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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2022
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 001-37709
AXOS FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Delaware | | 33-0867444 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
| | |
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9205 West Russell Road, Suite 400, Las Vegas, NV 89148
(Address of principal executive offices) (zip code)
Registrant’s telephone number, including area code: (858) 649-2218
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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 |
__________________________________________________________________________________________
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: 60,000,709 shares of common stock, $0.01 par value per share, as of January 20, 2023.
AXOS FINANCIAL, INC.
INDEX
PART I – FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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(Dollars in thousands, except par and stated value) | (Unaudited) December 31, 2022 | | June 30, 2022 |
ASSETS | | | |
Cash and cash equivalents | $ | 1,755,603 | | | $ | 1,202,587 | |
Cash segregated for regulatory purposes | 196,910 | | | 372,112 | |
| | | |
Total cash, cash equivalents, and cash segregated | 1,952,513 | | | 1,574,699 | |
Securities: | | | |
Trading | 372 | | | 1,758 | |
Available-for-sale | 248,062 | | | 262,518 | |
| | | |
Stock of regulatory agencies | 20,881 | | | 20,368 | |
Loans held for sale, carried at fair value | 4,292 | | | 4,973 | |
Loans held for sale, lower of cost or fair value | 455 | | | 10,938 | |
Loans—net of allowance for credit losses of $157,218 as of December 31, 2022 and $148,617 as of June 30, 2022 | 15,473,212 | | | 14,091,061 | |
| | | |
| | | |
| | | |
Mortgage servicing rights, carried at fair value | 25,526 | | | 25,213 | |
| | | |
| | | |
Securities borrowed | 58,846 | | | 338,980 | |
Customer, broker-dealer and clearing receivables | 272,579 | | | 417,417 | |
Goodwill and other intangible assets—net | 157,585 | | | 156,405 | |
Other assets | 526,712 | | | 496,835 | |
TOTAL ASSETS | $ | 18,741,035 | | | $ | 17,401,165 | |
| | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Deposits: | | | |
Non-interest bearing | 3,442,148 | | | 5,033,970 | |
Interest bearing | 12,248,346 | | | 8,912,452 | |
Total deposits | 15,690,494 | | | 13,946,422 | |
| | | |
Advances from the Federal Home Loan Bank | 100,000 | | | 117,500 | |
Borrowings, subordinated notes and debentures | 334,077 | | | 445,244 | |
| | | |
Securities loaned | 156,008 | | | 474,400 | |
Customer, broker-dealer and clearing payables | 420,947 | | | 511,654 | |
Accounts payable and other liabilities | 251,950 | | | 262,972 | |
Total liabilities | 16,953,476 | | | 15,758,192 | |
COMMITMENTS AND CONTINGENCIES (Note 8) | | | |
STOCKHOLDERS’ EQUITY: | | | |
| | | |
| | | |
| | | |
| | | |
Common stock—$0.01 par value; 150,000,000 shares authorized; 69,153,591 shares issued and 60,000,079 shares outstanding as of December 31, 2022; 68,859,722 shares issued and 59,777,949 shares outstanding as of June 30, 2022 | 692 | | | 689 | |
Additional paid-in capital | 465,350 | | | 453,784 | |
Accumulated other comprehensive income (loss)—net of tax | (6,945) | | | (2,933) | |
Retained earnings | 1,568,403 | | | 1,428,444 | |
Treasury stock, at cost; 9,153,512 shares as of December 31, 2022 and 9,081,773 shares as of June 30, 2022 | (239,941) | | | (237,011) | |
Total stockholders’ equity | 1,787,559 | | | 1,642,973 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 18,741,035 | | | $ | 17,401,165 | |
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 |
| December 31, | | December 31, |
