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, as well as interest expense paid by the Banking Business Segment to each of the wholly-owned subsidiaries of our Company and to our Company itself for their operating cash held on deposit with the Banking Business Segment.

The following tables present the operating results of the segments:

Banking Business Segment

For the three months ended September 30, 2024, our Banking Business Segment had income before income taxes of $164.8 million, compared to income before taxes of $114.0 million for the three months ended September 30, 2023.

For the three months ended September 30, 2024, the Banking Business Segment’s net interest income increased $79.3 million or 37.9% compared to net interest income for the three months ended September 30, 2023, respectively. The increase in net interest income was primarily due to higher interest income from loans, primarily attributable to higher average balances and rates earned, as well as higher discount accretion, partially offset by higher balances and rates paid on interest-bearing deposit balances.

For the three months ended September 30, 2024, the Banking Business Segment’s non-interest income decreased $4.0 million, or 31.6%, compared to non-interest income for the three months ended September 30, 2023. The decrease in non-interest income for the three months ended September 30, 2024 was primarily due to lower mortgage banking and servicing rights income and lower prepayment penalty fee income.

For the three months ended September 30, 2024, the Banking Business Segment’s non-interest expense increased $17.5 million, or 17.4%, compared to non-interest expense for the three months ended September 30, 2023. The increase in non-interest expense for the three months ended September 30, 2024 was primarily due to higher salaries and related costs, data and operational processing expenses and higher advertising and promotional expenses.

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 months ended September 30, 2024, our Securities Business Segment had income before income taxes of $9.1 million, compared to income before income taxes of $12.6 million for the three months ended September 30, 2023.

For the three months ended September 30, 2024, net interest income increased $1.7 million or 31.1%, compared to net interest income for the three months ended September 30, 2023. The increase was primarily driven by lower balances of borrowings in the current quarter.

For the three months ended September 30, 2024, non-interest income decreased $4.7 million, or 13.5%, compared to non-interest income for the three months ended September 30, 2023. The decrease was primarily driven by lower broker-dealer fee income.

For the three months ended September 30, 2024, non-interest expense increased $0.6 million or 2.1%, compared to non-interest expense for the three months ended September 30, 2023. The increase was primarily driven by higher salaries and related costs.

The following table provides selected information for Axos Clearing: