Axos Financial Inc
For the period ended Dec 31, 2023. Filed Jan 30, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Dec 31, 2023 · Filed Jan 30, 2024
Extracted filing text, with the paragraph anchors used by the comparison.
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3. Fair Value
- FAIR VALUE
The following tables sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis at December 31, 2023 and June 30, 2023. Assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement:
| December 31, 2023 | ||||||
|---|---|---|---|---|---|---|
| (Dollars in thousands) · Significant OtherObservableInputs(Level 2) · SignificantUnobservableInputs(Level 3) · Total | ||||||
| ASSETS: | ||||||
| Trading securities | $329 | $— | $329 | |||
| Available-for-sale securities: | ||||||
| Agency MBS1 | 28,664 | — | 28,664 | |||
| Non-Agency MBS2 | — | 207,708 | 207,708 | |||
| Municipal | 3,440 | — | 3,440 | |||
| Total—Available-for-sale securities: | $32,104 | $207,708 | $239,812 | |||
| Loans held for sale | $13,468 | $13,468 | ||||
| Servicing rights | $— | $28,043 | $28,043 | |||
| Other assets—Derivative instruments | $96,084 | $— | $96,084 | |||
| LIABILITIES: | ||||||
| Accounts payable and other liabilities—Derivative instruments | $92,144 | $— | $92,144 | |||
| June 30, 2023 | ||||||
| (Dollars in thousands) | Significant OtherObservableInputs(Level 2) | SignificantUnobservableInputs(Level 3) | Total | |||
| ASSETS: | ||||||
| Trading securities | $758 | $— | $758 | |||
| Available-for-sale securities: | ||||||
| Agency MBS1 | 23,947 | — | 23,947 | |||
| Non-Agency MBS2 | — | 205,005 | 205,005 | |||
| Municipal | 3,398 | — | 3,398 | |||
| Total—Available-for-sale securities: | $27,345 | $205,005 | $232,350 | |||
| Loans held for sale | $23,203 | $— | $23,203 | |||
| Servicing rights | $— | $25,443 | $25,443 | |||
| Other assets—Derivative instruments | $919 | $— | $919 | |||
| LIABILITIES: | ||||||
| Accounts payable and other liabilities—Derivative instruments | $691 | $— | $691 | |||
2 Private sponsors of securities collateralized primarily by first-lien mortgage loans on commercial properties or by pools of 1-4 family residential first mortgages. Primarily super senior securities secured by Alt-A or pay-option adjustable rate mortgages (“ARMs”).
The following tables present additional information about assets measured at fair value on a recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
| For the Three Months Ended | |||
|---|---|---|---|
| December 31, 2023 | |||
| (Dollars in thousands) | Available-for-Sale Securities:Non-Agency MBS | Servicing Rights1 | Total |
| Opening balance | $206,076 | $29,338 | $235,414 |
| Total gains or losses for the period: | |||
| Included in earnings—Mortgage banking and servicing rights income | — | (1,494) | (1,494) |
| Included in other comprehensive income | 1,876 | — | 1,876 |
| Purchases, retentions, issues, sales and settlements: | |||
| Purchases/Retentions | — | 199 | 199 |
| Settlements | (244) | — | (244) |
| Closing balance | $207,708 | $28,043 | $235,751 |
| Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period | $— | $(1,494) | $(1,494) |
| For the Six Months Ended | |||
| December 31, 2023 | |||
| (Dollars in thousands) | Available-for-Sale Securities:Non-Agency MBS | Servicing Rights1 | Total |
| Opening Balance | $205,005 | $25,443 | $230,448 |
| Total gains or losses for the period: | |||
| Included in earnings—Mortgage banking and servicing rights income | — | 365 | 365 |
| Included in other comprehensive income | 3,191 | — | 3,191 |
| Purchases, retentions, issues, sales and settlements: | |||
| Purchases/Retentions | — | 2,235 | 2,235 |
| Settlements | (488) | — | (488) |
| Closing balance | $207,708 | $28,043 | $235,751 |
| Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period | $— | $365 | $365 |
1 Earnings from servicing rights were attributable to: time and payoffs, representing a decrease in servicing rights value due to passage of time, including the impact from both regularly scheduled loan principal payments and loans that were paid down or paid off during the period of $0.3 million and $0.5 million for the three and six months ended December 31, 2023 and a decrease in servicing rights value resulting from market-driven changes in interest rates of $1.2 million three months ended December 31, 2023 and an increase of $0.9 million for the six months ended December 31, 2023. Additions to servicing rights were related to purchases and servicing rights retained upon sale of loans held for sale.
| For the Three Months Ended | ||||
|---|---|---|---|---|
| December 31, 2022 | ||||
| (Dollars in thousands) | Available-for-Sale Securities:Non-Agency MBS | Servicing Rights1 | Derivative Instruments, net | Total |
| Opening balance | $184,012 | $26,373 | $535 | $210,920 |
| Total gains or losses for the period: | ||||
| Included in earnings—Mortgage banking and servicing rights income | — | (1,046) | (517) | (1,563) |
| Included in other comprehensive income | (2,143) | — | — | (2,143) |
| Purchases, retentions, issues, sales and settlements: | ||||
| Purchases/Retentions | — | 199 | — | 199 |
| Settlements | (6,746) | — | — | (6,746) |
| Closing balance | $175,123 | $25,526 | $18 | $200,667 |
| Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period | $— | $(1,046) | $(517) | $(1,563) |
| For the Six Months Ended | ||||
| December 31, 2022 | ||||
| (Dollars in thousands) | Available-for-Sale Securities:Non-Agency MBS | Servicing Rights1 | Derivative Instruments, net | Total |
| Opening Balance | $186,814 | $25,213 | $464 | $212,491 |
| Total gains or losses for the period: | ||||
| Included in earnings—Mortgage banking and servicing rights income | — | (93) | (446) | (539) |
| Included in other comprehensive income | (4,616) | — | — | (4,616) |
| Purchases, retentions, issues, sales and settlements: | ||||
| Purchases/Retentions | — | 406 | — | 406 |
| Settlements | (7,075) | — | — | (7,075) |
| Closing balance | $175,123 | $25,526 | $18 | $200,667 |
| Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period | $— | $(93) | $(446) | $(539) |
1 Earnings from servicing rights were attributable to: time and payoffs, representing a decrease in servicing rights value due to passage of time, including the impact from both regularly scheduled loan principal payments and loans that were paid down or paid off during the period of $0.1 million and $0.5 million for the three and six months ended December 31, 2022 and an decrease in servicing rights value resulting from market-driven changes in interest rates of $0.9 million for the three months ended December 31, 2022 and an increase of $0.4 million for the six months ended December 31, 2022. Additions to servicing rights were retained upon sale of loans held for sale.
The table below summarizes the quantitative information about Level 3 fair value measurements:
| December 31, 2023 | ||||
|---|---|---|---|---|
| (Dollars in thousands) | Fair Value | Valuation Technique | Unobservable Input | Range (Weighted Average)1 |
| Securities – Non-agency MBS | $207,708 | Discounted Cash Flow | Projected Constant Prepayment Rate,Projected Constant Default Rate,Projected Loss Severity,Discount Rate over SOFR Swaps | 0.0 to 59.2% (34.0%)0.0 to 31.4% (2.5%)0.0 to 68.7% (28.5%)2.6 to 6.5% (2.6%) |
| Servicing Rights | $28,043 | Discounted Cash Flow | Projected Constant Prepayment Rate,Life (in years),Discount Rate | 5.2 to 38.1% (12.2%)1.6 to 15.2 (7.6) 9.5 to 11.5% (9.8%) |
| June 30, 2023 | ||||
|---|---|---|---|---|
| (Dollars in thousands) | Fair Value | Valuation Technique | Unobservable Input | Range (Weighted Average)1 |
| Securities – Non-agency MBS | $205,005 | Discounted Cash Flow | Projected Constant Prepayment Rate,Projected Constant Default Rate,Projected Loss Severity,Discount Rate over LIBOR | 0.0 to 59.7% (32.0%)0.0 to 7.5% (2.4%)0.0 to 68.7% (28.5%)2.6 to 7.5% (2.7%) |
| Servicing Rights | $25,443 | Discounted Cash Flow | Projected Constant Prepayment Rate,Life (in years),Discount Rate | 6.1% to 40.1% (12.6%)1.8 to 10.9 (7.7) 9.5 to 11.5% (9.6%) |
1 The weighted average for Securities - Non-agency MBS is based on the relative fair value of the securities and for Servicing Rights is based on the relative unpaid principal of the loans being serviced.