(Dollars in thousands, except earnings per common share) | 2022 | | 2021 | | 2022 | | 2021 |
INTEREST AND DIVIDEND INCOME: | | | | | | | |
Loans, including fees | $ | 255,661 | | | $ | 149,469 | | | $ | 463,999 | | | $ | 298,645 | |
Securities borrowed and customer receivables | 4,321 | | | 5,366 | | | 8,705 | | | 12,217 | |
Investments | 19,606 | | | 2,241 | | | 30,670 | | | 4,524 | |
Total interest and dividend income | 279,588 | | | 157,076 | | | 503,374 | | | 315,386 | |
INTEREST EXPENSE: | | | | | | | |
Deposits | 71,348 | | | 7,805 | | | 103,853 | | | 15,517 | |
Advances from the Federal Home Loan Bank | 2,504 | | | 973 | | | 7,667 | | | 1,989 | |
Securities loaned | 1,067 | | | 218 | | | 2,010 | | | 469 | |
Other borrowings | 4,759 | | | 2,512 | | | 9,459 | | | 5,201 | |
Total interest expense | 79,678 | | | 11,508 | | | 122,989 | | | 23,176 | |
Net interest income | 199,910 | | | 145,568 | | | 380,385 | | | 292,210 | |
Provision for credit losses | 3,500 | | | 4,000 | | | 12,250 | | | 8,000 | |
Net interest income, after provision for credit losses | 196,410 | | | 141,568 | | | 368,135 | | | 284,210 | |
NON-INTEREST INCOME: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Broker-dealer fee income | 9,812 | | | 6,332 | | | 18,990 | | | 12,794 | |
| | | | | | | |
Advisory fee income | 6,983 | | | 8,035 | | | 13,942 | | | 13,339 | |
Banking and service fees | 10,143 | | | 8,486 | | | 16,657 | | | 15,166 | |
Mortgage banking income | 641 | | | 4,640 | | | 4,006 | | | 9,910 | |
Prepayment penalty fee income | 750 | | | 3,294 | | | 1,942 | | | 6,280 | |
Total non-interest income | 28,329 | | | 30,787 | | | 55,537 | | | 57,489 | |
NON-INTEREST EXPENSE: | | | | | | | |
Salaries and related costs | 49,720 | | | 39,979 | | | 96,716 | | | 80,716 | |
Data processing | 14,632 | | | 12,199 | | | 28,654 | | | 24,291 | |
Depreciation and amortization | 5,957 | | | 6,785 | | | 12,051 | | | 12,513 | |
Advertising and promotional | 10,899 | | | 3,402 | | | 17,269 | | | 6,774 | |
Professional services | 8,455 | | | 5,943 | | | 16,542 | | | 10,488 | |
Occupancy and equipment | 3,683 | | | 3,342 | | | 7,737 | | | 6,523 | |
FDIC and regulatory fees | 3,569 | | | 2,475 | | | 7,304 | | | 4,741 | |
Broker-dealer clearing charges | 3,739 | | | 3,678 | | | 6,568 | | | 7,683 | |
General and administrative expense | 6,874 | | | 8,216 | | | 30,774 | | | 16,721 | |
Total non-interest expense | 107,528 | | | 86,019 | | | 223,615 | | | 170,450 | |
INCOME BEFORE INCOME TAXES | 117,211 | | | 86,336 | | | 200,057 | | | 171,249 | |
INCOME TAXES | 35,659 | | | 25,549 | | | 60,098 | | | 50,252 | |
NET INCOME | $ | 81,552 | | | $ | 60,787 | | | $ | 139,959 | | | $ | 120,997 | |
| | | | | | | |
COMPREHENSIVE INCOME | $ | 80,377 | | | $ | 60,131 | | | $ | 135,947 | | | $ | 119,834 | |
Basic earnings per common share | $ | 1.36 | | | $ | 1.02 | | | $ | 2.34 | | | $ | 2.04 | |
Diluted earnings per common share | $ | 1.35 | | | $ | 1.00 | | | $ | 2.31 | | | $ | 1.99 | |
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 |
| December 31, | | December 31, |
(Dollars in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
NET INCOME | $ | 81,552 | | | $ | 60,787 | | | $ | 139,959 | | | $ | 120,997 | |
Net unrealized gain (loss) from available-for-sale securities, net of income tax expense (benefit) of $503 and $(274) for the three months and $1,718 and $(488) for the six months ended December 31, 2022 and 2021, respectively. | (1,175) | | | (656) | | | (4,012) | | | (1,163) | |
| | | | | | | |
| | | | | | | |
Other comprehensive income (loss) | (1,175) | | | (656) | | | (4,012) | | | (1,163) | |
Comprehensive income | $ | 80,377 | | | $ | 60,131 | | | $ | 135,947 | | | $ | 119,834 | |
See accompanying notes to the condensed consolidated financial statements.
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | For the Three Months Ended December 31, 2022 |
| | | 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) | | | | | Issued | | Treasury | | Outstanding | | Amount | | | | | |
BALANCE—September 30, 2022 | | | | | 69,151,152 | | | (9,152,479) | | | 59,998,673 | | | $ | 692 | | | $ | 459,101 | | | $ | 1,486,851 | | | $ | (5,770) | | | $ | (239,902) | | | $ | 1,700,972 | |
Net income | | | | | — | | | — | | | — | | | — | | | — | | | 81,552 | | | — | | | — | | | 81,552 | |
Other comprehensive income (loss) | | | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,175) | | | — | | | (1,175) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation activity | | | | | 2,439 | | | (1,033) | | | 1,406 | | | — | | | 6,249 | | | — | | | — | | | (39) | | | 6,210 | |
| | | | | | | | | | | | | | | | | | | | | |
BALANCE—December 31, 2022 | | | | | 69,153,591 | | | (9,153,512) | | | 60,000,079 | | | $ | 692 | | | $ | 465,350 | | | $ | 1,568,403 | | | $ | (6,945) | | | $ | (239,941) | | | $ | 1,787,559 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | For the Six Months Ended December 31, 2022 |
| | | 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) | | | | | Issued | | Treasury | | Outstanding | | Amount | |
BALANCE—June 30, 2022 | | | | | 68,859,722 | | | (9,081,773) | | | 59,777,949 | | | $ | 689 | | | $ | 453,784 | | | $ | 1,428,444 | | | $ | (2,933) | | | $ | (237,011) | | | $ | 1,642,973 | |
| | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | — | | | — | | | — | | | — | | | — | | | 139,959 | | | — | | | — | | | 139,959 | |
Other comprehensive income (loss) | | | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,012) | | | — | | | (4,012) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation activity | | | | | 293,869 | | | (71,739) | | | 222,130 | | | 3 | | | 11,566 | | | — | | | — | | | (2,930) | | | 8,639 | |
| | | | | | | | | | | | | | | | | | | | | |
BALANCE—December 31, 2022 | | | | | 69,153,591 | | | (9,153,512) | | | 60,000,079 | | | $ | 692 | | | $ | 465,350 | | | $ | 1,568,403 | | | $ | (6,945) | | | $ | (239,941) | | | $ | 1,787,559 | |
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, 2021 |
| | | 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) | | | | | 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) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation activity | | | | | 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, 2021 |
| | | 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) | | | | | 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 activity | | | | | 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 CASH FLOWS
(Unaudited)
| | | | | | | | | | | |
| Six Months Ended |
| December 31, |
(Dollars in thousands) | 2022 | | 2021 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net income | $ | 139,959 | | | $ | 120,997 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Depreciation, amortization, and accretion | 12,580 | | | 14,287 | |
Stock-based compensation expense | 11,569 | | | 8,514 | |
Trading activity | 1,386 | | | 760 | |
| | | |
| | | |
Provision for credit losses | 12,250 | | | 8,000 | |
| | | |
Deferred income taxes | 7,592 | | | (1,468) | |
Origination of loans held for sale | (113,300) | | | (403,287) | |
| | | |
| | | |
Unrealized and realized gains on loans held for sale | (4,115) | | | (8,673) | |
Proceeds from sale of loans held for sale | 117,252 | | | 410,918 | |
Amortization and change in fair value of mortgage servicing rights | 93 | | | 1,087 | |
| | | |
| | | |
| | | |
Net changes in assets and liabilities which provide (use) cash: | | | |
| | | |
Securities borrowed | 280,134 | | | 84,845 | |
Customer, broker-dealer and clearing receivables | 144,838 | | | (1,702) | |
Other assets | (19,062) | | | (102,551) | |
| | | |
Securities loaned | (318,392) | | | (150,226) | |
Customer, broker-dealer and clearing payables | (90,707) | | | (61,069) | |
Accounts payable and other liabilities | (5,001) | | | 7,067 | |
