Axos Financial Inc

Our Company determines reportable segments based on the services offered, the significance of the services offered, the significance of those services to our Company’s financial condition and operating results and management’s regular review of the operating results of those services. Our Company operates through two operating segments: the Banking Business Segment and the Securities Business Segment. In order to reconcile the two segments to the consolidated totals, our Company includes corporate activities and intercompany eliminations. Inter-segment transactions are eliminated in consolidation and primarily include non-interest income earned by the Securities Business Segment and non-interest expense incurred by the Banking Business Segment for cash sorting fees related to deposits sourced from Securities Business Segment customers.

The following tables present the operating results of the segments:

Banking Business Segment

For the three months ended December 31, 2024, our Banking Business Segment had income before income taxes of $152.9 million, compared to income before income taxes of $214.6 million for the prior year period. For the six months ended December 31, 2024, our Banking Business Segment had income before income taxes of $317.7 million, compared to income before income taxes of $328.6 million for the prior year period.

For the three and six months ended December 31, 2024, the Banking Business Segment’s net interest income increased $50.1 million, or 22.10%, and $129.4 million, or 29.68%, respectively, compared to net interest income for the three and six months ended December 31, 2023, respectively. The increase in net interest income was primarily due to an increase in interest income on loans and interest-earning deposits at other financial institutions, partially offset by higher interest expense on demand and savings deposits.

For the three and six months ended December 31, 2024, the Banking Business Segment’s non-interest income decreased $100.8 million, or 97.2%, and $104.8 million, or 90.1%, respectively, compared to non-interest income for the three and six months ended December 31, 2023. The decrease in non-interest income for the three and six months ended December 31, 2024 was primarily due to absence of the gain on the FDIC Loan Purchase in the current period.

For the three and six months ended December 31, 2024, the Banking Business Segment’s non-interest expense increased $12.3 million, or 12.0%, and $29.8 million, or 14.7%, respectively, compared to non-interest expense for the three and six months ended December 31, 2023. The increase in non-interest expense for the three months ended December 31, 2024 was primarily due to higher salaries and related costs primarily due to increased headcount and salaries.

We consider the ratios shown in the table below to be key indicators of the performance of our Banking Business Segment:

Our Banking Business Segment’s net interest margin exceeds our consolidated net interest margin. Our consolidated net interest margin includes certain items that are not reflected in the calculation of our net interest margin within our Banking Business Segment and reduce our consolidated net interest margin, such as the borrowing costs at our Company and the yields and costs associated with certain items within interest-earning assets and interest-bearing liabilities in our Securities Business Segment, including items related to securities financing operations.

Securities Business Segment

For the three and six months ended December 31, 2024, our Securities Business Segment had income before income taxes of $7.8 million and $16.9 million, respectively, compared to income before income taxes of $10.8 million and $23.3 million, respectively, for the three and six months ended December 31, 2023.

For the three months ended December 31, 2024, net interest income increased $0.9 million, or 15.2%, and for the six months ended December 31, 2024, net interest income increased $2.7 million, or 22.8%, respectively, compared to the prior year period. The increases were primarily driven by increased securities borrowing activity in the current year periods.

For the three months ended December 31, 2024, non-interest income decreased $3.6 million, or 11.1%, and for the six months ended December 31, 2024, non-interest income decreased $8.3 million, or 12.3%, respectively, compared to the prior year period. The decreases were primarily driven by lower broker-dealer fee income as a result of lower cash sorting balances in the current year periods.

For the three months ended December 31, 2024, non-interest expense increased $0.2 million or 0.8%, and for the six months ended December 31, 2024, non-interest expense increased $0.8 million, or 1.4%, respectively, compared to the prior year period.

The following table provides selected information for Axos Clearing: