About Axos Financial
Axos Financial, Inc. and its subsidiaries (Axos Financial) operate as a diversified financial services company. Axos Bank (the ‘Bank’) provides consumer and commercial banking products through its digital online and mobile banking platforms, low-cost distribution channels and affinity partners. The bank offers deposit and lending products to customers nationwide including consumer and business checking, savings and time deposit accounts and single family and multifamily residential mortgages, commercial real estate mortgages and loans, fund and lender finance loans, asset-based loans, auto loans and other consumer loans. The bank generates non-interest income from consumer and business products, including fees from loans originated for sale, deposit account service fees, prepayment fees, as well as technology and payment transaction processing fees. The company offers securities products and services to independent registered investment advisors (‘RIAs’) and introducing broker dealers (‘IBDs’) through Axos Clearing and Axos Advisor Services (‘AAS’) and direct-to-consumer securities trading and digital investment management products through Axos Invest, Inc. (‘Axos Invest’). AAS and Axos Clearing generate interest and fee income by providing comprehensive securities custody services to RIAs and clearing, stock lending, and margin lending services to IBDs respectively. Axos Invest generates fee income from self-directed securities trading and margin lending and fee income from digital wealth management services to consumers. The company’s business strategy is to grow its loan originations and its deposits to achieve increased economies of scale and reduce the cost of products and services to its customers by leveraging the company’s distribution channels and technology. The company has designed its online banking platform and the company’s workflow processes to handle traditional banking functions with elimination of paperwork and human intervention. The bank’s charter allows the company to conduct banking operations in all fifty states, as well as Puerto Rico, and the company’s online presence allows for increased flexibility to target a large number of loan and deposit customers based on demographics, geography and service needs. The company’s distribution channels provide opportunities to increase the company’s core deposits and increase the company’s loan originations by attracting new customers and developing new and innovative products and services. The company’s securities clearing and custody and digital investment management platforms provide a comprehensive set of technology, clearing, cash management and lending services targeted at independent registered investment advisors and introducing broker-dealers, principals and clients of advisory firms and individuals not affiliated with an investment advisor. The company is integrating its custody and wealth management platforms with the company’s banking platform to create an easy-to-use platform for customers’ banking and investing needs. Additionally, the company’s securities clearing and custody businesses generate additional deposits, which serve as a source of funding for the bank. Segments The company operates through two operating segments: Banking Business and Securities Business. The Banking Business has a broad range of banking services including online banking, concierge banking, and mortgage, vehicle and unsecured lending through online, low-cost distribution channels to serve the needs of consumers and businesses nationally. In addition, the Banking Business focuses on providing deposit products nationwide to industry verticals (e.g., Title and Escrow), treasury management products to a variety of businesses, and commercial & industrial and commercial real estate lending to clients. The Banking Business 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. The Securities Business includes the clearing broker-dealer, registered investment advisor custody business, registered investment advisor, and introducing broker-dealer lines of businesses. These lines of business offer products independently to their own customers, as well as to Banking Business clients. The Securities Business also offers a specialized accounting software that serves the business management, family office and wealth management industries. Banking Business The company distributes its deposit products through a wide range of retail and commercial distribution channels, and the company’s deposits consist of demand, savings and time deposits accounts. The company distributes its loan products through the company’s retail, correspondent and wholesale channels, and the loans the company retains include first mortgages secured by single family real property, multifamily real property and commercial real property, as well as commercial & industrial loans to businesses. The company’s securities consist of mortgage pass-through securities issued by government-sponsored entities, non-agency collateralized mortgage obligations and municipal securities. The company’s distribution channels for the company’s bank deposit and lending products include: A national online banking brand with tailored products targeted to specific consumer segments; Affinity groups where the company gain access to the affinity group’s members, and the company’s exclusive relationships with financial advisory firms; A commercial banking division focused on providing deposit products and loans to specific nationwide industry verticals (e.g., Homeowners’ Associations) and small and medium size businesses; Commission-based lending sales force that operates from remote locations, San Diego, Los Angeles and Salt Lake City and originates single and multifamily mortgage loans, commercial real estate and commercial and industrial loans and leases to qualified businesses; A bankruptcy and non-bankruptcy trustee and fiduciary services team that operates from the company’s Kansas City office focused on specialized software and consulting services that provide deposits; and Inside sales teams that originate loans and deposits from self-generated leads, third-party purchase leads, and from the company’s retention and cross-sell of the company’s existing customer base from both the company’s Banking Business and Securities Business. Banking Business - Asset Origination and Fee Income Businesses The bank has built diverse loan origination and fee income businesses that generate targeted financial returns through the company’s digital distribution channels. The diversity of the company’s businesses and the company’s direct and indirect distribution channels provide the company with increased flexibility to manage through changing market and operating environments. Single Family - Mortgage & Warehouse The company generates earning assets and fee income from the company’s mortgage lending activities, which consist of originating and servicing mortgages secured primarily by first liens on single family residential properties for consumers and providing warehouse lines of credit for third-party mortgage companies. The company divides its single-family mortgage originations between loans the company retains and loans the company sells. The company’s mortgage banking business generates fee income and gains from sales of consumer single family mortgage loans. The company’s loan portfolio generates interest income and fees from loans the company retain. The company also provides home equity loans for consumers secured by second liens on single family mortgages. The company originates fixed and adjustable-rate prime residential mortgage loans using a paperless loan origination system and centralized underwriting and closing process. Many of the company’s loans have initial fixed rate periods (five or seven years) before starting a regular adjustment period (annually, semi-annually or monthly), as well as interest rate floors, ceilings and rate change caps. The company warehouse the company’s mortgage banking loans and sell to investors as conventional, government and non-agency loans. The company’s mortgage servicing business includes collecting loan payments, applying principal and interest payments to the loan balance, managing escrow funds for the payment of mortgage-related expenses, such as taxes and insurance, responding to customer inquiries, counseling delinquent mortgagors and supervising foreclosures. The company originates single family mortgage loans for consumers through multiple channels on a retail, wholesale and correspondent basis. Retail: The company originates single family mortgage loans directly to consumers through the company’s relationships with large affinity groups, leads from referral partners, portfolio retention, cross-selling and acquiring leads from third parties. Wholesale: The company has relationships with licensed mortgage brokers from which the bank manages wholesale loan pipelines through the company’s originations systems and websites. Through the company’s secure website, the company’s approved brokers can compare programs, terms and pricing on a real-time basis and communicate with the company’s staff. Correspondent: The company acquires closed loans from third-party mortgage companies that originate single family loans in accordance with the company’s portfolio specifications or the specifications of its investors. The company may purchase pools of seasoned, single-family loans originated by others during economic cycles when those loans have more attractive risk-adjusted returns than those the company may originate. The company originates lender-finance loans to businesses secured by first liens on single family mortgage loans from cross selling, retail direct and through third parties. The company’s warehouse customers are primarily generated through cross selling to the company’s network of third-party mortgage companies. Multifamily and Commercial Mortgage Multifamily and Commercial Mortgage loans include adjustable-rate multifamily residential mortgage loans and project-based multifamily real-estate-secured loans with interest rates that adjust based on the Secured Overnight Financing Rate (‘SOFR’), the American Interbank Offered Rate (‘Ameribor’) or other interest rate indices. Many of the company’s loans have initial fixed rate periods (three, five or seven years) before starting a regular adjustment period (annually, semi-annually or monthly), as well as prepayment protection clauses, interest rate floors and rate change caps. The company divides its multifamily residential mortgage portfolio between the loans the company retains and the loans the company sells. The company’s mortgage banking business includes gains from those multifamily mortgage loans the company sells. The company’s loan portfolio generates interest income and fees from the loans the company retains. The company originates multifamily mortgage loans using a commission-based commercial lending sales force that operates from home offices across the United States or from the company’s San Diego location. Customers are targeted through origination techniques, such as direct mail marketing, personal sales efforts, email marketing, online marketing and print advertising. Loan applications are submitted electronically to centralized employee teams who underwrite, process and close loans. The sales force team members operate regionally both as retail originators for apartment owners and wholesale representatives to other mortgage brokers. Commercial Real Estate The company originates loans across the U.S. secured by real estate properties under a variety of structures that the company classifies as commercial real estate (‘CRE’). The company’s CRE portfolio is consisted of CRE Specialty loans, which include Commercial Bridge to Sale, Commercial Bridge to Construction, Commercial Bridge to Refinance and Acquisition, Development and Construction, and also includes the company’s Lender Finance Real Estate loans. CRE loans are originated by the company’s sales force dedicated to commercial lending by contacting borrowers directly or by working with third-party partners or brokers to businesses secured by first liens on single family, multifamily, condominium, office, retail, mixed-use, hospitality, undeveloped or to-be-redeveloped land. Repayment of CRE loans depends on the successful completion of the real estate transition project and permanent take-out or sale of the underlying assets on the line. The company attempts to mitigate risk by adhering to underwriting policies in evaluating the collateral and the creditworthiness of borrowers and guarantors, as well as by entering structured facilities where the company takes a senior lien position collateralized by the underlying real estate. Commercial & Industrial - Non-Real Estate (‘Non-RE’) Comprising the majority of this portfolio are commercial and industrial non-real estate, asset-backed loans, lines of credit, term loans and leases made to commercial borrowers secured by commercial assets, including but not limited to, receivables, inventory and equipment. The company typically reduces exposure in these loans by entering into a structured facility, under which the company takes a senior lien position collateralized by the underlying assets at advance rates well below the collateral value. The remainder of this portfolio is consisted of leveraged cash flow lending and commercial and industrial leases. Leveraged cash flow loans provide financial sponsors the ability to finance acquisitions, management buy-outs, recapitalizations, debt refinancing and dividends/distributions. Such lending relies on free cash flow as the primary repayment source, and enterprise value as the secondary repayment source. Leveraged cash flow loans are offered to both lower middle market and larger corporate borrowers. Commercial and industrial leases are primarily made based on the operating cash flows of the borrower or conversion of working capital assets to cash and secondarily on the underlying collateral provided by the borrower. The company provides leases to small businesses and middle market companies that use the funds to purchase machinery, equipment and software essential to their operations. The lease terms are generally between two and ten years and amortize primarily to full repayment, or in some cases, to a de minimis residual balance. The leases are offered nationwide to companies in targeted industries through a direct sales force and through independent third-party sales referrals. Although commercial and industrial loans and leases are often collateralized directly or indirectly by equipment, inventory, accounts or loans receivable or other business assets, the liquidation of collateral in the event of a borrower default may be an insufficient source of repayment because accounts or loans receivable may be uncollectible and inventories and equipment may be obsolete or of limited use. The company attempts to mitigate these risks through the structuring of these lending products, adhering to underwriting policies in evaluating the management of the business and the credit-worthiness of borrowers and guarantors. Auto The company’s automobile lending division originates prime and subprime loans to customers secured by new and used automobiles (‘autos’). The company’s subprime loans are insured via a default risk mitigation product in which the company recoups a large percentage of the deficiency balance on charged off loans. The company distributes its auto loan products through direct and indirect channels, hold all of the auto loans that the company originates and performs the loan servicing functions for these loans. The company’s loans carry a fixed interest rate for periods ranging from three to eight years and generate interest income and fees. Consumer The company originates fixed rate unsecured loans to well-qualified, individual borrowers in all fifty states. The company offers loans between $7,000 and $50,000 with terms that range between 36 months and 72 months. The minimum credit score is 700. All applicants apply digitally and the company validate income, identity and funding bank account. All loans are manually underwritten by a seasoned underwriter prior to funding. The company sources its unsecured loans through existing bank customers, lead aggregators and additional marketing efforts. Other Other loans include structured settlements, Small Business Administration (‘SBA’) loans issued pursuant to the Federal Paycheck Protection Program (‘PPP’) under the Federal Coronavirus Aid, Relief and Economic Security Act (‘CARES’) Act, and account overdraft loans. The company’s real estate loans are secured by properties primarily located in California and New York. Investment Securities Portfolio The company invests available funds in government and high-grade non-agency securities. The company’s available-for-sale securities portfolio includes Alt-A, private-issue super senior, first-lien residential mortgage-backed securities (‘RMBS’); commercial mortgage-backed securities (‘CMBS’); agency RMBS and other debt securities issued by the government-sponsored enterprises primarily, Fannie Mae and Freddie Mac (each, a ‘GSE’ and, together, the ‘GSEs’); pay-option adjustable-rate mortgages (‘ARMs’), private-issue super senior first-lien RMBS; and municipal securities. Banking Business - Deposit Generation The company generates deposit customer relationships through the company’s distribution channels, including websites, sales teams, software company affiliates, online advertising, print and digital advertising, financial advisory firms, affinity partnerships and lending businesses. The company’s deposit lines of business include: A commercial banking platform, which provides a stable and low-cost source of commercial deposits across a targeted set of industry verticals through the provision of tech-forward depository and treasury management solutions delivered by a dedicated sales and support team. The industry verticals targeted by Commercial Banking include; Specialty Deposit Verticals, which include Title, Escrow, HOA and Property Management, 1031 Exchange, Trust & Estates and Payment Processors; Software Verticals, which include: Axos Fiduciary Services: A full-service fiduciary team catered specifically to support bankruptcy and non-bankruptcy trustees and fiduciaries with their software and banking needs, and Zenith Information Systems, Inc.: A business management and entertainment accounting and payroll software offering supported by a dedicated service team; Commercial Banking Verticals, which include other middle market industries along with deposit relationships for Commercial Real Estate and Commercial & Industrial lending clients. To support the acquisition and retention of low-cost operating deposits, the company places significant focus on the continued development of a comprehensive suite of treasury management products and services, which include; Deposit and liquidity management products: Analyzed and non-analyzed checking accounts, interest checking accounts and, money market Accounts, zero balance accounts, insured cash sorting (sweep accounts); Payables products: ACH origination, wire transfer (domestic and international), commercial check printing, business bill pay and account transfer; Receivables products: remote deposit capture, mobile deposit, image cash letter, lockbox, merchant services, online payment portal; Information reporting and reconciliation products: prior day and current day summary and detail reporting, statement, check and deposit images; and Security and fraud prevention products: direct link security, check positive pay, ACH blocks and filters. Delivery channels for the above products include online, mobile and integration services. Integration services include file-based and API-based capabilities which enable direct integration with numerous software partners and clients’ in-house ERP or accounting systems. An online consumer and small business platform that delivers an enhanced banking experience with tailored products targeted to specific consumer and small business segments. The company’s online consumer and small business banking platform is full-featured with quick and secure access to activity, statements and other features, including: Purchase Rewards: Customers can earn cash back by using their VISA Debit Card at select merchants; Mobile Banking: Customers can access with Touch ID on eligible devices, review account balances, transfer funds, deposit checks and pay bills from the convenience of their mobile phone; Mobile Deposit: Customers can instantly deposit checks from their smart phones using the company’s Mobile App; Online Bill Payment Service. Customers can automatically pay their bills online from their account; Peer to Peer Payments. Customers can securely send money via email or text messaging through this service; My Deposit: Customers can scan checks with this remote deposit solution from their home computers. Scanned images will be electronically transmitted for deposit directly to their account; Text Message Banking: Customers can view their account balances, transaction history, and transfer funds between their accounts via these text message commands from their mobile phones; Unlimited ATM Reimbursements: With certain checking accounts, customers are reimbursed for any fees incurred using an ATM (excludes international ATM transactions). This provides customers with access to any ATM in the nation, for free; Secure Email and Chatbot: Customers can use the company’s chatbot and send or receive secure emails