Net cash provided by (used in) operating activities | 177,076 | | | (72,501) | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Purchases of investment securities | — | | | (12,286) | |
| | | |
| | | |
Proceeds from sale and repayment of securities | 9,111 | | | 129,351 | |
Purchase of stock of regulatory agencies | (74,972) | | | (13,631) | |
Proceeds from redemption of stock of regulatory agencies | 74,972 | | | 13,631 | |
Origination of loans held for investment | (4,499,800) | | | (4,636,661) | |
Proceeds from sale of loans held for investment | 13,965 | | | 36,943 | |
Mortgage warehouse loans activity, net | 136,545 | | | 18,511 | |
Proceeds from sales of other real estate owned and repossessed assets | 1,229 | | | 7,454 | |
| | | |
Acquisition of business activity, net of cash acquired | (5,531) | | | (54,761) | |
Purchases of loans and leases, net of discounts and premiums | (127) | | | (30,153) | |
Principal repayments on loans | 2,947,186 | | | 3,413,366 | |
Purchases of furniture, equipment, software and intangibles | (13,982) | | | (8,730) | |
Net cash used in investing activities | (1,411,404) | | | (1,136,966) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Net increase in deposits | 1,744,072 | | | 1,453,375 | |
| | | |
Payments of the Federal Home Loan Bank term advances | (17,500) | | | (10,000) | |
Net repayment of Federal Home Loan Bank other advances | — | | | (186,000) | |
Net proceeds (repayments) of other borrowings | (111,500) | | | 38,800 | |
| | | |
| | | |
| | | |
Tax payments related to settlement of restricted stock units | (2,930) | | | (6,127) | |
| | | |
| | | |
| | | |
| | | |
| | | |
Net cash provided by financing activities | 1,612,142 | | | 1,290,048 | |
NET CHANGE IN CASH AND CASH EQUIVALENTS | 377,814 | | | 80,581 | |
CASH AND CASH EQUIVALENTS—Beginning of year | $ | 1,574,699 | | | $ | 1,037,777 | |
CASH AND CASH EQUIVALENTS—End of period | $ | 1,952,513 | | | $ | 1,118,358 | |
| | | |
| | | |
| | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | |
Interest paid on deposits and borrowed funds | $ | 121,878 | | | $ | 23,429 | |
Income taxes paid | 73,129 | | | 57,763 | |
Transfers to other real estate and repossessed vehicles | 7,228 | | | 342 | |
Transfers from loans held for investment to loans held for sale | — | | | 36,943 | |
Transfers from loans held for sale to loans held for investment | 690 | | | 794 | |
Operating lease liabilities for obtaining right of use assets | — | | | 4,167 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
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, 2022 AND 2021
(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 (“Axos Nevada Holding” and collectively, the “Company”). Axos Bank and its wholly owned subsidiary constitute the Banking Business segment and Axos Nevada Holding wholly owns the companies constituting the Securities 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 three and six months ended December 31, 2022 are not necessarily indicative of results that may be expected for any other interim period or for the year as a whole. Certain information and note disclosures normally included in the audited annual financial statements prepared in accordance with GAAP have been condensed or not repeated herein pursuant to the rules and regulations of the 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, 2022 included in our Annual Report on Form 10-K filed with the SEC for the fiscal year ended June 30, 2022 (“2022 Form 10-K”). A reclassification of certain components of non-interest income for the three and six months ended December 31, 2021 has been made to conform to the current period presentation. This reclassification had no effect on the Company’s total non-interest income, net income, financial position or cash flows. Additional reclassifications of certain amounts in the Condensed Consolidated Statement of Cash Flows for the six months ended December 31, 2021 have been made to conform to the current period presentation. These reclassifications had no effect on the Company’s results of operations or financial position.
