MINIMUM REGULATORY CAPITAL REQUIREMENTS

12 Months Ended

Jun. 30, 2020

Banking and Thrift [Abstract]

MINIMUM REGULATORY CAPITAL REQUIREMENTS

MINIMUM REGULATORY CAPITAL REQUIREMENTS

The Company and Bank are subject to regulatory capital adequacy requirements promulgated by federal bank regulatory agencies. Failure by the Company or Bank to meet minimum capital requirements could result in certain mandatory and discretionary actions by regulators that could have a material adverse effect on the consolidated financial statements. The Federal Reserve establishes capital requirements for the Company and the OCC has similar requirements for the Bank. The following tables present regulatory capital information for the Company and Bank. Information presented for June 30, 2020, reflects the Basel III capital requirements that became effective January 1, 2015 for both the Company and Bank. Under these capital requirements and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company and Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors.

Quantitative measures established by regulation require the Company and Bank to maintain certain minimum capital amounts and ratios. Federal bank regulators require the Company and Bank maintain minimum ratios of core capital to adjusted average assets of 4.0%, common equity tier 1 capital to risk-weighted assets of 4.5%, tier 1 capital to risk-weighted assets of 6.0% and total risk-based capital to risk-weighted assets of 8.0%. At June 30, 2020, the Company and Bank met all the capital adequacy requirements to which they were subject. At June 30, 2020, the Company and Bank were “well capitalized” under the regulatory framework for prompt corrective action. To be “well capitalized,” the Company and Bank must maintain minimum leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios of at least 5.0%, 6.5%, 8.0% and 10.0%, respectively. Management believes that no conditions or events have occurred since June 30, 2020 that would materially adversely change the Company’s and Bank’s capital classifications. From time to time, we may need to raise additional capital to support the Company’s and Bank’s further growth and to maintain their “well capitalized” status.

The Bank’s capital amounts, capital ratios and capital requirements under Basel III were as follows:

	Axos Financial, Inc.						Axos Bank						“Well  Capitalized” Ratio		Minimum Capital Ratio
(Dollars in thousands)	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
Regulatory Capital:
Tier 1	$	1,106,393		$	938,143		$	1,080,455		$	932,366
Common equity tier 1	$	1,101,330		$	933,080		$	1,080,455		$	932,366
Total capital (to risk-weighted assets)	$	1,240,923		$	1,053,855		$	1,156,401		$	989,678
Assets:
Average adjusted	$	12,333,030		$	10,717,011		$	11,679,819		$	10,124,487
Total risk-weighted	$	9,817,374		$	8,161,588		$	9,160,365		$	7,679,738
Regulatory Capital Ratios:
Tier 1 leverage (core) capital to adjusted average assets	8.97		%	8.75		%	9.25		%	9.21		%	5.00	%	4.00	%
Common equity tier 1 capital (to risk-weighted assets)	11.22		%	11.43		%	11.79		%	12.14		%	6.50	%	4.50	%
Tier 1 capital (to risk-weighted assets)	11.27		%	11.49		%	11.79		%	12.14		%	8.00	%	6.00	%
Total capital (to risk-weighted assets)	12.64		%	12.91		%	12.62		%	12.89		%	10.00	%	8.00	%

Beginning January 1, 2016, Basel III implements a requirement for all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer will be exclusively composed of common equity tier 1 capital, and it applies to each of the three risk-based capital ratios but not the leverage ratio. At June 30, 2020, the Company and Bank are in compliance with the capital conservation buffer requirement. Inclusive of the fully phased-in capital conservation buffer, the common equity Tier 1 capital, Tier 1 risk-based capital and total risk-based capital ratio minimums are 7.0%, 8.5% and 10.5%, respectively. A banking organization with a buffer of less than the required amount is subject to increasingly stringent limitations on such distributions and payments as the buffer approaches zero. The new rule also generally prohibits a banking organization from making such distributions or payments during any quarter if its eligible retained income is negative and its capital conservation buffer ratio was 2.5% or less at the end of the previous quarter. The eligible retained income of a banking organization is defined as its net income for the four calendar quarters preceding the current calendar quarter, based on the organization’s quarterly regulatory reports, net of any distributions and associated tax effects not already reflected in net income.

Securities Business

Pursuant to the net capital requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Axos Clearing is subject to the SEC Uniform Net Capital (Rule 15c3-1 of the Exchange Act). Under this rule, the Company has elected to operate under the alternate method and is required to maintain minimum net capital of $250,000 or 2% of aggregate debit balances arising from client transactions, as defined. On June 30, 2020, under the alternate method, the Company may not repay subordinated debt, pay cash distributions, or make any unsecured advances or loans to its parent or employees if such payment would result in net capital of less than 5% of aggregate debit balances or less than 120% of its minimum dollar requirement.

The net capital position of Axos Clearing was as follows:

(Dollars in thousands)	June 30, 2020			June 30, 2019
Net capital	$	34,022		$	25,327
Less: required net capital	4,572			3,829
Excess capital	$	29,450		$	21,498
Net capital as a percentage of aggregate debit items	14.88		%	13.23		%
Net capital in excess of 5% aggregate debit items	$	22,593		$	15,754

Axos Clearing as a clearing broker, is subject to SEC Customer Protection Rule (Rule 15c3-3 of the Exchange Act) which requires segregation of funds in a special reserve account for the benefit of customers. At June 30, 2020, the Company had a deposit requirement of $159.5 million and maintained a deposit of $178.8 million. At June 30, 2019, the Company had a deposit requirement of $198.3 million and maintained a deposit of $204.7 million.

Certain broker-dealers have chosen to maintain brokerage customer accounts at the Axos Clearing. To allow these broker-dealers to classify their assets held by the Company as allowable assets in their computation of net capital, the Company computes a separate reserve requirement for Proprietary Accounts of Brokers (PAB). At June 30, 2020, the Company had a deposit requirement of $17.0 million and maintained a deposit of $15.2 million. On July 1, 2020, Axos Clearing made a deposit to satisfy the deposit requirement . At June 30, 2019, the Company had a deposit requirement of $3.4 million and maintained a deposit of $1.7 million. On July 1, 2019, Axos Clearing made a deposit to satisfy the deposit requirement .