from the company’s customer service department without concern for the security of their information; InterBank Transfer: Customers can transfer money to their accounts at other financial institutions from their online banking platform; VISA Debit Cards or ATM Cards: Customers may choose to receive either a free VISA Debit or an ATM card upon account opening. Customers can access their accounts worldwide at ATMs and any other locations that accept VISA Debit cards; Overdraft Protection: Eligible customers can enroll in one of the company’s overdraft protection programs; Digital Wallets: The company’s Apple Pay, Samsung Pay and Android Pay solutions provide the same ease to pay as a debit card with an eligible device. The mobile experience is easy and seamless; and Cash Deposit Through Reload @ the Register. Customers can visit any Walmart, Safeway, ACE Cash Express, CVS Pharmacy, Dollar General, Dollar Tree, Family Dollar, Kroger, Rite Aid, 7-Eleven and Walgreens, and ask to load cash into their account at the register. A fee is applied. The company offers a full line of deposit products, which the company source through both online channels using operating and marketing strategies that emphasize low operating costs and are flexible and scalable for the company’s business. The company’s full featured products and platforms, 24/7 customer service and the company’s affinity relationships result in customer accounts with strong retention characteristics. The company continuously collects customer feedback and improve the company’s processes to satisfy customer needs. For example, one tailored product is designed for customers who are looking for full-featured demand accounts and competitive fees and interest rates, while another product targets primarily tech-savvy customers seeking a low-fee cost structure and a high-yield savings account. The company offers its consumer deposits through several channels, including: A concierge banking offer serving the needs of high net worth individuals with premium products and dedicated service; Financial advisory and clearing firms who introduce their clients to the company’s deposit products through Axos Clearing and its business division AAS; and A call center that opens accounts through self-generated internet leads, third-party purchased leads, partnerships, and retention and cross-sell efforts to the company’s existing customer base. The company’s deposit operations are conducted through a centralized, scalable operating platform which supports all of the company’s distribution channels. Securities Business The company’s Securities Business consists of two sets of products and services, securities services provided to third-party securities firms and investment management services provided to consumers. Securities Services: The company offers fully disclosed clearing services through Axos Clearing to FINRA and SEC registered member firms for trade execution and clearance, as well as back-office services, such as record keeping, trade reporting, accounting, general back-office support, securities and margin lending, reorganization assistance, and custody of securities. As of June 30, 2023, the company provided services to 291 financial organizations, including correspondent broker-dealers and registered investment advisors. The company provides margin loans, which are collateralized by securities, cash, or other acceptable collateral, to the company’s brokerage customers for their securities trading activities. The company conducts securities lending activities that 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. The net revenues for this business consist of the interest spreads generated on these activities. The company provides a proprietary, turnkey technology platform for custody services to the company’s registered investment advisor customers. This platform provides fee income and services that complement the company’s Securities Business products, while also generating low cost core deposits. The company assists its brokerage customers in managing their cash balances and earn a fee through an insured bank deposit cash sorting program. Through the company’s retail securities business, Axos Invest, the company provides its customers with the option of having both self-directed and digital advice services through a comprehensive and flexible technology platform. The company has integrated both the digital advice platform and self-directed trading platforms into the company’s universal digital banking platform, creating a seamless user experience and a holistic personal financial management ecosystem. The company’s digital advice business generates fee income from customers paying an annual fee for advisory services and deposits from cash balances. The company’s self-directed trading program generates income from traditional transaction charges and fees from customer memberships. Additionally, the company offers a specialized accounting software that serves the business management, family office and wealth management industries to provide software, service and banking solutions. Supervision and Regulation The company is supervised and regulated as a savings and loan holding company by the Board of Governors of the Federal Reserve System (the ‘Federal Reserve’). The bank, as a federal savings bank, is subject to regulation, examination and supervision by the Office of the Comptroller