed securities and structured notes | — | | | 92,242 | | | — | | | 92,242 | |
Total—Securities—Available-for-Sale | Total—Securities—Available-for-Sale | $ | 0 | | | $ | 169,295 | | | $ | 18,332 | | | $ | 187,627 | | Total—Securities—Available-for-Sale | $ | — | | | $ | 119,720 | | | $ | 67,615 | | | $ | 187,335 | |
Loans Held for Sale | Loans Held for Sale | $ | 0 | | | $ | 51,995 | | | $ | 0 | | | $ | 51,995 | | Loans Held for Sale | $ | — | | | $ | 29,768 | | | $ | — | | | $ | 29,768 | |
Mortgage servicing rights | Mortgage servicing rights | $ | 0 | | | $ | 0 | | | $ | 10,675 | | | $ | 10,675 | | Mortgage servicing rights | $ | — | | | $ | — | | | $ | 17,911 | | | $ | 17,911 | |
Other assets—Derivative instruments | Other assets—Derivative instruments | $ | 0 | | | $ | 0 | | | $ | 9,131 | | | $ | 9,131 | | Other assets—Derivative instruments | $ | — | | | $ | — | | | $ | 2,280 | | | $ | 2,280 | |
LIABILITIES: | LIABILITIES: | | | | | | | | LIABILITIES: | | | | | | | |
Other liabilities—Derivative instruments | Other liabilities—Derivative instruments | $ | 0 | | | $ | 0 | | | $ | 1,715 | | | $ | 1,715 | | Other liabilities—Derivative instruments | $ | — | | | $ | — | | | $ | 75 | | | $ | 75 | |
1Includes securities guaranteed by Ginnie Mae, a U.S. government agency, and the government sponsored enterprises Fannie Mae and Freddie Mac.
2Private 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 Alt-A or pay-option ARM mortgages.
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 | | | For the Three Months Ended |
| | | December 31, 2020 | | | December 31, 2021 |
(Dollars in thousands) | (Dollars in thousands) | | Securities – Available-for-Sale: Non-Agency RMBS | | Mortgage Servicing Rights | | Derivative Instruments, net | | | | Total | (Dollars in thousands) | | Securities – Available-for-Sale: Non-Agency MBS | | Mortgage Servicing Rights | | Derivative Instruments, net | | | Total |
Opening balance | Opening balance | | $ | 17,612 | | | $ | 12,130 | | | $ | 12,999 | | | | | $ | 42,741 | | Opening balance | | $ | 59,851 | | | $ | 18,438 | | | $ | 2,226 | | | | $ | 80,515 | |
| Included in earnings—Mortgage banking income | Included in earnings—Mortgage banking income | | 0 | | | (2,250) | | | (5,020) | | | | | (7,270) | | Included in earnings—Mortgage banking income | | — | | | 97 | | | (849) | | | | (752) | |
Included in other comprehensive income | Included in other comprehensive income | | 15 | | | 0 | | | 0 | | | | | 15 | | Included in other comprehensive income | | (527) | | | — | | | — | | | | (527) | |
Purchases, originations, issues, sales and settlements: | | | | | |
Purchases/originations | | 0 | | | 4,434 | | | 0 | | | | | 4,434 | | |
Purchases, retentions, issues, sales and settlements: | | Purchases, retentions, issues, sales and settlements: | | | | |
Purchases/Retentions | | Purchases/Retentions | | — | | | 1,575 | | | — | | | | 1,575 | |
| Settlements | Settlements | | (492) | | | 0 | | | 0 | | | | | (492) | | Settlements | | (572) | | | — | | | — | | | | (572) | |
| Closing balance | Closing balance | | $ | 17,135 | | | $ | 14,314 | | | $ | 7,979 | | | | | $ | 39,428 | | Closing balance | | $ | 58,752 | | | $ | 20,110 | | | $ | 1,377 | | | | $ | 80,239 | |
| Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period | Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period | | $ | 0 | | | $ | (2,250) | | | $ | (5,020) | | | | | $ | (7,270) | | Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period | | $ | — | | | $ | 97 | | | $ | (849) | | | | $ | (752) | |
| | | | For the Six Months Ended | | | For the Six Months Ended |
| | | December 31, 2020 | | | December 31, 2021 |
(Dollars in thousands) | (Dollars in thousands) | | Securities – Available-for-Sale: Non-Agency RMBS | | Mortgage Servicing Rights | | Derivative Instruments, net | | | | Total | (Dollars in thousands) | | Securities – Available-for-Sale: Non-Agency RMBS | | Mortgage Servicing Rights | | Derivative Instruments, net | | | Total |
Opening Balance | Opening Balance | | $ | 18,332 | | | $ | 10,675 | | | $ | 7,416 | | | | | $ | 36,423 | | Opening Balance | | $ | 67,615 | | | $ | 17,911 | | | $ | 2,205 | | | | $ | 87,731 | |
| Total gains or losses for the period: | | Total gains or losses for the period: | | | | |
| Included in earnings—Mortgage banking income | Included in earnings—Mortgage banking income | | 0 | | | (4,045) | | | 563 | | | | | (3,482) | | Included in earnings—Mortgage banking income | | — | | | (1,087) | | | (828) | | | | (1,915) | |
Included in other comprehensive income | Included in other comprehensive income | | (307) | | | 0 | | | 0 | | | | | (307) | | Included in other comprehensive income | | (639) | | | — | | | — | | | | (639) | |
Purchases, originations, issues, sales and settlements: | | | | | |
Purchases/originations | | 0 | | | 7,684 | | | 0 | | | | | 7,684 | | |
Purchases, retentions, issues, sales and settlements: | | Purchases, retentions, issues, sales and settlements: | | | | |
Purchases/Retentions | | Purchases/Retentions | | — | | | 3,286 | | | — | | | | 3,286 | |
| Settlements | Settlements | | (890) | | | 0 | | | 0 | | | | | (890) | | Settlements | | (8,224) | | | — | | | — | | | | (8,224) | |
| Closing balance | Closing balance | | $ | 17,135 | | | $ | 14,314 | | | $ | 7,979 | | | | | $ | 39,428 | | Closing balance | | $ | 58,752 | | | $ | 20,110 | | | $ | 1,377 | | | | $ | 80,239 | |
| Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period | Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period | | $ | 0 | | | $ | (4,045) | | | $ | 563 | | | | | $ | (3,482) | | Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period | | $ | — | | | $ | (1,087) | | | $ | (828) | | | | $ | (1,915) | |
| | | | For the Three Months Ended | | | | For the Three Months Ended | |
| | | December 31, 2019 | | | | December 31, 2020 | |
(Dollars in thousands) | (Dollars in thousands) | | Securities – Available-for-Sale: Non-Agency RMBS | | Mortgage Servicing Rights | | Derivative Instruments, net | | Total | | (Dollars in thousands) | | Securities – Available-for-Sale: Non-Agency MBS | | Mortgage Servicing Rights | | Derivative Instruments, net | | Total | |
| Opening balance | Opening balance | | $ | 13,132 | | | $ | 10,632 | | | $ | 1,727 | | | $ | 25,491 | | | Opening balance | | $ | 17,612 | | | $ | 12,130 | | | $ | 12,999 | | | $ | 42,741 | | |
| Included in earnings—Mortgage banking income | Included in earnings—Mortgage banking income | | 0 | | | (589) | | | (710) | | | (1,299) | | | Included in earnings—Mortgage banking income | | — | | | (2,250) | | | (5,020) | | | (7,270) | | |
Included in other comprehensive income | Included in other comprehensive income | | 151 | | | 0 | | | 0 | | | 151 | | | Included in other comprehensive income | | 15 | | | — | | | — | | | 15 | | |
Purchases, originations, issues, sales and settlements: | | | | |
Purchases/originations | | 0 | | | 1,219 | | | 0 | | | 1,219 | | | |
Purchases, retentions, issues, sales and settlements: | | Purchases, retentions, issues, sales and settlements: | | | |
Purchases/Retentions | | Purchases/Retentions | | — | | | 4,434 | | | — | | | 4,434 | | |
| Settlements | Settlements | | (496) | | | 0 | | | 0 | | | (496) | | | Settlements | | (492) | | | — | | | — | | | (492) | | |
| Closing balance | Closing balance | | $ | 12,787 | | | $ | 11,262 | | | $ | 1,017 | | | $ | 25,066 | | | Closing balance | | $ | 17,135 | | | $ | 14,314 | | | $ | 7,979 | | | $ | 39,428 | | |
| Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period | Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period | | $ | 0 | | | $ | (589) | | | $ | (710) | | | $ | (1,299) | | | Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period | | $ | — | | | $ | (2,250) | | | $ | (5,020) | | | $ | (7,270) | | |
| | | | For the Six Months Ended | | | | For the Six Months Ended | |
| | | December 31, 2019 | | | December 31, 2020 |
(Dollars in thousands) | (Dollars in thousands) | | Securities – Available-for-Sale: Non-Agency RMBS | | Mortgage Servicing Rights | | Derivative Instruments, net | | Total | | (Dollars in thousands) | | Securities – Available-for-Sale: Non-Agency RMBS | | Mortgage Servicing Rights | | Derivative Instruments, net | | Total | |
| Opening Balance | Opening Balance | | $ | 13,025 | | | $ | 9,784 | | | $ | 1,246 | | | $ | 24,055 | | | Opening Balance | | $ | 18,332 | | | $ | 10,675 | | | $ | 7,416 | | | $ | 36,423 | | |
| Total gains or losses for the period: | Total gains or losses for the period: | | | | Total gains or losses for the period: | | | |
| Included in earnings—Mortgage banking income | Included in earnings—Mortgage banking income | | 0 | | | (1,272) | | | (229) | | | (1,501) | | | Included in earnings—Mortgage banking income | | — | | | (4,045) | | | 563 | | | (3,482) | | |
Included in other comprehensive income | Included in other comprehensive income | | 840 | | | 0 | | | 0 | | | 840 | | | Included in other comprehensive income | | (307) | | | — | | | — | | | (307) | | |
Purchases, originations, issues, sales and settlements: | | | | |
Purchases/originations | | 0 | | | 2,750 | | | 0 | | | 2,750 | | | |
Purchases, retentions, issues, sales and settlements: | | Purchases, retentions, issues, sales and settlements: | | | |
Purchases/retentions | | Purchases/retentions | | — | | | 7,684 | | | — | | | 7,684 | | |
| Settlements | Settlements | | (1,078) | | | 0 | | | 0 | | | (1,078) | | | Settlements | | (890) | | | — | | | — | | | (890) | | |
| Closing balance | Closing balance | | $ | 12,787 | | | $ | 11,262 | | | $ | 1,017 | | | $ | 25,066 | | | Closing balance | | $ | 17,135 | | | $ | 14,314 | | | $ | 7,979 | | | $ | 39,428 | | |
| Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period | Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period | | $ | 0 | | | $ | (1,272) | | | $ | (229) | | | $ | (1,501) | | | Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period | | $ | — | | | $ | (4,045) | | | $ | 563 | | | $ | (3,482) | | |
The table below summarizes the quantitative information about level 3 fair value measurements as of the dates indicated:
| | | | | | | | | | | | | | |
| December 31, 20202021 |
(Dollars in thousands) | Fair Value | Valuation Technique | Unobservable Input | Range (Weighted Average) |
| | | | |
Securities – Non-agency RMBSMBS | $ | 17,13558,752 | | Discounted Cash Flow | Projected Constant Prepayment Rate, Projected Constant Default Rate, Projected Loss Severity, Discount Rate over LIBOR | 2.50.0 to 24.6% (10.5%33.8% (2.2%)
1.50.0 to 6.3% (1.7%8.8% (0.2%)
40.00.0 to 100.0% (76.7%68.3% (8.9%)
2.82.7 to 7.4% (4.4%6.6% (3.0%)
|
Mortgage Servicing Rights | $ | 14,31420,110 | | Discounted Cash Flow | Projected Constant Prepayment Rate, Life (in years), Discount Rate | 6.711.5 to 72.2% (12.3%60.8% (15.9%)
0.71.1 to 7.4 (6.1)7.9 (6.2)
9.5 to 14.0% (9.7%11.2% (9.6%) |
Derivative Instruments | $ | 7,9791,377 | | Sales Comparison Approach | Projected Sales Profit of Underlying Loans | 0.20.1 to 0.4% (0.3%0.9% (0.4%) |
| | | | | | | | | | | | | | |
| June 30, 20202021 |
(Dollars in thousands) | Fair Value | Valuation Technique | Unobservable Input | Range (Weighted Average) |
| | | | |
Securities – Non-agency RMBSMBS | $ | 18,33267,615 | | Discounted Cash Flow | Projected Constant Prepayment Rate, Projected Constant Default Rate, Projected Loss Severity, Discount Rate over LIBOR | 2.50.0 to 47.9% (26.1%25.0% (2.7%)
0.50.0 to 4.5% (2.0%5.6% (0.6%)
35.00.0 to 68.4% (50.1%100.0% (19.4%)
2.92.7 to 9.4% (5.0%7.2% (3.1%)
|
Mortgage Servicing Rights | $ | 10,67517,911 | | Discounted Cash Flow | Projected Constant Prepayment Rate, Life (in years), Discount Rate | 4.77.5 to 39.6% (11.4%37.4% (11.5%)
1.61.7 to 7.7 (6.2)7.5 (6.4)
9.5 to 14.0% (9.8%13.0% (9.6%)
|
Derivative Instruments | $ | 7,4162,205 | | Sales Comparison Approach | Projected Sales Profit of Underlying Loans | (0.3)0.2 to 0.8% (0.2%0.5% (0.3%) |
| | | | |
The significant unobservable inputs used in the fair value measurement of the Company’s residential mortgage-backed securities are projected prepayment rates, probability of default, and projected loss severity in the event of default. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the projected loss severity and a directionally opposite change in the assumption used for projected prepayment rates.
The table below summarizes assets measured for impairment on a non-recurring basis:
| | | December 31, 2020 | | December 31, 2021 |
(Dollars in thousands) | (Dollars in thousands) | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Balance | (Dollars in thousands) | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Balance |
Other real estate owned and foreclosed assets: | Other real estate owned and foreclosed assets: | | | | | | | | Other real estate owned and foreclosed assets: | | | | | | | |
Single family real estate | $ | 0 | | | $ | 0 | | | $ | 6,114 | | | $ | 6,114 | | |
| | Autos and RVs | Autos and RVs | 0 | | | 0 | | | 182 | | | 182 | | Autos and RVs | $ | — | | | $ | — | | | $ | 251 | | | $ | 251 | |
Total | Total | $ | 0 | | | $ | 0 | | | $ | 6,296 | | | $ | 6,296 | | Total | $ | — | | | $ | — | | | $ | 251 | | | $ | 251 | |
| | | | June 30, 2020 | | June 30, 2021 |
(Dollars in thousands) | (Dollars in thousands) | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Balance | (Dollars in thousands) | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Balance |
Other real estate owned and foreclosed assets: | Other real estate owned and foreclosed assets: | | | | | | | | Other real estate owned and foreclosed assets: | | | | | | | |
| Single family real estate | Single family real estate | $ | 0 | | | $ | 0 | | | $ | 6,114 | | | $ | 6,114 | | Single family real estate | $ | — | | | $ | — | | | $ | 6,547 | | | $ | 6,547 | |
| Autos and RVs | Autos and RVs | 0 | | | 0 | | | 294 | | | 294 | | Autos and RVs | — | | | — | | | 235 | | | 235 | |
Total | Total | $ | 0 | | | $ | 0 | | | $ | 6,408 | | | $ | 6,408 | | Total | $ | — | | | $ | — | | | $ | 6,782 | | | $ | 6,782 | |
|
Other real estate owned and foreclosed assets, which are measured at the lower of carrying value or fair value less costs to sell, had a net carrying amount of $6,296$251 after charge-offs of $0$49 for the six months ended December 31, 2020.2021.
The Company has elected the fair value option for Agency loans held for sale. These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on loans held for investment. None of these loans are 90 days or more past due nor on nonaccrual as of December 31, 20202021 and June 30, 2020.2021.
As of December 31, 20202021 and June 30, 2020,2021, the aggregate fair value of loans held for sale, carried at fair value, contractual balance (including accrued interest), and unrealized gain was as follows:
| | | | | | | | | | | |
(Dollars in thousands) | December 31, 2020 | | June 30, 2020 |
Aggregate fair value | $ | 64,287 | | | $ | 51,995 | |
Contractual balance | 62,093 | | | 49,700 | |
Unrealized gain | $ | 2,194 | | | $ | 2,295 | |
| | | | | | | | | | | |
(Dollars in thousands) | December 31, 2021 | | June 30, 2021 |
Aggregate fair value | $ | 27,428 | | | $ | 29,768 | |
Contractual balance | 26,751 | | | 28,940 | |
Unrealized gain | $ | 677 | | | $ | 828 | |
The total amount of gains and losses from changes in fair value included in earnings for the period indicated below for loans held for sale were:
| | | For the Three Months Ended | | For the Six Months Ended | | For the Three Months Ended | | For the Six Months Ended |
| | December 31, | | December 31, | | December 31, | | December 31, |
(Dollars in thousands) | (Dollars in thousands) | 2020 | | 2019 | | 2020 | | 2019 | (Dollars in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Interest income | Interest income | $ | 420 | | | $ | 291 | | | $ | 802 | | | $ | 596 | | Interest income | $ | 194 | | | $ | 420 | | | $ | 394 | | | $ | 802 | |
Change in fair value | Change in fair value | (6,425) | | | (728) | | | 459 | | | (252) | | Change in fair value | (1,021) | | | (6,425) | | | (978) | | | 459 | |
Total | Total | $ | (6,005) | | | $ | (437) | | | $ | 1,261 | | | $ | 344 | | Total | $ | (827) | | | $ | (6,005) | | | $ | (584) | | | $ | 1,261 | |
The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at the periods indicated:
| | | | | | | | | | | | | | |
| December 31, 20202021 |
(Dollars in thousands) | Fair Value | Valuation Technique(s) | Unobservable Input | Range (Weighted Average) 1 |
Other real estate owned and foreclosed assets: | | | |
Single family real estate | $ | 6,114 | | Sales comparison approach | Adjustment for differences between the comparable sales | 0.1 to 0.1% (0.1%) |
| | | | |
| | | | |
Autos and RVs | $ | 182251 | | Sales comparison approach | Adjustment for differences between the comparable sales | 0.0(16.6) to 0.0% (0.0%(2.0)% ((8.4)%) |
| | | | |
| | | | | | | | | | | | | | |
| June 30, 20202021 |
(Dollars in thousands) | Fair Value | Valuation Technique(s) | Unobservable Input | Range (Weighted Average) 1 |
Other real estate owned and foreclosed assets:
| | | | |
Single family real estate | $ | 6,1146,547 | | Sales comparison approach | Adjustment for differences between the comparable sales | 18.7(1.5) to 18.7% (18.7%6.1% (2.0%) |
| | | | |
| | | | |
Autos and RVs | $ | 294235 | | Sales comparison approach | Adjustment for differences between the comparable sales | (24.6)(2.1) to 44.2% (2.8%14.7% (2.1%) |
| | | | |
1 For other real estate owned and foreclosed assets the ranges shown may vary positively or negatively based on the comparable sales reported in the current appraisal. In certain instances, the range can be significant due to small sample sizes and in some cases the property being valued having limited comparable sales with similar characteristics at the time the current appraisal is conducted.
Fair value of Financial Instruments
The carrying amounts and estimated fair values of financial instruments at December 31, 20202021 and June 30, 20202021 were as follows:
| | | December 31, 2020 | | December 31, 2021 |
| | | Fair Value | | | | Fair Value | |
(Dollars in thousands) | (Dollars in thousands) | Carrying Amount | | Level 1 | | Level 2 | | Level 3 | | Total Fair Value | (Dollars in thousands) | Carrying Amount | | Level 1 | | Level 2 | | Level 3 | | Total Fair Value |
Financial assets: | Financial assets: | | | | | | | | | | Financial assets: | | | | | | | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 1,443,195 | | | $ | 1,443,195 | | | $ | 0 | | | $ | 0 | | | $ | 1,443,195 | | Cash and cash equivalents | $ | 1,118,358 | | | $ | 1,118,358 | | | $ | — | | | $ | — | | | $ | 1,118,358 | |
Securities — trading | Securities — trading | 362 | | | 0 | | | 362 | | | 0 | | | 362 | | Securities — trading | 1,223 | | | — | | | 1,223 | | | — | | | 1,223 | |
Securities — available-for-sale | Securities — available-for-sale | 209,828 | | | 0 | | | 192,693 | | | 17,135 | | | 209,828 | | Securities — available-for-sale | 139,581 | | | — | | | 80,829 | | | 58,752 | | | 139,581 | |
| Loans held for sale, at fair value | Loans held for sale, at fair value | 64,287 | | | 0 | | | 64,287 | | | 0 | | | 64,287 | | Loans held for sale, at fair value | 27,428 | | | — | | | 27,428 | | | — | | | 27,428 | |
Loans held for sale, at lower of cost or fair value | Loans held for sale, at lower of cost or fair value | 13,769 | | | 0 | | | 0 | | | 13,815 | | | 13,815 | | Loans held for sale, at lower of cost or fair value | 11,446 | | | — | | | — | | | 11,534 | | | 11,534 | |
Loans and leases held for investment—net | 11,609,584 | | | 0 | | | 0 | | | 12,151,576 | | | 12,151,576 | | |
Loans held for investment—net | | Loans held for investment—net | 12,607,179 | | | — | | | — | | | 12,870,528 | | | 12,870,528 | |
Securities borrowed | Securities borrowed | 317,571 | | | 0 | | | 0 | | | 317,666 | | | 317,666 | | Securities borrowed | 534,243 | | | — | | | — | | | 524,466 | | | 524,466 | |
Customer, broker-dealer and clearing receivables | Customer, broker-dealer and clearing receivables | 264,572 | | | 0 | | | 0 | | | 264,678 | | | 264,678 | | Customer, broker-dealer and clearing receivables | 429,634 | | | — | | | — | | | 432,427 | | | 432,427 | |
| Mortgage servicing rights | Mortgage servicing rights | 14,314 | | | 0 | | | 0 | | | 14,314 | | | 14,314 | | Mortgage servicing rights | 20,110 | | | — | | | — | | | 20,110 | | | 20,110 | |
Financial liabilities: | Financial liabilities: | | Financial liabilities: | |
Total deposits | Total deposits | 11,463,136 | | | 0 | | | 11,103,293 | | | 0 | | | 11,103,293 | | Total deposits | 12,269,172 | | | — | | | 11,650,460 | | | — | | | 11,650,460 | |
| Advances from the Federal Home Loan Bank | Advances from the Federal Home Loan Bank | 182,500 | | | 0 | | | 192,082 | | | 0 | | | 192,082 | | Advances from the Federal Home Loan Bank | 157,500 | | | — | | | 157,500 | | | — | | | 157,500 | |
Borrowings, subordinated notes and debentures | Borrowings, subordinated notes and debentures | 418,480 | | | 0 | | | 414,350 | | | 0 | | | 414,350 | | Borrowings, subordinated notes and debentures | 260,435 | | | — | | | 254,096 | | | — | | | 254,096 | |
Securities loaned | Securities loaned | 362,170 | | | 0 | | | 0 | | | 363,365 | | | 363,365 | | Securities loaned | 578,762 | | | — | | | — | | | 582,640 | | | 582,640 | |
Customer, broker-dealer and clearing payables | Customer, broker-dealer and clearing payables | 475,473 | | | 0 | | | 0 | | | 475,473 | | | 475,473 | | Customer, broker-dealer and clearing payables | 528,796 | | | — | | | — | | | 534,712 | | | 534,712 | |
|
| | | June 30, 2020 | | June 30, 2021 |
| | | Fair Value | | | | Fair Value | |
(Dollars in thousands) | (Dollars in thousands) | Carrying Amount | | Level 1 | | Level 2 | | Level 3 | | Total Fair Value | (Dollars in thousands) | Carrying Amount | | Level 1 | | Level 2 | | Level 3 | | Total Fair Value |
Financial assets: | Financial assets: | | | | | | | | | | Financial assets: | | | | | | | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 1,950,519 | | | $ | 1,950,519 | | | $ | 0 | | | $ | 0 | | | $ | 1,950,519 | | Cash and cash equivalents | $ | 1,037,777 | | | $ | 1,037,777 | | | $ | — | | | $ | — | | | $ | 1,037,777 | |
Securities — trading | Securities — trading | 105 | | | 0 | | | 105 | | | 0 | | | 105 | | Securities — trading | 1,983 | | | — | | | 1,983 | | | — | | | 1,983 | |
Securities — available-for-sale | Securities — available-for-sale | 187,627 | | | 0 | | | 169,295 | | | 18,332 | | | 187,627 | | Securities — available-for-sale | 187,335 | | | — | | | 119,720 | | | 67,615 | | | 187,335 | |
| Loans held for sale, at fair value | Loans held for sale, at fair value | 51,995 | | | 0 | | | 51,995 | | | 0 | | | 51,995 | | Loans held for sale, at fair value | 29,768 | | | — | | | 29,768 | | | — | | | 29,768 | |
Loans held for sale, at lower of cost or fair value | Loans held for sale, at lower of cost or fair value | 44,565 | | | 0 | | | 0 | | | 44,625 | | | 44,625 | | Loans held for sale, at lower of cost or fair value | 12,294 | | | — | | | — | | | 12,336 | | | 12,336 | |
Loans and leases held for investment—net | 10,631,349 | | | 0 | | | 0 | | | 11,138,255 | | | 11,138,255 | | |
Loans held for investment—net | | Loans held for investment—net | 11,414,814 | | | — | | | — | | | 11,833,102 | | | 11,833,102 | |
Securities borrowed | Securities borrowed | 222,368 | | | 0 | | | 0 | | | 222,613 | | | 222,613 | | Securities borrowed | 619,088 | | | — | | | — | | | 619,274 | | | 619,274 | |
Customer, broker-dealer and clearing receivables | Customer, broker-dealer and clearing receivables | 220,266 | | | 0 | | | 0 | | | 220,464 | | | 220,464 | | Customer, broker-dealer and clearing receivables | 369,815 | | | — | | | — | | | 369,815 | | | 369,815 | |
| Mortgage servicing rights | Mortgage servicing rights | 10,675 | | | 0 | | | 0 | | | 10,675 | | | 10,675 | | Mortgage servicing rights | 17,911 | | | — | | | — | | | 17,911 | | | 17,911 | |
Financial liabilities: | Financial liabilities: | | Financial liabilities: | |
Total deposits | Total deposits | 11,336,694 | | | 0 | | | 11,088,447 | | | 0 | | | 11,088,447 | | Total deposits | 10,815,797 | | | — | | | 10,297,450 | | | — | | | 10,297,450 | |
| Advances from the Federal Home Loan Bank | Advances from the Federal Home Loan Bank | 242,500 | | | 0 | | | 254,114 | | | 0 | | | 254,114 | | Advances from the Federal Home Loan Bank | 353,500 | | | — | | | 353,500 | | | — | | | 353,500 | |
Borrowings, subordinated notes and debentures | Borrowings, subordinated notes and debentures | 235,789 | | | 0 | | | 234,445 | | | 0 | | | 234,445 | | Borrowings, subordinated notes and debentures | 221,358 | | | — | | | 210,196 | | | — | | | 210,196 | |
Securities loaned | Securities loaned | 255,945 | | | 0 | | | 0 | | | 256,790 | | | 256,790 | | Securities loaned | 728,988 | | | — | | | — | | | 731,467 | | | 731,467 | |
Customer, broker-dealer and clearing payables | Customer, broker-dealer and clearing payables | 347,614 | | | 0 | | | 0 | | | 347,614 | | | 347,614 | | Customer, broker-dealer and clearing payables | 535,425 | | | — | | | — | | | 535,425 | | | 535,425 | |
|
The methods and assumptions, not previously presented, used to estimate fair value are described as follows: Carrying amount is the estimated fair value for cash and cash equivalents, interest bearing deposits, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans and leases or deposits that reprice frequently and fully. For fixed rate loans, and leases, deposits, borrowings or subordinated debt and for variable rate loans, and leases, 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 and loans held for sale can be found earlier in this footnote.Note 3 – “Fair Value” ofour Form 10-K for the year ended June 30, 2021. The carrying amount of stock of regulatory agencies approximates the estimated fair value of this investment. The fair value of off-balance sheet items is not considered material.
3.4. SECURITIES
The amortized cost, carrying amount and fair value for the trading and available-for-sale securities at December 31, 20202021 and June 30, 20202021 were:
| | | December 31, 2020 | | December 31, 2021 |
| | Trading | | Available-for-sale | | | Trading | | Available-for-sale | |
(Dollars in thousands) | (Dollars in thousands) | Fair Value | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value | | (Dollars in thousands) | Fair Value | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value | |
Mortgage-backed securities (RMBS): | | | | | | | | | |
Mortgage-backed securities (MBS): | | Mortgage-backed securities (MBS): | | | | | | | | | | |
U.S. agencies1 | U.S. agencies1 | $ | 0 | | | $ | 16,424 | | | $ | 552 | | | $ | (1) | | | $ | 16,975 | | | U.S. agencies1 | $ | — | | | $ | 29,376 | | | $ | 214 | | | $ | (359) | | | $ | 29,231 | | |
Non-agency2 | Non-agency2 | 0 | | | 17,289 | | | 821 | | | (975) | | | 17,135 | | | Non-agency2 | — | | | 56,949 | | | 2,152 | | | (349) | | | 58,752 | | |
Total mortgage-backed securities | Total mortgage-backed securities | 0 | | | 33,713 | | | 1,373 | | | (976) | | | 34,110 | | | Total mortgage-backed securities | — | | | 86,325 | | | 2,366 | | | (708) | | | 87,983 | | |
Non-RMBS: | | | | | | | | | | | |
U.S. agencies1 | 0 | | | 1,800 | | | 0 | | | (1) | | | 1,799 | | | |
Non-MBS: | | Non-MBS: | | | | | | | | | | |
| Municipal | Municipal | 362 | | | 3,405 | | | 109 | | | 0 | | | 3,514 | | | Municipal | 1,223 | | | 3,467 | | | 69 | | | — | | | 3,536 | | |
Asset-backed securities and structured notes | Asset-backed securities and structured notes | 0 | | | 168,215 | | | 2,190 | | | 0 | | | 170,405 | | | Asset-backed securities and structured notes | — | | | 46,933 | | | 1,129 | | | — | | | 48,062 | | |
Total Non-RMBS | 362 | | | 173,420 | | | 2,299 | | | (1) | | | 175,718 | | | |
Total Non-MBS | | Total Non-MBS | 1,223 | | | 50,400 | | | 1,198 | | | — | | | 51,598 | | |
Total debt securities | Total debt securities | $ | 362 | | | $ | 207,133 | | | $ | 3,672 | | | $ | (977) | | | $ | 209,828 | | | Total debt securities | $ | 1,223 | | | $ | 136,725 | | | $ | 3,564 | | | $ | (708) | | | $ | 139,581 | | |
| | | | June 30, 2020 | | June 30, 2021 |
| | Trading | | Available-for-sale | | | Trading | | Available-for-sale | |
(Dollars in thousands) | (Dollars in thousands) | Fair Value | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value | | (Dollars in thousands) | Fair Value | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value | |
Mortgage-backed securities (RMBS): | | | | | | | | | |
Mortgage-backed securities (MBS): | | Mortgage-backed securities (MBS): | | | | | | | | | | |
U.S. agencies1 | U.S. agencies1 | $ | 0 | | | $ | 16,192 | | | $ | 634 | | | $ | 0 | | | $ | 16,826 | | | U.S. agencies1 | $ | — | | | $ | 23,639 | | | $ | 420 | | | $ | (146) | | | $ | 23,913 | | |
Non-agency2 | Non-agency2 | 0 | | | 18,180 | | | 1,024 | | | (872) | | | 18,332 | | | Non-agency2 | — | | | 65,174 | | | 2,862 | | | (421) | | | 67,615 | | |
Total mortgage-backed securities | Total mortgage-backed securities | 0 | | | 34,372 | | | 1,658 | | | (872) | | | 35,158 | | | Total mortgage-backed securities | — | | | 88,813 | | | 3,282 | | | (567) | | | 91,528 | | |
Non-RMBS: | | | | | | | | | | | |
U.S. agencies1 | 0 | | | 1,799 | | | 0 | | | 0 | | | 1,799 | | | |
Non-MBS: | | Non-MBS: | | | | | | | | | | |
| Municipal | Municipal | 105 | | | 10,550 | | | 44 | | | (194) | | | 10,400 | | | Municipal | 1,983 | | | 3,466 | | | 99 | | | — | | | 3,565 | | |
Asset-backed securities and structured notes | Asset-backed securities and structured notes | 0 | | | 141,338 | | | 1 | | | (1,069) | | | 140,270 | | | Asset-backed securities and structured notes | — | | | 90,549 | | | 1,693 | | | — | | | 92,242 | | |
Total Non-RMBS | 105 | | | 153,687 | | | 45 | | | (1,263) | | | 152,469 | | | |
Total Non-MBS | | Total Non-MBS | 1,983 | | | 94,015 | | | 1,792 | | | — | | | 95,807 | | |
Total debt securities | Total debt securities | $ | 105 | | | $ | 188,059 | | | $ | 1,703 | | | $ | (2,135) | | | $ | 187,627 | | | Total debt securities | $ | 1,983 | | | $ | 182,828 | | | $ | 5,074 | | | $ | (567) | | | $ | 187,335 | | |
1Includes securities guaranteed by Ginnie Mae, a U.S. government agency, and the government sponsored enterprises Fannie Mae and Freddie Mac.
2Private 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 Alt-A or pay-option ARM mortgages.
The Company’s non-agency RMBSMBS available-for-sale portfolio with a total fair value of $17,135$58,752 at December 31, 20202021 consists of 1514 different issues of super senior securities.
The face amounts of debt securities available-for-sale that were pledged to secure borrowings at December 31, 20202021 and June 30, 20202021 were $3.4$1.2 million and $3.5$1.4 million, respectively.
The securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows:
| | | December 31, 2020 | | December 31, 2021 |
| | Available-for-sale securities in loss position for | | | Available-for-sale securities in loss position for | |
| | Less Than 12 Months | | More Than 12 Months | | Total | | | Less Than 12 Months | | More Than 12 Months | | Total | |
(Dollars in thousands) | (Dollars in thousands) | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | (Dollars in thousands) | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | |
RMBS: | | | | | | | | | | | | | |
MBS: | | MBS: | | | | | | | | | | | | |
U.S. agencies | U.S. agencies | $ | 537 | | | $ | (1) | | | $ | 0 | | | $ | 0 | | | $ | 537 | | | $ | (1) | | | U.S. agencies | $ | 20,136 | | | $ | (351) | | | $ | 366 | | | $ | (8) | | | $ | 20,502 | | | $ | (359) | | |
Non-agency | Non-agency | 0 | | | 0 | | | 6,317 | | | (975) | | | 6,317 | | | (975) | | | Non-agency | — | | | — | | | 5,353 | | | (349) | | | 5,353 | | | (349) | | |
Total RMBS securities | 537 | | | (1) | | | 6,317 | | | (975) | | | 6,854 | | | (976) | | | |
Non-RMBS: | | | | | | | | | | | | | |
Total MBS | | Total MBS | 20,136 | | | (351) | | | 5,719 | | | (357) | | | 25,855 | | | (708) | | |
Non-MBS: | | Non-MBS: | | | | | | | | | | | | |
U.S. agencies | U.S. agencies | 1,799 | | | (1) | | | 0 | | | 0 | | | 1,799 | | | (1) | | | U.S. agencies | — | | | — | | | — | | | — | | | — | | | — | | |
| Total Non-RMBS | 1,799 | | | (1) | | | 0 | | | 0 | | | 1,799 | | | (1) | | | |
Total Non-MBS | | Total Non-MBS | — | | | — | | | — | | | — | | | — | | | — | | |
Total debt securities | Total debt securities | $ | 2,336 | | | $ | (2) | | | $ | 6,317 | | | $ | (975) | | | $ | 8,653 | | | $ | (977) | | | Total debt securities | $ | 20,136 | | | $ | (351) | | | $ | 5,719 | | | $ | (357) | | | $ | 25,855 | | | $ | (708) | | |
| | | June 30, 2020 | | June 30, 2021 |
| | Available-for-sale securities in loss position for | | | Available-for-sale securities in loss position for | |
| | Less Than 12 Months | | More Than 12 Months | | Total | | | Less Than 12 Months | | More Than 12 Months | | Total | |
(Dollars in thousands) | (Dollars in thousands) | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | (Dollars in thousands) | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | |
RMBS: | | | | | | | | | | | | | |
MBS: | | MBS: | | | | | | | | | | | | |
U.S. agencies | U.S. agencies | $ | 85 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 85 | | | $ | 0 | | | U.S. agencies | $ | 10,001 | | | $ | (146) | | | $ | — | | | $ | — | | | $ | 10,001 | | | $ | (146) | | |
Non-agency | Non-agency | 0 | | | 0 | | | 6,978 | | | (872) | | | 6,978 | | | (872) | | | Non-agency | — | | | — | | | 6,018 | | | (421) | | | 6,018 | | | (421) | | |
Total RMBS securities | 85 | | | 0 | | | 6,978 | | | (872) | | | 7,063 | | | (872) | | | |
Non-RMBS: | | | | | | | | | | | | | |
Total MBS | | Total MBS | 10,001 | | | (146) | | | 6,018 | | | (421) | | | 16,019 | | | (567) | | |
Non-MBS: | | Non-MBS: | | | | | | | | | | | | |
| Municipal debt | Municipal debt | 0 | | | 0 | | | 2,002 | | | (194) | | | 2,002 | | | (194) | | | Municipal debt | — | | | — | | | — | | | — | | | — | | | — | | |
Asset-backed securities and structured notes | Asset-backed securities and structured notes | 139,883 | | | (1,069) | | | 0 | | | 0 | | | 139,883 | | | (1,069) | | | Asset-backed securities and structured notes | — | | | — | | | — | | | — | | | — | | | — | | |
Total Non-RMBS | 139,883 | | | (1,069) | | | 2,002 | | | (194) | | | 141,885 | | | (1,263) | | | |
Total Non-MBS | | Total Non-MBS | — | | | — | | | — | | | — | | | — | | | — | | |
Total debt securities | Total debt securities | $ | 139,968 | | | $ | (1,069) | | | $ | 8,980 | | | $ | (1,066) | | | $ | 148,948 | | | $ | (2,135) | | | Total debt securities | $ | 10,001 | | | $ | (146) | | | $ | 6,018 | | | $ | (421) | | | $ | 16,019 | | | $ | (567) | | |
On December 31, 2020,2021, there were 8 securities that were in a continuous loss position for a period of more than 12 months, and 311 securities that were in a continuous loss position for a period of less than 12 months. At June 30, 2020,2021, there were 107 securities that were in a continuous loss position for a period of more than 12 months, and 47 securities that were in a continuous loss position for a period of less than 12 months.
At December 31, 2020,2021, 1 non-agency RMBS with a total carrying amount of $2.7$2.6 million was determined to have cumulative credit losses of $0.8 million of which NaNnone was recognized in earnings during the three months ended December 31, 2020. For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates at the individual security level whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses, if any, are recorded as a provision for (or reversal of) credit losses. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale investment security is confirmed or when either of the criteria regarding intent or requirement to sell is met.2021.
During the three months ended December 31, 2019, the company sold 0 available-for-sale securities. During the threesix months ended December 31, 2020, the company sold 0no available-for-sale securities.
During the six months ended December 31, 2021, the company sold no available-for-sale securities. The Company had recorded unrealized gains and unrealized losses in accumulated other comprehensive loss as follows:
| (Dollars in thousands) | (Dollars in thousands) | December 31, 2020 | | June 30, 2020 | (Dollars in thousands) | December 31, 2021 | | June 30, 2021 |
Available-for-sale debt securities—net unrealized gains (losses) | Available-for-sale debt securities—net unrealized gains (losses) | $ | 2,695 | | | $ | (432) | | Available-for-sale debt securities—net unrealized gains (losses) | $ | 2,856 | | | $ | 4,507 | |
Available-for-sale debt securities—non-credit related losses | Available-for-sale debt securities—non-credit related losses | (845) | | | (845) | | Available-for-sale debt securities—non-credit related losses | (845) | | | (845) | |
| Subtotal | Subtotal | 1,850 | | | (1,277) | | Subtotal | 2,011 | | | 3,662 | |
Tax benefit (expense) | Tax benefit (expense) | (599) | | | 340 | | Tax benefit (expense) | (667) | | | (1,155) | |
Net unrealized gain (loss) on investment securities in accumulated other comprehensive income (loss) | Net unrealized gain (loss) on investment securities in accumulated other comprehensive income (loss) | $ | 1,251 | | | $ | (937) | | Net unrealized gain (loss) on investment securities in accumulated other comprehensive income (loss) | $ | 1,344 | | | $ | 2,507 | |
4.