Significant Accounting Policies
Our significant accounting policies are described in greater detail in Note 1—“Organizations and Summary of Significant Accounting Policies” contained in the 2022 Form 10-K.
New Accounting Standards
Accounting Standards Issued But Not Yet Adopted
The Financial Accounting Standards Board has issued three Accounting Standards Updates (“ASUs”) (2020-04, 2021-04 and 2022-06) all of which provide guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying generally accepted accounting principles to contracts, hedging relationships, and other transactions impacted by reference rate reform. The provisions apply only to those transactions that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. Adoption of the provisions are optional and are effective from March 12, 2020 through December 31, 2024. The Company is evaluating the impact on the Company’s Consolidated Financial Statements, but it does not expect any application of the provisions of these ASUs to have a material impact. For a further discussion of new accounting standards issued but not yet adopted which are applicable to the Company see Note 1—“Organizations and Summary of Significant Accounting Policies” contained in the 2022 Form 10-K.
2. ACQUISITIONS
From time to time the Company completes acquisitions and related corporate activities to supplement the organic growth and development of the business.
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 purchase price of $54.8 million consisted entirely of cash consideration paid upon acquisition and working capital adjustments.
The Company incurred acquisition-related costs totaling $0.04 million in total, all of which were recognized in the year ended June 30, 2022.
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 preliminary allocation of the $54.6 million purchase price consisted of $14.4 million of fair value of tangible assets acquired (which included $7.8 million of a right-of-use lease asset), $11.3 million of liabilities assumed (which included $7.8 million of a lease liability), $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 final acquisition fair value of tangible assets acquired was $14.2 million and the final acquisition fair value of liabilities acquired was $10.9 million. 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’s existing product offerings and leveraging customer relationships through registered investment advisors (“RIAs”). The following table summarizes the fair value and useful life of each intangible asset acquired as of the acquisition date:
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(Dollars 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 |
Total | $ | 27,060 | | | |
The following table presents the results of operations of AAS for the six months ended December 31, 2021 on an unaudited pro forma basis, as if the acquisition of the entity rebranded to AAS had been consummated on July 1, 2020. The results of operations of AAS for the three months ended December 31, 2021 are reflected in the unaudited Condensed Consolidated Statements of Income. The unaudited pro forma financial information is provided for informational purposes only and is not necessarily indicative of what the Company’s results of operations would have been if the acquisition of EAS had occurred as of July 1, 2020, or the results of operations for any future periods. Additionally, the information presented does not reflect any synergies or other strategic benefits as a result of acquisition.
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| | | Pro Forma Revenue | | |
(Dollars in thousands) | | | For the Six Months Ended December 31, 2021 | | |
| | | | | |
Non-interest income | | | $ | 17,230 | | | |
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It is not practical to disclose net income on a pro forma basis as the assets and liabilities acquired are a component of a business.
3. FAIR VALUE
The Company’s financial assets and liabilities measured at fair value on a recurring basis at December 31, 2022 and June 30, 2022 are classified in their entirety based on the lowest level of input significant to the fair value measurement.
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| | December 31, 2022 |
(Dollars in thousands) | | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
ASSETS: | | | | | | | |
Securities—Trading: Municipal | | | $ | 372 | | | $ | — | | | $ | 372 | |
Securities—Available-for-Sale: | | | | | | | |
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