of the Currency (‘OCC’) as its primary regulator, and the Federal Deposit Insurance Corporation (‘FDIC’) as its deposit insurer. The bank must file reports with the OCC and the FDIC and the company with the Federal Reserve, concerning their activities and financial condition. In addition, the bank is subject to the regulation, examination and supervision by the Consumer Financial Protection Bureau (‘CFPB’) with respect to a broad array of federal consumer laws. The company’s subsidiaries, Axos Clearing LLC and Axos Invest LLC, are broker-dealers and are registered with and subject to regulation by the SEC and FINRA. In addition, Axos Invest, Inc., an investment adviser, is registered with the SEC. Axos Invest, Inc. is subject to the requirements of the Investment Advisers Act of 1940, as amended (the ‘Advisers Act’), and the Investment Company Act of 1940, as amended, and is subject to examination by the SEC. The company is a unitary savings and loan holding company within the meaning of the Home Owners’ Loan Act (‘HOLA’), and is treated as a ‘financial holding company’ under Federal Reserve rules. As a federally-chartered savings and loan association whose deposit accounts are insured by the FDIC, Axos Bank is subject to extensive regulation by the OCC, FDIC and the CFPB with respect to federal consumer financial laws. Axos Bank is a member depository institution of the FDIC and its deposits are insured by the DIF up to the applicable limits, which are backed by the full faith and credit of the U.S. Government. As of June 30, 2023, the bank was in compliance with its QTL requirement and met the definition of a DBLA. The bank is a member of the FHLB (Federal Home Loan Bank) system. The bank is subject to OCC regulations implementing the privacy protection provisions of the Gramm-Leach-Bliley Act. The bank, its affiliated broker-dealers and in certain cases Axos Financial, Inc., are subject to the bank Secrecy Act and other anti-money laundering laws and regulations, including the USA PATRIOT Act. The bank and its affiliated broker-dealers are also required to comply with the U.S. Treasury’s Office of Foreign Assets Control imposed economic sanctions that affect transactions with designated foreign countries, nationals, individuals, entities and others. These are typically known as the ‘OFAC rules,’ based on their administration by the U.S. Treasury Department Office of Foreign Assets Control (‘OFAC’). The company is also subject to the U.S. Foreign Corrupt Practices Act and other laws and regulations worldwide regarding corrupt and illegal payments, or providing anything of value, for the benefit of government officials and others. The company’s correspondent clearing and custodial firm Axos Clearing, and introducing broker Axos Invest LLC, are broker-dealers registered with the SEC and members of FINRA and various other self-regulatory organizations. Axos Clearing also uses various clearing organizations, including the Depository Trust Company, the National Securities Clearing Corporation, Euroclear and the Options Clearing Corporation. The company’s broker-dealers are registered with the SEC, FINRA, all 50 U.S. states and the District of Columbia. Much of the regulation of broker-dealers, however, has been delegated to self-regulatory organizations, principally FINRA, the Municipal Securities Rulemaking Board or national securities exchanges. These self-regulatory organizations adopt rules (which are subject to approval by the SEC) for governing their members and the industry. Broker-dealers are also subject to federal regulation and the securities laws of each state where they conduct business. The company’s broker-dealers are members of, and are primarily subject to regulation, supervision and regular examination by FINRA. The company’s broker-dealers’ margin lending is regulated by the Federal Reserve Board’s restrictions on lending in connection with client purchases and short sales of securities, and FINRA rules require the company’s broker-dealers to impose maintenance requirements based on the value of securities contained in margin accounts. The rules of the Municipal Securities Rulemaking Board, which are enforced by the SEC and FINRA, apply to the municipal securities activities of Axos Clearing and Axos Invest LLC. The company’s broker-dealers that hold customers’ funds and securities are subject to the SEC’s customer protection rule (Rule 15c3-3 under the Exchange Act), which generally provides that such broker-dealers maintain physical possession or control of all fully-paid securities and excess margin securities carried for the account of customers and maintain certain reserves of cash or qualified securities. The company’s broker-dealers are subject to the Securities Investor Protection Act and belong to SIPC, whose primary function is to provide financial protection for the customers of failing brokerage firms. The company’s broker-dealers must comply with the USA PATRIOT Act and other rules and regulations, including FINRA requirements, designed to fight international money laundering and to block terrorist access to the U.S. financial system. The company is required to have systems and procedures to ensure compliance with such laws and regulations. History The company was incorporated in the state of Delaware in 1999. It was formerly known as BofI Holding, Inc. and changed its name to Axos Financial, Inc. in 2018.