5. LOANS & ALLOWANCE FOR CREDIT LOSSES
The following table(s)table sets forth the composition of the loan portfolio as of the dates indicated:
| (Dollars in thousands) | (Dollars in thousands) | December 31, 2020 | | June 30, 2020 | (Dollars in thousands) | December 31, 2021 | | June 30, 2021 |
Single Family - Mortgage & Warehouse | Single Family - Mortgage & Warehouse | $ | 5,252,810 | | | $ | 4,722,304 | | Single Family - Mortgage & Warehouse | $ | 4,281,646 | | | $ | 4,359,472 | |
Multifamily and Commercial Mortgage | Multifamily and Commercial Mortgage | 2,363,024 | | | 2,263,054 | | Multifamily and Commercial Mortgage | 2,483,932 | | | 2,470,454 | |
Commercial Real Estate | Commercial Real Estate | 2,720,922 | | | 2,297,920 | | Commercial Real Estate | 3,857,367 | | | 3,180,453 | |
Commercial & Industrial - Non-RE | Commercial & Industrial - Non-RE | 933,081 | | | 885,320 | | Commercial & Industrial - Non-RE | 1,631,811 | | | 1,123,869 | |
Auto & Consumer | Auto & Consumer | 327,340 | | | 341,365 | | Auto & Consumer | 478,636 | | | 362,180 | |
Other | Other | 151,496 | | | 193,479 | | Other | 22,282 | | | 58,316 | |
Total gross loans and leases | 11,748,673 | | | 10,703,442 | | |
Total gross loans | | Total gross loans | 12,755,674 | | | 11,554,744 | |
Allowance for credit losses - loans | Allowance for credit losses - loans | (136,393) | | | (75,807) | | Allowance for credit losses - loans | (140,489) | | | (132,958) | |
Unaccreted premiums (discounts) and loan and lease fees | (2,696) | | | 3,714 | | |
Total net loans and leases | $ | 11,609,584 | | | $ | 10,631,349 | | |
Unaccreted premiums (discounts) and loan fees | | Unaccreted premiums (discounts) and loan fees | (8,006) | | | (6,972) | |
Total net loans | | Total net loans | $ | 12,607,179 | | | $ | 11,414,814 | |
The following tables summarize activity in the allowance for credit losses - loans by portfolio classes for the periods indicated.
| | | For the Three Months Ended December 31, 2020 | | For the Three Months Ended December 31, 2021 |
(Dollars in thousands) | (Dollars in thousands) | Single Family-Mortgage & Warehouse | | Multifamily and Commercial Mortgage | | Commercial Real Estate | | Commercial & Industrial - Non-RE | | Auto & Consumer | | Other | | Total | (Dollars in thousands) | Single Family-Mortgage & Warehouse | | Multifamily and Commercial Mortgage | | Commercial Real Estate | | Commercial & Industrial - Non-RE | | Auto & Consumer | | Other | | Total |
Balance at October 1, 2020 | $ | 28,307 | | | $ | 12,419 | | | $ | 49,198 | | | $ | 23,295 | | | $ | 8,678 | | | $ | 11,018 | | | $ | 132,915 | | |
Balance at October 1, 2021 | | Balance at October 1, 2021 | $ | 25,329 | | | $ | 13,359 | | | $ | 65,223 | | | $ | 22,519 | | | $ | 10,007 | | | $ | 341 | | | $ | 136,778 | |
| Provision for credit losses - loans | 5,271 | | | 470 | | | 7,517 | | | (1,546) | | | (214) | | | (3,498) | | | 8,000 | | |
Provision (benefit) for credit losses - loans | | Provision (benefit) for credit losses - loans | 182 | | | 269 | | | 2,358 | | | 170 | | | 1,299 | | | (278) | | | 4,000 | |
| Charge-offs | Charge-offs | (870) | | | 0 | | | 0 | | | (2,620) | | | (1,220) | | | 0 | | | (4,710) | | Charge-offs | — | | | — | | | — | | | — | | | (640) | | | — | | | (640) | |
Recoveries | Recoveries | 19 | | | 0 | | | 0 | | | 0 | | | 169 | | | 0 | | | 188 | | Recoveries | 69 | | | — | | | — | | | 27 | | | 255 | | | — | | | 351 | |
Balance at December 31, 2020 | $ | 32,727 | | | $ | 12,889 | | | $ | 56,715 | | | $ | 19,129 | | | $ | 7,413 | | | $ | 7,520 | | | $ | 136,393 | | |
Balance at December 31, 2021 | | Balance at December 31, 2021 | $ | 25,580 | | | $ | 13,628 | | | $ | 67,581 | | | $ | 22,716 | | | $ | 10,921 | | | $ | 63 | | | $ | 140,489 | |
| | | For the Three Months Ended December 31, 2019 | | For the Three Months Ended December 31, 2020 |
(Dollars in thousands) | (Dollars in thousands) | Single Family-Mortgage & Warehouse | | Multifamily and Commercial Mortgage | | Commercial Real Estate | | Commercial & Industrial - Non-RE | | Auto & Consumer | | Other | | Total | (Dollars in thousands) | Single Family-Mortgage & Warehouse | | Multifamily and Commercial Mortgage | | Commercial Real Estate | | Commercial & Industrial - Non-RE | | Auto & Consumer | | Other | | Total |
Balance at October 1, 2019 | $ | 21,712 | | | $ | 4,005 | | | $ | 12,462 | | | $ | 14,402 | | | $ | 6,585 | | | $ | 61 | | | $ | 59,227 | | |
Balance at October 1, 2020 | | Balance at October 1, 2020 | $ | 28,307 | | | $ | 12,419 | | | $ | 49,198 | | | $ | 23,295 | | | $ | 8,678 | | | $ | 11,018 | | | $ | 132,915 | |
Provision for credit losses - loans | Provision for credit losses - loans | 23 | | | (78) | | | 229 | | | (2,276) | | | 1,570 | | | 5,032 | | | 4,500 | | Provision for credit losses - loans | 5,271 | | | 470 | | | 7,517 | | | (1,546) | | | (214) | | | (3,498) | | | 8,000 | |
Charge-offs | Charge-offs | (145) | | | 0 | | | 0 | | | 0 | | | (1,109) | | | (4,132) | | | (5,386) | | Charge-offs | (870) | | | — | | | — | | | (2,620) | | | (1,220) | | | — | | | (4,710) | |
Recoveries | Recoveries | 71 | | | 119 | | | 0 | | | 0 | | | 122 | | | 861 | | | 1,173 | | Recoveries | 19 | | | — | | | — | | | — | | | 169 | | | — | | | 188 | |
Balance at December 31, 2019 | $ | 21,661 | | | $ | 4,046 | | | $ | 12,691 | | | $ | 12,126 | | | $ | 7,168 | | | $ | 1,822 | | | $ | 59,514 | | |
Balance at December 31, 2020 | | Balance at December 31, 2020 | $ | 32,727 | | | $ | 12,889 | | | $ | 56,715 | | | $ | 19,129 | | | $ | 7,413 | | | $ | 7,520 | | | $ | 136,393 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended December 31, 2020 |
(Dollars in thousands) | Single Family-Mortgage & Warehouse | | Multifamily and Commercial Mortgage | | Commercial Real Estate | | Commercial & Industrial - Non-RE | | Auto & Consumer | | Other | | Total |
Balance at July 1, 2020 | $ | 25,901 | | | $ | 4,718 | | | $ | 21,052 | | | $ | 9,954 | | | $ | 9,461 | | | $ | 4,721 | | | $ | 75,807 | |
Effect of Adoption of ASC 326 | 6,318 | | | 7,408 | | | 25,893 | | | 7,042 | | | 610 | | | 29 | | | 47,300 | |
Provision for credit losses - loans | 2,832 | | | 763 | | | 9,770 | | | 4,966 | | | (1,301) | | | 2,770 | | | 19,800 | |
| | | | | | | | | | | | | |
Charge-offs | (2,359) | | | 0 | | | 0 | | | (2,833) | | | (1,956) | | | 0 | | | (7,148) | |
Recoveries | 35 | | | 0 | | | 0 | | | 0 | | | 599 | | | 0 | | | 634 | |
Balance at December 31, 2020 | $ | 32,727 | | | $ | 12,889 | | | $ | 56,715 | | | $ | 19,129 | | | $ | 7,413 | | | $ | 7,520 | | | $ | 136,393 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended December 31, 2021 |
(Dollars in thousands) | Single Family-Mortgage & Warehouse | | Multifamily and Commercial Mortgage | | Commercial Real Estate | | Commercial & Industrial - Non-RE | | Auto & Consumer | | Other | | Total |
Balance at July 1, 2021 | $ | 26,604 | | | $ | 13,146 | | | $ | 57,928 | | | $ | 28,460 | | | $ | 6,519 | | | $ | 301 | | | $ | 132,958 | |
| | | | | | | | | | | | | |
Provision (benefit) for credit losses - loans | (1,169) | | | 305 | | | 9,653 | | | (5,476) | | | 4,925 | | | (238) | | | 8,000 | |
| | | | | | | | | | | | | |
Charge-offs | — | | | — | | | — | | | (322) | | | (1,034) | | | — | | | (1,356) | |
Recoveries | 145 | | | 177 | | | — | | | 54 | | | 511 | | | — | | | 887 | |
Balance at December 31, 2021 | $ | 25,580 | | | $ | 13,628 | | | $ | 67,581 | | | $ | 22,716 | | | $ | 10,921 | | | $ | 63 | | | $ | 140,489 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended December 31, 2019 |
(Dollars in thousands) | Single Family-Mortgage & Warehouse | | Multifamily and Commercial Mortgage | | Commercial Real Estate | | Commercial & Industrial - Non-RE | | Auto & Consumer | | Other | | Total |
Balance at July 1, 2019 | $ | 22,290 | | | $ | 3,807 | | | $ | 14,632 | | | $ | 9,544 | | | $ | 6,339 | | | $ | 473 | | | $ | 57,085 | |
Provision for credit losses - loans | (656) | | | 120 | | | (1,941) | | | 2,582 | | | 2,751 | | | 4,344 | | | 7,200 | |
Charge-offs | (151) | | | 0 | | | 0 | | | 0 | | | (2,130) | | | (4,182) | | | (6,463) | |
Recoveries | 178 | | | 119 | | | 0 | | | 0 | | | 208 | | | 1,187 | | | 1,692 | |
Balance at December 31, 2019 | $ | 21,661 | | | $ | 4,046 | | | $ | 12,691 | | | $ | 12,126 | | | $ | 7,168 | | | $ | 1,822 | | | $ | 59,514 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended December 31, 2020 |
(Dollars in thousands) | Single Family-Mortgage & Warehouse | | Multifamily and Commercial Mortgage | | Commercial Real Estate | | Commercial & Industrial - Non-RE | | Auto & Consumer | | Other | | Total |
Balance at July 1, 2020 | $ | 25,901 | | | $ | 4,718 | | | $ | 21,052 | | | $ | 9,954 | | | $ | 9,461 | | | $ | 4,721 | | | $ | 75,807 | |
Effect of Adoption of ASC 326 | 6,318 | | | 7,408 | | | 25,893 | | | 7,042 | | | 610 | | | 29 | | | 47,300 | |
Provision for credit losses - loans | 2,832 | | | 763 | | | 9,770 | | | 4,966 | | | (1,301) | | | 2,770 | | | 19,800 | |
Charge-offs | (2,359) | | | — | | | — | | | (2,833) | | | (1,956) | | | — | | | (7,148) | |
Recoveries | 35 | | | — | | | — | | | — | | | 599 | | | — | | | 634 | |
Balance at December 31, 2020 | $ | 32,727 | | | $ | 12,889 | | | $ | 56,715 | | | $ | 19,129 | | | $ | 7,413 | | | $ | 7,520 | | | $ | 136,393 | |
Credit Quality Disclosures. Nonaccrual loans consisted of the following as of the dates indicated:
| | | As of December 31, 2020 | | As of December 31, 2021 |
(Dollars in thousands) | (Dollars in thousands) | With Allowance | | With No Allowance | | Total | (Dollars in thousands) | With Allowance | | With No Allowance | | Total |
Single Family - Mortgage & Warehouse | Single Family - Mortgage & Warehouse | $ | 68,789 | | | $ | 48,400 | | | $ | 117,189 | | Single Family - Mortgage & Warehouse | $ | 54,613 | | | $ | 67,713 | | | $ | 122,326 | |
Multifamily and Commercial Mortgage | Multifamily and Commercial Mortgage | 25,487 | | | 6,643 | | | 32,130 | | Multifamily and Commercial Mortgage | 2,158 | | | 5,530 | | | 7,688 | |
Commercial Real Estate | Commercial Real Estate | 16,631 | | | 0 | | | 16,631 | | Commercial Real Estate | — | | | 15,244 | | | 15,244 | |
Commercial & Industrial - Non-RE | Commercial & Industrial - Non-RE | 2,960 | | | 0 | | | 2,960 | | Commercial & Industrial - Non-RE | — | | | — | | | — | |
Auto & Consumer | Auto & Consumer | 238 | | | 116 | | | 354 | | Auto & Consumer | 504 | | | 116 | | | 620 | |
| Other | | Other | — | | | 55 | | | 55 | |
Total nonaccrual loans | Total nonaccrual loans | $ | 114,105 | | | $ | 55,159 | | | $ | 169,264 | | Total nonaccrual loans | $ | 57,275 | | | $ | 88,658 | | | $ | 145,933 | |
Nonaccrual loans to total loans | Nonaccrual loans to total loans | | | | | 1.44 | % | Nonaccrual loans to total loans | | | | | 1.14 | % |
No interest income was recognized on nonaccrual loans in either the three months ended December 31, 2021 or December 31, 2020. No interest income was recognized on nonaccrual loans in either the six months ended December 31, 2021 or December 31, 2020.
Approximately 0.50%0.52% of our nonaccrual loans at December 31, 20202021 were considered TDRs, compared to 0.34%0.55% at June 30, 2020.2021. Borrowers that make timely payments after TDRs are considered non-performing for at least six months. Generally, after six months of timely payments, those TDRs are reclassified from the nonaccrual loan category to the performing loan category and any previously deferred interest income is recognized. Approximately 69.23%83.82% of the Bank’s nonaccrual loans are single family first mortgages, repaid and written down to 89.15% in aggregate, of the original loan value of the underlying properties.
NaN interest income was recognized in the three and six months ended December 31, 2020 on nonaccrual loans.mortgages.
The following tables present the outstanding unpaid balance of loans that are performing and nonaccrual by portfolio class:
| | | December 31, 2020 | | December 31, 2021 |
(Dollars in thousands) | (Dollars in thousands) | Single Family-Mortgage & Warehouse | | Multifamily and Commercial Mortgage | | Commercial Real Estate | | Commercial & Industrial - Non-RE | | Auto & Consumer | | Other | | Total | (Dollars in thousands) | Single Family-Mortgage & Warehouse | | Multifamily and Commercial Mortgage | | Commercial Real Estate | | Commercial & Industrial - Non-RE | | Auto & Consumer | | Other | | Total |
Performing | Performing | $ | 5,135,621 | | | $ | 2,330,894 | | | $ | 2,704,291 | | | $ | 930,121 | | | $ | 326,986 | | | $ | 151,496 | | | $ | 11,579,409 | | Performing | $ | 4,159,320 | | | $ | 2,476,244 | | | $ | 3,842,123 | | | $ | 1,631,811 | | | $ | 478,016 | | | $ | 22,227 | | | $ | 12,609,741 | |
Nonaccrual | Nonaccrual | 117,189 | | | 32,130 | | | 16,631 | | | 2,960 | | | 354 | | | 0 | | | 169,264 | | Nonaccrual | 122,326 | | | 7,688 | | | 15,244 | | | — | | | 620 | | | 55 | | | 145,933 | |
Total | Total | $ | 5,252,810 | | | $ | 2,363,024 | | | $ | 2,720,922 | | | $ | 933,081 | | | $ | 327,340 | | | $ | 151,496 | | | $ | 11,748,673 | | Total | $ | 4,281,646 | | | $ | 2,483,932 | | | $ | 3,857,367 | | | $ | 1,631,811 | | | $ | 478,636 | | | $ | 22,282 | | | $ | 12,755,674 | |
| | | June 30, 2020 | | June 30, 2021 |
(Dollars in thousands) | (Dollars in thousands) | Single Family-Mortgage & Warehouse | | Multifamily and Commercial Mortgage | | Commercial Real Estate | | Commercial & Industrial - Non-RE | | Auto & Consumer | | Other | | Total | (Dollars in thousands) | Single Family-Mortgage & Warehouse | | Multifamily and Commercial Mortgage | | Commercial Real Estate | | Commercial & Industrial - Non-RE | | Auto & Consumer | | Other | | Total |
Performing | Performing | $ | 4,638,274 | | | $ | 2,259,629 | | | $ | 2,297,920 | | | $ | 885,107 | | | $ | 341,092 | | | $ | 193,479 | | | $ | 10,615,501 | | Performing | $ | 4,253,764 | | | $ | 2,450,026 | | | $ | 3,164,614 | | | $ | 1,120,927 | | | $ | 361,902 | | | $ | 58,316 | | | $ | 11,409,549 | |
Nonaccrual | Nonaccrual | 84,030 | | | 3,425 | | | 0 | | | 213 | | | 273 | | | 0 | | | 87,941 | | Nonaccrual | 105,708 | | | 20,428 | | | 15,839 | | | 2,942 | | | 278 | | | — | | | 145,195 | |
Total | Total | $ | 4,722,304 | | | $ | 2,263,054 | | | $ | 2,297,920 | | | $ | 885,320 | | | $ | 341,365 | | | $ | 193,479 | | | $ | 10,703,442 | | Total | $ | 4,359,472 | | | $ | 2,470,454 | | | $ | 3,180,453 | | | $ | 1,123,869 | | | $ | 362,180 | | | $ | 58,316 | | | $ | 11,554,744 | |
From time to time, the Company modifies loan terms temporarily for borrowers who are experiencing financial stress. These loans are performing and accruing and will generally return to the original loan terms after the modification term expires. The Company had 0no TDRs classified as performing loans at December 31, 20202021 or June 30, 2020. Under guidelines set forth in the CARES Act, the Company had provided borrowers the ability to delay payments and not consider them to be TDRs. Starting at September 30, 2020, the Company no longer allowed delayed payments and no loans existed at September 30, 2020 or December 31, 2020 that were in a forbearance status.
2021.
Credit Quality Indicators
The amortized cost basis by fiscal year of origination and credit quality indicator of the Company’s loan and leases as of December 31, 20202021 was as follows:
| | | Loans Held for Investment Origination Year | | Revolving Loans | | Revolving Loans Converted to Loans HFI | | Revolving Loans Converted to Term Loans | | Total | | Loans Held for Investment Origination Year | | Revolving Loans | | | Total |
(Dollars in thousands) | (Dollars in thousands) | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | (Dollars in thousands) | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | | Total |
Single Family-Mortgage & Warehouse | Single Family-Mortgage & Warehouse | | Single Family-Mortgage & Warehouse | | | | | | | | | | | | | | | | |
Pass | Pass | $ | 539,284 | | | $ | 952,830 | | | $ | 660,507 | | | $ | 575,594 | | | $ | 444,502 | | | $ | 710,004 | | | $ | 1,165,124 | | | $ | 0 | | | $ | 0 | | | $ | 5,047,845 | | Pass | $ | 754,227 | | | $ | 760,351 | | | $ | 539,496 | | | $ | 398,601 | | | $ | 358,708 | | | $ | 717,525 | | | $ | 566,340 | | | | $ | 4,095,248 | |
Special Mention | Special Mention | 285 | | | 12,131 | | | 8,781 | | | 15,512 | | | 8,170 | | | 10,857 | | | 19,755 | | | 0 | | | 0 | | | 75,491 | | Special Mention | 11,550 | | | 79 | | | 8,265 | | | 4,020 | | | 1,927 | | | 6,425 | | | 29,273 | | | | 61,539 | |
Substandard | Substandard | 0 | | | 5,203 | | | 24,645 | | | 26,206 | | | 12,960 | | | 60,460 | | | 0 | | | 0 | | | 0 | | | 129,474 | | Substandard | — | | | 962 | | | 34,659 | | | 20,155 | | | 12,967 | | | 56,116 | | | — | | | | 124,859 | |
Doubtful | Doubtful | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | |
Total | Total | 539,569 | | | 970,164 | | | 693,933 | | | 617,312 | | | 465,632 | | | 781,321 | | | 1,184,879 | | | 0 | | | 0 | | | 5,252,810 | | Total | 765,777 | | | 761,392 | | | 582,420 | | | 422,776 | | | 373,602 | | | 780,066 | | | 595,613 | | | | 4,281,646 | |
Multifamily and Commercial Mortgage | Multifamily and Commercial Mortgage | | Multifamily and Commercial Mortgage | | | |
Pass | Pass | 280,288 | | | 596,962 | | | 466,586 | | | 341,318 | | | 217,464 | | | 385,722 | | | 0 | | | 0 | | | 0 | | | 2,288,340 | | Pass | 286,209 | | | 621,487 | | | 509,415 | | | 308,530 | | | 254,009 | | | 417,533 | | | — | | | | 2,397,183 | |
Special Mention | Special Mention | 0 | | | 36,222 | | | 2,075 | | | 1,338 | | | 1,431 | | | 631 | | | 0 | | | 0 | | | 0 | | | 41,697 | | Special Mention | — | | | — | | | — | | | 17,162 | | | — | | | 2,745 | | | — | | | | 19,907 | |
Substandard | Substandard | 0 | | | 24,499 | | | 2,165 | | | 4,479 | | | 0 | | | 1,844 | | | 0 | | | 0 | | | 0 | | | 32,987 | | Substandard | — | | | 4,908 | | | 30,155 | | | 6,110 | | | 11,388 | | | 14,281 | | | — | | | | 66,842 | |
Doubtful | Doubtful | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | |
Total | Total | 280,288 | | | 657,683 | | | 470,826 | | | 347,135 | | | 218,895 | | | 388,197 | | | 0 | | | 0 | | | 0 | | | 2,363,024 | | Total | 286,209 | | | 626,395 | | | 539,570 | | | 331,802 | | | 265,397 | | | 434,559 | | | — | | | | 2,483,932 | |
Commercial Real Estate | Commercial Real Estate | | Commercial Real Estate | | | |
Pass | Pass | 576,922 | | | 1,065,384 | | | 491,215 | | | 169,036 | | | 45,701 | | | 63,750 | | | 181,521 | | | 0 | | | 0 | | | 2,593,529 | | Pass | 1,310,547 | | | 1,050,924 | | | 585,116 | | | 450,236 | | | 68,748 | | | — | | | 272,844 | | | | 3,738,415 | |
Special Mention | Special Mention | 0 | | | 24,842 | | | 12,161 | | | 0 | | | 11,221 | | | 0 | | | 2,271 | | | 0 | | | 0 | | | 50,495 | | Special Mention | — | | | 2,500 | | | 10,818 | | | 15,487 | | | 15,000 | | | — | | | — | | | | 43,805 | |
Substandard | Substandard | 0 | | | 15,250 | | | 45,017 | | | 16,631 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 76,898 | | Substandard | — | | | — | | | 58,205 | | | — | | | 15,244 | | | — | | | 1,698 | | | | 75,147 | |
Doubtful | Doubtful | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | |
Total | Total | 576,922 | | | 1,105,476 | | | 548,393 | | | 185,667 | | | 56,922 | | | 63,750 | | | 183,792 | | | 0 | | | 0 | | | 2,720,922 | | Total | 1,310,547 | | | 1,053,424 | | | 654,139 | | | 465,723 | | | 98,992 | | | — | | | 274,542 | | | | 3,857,367 | |
Commercial & Industrial - Non-RE | Commercial & Industrial - Non-RE | | Commercial & Industrial - Non-RE | | | |
Pass | Pass | 39,640 | | | 112,479 | | | 19,423 | | | 34,711 | | | 14,560 | | | 68 | | | 599,386 | | | 0 | | | 104,716 | | | 924,983 | | Pass | 118,720 | | | 52,137 | | | 82,180 | | | 14,289 | | | 15,965 | | | 817 | | | 1,312,491 | | | | 1,596,599 | |
Special Mention | Special Mention | 0 | | | 0 | | | 0 | | | 0 | | | 92 | | | 0 | | | 0 | | | 0 | | | 0 | | | 92 | | Special Mention | — | | | — | | | — | | | 224 | | | 907 | | | — | | | 20,654 | | | | 21,785 | |
Substandard | Substandard | 2,824 | | | 865 | | | 3,360 | | | 957 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 8,006 | | Substandard | 2,989 | | | — | | | 10,438 | | | — | | | — | | | — | | | — | | | | 13,427 | |
Doubtful | Doubtful | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | |
Total | Total | 42,464 | | | 113,344 | | | 22,783 | | | 35,668 | | | 14,652 | | | 68 | | | 599,386 | | | 0 | | | 104,716 | | | 933,081 | | Total | 121,709 | | | 52,137 | | | 92,618 | | | 14,513 | | | 16,872 | | | 817 | | | 1,333,145 | | | | 1,631,811 | |
Auto & Consumer | Auto & Consumer | | Auto & Consumer | | | |
Pass | Pass | 54,091 | | | 102,067 | | | 91,972 | | | 43,978 | | | 23,142 | | | 10,803 | | | 0 | | | 0 | | | 0 | | | 326,053 | | Pass | 189,880 | | | 137,621 | | | 59,449 | | | 51,605 | | | 23,425 | | | 15,046 | | | — | | | | 477,026 | |
Special Mention | Special Mention | 14 | | | 269 | | | 108 | | | 105 | | | 33 | | | 1 | | | 0 | | | 0 | | | 0 | | | 530 | | Special Mention | 109 | | | 209 | | | 98 | | | 70 | | | 33 | | | — | | | — | | | | 519 | |
Substandard | Substandard | 0 | | | 223 | | | 353 | | | 98 | | | 66 | | | 17 | | | 0 | | | 0 | | | 0 | | | 757 | | Substandard | 117 | | | 244 | | | 276 | | | 354 | | | 67 | | | 33 | | | — | | | | 1,091 | |
Doubtful | Doubtful | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | |
Total | Total | 54,105 | | | 102,559 | | | 92,433 | | | 44,181 | | | 23,241 | | | 10,821 | | | 0 | | | 0 | | | 0 | | | 327,340 | | Total | 190,106 | | | 138,074 | | | 59,823 | | | 52,029 | | | 23,525 | | | 15,079 | | | — | | | | 478,636 | |
Other | Other | | Other | | | |
Pass | Pass | 0 | | | 140,023 | | | 0 | | | 1,886 | | | 874 | | | 1,426 | | | 0 | | | 0 | | | 0 | | | 144,209 | | Pass | 1,719 | | | 10,644 | | | 7,037 | | | — | | | 1,538 | | | 1,289 | | | — | | | | 22,227 | |
Special Mention | Special Mention | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Special Mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | |
Substandard | Substandard | 0 | | | 7,287 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 7,287 | | Substandard | — | | | — | | | 55 | | | — | | | — | | | — | | | — | | | | 55 | |
Doubtful | Doubtful | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | |
Total | Total | 0 | | | 147,310 | | | 0 | | | 1,886 | | | 874 | | | 1,426 | | | 0 | | | 0 | | | 0 | | | 151,496 | | Total | 1,719 | | | 10,644 | | | 7,092 | | | — | | | 1,538 | | | 1,289 | | | — | | | | 22,282 | |
Total | Total | | Total | | | |
Pass | Pass | 1,490,225 | | | 2,969,745 | | | 1,729,703 | | | 1,166,523 | | | 746,243 | | | 1,171,773 | | | 1,946,031 | | | 0 | | | 104,716 | | | 11,324,959 | | Pass | 2,661,302 | | | 2,633,164 | | | 1,782,693 | | | 1,223,261 | | | 722,393 | | | 1,152,210 | | | 2,151,675 | | | | 12,326,698 | |
Special Mention | Special Mention | 299 | | | 73,464 | | | 23,125 | | | 16,955 | | | 20,947 | | | 11,489 | | | 22,026 | | | 0 | | | 0 | | | 168,305 | | Special Mention | 11,659 | | | 2,788 | | | 19,181 | | | 36,963 | | | 17,867 | | | 9,170 | | | 49,927 | | | | 147,555 | |
Substandard | Substandard | 2,824 | | | 53,327 | | | 75,540 | | | 48,371 | | | 13,026 | | | 62,321 | | | 0 | | | 0 | | | 0 | | | 255,409 | | Substandard | 3,106 | | | 6,114 | | | 133,788 | | | 26,619 | | | 39,666 | | | 70,430 | | | 1,698 | | | | 281,421 | |
Doubtful | Doubtful | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | — | |
Total | Total | $ | 1,493,348 | | | $ | 3,096,536 | | | $ | 1,828,368 | | | $ | 1,231,849 | | | $ | 780,216 | | | $ | 1,245,583 | | | $ | 1,968,057 | | | $ | 0 | | | $ | 104,716 | | | $ | 11,748,673 | | Total | $ | 2,676,067 | | | $ | 2,642,066 | | | $ | 1,935,662 | | | $ | 1,286,843 | | | $ | 779,926 | | | $ | 1,231,810 | | | $ | 2,203,300 | | | | $ | 12,755,674 | |
As a % of total gross loans and leases | As a % of total gross loans and leases | 12.71 | % | | 26.36 | % | | 15.56 | % | | 10.49 | % | | 6.64 | % | | 10.60 | % | | 16.75 | % | | 0 | % | | 0.89 | % | | 100.0 | % | As a % of total gross loans and leases | 20.99 | % | | 20.71 | % | | 15.17 | % | | 10.09 | % | | 6.11 | % | | 9.66 | % | | 17.27 | % | | | 100.0 | % |
The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses - loans. The Company also evaluates credit quality based on the aging status of its loans and leases. During the year, the Company holds certain short-term loans that do not have a fixed maturity date that are treated as delinquent if not paid in full 90 days after the origination date.
The Company has takentook proactive measures to manage loans that became delinquent during the recent economic downturn as a result of the COVID-19 pandemic. NaNAs of December 31, 2021, no loans were on forbearance status for forbearance granted from any prior date. Any forbearance granted out of COVID-19 was for six months or less. Additionally, no forbearance or deferrals were provideddeferral of payment obligation was granted to any borrowersborrower during during the three and six months ended December 31, 2020.2021.
The following tables provide the outstanding unpaid balance of loans and leases that are past due 30 days or more by portfolio class as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
(Dollars in thousands) | 30-59 Days Past Due | | 60-89 Days Past Due | | 90+ Days Past Due | | Total |
Single Family-Mortgage & Warehouse | $ | 33,015 | | | $ | 9,944 | | | $ | 108,207 | | | $ | 151,166 | |
Multifamily and Commercial Mortgage | 9,828 | | | 4,438 | | | 536 | | | 14,802 | |
Commercial Real Estate | — | | | — | | | — | | | — | |
Commercial & Industrial - Non-RE | — | | | — | | | — | | | — | |
Auto & Consumer | 4,387 | | | 1,158 | | | 645 | | | 6,190 | |
Other | 52 | | | — | | | 55 | | | 107 | |
Total | $ | 47,282 | | | $ | 15,540 | | | $ | 109,443 | | | $ | 172,265 | |
As a % of total gross loans and leases | 0.37 | % | | 0.12 | % | | 0.86 | % | | 1.35 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
(Dollars in thousands) | 30-59 Days Past Due | | 60-89 Days Past Due | | 90+ Days Past Due | | Total |
Single Family-Mortgage & Warehouse | $ | 29,886 | | | $ | 31,537 | | | $ | 93,829 | | | $ | 155,252 | |
Multifamily and Commercial Mortgage | 4,112 | | | 2,909 | | | 25,578 | | | 32,599 | |
Commercial Real Estate | 24,648 | | | 0 | | | 0 | | | 24,648 | |
Commercial & Industrial - Non-RE | 0 | | | 0 | | | 2,960 | | | 2,960 | |
Auto & Consumer | 1,657 | | | 620 | | | 266 | | | 2,543 | |
Other | 0 | | | 0 | | | 0 | | | 0 | |
Total | $ | 60,303 | | | $ | 35,066 | | | $ | 122,633 | | | $ | 218,002 | |
As a % of total gross loans and leases | 0.51 | % | | 0.30 | % | | 1.04 | % | | 1.86 | % |
| | | June 30, 2020 | | June 30, 2021 |
(Dollars in thousands) | (Dollars in thousands) | 30-59 Days Past Due | | 60-89 Days Past Due | | 90+ Days Past Due | | Total | (Dollars in thousands) | 30-59 Days Past Due | | 60-89 Days Past Due | | 90+ Days Past Due | | Total |
Single Family-Mortgage & Warehouse | Single Family-Mortgage & Warehouse | $ | 17,931 | | | $ | 23,115 | | | $ | 66,813 | | | $ | 107,859 | | Single Family-Mortgage & Warehouse | $ | 24,150 | | | $ | 46,552 | | | $ | 69,169 | | | $ | 139,871 | |
Multifamily and Commercial Mortgage | Multifamily and Commercial Mortgage | 7,744 | | | 5,287 | | | 0 | | | 13,031 | | Multifamily and Commercial Mortgage | 7,991 | | | 1,816 | | | 12,122 | | | 21,929 | |
Commercial Real Estate | Commercial Real Estate | 0 | | | 0 | | | 0 | | | 0 | | Commercial Real Estate | 36,786 | | | — | | | — | | | 36,786 | |
Commercial & Industrial - Non-RE | Commercial & Industrial - Non-RE | 0 | | | 0 | | | 0 | | | 0 | | Commercial & Industrial - Non-RE | — | | | — | | | 2,960 | | | 2,960 | |
Auto & Consumer | Auto & Consumer | 973 | | | 166 | | | 326 | | | 1,465 | | Auto & Consumer | 601 | | | 306 | | | 235 | | | 1,142 | |
Other | Other | 0 | | | 0 | | | 0 | | | 0 | | Other | — | | | — | | | — | | | — | |
Total | Total | $ | 26,648 | | | $ | 28,568 | | | $ | 67,139 | | | $ | 122,355 | | Total | $ | 69,528 | | | $ | 48,674 | | | $ | 84,486 | | | $ | 202,688 | |
As a % of total gross loans and leases | As a % of total gross loans and leases | 0.25 | % | | 0.27 | % | | 0.63 | % | | 1.13 | % | As a % of total gross loans and leases | 0.60 % | | 0.42 % | | 0.73 % | | 1.75 % |
|
Allowance for Credit Losses
The allowance for credit losses is the sum of the allowance for credit losses - loans and the unfunded loan commitment liabilities. Unfunded loan commitment liabilities is included in “Accounts payable, accrued liabilities and other liabilities” in the unaudited Condensed Consolidated Balance Sheets. Provisions for the unfunded loan commitments are included in “General and administrative expenses” in the unaudited Condensed Consolidated Statements of Income.
The following tables present a summary of the activity in the allowance for credit losses for the periods indicated:
| | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2020 |
(Dollars in thousands) | Allowance for Credit Losses - Loans | | Unfunded Loan Commitment Liabilities | | Total Allowance for Credit Losses |
Balance at October 1, 2020 | $ | 132,915 | | | $ | 6,723 | | | $ | 139,638 | |
| | | | | |
Provision for Credit Losses | 8,000 | | | (1,000) | | | 7,000 | |
| | | | | |
Charge-offs | (4,710) | | | 0 | | | (4,710) | |
Recoveries | 188 | | | 0 | | | 188 | |
Balance at December 31, 2020 | $ | 136,393 | | | $ | 5,723 | | | $ | 142,116 | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2019 |
(Dollars in thousands) | Allowance for Credit Losses - Loans | | Unfunded Loan Commitment Liabilities | | Total Allowance for Credit Losses |
Balance at October 1, 2019 | $ | 59,227 | | | $ | 227 | | | $ | 59,454 | |
Provision for Credit Losses | 4,500 | | | 17 | | | 4,517 | |
| | | | | |
Charge-offs | (5,386) | | | 0 | | | (5,386) | |
Recoveries | 1,173 | | | 0 | | | 1,173 | |
Balance at December 31, 2019 | $ | 59,514 | | | $ | 244 | | | $ | 59,758 | |
| | | For the Six Months Ended December 31, 2020 | | Three Months Ended December 31, 2021 |
(Dollars in thousands) | (Dollars in thousands) | Allowance for Credit Losses - Loans | | Unfunded Loan Commitment Liabilities | | Total Allowance for Credit Losses | (Dollars in thousands) | Allowance for Credit Losses - Loans | | Unfunded Loan Commitment Liabilities | | Total Allowance for Credit Losses |
Balance at July 1, 2020 | $ | 75,807 | | | $ | 323 | | | $ | 76,130 | | |
Effect of Adoption of ASC 326 | 47,300 | | | 5,700 | | | 53,000 | | |
Balance at October 1, 2021 | | Balance at October 1, 2021 | $ | 136,778 | | | $ | 7,723 | | | $ | 144,501 | |
| Provision for Credit Losses | Provision for Credit Losses | 19,800 | | | (300) | | | 19,500 | | Provision for Credit Losses | 4,000 | | | 1,000 | | | 5,000 | |
| Charge-offs | Charge-offs | (7,148) | | | 0 | | | (7,148) | | Charge-offs | (640) | | | — | | | (640) | |
Recoveries | Recoveries | 634 | | | 0 | | | 634 | | Recoveries | 351 | | | — | | | 351 | |
Balance at December 31, 2020 | $ | 136,393 | | | $ | 5,723 | | | $ | 142,116 | | |
Balance at December 31, 2021 | | Balance at December 31, 2021 | $ | 140,489 | | | $ | 8,723 | | | $ | 149,212 | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2020 |
(Dollars in thousands) | Allowance for Credit Losses - Loans | | Unfunded Loan Commitment Liabilities | | Total Allowance for Credit Losses |
Balance at October 1, 2020 | $ | 132,915 | | | $ | 6,723 | | | $ | 139,638 | |
Provision for Credit Losses | 8,000 | | | (1,000) | | | 7,000 | |
| | | | | |
Charge-offs | (4,710) | | | — | | | (4,710) | |
Recoveries | 188 | | | — | | | 188 | |
Balance at December 31, 2020 | $ | 136,393 | | | $ | 5,723 | | | $ | 142,116 | |
| | | For the Six Months Ended December 31, 2019 | | For the Six Months Ended December 31, 2021 |
(Dollars in thousands) | (Dollars in thousands) | Allowance for Credit Losses - Loans | | Unfunded Loan Commitment Liabilities | | Total Allowance for Credit Losses | (Dollars in thousands) | Allowance for Credit Losses - Loans | | Unfunded Loan Commitment Liabilities | | Total Allowance for Credit Losses |
Balance at July 1, 2019 | $ | 57,085 | | | $ | 227 | | | $ | 57,312 | | |
Balance at July 1, 2021 | | Balance at July 1, 2021 | $ | 132,958 | | | $ | 5,723 | | | $ | 138,681 | |
| Provision for Credit Losses | Provision for Credit Losses | 7,200 | | | 17 | | | 7,217 | | Provision for Credit Losses | 8,000 | | | 3,000 | | | 11,000 | |
| Charge-offs | Charge-offs | (6,463) | | | 0 | | | (6,463) | | Charge-offs | (1,356) | | | — | | | (1,356) | |
Recoveries | Recoveries | 1,692 | | | 0 | | | 1,692 | | Recoveries | 887 | | | — | | | 887 | |
Balance at December 31, 2019 | $ | 59,514 | | | $ | 244 | | | $ | 59,758 | | |
Balance at December 31, 2021 | | Balance at December 31, 2021 | $ | 140,489 | | | $ | 8,723 | | | $ | 149,212 | |
| | | | | | | | | | | | | | | | | |
| For the Six Months Ended December 31, 2020 |
(Dollars in thousands) | Allowance for Credit Losses - Loans | | Unfunded Loan Commitment Liabilities | | Total Allowance for Credit Losses |
Balance at July 1, 2020 | $ | 75,807 | | | $ | 323 | | | $ | 76,130 | |
Effect of Adoption of ASC 326 | 47,300 | | | 5,700 | | | 53,000 | |
Provision for Credit Losses | 19,800 | | | (300) | | | 19,500 | |
| | | | | |
Charge-offs | (7,148) | | | — | | | (7,148) | |
Recoveries | 634 | | | — | | | 634 | |
Balance at December 31, 2020 | $ | 136,393 | | | $ | 5,723 | | | $ | 142,116 | |
23
5. SUBORDINATED NOTES
In September 2020, the Company completed the sale of $175.0 million aggregate principal amount of its 4.875% Fixed-to-Floating Rate Subordinated Notes due October 1, 2030 (the “Notes”). The Notes mature on October 1, 2030 and accrue interest at a fixed rate per annum equal to 4.875%, payable semi-annually in arrears on April 1 and October 1 of each year, commencing on April 1, 2021. From and including October 1, 2025, to, but excluding October 1, 2030 or the date of early redemption, the Notes will bear interest at a floating rate per annum equal to a benchmark rate (which is expected to be the Three-Month Term Secured Overnight Financing Rate) plus a spread of 476 basis points, payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, commencing on January 2026. The Notes may be redeemed on or after October 1, 2025, which date may be extended at the Company’s discretion, at a redemption price equal to principal plus accrued and unpaid interest, subject to certain conditions. Fees and costs incurred in connection with the debt offering amortize to interest expense over the term of the Notes.