For non-agency mortgage-backed securities, 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. For servicing rights, significant increases in projected prepayment rates or discount rates in isolation would result in a significantly lower fair value measurement, while a significant increase in expected life in isolation would result in a significantly higher fair value measurement. Generally, a change in the projected prepayment rates is accompanied by a directionally opposite change in expected life.
The aggregate fair value of loans held for sale, carried at fair value, contractual balance (including accrued interest), and unrealized gain were:
| (Dollars in thousands) | December 31, 2023 | June 30, 2023 |
|---|---|---|
| Aggregate fair value | $13,468 | $23,203 |
| Contractual balance | 13,013 | 22,844 |
| Unrealized gain | $455 | $359 |
The total interest income and amount of gains and losses from changes in fair value included in earnings for loans held for sale were:
| For the Three Months Ended · For the Six Months Ended | ||||
|---|---|---|---|---|
| December 31, | December 31, | |||
| (Dollars in thousands) | 2023 | 2022 | 2023 | 2022 |
| Interest income | $141 | $103 | $330 | $153 |
| Change in fair value | 33 | (422) | (96) | (331) |
| Total | $174 | $(319) | $234 | $(178) |
The table below summarizes assets measured at fair value on a non-recurring basis:
| December 31, 2023 | ||||
|---|---|---|---|---|
| (Dollars in thousands) | Quoted Prices inActive Marketsfor IdenticalAssets(Level 1) | Significant OtherObservableInputs(Level 2) | SignificantUnobservableInputs(Level 3) | Balance |
| Other real estate owned and repossessed vehicles: | ||||
| Single family real estate | $— | $— | $5,574 | $5,574 |
| Autos | $— | $— | $1,743 | $1,743 |
| Total | $— | $— | $7,317 | $7,317 |
| June 30, 2023 | ||||
| (Dollars in thousands) | Quoted Prices inActive Marketsfor IdenticalAssets(Level 1) | Significant OtherObservableInputs(Level 2) | SignificantUnobservableInputs(Level 3) | Balance |
| Other real estate owned and repossessed vehicles: | ||||
| Single family real estate | $— | $— | $5,574 | $5,574 |
| Multifamily real estate | — | — | 1,392 | 1,392 |
| Autos | — | — | $1,133 | 1,133 |
| Total | $— | $— | $8,099 | $8,099 |
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 $7.3 million at December 31, 2023, after write-downs of $1.1 million, and a net carrying amount of $8.1 million at June 30, 2023, after write-downs of $1.7 million.
The following table presents quantitative information about Level 3 fair value measurements for other real estate owned measured at fair value on a non-recurring basis:
| December 31, 2023 | ||||
|---|---|---|---|---|
| (Dollars in thousands) | Fair Value | Valuation Technique | Unobservable Input | Range (Weighted Average) 1 |
| Other real estate owned: | ||||
| Single family real estate | $5,574 | Sales comparison approach | Differences between the comparable sales | 62.1 to 93.6% (62.1%) |
| June 30, 2023 | ||||
|---|---|---|---|---|
| (Dollars in thousands) | Fair Value | Valuation Technique | Unobservable Input | Range (Weighted Average) 1 |
| Other real estate owned: | ||||
| Single family real estate | $5,574 | Sales comparison approach | Differences between the comparable sales | 62.1 to 93.6% (62.1%) |
| Multifamily real estate | $1,392 | Sales comparison approach and income approach | Differences between the comparable sales and differences in net operating income expectations, capitalization rate | 49.8 to 54.5% (49.8%) |
1 For other real estate owned 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 asset being valued having limited comparable sales with similar characteristics at the time the current appraisal is conducted. The weighted average is based on the relative fair value of comparable sales.
Fair Value of Financial Instruments
Carrying amounts and estimated fair values of financial instruments at December 31, 2023 and June 30, 2023 were:
| December 31, 2023 | |||||
|---|---|---|---|---|---|
| Fair Value | |||||
| (Dollars in thousands) | CarryingAmount | Level 1 | Level 2 | Level 3 | Total Fair Value |
| Financial assets: | |||||
| Cash, cash equivalents and segregated cash | $1,763,723 | $1,763,723 | $— | $— | $1,763,723 |
| Trading securities | 329 | — | 329 | — | 329 |
| Available-for-sale securities | 239,812 | — | 32,104 | 207,708 | 239,812 |
| Stock of regulatory agencies | 21,534 | — | 21,534 | — | 21,534 |
| Loans held for sale, at fair value | 13,468 | — | 13,468 | — | 13,468 |
| Loans held for investment—net | 18,264,354 | — | — | 18,313,778 | 18,313,778 |
| Securities borrowed | 145,176 | — | — | 155,513 | 155,513 |
| Customer, broker-dealer and clearing receivables | 265,857 | — | — | 278,219 | 278,219 |
| Servicing rights | 28,043 | — | — | 28,043 | 28,043 |
| Other assets - derivative instruments | 96,084 | — | 96,084 | — | 96,084 |
| Financial liabilities: | |||||
| Total deposits | 18,203,912 | — | 18,120,805 | — | 18,120,805 |
| Advances from the Federal Home Loan Bank | 90,000 | — | 84,150 | — | 84,150 |
| Borrowings, subordinated notes and debentures | 341,086 | — | 314,321 | — | 314,321 |
| Securities loaned | 155,492 | — | — | 155,492 | 155,492 |
| Customer, broker-dealer and clearing payables | 368,885 | — | — | 368,885 | 368,885 |
| Accounts payable and other liabilities - derivative instruments | 92,144 | — | 92,144 | — | 92,144 |
| June 30, 2023 | |||||
|---|---|---|---|---|---|
| Fair Value | |||||
| (Dollars in thousands) | CarryingAmount | Level 1 | Level 2 | Level 3 | Total Fair Value |
| Financial assets: | |||||
| Cash, cash equivalents and segregated cash | $2,382,086 | $2,382,086 | $— | $— | $2,382,086 |
| Trading securities | 758 | — | 758 | — | 758 |
| Available-for-sale securities | 232,350 | — | 27,345 | 205,005 | 232,350 |
| Stock of regulatory agencies | 21,510 | — | 21,510 | — | 21,510 |
| Loans held for sale, at fair value | 23,203 | — | 23,203 | — | 23,203 |
| Loans held for sale, at lower of cost or fair value | 776 | — | — | 780 | 780 |
| Loans held for investment—net | 16,456,728 | — | — | 16,417,183 | 16,417,183 |
| Securities borrowed | 134,339 | — | — | 143,461 | 143,461 |
| Customer, broker-dealer and clearing receivables | 374,074 | — | — | 386,082 | 386,082 |
| Servicing rights | 25,443 | — | — | 25,443 | 25,443 |
| Other assets - derivative instruments | 919 | — | 919 | — | 919 |
| Financial liabilities: | |||||
| Total deposits | 17,123,108 | — | 17,064,084 | — | 17,064,084 |
| Advances from the Federal Home Loan Bank | 90,000 | — | 83,192 | — | 83,192 |
| Borrowings, subordinated notes and debentures | 361,779 | — | 327,564 | — | 327,564 |
| Securities loaned | 159,832 | — | — | 159,416 | 159,416 |
| Customer, broker-dealer and clearing payables | 445,477 | — | — | 445,447 | 445,447 |
| Accounts payable and other liabilities - derivative instruments | 691 | — | 691 | — | 691 |
Carrying amount is the estimated fair value for cash and cash equivalents and segregated cash, stock of regulatory agencies, interest bearing deposits, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans or deposits that reprice frequently and fully. For fixed rate loans, deposits, borrowings or subordinated debt and for variable rate loans, deposits, borrowings or subordinated debt with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. A discussion of the methods of valuing trading securities, available-for-sale securities, loans held for sale and derivatives can be found in Note 3—“Fair Value”of the 2023 Form 10-K. The fair value of off-balance sheet items is not material.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.