6. EQUITY AND STOCK-BASED COMPENSATION
Amended and Restated 2014 Stock Incentive Plan. CommonOn October 21, 2021 the Company’s stockholders approved the Amended and Restated 2014 Stock Repurchases. On March 17, 2016, the Board of DirectorsIncentive Plan, which reserved 1000000 additional shares for purposes of the Company (the “Board”), authorized a program to repurchase up to $100 million of common stock and extended the program by $100 million on August 2, 2019. The Company may repurchase shares on the open market or through privately negotiated transactions at times and prices considered appropriate, at the discretion of the Company, and subject to its assessment of alternative uses of capital, stock trading price, general market conditions and regulatory factors. The repurchase program does not obligate the Company to acquire any specific number of shares. The share repurchase program will continue in effect until terminated by the Board. With the March 17, 2016 authorization, the Company repurchased a total of $100 million or 3,567,051 common shares at an average price of $28.03 per share. With the August 2, 2019 authorization, the Company has repurchased a total of $47.2 million or 2,399,853 common shares at an average price of $19.68 per share and there remains $52.8 million under the plan. During the six months ended December 31, 2020, the Company repurchased a total of $16.8 million, or 753,597 common shares at an average price of $22.24 per share. The Company has $52.8 million remaining under the Board authorized stock repurchase program. The Company accounts for treasury stock using the cost method as a reduction of stockholders’Company’s equity in the accompanying unaudited condensed consolidated financial statements.compensation.
Preferred Stock. The Company redeemed for cash all 515 outstanding shares of Series A-6% Cumulative Nonparticipating Perpetual Preferred Stock on October 30, 2020, at the face value $10,000 liquidation price per share plus accrued dividends.
Restricted Stock Units. During the six months ended December 31, 20202021 and 2019,2020, the Company granted 437,608302,677 and 380,765437,608 restricted stock unit awards (“RSUs”) to employees and directors, respectively.and during the six months ended December 31, 2021 granted 478,353 RSU’s to the chief executive officer, which vest ratably on each of the four fiscal year ends after the issue date. All other RSUs granted during these quarters generally vest over three3 years, one-third on each anniversary date, except for any RSUs granted to the Company’s CEO, which vest one-fourth on each fiscal year end.date.
The Company’s pre-tax income before income taxes and net income for the six months ended December 31, 20202021 and 20192020 include stock award expense of $9,026$8.5 million and $9,811,$9.0 million, with total income tax benefit of $2,721$2.5 million and $2,798,$2.7 million, respectively. The Company recognizes compensation expense based upon the grant-date fair value divided by the vesting and the service period between each vesting date. At December 31, 2020,2021, unrecognized compensation expense related to non-vested awards aggregated to $30,083$30.4 million and is expected to be recognized in future periods as follows:
| (Dollars in thousands) | (Dollars in thousands) | Stock Award Compensation Expense | (Dollars in thousands) | Stock Award Compensation Expense |
For the fiscal year remainder: | For the fiscal year remainder: | | For the fiscal year remainder: | |
2021 | $ | 8,891 | | |
2022 | 2022 | 12,674 | | 2022 | $ | 8,595 | |
2023 | 2023 | 6,760 | | 2023 | 13,007 | |
2024 | 2024 | 1,326 | | 2024 | 7,501 | |
2025 | 2025 | 331 | | 2025 | 1,230 | |
Thereafter | 101 | | |
2026 | | 2026 | 101 | |
| Total | Total | $ | 30,083 | | Total | $ | 30,434 | |
The following table presents the status and changes in restricted stock units for the periods indicated:
| | | Restricted Stock Units | | Weighted-Average Grant-Date Fair Value | | Restricted Stock Units | | Weighted-Average Grant-Date Fair Value |
Non-vested balance at June 30, 2019 | 1,546,848 | | | $ | 30.73 | | |
Granted | 714,569 | | | 24.05 | | |
Vested | (693,660) | | | 28.52 | | |
Canceled | (122,217) | | | 29.10 | | |
Non-vested balance at June 30, 2020 | Non-vested balance at June 30, 2020 | 1,445,540 | | | $ | 28.62 | | Non-vested balance at June 30, 2020 | 1,445,540 | | | $ | 28.62 | |
Granted | Granted | 437,608 | | | 24.78 | | Granted | 617,833 | | | 32.12 | |
Vested | Vested | (327,211) | | | 28.88 | | Vested | (666,790) | | | 29.23 | |
Canceled | (100,757) | | | 26.34 | | |
Non-vested balance at December 31, 2020 | 1,455,180 | | | $ | 27.57 | | |
Forfeited | | Forfeited | (176,113) | | | 27.42 | |
Non-vested balance at June 30, 2021 | | Non-vested balance at June 30, 2021 | 1,220,470 | | | $ | 30.18 | |
Granted | | Granted | 781,030 | | | 48.53 | |
Vested | | Vested | (307,516) | | | 28.32 | |
Forfeited | | Forfeited | (90,111) | | | 34.68 | |
Non-vested balance at December 31, 2021 | | Non-vested balance at December 31, 2021 | 1,603,873 | | | $ | 39.26 | |
The total fair value of shares vested for the three and six months ended December 31, 2021 was $349 and $14,834. The total fair value of shares vested for the three and six months ended December 31, 2020 was $1,644 and $8,246. The total fair value
7. EARNINGS PER COMMON SHARE
Earnings per common share (“EPS”) areis presented under two formats: basic EPS and diluted EPS. Basic EPS is computed by dividing the net income attributable to common stock (net income after deducting dividends on preferred stock and preferred stock redemption charge) by the sum of the weighted-average number of common shares outstanding during the year and the unvested average of participating RSUs. Diluted EPS is computed by dividing the sum of net income attributable to common stock and dividends on diluted preferred stock by the sum of the weighted-average number of common shares outstanding during the year and the impact of dilutive potential common shares, such as nonparticipating RSUs, stock options and convertible preferred stock.
The unvested stock-based compensation awards issued under the Amended and Restated 2014 Stock Incentive Plan have no stockholder rights, meaning they are not entitled to dividends and are considered nonparticipating. The Company does not include these nonparticipating RSUs in the basic EPS calculation, but are included in the diluted EPS calculation using the treasury stock method.
The following table presents the calculation of basic and diluted EPS:
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | | Six Months Ended |
| | December 31, | | December 31, | | December 31, | | December 31, |
(Dollars in thousands, except per share data) | (Dollars in thousands, except per share data) | 2020 | | 2019 | | 2020 | | 2019 | (Dollars in thousands, except per share data) | 2021 | | 2020 | | 2021 | | 2020 |
Earnings Per Common Share | Earnings Per Common Share | | | | | | | | Earnings Per Common Share | | | | | | | |
Net income | Net income | $ | 54,785 | | | $ | 41,295 | | | $ | 107,807 | | | $ | 82,081 | | Net income | $ | 60,787 | | | $ | 54,785 | | | $ | 120,997 | | | $ | 107,807 | |
Preferred stock dividends | Preferred stock dividends | (26) | | | (78) | | | (103) | | | (155) | | Preferred stock dividends | — | | | (26) | | | — | | | (103) | |
Preferred stock redemption charge | Preferred stock redemption charge | (87) | | | 0 | | | (87) | | | 0 | | Preferred stock redemption charge | — | | | (87) | | | — | | | (87) | |
Net income attributable to common stockholders | Net income attributable to common stockholders | $ | 54,672 | | | $ | 41,217 | | | $ | 107,617 | | | $ | 81,926 | | Net income attributable to common stockholders | $ | 60,787 | | | $ | 54,672 | | | $ | 120,997 | | | $ | 107,617 | |
Average common shares outstanding | Average common shares outstanding | 59,049,697 | | | 61,315,590 | | | 59,278,672 | | | 61,281,127 | | Average common shares outstanding | 59,496,489 | | | 59,049,697 | | | 59,443,667 | | | 59,278,672 | |
| Total qualifying shares | Total qualifying shares | 59,049,697 | | | 61,315,590 | | | 59,278,672 | | | 61,281,127 | | Total qualifying shares | 59,496,489 | | | 59,049,697 | | | 59,443,667 | | | 59,278,672 | |
Earnings per common share | Earnings per common share | $ | 0.93 | | | $ | 0.67 | | | $ | 1.82 | | | $ | 1.34 | | Earnings per common share | $ | 1.02 | | | $ | 0.93 | | | $ | 2.04 | | | $ | 1.82 | |
Diluted Earnings Per Common Share | Diluted Earnings Per Common Share | | | | | | | | Diluted Earnings Per Common Share | | | | | | | |
Dilutive net income attributable to common stockholders | $ | 54,672 | | | $ | 41,217 | | | $ | 107,617 | | | $ | 81,926 | | |
Net income attributable to common stockholders | | Net income attributable to common stockholders | $ | 60,787 | | | $ | 54,672 | | | $ | 120,997 | | | $ | 107,617 | |
Average common shares issued and outstanding | Average common shares issued and outstanding | 59,049,697 | | | 61,315,590 | | | 59,278,672 | | | 61,281,127 | | Average common shares issued and outstanding | 59,496,489 | | | 59,049,697 | | | 59,443,667 | | | 59,278,672 | |
Dilutive effect of average unvested RSUs | Dilutive effect of average unvested RSUs | 991,026 | | | 623,398 | | | 917,844 | | | 619,506 | | Dilutive effect of average unvested RSUs | 1,259,492 | | | 991,026 | | | 1,305,716 | | | 917,844 | |
Total dilutive common shares outstanding | Total dilutive common shares outstanding | 60,040,723 | | | 61,938,988 | | | 60,196,516 | | | 61,900,633 | | Total dilutive common shares outstanding | 60,755,981 | | | 60,040,723 | | | 60,749,383 | | | 60,196,516 | |
Diluted earnings per common share | Diluted earnings per common share | $ | 0.91 | | | $ | 0.67 | | | $ | 1.79 | | | $ | 1.32 | | Diluted earnings per common share | $ | 1.00 | | | $ | 0.91 | | | $ | 1.99 | | | $ | 1.79 | |
8. COMMITMENTS AND CONTINGENCIES
COVID-19 Impact. The Company ishas closely monitoringmonitored the rapid developments of and uncertainties caused by the COVID-19 pandemic. In response to the changes in economic and business conditions as a result of the COVID-19 pandemic, the Company has takencontinues to take the followingnecessary and appropriate actions to support customers, employees, partners and shareholders:shareholders.
•Actively communicating with borrowers and partnersThe Company took proactive measures to assess individual needs;
•Participating as a lender inmanage loans that became delinquent during the Paycheck Protection Program (PPP) and evaluating various components of the CARES Act applicability to the Company;
•Extending our participation to a second round of loans under the PPPrecent economic downturn as a result of the Consolidated Appropriations Act,COVID-19 pandemic. As of December 31, 2021, signed into lawno loans were on December 27, 2020;forbearance status for a forbearance granted from any prior date. Any forbearance granted out of COVID-19 was for six months or less.
The Company will continue to monitor uncertainties caused by and developments of COVID-19.
•Provided secure and efficient remote work options for our team members;
•Increasing provisions for credit losses as a result of a weakening economy and reduced business activities;
•Tightening underwriting standards;
•Reallocated personnel to increase resources for customer service and portfolio management; and
•Limiting business travel.
Under the guidelines set forth in the CARES Act, the Company had provided certain borrowers the ability to delay or make interest-only payments. Starting on September 30, 2020, the Company no longer allows delayed or interest-only payments.
Operating Leases. The Company leases office space under operating lease agreements scheduled to expire at various dates. The following table represents maturities of lease liabilities as of December 31, 20202021 in the corresponding fiscal years:
| (Dollars in thousands) | (Dollars in thousands) | | (Dollars in thousands) | |
Remainder of 2021 | | $ | 4,905 | | |
2022 | | 9,548 | | |
Remainder of 2022 | | Remainder of 2022 | | $ | 4,992 | |
2023 | 2023 | | 9,820 | | 2023 | | 10,595 | |
2024 | 2024 | | 9,422 | | 2024 | | 10,287 | |
2025 | 2025 | | 8,791 | | 2025 | | 10,119 | |
2026 | | 2026 | | 9,791 | |
Thereafter | Thereafter | | 41,968 | | Thereafter | | 38,821 | |
Total lease payments | Total lease payments | | 84,454 | | Total lease payments | | 84,605 | |
Less: present value discount | | (10,483) | | |
Less: amount representing interest | | Less: amount representing interest | | (9,197) | |
Total Lease Liability | Total Lease Liability | | $ | 73,971 | | Total Lease Liability | | $ | 75,408 | |
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 unaudited condensed 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.
At December 31, 2020,2021, the Company had commitments to originate $75.0$137.8 million in fixed rate loans and leases and $622.2$2,345.2 million in variable rate loans, totaling an aggregate outstanding principal balance of $697.2$2,483.0 million. At December 31, 2020,2021, the Company’s fixed rate commitments to originate had a weighted-average rate of 2.76%4.38%. At December 31, 2020,2021, the Company also had commitments to sell $124.7$50.0 million in fixed rate loans and NaNnone in variable rate loans, totaling an aggregate outstanding principal balance of $124.7$50.0 million.
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. The commitments for equity lines of credit may expire without being drawn upon. Therefore, 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.
In the normal course of business, Axos Clearing’s customer activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose Axos Clearing to off-balance-sheet risk in the event the customer or other broker is unable to fulfill its contracted obligations and Axos Clearing has to purchase or sell the financial instrument underlying the contract at a loss. Axos Clearing’s clearing agreements with broker-dealers for which it provides clearing services requires them to indemnify Axos Clearing if customers fail to satisfy their contractual obligation.
Litigation. On October 15, 2015, the Company, its Chief Executive Officer and its then Chief Financial Officer were named defendants in a putative class action lawsuit styled Golden v. BofI Holding, Inc., et al, and brought in United States District Court for the Southern District of California (the “Golden Case”). On November 3, 2015, the Company, its Chief Executive Officer and its then Chief Financial Officer were named defendants in a second putative class action lawsuit styled Hazan v. BofI Holding, Inc., et al, and also brought in the United States District Court for the Southern District of California (the “Hazan Case”). On February 1, 2016, the Golden Case and the Hazan Case were consolidated as In re BofI Holding, Inc. Securities Litigation, Case #: 3:15-cv-02324-GPC-KSC (the “Class Action”), and the Houston Municipal Employees Pension System was appointed lead plaintiff. The plaintiffs allege that the Company and other named defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by failing to disclose wrongful conduct that was alleged in a complaint filed in connection with a wrongful termination of employment lawsuit filed on October 13, 2015 (the “Employment Matter”) and that as a result the Company’s statements regarding its internal controls, as well as portions of its financial statements, were false and misleading. On March 21, 2018, the Court entered a final order dismissing the Class Action with prejudice. Subsequently, the plaintiff appealed, the Court overturned the dismissal and the Company is preparing a petition for a rehearing.
On April 3, 2017, the Company, its Chief Executive Officer and its then Chief Financial Officer were named defendants in a putative class action lawsuit styled Mandalevy v. BofI Holding, Inc., et al, and brought in United States District Court for the Southern District of California (the “Mandalevy Case”). The Mandalevy Case seeks monetary damages and other relief on behalf of a putative class that has not been certified by the Court. The complaint in the Mandalevy Case (the “Mandalevy Complaint”) alleges a class period that differs from that alleged in the First Class Action, and that the Company and other named defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by failing to disclose wrongful conduct that was alleged in a March 2017 media article. The Mandalevy Case has not been consolidated into the First Class Action. On December 7, 2018, the Court entered a final order granting the defendants’ motion and dismissing the Mandalevy Case with prejudice. Subsequently, the plaintiff filed a notice of appeal and the Court took the matter under advisement. On November 3, 2020, the Court issued a ruling affirming in part and reversing in part the District Court's Order dismissing the Class Action Second Amended Complaint. The defendants filed a petition for rehearing en banc on November 17, 2020, which petition was denied on December 16, 2020. The defendants filed a motion to dismiss the remanded complaint on February 19, 2021.
The Company and the other named defendants dispute the allegations of wrongdoing advanced by the plaintiffs in the Class Action, the Mandalevy Case, and in the Employment Matter, as well as those plaintiffs’ statement of the underlying factual circumstances, and are vigorously defending each case.
In addition to the First Class Action and the Mandalevy Case, 2 separate shareholder derivative actions were filed in December, 2015, purportedly on behalf of the Company. The first derivative action, Calcaterra v. Garrabrants, et al, was filed in the United States District Court for the Southern District of California on December 3, 2015. The second derivative action, Dow v. Micheletti, et al, was filed in the San Diego County Superior Court on December 16, 2015. A third derivative action,
DeYoung v. Garrabrants, et al, was filed in the United States District Court for the Southern District of California on January 22, 2016, a fourth derivative action, Yong v. Garrabrants, et al, was filed in the United States District Court for the Southern District of California on January 29, 2016, a fifth derivative action, Laborers Pension Trust Fund of Northern Nevada v. Allrich et al, was filed in the United States District Court for the Southern District of California on February 2, 2016, and a sixth derivative action, Garner v. Garrabrants, et al, was filed in the San Diego County Superior Court on August 10, 2017. Each of these 6 derivative actions names the Company as a nominal defendant, and certain of its officers and directors as defendants. Each complaint sets forth allegations of breaches of fiduciary duties, gross mismanagement, abuse of control, and unjust enrichment against the defendant officers and directors. The plaintiffs in these derivative actions seek damages in unspecified amounts on the Company’s behalf from the officer and director defendants, certain corporate governance actions, and an award of their costs and attorney’s fees.
The United States District Court for the Southern District of California ordered the 4 above-referenced derivative actions pending before it to be consolidated and appointed lead counsel in the consolidated action. On June 7, 2018, the Court entered an order granting defendant’s motion for judgment on the pleadings, but giving the plaintiffs limited leave to amend by June 28, 2018. The plaintiffs failed to file an amended complaint, and instead plaintiffs filed on June 28, 2018 a motion to stay the case pending resolution of the securities class action and Employment Matter. On August 10, 2018, defendants filed an opposition to plaintiffs’ motion. On September 11, 2018, the plaintiffs filed a second amended complaint. On October 16, 2018, defendants filed a motion to dismiss the second amended complaint. On October 16, 2018, defendants filed a motion to dismiss the second amended complaint. The Court dismissed the second amended complaint with prejudice on May 23, 2019. Subsequently, the plaintiff filed a notice of appeal and opening brief and the Company filed its answering brief. Oral argument was held September 2, 2020 and the Court took the matter under advisement.
The 2 derivative actions pending before the San Diego County Superior Court have been consolidated and have been stayed by agreement of the parties.
In view of the inherent difficulty of predicting the outcome of each legal action, particularly since claimants seek substantial or indeterminate damages, it is not possible to reasonably predict or estimate the eventual loss or range of loss, if any, related to each legal action.
9. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company has granted related party loans collateralized by real property to certain executive officers, directors and their affiliates. There were 3 new related party loans for approximate amount of $2.3 million funded under the provisions of the employee loan program and 1 refinance of an existing loan for approximately $1.4 million during the six months ended December 31, 2020, and 1 new related party loan in the amount of $0.6 million and 1 loan refinance of an existing loan of $1.2 million during the six months ended December 31, 2019.
10.9. SEGMENT REPORTING
There are no material inter-segment sales or transfers. The accounting policies used by each reportable segment are the same as those discussed in Note 1 - “Organizations and Summary of Significant Accounting Policies” in our Annual Report on Form 10-K for the year ended June 30, 2020.2021. All costs, except certain corporate administration costs and income taxes, have been allocated to the reportable segments. Therefore, combined amounts agree to the unaudited condensed consolidated totals.Intotals. In order to reconcile the 2 segments to the unaudited condensed consolidated totals, the Company includes parent-only activities and intercompany eliminations. The following tables present the operating results, goodwill, and assets of the segments:
| | | | For the Three Months Ended December 31, 2020 | | For the Three Months Ended December 31, 2021 |
(Dollars in thousands) | (Dollars in thousands) | Banking Business | | Securities Business | | Corporate/Eliminations | | Axos Consolidated | (Dollars in thousands) | Banking Business | | Securities Business | | Corporate/Eliminations | | Axos Consolidated |
Net interest income | Net interest income | $ | 132,166 | | | $ | 4,260 | | | $ | (2,334) | | | $ | 134,092 | | Net interest income | $ | 142,259 | | | $ | 4,506 | | | $ | (1,197) | | | $ | 145,568 | |
Provision for credit losses | Provision for credit losses | 8,000 | | | 0 | | | 0 | | | 8,000 | | Provision for credit losses | 4,000 | | | — | | | — | | | 4,000 | |
Non-interest income | Non-interest income | 22,295 | | | 6,572 | | | (149) | | | 28,718 | | Non-interest income | 16,295 | | | 16,454 | | | (1,962) | | | 30,787 | |
Non-interest expense | Non-interest expense | 62,474 | | | 11,312 | | | 2,511 | | | 76,297 | | Non-interest expense | 62,449 | | | 21,654 | | | 1,916 | | | 86,019 | |
Income before taxes | Income before taxes | $ | 83,987 | | | $ | (480) | | | $ | (4,994) | | | $ | 78,513 | | Income before taxes | $ | 92,105 | | | $ | (694) | | | $ | (5,075) | | | $ | 86,336 | |
| | | | For the Three Months Ended December 31, 2019 | | For the Three Months Ended December 31, 2020 |
(Dollars in thousands) | (Dollars in thousands) | Banking Business | | Securities Business | | Corporate/Eliminations | | Axos Consolidated | (Dollars in thousands) | Banking Business | | Securities Business | | Corporate/Eliminations | | Axos Consolidated |
Net interest income | Net interest income | $ | 105,340 | | | $ | 4,037 | | | $ | (957) | | | $ | 108,420 | | Net interest income | $ | 132,166 | | | $ | 4,260 | | | $ | (2,334) | | | $ | 134,092 | |
Provision for credit losses | Provision for credit losses | 4,500 | | | 0 | | | 0 | | | 4,500 | | Provision for credit losses | 8,000 | | | — | | | — | | | 8,000 | |
Non-interest income | Non-interest income | 16,225 | | | 6,284 | | | (1,302) | | | 21,207 | | Non-interest income | 22,295 | | | 6,572 | | | (149) | | | 28,718 | |
Non-interest expense | Non-interest expense | 53,253 | | | 10,455 | | | 3,257 | | | 66,965 | | Non-interest expense | 62,474 | | | 11,312 | | | 2,511 | | | 76,297 | |
Income before taxes | Income before taxes | $ | 63,812 | | | $ | (134) | | | $ | (5,516) | | | $ | 58,162 | | Income before taxes | $ | 83,987 | | | $ | (480) | | | $ | (4,994) | | | $ | 78,513 | |
| | | | Six Months Ended December 31, 2020 | | Six Months Ended December 31, 2021 |
(Dollars in thousands) | (Dollars in thousands) | Banking Business | | Securities Business | | Corporate/Eliminations | | Axos Consolidated | (Dollars in thousands) | Banking Business | | Securities Business | | Corporate/Eliminations | | Axos Consolidated |
Net interest income | Net interest income | $ | 255,174 | | | $ | 9,154 | | | $ | (2,909) | | | $ | 261,419 | | Net interest income | $ | 284,500 | | | $ | 10,682 | | | $ | (2,972) | | | $ | 292,210 | |
Provision for credit losses | Provision for credit losses | 19,800 | | | 0 | | | 0 | | | 19,800 | | Provision for credit losses | 8,000 | | | — | | | — | | | 8,000 | |
Non-interest income | Non-interest income | 52,507 | | | 12,356 | | | (290) | | | 64,573 | | Non-interest income | 31,123 | | | 29,560 | | | (3,194) | | | 57,489 | |
Non-interest expense | Non-interest expense | 123,691 | | | 22,664 | | | 5,488 | | | 151,843 | | Non-interest expense | 125,174 | | | 40,927 | | | 4,349 | | | 170,450 | |
Income before taxes | Income before taxes | $ | 164,190 | | | $ | (1,154) | | | $ | (8,687) | | | $ | 154,349 | | Income before taxes | $ | 182,449 | | | $ | (685) | | | $ | (10,515) | | | $ | 171,249 | |
| | | | Six Months Ended December 31, 2019 | | Six Months Ended December 31, 2020 |
(Dollars in thousands) | (Dollars in thousands) | Banking Business | | Securities Business | | Corporate/Eliminations | | Axos Consolidated | (Dollars in thousands) | Banking Business | | Securities Business | | Corporate/Eliminations | | Axos Consolidated |
Net interest income | Net interest income | $ | 204,812 | | | $ | 9,183 | | | $ | (2,272) | | | $ | 211,723 | | Net interest income | $ | 255,174 | | | $ | 9,154 | | | $ | (2,909) | | | $ | 261,419 | |
Provision for credit losses | Provision for credit losses | 7,200 | | | 0 | | | 0 | | | 7,200 | | Provision for credit losses | 19,800 | | | — | | | — | | | 19,800 | |
Non-interest income | Non-interest income | 32,015 | | | 12,685 | | | (1,957) | | | 42,743 | | Non-interest income | 52,507 | | | 12,356 | | | (290) | | | 64,573 | |
Non-interest expense | Non-interest expense | 103,886 | | | 21,519 | | | 7,027 | | | 132,432 | | Non-interest expense | 123,691 | | | 22,664 | | | 5,488 | | | 151,843 | |
Income before taxes | Income before taxes | $ | 125,741 | | | $ | 349 | | | $ | (11,256) | | | $ | 114,834 | | Income before taxes | $ | 164,190 | | | $ | (1,154) | | | $ | (8,687) | | | $ | 154,349 | |
| | | | As of December 31, 2020 | | As of December 31, 2021 |
(Dollars in thousands) | (Dollars in thousands) | Banking Business | | Securities Business | | Corporate/Eliminations | | Axos Consolidated | (Dollars in thousands) | Banking Business | | Securities Business | | Corporate/Eliminations | | Axos Consolidated |
Goodwill | Goodwill | $ | 35,721 | | | $ | 35,501 | | | $ | 0 | | | $ | 71,222 | | Goodwill | $ | 35,721 | | | $ | 59,953 | | | $ | — | | | $ | 95,674 | |
Total Assets | Total Assets | $ | 13,301,164 | | | $ | 1,001,249 | | | $ | 90,854 | | | $ | 14,393,267 | | Total Assets | $ | 14,047,081 | | | $ | 1,439,415 | | | $ | 61,451 | | | $ | 15,547,947 | |
|
| | | | As of June 30, 2020 | | As of June 30, 2021 |
(Dollars in thousands) | (Dollars in thousands) | Banking Business | | Securities Business | | Corporate/Eliminations | | Axos Consolidated | (Dollars in thousands) | Banking Business | | Securities Business | | Corporate/Eliminations | | Axos Consolidated |
Goodwill | Goodwill | $ | 35,721 | | | $ | 35,501 | | | $ | 0 | | | $ | 71,222 | | Goodwill | $ | 35,721 | | | $ | 35,501 | | | $ | — | | | $ | 71,222 | |
Total Assets | Total Assets | $ | 13,018,814 | | | $ | 737,419 | | | $ | 95,667 | | | $ | 13,851,900 | | Total Assets | $ | 12,745,029 | | | $ | 1,450,512 | | | $ | 70,024 | | | $ | 14,265,565 | |
|
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, off balance sheet items and capital resources of Axos Financial, Inc. and subsidiaries (the(collectively, “we”, “us” or the “Company”). This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of our operations. This discussion and analysis should be read in conjunction with our financial information in our Annual Report on Form 10-K for the year ended June 30, 2020,2021, and the interim unaudited condensed consolidated financial statements and notes thereto contained in this report.
Some matters discussed in this report may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as such, may involve risks and uncertainties. These forward-looking statements can be identified by the use of terminology such as “estimate,” “project,” “anticipate,” “expect,” “intend,” “believe,” “will,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. These forward-looking statements relate to, among other things, the effects on our business of the current novel coronavirus pandemic (“COVID-19”), the Company’s financial prospects and other projections of its performance and asset quality, our ability to continue to grow profitably and increase its business, our ability to continue to diversify lending and deposit franchises, and the anticipated timing and financial performance of other offerings, initiatives, and acquisitions, expectations of the environment in which we operate and projections of future performance. Forward-looking statements are inherently unreliable and actual results may vary. Factors that could cause actual results to differ from these forward-looking statements include uncertainties surrounding the severity, duration, and effects of the COVID-19 pandemic, our ability to successfully integrate acquisitions and realize the anticipated benefits of the transactions, changes in the interest rate environment, inflation, government regulation, general economic conditions, changes in the competitive marketplace, conditions in the real estate markets in which we operate, risks associated with credit quality, the outcome and effects of pending class action litigation filed against the Company and other risk factors discussed under the heading “Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q for the quarter ended December 31, 20202021 and in our Annual Report on Form 10-K for the year ended June 30, 2020,2021, which has been filed with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All written and oral forward-looking statements made in connection with this report, which are attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing information.
General
Our Company, the holding company for Axos Bank (the “Bank”), is a diversified financial services company with approximately $14.4$15.5 billion in assets that provides consumer and business banking products through its online, low-cost distribution channels and affinity partners. Our Bank has deposit and loan and lease customers nationwide including consumer and business checking, savings and time deposit accounts and financing for single family and multifamily residential properties, small-to-medium size businesses in target sectors, and automobiles. Our Bank generates fee income from consumer and business products including fees from loans originated for sale and transaction fees earned from processing payment activity. Our wholly-owned subsidiaries,securities products and services are offered through Axos Clearing LLC (“Axos Clearing”) and its business division Axos Advisor Services (“AAS”), formerly E*TRADE Advisor Services, and Axos Invest, Inc. (“Axos Invest”), which generate interest and fee income by providing comprehensive securities clearing and custody services to introducing broker-dealers and registered investment advisor correspondents and digital investment advisory services to retail investors, respectively. Axos Financial, Inc.’s common stock is listed on the New York Stock Exchange and is a component of the Russell 2000® Index, andthe KBW Nasdaq Financial Technology Index, the S&P SmallCap 600® Index, the KBW Nasdaq Financial Technology Index, and the Travillian Tech-Forward Bank Index.
Our Bank is a federal savings bank wholly-owned by our Company and regulated by the Office of the Comptroller of the Currency (“OCC”), and the Federal Deposit Insurance Corporation (“FDIC”) 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 (“CFPB”).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, and Axos Invest LLC is an introducing broker-dealer that is registered with the SEC and FINRA.
We distribute our deposit products through a wide range of retail distribution channels, and our deposits consist of demand, savings and time deposits accounts. We distribute our loan products through our retail, correspondent and wholesale channels, and the loans we retain are primarily first mortgages secured by single family real property and by multifamily real property as well as commercial & industrial loans to businesses. Our mortgage-backed securities consist of mortgage pass-through securities issued by government-sponsored entities and non-agency collateralized mortgage obligations and asset-backed mortgage-backed securities issued by private sponsors. We believe our flexibility to adjust our asset generation channels has been a competitive advantage
allowing us to avoid markets and products where credit fundamentals are poor or risks and rewards are not sufficient to support our required return on equity.
Segment Information
The Company determines reportable segments based on what separate financial information is available and what segment results are evaluated regularly by the Chief Executive Officer in deciding how to allocate resources and in assessing performance. We operate through two segments: Banking Business and Securities Business.
Banking Business. The Banking Business includes a broad range of banking services including online banking, concierge banking, prepaid card services, and mortgage, vehicle and unsecured lending through online and telephonic distribution channels to serve the needs of consumer and small businesses nationally. Our deposit products consist of demand, savings, money market and time deposit accounts. In addition, the Banking Business focuses on providing deposit products nationwide to industry verticals (e.g., Title and Escrow), cash management products to a variety of businesses, and commercial & industrial and commercial real estate lending to clients. The Banking Business also includes a bankruptcy trustee and fiduciary service that provides specialized software and consulting services to Chapter 7 bankruptcy and non-Chapter 7 trustees and fiduciaries.
We distribute our loan products through our retail, correspondent and wholesale channels, and the loans we retain are primarily first mortgages secured by single family real property and by multifamily real property as well as commercial & industrial loans to businesses. Our investment securities consist of agency and non-agency mortgage-backed securities, municipal securities and other non-agency debt securities. We believe our flexibility to adjust our asset generation channels has been a competitive advantage allowing us to avoid markets and products where credit fundamentals are poor or risks and rewards are not sufficient to support our required return on equity.
Securities Business. The Securities Business consistsincludes the Clearing Broker-Dealer, Registered Investment Advisor custody business, Registered Investment Advisor, and Introducing Broker-Dealer lines of two setsbusinesses. These lines of business offer products independently to their own customers as well as to Banking Business clients. The products offered by the lines of business in the Securities Business primarily generate net interest income and services, securities services provided to third-party securities firms and investment management provided to consumers.non-banking service fee income.
Securities services includes fully disclosed clearing services through Axos Clearing to FINRA- and SEC-registered member firms for trade execution and clearance as well as back officeback-office services such as record keeping, trade and performance reporting, accounting, general back-office support, securities and margin lending, reorganization assistance and custody of securities. We provide financing to our brokerage customers for their securities trading activities through margin loans that are collateralized by securities, cash, or other acceptable collateral. Securities lending activities include borrowing and lending securities with other broker-dealers. These activities involve borrowing securities to cover short sales and to complete transactions in which clients have failed to deliver securities by the required settlement date, and lending securities to other broker dealers for similar purposes.
Investment managementThrough the RIA custody business, we provide a proprietary, turnkey technology platform for custody services for our RIA customers. This platform provides fee income and service that complement our securities business products, while also generating low cost core deposits.
Axos Invest includes our digital wealth management business, which provides our retail customers with self-directed trading and investment management services through a comprehensive and flexible technology platform.
Segment results are compiled based upon the management reporting system, which assigns balance sheet and income statement items to each of the business segments. The process is designed around the organizational and management structure and, accordingly, the results derived are not necessarily comparable with similar information published by other financial institutions or in accordance with generally accepted accounting principles.
The Company evaluates performance and allocates resources based on profit or loss from operations. There are no material inter-segment sales or transfers. Certain corporate administration costs and income taxes have not been allocated to the reportable segments. Therefore, in order to reconcile the two segments to the unaudited condensed consolidated totals, we include parent-only activities and intercompany eliminations.
COVID-19 Impact
We areThe Company has closely monitoringmonitored the rapid developments of and uncertainties caused by the COVID-19 pandemic. In response to the changes in economic and business conditions as a result of the COVID-19 pandemic, we have taken the followingCompany continues to take the necessary and appropriate actions to support customers, employees, partners and shareholders:shareholders.
•Actively communicating with borrowers and partners to assess individual needs;
•Participating as a lender in the Paycheck Protection Program (PPP) and evaluating various components of the CARES Act applicability to the Company;
•Extending our participation to a second round of loans under the PPP as a result of the Consolidated Appropriations Act, 2021 signed into law on December 27, 2020
•Provided secure and efficient remote work options for our team members;
•Increasing provisions for credit losses as a result of a weakening economy and reduced business activities;
•Tightening underwriting standards;
•Reallocated personnel to increase resources for customer service and portfolio management; and
•Limiting business travel.
Under the guidelines set forth in the CARES Act, for our borrowers who are one or less payments past due on April 1, 2020, we may delay payments for an agreed upon timeframe, depending on each individual borrower’s characteristics. The Company has takentook proactive measures to manage loans that became delinquent during the recent economic downturn as a result of the COVID-19 pandemic. As of December 31, 2021, no loans were on forbearance status for a forbearance granted from any prior date. Any forbearance granted out of COVID-19 was for six months or less.
COVID-19 pandemic. AsThe Company will continue to monitor uncertainties caused by and developments of December 31, 2020, the Company provided no forbearance nor deferrals of payment obligations on any single family, multifamily and commercial mortgage loans, warehouse loans and commercial real estate loans. Deferrals totaling $0.9 million of auto and consumers loans were granted during the six months ended December 31, 2020. No forbearance or deferrals were provided to any borrowers during the three months ended December 31, 2020.COVID-19.
Mergers and Acquisitions
From time to time we undertake acquisitions or similar transactions consistent with our Company’s operating and growth strategies. There were no transactions duringOn August 2, 2021 Axos Clearing, LLC, acquired certain assets and liabilities of E*TRADE Advisor Services (“EAS”), the six months endedregistered investment advisor custody business of Morgan Stanley. This business was rebranded as Axos Advisors Services (“AAS”). AAS adds incremental fee income, a turnkey technology platform used by independent registered investment advisors for trading and custody services, and low-cost deposits that can be used to generate fee income from other bank partners or to fund loan growth at Axos Bank. The purchase price of $54.8 million consisted entirely of cash consideration paid upon acquisition and working capital adjustments.
The acquisition is accounted for as a business combination under the acquisition method of accounting. Accordingly, tangible and intangible assets acquired (and liabilities assumed) are recorded at their estimated fair values as of the date of acquisition. The Company allocated the purchase price to the tangible and intangible assets acquired based on information available through December 31, 2020, nor the year ended June 30, 2020.2021.
Critical Accounting Policies
The following discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements and the notes thereto, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited condensed consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the unaudited condensed consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various factors and circumstances. We believe that our estimates and assumptions are reasonable under the circumstances. However, actual results may differ significantly from these estimates and assumptions that could have a material effect on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods.
Except as discussed below, there have been no changes to ourOur significant accounting policies and practices asare described in greater detail in Note 1 to our June 30, 2020 audited consolidated financial statements- “Summary of Significant Accounting Policies” and under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended June 30, 2020.
Allowance for Credit Losses. On July 1, 2020, we adopted ASC 326. The allowance for credit losses is maintained at a level needed to absorb expected credit losses over the contractual life, considering the effects of prepayments, of the loan portfolio as of the reporting date. Determining the adequacy of the allowance is complex and requires judgment by our management team about the effect of matters that are inherently uncertain. As such, a future assessment of current conditions may require material adjustments to the allowance.2021.
Our process for determining expected life-time credit losses entails a loan-level, model-based approach and requires consideration of a broad range of relevant information relating to historical loss experience, current economic conditions and reasonable and supportable forecasts.
A credit loss is estimated for all loans. Consequently, we stratify the full loan population into segments sharing similar characteristics to perform the evaluation of the credit loss collectively.
We define a segment as the level at which we develop a systematic methodology to determine the allowance for credit losses. Additionally, we can further stratify loans of similar type, risk attributes and methods for monitoring credit risk. We categorize the loan portfolio into six segments: Single Family - Mortgage & Warehouse, Multifamily and Commercial Mortgage, Commercial Real Estate, Commercial & Industrial - Non Real Estate, Auto & Consumer and Other – refer to Note 4 – “Loans & Allowance for Credit Losses” for further detail of the segments and classes within.
The method for estimating expected life-time credit losses includes, among other things, the following main components: 1) The use of a probability of default (“PD”)/loss given default (“LGD”) model; 2) defining a number of economic scenarios across the benign to adverse spectrum; 3) an initial and reasonable forecast period of one year for all loan segments; and 4) a reversion period of 18 months using a linear transition to historical loss rates for each loan pool. After the reversion period, the historical loss rate is applied over the remaining contractual life of loan.
Given the inherent limitations of a solely quantitative model, qualitative adjustments are included to arrive at the ending calculated loss amount in order to account for data points not captured from quantitative inputs alone.
Qualitative criteria we consider includes, among other things, the following:
•Regulatory and Legal - matters that may impact the timeliness and/or amounts of repayments;
•Concentration - portfolio composition and loan concentration;
•Collateral Dependency - changes in collateral values;
•Lending/Underwriting Standards - current lending policies and the effects of any new policies;
•Nature and Volume - loan production volume and mix;
•Loan Trends - credit performance trends, including a borrower’s financial condition and credit rating.
On a quarterly basis, our management team convenes a Credit Review meeting in which current information and trends are collectively assessed to forecast future economic impact for purposes of assessing the adequacy of the ACL. The forecasted direction and magnitude of change with respect to future economic conditions is then assessed against the estimate in the model.
For further information on the Allowance for Credit Losses, refer to Note 1 - “Summary of Significant Accounting Policies”.
USE OF NON-GAAP FINANCIAL MEASURES
In addition to the results presented in accordance with GAAP, this report includes the non-GAAP financial measures such as adjusted earnings, adjusted earnings per common share, and tangible book value per common share. Non-GAAP financial measures have inherent limitations, may not be comparable to similarly titled measures used by other companies and are not audited. Readers should be aware of these limitations and should be cautious as to their reliance on such measures. Although we believe the non-GAAP financial measures disclosed in this report enhance investors’ understanding of our business and performance, these non-GAAP measures should not be considered in isolation, or as a substitute for GAAP basis financial measures.
We define “adjusted earnings”, a non-GAAP financial measure, as net income without the after-tax impact of non-recurring acquisition-related costs (including amortization of intangible assets related to acquisitions), and other costs (unusual or non-recurring charges). Adjusted earnings per diluted common share (“adjusted EPS”), a non-GAAP financial measure, is calculated by dividing non-GAAP adjusted earnings by the average number of diluted common shares outstanding during the period. We believe the non-GAAP measures of adjusted earnings and adjusted EPS provide useful information about the Bank’sCompany’s operating performance. We believe excluding the non-recurring acquisition related costs, and other costs (unusual or non-recurring charges) provides investors with an alternative understanding of Axos’ business without these non-recurring costs.
Below is a reconciliation of net income, the nearest compatible GAAP measure, to adjusted earnings and adjusted EPS (Non-GAAP) for the periods shown:
| | | Three Months Ended | | Six Months Ended | | | Three Months Ended | | Six Months Ended | |
| | December 31, | | December 31, | | | December 31, | | December 31, | |
(Dollars in thousands, except per share amounts) | (Dollars in thousands, except per share amounts) | 2020 | | 2019 | | 2020 | | 2019 | | (Dollars in thousands, except per share amounts) | 2021 | | 2020 | | 2021 | | 2020 | |
Net income | Net income | $ | 54,785 | | | $ | 41,295 | | | $ | 107,807 | | | $ | 82,081 | | | Net income | $ | 60,787 | | | $ | 54,785 | | | $ | 120,997 | | | $ | 107,807 | | |
Acquisition-related costs
| Acquisition-related costs
| 2,552 | | | 2,330 | | | 5,154 | | | 3,977 | | | Acquisition-related costs
| 3,026 | | | 2,552 | | | 5,872 | | | 5,154 | | |
| Income taxes | (771) | | | (676) | | | (1,554) | | | (1,134) | | | |
Tax effects of adjustments | | Tax effects of adjustments | (896) | | | (771) | | | (1,723) | | | (1,554) | | |
Adjusted earnings (Non-GAAP) | Adjusted earnings (Non-GAAP) | $ | 56,566 | | | $ | 42,949 | | | $ | 111,407 | | | $ | 84,924 | | | Adjusted earnings (Non-GAAP) | $ | 62,917 | | | $ | 56,566 | | | $ | 125,146 | | | $ | 111,407 | | |
Growth in adjusted earnings | 31.7 | % | | | | 31.2 | % | | | | |
| Adjusted EPS (Non-GAAP) | Adjusted EPS (Non-GAAP) | $ | 0.94 | | | $ | 0.69 | | | $ | 1.85 | | | $ | 1.37 | | | Adjusted EPS (Non-GAAP) | $ | 1.04 | | | $ | 0.94 | | | $ | 2.06 | | | $ | 1.85 | | |
|
We define “tangible book value”, a non-GAAP financial measure, as book value adjusted for goodwill and other intangible assets. Tangible book value is calculated using common stockholders’ equity minus mortgage servicing rights, goodwill and other intangible assets. Tangible book value per common share, a non-GAAP financial measure, is calculated by dividing tangible book value by the common shares outstanding at the end of the period. We believe tangible book value per common share is useful in evaluating the Company’s capital strength, financial condition, and ability to manage potential losses.
Below is a reconciliation of total stockholders’ equity, the nearest compatible GAAP measure, to tangible book value (Non-GAAP) as of the dates indicated:
| | | December 31, | | | | December 31, | |
(Dollars in thousands) | (Dollars in thousands) | 2020 | | 2019 | | | (Dollars in thousands) | 2021 | | 2020 | |
Total stockholders’ equity | 1,287,482 | | | 1,160,752 | | | | |
Less: preferred stock | — | | | 5,063 | | | | |
| Common stockholders’ equity | Common stockholders’ equity | 1,287,482 | | | 1,155,689 | | | | Common stockholders’ equity | $ | 1,523,157 | | | $ | 1,287,482 | | |
Less: mortgage servicing rights, carried at fair value | Less: mortgage servicing rights, carried at fair value | 14,314 | | | 11,262 | | | | Less: mortgage servicing rights, carried at fair value | 20,110 | | | 14,314 | | |
Less: goodwill and other intangible assets | Less: goodwill and other intangible assets | 120,644 | | | 130,534 | | | | Less: goodwill and other intangible assets | 161,954 | | | 120,644 | | |
Tangible common stockholders’ equity (Non-GAAP) | Tangible common stockholders’ equity (Non-GAAP) | 1,152,524 | | | 1,013,893 | | | | Tangible common stockholders’ equity (Non-GAAP) | $ | 1,341,093 | | | $ | 1,152,524 | | |
Common shares outstanding at end of period | Common shares outstanding at end of period | 59,072,822 | | | 61,338,386 | | | | Common shares outstanding at end of period | 59,498,575 | | | 59,072,822 | | |
Tangible book value per common share (Non-GAAP) | Tangible book value per common share (Non-GAAP) | 19.51 | | | 16.53 | | | | Tangible book value per common share (Non-GAAP) | $ | 22.54 | | | $ | 19.51 | | |
SELECTED FINANCIAL DATA
The following tables set forth certain selected financial data concerning the periods indicated:
AXOS FINANCIAL, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL INFORMATION
| (Dollars in thousands) | (Dollars in thousands) | December 31, 2020 | | June 30, 2020 | | December 31, 2019 | (Dollars in thousands) | December 31, 2021 | | June 30, 2021 | | December 31, 2020 |
Selected Balance Sheet Data: | Selected Balance Sheet Data: | | | | | | Selected Balance Sheet Data: | | | | | |
Total assets | Total assets | 14,393,267 | | | $ | 13,851,900 | | | $ | 12,269,288 | | Total assets | $ | 15,547,947 | | | $ | 14,265,565 | | | $ | 14,393,267 | |
Loans and leases—net of allowance for credit losses | 11,609,584 | | | 10,631,349 | | | 10,141,397 | | |
Loans—net of allowance for credit losses | | Loans—net of allowance for credit losses | 12,607,179 | | | 11,414,814 | | | 11,609,584 | |
Loans held for sale, carried at fair value | Loans held for sale, carried at fair value | 64,287 | | | 51,995 | | | 36,092 | | Loans held for sale, carried at fair value | 27,428 | | | 29,768 | | | 64,287 | |
Loans held for sale, lower of cost or fair value | Loans held for sale, lower of cost or fair value | 13,769 | | | 44,565 | | | 3,430 | | Loans held for sale, lower of cost or fair value | 11,446 | | | 12,294 | | | 13,769 | |
Allowance for credit losses - loans | Allowance for credit losses - loans | 136,393 | | | 75,807 | | | 59,514 | | Allowance for credit losses - loans | 140,489 | | | 132,958 | | | 136,393 | |
Securities—trading | Securities—trading | 362 | | | 105 | | | 1,740 | | Securities—trading | 1,223 | | | 1,983 | | | 362 | |
Securities—available-for-sale | Securities—available-for-sale | 209,828 | | | 187,627 | | | 208,026 | | Securities—available-for-sale | 139,581 | | | 187,335 | | | 209,828 | |
| Securities borrowed | Securities borrowed | 317,571 | | | 222,368 | | | 168,114 | | Securities borrowed | 534,243 | | | 619,088 | | | 317,571 | |
Customer, broker-dealer and clearing receivables | Customer, broker-dealer and clearing receivables | 264,572 | | | 220,266 | | | 244,379 | | Customer, broker-dealer and clearing receivables | 429,634 | | | 369,815 | | | 264,572 | |
Total deposits | Total deposits | 11,463,136 | | | 11,336,694 | | | 10,114,340 | | Total deposits | 12,269,172 | | | 10,815,797 | | | 11,463,136 | |
| Advances from the FHLB | Advances from the FHLB | 182,500 | | | 242,500 | | | 257,500 | | Advances from the FHLB | 157,500 | | | 353,500 | | | 182,500 | |
Borrowings, subordinated notes and debentures
| Borrowings, subordinated notes and debentures
| 418,480 | | | 235,789 | | | 62,233 | | Borrowings, subordinated notes and debentures
| 260,435 | | | 221,358 | | | 418,480 | |
Securities loaned | Securities loaned | 362,170 | | | 255,945 | | | 206,199 | | Securities loaned | 578,762 | | | 728,988 | | | 362,170 | |
Customer, broker-dealer and clearing payables | Customer, broker-dealer and clearing payables | 475,473 | | | 347,614 | | | 305,669 | | Customer, broker-dealer and clearing payables | 528,796 | | | 535,425 | | | 475,473 | |
Total stockholders’ equity | Total stockholders’ equity | 1,287,482 | | | 1,230,846 | | | 1,160,752 | | Total stockholders’ equity | 1,523,157 | | | 1,400,936 | | | 1,287,482 | |
| Capital Ratios: | Capital Ratios: | | Capital Ratios: | |
Equity to assets at end of period | Equity to assets at end of period | 8.95 | % | | 8.89 | % | | 9.46 | % | Equity to assets at end of period | 9.80 | % | | 9.82 | % | | 8.95 | % |
Axos Financial, Inc.: | Axos Financial, Inc.: | | Axos Financial, Inc.: | |
Tier 1 leverage (core) capital to adjusted average assets | Tier 1 leverage (core) capital to adjusted average assets | 8.68 | % | | 8.97 | % | | 8.88 | % | Tier 1 leverage (core) capital to adjusted average assets | 9.42 | % | | 8.82 | % | | 8.68 | % |
Common equity tier 1 capital (to risk-weighted assets) | Common equity tier 1 capital (to risk-weighted assets) | 10.85 | % | | 11.22 | % | | 11.29 | % | Common equity tier 1 capital (to risk-weighted assets) | 10.08 | % | | 11.36 | % | | 10.85 | % |
Tier 1 capital (to risk-weighted assets) | Tier 1 capital (to risk-weighted assets) | 10.85 | % | | 11.27 | % | | 11.35 | % | Tier 1 capital (to risk-weighted assets) | 10.08 | % | | 11.36 | % | | 10.85 | % |
Total capital (to risk-weighted assets) | Total capital (to risk-weighted assets) | 13.88 | % | | 12.64 | % | | 12.65 | % | Total capital (to risk-weighted assets) | 12.16 | % | | 13.78 | % | | 13.88 | % |
Axos Bank: | Axos Bank: | | Axos Bank: | |
Tier 1 leverage (core) capital to adjusted average assets | Tier 1 leverage (core) capital to adjusted average assets | 9.08 | % | | 9.25 | % | | 9.16 | % | Tier 1 leverage (core) capital to adjusted average assets | 10.13 | % | | 9.45 | % | | 9.08 | % |
Common equity tier 1 capital (to risk-weighted assets) | Common equity tier 1 capital (to risk-weighted assets) | 11.45 | % | | 11.79 | % | | 11.55 | % | Common equity tier 1 capital (to risk-weighted assets) | 10.91 | % | | 12.28 | % | | 11.45 | % |
Tier 1 capital (to risk-weighted assets) | Tier 1 capital (to risk-weighted assets) | 11.45 | % | | 11.79 | % | | 11.55 | % | Tier 1 capital (to risk-weighted assets) | 10.91 | % | | 12.28 | % | | 11.45 | % |
Total capital (to risk-weighted assets) | Total capital (to risk-weighted assets) | 12.44 | % | | 12.62 | % | | 12.25 | % | Total capital (to risk-weighted assets) | 11.73 | % | | 13.21 | % | | 12.44 | % |
Axos Clearing, LLC: | Axos Clearing, LLC: | | Axos Clearing, LLC: | |
Net capital | Net capital | 34,417 | | | 34,022 | | | 31,917 | | Net capital | $ | 39,453 | | | $ | 35,950 | | | 34,417 | |
Excess capital | Excess capital | 28,941 | | | 29,450 | | | 27,056 | | Excess capital | $ | 32,171 | | | $ | 27,904 | | | 28,941 | |
Net capital as a percentage of aggregate debit items | Net capital as a percentage of aggregate debit items | 12.57 | % | | 14.88 | % | | 13.13 | % | Net capital as a percentage of aggregate debit items | 10.84 | % | | 8.94 | % | | 12.57 | % |
Net capital in excess of 5% aggregate debit items | Net capital in excess of 5% aggregate debit items | 20,726 | | | 22,593 | | | 19,765 | | Net capital in excess of 5% aggregate debit items | $ | 21,249 | | | $ | 15,836 | | | 20,726 | |
AXOS FINANCIAL, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL INFORMATION
| | | At or for the Three Months Ended | | At or for the Six Months Ended | | At or for the Three Months Ended | | At or for the Six Months Ended |
| | December 31, | | December 31, | | December 31, | | December 31, |
(Dollars in thousands, except per share data) | (Dollars in thousands, except per share data) | 2020 | | 2019 | | 2020 | | 2019 | (Dollars in thousands, except per share data) | 2021 | | 2020 | | 2021 | | 2020 |
Selected Income Statement Data: | Selected Income Statement Data: | | | | | | | | Selected Income Statement Data: | | | | | | | |
Interest and dividend income | Interest and dividend income | $ | 155,379 | | | $ | 147,288 | | | $ | 305,268 | | | $ | 293,633 | | Interest and dividend income | $ | 157,076 | | | $ | 155,379 | | | $ | 315,386 | | | $ | 305,268 | |
Interest expense | Interest expense | 21,287 | | | 38,868 | | | 43,849 | | | 81,910 | | Interest expense | 11,508 | | | 21,287 | | | 23,176 | | | 43,849 | |
Net interest income | Net interest income | 134,092 | | | 108,420 | | | 261,419 | | | 211,723 | | Net interest income | 145,568 | | | 134,092 | | | 292,210 | | | 261,419 | |
Provision for credit losses | Provision for credit losses | 8,000 | | | 4,500 | | | 19,800 | | | 7,200 | | Provision for credit losses | 4,000 | | | 8,000 | | | 8,000 | | | 19,800 | |
Net interest income after provision for credit losses | Net interest income after provision for credit losses | 126,092 | | | 103,920 | | | 241,619 | | | 204,523 | | Net interest income after provision for credit losses | 141,568 | | | 126,092 | | | 284,210 | | | 241,619 | |
Non-interest income | Non-interest income | 28,718 | | | 21,207 | | | 64,573 | | | 42,743 | | Non-interest income | 30,787 | | | 28,718 | | | 57,489 | | | 64,573 | |
Non-interest expense | Non-interest expense | 76,297 | | | 66,965 | | | 151,843 | | | 132,432 | | Non-interest expense | 86,019 | | | 76,297 | | | 170,450 | | | 151,843 | |
Income before income tax expense | Income before income tax expense | 78,513 | | | 58,162 | | | 154,349 | | | 114,834 | | Income before income tax expense | 86,336 | | | 78,513 | | | 171,249 | | | 154,349 | |
Income tax expense | Income tax expense | 23,728 | | | 16,867 | | | 46,542 | | | 32,753 | | Income tax expense | 25,549 | | | 23,728 | | | 50,252 | | | 46,542 | |
Net income | Net income | $ | 54,785 | | | $ | 41,295 | | | $ | 107,807 | | | $ | 82,081 | | Net income | $ | 60,787 | | | $ | 54,785 | | | $ | 120,997 | | | $ | 107,807 | |
Net income attributable to common stock | Net income attributable to common stock | $ | 54,672 | | | $ | 41,217 | | | $ | 107,617 | | | $ | 81,926 | | Net income attributable to common stock | $ | 60,787 | | | $ | 54,672 | | | $ | 120,997 | | | $ | 107,617 | |
| Per Common Share Data: | Per Common Share Data: | | Per Common Share Data: | |
Net income: | Net income: | | Net income: | |
Basic | Basic | $ | 0.93 | | | $ | 0.67 | | | $ | 1.82 | | | $ | 1.34 | | Basic | $ | 1.02 | | | $ | 0.93 | | | $ | 2.04 | | | $ | 1.82 | |
Diluted | Diluted | $ | 0.91 | | | $ | 0.67 | | | $ | 1.79 | | | $ | 1.32 | | Diluted | $ | 1.00 | | | $ | 0.91 | | | $ | 1.99 | | | $ | 1.79 | |
Adjusted earnings (Non-GAAP) | Adjusted earnings (Non-GAAP) | $ | 0.94 | | | $ | 0.69 | | | $ | 1.85 | | | $ | 1.37 | | Adjusted earnings (Non-GAAP) | $ | 1.04 | | | $ | 0.94 | | | $ | 2.06 | | | $ | 1.85 | |
Book value | Book value | $ | 21.79 | | | $ | 18.84 | | | $ | 21.79 | | | $ | 18.84 | | Book value | $ | 25.60 | | | $ | 21.79 | | | $ | 25.60 | | | $ | 21.79 | |
Tangible book value (Non-GAAP) | Tangible book value (Non-GAAP) | $ | 19.51 | | | $ | 16.53 | | | $ | 19.51 | | | $ | 16.53 | | Tangible book value (Non-GAAP) | $ | 22.54 | | | $ | 19.51 | | | $ | 22.54 | | | $ | 19.51 | |
| Weighted average number of common shares outstanding: | Weighted average number of common shares outstanding: | | Weighted average number of common shares outstanding: | |
Basic | Basic | 59,049,697 | | | 61,315,590 | | | 59,278,672 | | | 61,281,127 | | Basic | 59,496,489 | | | 59,049,697 | | | 59,443,667 | | | 59,278,672 | |
Diluted | Diluted | 60,040,723 | | | 61,938,988 | | | 60,196,516 | | | 61,900,633 | | Diluted | 60,755,981 | | | 60,040,723 | | | 60,749,383 | | | 60,196,516 | |
Common shares outstanding at end of period | Common shares outstanding at end of period | 59,072,822 | | | 61,338,386 | | | 59,072,822 | | | 61,338,386 | | Common shares outstanding at end of period | 59,498,575 | | | 59,072,822 | | | 59,498,575 | | | 59,072,822 | |
Common shares issued at end of period | Common shares issued at end of period | 67,668,664 | | | 66,915,478 | | | 67,668,664 | | | 66,915,478 | | Common shares issued at end of period | 68,376,837 | | | 67,668,664 | | | 68,376,837 | | | 67,668,664 | |
| Performance Ratios and Other Data: | Performance Ratios and Other Data: | | Performance Ratios and Other Data: | |
Loan and lease originations for investment | $ | 1,909,978 | | | $ | 1,435,152 | | | $ | 3,240,790 | | | $ | 2,896,918 | | |
Loan originations for investment | | Loan originations for investment | $ | 2,525,871 | | | $ | 1,909,978 | | | $ | 4,618,150 | | | $ | 3,240,790 | |
Loan originations for sale | Loan originations for sale | $ | 490,261 | | | $ | 666,192 | | | $ | 931,065 | | | $ | 994,004 | | Loan originations for sale | $ | 193,320 | | | $ | 490,261 | | | $ | 403,287 | | | $ | 931,065 | |
| Return on average assets | Return on average assets | 1.57 | % | | 1.42 | % | | 1.56 | % | | 1.43 | % | Return on average assets | 1.63 | % | | 1.57 | % | | 1.65 | % | | 1.56 | % |
Return on average common stockholders’ equity | Return on average common stockholders’ equity | 17.30 | % | | 14.35 | % | | 17.21 | % | | 14.57 | % | Return on average common stockholders’ equity | 16.29 | % | | 17.30 | % | | 16.51 | % | | 17.21 | % |
Interest rate spread1 | Interest rate spread1 | 3.71 | % | | 3.37 | % | | 3.67 | % | | 3.35 | % | Interest rate spread1 | 3.90 | % | | 3.71 | % | | 3.97 | % | | 3.67 | % |
Net interest margin2 | Net interest margin2 | 3.94 | % | | 3.87 | % | | 3.89 | % | | 3.81 | % | Net interest margin2 | 4.10 | % | | 3.94 | % | | 4.16 | % | | 3.89 | % |
Net interest margin2 – Banking Business Segment only | 4.11 | % | | 3.94 | % | | 4.01 | % | | 3.89 | % | |
Net interest margin2 – Banking Business Segment | | Net interest margin2 – Banking Business Segment | 4.30 | % | | 4.11 | % | | 4.39 | % | | 4.01 | % |
Efficiency ratio3 | Efficiency ratio3 | 46.86 | % | | 51.66 | % | | 46.58 | % | | 52.04 | % | Efficiency ratio3 | 48.78 | % | | 46.86 | % | | 48.74 | % | | 46.58 | % |
Efficiency ratio3 – Banking Business Segment only | 40.45 | % | | 43.81 | % | | 40.20 | % | | 43.87 | % | |
Efficiency ratio3 – Banking Business Segment | | Efficiency ratio3 – Banking Business Segment | 39.39 | % | | 40.45 | % | | 39.66 | % | | 40.20 | % |
| Asset Quality Ratios: | Asset Quality Ratios: | | Asset Quality Ratios: | |
Net annualized charge-offs to average loans and leases | 0.16 | % | | 0.17 | % | | 0.12 | % | | 0.10 | % | |
Net annualized charge-offs to average loans | | Net annualized charge-offs to average loans | 0.01 | % | | 0.16 | % | | 0.01 | % | | 0.12 | % |
Non-performing loans to total loans | Non-performing loans to total loans | 1.44 | % | | 0.52 | % | | 1.44 | % | | 0.52 | % | Non-performing loans to total loans | 1.14 | % | | 1.44 | % | | 1.14 | % | | 1.44 | % |
Non-performing assets to total assets | Non-performing assets to total assets | 1.22 | % | | 0.49 | % | | 1.22 | % | | 0.49 | % | Non-performing assets to total assets | 0.94 | % | | 1.22 | % | | 0.94 | % | | 1.22 | % |
Allowance for credit losses - loans to total loans held for investment at end of period | Allowance for credit losses - loans to total loans held for investment at end of period | 1.16 | % | | 0.58 | % | | 1.16 | % | | 0.58 | % | Allowance for credit losses - loans to total loans held for investment at end of period | 1.10 | % | | 1.16 | % | | 1.10 | % | | 1.16 | % |
Allowance for credit losses - loans to non-performing loans | Allowance for credit losses - loans to non-performing loans | 80.58 | % | | 112.85 | % | | 80.58 | % | | 112.85 | % | Allowance for credit losses - loans to non-performing loans | 96.27 | % | | 80.58 | % | | 96.27 | % | | 80.58 | % |
1 Interest rate spread represents the difference between the annualized weighted average yield on interest-earning assets and the annualized weighted average
rate paid on interest-bearing liabilities.
2 Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
3 Efficiency ratio represents non-interest expense as a percentage of the aggregate of net interest income and non-interest income.
RESULTS OF OPERATIONS
Comparison of the Three and Six Months Ended December 31, 20202021 and 20192020
For the three months ended December 31, 2020,2021, we had net income of $54.8$60.8 million compared to net income of $41.3$54.8 million for the three months ended December 31, 2019.2020. Net income attributable to common stockholders was $60.8 million or $1.00 per diluted share for the three months ended December 31, 2021 compared to net income attributable to common shareholders of $54.7 million, or $0.91 per diluted share for the three months ended December 31, 2020 compared to net income attributable to common shareholders of $41.2 million, or $0.67 per diluted share for the three months ended December 31, 2019.2020. For the six months ended December 31, 2020,2021, we had net income of $107.8$121.0 million compared to net income of $82.1$107.8 million for the six months ended December 31, 2019.2020. Net income attributable to common stockholders was $121.0 million, or $1.99 per diluted share for the six months ended December 31, 2021 compared to net income attributable to common shareholders of $107.6 million, or $1.79 per diluted share for the six months ended December 31, 2020 compared to net income attributable to common shareholders of $81.9 million, or $1.32 per diluted share for the six months ended December 31, 2019.
Other key comparisons between our operating results for the three and six months ended December 31, 2020 and 2019 are as follows:
•Net interest income increased $25.7 million and our net interest margin increased 7 basis points in the three months ended December 31, 2020 compared to the three months ended December 31, 2019, and increased $49.7 million and our net interest margin increased 8 basis points in the six months ended December 31, 2020, compared to the six months ended December 31, 2019. The increases were primarily due to an increase in average earning assets and a reduction in the rates paid on interest-bearing demand and savings deposits due to decreases in prevailing deposit rates across the industry.
•Non-interest income increased $7.5 million and $21.8 million for the three and six months ended December 31, 2020 compared to the three and six months ended December 31, 2019. The increase in non-interest income for the three months ended December 31, 2020 was primarily the result of an increase in mortgage banking of $8.4 million, partially offset by a decrease of $1.8 million in gain on sale – other. The increase in non-interest income for the six months ended December 31, 2020 was primarily the result of an increase in mortgage banking of $25.2 million and an increase of $1.6 million in banking service fees and other income, partially offset by a decrease of $5.3 million in gain on sale – other.
•Non-interest expense increased $9.3 million and $19.4 million for the three and six months ended December 31, 2020 compared to the three and six months ended December 31, 2019. The change for the three months ended December 31, 2020 was primarily driven by a $4.2 million increase in salary and payroll costs due to growth in Bank staffing, an increase of $2.5 million in professional services, an increase of $2.3 million in data processing expense, and a $1.7 million increase in FDIC and regulatory fees, partially offset by a decrease of $1.5 million of other general and administrative expenses. The change for the six months ended December 31, 2020 was primarily driven by increases of $6.9 million in professional services, $6.1 million in salary and payroll costs due to growth in Bank staffing, $4.2 million in FDIC and regulatory fees, and $2.4 million in data processing, partially offset by a decrease of $1.5 million to advertising and promotional costs and a decrease of $0.5 million of other general and administrative expenses.2020.
Adjusted earnings and adjusted EPS, non-GAAP measures, which exclude non-recurring costs related to mergers and acquisitions (including amortization of intangible assets related to acquisitions), increased 31.7%11.2% to $62.9 million and 10.6% to $1.04, respectively, for the quarter ended December 31, 2021 compared to $56.6 million and 36.2% to $0.94, respectively, for the quarter ended December 31, 2020 compared to $42.9 million and $0.69, respectively, for the quarter ended December 31, 2019.2020. Adjusted earnings and adjusted EPS increased 31.2%12.3% to $125.1 million and 11.4% to $2.06, respectively, for the six months ended December 31, 2021 compared to $111.4 million and 35.0% to $1.85, respectively, for the six months ended December 31, 2020 compared to $84.9 million and $1.37, respectively, for the six months ended December 31, 2019.2020.
Net Interest Income
Net interest income for the three and six months ended December 31, 20202021 totaled $134.1$145.6 million and $261.4$292.2 million, an increase of 23.7%8.6% and 23.5%11.8%, compared to net interest income of $108.4$134.1 million and $211.7$261.4 million for the three and six months ended December 31, 2019.2020, respectively. The growth of net interest incomeincrease for both the three and six months ended December 31, 2020 iswere primarily due to increased average earnings assets from net loan and lease portfolio growth and reduced rates paid on interest-bearing demand and savings deposits and time deposits, partially offset by reduced yields on interest earning assets. During the three and six months ended December 31, 2021, average non-interest bearing deposits increased $1,695.0 million and $1,460.0 million, respectively, primarily from the deposits acquired through the acquisition of AAS.
Total interest and dividend income during the three and six months ended December 31, 20202021 increased 5.5%1.1% to $157.1 million and 3.3% to $315.4 million, compared to $155.4 million and 4.0% to $305.3 million, respectively, compared to $147.3 million and $293.6 million during the three and six months ended December 31, 2019.2020, respectively. The increasesincrease in interest and dividend income for the three and six months ended December 31, 20202021 was primarily attributable to the continued growth in average earning assets from loan originations and lease originations,securities borrowed and margin lending, partially offset by reduced yields on loans and leasessecurities borrowed and interest-earning deposits.margin lending. The average balance of interest-earning loans and leasessecurities borrowed increased 16.1%by 6.2% and 14.6%41.1%, respectively, for the three months ended December 31, 2021 compared to the three months ended December 31, 2020. The average balance of loans and securities borrowed increased by 6.9% and 62.9%, respectively, for the six months ended December 31, 20202021 compared to the three and six months ended December 31, 2019.
Total interest expense was $21.3$11.5 million for the three months ended December 31, 2020,2021, a decrease of $17.6$9.8 million or 45.2%45.9% as compared with the three months ended December 31, 2019.2020. Total interest expense was $43.8$23.2 million for the six months ended December 31, 2020,2021, a decrease of $38.1$20.7 million or 46.5%47.1% as compared with the six months ended December 31, 2019.2020. The decrease in the average cost of funds rate for the three months ended December 31, 20202021 compared to 20192020 was primarily due to 11119 basis point and 121 basis point decreases in the three and six month average rates paiddecrease on interest-bearing demand and savings deposits due to decreases in prevailing deposit rates across the industry.industry and a 66 basis point decrease in the three month average rates paid on time deposits, due to higher rate time deposits maturing. The decrease in the average cost of funds rate for the six months ended December 31, 2021 compared to 2020 was primarily due to a 24 basis point decrease on interest-bearing demand and savings deposits due to decreases in prevailing deposit rates was partially offset by growthacross the industry and a 75 basis point decrease in interest-bearing liabilities forthe six month average rates paid on time deposits, due to higher rate time deposits maturing. During the three and six months ended December 31, 2020 compared to 2019.2021, average non-interest bearing deposits increased $1,695.0 million and $1,460.0 million, respectively, primarily from the deposits acquired through the acquisition of AAS.
Net interest margin, defined as annualized net interest income divided by average earning assets, increased 716 basis points to 4.10% for the three months ended December 31, 2021 from 3.94% for the three months ended December 31, 2020, from 3.87%and increased 27 basis points to 4.16% for the threesix months ended December 31, 2019, and increased 8 basis points to2021 from 3.89% for the six months ended December 31, 2020 from 3.81% for2020. During the three and six months ended December 31, 2019.2021, the primary contributors to the 16 and 27 basis point increases, respectively, was the increase in non-interest bearing deposits increased $1,695.0 million and $1,460.0 million, respectively, primarily from the deposits acquired through the acquisition of AAS and decreased rates on interest-bearing deposits.
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, 2020 and 2019:margin:
| | | For the Three Months Ended | | For the Three Months Ended |
| | December 31, | | December 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
(Dollars in thousands) | (Dollars in thousands) | Average Balance1 | | Interest Income/ Expense | | Average Yields Earned/Rates Paid2 | | Average Balance1 | | Interest Income/ Expense | | Average Yields Earned/Rates Paid2 | (Dollars in thousands) | Average Balance1 | | Interest Income/ Expense | | Average Yields Earned/Rates Paid2 | | Average Balance1 | | Interest Income/ Expense | | Average Yields Earned/Rates Paid2 |
Assets: | Assets: | | | | | | | | | | | | Assets: | | | | | | | | | | | |
Loans and leases3, 4 | $ | 11,409,942 | | | $ | 147,085 | | | 5.16 | % | | $ | 9,827,007 | | | $ | 136,602 | | | 5.56 | % | |
Loans3, 4 | | Loans3, 4 | $ | 12,116,565 | | | $ | 149,469 | | | 4.93 | % | | $ | 11,409,942 | | | $ | 147,085 | | | 5.16 | % |
Interest-earning deposits in other financial institutions | Interest-earning deposits in other financial institutions | 1,495,760 | | | 493 | | | 0.13 | % | | 755,275 | | | 3,240 | | | 1.72 | % | Interest-earning deposits in other financial institutions | 1,247,675 | | | 642 | | | 0.21 | % | | 1,495,760 | | | 493 | | | 0.13 | % |
Securities4 | 202,363 | | | 2,917 | | | 5.77 | % | | 202,266 | | | 3,051 | | | 6.03 | % | |
Mortgage-backed and other investment securities4 | | Mortgage-backed and other investment securities4 | 139,711 | | | 1,338 | | | 3.83 | % | | 202,363 | | | 2,917 | | | 5.77 | % |
Securities borrowed and margin lending5 | Securities borrowed and margin lending5 | 486,692 | | | 4,666 | | | 3.83 | % | | 400,771 | | | 3,865 | | | 3.86 | % | Securities borrowed and margin lending5 | 686,920 | | | 5,366 | | | 3.12 | % | | 486,692 | | | 4,666 | | | 3.83 | % |
Stock of the regulatory agencies | Stock of the regulatory agencies | 20,611 | | | 218 | | | 4.23 | % | | 32,601 | | | 530 | | | 6.50 | % | Stock of the regulatory agencies | 20,519 | | | 261 | | | 5.11 | % | | 20,611 | | | 218 | | | 4.23 | % |
Total interest-earning assets | Total interest-earning assets | 13,615,368 | | | 155,379 | | | 4.56 | % | | 11,217,920 | | | 147,288 | | | 5.25 | % | Total interest-earning assets | 14,211,390 | | | 157,076 | | | 4.42 | % | | 13,615,368 | | | 155,379 | | | 4.56 | % |
Non-interest-earning assets | Non-interest-earning assets | 363,373 | | | 382,178 | | | Non-interest-earning assets | 676,030 | | | 363,373 | | |
Total assets | Total assets | $ | 13,978,741 | | | $ | 11,600,098 | | | Total assets | $ | 14,887,420 | | | $ | 13,978,741 | | |
Liabilities and Stockholders’ Equity: | Liabilities and Stockholders’ Equity: | | | | | Liabilities and Stockholders’ Equity: | | | | |
Interest-bearing demand and savings | Interest-bearing demand and savings | $ | 7,215,813 | | | $ | 8,131 | | | 0.45 | % | | $ | 4,473,537 | | | $ | 17,418 | | | 1.56 | % | Interest-bearing demand and savings | $ | 6,587,348 | | | $ | 4,299 | | | 0.26 | % | | $ | 7,215,813 | | | $ | 8,131 | | | 0.45 | % |
Time deposits | Time deposits | 1,860,058 | | | 7,964 | | | 1.71 | % | | 2,537,155 | | | 15,496 | | | 2.44 | % | Time deposits | 1,333,848 | | | 3,506 | | | 1.05 | % | | 1,860,058 | | | 7,964 | | | 1.71 | % |
Securities loaned | Securities loaned | 305,900 | | | 255 | | | 0.33 | % | | 212,412 | | | 163 | | | 0.31 | % | Securities loaned | 439,035 | | | 218 | | | 0.20 | % | | 305,900 | | | 255 | | | 0.33 | % |
| Advances from the FHLB | Advances from the FHLB | 234,649 | | | 1,326 | | | 2.26 | % | | 948,464 | | | 4,495 | | | 1.90 | % | Advances from the FHLB | 272,033 | | | 973 | | | 1.43 | % | | 234,649 | | | 1,326 | | | 2.26 | % |
Borrowings, subordinated notes and debentures | Borrowings, subordinated notes and debentures | 429,833 | | | 3,611 | | | 3.36 | % | | 84,576 | | | 1,296 | | | 6.13 | % | Borrowings, subordinated notes and debentures | 262,781 | | | 2,512 | | | 3.82 | % | | 429,833 | | | 3,611 | | | 3.36 | % |
Total interest-bearing liabilities | Total interest-bearing liabilities | 10,046,253 | | | 21,287 | | | 0.85 | % | | 8,256,144 | | | 38,868 | | | 1.88 | % | Total interest-bearing liabilities | 8,895,045 | | | 11,508 | | | 0.52 | % | | 10,046,253 | | | 21,287 | | | 0.85 | % |
Non-interest-bearing demand deposits | Non-interest-bearing demand deposits | 2,039,064 | | | 1,756,495 | | | Non-interest-bearing demand deposits | 3,734,029 | | | 2,039,064 | | |
Other non-interest-bearing liabilities | Other non-interest-bearing liabilities | 624,220 | | | 438,551 | | | Other non-interest-bearing liabilities | 765,946 | | | 624,220 | | |
Stockholders’ equity | Stockholders’ equity | 1,269,204 | | | 1,148,908 | | | Stockholders’ equity | 1,492,400 | | | 1,269,204 | | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 13,978,741 | | | $ | 11,600,098 | | | Total liabilities and stockholders’ equity | $ | 14,887,420 | | | $ | 13,978,741 | | |
Net interest income | Net interest income | | | $ | 134,092 | | | | | $ | 108,420 | | | Net interest income | | | $ | 145,568 | | | | | $ | 134,092 | | |
Interest rate spread6 | Interest rate spread6 | | | | 3.71 | % | | | | 3.37 | % | Interest rate spread6 | | | | 3.90 | % | | | | 3.71 | % |
Net interest margin7 | Net interest margin7 | | 3.94 | % | | 3.87 | % | Net interest margin7 | | 4.10 | % | | 3.94 | % |
1Average balances are obtained from daily data.
2Annualized.
3Loans and leases include loans held for sale, loan premiums and unearned fees.
4Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees. Loan fee income is not significant Loans and leases include average balances of $27.3$26.5 million and $28.6$27.3 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 20202021 and 20192020 three-month periods, respectively.
5Margin lending is the significant component of the asset titled customer, broker-dealer and clearing receivables on the unaudited condensed consolidated balance sheets.
6Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.
7Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents information regarding (i) average balances; (ii) the total amount of interest income from interest-earning assets and the weighted average yields on such assets; (iii) the total amount of interest expense on interest-bearing liabilities and the weighted average rates paid on such liabilities; (iv) net interest income; (v) interest rate spread; and (vi) net interest margin for the six months ended December 31, 2020 and 2019:margin:
| | | For the Six Months Ended | | For the Six Months Ended |
| | December 31, | | December 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
(Dollars in thousands) | (Dollars in thousands) | Average Balance1 | | Interest Income/ Expense | | Average Yields Earned/Rates Paid2 | | Average Balance1 | | Interest Income/ Expense | | Average Yields Earned/Rates Paid2 | (Dollars in thousands) | Average Balance1 | | Interest Income/ Expense | | Average Yields Earned/Rates Paid2 | | Average Balance1 | | Interest Income/ Expense | | Average Yields Earned/Rates Paid2 |
Assets: | Assets: | | | | | | | | | | | | Assets: | | | | | | | | | | | |
Loans and leases3, 4 | $ | 11,125,812 | | | $ | 288,509 | | | 5.19 | % | | $ | 9,706,230 | | | $ | 270,489 | | | 5.57 | % | |
Loans3, 4 | | Loans3, 4 | $ | 11,889,439 | | | $ | 298,645 | | | 5.02 | % | | $ | 11,125,812 | | | $ | 288,509 | | | 5.19 | % |
Interest-earning deposits in other financial institutions | Interest-earning deposits in other financial institutions | 1,601,170 | | | 1,000 | | | 0.12 | % | | 745,878 | | | 7,473 | | | 2.00 | % | Interest-earning deposits in other financial institutions | 1,205,409 | | | 1,233 | | | 0.20 | % | | 1,601,170 | | | 1,000 | | | 0.12 | % |
Securities4 | 196,270 | | | 5,594 | | | 5.70 | % | | 205,662 | | | 5,633 | | | 5.48 | % | |
Mortgage-backed and other investment securities4 | | Mortgage-backed and other investment securities4 | 148,000 | | | 2,759 | | | 3.73 | % | | 196,270 | | | 5,594 | | | 5.70 | % |
Securities borrowed and margin lending5 | Securities borrowed and margin lending5 | 488,129 | | | 9,743 | | | 3.99 | % | | 421,943 | | | 9,207 | | | 4.36 | % | Securities borrowed and margin lending5 | 795,231 | | | 12,217 | | | 3.07 | % | | 488,129 | | | 9,743 | | | 3.99 | % |
Stock of the regulatory agencies | Stock of the regulatory agencies | 20,610 | | | 422 | | | 4.10 | % | | 26,439 | | | 831 | | | 6.29 | % | Stock of the regulatory agencies | 20,607 | | | 532 | | | 5.17 | % | | 20,610 | | | 422 | | | 4.10 | % |
Total interest-earning assets | Total interest-earning assets | 13,431,991 | | | 305,268 | | | 4.55 | % | | 11,106,152 | | | 293,633 | | | 5.29 | % | Total interest-earning assets | 14,058,686 | | | 315,386 | | | 4.49 | % | | 13,431,991 | | | 305,268 | | | 4.55 | % |
Non-interest-earning assets | Non-interest-earning assets | 363,165 | | | 368,121 | | | Non-interest-earning assets | 587,794 | | | 363,165 | | |
Total assets | Total assets | $ | 13,795,156 | | | $ | 11,474,273 | | | Total assets | $ | 14,646,480 | | | $ | 13,795,156 | | |
Liabilities and Stockholders’ Equity: | Liabilities and Stockholders’ Equity: | | | | | Liabilities and Stockholders’ Equity: | | | | |
Interest-bearing demand and savings | Interest-bearing demand and savings | $ | 7,134,068 | | | $ | 17,222 | | | 0.48 | % | | $ | 4,829,469 | | | $ | 40,779 | | | 1.69 | % | Interest-bearing demand and savings | $ | 6,568,907 | | | $ | 7,866 | | | 0.24 | % | | $ | 7,134,068 | | | $ | 17,222 | | | 0.48 | % |
Time deposits | Time deposits | 1,959,299 | | | 18,427 | | | 1.88 | % | | 2,511,527 | | | 30,941 | | | 2.46 | % | Time deposits | 1,348,454 | | | 7,651 | | | 1.13 | % | | 1,959,299 | | | 18,427 | | | 1.88 | % |
Securities loaned | Securities loaned | 304,251 | | | 379 | | | 0.25 | % | | 326,161 | | | 449 | | | 0.28 | % | Securities loaned | 549,538 | | | 469 | | | 0.17 | % | | 304,251 | | | 379 | | | 0.25 | % |
| Advances from the FHLB | Advances from the FHLB | 238,574 | | | 2,698 | | | 2.26 | % | | 627,617 | | | 6,259 | | | 1.99 | % | Advances from the FHLB | 283,717 | | | 1,989 | | | 1.40 | % | | 238,574 | | | 2,698 | | | 2.26 | % |
Borrowings, subordinated notes and debentures | Borrowings, subordinated notes and debentures | 343,198 | | | 5,123 | | | 2.99 | % | | 132,077 | | | 3,482 | | | 5.27 | % | Borrowings, subordinated notes and debentures | 249,170 | | | 5,201 | | | 4.17 | % | | 343,198 | | | 5,123 | | | 2.99 | % |
Total interest-bearing liabilities | Total interest-bearing liabilities | 9,979,390 | | | 43,849 | | | 0.88 | % | | 8,426,851 | | | 81,910 | | | 1.94 | % | Total interest-bearing liabilities | 8,999,786 | | | 23,176 | | | 0.52 | % | | 9,979,390 | | | 43,849 | | | 0.88 | % |
Non-interest-bearing demand deposits | Non-interest-bearing demand deposits | 1,971,139 | | | 1,604,911 | | | Non-interest-bearing demand deposits | 3,431,150 | | | 1,971,139 | | |
Other non-interest-bearing liabilities | Other non-interest-bearing liabilities | 593,835 | | | 313,235 | | | Other non-interest-bearing liabilities | 749,781 | | | 593,835 | | |
Stockholders’ equity | Stockholders’ equity | 1,250,792 | | | 1,129,276 | | | Stockholders’ equity | 1,465,763 | | | 1,250,792 | | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 13,795,156 | | | $ | 11,474,273 | | | Total liabilities and stockholders’ equity | $ | 14,646,480 | | | $ | 13,795,156 | | |
Net interest income | Net interest income | | | $ | 261,419 | | | | | $ | 211,723 | | | Net interest income | | | $ | 292,210 | | | | | $ | 261,419 | | |
Interest rate spread6 | Interest rate spread6 | | | | 3.67 | % | | | | 3.35 | % | Interest rate spread6 | | | | 3.97 | % | | | | 3.67 | % |
Net interest margin7 | Net interest margin7 | | 3.89 | % | | 3.81 | % | Net interest margin7 | | 4.16 | % | | 3.89 | % |
1Average balances are obtained from daily data.
2Annualized.
3Loans and leases include loans held for sale, loan premiums and unearned fees.
4Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees. Loan fee income is not significant. Loans and leases include average balances of $27.4$26.6 million and $28.8$27.4 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 20202021 and 20192020 six-month periods, respectively.
5Margin lending is the significant component of the asset titled customer, broker-dealer and clearing receivables on the unaudited condensed consolidated balance sheets.
6Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.
7Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table sets forth the effects of changing rates and volumes on our net interest income. Information is provided with respect to (i) effects on interest income and interest expense attributable to changes in volume (changes in volume multiplied by prior rate); (ii) effects on interest income and interest expense attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) changes in rate/volume (change in rate multiplied by. The change in volume) for the threeinterest due to both volume and six months ended December 31, 2020 and 2019:rate has been allocated proportionally to both, based on their relative absolute values.:
| | | For the Three Months Ended | | For the Six Months Ended | | For the Three Months Ended | | For the Six Months Ended |
| | December 31, | | December 31, | | December 31, | | December 31, |
| | 2020 vs 2019 | | 2020 vs 2019 | | 2021 vs 2020 | | 2021 vs 2020 |
| | Increase (Decrease) Due to | | Increase (Decrease) Due to | | Increase (Decrease) Due to | | Increase (Decrease) Due to |
(Dollars in thousands) | (Dollars in thousands) | Volume | | Rate | | | Total Increase (Decrease) | | Volume | | Rate | | | Total Increase (Decrease) | (Dollars in thousands) | Volume | | Rate | | | Total Increase (Decrease) | | Volume | | Rate | | | Total Increase (Decrease) |
Increase / (decrease) in interest income: | Increase / (decrease) in interest income: | | | | | | | | | | | | | | Increase / (decrease) in interest income: | | | | | | | | | | | | | |
Loans and leases | $ | 20,833 | | | $ | (10,350) | | | | $ | 10,483 | | | $ | 37,439 | | | $ | (19,419) | | | | $ | 18,020 | | |
Loans | | Loans | $ | 9,016 | | | $ | (6,632) | | | | $ | 2,384 | | | $ | 19,665 | | | $ | (9,529) | | | | $ | 10,136 | |
| Interest-earning deposits in other financial institutions | Interest-earning deposits in other financial institutions | 1,676 | | | (4,423) | | | | (2,747) | | | 4,148 | | | (10,621) | | | | (6,473) | | Interest-earning deposits in other financial institutions | (96) | | | 245 | | | | 149 | | | (283) | | | 516 | | | | 233 | |
Securities | 1 | | | (135) | | | | (134) | | | (261) | | | 222 | | | | (39) | | |
Mortgage-backed and other investment securities | | Mortgage-backed and other investment securities | (758) | | | (822) | | | | (1,580) | | | (1,179) | | | (1,657) | | | | (2,836) | |
Securities borrowed and margin lending | Securities borrowed and margin lending | 831 | | | (30) | | | | 801 | | | 1,361 | | | (825) | | | | 536 | | Securities borrowed and margin lending | 1,674 | | | (974) | | | | 700 | | | 5,097 | | | (2,623) | | | | 2,474 | |
Stock of the regulatory agencies | Stock of the regulatory agencies | (160) | | | (152) | | | | (312) | | | (158) | | | (251) | | | | (409) | | Stock of the regulatory agencies | (1) | | | 45 | | | | 44 | | | — | | | 111 | | | | 111 | |
| | $ | 23,181 | | | $ | (15,090) | | | | $ | 8,091 | | | $ | 42,529 | | | $ | (30,894) | | | | $ | 11,635 | | | $ | 9,835 | | | $ | (8,138) | | | | $ | 1,697 | | | $ | 23,300 | | | $ | (13,182) | | | | $ | 10,118 | |
Increase / (decrease) in interest expense: | Increase / (decrease) in interest expense: | | | | | | | | | | | | | | Increase / (decrease) in interest expense: | | | | | | | | | | | | | |
Interest-bearing demand and savings | Interest-bearing demand and savings | $ | 7,192 | | | $ | (16,479) | | | | $ | (9,287) | | | $ | 13,950 | | | $ | (37,507) | | | | $ | (23,557) | | Interest-bearing demand and savings | $ | (655) | | | $ | (3,177) | | | | $ | (3,832) | | | $ | (1,313) | | | $ | (8,043) | | | | $ | (9,356) | |
Time deposits | Time deposits | (3,551) | | | (3,981) | | | | (7,532) | | | (6,039) | | | (6,475) | | | | (12,514) | | Time deposits | (1,886) | | | (2,572) | | | | (4,458) | | | (4,727) | | | (6,049) | | | | (10,776) | |
Securities loaned | Securities loaned | 80 | | | 12 | | | | 92 | | | (27) | | | (43) | | | | (70) | | Securities loaned | 85 | | | (122) | | | | (37) | | | 239 | | | (149) | | | | 90 | |
| Advances from the FHLB | Advances from the FHLB | (3,896) | | | 727 | | | | (3,169) | | | (4,623) | | | 1,062 | | | | (3,561) | | Advances from the FHLB | 188 | | | (541) | | | | (353) | | | 446 | | | (1,155) | | | | (709) | |
Borrowings, subordinated notes and debentures
| Borrowings, subordinated notes and debentures
| 3,139 | | | (824) | | | | 2,315 | | | 3,662 | | | (2,021) | | | | 1,641 | | Borrowings, subordinated notes and debentures
| (1,544) | | | 445 | | | | (1,099) | | | (1,628) | | | 1,706 | | | | 78 | |
| | $ | 2,964 | | | $ | (20,545) | | | | $ | (17,581) | | | $ | 6,923 | | | $ | (44,984) | | | | $ | (38,061) | | | $ | (3,812) | | | $ | (5,967) | | | | $ | (9,779) | | | $ | (6,983) | | | $ | (13,690) | | | | $ | (20,673) | |
Provision for Credit Losses
The provision for credit losses was $4.0 million for the three months ended December 31, 2021 compared to $8.0 million for the three months ended December 31, 2020 compared to $4.5 million for the three months ended December 31, 2019.2020. The provision for credit losses was $8.0 million for the six months ended December 31, 2021 compared to $19.8 million for the six months ended December 31, 2020 compared to $7.2 million for the six months ended December 31, 2019.2020. The increasedecreases in the provision for the three months ended December 31, 2020 compared to the provision for the three months ended December 31, 2019 was mainly attributable to loan growth, changes in loan mix and a change in the provision for credit losses methodology from the incurred loss model to a current expected credit loss model as described under “Critical Accounting Policies.” The increase in the provision for the six months ended December 31, 2021 were due to favorable changes in economic and business conditions resulting from reduced levels of disruptions from the COVID-19 pandemic between December 31, 2020 compared to the provisionand December 31, 2021, partially offset by loan growth and changes in loan mix. The Provisions for credit losses for the three and six months ended December 31, 2019 was2021 were primarily comprised of provisions in commercial real estate and consumer and auto due to taking net additional reservesgrowth in these segments of $3.1 million on seasonal tax product loans that continue to have delays in collection due to IRS processing delays,the loan growth, changes in loan mix and a change in the provision for credit losses methodology from the incurred loss model to a current expected credit loss model as described under “Critical Accounting Policies.”portfolio. Provisions for credit losses are charged to income to bring the allowance for credit losses - loans to a level deemed appropriate by management based on the factors discussed under “Financial Condition—Asset Quality and Allowance for Credit Losses - Loans.” On July 1, 2020, the Company adopted ASC 326, adding approximately $53.0 million to the allowance for credit losses. The increase was primarily related to two factors:
•The difference between loss emergence periods previously utilized, as compared to estimating lifetime credit losses as required by ASC 326.
•The lifetime impact of COVID-19 on the Company’s loan and lease portfolio, or more specifically the impact on macroeconomic factors across the loan and lease portfolio, with the largest impacts shown in hospitality and retail real estate loans.
Non-Interest Income
The following table sets forth information regarding our non-interest income for the periods shown:
| | | For the Three Months Ended | | For the Six Months Ended | | For the Three Months Ended | | For the Six Months Ended |
| | December 31, | | December 31, | | December 31, | | December 31, |
(Dollars in thousands) | (Dollars in thousands) | 2020 | | 2019 | | Inc (Dec) | | 2020 | | 2019 | | Inc (Dec) | (Dollars in thousands) | 2021 | | 2020 | | Inc (Dec) | | 2021 | | 2020 | | Inc (Dec) |
| Prepayment penalty fee income | Prepayment penalty fee income | 1,579 | | | 2,006 | | | (427) | | | 2,947 | | | 3,418 | | | (471) | | Prepayment penalty fee income | $ | 3,294 | | | $ | 1,579 | | | $ | 1,715 | | | $ | 6,280 | | | $ | 2,947 | | | $ | 3,333 | |
Gain on sale – other | Gain on sale – other | 156 | | | 1,924 | | | (1,768) | | | 490 | | | 5,746 | | | (5,256) | | Gain on sale – other | 28 | | | 156 | | | (128) | | | 45 | | | 490 | | | (445) | |
Mortgage banking income | Mortgage banking income | 10,651 | | | 2,224 | | | 8,427 | | | 30,218 | | | 5,018 | | | 25,200 | | Mortgage banking income | 4,612 | | | 10,651 | | | (6,039) | | | 9,865 | | | 30,218 | | | (20,353) | |
Broker-dealer fee income | Broker-dealer fee income | 6,287 | | | 5,555 | | | 732 | | | 11,989 | | | 11,211 | | | 778 | | Broker-dealer fee income | 14,367 | | | 6,287 | | | 8,080 | | | 26,133 | | | 11,989 | | | 14,144 | |
Banking and service fees | Banking and service fees | 10,045 | | | 9,498 | | | 547 | | | 18,929 | | | 17,350 | | | 1,579 | | Banking and service fees | 8,486 | | | 10,045 | | | (1,559) | | | 15,166 | | | 18,929 | | | (3,763) | |
Total non-interest income | Total non-interest income | $ | 28,718 | | | $ | 21,207 | | | $ | 7,511 | | | $ | 64,573 | | | $ | 42,743 | | | $ | 21,830 | | Total non-interest income | $ | 30,787 | | | $ | 28,718 | | | $ | 2,069 | | | $ | 57,489 | | | $ | 64,573 | | | $ | (7,084) | |
Non-interest income increased $7.5$2.1 million to $28.7$30.8 million for the three months ended December 31, 20202021 compared to the three months ended December 31, 2019.2020. The increase was primarily the result of an $8.1 million increase in broker-dealer fee income driven by custody and mutual fund fees earned by the newly acquired AAS division and an increase of $8.4$1.7 million in prepayment penalty fee income, partially offset by a decrease of $6.0 million mortgage banking $0.7 million in broker dealer feesincome and $0.5a decrease of $1.6 million in banking and service fees, partially offset by a decrease of $1.8 million in gain on sale-other, as certain sales offrom Emerald Advance loans toPrepaid Mastercard® and Refund Transfer products associated with H&R Block inthat did not recur for the three months ended December 31, 2019 did not recur in the three months ended December 31, 2020, due to contract termination and a $0.4 million decrease in prepayment penalty fee income.2021. Non-interest income increased $21.8decreased $7.1 million to $64.6$57.5 million for the six months ended December 31, 20202021 compared to the six months ended December 31, 2019.2020. The increasechange was primarily the result of an increase of $25.2a $20.4 million decrease in mortgage banking income and a $1.6$3.8 million increasedecrease in banking and service fees, partially offset by a decrease of $5.3 million in gain on sale-other, as certain sales of lottery receivablesfrom Emerald Prepaid Mastercard® and Emerald Advance loans toRefund Transfer products associated with H&R Block in the six months ended December 31, 2019that did not recur in the six months ended December 31, 2020.
Included2021, partially offset by a $14.1 million increase in gain on sale – other are sales of unsecuredbroker-dealer fee income driven by custody and secured consumermutual fund fees earned by the newly acquired AAS division and business loans originated through introductions from our third-party partner relationships and sales of structured settlement annuity and state lottery receivables. We engage in the wholesale and retail purchase of state lottery prize and structured settlement annuity payments. These payments are high credit quality deferred payment receivables having a state lottery commission or investment grade (top two tiers) insurance company payor. The Bank originates contracts for the retail purchase of such payments and classifies these under the category of Other in the loan portfolio. Factoring yields are typically higher than mortgage loan rates. Typically, the gain received upon sale of these payment streams is greater than the gain received from an equivalent amount of mortgage loan sales. Since 2013, pools of structured settlement receivables have been originated for sale depending upon management’s assessment of interest rate risk, liquidity, and offers containing favorable terms and are classified on our balance sheet as loans held for sale. Increased sales on favorable terms during the three and six months ended December 31, 2019 resulted in an increase of $3.3 million in gain on sale from structured settlement annuity and state lottery receivables. Such sales did not recur to the same degree for the three and six months ended December 31, 2020.prepayment penalty fee income.
Non-Interest Expense
The following table sets forth information regarding our non-interest expense for the periods shown:
| | | For the Three Months Ended | | For the Six Months Ended | | For the Three Months Ended | | For the Six Months Ended |
| | December 31, | | December 31, | | December 31, | | December 31, |
(Dollars in thousands) | (Dollars in thousands) | 2020 | | 2019 | | Inc (Dec) | | 2020 | | 2019 | | Inc (Dec) | (Dollars in thousands) | 2021 | | 2020 | | Inc (Dec) | | 2021 | | 2020 | | Inc (Dec) |
Salaries and related costs | Salaries and related costs | $ | 38,199 | | | $ | 33,958 | | | $ | 4,241 | | | $ | 76,822 | | | $ | 70,675 | | | $ | 6,147 | | Salaries and related costs | $ | 39,979 | | | $ | 38,199 | | | $ | 1,780 | | | $ | 80,716 | | | $ | 76,822 | | | $ | 3,894 | |
Data processing | Data processing | 9,673 | | | 7,410 | | | 2,263 | | | 17,601 | | | 15,221 | | | 2,380 | | Data processing | 12,199 | | | 9,673 | | | 2,526 | | | 24,291 | | | 17,601 | | | 6,690 | |
Advertising and promotional | Advertising and promotional | 3,783 | | | 4,043 | | | (260) | | | 6,339 | | | 7,833 | | | (1,494) | | Advertising and promotional | 3,402 | | | 3,783 | | | (381) | | | 6,774 | | | 6,339 | | | 435 | |
Depreciation and amortization | Depreciation and amortization | 5,862 | | | 6,040 | | | (178) | | | 12,048 | | | 11,264 | | | 784 | | Depreciation and amortization | 6,785 | | | 5,862 | | | 923 | | | 12,513 | | | 12,048 | | | 465 | |
Professional services | Professional services | 5,629 | | | 3,112 | | | 2,517 | | | 11,628 | | | 4,701 | | | 6,927 | | Professional services | 5,943 | | | 5,629 | | | 314 | | | 10,488 | | | 11,628 | | | (1,140) | |
Occupancy and equipment | Occupancy and equipment | 3,132 | | | 3,122 | | | 10 | | | 6,143 | | | 5,960 | | | 183 | | Occupancy and equipment | 3,342 | | | 3,132 | | | 210 | | | 6,523 | | | 6,143 | | | 380 | |
FDIC and regulatory fees | FDIC and regulatory fees | 2,601 | | | 939 | | | 1,662 | | | 5,293 | | | 1,130 | | | 4,163 | | FDIC and regulatory fees | 2,475 | | | 2,601 | | | (126) | | | 4,741 | | | 5,293 | | | (552) | |
| Broker-dealer clearing charges | Broker-dealer clearing charges | 2,451 | | | 1,860 | | | 591 | | | 4,708 | | | 3,868 | | | 840 | | Broker-dealer clearing charges | 3,678 | | | 2,451 | | | 1,227 | | | 7,683 | | | 4,708 | | | 2,975 | |
General and administrative expense | General and administrative expense | 4,967 | | | 6,481 | | | (1,514) | | | 11,261 | | | 11,780 | | | (519) | | General and administrative expense | 8,216 | | | 4,967 | | | 3,249 | | | 16,721 | | | 11,261 | | | 5,460 | |
Total non-interest expenses | Total non-interest expenses | $ | 76,297 | | | $ | 66,965 | | | $ | 9,332 | | | $ | 151,843 | | | $ | 132,432 | | | $ | 19,411 | | Total non-interest expenses | $ | 86,019 | | | $ | 76,297 | | | $ | 9,722 | | | $ | 170,450 | | | $ | 151,843 | | | $ | 18,607 | |
Non-interest expense, which is comprised of compensation, data processing, depreciation and amortization, advertising and promotional, professional services, occupancy and equipment, FDIC and regulator fees, broker-dealer clearing charges and other operating expenses, was $86.0 million for the three months ended December 31, 2021, compared to $76.3 million for the three months ended December 31, 2020, compared to $67.02020. Non-interest expense was $170.5 million for the threesix months ended December 31, 2019. Non-interest expense was2021, up from $151.8 million for the six months ended December 31, 2020, up from $132.4 million for the six months ended December 31, 2019.2020. The increases for the three and six months ended December 31, 20202021 were primarilygenerally due to tothe addition of AAS and the expansion of the BankCompany specifically in areas related to lending and deposits.
Total salaries and related costs increased $4.2$1.8 million to $40.0 million for the three months ended December 31, 2021 compared to $38.2 million for the three months ended December 31, 2020 comparedand increased $3.9 million to $34.0$80.7 million for the threesix months ended December 31, 2019 and costs increased $6.1 million2021 compared to $76.8 million for the six months ended December 31, 2020 compared to $70.7 million for the six months ended December 31, 2019.2020. The increases in compensation expense for the three and six months ended December 31, 20202021 were primarily due to increased staffing levels as a result of the staffing additions to support growth in deposit and lending activities.AAS acquisition. Our staff increased to 1,280 from 1,157, from 1,031, or 12.2%10.6% between December 31, 20202021 and 2019.2020.
Data processing expense increased $2.3$2.5 million for the three months ended December 31, 20202021 compared to three months ended December 31, 2019,2020, and increased $2.4$6.7 million for the six months ended December 31, 20202021 compared to the six month period ended December 31, 2019,2020, primarily due to enhancements to customer interfaces and the Bank’sCompany’s core processing system.systems.
Advertising and promotional expense decreased $0.3$0.4 million and $1.5increased $0.4 million for the three and six months ended December 31, 2020,2021, compared to the three and six months ended December 31, 2019,2020, respectively. The decreases forFluctuations are mainly the threeresult of changes in lead generation and six months ended December 31, 2020 were primarily related to reduced deposit marketing.marketing costs.
Depreciation and amortization expense decreased $0.2increased $0.9 million and increased $0.8$0.5 million for the three and six months ended December 31, 2020,2021, compared to the three and six months ended December 31, 2019,2020, respectively. The decreaseincreases for the three months ended December 31, 2020 was primarily due to reduced depreciation of computer hardware and furniture and fixtures. The increase for the six months ended December 31, 2020 was2021 were primarily due to amortization of intangibles as a result of the AAS acquisition and depreciation on lending platform enhancements and infrastructure development.
Professional services expense increased $2.5$0.3 million and $6.9decreased $1.1 million for the three and six months ended December 31, 2020,2021, compared to the three and six months ended December 31, 2019,2020, respectively. Professional services charges increased due primarily to increased legal and consulting fees.expense during the three months ended December 31, 2021. The decreased for the six months ended December 31, 2021, was primarily the result of lower legal expense, compared to the six months ended December 31, 2020.
Occupancy and equipment expense was flat and increased by $0.2 million and $0.4 million for the three and six months ended December 31, 20202021 compared to the three and six months ended December 31, 2019,2020, respectively. The changes for the three and six months ended December 31, 20202021 are primarily relateddue to annual cost increases in our office space lease agreements and the timingaddition of new property leases.an assumed office space lease for our AAS employees.
Our cost of FDIC and regulatory fees increased $1.7decreased $0.1 million and $4.2$0.6 million for the three and six months ended December 31, 2020,2021, compared to the three and six month period last year, respectively. The increasesdecreases were due to a small bankfavorable fluctuations in the Bank’s assessment credit received from the FDIC during the three and six months ended December 31, 2019, which did not recur in 2020.rate. As an FDIC-insured institution, the Bank is required to pay deposit insurance premiums to the FDIC.
Broker-dealer clearing charges increased $0.6$1.2 million and $0.8$3.0 million for the three and six months ended December 31, 20202021 compared to the three and six months ended December 31, 2019.2020, respectively. The increases were attributable to the acquisition of AAS and increased clearing charges due to higher activity induring the Securities Business.three and six months ended December 31, 2021.
Other general and administrative costs decreasedincreased by $1.5$3.2 million and $0.5$5.5 million for the three and six months ended December 31, 2020,2021, compared to the three and six month periodmonths ended December 31, 2019,2020, respectively. The decreases wereincrease in the three months ended December 31, 2021 as compared to the three months ended December 31, 2020 was primarily relateddue to a $1.0 million provision to allowance for credit losses of unfunded commitments, compared to a $1.0 million reduction in the reserve2020 period, increased loan processing costs, and increased travel costs. The increase in the six months ended December 31, 2021 as compared to December 31, 2020 was primarily due to a $3.0 million provision to allowance for credit losses of unfunded commitments, increased loan commitments.processing costs and increased travel costs.
Provision for Income Taxes
Our effective income tax rates (income tax provision divided by net income before income tax) for the three months ended December 31, 2021 and 2020 were 29.59% and 2019 were 30.22% and 29.00%, respectively. Our effective income tax rates for the six months ended December 31, 2021 and 2020 were 29.34% and 2019 were 30.15% and 28.52%, respectively. The change in effective income tax rates between periods are primarily the result of changes in tax benefits from stock compensation.
SEGMENT RESULTS
Our Company determines reportable segments based on what separate financial information is available and what segment results are evaluated regularly by the Chief Executive Officer in deciding how to allocate resources and in assessing performance. The Company operates through two operating segments: Banking Business and Securities Business. In order to reconcile the two segments to the unaudited condensed consolidated totals, the Company includes parent-only activities and intercompany eliminations. The following tables present the operating results of the segments:
| | | For the Three Months Ended December 31, 2020 | | For the Three Months Ended December 31, 2021 |
(Dollars in thousands) | (Dollars in thousands) | Banking Business | | Securities Business | | Corporate/Eliminations | | Axos Consolidated | (Dollars in thousands) | Banking Business | | Securities Business | | Corporate/Eliminations | | Axos Consolidated |
Net interest income | Net interest income | $ | 132,166 | | | $ | 4,260 | | | $ | (2,334) | | | $ | 134,092 | | Net interest income | $ | 142,259 | | | $ | 4,506 | | | $ | (1,197) | | | $ | 145,568 | |
Provision for credit losses | Provision for credit losses | 8,000 | | | — | | | — | | | 8,000 | | Provision for credit losses | 4,000 | | | — | | | — | | | 4,000 | |
Non-interest income | Non-interest income | 22,295 | | | 6,572 | | | (149) | | | 28,718 | | Non-interest income | 16,295 | | | 16,454 | | | (1,962) | | | 30,787 | |
Non-interest expense | Non-interest expense | 62,474 | | | 11,312 | | | 2,511 | | | 76,297 | | Non-interest expense | 62,449 | | | 21,654 | | | 1,916 | | | 86,019 | |
Income before taxes | Income before taxes | $ | 83,987 | | | $ | (480) | | | $ | (4,994) | | | $ | 78,513 | | Income before taxes | $ | 92,105 | | | $ | (694) | | | $ | (5,075) | | | $ | 86,336 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended December 31, 2019 |
(Dollars in thousands) | Banking Business | | Securities Business | | Corporate/Eliminations | | Axos Consolidated |
Net interest income | $ | 105,340 | | | $ | 4,037 | | | $ | (957) | | | $ | 108,420 | |
Provision for credit losses | 4,500 | | | — | | | — | | | 4,500 | |
Non-interest income | 16,225 | | | 6,284 | | | (1,302) | | | 21,207 | |
Non-interest expense | 53,253 | | | 10,455 | | | 3,257 | | | 66,965 | |
Income before taxes | $ | 63,812 | | | $ | (134) | | | $ | (5,516) | | | $ | 58,162 | |
| | | | For the Six Months Ended December 31, 2020 | | For the Three Months Ended December 31, 2020 |
(Dollars in thousands) | (Dollars in thousands) | Banking Business | | Securities Business | | Corporate/Eliminations | | Axos Consolidated | (Dollars in thousands) | Banking Business | | Securities Business | | Corporate/Eliminations | | Axos Consolidated |
Net interest income | Net interest income | $ | 255,174 | | | $ | 9,154 | | | $ | (2,909) | | | $ | 261,419 | | Net interest income | $ | 132,166 | | | $ | 4,260 | | | $ | (2,334) | | | $ | 134,092 | |
Provision for credit losses | Provision for credit losses | 19,800 | | | — | | | — | | | 19,800 | | Provision for credit losses | 8,000 | | | — | | | — | | | 8,000 | |
Non-interest income | Non-interest income | 52,507 | | | 12,356 | | | (290) | | | 64,573 | | Non-interest income | 22,295 | | | 6,572 | | | (149) | | | 28,718 | |
Non-interest expense | Non-interest expense | 123,691 | | | 22,664 | | | 5,488 | | | 151,843 | | Non-interest expense | 62,474 | | | 11,312 | | | 2,511 | | | 76,297 | |
Income before taxes | Income before taxes | $ | 164,190 | | | $ | (1,154) | | | $ | (8,687) | | | $ | 154,349 | | Income before taxes | $ | 83,987 | | | $ | (480) | | | $ | (4,994) | | | $ | 78,513 | |
| | | | For the Six Months Ended December 31, 2019 | | For the Six Months Ended December 31, 2021 |
(Dollars in thousands) | (Dollars in thousands) | Banking Business | | Securities Business | | Corporate/Eliminations | | Axos Consolidated | (Dollars in thousands) | Banking Business | | Securities Business | | Corporate/Eliminations | | Axos Consolidated |
Net interest income | Net interest income | $ | 204,812 | | | $ | 9,183 | | | $ | (2,272) | | | $ | 211,723 | | Net interest income | $ | 284,500 | | | $ | 10,682 | | | $ | (2,972) | | | $ | 292,210 | |
Provision for credit losses | Provision for credit losses | 7,200 | | | — | | | — | | | 7,200 | | Provision for credit losses | 8,000 | | | — | | | — | | | 8,000 | |
Non-interest income | Non-interest income | 32,015 | | | 12,685 | | | (1,957) | | | 42,743 | | Non-interest income | 31,123 | | | 29,560 | | | (3,194) | | | 57,489 | |
Non-interest expense | Non-interest expense | 103,886 | | | 21,519 | | | 7,027 | | | 132,432 | | Non-interest expense | 125,174 | | | 40,927 | | | 4,349 | | | 170,450 | |
Income before taxes | Income before taxes | $ | 125,741 | | | $ | 349 | | | $ | (11,256) | | | $ | 114,834 | | Income before taxes | $ | 182,449 | | | $ | (685) | | | $ | (10,515) | | | $ | 171,249 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| For the Six Months Ended December 31, 2020 |
(Dollars in thousands) | Banking Business | | Securities Business | | Corporate/Eliminations | | Axos Consolidated |
Net interest income | $ | 255,174 | | | $ | 9,154 | | | $ | (2,909) | | | $ | 261,419 | |
Provision for credit losses | 19,800 | | | — | | | — | | | 19,800 | |
Non-interest income | 52,507 | | | 12,356 | | | (290) | | | 64,573 | |
Non-interest expense | 123,691 | | | 22,664 | | | 5,488 | | | 151,843 | |
Income before taxes | $ | 164,190 | | | $ | (1,154) | | | $ | (8,687) | | | $ | 154,349 | |
Banking Business
For the three months ended December 31, 2020,2021, our Banking Business segment had income before taxes of $84.0$92.1 million compared to income before taxes of $63.8$84.0 million for the three months ended December 31, 2019.2020. For the six months ended December 31, 2020,2021, we had income before taxes of $164.2$182.4 million compared to income before taxes of $125.7$164.2 million for the six months ended December 31, 2019.2020. For the three and six months ended December 31, 2020, the increase in income before taxes was the result ofmainly due to an increase in average earning assets andnet interest income primarily from a reductiondecline in the rates paid onof interest-bearing demand and savings deposits and an increasetime deposits and a decrease in non-interest income due to increasedprovision for credit losses, partially offset by a decrease in mortgage banking, income.compared to the three and six months ended December 31, 2020.
We consider the ratios shown in the table below to be key indicators of the performance of our Banking Business segment:
| | | At or for the Three Months Ended | | At or for the Six Months Ended | | At or for the Three Months Ended | | At or for the Six Months Ended |
| | December 31, 2020 | | December 31, 2019 | | December 31, 2020 | | December 31, 2019 | | December 31, 2021 | | December 31, 2020 | | December 31, 2021 | | December 31, 2020 |
Efficiency ratio | Efficiency ratio | 40.45 | % | | 43.81 | % | | 40.20 | % | | 43.87 | % | Efficiency ratio | 39.39 | % | | 40.45 | % | | 39.66 | % | | 40.20 | % |
Return on average assets | Return on average assets | 1.80 | % | | 1.66 | % | | 1.79 | % | | 1.67 | % | Return on average assets | 1.92 | % | | 1.80 | % | | 1.92 | % | | 1.79 | % |
Interest rate spread | Interest rate spread | 3.93 | % | | 3.47 | % | | 3.82 | % | | 3.42 | % | Interest rate spread | 4.14 | % | | 3.93 | % | | 4.23 | % | | 3.82 | % |
Net interest margin | Net interest margin | 4.11 | % | | 3.94 | % | | 4.01 | % | | 3.89 | % | Net interest margin | 4.30 | % | | 4.11 | % | | 4.39 | % | | 4.01 | % |
Our Banking Business segment’s net interest margin exceeds our consolidated net interest margin. Our consolidated net interest margin includes certain items that are not reflected in the calculation of our net interest margin within our Banking Business and reduce our consolidated net interest margin, such as the borrowing costs at our Parent Company and the yields and costs associated with certain items within interest-earning assets and interest-bearing liabilities in our Securities Business, including items related to securities financing operations that particularlytypically decrease net interest margin.
Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents our Banking Business segment’s information regarding (i) average balances; (ii) the total amount of interest income from interest-earning assets and the weighted average yields on such assets; (iii) the total amount of interest expense on interest-bearing liabilities and the weighted average rates paid on such liabilities; (iv) net interest income; (v) interest rate spread; and (vi) net interest margin for the three months ended December 31, 2020 and 2019:margin:
| | | For the Three Months Ended | | For the Three Months Ended |
| | December 31, | | December 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
(Dollars in thousands) | (Dollars in thousands) | Average Balance1 | | Interest Income/ Expense | | Average Yields Earned/Rates Paid2 | | Average Balance1 | | Interest Income/ Expense | | Average Yields Earned/Rates Paid2 | (Dollars in thousands) | Average Balance1 | | Interest Income/ Expense | | Average Yields Earned/Rates Paid2 | | Average Balance1 | | Interest Income/ Expense | | Average Yields Earned/Rates Paid2 |
Assets: | Assets: | | | | | | | | | | | | Assets: | | | | | | | | | | | |
Loans and leases3, 4 | $ | 11,364,115 | | | $ | 146,327 | | | 5.15 | % | | $ | 9,825,725 | | | $ | 136,602 | | | 5.56 | % | |
Loans3, 4 | | Loans3, 4 | $ | 12,076,831 | | | $ | 148,960 | | | 4.93 | % | | $ | 11,364,115 | | | $ | 146,327 | | | 5.15 | % |
Interest-earning deposits in other financial institutions | Interest-earning deposits in other financial institutions | 1,239,160 | | | 324 | | | 0.10 | % | | 629,407 | | | 2,634 | | | 1.67 | % | Interest-earning deposits in other financial institutions | 963,533 | | | 376 | | | 0.16 | % | | 1,239,160 | | | 324 | | | 0.10 % |
Securities4 | 232,518 | | | 3,072 | | | 5.28 | % | | 199,716 | | | 3,052 | | | 6.11 | % | |
Mortgage-backed and other investment securities4 | | Mortgage-backed and other investment securities4 | 163,417 | | | 1,458 | | | 3.57 | % | | 232,518 | | | 3,072 | | | 5.28 | % |
Stock of the regulatory agencies | Stock of the regulatory agencies | 17,250 | | | 216 | | | 5.01 | % | | 29,577 | | | 528 | | | 7.14 | % | Stock of the regulatory agencies | 17,402 | | | 260 | | | 5.98 | % | | 17,250 | | | 216 | | | 5.01 | % |
Total interest-earning assets | Total interest-earning assets | 12,853,043 | | | 149,939 | | | 4.67 | % | | 10,684,425 | | | 142,816 | | | 5.35 | % | Total interest-earning assets | 13,221,183 | | | 151,054 | | | 4.57 | % | | 12,853,043 | | | 149,939 | | | 4.67 | % |
Non-interest-earning assets | Non-interest-earning assets | 159,802 | | | 211,833 | | | Non-interest-earning assets | 301,502 | | | 159,802 | | |
Total assets | Total assets | $ | 13,012,845 | | | $ | 10,896,258 | | | Total assets | $ | 13,522,685 | | | $ | 13,012,845 | | |
Liabilities and Stockholders’ Equity: | Liabilities and Stockholders’ Equity: | | | | | Liabilities and Stockholders’ Equity: | | | | |
Interest-bearing demand and savings | Interest-bearing demand and savings | $ | 7,391,544 | | | $ | 8,354 | | | 0.45 | % | | $ | 4,498,675 | | | $ | 17,485 | | | 1.55 | % | Interest-bearing demand and savings | $ | 6,619,803 | | | $ | 4,316 | | | 0.26 | % | | $ | 7,391,544 | | | $ | 8,354 | | | 0.45 | % |
Time deposits | Time deposits | 1,860,058 | | | 7,964 | | | 1.71 | % | | 2,537,155 | | | 15,496 | | | 2.44 | % | Time deposits | 1,333,848 | | | 3,506 | | | 1.05 | % | | 1,860,058 | | | 7,964 | | | 1.71 | % |
| Advances from the FHLB | Advances from the FHLB | 234,649 | | | 1,326 | | | 2.26 | % | | 948,475 | | | 4,495 | | | 1.90 | % | Advances from the FHLB | 272,033 | | | 973 | | | 1.43 | % | | 234,649 | | | 1,326 | | | 2.26 % |
| Borrowings, subordinated notes and debentures
| | Borrowings, subordinated notes and debentures
| 261 | | | — | | | — | % | | 147,354 | | | 130 | | | 0.35 % |
Total interest-bearing liabilities | Total interest-bearing liabilities | 9,633,605 | | | 17,774 | | | 0.74 | % | | 7,984,305 | | | 37,476 | | | 1.88 | % | Total interest-bearing liabilities | 8,225,945 | | | 8,795 | | | 0.43 | % | | 9,633,605 | | | 17,774 | | | 0.74 | % |
Non-interest-bearing demand deposits | Non-interest-bearing demand deposits | 2,057,615 | | | 1,766,740 | | | Non-interest-bearing demand deposits | 3,784,965 | | | 2,057,615 | | |
Other non-interest-bearing liabilities | Other non-interest-bearing liabilities | 126,001 | | | 78,492 | | | Other non-interest-bearing liabilities | 131,229 | | | 126,001 | | |
Stockholders’ equity | Stockholders’ equity | 1,195,624 | | | 1,066,721 | | | Stockholders’ equity | 1,380,546 | | | 1,195,624 | | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 13,012,845 | | | $ | 10,896,258 | | | Total liabilities and stockholders’ equity | $ | 13,522,685 | | | $ | 13,012,845 | | |
Net interest income | Net interest income | | | $ | 132,165 | | | | | $ | 105,340 | | | Net interest income | | | $ | 142,259 | | | | | $ | 132,165 | | |
Interest rate spread5 | Interest rate spread5 | | | | 3.93 | % | | | | 3.47 | % | Interest rate spread5 | | | | 4.14 | % | | | | 3.93 | % |
Net interest margin6 | Net interest margin6 | | 4.11 | % | | 3.94 | % | Net interest margin6 | | 4.30 | % | | 4.11 | % |
1Average balances are obtained from daily data.
2Annualized.
3Loans and leases include loans held for sale, loan premiums and unearned fees.
4Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees. Loan fee income is not significant. Loans and leases include average balances of $27.3$26.5 million and $28.0$27.3 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 20202021 and 20192020 three-month periods, respectively.
5Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.
6Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents our Banking Business segment’s information regarding (i) average balances; (ii) the total amount of interest income from interest-earning assets and the weighted average yields on such assets; (iii) the total amount of interest expense on interest-bearing liabilities and the weighted average rates paid on such liabilities; (iv) net interest income; (v) interest rate spread; and (vi) net interest margin for the six months ended December 31, 2020 and 2019:margin:
| | | For the Six Months Ended | | For the Six Months Ended |
| | December 31, | | December 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
(Dollars in thousands) | (Dollars in thousands) | Average Balance1 | | Interest Income/ Expense | | Average Yields Earned/Rates Paid2 | | Average Balance1 | | Interest Income/ Expense | | Average Yields Earned/Rates Paid2 | (Dollars in thousands) | Average Balance1 | | Interest Income/ Expense | | Average Yields Earned/Rates Paid2 | | Average Balance1 | | Interest Income/ Expense | | Average Yields Earned/Rates Paid2 |
Assets: | Assets: | | | | | | | | | | | | Assets: | | | | | | | | | | | |
Loans and leases3, 4 | $ | 11,077,492 | | | $ | 287,005 | | | 5.18 | % | | $ | 9,705,585 | | | $ | 270,489 | | | 5.57 | % | |
Loans3, 4 | | Loans3, 4 | $ | 11,849,452 | | | $ | 297,803 | | | 5.03 | % | | $ | 11,077,492 | | | $ | 287,005 | | | 5.18 | % |
Interest-earning deposits in other financial institutions | Interest-earning deposits in other financial institutions | 1,390,747 | | | 716 | | | 0.10 | % | | 606,871 | | | 5,961 | | | 1.96 | % | Interest-earning deposits in other financial institutions | 921,695 | | | 713 | | | 0.15 | % | | 1,390,747 | | | 716 | | | 0.10 % |
Securities4 | 229,799 | | | 5,928 | | | 5.16 | % | | 203,975 | | | 5,633 | | | 5.52 | % | |
Mortgage-backed and other investment securities4 | | Mortgage-backed and other investment securities4 | 171,981 | | | 3,004 | | | 3.49 | % | | 229,799 | | | 5,928 | | | 5.16 | % |
Stock of the regulatory agencies | Stock of the regulatory agencies | 17,250 | | | 419 | | | 4.86 | % | | 23,414 | | | 827 | | | 7.06 | % | Stock of the regulatory agencies | 17,613 | | | 530 | | | 6.02 | % | | 17,250 | | | 419 | | | 4.86 | % |
Total interest-earning assets | Total interest-earning assets | 12,715,288 | | | 294,068 | | | 4.63 | % | | 10,539,845 | | | 282,910 | | | 5.37 | % | Total interest-earning assets | 12,960,741 | | | 302,050 | | | 4.66 | % | | 12,715,288 | | | 294,068 | | | 4.63 | % |
Non-interest-earning assets | Non-interest-earning assets | 156,007 | | | 201,775 | | | Non-interest-earning assets | 294,156 | | | 156,007 | | |
Total assets | Total assets | $ | 12,871,295 | | | $ | 10,741,620 | | | Total assets | $ | 13,254,897 | | | $ | 12,871,295 | | |
Liabilities and Stockholders’ Equity: | Liabilities and Stockholders’ Equity: | | | | | Liabilities and Stockholders’ Equity: | | | | |
Interest-bearing demand and savings | Interest-bearing demand and savings | $ | 7,245,289 | | | $ | 17,509 | | | 0.48 | % | | $ | 4,851,899 | | | $ | 40,898 | | | 1.69 | % | Interest-bearing demand and savings | $ | 6,617,301 | | | $ | 7,910 | | | 0.24 | % | | $ | 7,245,289 | | | $ | 17,509 | | | 0.48 | % |
Time deposits | Time deposits | 1,959,299 | | | 18,427 | | | 1.88 | % | | 2,511,527 | | | 30,941 | | | 2.46 | % | Time deposits | 1,348,454 | | | 7,651 | | | 1.13 | % | | 1,959,299 | | | 18,427 | | | 1.88 | % |
| Advances from the FHLB | Advances from the FHLB | 238,574 | | | 2,698 | | | 2.26 | % | | 627,622 | | | 6,259 | | | 1.99 | % | Advances from the FHLB | 283,717 | | | 1,989 | | | 1.40 | % | | 238,574 | | | 2,698 | | | 2.26 | % |
Borrowings, subordinated notes and debentures
| Borrowings, subordinated notes and debentures
| 149,653 | | | 262 | | | 0.35 | % | | — | | | — | | | — | % | Borrowings, subordinated notes and debentures
| 152 | | | — | | | — | % | | 149,653 | | | 262 | | | 0.35 | % |
Total interest-bearing liabilities | Total interest-bearing liabilities | 9,592,815 | | | 38,896 | | | 0.81 | % | | 7,991,048 | | | 78,098 | | | 1.95 | % | Total interest-bearing liabilities | 8,249,624 | | | 17,550 | | | 0.43 | % | | 9,592,815 | | | 38,896 | | | 0.81 | % |
Non-interest-bearing demand deposits | Non-interest-bearing demand deposits | 1,988,235 | | | 1,615,396 | | | Non-interest-bearing demand deposits | 3,511,837 | | | 1,988,235 | | |
Other non-interest-bearing liabilities | Other non-interest-bearing liabilities | 130,736 | | | 82,420 | | | Other non-interest-bearing liabilities | 141,222 | | | 130,736 | | |
Stockholders’ equity | Stockholders’ equity | 1,159,509 | | | 1,052,756 | | | Stockholders’ equity | 1,352,214 | | | 1,159,509 | | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 12,871,295 | | | $ | 10,741,620 | | | Total liabilities and stockholders’ equity | $ | 13,254,897 | | | $ | 12,871,295 | | |
Net interest income | Net interest income | | | $ | 255,172 | | | | | $ | 204,812 | | | Net interest income | | | $ | 284,500 | | | | | $ | 255,172 | | |
Interest rate spread5 | Interest rate spread5 | | | | 3.82 | % | | | | 3.42 | % | Interest rate spread5 | | | | 4.23 | % | | | | 3.82 | % |
Net interest margin6 | Net interest margin6 | | 4.01 | % | | 3.89 | % | Net interest margin6 | | 4.39 | % | | 4.01 | % |
1Average balances are obtained from daily data.
2Annualized.
3Loans and leases include loans held for sale, loan premiums and unearned fees.
4Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees. Loan fee income is not significant. Loans and leases include average balances of $27.4$26.6 million and $28.1$27.4 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 20202021 and 20192020 six-month periods, respectively.
5Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.
6Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table sets forth the effects of changing rates and volumes on our net interest income for our Banking Business segment. Information is provided with respect to (i) effects on interest income and interest expense attributable to changes in volume (changes in volume multiplied by prior rate); (ii) effects on interest income and interest expense attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) changes in rate/volume (change in rate multiplied by. The change in volume) for the threeinterest due to both volume and six months ended December 31, 2020 and 2019:rate has been allocated proportionally to both, based on their relative absolute values.:
| | | For the Three Months Ended | | For the Six Months Ended | | For the Three Months Ended | | For the Six Months Ended |
| | December 31, | | December 31, | | December 31, | | December 31, |
| | 2020 vs 2019 | | 2020 vs 2019 | | 2021 vs 2020 | | 2021 vs 2020 |
| | Increase (Decrease) Due to | | Increase (Decrease) Due to | | Increase (Decrease) Due to | | Increase (Decrease) Due to |
(Dollars in thousands) | (Dollars in thousands) | Volume | | Rate | | | Total Increase (Decrease) | | Volume | | Rate | | | Total Increase (Decrease) | (Dollars in thousands) | Volume | | Rate | | | Total Increase (Decrease) | | Volume | | Rate | | | Total Increase (Decrease) |
Increase / (decrease) in interest income: | Increase / (decrease) in interest income: | | | | | | | | | | | | | | Increase / (decrease) in interest income: | | | | | | | | | | | | | |
Loans and leases | $ | 20,856 | | | $ | (11,131) | | | | $ | 9,725 | | | $ | 37,072 | | | $ | (20,556) | | | | $ | 16,516 | | |
Loans | | Loans | $ | 9,002 | | | $ | (6,369) | | | | $ | 2,633 | | | $ | 19,367 | | | $ | (8,569) | | | | $ | 10,798 | |
| Interest-earning deposits in other financial institutions | Interest-earning deposits in other financial institutions | 2,290 | | | (4,600) | | | | (2,310) | | | 4,588 | | | (9,833) | | | | (5,245) | | Interest-earning deposits in other financial institutions | (87) | | | 139 | | | | 52 | | | (282) | | | 279 | | | | (3) | |
Mortgage-backed and other investment securities | Mortgage-backed and other investment securities | 14 | | | 6 | | | | 20 | | | 165 | | | 130 | | | | 295 | | Mortgage-backed and other investment securities | (772) | | | (842) | | | | (1,614) | | | (1,279) | | | (1,645) | | | | (2,924) | |
Stock of the regulatory agencies, at cost | Stock of the regulatory agencies, at cost | (188) | | | (124) | | | | (312) | | | (191) | | | (217) | | | | (408) | | Stock of the regulatory agencies, at cost | 2 | | | 42 | | | | 44 | | | 9 | | | 102 | | | | 111 | |
| | $ | 22,972 | | | $ | (15,849) | | | | $ | 7,123 | | | $ | 41,634 | | | $ | (30,476) | | | | $ | 11,158 | | | $ | 8,145 | | | $ | (7,030) | | | | $ | 1,115 | | | $ | 17,815 | | | $ | (9,833) | | | | $ | 7,982 | |
Increase / (decrease) in interest expense: | Increase / (decrease) in interest expense: | | | | | | | | | | | | | | Increase / (decrease) in interest expense: | | | | | | | | | | | | | |
Interest-bearing demand and savings | Interest-bearing demand and savings | $ | 9,802 | | | $ | (18,933) | | | | $ | (9,131) | | | $ | 16,350 | | | $ | (39,739) | | | | $ | (23,389) | | Interest-bearing demand and savings | $ | (800) | | | $ | (3,238) | | | | $ | (4,038) | | | $ | (1,418) | | | $ | (8,181) | | | | $ | (9,599) | |
Time deposits | Time deposits | (3,465) | | | (4,067) | | | | (7,532) | | | (5,919) | | | (6,595) | | | | (12,514) | | Time deposits | (1,886) | | | (2,572) | | | | (4,458) | | | (4,727) | | | (6,049) | | | | (10,776) | |
| Advances from the FHLB | Advances from the FHLB | (3,097) | | | (72) | | | | (3,169) | | | (3,463) | | | (98) | | | | (3,561) | | Advances from the FHLB | 188 | | | (541) | | | | (353) | | | 446 | | | (1,155) | | | | (709) | |
Borrowings, subordinated notes and debentures
| Borrowings, subordinated notes and debentures
| 130 | | | — | | | | 130 | | | 262 | | | — | | | | 262 | | Borrowings, subordinated notes and debentures
| (65) | | | (65) | | | | (130) | | | (131) | | | (131) | | | | (262) | |
| | $ | 3,370 | | | $ | (23,072) | | | | $ | (19,702) | | | $ | 7,230 | | | $ | (46,432) | | | | $ | (39,202) | | | $ | (2,563) | | | $ | (6,416) | | | | $ | (8,979) | | | $ | (5,830) | | | $ | (15,516) | | | | $ | (21,346) | |
The Banking Business segment’s net interest income for the three and six months ended December 31, 20202021 totaled $132.2$142.3 million and $255.2$284.5 million, an increase of 25.5%7.6% and 24.6%an increase of 11.5%, compared to net interest income of $105.3$132.2 million and $204.8$255.2 million for the three and six months ended December 31, 2019,2020, respectively. The growth of net interest incomeincrease for both the three and six months ended December 31, 2020 is2021 was primarily due to an increase in average earning assets and athe reduction in the rates paid on interest-bearing demand and savings deposits, and increased interest income due to decreasesgrowth in prevailing deposit rates across the industry.loan portfolio, partially offset by reduced yields on interest earning assets.
The Banking Business segment’s non-interest income increased $6.1 million from $16.2decreased $6.0 million to $22.3$16.3 million and increased $20.5 million from $32.0decreased $21.4 million to $52.5$31.1 million for the three and six months ended December 31, 20202021 compared to the three and six months ended December 31, 2019,2020, respectively. The $6.1 million increase in non-interest income for the three months ended December 31, 2020,net decrease was primarilymainly the result of an increase of $7.9 million indecreased mortgage banking income partially offset by a decrease of $1.8 million in gain on sale-other, as certain sales of lottery receivables in the three months ended December 31, 2019and decreased banking and service fees from Emerald Prepaid Mastercard® and Refund Transfer products associated with H&R Block that did not recur in the three months ended December 31, 2020. The $20.5 million increase in non-interest income for the six months ended December 31, 2020, was primarily the result of a $24.7 million increase in mortgage banking income, $1.5 million increase in banking and service fees,2021, partially offset by a decrease of $5.3 millionincreases in gain on sale-other, as certain sales of lottery receivables in the six months ended December 31, 2019 did not recur in the six months ended December 31, 2020.
The Banking segment’s non-interest expense increased $9.2 million and $19.8 millionprepayment penalty fee income for the three and six months ended December 31, 20202021, as compared to the three and six months ended December 31, 2019, respectively.2020.
The Banking Business segment’s non-interest expense was flat for the three months ended December 31, 2021 and increased $1.5 million for the six months ended December 31, 2021 compared to the three and six months ended December 31, 2020. For the three months ended December 31, 20202021 compared to the three months ended December 31, 2019, the $9.2 million increase of2020, non-interest expense was primarilyflat due to a $5.9$3.4 million increase in other general and administrative expenses, partially offset by a $3.3 million decrease of salaries and related expenses related to an increase in staffing to support the overall growth of the Bank, a $2.4 million increase in data processing expense, an increase of $1.7 million in FDIC and regulatory fees due to a small bank assessment credit received from the FDIC during the three months ended December 31, 2019 that did not recur in 2020, and a $1.6 million increase in professional services, partially offset by a $1.4 million decrease in other and general expense and a $0.7 million decrease in advertising and promotional expense.expenses. For the six months ended December 31, 20202021 compared to the six months ended December 31, 2019,2020, the $19.8$1.5 million increase was primarily due to a $9.1$5.2 million increase in salariesother general and relatedadministrative expenses, related to an increase in staffing to support the overall growth of the Bank, a $5.7 million increase in professional services, an increase of $4.1 million in FDIC and regulatory fees due to a small bank
assessment credit received during the six months ended December 31, 2019 that did not recur in 2020, and a $2.5$4.8 million increase in data processing expense, and a $0.7$2.9 million increase in depreciationadvertising and amortization,promotional expense, partially offset by a $6.4 million decrease of $2.5salaries and related expenses, a $2.1 million decrease in advertisingprofessional fees, a $1.3 million decrease in Depreciation and promotional expense.amortization, a $0.7 million decrease in Occupancy and equipment, and a $0.5 million decrease in regulatory fees.
Securities Business
For the three months ended December 31, 2020,2021, our Securities Business segment had a loss before taxes of $0.5$0.7 million compared to a loss before taxes of $0.1$0.5 million for the three months ended December 31, 2019.2020. For the six months ended
December 31, 2020,2021, our Securities Business segment had a loss before taxes of $1.2$0.7 million compared to incomea loss before taxes of $0.3$1.2 million for the six months ended December 31, 2020.
Net interest income for the three months ended December 31, 2020,2021, increased $0.3$0.2 million to $4.3$4.5 million compared to $4.0 million for the three months ended December 31, 2019.2020. Net interest income for the six months ended December 31, 2020 at $9.22021 increased $1.5 million was flatto $10.7 million compared to $9.2 million for the six months ended December 31, 2019.2020. The $0.3 million increase for the three months ended December 31, 2020 wasincreases were primarily a result of growthincrease in earning assets, partially offset by decreases in prevailing market rates. The negligible change for the six months ended December 31, 2020 was due to decreases in prevailing market rates, offset by growth in earning assetsaverage interest-earning balance of securities borrowed and decreased borrowing costs.margin lending. In the Securities Business, interest is earned through margin loan balances, securities borrowed, and cash deposit balances. Interest expense is incurred from cash borrowed through bank lines and securities lending.
The non-interestNon-interest income during the three months ended December 31, 2020, was $6.62021, increased $9.9 million to $16.5 million compared to $6.3 million for the three months ended December 31, 2019.2020. The increases were primarily $8.0 million attributable to the addition of AAS custody and mutual funds fees, an increase was primarily the result of a$1.2 million in fees earned on FDIC insured bank deposits, an increase of $0.3 million in correspondent fees, and an increase to $6.4of $0.2 million of broker-dealer fee income primarily due to increased volumes in tradingclearing and securities lending, partially offset by decreases in the prevailing deposit rates.custodial related fees. Non-interest income during the six months ended December 31, 2020 was $12.42021 increased $17.2 million to $29.6 million compared to $12.7 million for the six months ended December 31, 2019.2020. The decrease wasincreases were primarily $13.3 million attributable to the resultaddition of a $0.4AAS custody and mutual funds fees, an increase of $2.1 million decrease to $12.2in fees earned on FDIC insured bank deposits, an increase of $0.9 million in correspondent fees, an increase of $0.6 million of broker-dealer fee income primarily due to decreases in the prevailing deposit rates, partially offset by increased volumes in tradingclearing and securities lending.
Non-interest expense was $11.3custodial related fees, and an increase of $0.2 million and $22.7 million during the three and six months ended December 31, 2020 compared to $10.5 million and $21.5 million for the three and six months ended December 31, 2019, respectively.of clearing technology services.
Non-interest expense increased $0.9$10.3 million to $21.7 million for the three months ended December 31, 2020, primarily2021 from the result of a $1.1$11.3 million increase in professional services and a $0.6 million increase in broker-dealer clearing charges, partially offset by a decrease of $0.6 million decrease in salaries and related expenses. Forfor the three months ended December 31, 2020, non-interest expense2020. The increase was primarily made up of $4.1 million in salaries and related expenses related to staffing, $2.5 million in broker-dealer clearing charges, $1.3 million in data processing, $1.4 million in professional services and $1.0 million in other and general expense. For the three months ended December 31, 2019, non-interest expense was primarily made upan increase of $4.7 million in salaries and related expenses related to staffing $1.9and the acquisition of AAS, an increase of $1.5 million in data processing, an increase of $1.3 million depreciation and amortization expense, and an increase of $1.2 million in broker-dealer clearing charges, $1.4 million in data processing, $0.3 million in professional services and $1.1 million in other and general expense.
charges. Non-interest expense increased $1.1$18.3 million to $40.9 million for the six months ended December 31, 2020, primarily the result of a $1.02021, from $22.7 million increase in professional services and a $0.8 million increase in broker-dealer clearing charges, partially offset by a $0.2 million decrease in salaries and related expenses and a $0.3 million decrease in other general and administrative expenses. Forfor the six months ended December 31, 2020, non-interest expense2020. The increase was primarily made uprelated to an increase of $9.1 million in salaries and related expenses related to staffing $4.7and the acquisition of AAS, an increase of $3.0 million in broker-dealer clearing charges, $2.7an increase of $1.8 million in data processing, $2.3an increase of $1.7 million in professional services, $1.8 million in other and general expense and $1.3 million in depreciation and amortization expense. For the six months ended December 31, 2019, non-interest expense was primarily made up of $9.3 million in salaries and related expenses related to staffing, $3.9 million in broker-dealer clearing charges, $2.8 million in data processing, $1.3 million in professional services, $2.1 million in other and general expense, and $1.2an increase of $1.1 million in depreciationoccupancy and amortizationequipment expense.
Selected information concerning the Securities segment follows as of and for the three months ended:
| | | December 31, | | December 31, |
(Dollars in thousands) | (Dollars in thousands) | 2020 | | 2019 | (Dollars in thousands) | 2021 | | 2020 |
Compensation as a % of net revenue | Compensation as a % of net revenue | 33.2 | % | | 37.9 | % | Compensation as a % of net revenue | 39.9 | % | | 33.2 | % |
FDIC insured program balances (end of period) | FDIC insured program balances (end of period) | $ | 772,801 | | | $ | 357,629 | | FDIC insured program balances (end of period) | $ | 2,216,939 | | | $ | 772,801 | |
Customer margin balances (end of period) | Customer margin balances (end of period) | $ | 231,189 | | | $ | 226,231 | | Customer margin balances (end of period) | $ | 328,607 | | | $ | 231,189 | |
Customer funds on deposit, including short credits (end of period) | Customer funds on deposit, including short credits (end of period) | $ | 313,297 | | | $ | 96,237 | | Customer funds on deposit, including short credits (end of period) | $ | 259,626 | | | $ | 313,297 | |
| Clearing: | Clearing: | | Clearing: | |
Total tickets | Total tickets | 1,314,534 | | | 744,365 | | Total tickets | 2,113,270 | | | 1,314,534 | |
Correspondents (end of period) | Correspondents (end of period) | 63 | | | 63 | | Correspondents (end of period) | 68 | | | 63 | |
| Securities lending: | Securities lending: | | Securities lending: | |
Interest-earning assets – stock borrowed (end of period) | Interest-earning assets – stock borrowed (end of period) | $ | 317,571 | | | $ | 168,114 | | Interest-earning assets – stock borrowed (end of period) | $ | 534,243 | | | $ | 317,571 | |
Interest-bearing liabilities – stock loaned (end of period) | Interest-bearing liabilities – stock loaned (end of period) | $ | 362,170 | | | $ | 206,199 | | Interest-bearing liabilities – stock loaned (end of period) | $ | 578,762 | | | $ | 362,170 | |
|
FINANCIAL CONDITION
Balance Sheet Analysis
Total assets increased $541.4$1,282.4 million, or 3.9%9.0%, to $14.4$15.5 billion, as of December 31, 2020,2021, up from $13.9$14.3 billion at June 30, 2020.2021. The increase in total assets was mainly due to an increase of $978.2$1,192.4 million in net loans and leases held for investment, and an increase of $95.2$80.6 million in securities borrowed, partially offset by a decrease in cash and cash equivalents, of $507.3 million. Total liabilities increased $484.7 million, primarily from increased borrowings of $182.7 million,and an increase of $59.8 million in customer, broker-dealer and clearing payables, of $127.9 million, growth in deposits of $126.4 million, and an increase of $106.2 million in securities loaned, partially offset by a decrease of $60.0$84.8 million in securities borrowed. Total liabilities increased $1,160.2 million, primarily due to growth in deposits of $1,453.4 million, partially offset by a decrease of $196.0 million in advances from the FHLB.FHLB and a decrease of $150.2 million in securities loaned.
Loans
Net loans and leases held for investment increased 9.2%10.4% to $11.6$12.6 billion atas of December 31, 20202021 from $10.6$11.4 billion at June 30, 2020.2021. The increase in the loan and lease portfolio was primarily due to loan and lease originations of $2.5 billion and mortgage warehouse loan originations of $0.7$4.6 billion, partially offset by loan and lease repayments and other adjustments of $2.2 billion and an adjustment of approximately $47.3 million to the allowance for credit losses - loans resulting from the adoption of ASC 326 during the six months ended December 31, 2020.$3.4 billion.
The following table sets forth the composition of the loan and lease portfolio as of the dates indicated:
| | | December 31, 2020 | | June 30, 2020 | | December 31, 2021 | | June 30, 2021 |
(Dollars in thousands) | (Dollars in thousands) | Amount | | Percent | | Amount | | Percent | (Dollars in thousands) | Amount | | Percent | | Amount | | Percent |
Single Family - Mortgage & Warehouse | Single Family - Mortgage & Warehouse | $ | 5,252,810 | | | 44.7 | % | | $ | 4,722,304 | | | 44.1 | % | Single Family - Mortgage & Warehouse | $ | 4,281,646 | | | 33.5 | % | | $ | 4,359,472 | | | 37.8 | % |
Multifamily and Commercial Mortgage | Multifamily and Commercial Mortgage | 2,363,024 | | | 20.1 | % | | 2,263,054 | | | 21.1 | % | Multifamily and Commercial Mortgage | 2,483,932 | | | 19.5 | % | | 2,470,454 | | | 21.4 | % |
Commercial Real Estate | Commercial Real Estate | 2,720,922 | | | 23.2 | % | | 2,297,920 | | | 21.5 | % | Commercial Real Estate | 3,857,367 | | | 30.2 | % | | 3,180,453 | | | 27.5 | % |
Commercial & Industrial - Non-RE | Commercial & Industrial - Non-RE | 933,081 | | | 7.9 | % | | 885,320 | | | 8.3 | % | Commercial & Industrial - Non-RE | 1,631,811 | | | 12.8 | % | | 1,123,869 | | | 9.7 | % |
Auto & Consumer | Auto & Consumer | 327,340 | | | 2.8 | % | | 341,365 | | | 3.1 | % | Auto & Consumer | 478,636 | | | 3.8 | % | | 362,180 | | | 3.1 | % |
Other | Other | 151,496 | | | 1.3 | % | | 193,479 | | | 1.8 | % | Other | 22,282 | | | 0.2 | % | | 58,316 | | | 0.5 | % |
Total gross loans and leases | 11,748,673 | | | 100.0 | % | | 10,703,442 | | | 100.0 | % | |
Allowance for loan and lease losses | (136,393) | | | | | (75,807) | | | | |
Unaccreted discounts and loan and lease fees | (2,696) | | | 3,714 | | | |
Total net loans and leases | $ | 11,609,584 | | | $ | 10,631,349 | | | |
Total gross loans | | Total gross loans | 12,755,674 | | | 100.0 | % | | 11,554,744 | | | 100.0 | % |
Allowance for credit losses - loans | | Allowance for credit losses - loans | (140,489) | | | | | (132,958) | | | |
Unaccreted discounts and loan fees | | Unaccreted discounts and loan fees | (8,006) | | | (6,972) | | |
Total net loans | | Total net loans | $ | 12,607,179 | | | $ | 11,414,814 | | |
The Bank originates some single family interest only loans with terms that include repayments that are less than the repayments for fully amortizing loans. The Bank’s lending guidelines for interest only loans are adjusted for the increased credit risk associated with these loans by requiring borrowers with such loans to borrow at LTVs that are lower than standard amortizing ARM loans and by calculating debt to income ratios for qualifying borrowers based upon a fully amortizing
payment, not the interest only payment. The Bank monitors and performs reviews of interest only loans. Adverse trends reflected in the Company’s delinquency statistics, grading and classification of interest only loans would be reported to management and the Board of Directors. As of December 31, 2020,2021, the Company had $1.3$1.1 billion of interest only mortgage loans.
Asset Quality and Allowance for Loan and Lease Losses
Non-performing Assets
Non-performing loans are comprised of loans past due 90 days or more on nonaccrual status and other nonaccrual loans. Non-performing assets include non-performing loans plus other real estate owned and repossessed vehicles. At December 31, 2020,2021, our non-performing loans totaled $169.3$145.9 million, or 1.44%1.14% of total gross loans and our non-performing loans and foreclosed assets or “non-performing assets” totaled $175.6$146.2 million, or 1.22%0.94% of total assets.
Non-performing assets consisted of the following as of the dates indicated:
| (Dollars in thousands) | (Dollars in thousands) | December 31, 2020 | | June 30, 2020 | | Inc (Dec) | (Dollars in thousands) | December 31, 2021 | | June 30, 2021 | | Inc (Dec) |
Non-performing assets: | Non-performing assets: | | | | | | Non-performing assets: | | | | | |
Non-accrual loans and leases: | Non-accrual loans and leases: | | Non-accrual loans and leases: | |
Single Family - Mortgage & Warehouse | Single Family - Mortgage & Warehouse | $ | 117,189 | | | $ | 84,030 | | | 33,159 | | Single Family - Mortgage & Warehouse | $ | 122,326 | | | $ | 105,708 | | | $ | 16,618 | |
Multifamily and Commercial Mortgage | Multifamily and Commercial Mortgage | 32,130 | | | 3,425 | | | 28,705 | | Multifamily and Commercial Mortgage | 7,688 | | | 20,428 | | | (12,740) | |
Commercial Real Estate | Commercial Real Estate | 16,631 | | | — | | | 16,631 | | Commercial Real Estate | 15,244 | | | 15,839 | | | (595) | |
Commercial & Industrial - Non-RE | Commercial & Industrial - Non-RE | 2,960 | | | 213 | | | 2,747 | | Commercial & Industrial - Non-RE | — | | | 2,942 | | | (2,942) | |
Auto & Consumer | Auto & Consumer | 354 | | | 273 | | | 81 | | Auto & Consumer | 620 | | | 278 | | | 342 | |
Other | Other | — | | | — | | | — | | Other | 55 | | | — | | | 55 | |
Total non-performing loans | Total non-performing loans | 169,264 | | | 87,941 | | | 81,323 | | Total non-performing loans | 145,933 | | | 145,195 | | | 738 | |
Foreclosed real estate | Foreclosed real estate | 6,114 | | | 6,114 | | | — | | Foreclosed real estate | — | | | 6,547 | | | (6,547) | |
Repossessed—Auto and RV | Repossessed—Auto and RV | 182 | | | 294 | | | (112) | | Repossessed—Auto and RV | 251 | | | 235 | | | 16 | |
Total non-performing assets | Total non-performing assets | $ | 175,560 | | | $ | 94,349 | | | $ | 81,211 | | Total non-performing assets | $ | 146,184 | | | $ | 151,977 | | | $ | (5,793) | |
Total non-performing loans as a percentage of total loans | Total non-performing loans as a percentage of total loans | 1.44 | % | | 0.82 | % | | 0.62 | % | Total non-performing loans as a percentage of total loans | 1.14 | % | | 1.26 | % | | (0.12) | % |
Total non-performing assets as a percentage of total assets | Total non-performing assets as a percentage of total assets | 1.22 | % | | 0.68 | % | | 0.54 | % | Total non-performing assets as a percentage of total assets | 0.94 | % | | 1.07 | % | | (0.13) | % |
Total non-performing assets increaseddecreased from $94.3$152.0 million at June 30, 20202021 to $175.6$146.2 million at December 31, 2020.2021. The increasedecrease in non-performing assets of approximately $81.2$5.8 million, was primarily attributable to single family,resolutions of multifamily and commercial mortgage loans, and foreclosed real estate loans.estate. Non-performing single family mortgagessingle-family loans increased $33.2 million to $117.2 million between June 30, 2020 and December 31, 2020 primarily as a result of loans coming off forbearance temporarily granted due to COVID-19.by $16.6 million. The Company ended forbearance for all single family mortgage borrowers during the quarter ended September 30, 2020. The weighted averageweighted-average LTV of the non-performing single family mortgage loans was 58.8% at56.5% as of December 31, 2020. Non-performing multifamily mortgage loans increased $28.7 million to $32.1 million as a result of decline on a macroeconomic level. The weighted average LTV of the non-performing multifamily mortgage loans was 53.7% at December 31, 2020. The weighted average LTV of the non-performing commercial real estate loans was 47.0% at December 31, 20202021.
The Bank had no performing troubled debt restructurings atas of December 31, 20202021 and June 30, 2020.2021. A troubled debt restructuring is a concession made to a borrower experiencing financial difficulties, typically permanent or temporary modifications of principal and interest payments or an extension of maturity dates. When a loan is delinquent and classified as a troubled debt restructuring, no interest is accrued until the borrower demonstrates over time (typically six months) that it can make payments. When a loan is considered a troubled debt restructuring and is on nonaccrual, it is considered non-performing and included in the table above.
Allowance for Credit Losses - Loans
On July 1, 2020, the Company adopted ASC 326. The update replaces the historical incurred loss model to a current expected loss model, resulting, generally, in earlier recognition of loss. Refer to Note 1 - Summary of Significant Accounting Policies within thisin our Annual Report on Form 10-Q10-K for the Quarterly Periodfiscal year ended December 31, 2020June 30, 2021 for furthergreater detail on the accounting adoption along with detail of the processes and approaches involved in determining the allowance for credit losses under the new guidance.
The following table reflects management’s allocation of the allowance for credit losses - loans by loan category and the ratio of each loan category to total loans as of the dates indicated:
| | | December 31, 2020 | | June 30, 2020 | | December 31, 2021 | | June 30, 2021 |
(Dollars in thousands) | (Dollars in thousands) | Amount of Allowance | | Allocation as a % of Allowance | | Amount of Allowance | | Allocation as a % of Allowance | (Dollars in thousands) | Amount of Allowance | | Allocation as a % of Allowance | | Amount of Allowance | | Allocation as a % of Allowance |
Single Family Real Estate | Single Family Real Estate | $ | 32,727 | | | 24.0 | % | | $ | 25,901 | | | 34.2 | % | Single Family Real Estate | $ | 25,580 | | | 18.2 | % | | $ | 26,604 | | | 20.0 | % |
Multifamily Real Estate | Multifamily Real Estate | 12,889 | | | 9.4 | % | | 4,718 | | | 6.2 | % | Multifamily Real Estate | 13,628 | | | 9.7 | % | | 13,146 | | | 9.9 | % |
Commercial Real Estate | Commercial Real Estate | 56,715 | | | 41.7 | % | | 21,052 | | | 27.8 | % | Commercial Real Estate | 67,581 | | | 48.0 | % | | 57,928 | | | 43.6 | % |
Commercial and Industrial - Non-RE | Commercial and Industrial - Non-RE | 19,129 | | | 14.0 | % | | 9,954 | | | 13.1 | % | Commercial and Industrial - Non-RE | 22,716 | | | 16.2 | % | | 28,460 | | | 21.4 | % |
Consumer and Auto | Consumer and Auto | 7,413 | | | 5.4 | % | | 9,461 | | | 12.5 | % | Consumer and Auto | 10,921 | | | 7.8 | % | | 6,519 | | | 4.9 | % |
Other | Other | 7,520 | | | 5.5 | % | | 4,721 | | | 6.2 | % | Other | 63 | | | 0.1 | % | | 301 | | | 0.2 | % |
Total | Total | $ | 136,393 | | | 100.0 | % | | $ | 75,807 | | | 100.0 | % | Total | $ | 140,489 | | | 100.0 | % | | $ | 132,958 | | | 100.0 | % |
The provision for credit losses was $4.0 million and $8.0 million for the three months ended December 31, 2021 and 2020, respectively. The provision for credit losses was $8.0 million and $4.5 million for the three months ended December 31, 2020 and 2019, respectively. The provision for credit losses was $19.8 million and $7.2 million for the six months ended December 31, 20202021 and 2019,2020, respectively. The increasedecrease in the provision for credit losses for the three and six months ended December 31, 2020,2021, were primarily due to favorable changes in economic and business conditions resulting from reduced levels of disruptions from the COVID-19 pandemic between December 31, 2020 and December 31, 2021, partially offset by loan growth updates on a macroeconomic level relating to COVID-19 and a changechanges in the provision for the credit loss methodology from the incurred loss model to a current expected credit loss model as described under “Critical Accounting Policies”.loan mix. We believe that the lower average LTV in the Bank’s mortgage loan portfolio will continue to result in future lower average mortgage loan charge-offs when compared to many other comparable banks. The resolution of the Bank’s existing other real estate owned and non-performing loans should not have a significant adverse impact on our operating results.
Investment Securities
Total investment securities were $210.2$140.8 million as of December 31, 2020,2021, compared with $187.7$189.3 million at June 30, 2020.2021. During the six months ended December 31, 2020,2021, we purchased securities for $57.7$12.3 million and received principal repayments of approximately $56.1$58.6 million in our available-for-sale portfolio. The remainder of the change for the available-for-sale portfolio is attributable to accretion and other activities.
Deposits
Deposits increased a net $126.4 million,$1.5 billion, or 1.1%13.4%, to $11.5$12.3 billion at December 31, 2020,2021, from $11.3$10.8 billion at June 30, 2020.2021. Non-interest bearing deposits increased $265.3 million,$1.4 billion, or 13.7%55.5%, to $2.2$3.8 billion at December 31, 2020,2021, from $1.9 billion at June 30, 2020. Total interest-bearing2021, primarily due to deposits provided by the AAS acquisition. Time deposits decreased $138.8 million and total time deposits decreased by $435.2$226.4 million as higher costing time deposits matured.were run off.
The following table sets forth the composition of the deposit portfolio as of the dates indicated:
| | | December 31, 2020 | | June 30, 2020 | | December 31, 2021 | | June 30, 2021 |
(Dollars in thousands) | (Dollars in thousands) | Amount | | Rate1 | | Amount | | Rate1 | (Dollars in thousands) | Amount | | Rate1 | | Amount | | Rate1 |
Non-interest bearing | Non-interest bearing | $ | 2,201,932 | | | — | % | | $ | 1,936,661 | | | — | % | Non-interest bearing | $ | 3,847,461 | | | — | % | | $ | 2,474,424 | | | — | % |
Interest-bearing: | | |
Interest bearing: | | Interest bearing: | |
Demand | Demand | 4,022,562 | | | 0.24 | % | | 3,456,127 | | | 0.37 | % | Demand | 3,620,686 | | | 0.16 | % | | 3,369,845 | | | 0.15 | % |
Savings | Savings | 3,427,123 | | | 0.38 | % | | 3,697,188 | | | 0.78 | % | Savings | 3,514,610 | | | 0.23 | % | | 3,458,687 | | | 0.21 | % |
Total interest-bearing demand and savings | Total interest-bearing demand and savings | 7,449,685 | | | 0.31 | % | | 7,153,315 | | | 0.58 | % | Total interest-bearing demand and savings | 7,135,296 | | | 0.20 | % | | 6,828,532 | | | 0.18 | % |
Time deposits: | Time deposits: | | Time deposits: | |
$250 and under2 | $250 and under2 | 1,240,713 | | | 1.73 | % | | 1,584,034 | | | 2.12 | % | $250 and under2 | 877,488 | | | 1.26 | % | | 1,070,139 | | | 1.30 | % |
Greater than $250 | Greater than $250 | 570,806 | | | 1.36 | % | | 662,684 | | | 1.39 | % | Greater than $250 | 408,927 | | | 0.45 | % | | 442,702 | | | 1.03 | % |
Total time deposits | Total time deposits | 1,811,519 | | | 1.61 | % | | 2,246,718 | | | 1.91 | % | Total time deposits | 1,286,415 | | | 1.01 | % | | 1,512,841 | | | 1.22 | % |
Total interest bearing2 | Total interest bearing2 | 9,261,204 | | | 0.56 | % | | 9,400,033 | | | 0.90 | % | Total interest bearing2 | 8,421,711 | | | 0.32 | % | | 8,341,373 | | | 0.37 | % |
Total deposits | Total deposits | $ | 11,463,136 | | | 0.45 | % | | $ | 11,336,694 | | | 0.75 | % | Total deposits | $ | 12,269,172 | | | 0.22 | % | | $ | 10,815,797 | | | 0.29 | % |
1 Based on weighted-average stated interest rates at end of period.
2 The total interest-bearinginterest bearing includes brokered deposits of $1,297.4$415.3 million and $1,318.0$621.4 million as of December 31, 20202021 and June 30, 2020,2021, respectively, of which $419.6$350.0 million and $603.6$380.0 million, respectively, are time deposits classified as $250 and under.
The following table sets forth the number of deposit accounts by type as of the date indicated:
| | | | | | | | | | | | | | | | | |
| December 31, 2020 | | June 30, 2020 | | December 31, 2019 |
Non-interest bearing, prepaid and other | 30,068 | | | 3,361,965 | | 4,372,046 | |
Checking and savings accounts | 314,145 | | | 310,463 | | 303,033 | |
Time deposits | 15,797 | | | 18,450 | | 22,154 | |
Total number of deposit accounts | 360,010 | | | 3,690,878 | | 4,697,233 |
Our non-interest bearing, prepaid and other accounts contained two omnibus accounts that when condensed for regulatory reporting purposes result in 27,108 accounts at June 30, 2020 and 21,104 accounts as of December 31, 2019. The two omnibus accounts represented $351.9 million and $282.5 million at June 30, 2020 and December 31, 2019, respectively. The decrease in the number of accounts is the result of the termination of our third-party prepaid card relationships, such as H&R Block, due to the reduction of our interchange fees effective July 1, 2020 as a result of the Durbin Amendment. See the Regulation of Banking Business in our Form 10-K for the year ended June 30, 200 for additional information. | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | June 30, 2021 | | December 31, 2020 |
Non-interest bearing, prepaid and other | 39,698 | | | 36,726 | | 30,068 | |
Checking and savings accounts | 342,127 | | | 336,068 | | 314,145 | |
Time deposits | 10,234 | | | 12,815 | | 15,797 | |
Total number of deposit accounts | 392,059 | | | 385,609 | | 360,010 |
Borrowings
The following table sets forth the composition of our borrowings and the interest rates at the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | | June 30, 2020 | | December 31, 2019 |
(Dollars in thousands) | | Balance | | Weighted Average Rate | | Balance | | Weighted Average Rate | | Balance | | Weighted Average Rate |
| | | | | | | | | | | | |
FHLB Advances | | $182,500 | | 2.21 | % | | $242,500 | | 2.22 | % | | $257,500 | | 2.28 | % |
Borrowings, subordinated notes and debentures | | 418,480 | | 3.45 | % | | 235,789 | | 5.18 | % | | 62,233 | | 6.30 | % |
Total borrowings | | $600,980 | | 3.07 | % | | $478,289 | | 3.68 | % | | $319,733 | | 3.06 | % |
| | | | | | | | | | | | |
Weighted average cost of borrowings during the quarter | | 2.97 | % | | | | 1.26 | % | | | | 2.24 | % | | |
Borrowings as a percent of total assets | | 4.18 | % | | | | 3.45 | % | | | | 2.60 | % | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | June 30, 2021 | | December 31, 2020 |
(Dollars in thousands) | | Balance | | Weighted Average Rate | | Balance | | Weighted Average Rate | | Balance | | Weighted Average Rate |
| | | | | | | | | | | | |
FHLB Advances | | $157,500 | | 2.29 | % | | $353,500 | | 1.18 | % | | $182,500 | | 2.21 | % |
Borrowings, subordinated notes and debentures | | 260,435 | | 4.37 | % | | 221,358 | | 4.68 % | | 418,480 | | 3.45 | % |
Total borrowings | | $417,935 | | 3.59 | % | | $574,858 | | 0.73 | % | | $600,980 | | 3.07 | % |
| | | | | | | | | | | | |
Weighted average cost of borrowings during the quarter | | 2.64 | % | | | | 2.93 | % | | | | 2.97 | % | | |
Borrowings as a percent of total assets | | 2.69 | % | | | | 4.03 | % | | | | 4.18 | % | | |
At December 31, 2020,2021, total borrowings amounted to $601.0$417.9 million, up $122.7down $156.9 million, or 25.7%27.3%, from June 30, 20202021 and up $281.2down $183.0 million or 88.0%30.5% from December 31, 2019.2020. Borrowings as a percent of total assets were 4.18%2.69%, 3.45%4.03% and 2.60%4.18% at December 31, 2020,2021, June 30, 20202021 and December 31, 2019,2020, respectively. Weighted average cost of borrowings during the quarter were 2.97%2.64%, 1.26%2.93% and 2.24%2.97% for the quarters ended December 31, 2020,2021, June 30, 20202021 and December 31, 2019,2020, respectively.
In September 2020, the Company completed the sale
Table of $175.0 million aggregate principal amount of its 4.875% Fixed-to-Floating Rate Subordinated Notes due October 1, 2030 (the “Notes”). The Notes mature on October 1, 2030 and will accrue interest at a fixed rate per annum equal to 4.875%, payable semi-annually in arrears on April 1 and October 1 of each year, commencing on April 1, 2021. From and including October 1, 2025, to, but excluding October 1, 2030 or the date of early redemption, the Notes will bear interest at a floating rate per annum equal to a benchmark rate (which is expected to be the Three-Month Term Secured Overnight Financing Rate) plus a spread of 476 basis points, payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, commencing on January 2026. The Notes may be redeemed on or after October 1, 2025, which date may be extended at the Company’s discretion, at a redemption price equal to principal plus accrued and unpaid interest, subject to certain conditions.Contents We regularly use advances from the FHLB to manage our interest rate risk and, to a lesser extent, manage our liquidity position. Generally, FHLB advances with terms between three and ten years have been used to fund the purchase of single family and multifamily mortgages and to provide us with interest rate risk protection should rates rise.
Stockholders’ Equity
Stockholders’ equity increased $56.6$122.2 million to $1,287.5$1,523.2 million at December 31, 20202021 compared to $1,230.8$1,400.9 million at June 30, 2020.2021. The increase was the result of our net income for the six months ended December 31, 20202021 of $107.8$121.0 million, stock compensation expense of $5.7$2.4 million, partially offset by a $2.2$1.2 million increasedecrease in other comprehensive income, net of tax, partially offset by $0.1 million for dividends declared on preferred stock, $5.2 million for the redemption of the series-A preferred stock, $16.8 million for common stock repurchases, and an opening day adjustment of $37.1 million for the change to ASC 326 - refer to Note 1 - Summary of Significant Accounting Policies for further detail of the adoption.tax.
During the three and six months ended December 31, 2020,2021, the Company repurchased a total of $16.8 million, or 753,597did not repurchase any common shares at an average price of $22.24 per share.stock shares. The Company has $52.8 million remaining under the Board authorized stock repurchase program.
We redeemed in full the 515 outstanding shares of Series A-6% Cumulative Nonparticipating Perpetual Preferred Stock on October 20, 2020 at $10,000 per plus accrued dividends.
LIQUIDITY
Cash flow information is as follows:
| | | For the Six Months Ended | | For the Six Months Ended |
| | December 31, | | December 31, |
(Dollars in thousands) | (Dollars in thousands) | 2020 | | 2019 | (Dollars in thousands) | 2021 | | 2020 |
Operating Activities | Operating Activities | $ | 284,417 | | | $ | 128,654 | | Operating Activities | $ | (76,773) | | | $ | 284,417 | |
Investing Activities | Investing Activities | $ | (1,015,293) | | | $ | (779,156) | | Investing Activities | $ | (1,132,694) | | | $ | (1,015,293) | |
Financing Activities | Financing Activities | $ | 223,552 | | | $ | 819,309 | | Financing Activities | $ | 1,290,048 | | | $ | 223,552 | |
During the six months ended December 31, 2020,2021, we had net cash inflowsoutflows from operating activities of $284.4$76.8 million compared to inflows of $128.7$284.4 million for the six months ended December 31, 2019,2020, primarily due to net income for each period. Net operating cash inflows and outflows fluctuate primarily due to the timing of the following: originations of loans held for sale, proceeds from loan sales, securities borrowed and loaned, and customer, broker-dealer and clearing receivables and payables.payables, and changes in other assets and payables were the primary drivers.
Net cash outflows from investing activities totaled $1,132.7 million for the six months ended December 31, 2021, while outflows totaled $1,015.3 million for the six months ended December 31, 2020, while outflows totaled $779.2 million for the six months ended December 31, 2019.2020. The increase in outflows was primarily due to increased net originations of mortgage warehouse loans partially offset by increased repayments on loans compared toand the six months ended December 31, 2019.$54.8 million acquisition of AAS.
Net cash inflows from financing activities totaled $1,290.0 million for the six months ended December 31, 2021, compared to net cash outflows from financing activities of $223.6 million for the six months ended December 31, 2020, compared to2020. The primary driver behind the increase in net cash inflows from financing activitieswas increased deposits provided in part, by the acquisition of $819.3 millionAAS for the six months ended December 31, 2019. The change was primarily due to reduced deposit growth partially offset by the net proceeds of $175.0 million of subordinated notes in the six months ended December 31, 2020.
During the six months ended December 31, 2020,2021, the Bank could borrow up to 40.0% of its total assets from the FHLB. Borrowings are collateralized by the pledge of certain mortgage loans and investment securities to the FHLB. At December 31, 2020,2021, the Company had $2,470.7$1,939.2 million available immediately and $2,499.7$3,449.5 million available with additional collateral. At December 31, 2020,2021, we also had two unsecured federal funds purchase lines with two different banks totaling $175.0 million, under which no borrowings were outstanding.
The Bank has the ability to borrow short-term from the Federal Reserve Bank of San Francisco Discount Window. At December 31, 2020,2021, the Bank did not have any borrowings outstanding and the amount available from this source was $1,835.0$2,433.9 million. The credit line is collateralized by consumer loans and mortgage-backed securities. Additionally, the Bank can borrow through the Paycheck Protection Program Liquidity Facility (“PPPLF”). Advances under the PPPLF are collateralized by pledged Small Business Administration Paycheck Protection Program Loans. Advances under the PPPLF were $131.2 million at December 31, 2020, had interest rates of 0.35% and mature at the earlier of PPP borrower forgiveness or June 2022.
Axos Clearing has a total of $230$170.0 million in uncommitted secured lines of credit available for borrowing as needed. As of December 31, 2020,2021, there was $30.2$75.0 million outstanding. These credit facilities bear interest at rates based on the Federal Funds rate and are due upon demand.
Axos Clearing has a $50.0 million committed unsecured line of credit available for limited purpose borrowing. As of December 31, 2020, there was $22.2 million2021, no borrowings were outstanding. This credit facility bears interest at rates based on the Federal Funds rate and are due upon demand.
We believe our liquidity sources to be stable and adequate for our anticipated needs and contingencies for the next 12 months and beyond. We believe we have the ability to increase our level of deposits and borrowings to address our liquidity needs for the foreseeable future.
OFF-BALANCE SHEET COMMITMENTS
At December 31, 2020,2021, we had commitments to originate loans with an aggregate outstanding principal balance of $697.2$2,483.0 million, and commitments to sell loans with an aggregate outstanding principal balance of $124.7$50.0 million. We have no commitments to purchase loans, leases, investment securities or any other unused lines of credit.
In the normal course of business, Axos Clearing’s customer activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose Axos Clearing to off-balance-sheet risk in the event the customer or other broker is unable to fulfill its contracted obligations and Axos Clearing has to purchase or sell the financial instrument underlying the contract at a loss. Axos Clearing’s clearing agreements with broker-dealers for which it provides clearing services requires them to indemnify Axos Clearing if customers fail to satisfy their contractual obligation.
Litigation.On October 15, 2015, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a putative class action lawsuit styled Golden v. BofI Holding, Inc., et al, and brought in United States District Court for the Southern District of California (the “Golden Case”). On November 3, 2015, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a second putative class action lawsuit styled Hazan v. BofI Holding, Inc., et al, and also brought in the United States District Court for the Southern District of California (the “Hazan Case”). On February 1, 2016, the Golden Case and the Hazan Case were consolidated as In re BofI Holding, Inc. Securities Litigation, Case #: 3:15-cv-02324-GPC-KSC (the “Class Action”), and the Houston Municipal Employees Pension System was appointed lead plaintiff. The plaintiffs allege that the Company and other named defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by failing to disclose wrongful conduct that was alleged in a complaint filed in connection with a wrongful termination of employment lawsuit filed on October 13, 2015 (the “Employment Matter”) and that as a result the Company’s statements regarding its internal controls, as well as portions of its financial statements, were false and misleading. On March 21, 2018, the Court entered a final order dismissing the Class Action with prejudice. Subsequently, the plaintiff appealed, the Court overturned the dismissal and the Company is preparing a petition for a rehearing.
On April 3, 2017, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a putative class action lawsuit styled Mandalevy v. BofI Holding, Inc., et al, and brought in United States District Court for the Southern District of California (the “Mandalevy Case”). The Mandalevy Case seeks monetary damages and other relief on behalf of a putative class that has not been certified by the Court. The complaint in the Mandalevy Case (the “Mandalevy Complaint”) alleges a class period that differs from that alleged in the First Class Action, and that the Company and other named defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by failing to disclose wrongful conduct that was alleged in a March 2017 media article. The Mandalevy Case has not been consolidated into the First Class Action. On December 7, 2018, the Court entered a final order granting the defendants’ motion and dismissing the Mandalevy Case with prejudice. Subsequently, the plaintiff filed a notice of appeal and the Court took the matter under advisement. On November 3, 2020, the Court issued a ruling affirming in part and reversing in part the District Court's Order dismissing the Class Action Second Amended Complaint.
The Company and the other named defendants dispute the allegations of wrongdoing advanced by the plaintiffs in the Class Action, the Mandalevy Case, and in the Employment Matter, as well as those plaintiffs’ statement of the underlying factual circumstances, and are vigorously defending each case.
In addition to the First Class Action and the Mandalevy Case, two separate shareholder derivative actions were filed in December, 2015, purportedly on behalf of the Company. The first derivative action, Calcaterra v. Garrabrants, et al, was filed in the United States District Court for the Southern District of California on December 3, 2015. The second derivative action, Dow v. Micheletti, et al, was filed in the San Diego County Superior Court on December 16, 2015. A third derivative action, DeYoung v. Garrabrants, et al, was filed in the United States District Court for the Southern District of California on January 22, 2016, a fourth derivative action, Yong v. Garrabrants, et al, was filed in the United States District Court for the Southern District of California on January 29, 2016, a fifth derivative action, Laborers Pension Trust Fund of Northern Nevada v. Allrich et al, was filed in the United States District Court for the Southern District of California on February 2, 2016, and a sixth derivative action, Garner v. Garrabrants, et al, was filed in the San Diego County Superior Court on August 10, 2017. Each of these six derivative actions names the Company as a nominal defendant, and certain of its officers and directors as defendants. Each complaint sets forth allegations of breaches of fiduciary duties, gross mismanagement, abuse of control, and unjust enrichment against the defendant officers and directors. The plaintiffs in these derivative actions seek damages in unspecified amounts on the Company’s behalf from the officer and director defendants, certain corporate governance actions, and an award of their costs and attorney’s fees.
The United States District Court for the Southern District of California ordered the four above-referenced derivative actions pending before it to be consolidated and appointed lead counsel in the consolidated action. On June 7, 2018, the Court entered an order granting defendant’s motion for judgment on the pleadings, but giving the plaintiffs limited leave to amend by June 28, 2018. The plaintiffs failed to file an amended complaint, and instead plaintiffs filed on June 28, 2018 a motion to stay the case pending resolution of the securities class action and Employment Matter. On August 10, 2018, defendants filed an opposition to plaintiffs’ motion. On September 11, 2018, the plaintiffs filed a second amended complaint. On October 16, 2018, defendants filed a motion to dismiss the second amended complaint. On October 16, 2018, defendants filed a motion to dismiss the second amended complaint. The Court dismissed the second amended complaint with prejudice on May 23, 2019. Subsequently, the plaintiff filed a notice of appeal and opening brief and the Company filed its answering brief. Oral argument was held September 2, 2020 and the Court took the matter under advisement.
The two derivative actions pending before the San Diego County Superior Court have been consolidated and have been stayed by agreement of the parties.
In view of the inherent difficulty of predicting the outcome of each legal action, particularly since claimants seek substantial or indeterminate damages, it is not possible to reasonably predict or estimate the eventual loss or range of loss, if any, related to each legal action.
CAPITAL RESOURCES AND REQUIREMENTSSecurities Business
Our Company and Bank are subject to regulatory capital adequacy requirements promulgated by federal bank regulatory agencies. Failure by our Company or Bank to meet minimum capital requirements could result in certain mandatory and discretionary actions by regulators that could have a material adverse effect on our unaudited condensed consolidated financial statements. The Federal Reserve establishes capital requirements for our Company andFor the OCC has similar requirements for our Bank. The following tables present regulatory capital information for our Company and Bank. Information presented forthree months ended December 31, 2020, reflects2021, our Securities Business segment had a loss before taxes of $0.7 million compared to a loss before taxes of $0.5 million for the Basel III capital requirements that became effective January 1, 2015 for both our Company and Bank. Under these capital requirements and the regulatory framework for prompt corrective action, our Company and Bank must meet specific capital guidelines that involve quantitative measures of our Company and Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Our Company’s and Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors.
Quantitative measures established by regulation require our Company and Bank to maintain certain minimum capital amounts and ratios. Federal bank regulators require our Company and Bank maintain minimum ratios of core capital to adjusted average assets of 4.0%, common equity tier 1 capital to risk-weighted assets of 4.5%, tier 1 capital to risk-weighted assets of 6.0% and total risk-based capital to risk-weighted assets of 8.0%. To be “well capitalized,” our Company and Bank must maintain minimum leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios of at least 5.0%, 6.5%, 8.0% and 10.0%, respectively. Atthree months ended December 31, 2020, our Company and Bank met all2020. For 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, 2020 that would materially adversely change the Company’s and Bank’s capital classifications. From time to time, we may need to raise additional capital to support our Company’s and Bank’s further growth and to maintain their “well capitalized” status.
The Company and Bank elected the CECL 5-year transition guidance for calculating regulatory capital ratios and the December 31, 2020 ratios include this election. This guidance allows an entity to add back to capital 100% of the capital impact from the day one CECL transition adjustment and 25% of subsequent increases to the allowance for credit losses through June 30, 2023. This cumulative amount will then be phased out of regulatory capital over the next three years.
The Company’s and Bank’s estimated capital amounts, capital ratios and capital requirements under Basel III were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Axos Financial, Inc. | | Axos Bank | | “Well Capitalized” Ratio | | Minimum Capital Ratio |
(Dollars in millions) | December 31, 2020 | | June 30, 2020 | | December 31, 2020 | | June 30, 2020 | |
Regulatory Capital: | | | | | | | | | | | |
Tier 1 | $ | 1,192 | | | $ | 1,106 | | | $ | 1,164 | | | $ | 1,080 | | | | | |
Common equity tier 1 | $ | 1,192 | | | $ | 1,101 | | | $ | 1,164 | | | $ | 1,080 | | | | | |
Total capital (to risk-weighted assets) | $ | 1,525 | | | $ | 1,241 | | | $ | 1,264 | | | $ | 1,156 | | | | | |
| | | | | | | | | | | |
Assets: | | | | | | | | | | | |
Average adjusted | $ | 13,733 | | | $ | 12,333 | | | $ | 12,823 | | | $ | 11,680 | | | | | |
Total risk-weighted | $ | 10,985 | | | $ | 9,817 | | | $ | 10,163 | | | $ | 9,160 | | | | | |
| | | | | | | | | | | |
Regulatory Capital Ratios: | | | | | | | | | | | |
Tier 1 leverage (core) capital to adjusted average assets | 8.68 | % | | 8.97 | % | | 9.08 | % | | 9.25 | % | | 5.00 | % | | 4.00 | % |
Common equity tier 1 capital (to risk-weighted assets) | 10.85 | % | | 11.22 | % | | 11.45 | % | | 11.79 | % | | 6.50 | % | | 4.50 | % |
Tier 1 capital (to risk-weighted assets) | 10.85 | % | | 11.27 | % | | 11.45 | % | | 11.79 | % | | 8.00 | % | | 6.00 | % |
Total capital (to risk-weighted assets) | 13.88 | % | | 12.64 | % | | 12.44 | % | | 12.62 | % | | 10.00 | % | | 8.00 | % |
Basel III implemented a requirement for all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively composed of common equity tier 1 capital, and it applies to each of the three risk-based capital ratios but not the leverage ratio. At December 31, 2020, our Company and Bank are in compliance with the capital conservation buffer requirement, which sets the common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratio minimums to 7.0%, 8.5% and 10.5%, respectively.six months ended
December 31, 2021, our Securities Business segment had a loss before taxes of $0.7 million compared to a loss before taxes of $1.2 million for the six months ended December 31, 2020.
Net interest income for the three months ended December 31, 2021, increased $0.2 million to $4.5 million compared to the three months ended December 31, 2020. Net interest income for the six months ended December 31, 2021 increased $1.5 million to $10.7 million compared to the six months ended December 31, 2020. The increases were primarily a result of increase in the average interest-earning balance of securities borrowed and margin lending. In the Securities Business, interest is earned through margin loan balances, securities borrowed, and cash deposit balances. Interest expense is incurred from cash borrowed through bank lines and securities lending.
Non-interest income during the three months ended December 31, 2021, increased $9.9 million to $16.5 million compared to the three months ended December 31, 2020. The increases were primarily $8.0 million attributable to the addition of AAS custody and mutual funds fees, an increase of $1.2 million in fees earned on FDIC insured bank deposits, an increase of $0.3 million in correspondent fees, and an increase of $0.2 million of clearing and custodial related fees. Non-interest income during the six months ended December 31, 2021 increased $17.2 million to $29.6 million compared to the six months ended December 31, 2020. The increases were primarily $13.3 million attributable to the addition of AAS custody and mutual funds fees, an increase of $2.1 million in fees earned on FDIC insured bank deposits, an increase of $0.9 million in correspondent fees, an increase of $0.6 million of clearing and custodial related fees, and an increase of $0.2 million of clearing technology services.
Non-interest expense increased $10.3 million to $21.7 million for the three months ended December 31, 2021 from the $11.3 million for the three months ended December 31, 2020. The increase was primarily related to an increase of $4.7 million in salaries and related expenses related to staffing and the acquisition of AAS, an increase of $1.5 million in data processing, an increase of $1.3 million depreciation and amortization expense, and an increase of $1.2 million in broker-dealer clearing charges. Non-interest expense increased $18.3 million to $40.9 million for the six months ended December 31, 2021, from $22.7 million for the six months ended December 31, 2020. The increase was primarily related to an increase of $9.1 million in salaries and related expenses related to staffing and the acquisition of AAS, an increase of $3.0 million in broker-dealer clearing charges, an increase of $1.8 million in data processing, an increase of $1.7 million depreciation and amortization expense, and an increase of $1.1 million occupancy and equipment expense. The increases were primarily the result of the addition of AAS.
Selected information concerning the Securities segment follows as of and for the three months ended:
| | | | | | | | | | | |
| December 31, |
(Dollars in thousands) | 2021 | | 2020 |
Compensation as a % of net revenue | 39.9 | % | | 33.2 | % |
FDIC insured program balances (end of period) | $ | 2,216,939 | | | $ | 772,801 | |
Customer margin balances (end of period) | $ | 328,607 | | | $ | 231,189 | |
Customer funds on deposit, including short credits (end of period) | $ | 259,626 | | | $ | 313,297 | |
| | | |
Clearing: | | | |
Total tickets | 2,113,270 | | | 1,314,534 | |
Correspondents (end of period) | 68 | | | 63 | |
| | | |
Securities lending: | | | |
Interest-earning assets – stock borrowed (end of period) | $ | 534,243 | | | $ | 317,571 | |
Interest-bearing liabilities – stock loaned (end of period) | $ | 578,762 | | | $ | 362,170 | |
| | | |
FINANCIAL CONDITION
Balance Sheet Analysis
Total assets increased $1,282.4 million, or 9.0%, to $15.5 billion, as of December 31, 2021, up from $14.3 billion at June 30, 2021. The increase in total assets was mainly due to an increase of $1,192.4 million in net loans held for investment, an increase of $80.6 million in cash and cash equivalents, and an increase of $59.8 million in customer, broker-dealer and clearing payables, partially offset by a decrease of $84.8 million in securities borrowed. Total liabilities increased $1,160.2 million, primarily due to growth in deposits of $1,453.4 million, partially offset by a decrease of $196.0 million in advances from the FHLB and a decrease of $150.2 million in securities loaned.
Loans
Net loans held for investment increased 10.4% to $12.6 billion as of December 31, 2021 from $11.4 billion at June 30, 2021. The increase in the loan portfolio was primarily due to loan originations of $4.6 billion, partially offset by loan repayments and other adjustments of $3.4 billion.
The following table sets forth the composition of the loan portfolio as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | June 30, 2021 |
(Dollars in thousands) | Amount | | Percent | | Amount | | Percent |
Single Family - Mortgage & Warehouse | $ | 4,281,646 | | | 33.5 | % | | $ | 4,359,472 | | | 37.8 | % |
Multifamily and Commercial Mortgage | 2,483,932 | | | 19.5 | % | | 2,470,454 | | | 21.4 | % |
Commercial Real Estate | 3,857,367 | | | 30.2 | % | | 3,180,453 | | | 27.5 | % |
Commercial & Industrial - Non-RE | 1,631,811 | | | 12.8 | % | | 1,123,869 | | | 9.7 | % |
Auto & Consumer | 478,636 | | | 3.8 | % | | 362,180 | | | 3.1 | % |
Other | 22,282 | | | 0.2 | % | | 58,316 | | | 0.5 | % |
Total gross loans | 12,755,674 | | | 100.0 | % | | 11,554,744 | | | 100.0 | % |
Allowance for credit losses - loans | (140,489) | | | | | (132,958) | | | |
Unaccreted discounts and loan fees | (8,006) | | | | | (6,972) | | | |
Total net loans | $ | 12,607,179 | | | | | $ | 11,414,814 | | | |
The Bank originates some single family interest only loans with terms that include repayments that are less than the repayments for fully amortizing loans. The Bank’s lending guidelines for interest only loans are adjusted for the increased credit risk associated with these loans by requiring borrowers with such loans to borrow at LTVs that are lower than standard amortizing ARM loans and by calculating debt to income ratios for qualifying borrowers based upon a fully amortizing payment, not the interest only payment. The Bank monitors and performs reviews of interest only loans. Adverse trends reflected in the Company’s delinquency statistics, grading and classification of interest only loans would be reported to management and the Board of Directors. As of December 31, 2021, the Company had $1.1 billion of interest only mortgage loans.
Asset Quality and Allowance for Loan and Lease Losses
Non-performing Assets
Non-performing loans are comprised of loans past due 90 days or more on nonaccrual status and other nonaccrual loans. Non-performing assets include non-performing loans plus other real estate owned and repossessed vehicles. At December 31, 2021, our non-performing loans totaled $145.9 million, or 1.14% of total gross loans and our non-performing loans and foreclosed assets or “non-performing assets” totaled $146.2 million, or 0.94% of total assets.
Non-performing assets consisted of the following as of the dates indicated:
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | December 31, 2021 | | June 30, 2021 | | Inc (Dec) |
Non-performing assets: | | | | | |
Non-accrual loans and leases: | | | | | |
Single Family - Mortgage & Warehouse | $ | 122,326 | | | $ | 105,708 | | | $ | 16,618 | |
Multifamily and Commercial Mortgage | 7,688 | | | 20,428 | | | (12,740) | |
Commercial Real Estate | 15,244 | | | 15,839 | | | (595) | |
Commercial & Industrial - Non-RE | — | | | 2,942 | | | (2,942) | |
Auto & Consumer | 620 | | | 278 | | | 342 | |
Other | 55 | | | — | | | 55 | |
Total non-performing loans | 145,933 | | | 145,195 | | | 738 | |
Foreclosed real estate | — | | | 6,547 | | | (6,547) | |
Repossessed—Auto and RV | 251 | | | 235 | | | 16 | |
Total non-performing assets | $ | 146,184 | | | $ | 151,977 | | | $ | (5,793) | |
Total non-performing loans as a percentage of total loans | 1.14 | % | | 1.26 | % | | (0.12) | % |
Total non-performing assets as a percentage of total assets | 0.94 | % | | 1.07 | % | | (0.13) | % |
Total non-performing assets decreased from $152.0 million at June 30, 2021 to $146.2 million at December 31, 2021. The decrease in non-performing assets of approximately $5.8 million, was primarily attributable to resolutions of multifamily and commercial mortgage loans, and foreclosed real estate. Non-performing single-family loans increased by $16.6 million. The Company ended forbearance for all single family mortgage borrowers during the quarter ended September 30, 2020. The weighted-average LTV of the non-performing single family mortgage loans was 56.5% as of December 31, 2021.
The Bank had no performing troubled debt restructurings as of December 31, 2021 and June 30, 2021. A troubled debt restructuring is a concession made to a borrower experiencing financial difficulties, typically permanent or temporary modifications of principal and interest payments or an extension of maturity dates. When a loan is delinquent and classified as a troubled debt restructuring, no interest is accrued until the borrower demonstrates over time (typically six months) that it can make payments. When a loan is considered a troubled debt restructuring and is on nonaccrual, it is considered non-performing and included in the table above.
Allowance for Credit Losses - Loans
On July 1, 2020, the Company adopted ASC 326. The update replaces the historical incurred loss model to a current expected loss model, resulting, generally, in earlier recognition of loss. Refer to Note 1 - Summary of Significant Accounting Policies in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021 for greater detail on the accounting adoption along with detail of the processes and approaches involved in determining the allowance for credit losses under the new guidance.
The following table reflects management’s allocation of the allowance for credit losses - loans by loan category and the ratio of each loan category to total loans as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | June 30, 2021 |
(Dollars in thousands) | Amount of Allowance | | Allocation as a % of Allowance | | Amount of Allowance | | Allocation as a % of Allowance |
Single Family Real Estate | $ | 25,580 | | | 18.2 | % | | $ | 26,604 | | | 20.0 | % |
Multifamily Real Estate | 13,628 | | | 9.7 | % | | 13,146 | | | 9.9 | % |
Commercial Real Estate | 67,581 | | | 48.0 | % | | 57,928 | | | 43.6 | % |
Commercial and Industrial - Non-RE | 22,716 | | | 16.2 | % | | 28,460 | | | 21.4 | % |
Consumer and Auto | 10,921 | | | 7.8 | % | | 6,519 | | | 4.9 | % |
Other | 63 | | | 0.1 | % | | 301 | | | 0.2 | % |
Total | $ | 140,489 | | | 100.0 | % | | $ | 132,958 | | | 100.0 | % |
The provision for credit losses was $4.0 million and $8.0 million for the three months ended December 31, 2021 and 2020, respectively. The provision for credit losses was $8.0 million and $19.8 million for the six months ended December 31, 2021 and 2020, respectively. The decrease in the provision for credit losses for three and six months ended December 31, 2021, were due to favorable changes in economic and business conditions resulting from reduced levels of disruptions from the COVID-19 pandemic between December 31, 2020 and December 31, 2021, partially offset by loan growth and changes in loan mix. We believe that the lower average LTV in the Bank’s mortgage loan portfolio will continue to result in future lower average mortgage loan charge-offs when compared to many other comparable banks. The resolution of the Bank’s existing other real estate owned and non-performing loans should not have a significant adverse impact on our operating results.
Investment Securities
Total investment securities were $140.8 million as of December 31, 2021, compared with $189.3 million at June 30, 2021. During the six months ended December 31, 2021, we purchased securities for $12.3 million and received principal repayments of approximately $58.6 million in our available-for-sale portfolio. The remainder of the change for the available-for-sale portfolio is attributable to accretion and other activities.
Deposits
Deposits increased a net $1.5 billion, or 13.4%, to $12.3 billion at December 31, 2021, from $10.8 billion at June 30, 2021. Non-interest bearing deposits increased $1.4 billion, or 55.5%, to $3.8 billion at December 31, 2021, from June 30, 2021, primarily due to deposits provided by the AAS acquisition. Time deposits decreased $226.4 million as higher costing time deposits were run off.
The following table sets forth the composition of the deposit portfolio as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | June 30, 2021 |
(Dollars in thousands) | Amount | | Rate1 | | Amount | | Rate1 |
Non-interest bearing | $ | 3,847,461 | | | — | % | | $ | 2,474,424 | | | — | % |
Interest bearing: | | | | | | | |
Demand | 3,620,686 | | | 0.16 | % | | 3,369,845 | | | 0.15 | % |
Savings | 3,514,610 | | | 0.23 | % | | 3,458,687 | | | 0.21 | % |
Total interest-bearing demand and savings | 7,135,296 | | | 0.20 | % | | 6,828,532 | | | 0.18 | % |
Time deposits: | | | | | | | |
$250 and under2 | 877,488 | | | 1.26 | % | | 1,070,139 | | | 1.30 | % |
Greater than $250 | 408,927 | | | 0.45 | % | | 442,702 | | | 1.03 | % |
Total time deposits | 1,286,415 | | | 1.01 | % | | 1,512,841 | | | 1.22 | % |
Total interest bearing2 | 8,421,711 | | | 0.32 | % | | 8,341,373 | | | 0.37 | % |
Total deposits | $ | 12,269,172 | | | 0.22 | % | | $ | 10,815,797 | | | 0.29 | % |
1 Based on weighted-average stated interest rates at end of period.
2The total interest bearing includes brokered deposits of $415.3 million and $621.4 million as of December 31, 2021 and June 30, 2021, respectively, of which $350.0 million and $380.0 million, respectively, are time deposits classified as $250 and under.
The following table sets forth the number of deposit accounts by type as of the date indicated:
| | | | | | | | | | | | | | | | | |
| December 31, 2021 | | June 30, 2021 | | December 31, 2020 |
Non-interest bearing, prepaid and other | 39,698 | | | 36,726 | | 30,068 | |
Checking and savings accounts | 342,127 | | | 336,068 | | 314,145 | |
Time deposits | 10,234 | | | 12,815 | | 15,797 | |
Total number of deposit accounts | 392,059 | | | 385,609 | | 360,010 |
Borrowings
The following table sets forth the composition of our borrowings and the interest rates at the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | June 30, 2021 | | December 31, 2020 |
(Dollars in thousands) | | Balance | | Weighted Average Rate | | Balance | | Weighted Average Rate | | Balance | | Weighted Average Rate |
| | | | | | | | | | | | |
FHLB Advances | | $157,500 | | 2.29 | % | | $353,500 | | 1.18 | % | | $182,500 | | 2.21 | % |
Borrowings, subordinated notes and debentures | | 260,435 | | 4.37 | % | | 221,358 | | 4.68 % | | 418,480 | | 3.45 | % |
Total borrowings | | $417,935 | | 3.59 | % | | $574,858 | | 0.73 | % | | $600,980 | | 3.07 | % |
| | | | | | | | | | | | |
Weighted average cost of borrowings during the quarter | | 2.64 | % | | | | 2.93 | % | | | | 2.97 | % | | |
Borrowings as a percent of total assets | | 2.69 | % | | | | 4.03 | % | | | | 4.18 | % | | |
At December 31, 2021, total borrowings amounted to $417.9 million, down $156.9 million, or 27.3%, from June 30, 2021 and down $183.0 million or 30.5% from December 31, 2020. Borrowings as a percent of total assets were 2.69%, 4.03% and 4.18% at December 31, 2021, June 30, 2021 and December 31, 2020, respectively. Weighted average cost of borrowings during the quarter were 2.64%, 2.93% and 2.97% for the quarters ended December 31, 2021, June 30, 2021 and December 31, 2020, respectively.
We regularly use advances from the FHLB to manage our interest rate risk and, to a lesser extent, manage our liquidity position. Generally, FHLB advances with terms between three and ten years have been used to fund the purchase of single family and multifamily mortgages and to provide us with interest rate risk protection should rates rise.
Stockholders’ Equity
Stockholders’ equity increased $122.2 million to $1,523.2 million at December 31, 2021 compared to $1,400.9 million at June 30, 2021. The increase was the result of our net income for the six months ended December 31, 2021 of $121.0 million, stock compensation expense of $2.4 million, partially offset by a $1.2 million decrease in other comprehensive income, net of tax.
During the three and six months ended December 31, 2021, the Company did not repurchase any common stock shares. The Company has $52.8 million remaining under the Board authorized stock repurchase program.
LIQUIDITY
Cash flow information is as follows:
| | | | | | | | | | | |
| For the Six Months Ended |
| December 31, |
(Dollars in thousands) | 2021 | | 2020 |
Operating Activities | $ | (76,773) | | | $ | 284,417 | |
Investing Activities | $ | (1,132,694) | | | $ | (1,015,293) | |
Financing Activities | $ | 1,290,048 | | | $ | 223,552 | |
During the six months ended December 31, 2021, we had net cash outflows from operating activities of $76.8 million compared to inflows of $284.4 million for the six months ended December 31, 2020, primarily due to net income for each period. Net operating cash inflows and outflows fluctuate primarily due to the timing of the following: originations of loans held for sale, proceeds from loan sales, securities borrowed and loaned, and customer, broker-dealer and clearing receivables and payables, and changes in other assets and payables were the primary drivers.
Net cash outflows from investing activities totaled $1,132.7 million for the six months ended December 31, 2021, while outflows totaled $1,015.3 million for the six months ended December 31, 2020. The increase in outflows was primarily due to increased originations of loans partially offset by increased repayments on loans and the $54.8 million acquisition of AAS.
Net cash inflows from financing activities totaled $1,290.0 million for the six months ended December 31, 2021, compared to net cash outflows from financing activities of $223.6 million for the six months ended December 31, 2020. The primary driver behind the increase in net cash inflows was increased deposits provided in part, by the acquisition of AAS for the six months ended December 31, 2021.
During the six months ended December 31, 2021, the Bank could borrow up to 40.0% of its total assets from the FHLB. Borrowings are collateralized by the pledge of certain mortgage loans and investment securities to the FHLB. At December 31, 2021, the Company had $1,939.2 million available immediately and $3,449.5 million available with additional collateral. At December 31, 2021, we also had two unsecured federal funds purchase lines with two different banks totaling $175.0 million, under which no borrowings were outstanding.
The Bank has the ability to borrow short-term from the Federal Reserve Bank of San Francisco Discount Window. At December 31, 2021, the Bank did not have any borrowings outstanding and the amount available from this source was $2,433.9 million. The credit line is collateralized by consumer loans and mortgage-backed securities.
Axos Clearing has a total of $170.0 million in uncommitted secured lines of credit for borrowing as needed. As of December 31, 2021, there was $75.0 million outstanding. These credit facilities bear interest at rates based on the Federal Funds rate and are due upon demand.
Axos Clearing has a $50.0 million committed unsecured line of credit available for limited purpose borrowing. As of December 31, 2021, no borrowings were outstanding. This credit facility bears interest at rates based on the Federal Funds rate and are due upon demand.
We believe our liquidity sources to be stable and adequate for our anticipated needs and contingencies for the next 12 months and beyond. We believe we have the ability to increase our level of deposits and borrowings to address our liquidity needs for the foreseeable future.
OFF-BALANCE SHEET COMMITMENTS
At December 31, 2021, we had commitments to originate loans with an aggregate outstanding principal balance of $2,483.0 million, and commitments to sell loans with an aggregate outstanding principal balance of $50.0 million. We have no commitments to purchase loans, investment securities or any other unused lines of credit.
In the normal course of business, Axos Clearing’s customer activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose Axos Clearing to off-balance-sheet risk in the event the customer or other broker is unable to fulfill its contracted obligations and Axos Clearing has to purchase or sell the financial instrument underlying the contract at a loss. Axos Clearing’s clearing agreements with broker-dealers for which it provides clearing services requires them to indemnify Axos Clearing if customers fail to satisfy their contractual obligation.
Securities Business
Pursuant to the net capital requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Axos Clearing, is subject to the SEC Uniform Net Capital (Rule 15c3-1 of the Exchange Act). Under this rule, the Company has elected to operate under the alternate method and is required to maintain minimum net capital of $250,000 or 2% of aggregate debit balances arising from client transactions, as defined. Under the alternate method, the Company may not repay subordinated debt, pay cash distributions, or make any unsecured advances or loans to its parent or employees if such payment would result in net capital of less than 5% of aggregate debit balances or less than 120% of its minimum dollar requirement.
The net capital positions of Axos Clearing were as follows:
| | | | | | | | | | | |
(Dollars in thousands) | December 31, 2020 | | June 30, 2020 |
Net capital | $ | 34,417 | | | $ | 34,022 | |
Excess Capital | $ | 28,941 | | | $ | 29,450 | |
| | | |
Net capital as a percentage of aggregate debit items | 12.57 | % | | 14.88 | % |
Net capital in excess of 5% aggregate debit items | $ | 20,726 | | | $ | 22,593 | |
Axos Clearing as a clearing broker, is subject to SEC Customer Protection Rule (Rule 15c3-3 of the Exchange Act) which requires segregation of funds in a special reserve account for the benefit of customers. At December 31, 2020, the Company had a deposit requirement of $239.3 million and maintained a deposit of $277.9 million. On January 5, 2021, the company made a withdrawal of $35.1 million.
Certain broker-dealers have chosen to maintain brokerage customer accounts at Axos Clearing. To allow these broker-dealers to classify their assets held by the Company as allowable assets in their computation of net capital, the Company computes a separate reserve requirement for Proprietary Accounts of Brokers (PAB). At December 31, 2020, the Company had a deposit requirement of $44.1 million and maintained a deposit of $35.4 million. On January 5, 2021, the Company made a deposit in the amount of $9.2 million.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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. 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. During a period of falling interest rates, however, 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.
Banking Business
The following table sets forth the amounts of interest earning assets and interest bearing liabilities that were outstanding at December 31, 2020 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, 2020 |
(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 | $ | 1,110,306 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,110,306 | |
Securities1 | 217,215 | | | 1,539 | | | 9,289 | | | 10,261 | | | 238,304 | |
Stock of the regulatory agencies | 17,250 | | | — | | | — | | | — | | | 17,250 | |
Loans and leases—net of allowance for credit loss | 7,128,762 | | | 1,434,246 | | | 3,101,261 | | | 36,263 | | | 11,700,532 | |
Loans held for sale | 78,056 | | | — | | | — | | | — | | | 78,056 | |
Total interest-earning assets | 8,551,589 | | | 1,435,785 | | | 3,110,550 | | | 46,524 | | | 13,144,448 | |
Non-interest earning assets | — | | | — | | | — | | | — | | | 156,716 | |
Total assets | $ | 8,551,589 | | | $ | 1,435,785 | | | $ | 3,110,550 | | | $ | 46,524 | | | $ | 13,301,164 | |
Interest-bearing liabilities: | | | | | | | | | |
Interest-bearing deposits | $ | 6,953,237 | | | $ | 1,812,506 | | | $ | 633,434 | | | $ | 40,385 | | | $ | 9,439,562 | |
| | | | | | | | | |
Advances from the FHLB | 15,000 | | | 10,000 | | | 97,500 | | | 60,000 | | | 182,500 | |
Borrowings, subordinated notes and debentures | 229,465 | | | — | | | — | | | 14,000 | | | 243,465 | |
Total interest-bearing liabilities | 7,197,702 | | | 1,822,506 | | | 730,934 | | | 114,385 | | | 9,865,527 | |
Other non-interest-bearing liabilities | — | | | — | | | — | | | — | | | 2,231,480 | |
Stockholders’ equity | — | | | — | | | — | | | — | | | 1,204,157 | |
Total liabilities and equity | $ | 7,197,702 | | | $ | 1,822,506 | | | $ | 730,934 | | | $ | 114,385 | | | $ | 13,301,164 | |
Net interest rate sensitivity gap | $ | 1,353,887 | | | $ | (386,721) | | | $ | 2,379,616 | | | $ | (67,861) | | | $ | 3,278,921 | |
Cumulative gap | $ | 1,353,887 | | | $ | 967,166 | | | $ | 3,346,782 | | | $ | 3,278,921 | | | $ | 3,278,921 | |
Net interest rate sensitivity gap—as a % of total interest earning assets | 10.30 | % | | (2.94) | % | | 18.10 | % | | (0.52) | % | | 24.95 | % |
Cumulative gap—as % of total interest earning assets | 10.30 | % | | 7.36 | % | | 25.46 | % | | 24.95 | % | | 24.95 | % |
1 Comprised of agency and non-agency mortgage-backed securities, municipal securities and other non-agency debt securities, which are classified as available-for-sale.
The above table provides an approximation of the projected re-pricing of assets and liabilities at December 31, 2020 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 based on historical experience. For the non-maturity deposit liabilities, we use decay rates and rate adjustments based upon our historical experience. Actual repayments of these instruments could vary substantially if future experience differs from our historic 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.
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 Bank assumes no growth in the balance sheet other than for retained earnings:
| | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2020 |
| First 12 Months | | Next 12 Months |
(Dollars in thousands) | Net Interest Income | | Percentage Change from Base | | Net Interest Income | | Percentage Change from Base |
Up 200 basis points | $ | 558,304 | | | 10.2 | % | | $ | 509,509 | | | 7.8 | % |
Base | $ | 506,591 | | | — | % | | $ | 472,526 | | | — | % |
Down 100 basis points | $ | 505,061 | | | (0.3) | % | | $ | 474,617 | | | 0.4 | % |
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 market value of equity sensitivity to an immediate parallel and sustained shift in interest rates derived from the current treasury and LIBOR yield curves. For rising interest rate scenarios, the base market interest rate forecast was increased by 100, 200 and 300 basis points. For falling interest rate scenarios, we used a 100 basis point decrease due to limitations inherent in the current rate environment.
The following table indicates the sensitivity of market value of equity to the interest rate movement described above:
| | | | | | | | | | | | | | | | | |
| As of December 31, 2020 |
(Dollars in thousands) | Net Present Value | | Percentage Change from Base | | Net Present Value as a Percentage of Assets |
Up 300 basis points | $ | 1,506,763 | | | 6.8 | % | | 11.2 | % |
Up 200 basis points | $ | 1,502,689 | | | 6.6 | % | | 11.0 | % |
Up 100 basis points | $ | 1,454,314 | | | 3.1 | % | | 10.6 | % |
Base | $ | 1,410,291 | | | — | % | | 10.2 | % |
Down 100 basis points | $ | 1,271,148 | | | (9.9) | % | | 9.1 | % |
| | | | | |
The computation of the prospective effects of hypothetical interest rate changes is based on numerous assumptions, including relative levels of interest rates, asset prepayments, 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 change in loan and deposit interest rates and changes in our asset and liability mix.
Securities Business
For the three months ended December 31, 2021, our Securities Business segment had a loss before taxes of $0.7 million compared to a loss before taxes of $0.5 million for the three months ended December 31, 2020. For the six months ended
December 31, 2021, our Securities Business segment had a loss before taxes of $0.7 million compared to a loss before taxes of $1.2 million for the six months ended December 31, 2020.
Net interest income for the three months ended December 31, 2021, increased $0.2 million to $4.5 million compared to the three months ended December 31, 2020. Net interest income for the six months ended December 31, 2021 increased $1.5 million to $10.7 million compared to the six months ended December 31, 2020. The increases were primarily a result of increase in the average interest-earning balance of securities borrowed and margin lending. In the Securities Business, interest is earned through margin loan balances, securities borrowed, and cash deposit balances. Interest expense is incurred from cash borrowed through bank lines and securities lending.
Non-interest income during the three months ended December 31, 2021, increased $9.9 million to $16.5 million compared to the three months ended December 31, 2020. The increases were primarily $8.0 million attributable to the addition of AAS custody and mutual funds fees, an increase of $1.2 million in fees earned on FDIC insured bank deposits, an increase of $0.3 million in correspondent fees, and an increase of $0.2 million of clearing and custodial related fees. Non-interest income during the six months ended December 31, 2021 increased $17.2 million to $29.6 million compared to the six months ended December 31, 2020. The increases were primarily $13.3 million attributable to the addition of AAS custody and mutual funds fees, an increase of $2.1 million in fees earned on FDIC insured bank deposits, an increase of $0.9 million in correspondent fees, an increase of $0.6 million of clearing and custodial related fees, and an increase of $0.2 million of clearing technology services.
Non-interest expense increased $10.3 million to $21.7 million for the three months ended December 31, 2021 from the $11.3 million for the three months ended December 31, 2020. The increase was primarily related to an increase of $4.7 million in salaries and related expenses related to staffing and the acquisition of AAS, an increase of $1.5 million in data processing, an increase of $1.3 million depreciation and amortization expense, and an increase of $1.2 million in broker-dealer clearing charges. Non-interest expense increased $18.3 million to $40.9 million for the six months ended December 31, 2021, from $22.7 million for the six months ended December 31, 2020. The increase was primarily related to an increase of $9.1 million in salaries and related expenses related to staffing and the acquisition of AAS, an increase of $3.0 million in broker-dealer clearing charges, an increase of $1.8 million in data processing, an increase of $1.7 million depreciation and amortization expense, and an increase of $1.1 million occupancy and equipment expense. The increases were primarily the result of the addition of AAS.
Selected information concerning the Securities segment follows as of and for the three months ended:
| | | | | | | | | | | |
| December 31, |
(Dollars in thousands) | 2021 | | 2020 |
Compensation as a % of net revenue | 39.9 | % | | 33.2 | % |
FDIC insured program balances (end of period) | $ | 2,216,939 | | | $ | 772,801 | |
Customer margin balances (end of period) | $ | 328,607 | | | $ | 231,189 | |
Customer funds on deposit, including short credits (end of period) | $ | 259,626 | | | $ | 313,297 | |
| | | |
Clearing: | | | |
Total tickets | 2,113,270 | | | 1,314,534 | |
Correspondents (end of period) | 68 | | | 63 | |
| | | |
Securities lending: | | | |
Interest-earning assets – stock borrowed (end of period) | $ | 534,243 | | | $ | 317,571 | |
Interest-bearing liabilities – stock loaned (end of period) | $ | 578,762 | | | $ | 362,170 | |
| | | |
FINANCIAL CONDITION
Balance Sheet Analysis
Total assets increased $1,282.4 million, or 9.0%, to $15.5 billion, as of December 31, 2021, up from $14.3 billion at June 30, 2021. The increase in total assets was mainly due to an increase of $1,192.4 million in net loans held for investment, an increase of $80.6 million in cash and cash equivalents, and an increase of $59.8 million in customer, broker-dealer and clearing payables, partially offset by a decrease of $84.8 million in securities borrowed. Total liabilities increased $1,160.2 million, primarily due to growth in deposits of $1,453.4 million, partially offset by a decrease of $196.0 million in advances from the FHLB and a decrease of $150.2 million in securities loaned.
Loans
Net loans held for investment increased 10.4% to $12.6 billion as of December 31, 2021 from $11.4 billion at June 30, 2021. The increase in the loan portfolio was primarily due to loan originations of $4.6 billion, partially offset by loan repayments and other adjustments of $3.4 billion.
The following table sets forth the composition of the loan portfolio as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | June 30, 2021 |
(Dollars in thousands) | Amount | | Percent | | Amount | | Percent |
Single Family - Mortgage & Warehouse | $ | 4,281,646 | | | 33.5 | % | | $ | 4,359,472 | | | 37.8 | % |
Multifamily and Commercial Mortgage | 2,483,932 | | | 19.5 | % | | 2,470,454 | | | 21.4 | % |
Commercial Real Estate | 3,857,367 | | | 30.2 | % | | 3,180,453 | | | 27.5 | % |
Commercial & Industrial - Non-RE | 1,631,811 | | | 12.8 | % | | 1,123,869 | | | 9.7 | % |
Auto & Consumer | 478,636 | | | 3.8 | % | | 362,180 | | | 3.1 | % |
Other | 22,282 | | | 0.2 | % | | 58,316 | | | 0.5 | % |
Total gross loans | 12,755,674 | | | 100.0 | % | | 11,554,744 | | | 100.0 | % |
Allowance for credit losses - loans | (140,489) | | | | | (132,958) | | | |
Unaccreted discounts and loan fees | (8,006) | | | | | (6,972) | | | |
Total net loans | $ | 12,607,179 | | | | | $ | 11,414,814 | | | |
The Bank originates some single family interest only loans with terms that include repayments that are less than the repayments for fully amortizing loans. The Bank’s lending guidelines for interest only loans are adjusted for the increased credit risk associated with these loans by requiring borrowers with such loans to borrow at LTVs that are lower than standard amortizing ARM loans and by calculating debt to income ratios for qualifying borrowers based upon a fully amortizing payment, not the interest only payment. The Bank monitors and performs reviews of interest only loans. Adverse trends reflected in the Company’s delinquency statistics, grading and classification of interest only loans would be reported to management and the Board of Directors. As of December 31, 2021, the Company had $1.1 billion of interest only mortgage loans.
Asset Quality and Allowance for Loan and Lease Losses
Non-performing Assets
Non-performing loans are comprised of loans past due 90 days or more on nonaccrual status and other nonaccrual loans. Non-performing assets include non-performing loans plus other real estate owned and repossessed vehicles. At December 31, 2021, our non-performing loans totaled $145.9 million, or 1.14% of total gross loans and our non-performing loans and foreclosed assets or “non-performing assets” totaled $146.2 million, or 0.94% of total assets.
Non-performing assets consisted of the following as of the dates indicated:
| | | | | | | | | | | | | | | | | |
(Dollars in thousands) | December 31, 2021 | | June 30, 2021 | | Inc (Dec) |
Non-performing assets: | | | | | |
Non-accrual loans and leases: | | | | | |
Single Family - Mortgage & Warehouse | $ | 122,326 | | | $ | 105,708 | | | $ | 16,618 | |
Multifamily and Commercial Mortgage | 7,688 | | | 20,428 | | | (12,740) | |
Commercial Real Estate | 15,244 | | | 15,839 | | | (595) | |
Commercial & Industrial - Non-RE | — | | | 2,942 | | | (2,942) | |
Auto & Consumer | 620 | | | 278 | | | 342 | |
Other | 55 | | | — | | | 55 | |
Total non-performing loans | 145,933 | | | 145,195 | | | 738 | |
Foreclosed real estate | — | | | 6,547 | | | (6,547) | |
Repossessed—Auto and RV | 251 | | | 235 | | | 16 | |
Total non-performing assets | $ | 146,184 | | | $ | 151,977 | | | $ | (5,793) | |
Total non-performing loans as a percentage of total loans | 1.14 | % | | 1.26 | % | | (0.12) | % |
Total non-performing assets as a percentage of total assets | 0.94 | % | | 1.07 | % | | (0.13) | % |
Total non-performing assets decreased from $152.0 million at June 30, 2021 to $146.2 million at December 31, 2021. The decrease in non-performing assets of approximately $5.8 million, was primarily attributable to resolutions of multifamily and commercial mortgage loans, and foreclosed real estate. Non-performing single-family loans increased by $16.6 million. The Company ended forbearance for all single family mortgage borrowers during the quarter ended September 30, 2020. The weighted-average LTV of the non-performing single family mortgage loans was 56.5% as of December 31, 2021.
The Bank had no performing troubled debt restructurings as of December 31, 2021 and June 30, 2021. A troubled debt restructuring is a concession made to a borrower experiencing financial difficulties, typically permanent or temporary modifications of principal and interest payments or an extension of maturity dates. When a loan is delinquent and classified as a troubled debt restructuring, no interest is accrued until the borrower demonstrates over time (typically six months) that it can make payments. When a loan is considered a troubled debt restructuring and is on nonaccrual, it is considered non-performing and included in the table above.
Allowance for Credit Losses - Loans
On July 1, 2020, the Company adopted ASC 326. The update replaces the historical incurred loss model to a current expected loss model, resulting, generally, in earlier recognition of loss. Refer to Note 1 - Summary of Significant Accounting Policies in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021 for greater detail on the accounting adoption along with detail of the processes and approaches involved in determining the allowance for credit losses under the new guidance.
The following table reflects management’s allocation of the allowance for credit losses - loans by loan category and the ratio of each loan category to total loans as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | June 30, 2021 |
(Dollars in thousands) | Amount of Allowance | | Allocation as a % of Allowance | | Amount of Allowance | | Allocation as a % of Allowance |
Single Family Real Estate | $ | 25,580 | | | 18.2 | % | | $ | 26,604 | | | 20.0 | % |
Multifamily Real Estate | 13,628 | | | 9.7 | % | | 13,146 | | | 9.9 | % |
Commercial Real Estate | 67,581 | | | 48.0 | % | | 57,928 | | | 43.6 | % |
Commercial and Industrial - Non-RE | 22,716 | | | 16.2 | % | | 28,460 | | | 21.4 | % |
Consumer and Auto | 10,921 | | | 7.8 | % | | 6,519 | | | 4.9 | % |
Other | 63 | | | 0.1 | % | | 301 | | | 0.2 | % |
Total | $ | 140,489 | | | 100.0 | % | | $ | 132,958 | | | 100.0 | % |
The provision for credit losses was $4.0 million and $8.0 million for the three months ended December 31, 2021 and 2020, respectively. The provision for credit losses was $8.0 million and $19.8 million for the six months ended December 31, 2021 and 2020, respectively. The decrease in the provision for credit losses for three and six months ended December 31, 2021, were due to favorable changes in economic and business conditions resulting from reduced levels of disruptions from the COVID-19 pandemic between December 31, 2020 and December 31, 2021, partially offset by loan growth and changes in loan mix. We believe that the lower average LTV in the Bank’s mortgage loan portfolio will continue to result in future lower average mortgage loan charge-offs when compared to many other comparable banks. The resolution of the Bank’s existing other real estate owned and non-performing loans should not have a significant adverse impact on our operating results.
Investment Securities
Total investment securities were $140.8 million as of December 31, 2021, compared with $189.3 million at June 30, 2021. During the six months ended December 31, 2021, we purchased securities for $12.3 million and received principal repayments of approximately $58.6 million in our available-for-sale portfolio. The remainder of the change for the available-for-sale portfolio is attributable to accretion and other activities.
Deposits
Deposits increased a net $1.5 billion, or 13.4%, to $12.3 billion at December 31, 2021, from $10.8 billion at June 30, 2021. Non-interest bearing deposits increased $1.4 billion, or 55.5%, to $3.8 billion at December 31, 2021, from June 30, 2021, primarily due to deposits provided by the AAS acquisition. Time deposits decreased $226.4 million as higher costing time deposits were run off.
The following table sets forth the composition of the deposit portfolio as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | June 30, 2021 |
(Dollars in thousands) | Amount | | Rate1 | | Amount | | Rate1 |
Non-interest bearing | $ | 3,847,461 | | | — | % | | $ | 2,474,424 | | | — | % |
Interest bearing: | | | | | | | |
Demand | 3,620,686 | | | 0.16 | % | | 3,369,845 | | | 0.15 | % |
Savings | 3,514,610 | | | 0.23 | % | | 3,458,687 | | | 0.21 | % |
Total interest-bearing demand and savings | 7,135,296 | | | 0.20 | % | | 6,828,532 | | | 0.18 | % |
Time deposits: | | | | | | | |
$250 and under2 | 877,488 | | | 1.26 | % | | 1,070,139 | | | 1.30 | % |
Greater than $250 | 408,927 | | | 0.45 | % | | 442,702 | | | 1.03 | % |
Total time deposits | 1,286,415 | | | 1.01 | % | | 1,512,841 | | | 1.22 | % |
Total interest bearing2 | 8,421,711 | | | 0.32 | % | | 8,341,373 | | | 0.37 | % |
Total deposits | $ | 12,269,172 | | | 0.22 | % | | $ | 10,815,797 | | | 0.29 | % |
1 Based on weighted-average stated interest rates at end of period.
2The total interest bearing includes brokered deposits of $415.3 million and $621.4 million as of December 31, 2021 and June 30, 2021, respectively, of which $350.0 million and $380.0 million, respectively, are time deposits classified as $250 and under.
The following table sets forth the number of deposit accounts by type as of the date indicated:
| | | | | | | | | | | | | | | | | |
| December 31, 2021 | | June 30, 2021 | | December 31, 2020 |
Non-interest bearing, prepaid and other | 39,698 | | | 36,726 | | 30,068 | |
Checking and savings accounts | 342,127 | | | 336,068 | | 314,145 | |
Time deposits | 10,234 | | | 12,815 | | 15,797 | |
Total number of deposit accounts | 392,059 | | | 385,609 | | 360,010 |
Borrowings
The following table sets forth the composition of our borrowings and the interest rates at the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | June 30, 2021 | | December 31, 2020 |
(Dollars in thousands) | | Balance | | Weighted Average Rate | | Balance | | Weighted Average Rate | | Balance | | Weighted Average Rate |
| | | | | | | | | | | | |
FHLB Advances | | $157,500 | | 2.29 | % | | $353,500 | | 1.18 | % | | $182,500 | | 2.21 | % |
Borrowings, subordinated notes and debentures | | 260,435 | | 4.37 | % | | 221,358 | | 4.68 % | | 418,480 | | 3.45 | % |
Total borrowings | | $417,935 | | 3.59 | % | | $574,858 | | 0.73 | % | | $600,980 | | 3.07 | % |
| | | | | | | | | | | | |
Weighted average cost of borrowings during the quarter | | 2.64 | % | | | | 2.93 | % | | | | 2.97 | % | | |
Borrowings as a percent of total assets | | 2.69 | % | | | | 4.03 | % | | | | 4.18 | % | | |
At December 31, 2021, total borrowings amounted to $417.9 million, down $156.9 million, or 27.3%, from June 30, 2021 and down $183.0 million or 30.5% from December 31, 2020. Borrowings as a percent of total assets were 2.69%, 4.03% and 4.18% at December 31, 2021, June 30, 2021 and December 31, 2020, respectively. Weighted average cost of borrowings during the quarter were 2.64%, 2.93% and 2.97% for the quarters ended December 31, 2021, June 30, 2021 and December 31, 2020, respectively.
We regularly use advances from the FHLB to manage our interest rate risk and, to a lesser extent, manage our liquidity position. Generally, FHLB advances with terms between three and ten years have been used to fund the purchase of single family and multifamily mortgages and to provide us with interest rate risk protection should rates rise.
Stockholders’ Equity
Stockholders’ equity increased $122.2 million to $1,523.2 million at December 31, 2021 compared to $1,400.9 million at June 30, 2021. The increase was the result of our net income for the six months ended December 31, 2021 of $121.0 million, stock compensation expense of $2.4 million, partially offset by a $1.2 million decrease in other comprehensive income, net of tax.
During the three and six months ended December 31, 2021, the Company did not repurchase any common stock shares. The Company has $52.8 million remaining under the Board authorized stock repurchase program.
LIQUIDITY
Cash flow information is as follows:
| | | | | | | | | | | |
| For the Six Months Ended |
| December 31, |
(Dollars in thousands) | 2021 | | 2020 |
Operating Activities | $ | (76,773) | | | $ | 284,417 | |
Investing Activities | $ | (1,132,694) | | | $ | (1,015,293) | |
Financing Activities | $ | 1,290,048 | | | $ | 223,552 | |
During the six months ended December 31, 2021, we had net cash outflows from operating activities of $76.8 million compared to inflows of $284.4 million for the six months ended December 31, 2020, primarily due to net income for each period. Net operating cash inflows and outflows fluctuate primarily due to the timing of the following: originations of loans held for sale, proceeds from loan sales, securities borrowed and loaned, and customer, broker-dealer and clearing receivables and payables, and changes in other assets and payables were the primary drivers.
Net cash outflows from investing activities totaled $1,132.7 million for the six months ended December 31, 2021, while outflows totaled $1,015.3 million for the six months ended December 31, 2020. The increase in outflows was primarily due to increased originations of loans partially offset by increased repayments on loans and the $54.8 million acquisition of AAS.
Net cash inflows from financing activities totaled $1,290.0 million for the six months ended December 31, 2021, compared to net cash outflows from financing activities of $223.6 million for the six months ended December 31, 2020. The primary driver behind the increase in net cash inflows was increased deposits provided in part, by the acquisition of AAS for the six months ended December 31, 2021.
During the six months ended December 31, 2021, the Bank could borrow up to 40.0% of its total assets from the FHLB. Borrowings are collateralized by the pledge of certain mortgage loans and investment securities to the FHLB. At December 31, 2021, the Company had $1,939.2 million available immediately and $3,449.5 million available with additional collateral. At December 31, 2021, we also had two unsecured federal funds purchase lines with two different banks totaling $175.0 million, under which no borrowings were outstanding.
The Bank has the ability to borrow short-term from the Federal Reserve Bank of San Francisco Discount Window. At December 31, 2021, the Bank did not have any borrowings outstanding and the amount available from this source was $2,433.9 million. The credit line is collateralized by consumer loans and mortgage-backed securities.
Axos Clearing has a total of $170.0 million in uncommitted secured lines of credit for borrowing as needed. As of December 31, 2021, there was $75.0 million outstanding. These credit facilities bear interest at rates based on the Federal Funds rate and are due upon demand.
Axos Clearing has a $50.0 million committed unsecured line of credit available for limited purpose borrowing. As of December 31, 2021, no borrowings were outstanding. This credit facility bears interest at rates based on the Federal Funds rate and are due upon demand.
We believe our liquidity sources to be stable and adequate for our anticipated needs and contingencies for the next 12 months and beyond. We believe we have the ability to increase our level of deposits and borrowings to address our liquidity needs for the foreseeable future.
OFF-BALANCE SHEET COMMITMENTS
At December 31, 2021, we had commitments to originate loans with an aggregate outstanding principal balance of $2,483.0 million, and commitments to sell loans with an aggregate outstanding principal balance of $50.0 million. We have no commitments to purchase loans, investment securities or any other unused lines of credit.
In the normal course of business, Axos Clearing’s customer activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose Axos Clearing to off-balance-sheet risk in the event the customer or other broker is unable to fulfill its contracted obligations and Axos Clearing has to purchase or sell the financial instrument underlying the contract at a loss. Axos Clearing’s clearing agreements with broker-dealers for which it provides clearing services requires them to indemnify Axos Clearing if customers fail to satisfy their contractual obligation.
CAPITAL RESOURCES AND REQUIREMENTS
Our Company and Bank are subject to regulatory capital adequacy requirements promulgated by federal bank regulatory agencies. Failure by our Company or Bank to meet minimum capital requirements could result in certain mandatory and discretionary actions by regulators that could have a material adverse effect on our unaudited condensed consolidated financial statements. The Federal Reserve establishes capital requirements for our Company and the OCC has similar requirements for our Bank. The following tables present regulatory capital information for our Company and Bank. Information presented for December 31, 2021, reflects the Basel III capital requirements that became effective January 1, 2015 for both our Company and Bank. Under these capital requirements and the regulatory framework for prompt corrective action, our Company and Bank must meet specific capital guidelines that involve quantitative measures of our Company and Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Our Company’s and Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors.
Quantitative measures established by regulation require our Company and Bank to maintain certain minimum capital amounts and ratios. Federal bank regulators require our Company and Bank maintain minimum ratios of core capital to adjusted average assets of 4.0%, common equity tier 1 capital to risk-weighted assets of 4.5%, tier 1 capital to risk-weighted assets of 6.0% and total risk-based capital to risk-weighted assets of 8.0%. To be “well capitalized,” our Company and Bank must maintain minimum leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios of at least 5.0%, 6.5%, 8.0% and 10.0%, respectively. At December 31, 2021, our Company and Bank met all the capital adequacy requirements to which they were subject and were “well capitalized” under the regulatory framework for prompt corrective action. Management believes that no conditions or events have occurred since December 31, 2021 that would materially adversely change the Company’s and Bank’s capital classifications. From time to time, we may need to raise additional capital to support our Company’s and Bank’s further growth and to maintain their “well capitalized” status.
The Company and Bank elected the CECL 5-year transition guidance for calculating regulatory capital ratios and the December 31, 2021 ratios include this election. This guidance allows an entity to add back to capital 100% of the capital impact from the day one CECL transition adjustment and 25% of subsequent increases to the allowance for credit losses through June 30, 2023. This cumulative amount will then be phased out of regulatory capital over the next three years.
The Company’s and Bank’s estimated capital amounts, capital ratios and capital requirements under Basel III were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Axos Financial, Inc. | | Axos Bank | | “Well Capitalized” Ratio | | Minimum Capital Ratio |
(Dollars in millions) | December 31, 2021 | | June 30, 2021 | | December 31, 2021 | | June 30, 2021 | |
Regulatory Capital: | | | | | | | | | | | |
Tier 1 | $ | 1,390 | | | $ | 1,309 | | | $ | 1,366 | | | $ | 1,263 | | | | | |
Common equity tier 1 | $ | 1,390 | | | $ | 1,309 | | | $ | 1,366 | | | $ | 1,263 | | | | | |
Total capital (to risk-weighted assets) | $ | 1,676 | | | $ | 1,588 | | | $ | 1,469 | | | $ | 1,358 | | | | | |
| | | | | | | | | | | |
Assets: | | | | | | | | | | | |
Average adjusted | $ | 14,755 | | | $ | 14,851 | | | $ | 13,491 | | | $ | 13,360 | | | | | |
Total risk-weighted | $ | 13,781 | | | $ | 11,523 | | | $ | 12,523 | | | $ | 10,283 | | | | | |
| | | | | | | | | | | |
Regulatory Capital Ratios: | | | | | | | | | | | |
Tier 1 leverage (core) capital to adjusted average assets | 9.42 | % | | 8.82 | % | | 10.13 | % | | 9.45 | % | | 5.00 | % | | 4.00 | % |
Common equity tier 1 capital (to risk-weighted assets) | 10.08 | % | | 11.36 | % | | 10.91 | % | | 12.28 | % | | 6.50 | % | | 4.50 | % |
Tier 1 capital (to risk-weighted assets) | 10.08 | % | | 11.36 | % | | 10.91 | % | | 12.28 | % | | 8.00 | % | | 6.00 | % |
Total capital (to risk-weighted assets) | 12.16 | % | | 13.78 | % | | 11.73 | % | | 13.21 | % | | 10.00 | % | | 8.00 | % |
Basel III implemented a requirement for all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively composed of common equity tier 1 capital, and it applies to each of the three risk-based capital ratios but not the leverage ratio. At December 31, 2021, our Company and Bank are in compliance with the capital conservation buffer requirement, which sets the common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratio minimums to 7.0%, 8.5% and 10.5%, respectively.
Securities Business
Pursuant to the net capital requirements of the Exchange Act, Axos Clearing, is subject to the SEC Uniform Net Capital (Rule 15c3-1 of the Exchange Act). Under this rule, the Company has elected to operate under the alternate method and is required to maintain minimum net capital of $250,000 or 2% of aggregate debit balances arising from client transactions, as defined. Under the alternate method, the Company may not repay subordinated debt, pay cash distributions, or make any unsecured advances or loans to its parent or employees if such payment would result in net capital of less than 5% of aggregate debit balances or less than 120% of its minimum dollar requirement.
The net capital positions of Axos Clearing were as follows:
| | | | | | | | | | | |
(Dollars in thousands) | December 31, 2021 | | June 30, 2021 |
Net capital | $ | 39,453 | | | $ | 35,950 | |
Excess Capital | $ | 32,171 | | | $ | 27,904 | |
| | | |
Net capital as a percentage of aggregate debit items | 10.84 | % | | 8.94 | % |
Net capital in excess of 5% aggregate debit items | $ | 21,249 | | | $ | 15,836 | |
Axos Clearing as a clearing broker, is subject to SEC Customer Protection Rule (Rule 15c3-3 of the Exchange Act) which requires segregation of funds in a special reserve account for the benefit of customers. At December 31, 2021, the Company had a deposit requirement of $224.1 million and maintained a deposit of $213.1 million. On January 3, 2022, the company made a deposit of $11.0 million.
Certain broker-dealers have chosen to maintain brokerage customer accounts at Axos Clearing. To allow these broker-dealers to classify their assets held by the Company as allowable assets in their computation of net capital, the Company computes a separate reserve requirement for Proprietary Accounts of Brokers (PAB). At December 31, 2021, the Company had a deposit requirement of $44.0 million and maintained a deposit of $46.5 million. On January 3, 2022, the Company made a withdrawal in the amount of $2.5 million.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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. 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. During a period of falling interest rates, however, 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.
Banking Business
The following table sets forth the amounts of interest earning assets and interest bearing liabilities that were outstanding at December 31, 2021 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, 2021 |
(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 | $ | 821,648 | | | $ | — | | | $ | — | | | $ | — | | | $ | 821,648 | |
Securities1 | 130,742 | | | 1,909 | | | 13,642 | | | 17,964 | | | 164,257 | |
Stock of the FHLB, at cost | 17,250 | | | — | | | — | | | — | | | 17,250 | |
Loans—net of allowance for credit loss | 8,301,727 | | | 1,547,387 | | | 2,785,738 | | | 73,714 | | | 12,708,566 | |
Loans held for sale | 38,874 | | | — | | | — | | | — | | | 38,874 | |
Total interest-earning assets | 9,310,241 | | | 1,549,296 | | | 2,799,380 | | | 91,678 | | | 13,750,595 | |
Non-interest earning assets | — | | | — | | | — | | | — | | | 296,486 | |
Total assets | $ | 9,310,241 | | | $ | 1,549,296 | | | $ | 2,799,380 | | | $ | 91,678 | | | $ | 14,047,081 | |
Interest-bearing liabilities: | | | | | | | | | |
Interest-bearing deposits | $ | 6,513,865 | | | $ | 1,476,260 | | | $ | 467,701 | | | $ | (1,536) | | | $ | 8,456,290 | |
| | | | | | | | | |
Advances from the FHLB | 40,000 | | | 17,500 | | | 40,000 | | | 60,000 | | | 157,500 | |
| | | | | | | | | |
Total interest-bearing liabilities | 6,553,865 | | | 1,493,760 | | | 507,701 | | | 58,464 | | | 8,613,790 | |
Other non-interest-bearing liabilities | — | | | — | | | — | | | — | | | 4,037,553 | |
Stockholders’ equity | — | | | — | | | — | | | — | | | 1,395,738 | |
Total liabilities and equity | $ | 6,553,865 | | | $ | 1,493,760 | | | $ | 507,701 | | | $ | 58,464 | | | $ | 14,047,081 | |
Net interest rate sensitivity gap | $ | 2,756,376 | | | $ | 55,536 | | | $ | 2,291,679 | | | $ | 33,214 | | | $ | 5,136,805 | |
Cumulative gap | $ | 2,756,376 | | | $ | 2,811,912 | | | $ | 5,103,591 | | | $ | 5,136,805 | | | $ | 5,136,805 | |
Net interest rate sensitivity gap—as a % of total interest earning assets | 20.05 | % | | 0.40 | % | | 16.67 | % | | 0.24 | % | | 37.36 | % |
Cumulative gap—as % of total interest earning assets | 20.05 | % | | 20.45 | % | | 37.12 | % | | 37.36 | % | | 37.36 | % |
1 Comprised of agency and non-agency mortgage-backed securities, municipal securities and other non-agency debt securities, which are classified as available-for-sale.
The above table provides an approximation of the projected re-pricing of assets and liabilities at December 31, 2021 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 based on historical experience. For the non-maturity deposit liabilities, we use decay rates and rate adjustments based upon our historical experience. Actual repayments of these instruments could vary substantially if future experience differs from our historic 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.
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 Bank assumes no growth in the balance sheet other than for retained earnings:
| | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2021 |
| First 12 Months | | Next 12 Months |
(Dollars in thousands) | Net Interest Income | | Percentage Change from Base | | Net Interest Income | | Percentage Change from Base |
Up 200 basis points | $ | 602,020 | | | 8.8 | % | | $ | 594,198 | | | 9.1 | % |
Base | $ | 553,393 | | | — | % | | $ | 544,390 | | | — | % |
Down 100 basis points | $ | 543,760 | | | (1.7) | % | | $ | 527,446 | | | (3.1) | % |
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 market value of equity sensitivity to an immediate parallel and sustained shift in interest rates derived from the current treasury and LIBOR yield curves. For rising interest rate scenarios, the base market interest rate forecast was increased by 100, 200 and 300 basis points. For falling interest rate scenarios, we used a 100 basis point decrease due to limitations inherent in the current rate environment.
The following table indicates the sensitivity of market value of equity to the interest rate movement described above:
| | | | | | | | | | | | | | | | | |
| As of December 31, 2021 |
(Dollars in thousands) | Net Present Value | | Percentage Change from Base | | Net Present Value as a Percentage of Assets |
Up 300 basis points | $ | 1,527,926 | | | (0.8) | % | | 11.0 | % |
Up 200 basis points | $ | 1,588,960 | | | 3.2 | % | | 11.3 | % |
Up 100 basis points | $ | 1,585,104 | | | 2.9 | % | | 11.2 | % |
Base | $ | 1,540,147 | | | — | % | | 10.8 | % |
Down 100 basis points | $ | 1,339,206 | | | (13.0) | % | | 9.3 | % |
| | | | | |
The computation of the prospective effects of hypothetical interest rate changes is based on numerous assumptions, including relative levels of interest rates, asset prepayments, 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 change in loan and deposit interest rates and changes in our asset and liability mix.
Securities Business
Our Securities Business 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 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. Much 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.
At December 31, 2020, Axos Clearing held municipal obligations, these positions were classified as trading securities and had maturities greater than 10 years.
Our Securities Business 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.
Collateral underlying margin loans to customers and correspondents and with respect to securities lending activities is marked to market daily and additional collateral is required as necessary.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
For quantitative and qualitative disclosures regarding market risks in our portfolio, see,See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk.”
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.
Beginning July 1, 2020, the Company adopted ASC 326. As a result, the Company made changes to and incorporated new policies, processes and controls over the estimation of the allowance for credit losses. These changes were not undertaken in response to any identified deficiency in the Company’s internal control over financial reporting. There have been no other changes in the Company’s internal control.
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 are 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.
PART II—OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
The information set forth in Note 8 – “Commitments And Contingencies” to the Unaudited 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 business of the Bank. 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 Part 1, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2020.2021. 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 shares retained in connection with net settlement of restricted stock awards during the quarter ended December 31, 2020.2021.
| | | | | | | | | | | | | | | | | | | | | | | |
(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, 2020 | | | | | | | |
October 1, 2020 to October 31, 2020 | 171,348 | | | $ | 23.43 | | | 171,348 | | | $ | 52,764 | |
November 1, 2020 to November 30, 2020 | — | | | $ | — | | | — | | | $ | — | |
December 1, 2020 to December 31, 2020 | — | | | $ | — | | | — | | | $ | — | |
For the Three Months Ended December 31, 2020 | 171,348 | | | $ | 23.43 | | | 171,348 | | | $ | 52,764 | |
| | | | | | | |
Stock Retained in Net Settlement2 | | | | | | | |
October 1, 2020 to October 31, 2020 | 1,294 | | | | | | | |
November 1, 2020 to November 30, 2020 | 325 | | | | | | | |
December 1, 2020 to December 31, 2020 | 15,874 | | | | | | | |
For the Three Months Ended December 31, 2020 | 17,493 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
(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, 2021 | | | | | | | |
October 1, 2021 to October 31, 2021 | — | | | $ | — | | | — | | | $ | — | |
November 1, 2021 to November 30, 2021 | — | | | $ | — | | | — | | | $ | — | |
December 1, 2021 to December 31, 2021 | — | | | $ | — | | | — | | | $ | — | |
For the Three Months Ended December 31, 2021 | — | | | $ | — | | | — | | | $ | 52,764 | |
| | | | | | | |
Stock Retained in Net Settlement2 | | | | | | | |
October 1, 2021 to October 31, 2021 | 866 | | | | | | | |
November 1, 2021 to November 30, 2021 | 556 | | | | | | | |
December 1, 2021 to December 31, 2021 | 856 | | | | | | | |
For the Three Months Ended December 31, 2021 | 2,278 | | | | | | | |
1 On March 17, 2016, the Board of Directors of the Company authorized a program to repurchase up to $100 million of common stock and extended the program by an additional $100 million on August 2, 2019. The share repurchase program will continue in effect until terminated by the Board of Directors of the Company. Purchases were made in open-market transactions.
2 In October 2019, the stockholdersConsists of the Company approvedshares withheld from settlement of equity awards under the amended and restated the 2014 Stock Incentive Plan which among other changes permitted net settlement of stock issuances related to equity awards for purposes of payment of a grantee’s minimum income tax obligation. Stock Retained in Net Settlement was at the vesting price of theobligations associated restricted stock unitwith settlement.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.Not applicable.
ITEM 5. OTHER INFORMATION
On January 25, 2021, the Company filed a Certificate of Elimination with the Secretary of the State of Delaware eliminating from the Certificate of Incorporation all matters set forth in the Certificate of Designations with respect to its Series A - 6% Cumulative Nonparticipating Perpetual Preferred Stock Convertible through January 2009 (the “Series A Preferred Stock”). No shares of the Series A Preferred Stock were outstanding at the time of the filing of the Certificate of Elimination and all outstanding shares of the Series A Preferred Stock were redeemed on October 30, 2020. The Certificate of Elimination was effective on filing and related to the Series A Preferred Stock is attached as Exhibit 3.1.8 to this Quarterly Report on Form 10-Q.ITEM 5. OTHER INFORMATION
None.
ITEM 6.EXHIBITS
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Exhibit Number | Description | | Incorporated By Reference to |
| | | |
3.1.810.1 | Certificate of Elimination relating to the Series A - 6% Cumulative Nonparticipating Perpetual PreferredAmended and Restated 2014 Stock Convertible through January 2009, filed with the Delaware Secretary of State on January 25, 2021.Incentive Plan | | |
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4.1 | Indenture, dated as of March 3, 2016, between Axos Financial, Inc. and U.S. Bank National Association, as trustee | | |
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4.2 | Second Supplemental Indenture, dated as of September 18, 2020, between Axos Financial, Inc. and U.S. Bank National Association, as trustee | | |
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4.3 | Form of Global Note to represent the 4.875% Fixed-to-Floating Rate Subordinated Notes due 2030 of Axos Financial, Inc. | | |
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31.1 | Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | |
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31.2 | Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | |
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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 | | |
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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 | | |
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101.SCH | XBRL Taxonomy Extension Schema Document | | Filed herewith. |
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101.CAL | XBRL Taxonomy Calculation Linkbase Document | | Filed herewith. |
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101.LAB | XBRL Taxonomy Label Linkbase Document | | Filed herewith. |
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101.PRE | XBRL Taxonomy Presentation Linkbase Document | | Filed herewith. |
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101.DEF | XBRL Taxonomy Definition Document | | Filed herewith. |
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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. |
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101.SCH | Inline XBRL Taxonomy Extension Schema Document | | Filed herewith. |
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101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document | | Filed herewith. |
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101.LAB | Inline XBRL Taxonomy Label Linkbase Document | | Filed herewith. |
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101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document | | Filed herewith. |
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101.DEF | Inline XBRL Taxonomy Definition Document | | Filed herewith. |
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104 | Cover Page Interactive Data File | | Formatted as Inline XBRL and contained in Exhibit 101 |
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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.
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| | | | | Axos Financial, Inc. |
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Dated: | January 28, 202127, 2022 | | By: | | /s/ Gregory Garrabrants |
| | | | | Gregory Garrabrants President and Chief Executive Officer (Principal Executive Officer) |
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Dated: | January 28, 202127, 2022 | | By: | | /s/ Andrew J. MichelettiDerrick K. Walsh |
| | | | | Andrew J. MichelettiDerrick K. Walsh Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
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