AAfter a few years in test mode, Shopify (NYSE: SHOP) said it is increasing investment in its distribution network through 2024. This increase in spending will affect in the short term but will ultimately expand Shopify’s booming and highly profitable e-commerce platform. What does this mean for investors?

Well, that could mean a turnaround for a stock that has suffered a steep price drop of 62.3% from all-time highs recorded in mid-November. After the price correction, the stock is currently trading at a much more reasonable price of 27x trailing 12-month earnings at the time of writing. That’s not to say the stock is cheap, though. On the contrary, with a large increase in distribution network spending ahead, it is still a “growth first, profit second” stock, and this P/E ratio will increase again (more because of the side benefits of the equation).

Still, given Shopify’s track record of hitting lofty goals, this planned jump in investment could be great news for long-term shareholders looking for a turnaround.

Image source: Getty Images.

Power to the small merchant

What is Shopify Fulfillment Network (SFN)? It might sound like a fancy way of saying “order delivery,” but it goes way beyond shipping boxes to a customer. Shopify’s goal with this service is to help small merchants provide some of the same great services that Amazon (NASDAQ: AMZN) buyers grew to wait. Shopify President Harley Finkelstein explained during the fourth quarter 2021 earnings call that upcoming changes to the Fulfillment Network could help “deliver packages in two days or less to more than 90% of the U.S. population. while minimizing inventory investment for DFS merchants.”

SFN is a game-changing feature for small merchants. E-commerce has the potential to empower small entrepreneurs and business owners, but the logistics are difficult without the massive scale enjoyed by Amazon, big-box retailers and others. Shopify wants to change that.

It’s simple, at least in principle. A merchant ships inventory in bulk to Shopify warehouses nationwide. The merchant then sells through different Shopify channels (a website, social media, etc.). Shopify automatically picks inventory from the nearest warehouse and fulfills the order. The merchant performs continuous inventory management through a dashboard, which recommends which products to restock and where.

Of course, the actual technology that works behind the scenes to power the SFN is no simple task (more on that in a minute). But if you’re a small business owner and dream of selling nationally and beyond, the relative simplicity of SFN offerings might be a dream come true, especially since Shopify itself doesn’t. is not a retailer and does not compete with merchants using its services (as Amazon does).

About the SFN Award…

Like any good capital investment in new technology, SFN will need cash to get started. After all, those warehouses full of robotics and AI-based software don’t come cheap. Since announcing the warehousing and fulfillment project a few years ago, the company has so far made only modest investments there. According to Shopify CFO Amy Shapero:

When we launched Shopify Fulfillment Network in mid-2019, we announced that we planned to spend $1 billion over five years. Through 2021, roughly halfway through the original asset light plan, we have spent $117 million, which includes operating loss funding in cash and a small amount of capex.

What does it mean? Shapero added that DFS spending will increase in 2022 and there will be $1 billion in capital expenditures (property and equipment) in 2023 and 2024. In other words, DFS is moving from prototype to full service. Capital expenditures were only $50.8 million in 2021, so this figure will increase over the next three years. So much for this “asset light” software business model.

But here’s the good news: Shopify is currently generating free cash flow (FCF) and has plenty of cash. FCF was $454 million in 2021 alone, and cash and short-term investments net of debt were nearly $6.9 billion at year-end. Shopify can afford to extend SFN and more.

Takeaway for investors

The expected increase in capital spending over the next few years is why I’m hesitant to say that Shopify is “cheap” right now based on its price-earnings ratio of 27. Current earnings will be reduced spending on SFN in the years to come.

But again, this company should not be underestimated. Although revenue growth is moderating from the 57% increase in 2021, double-digit growth from a company that just achieved $4.6 billion in sales is no joke. Shopify Fulfillment Network will be an exciting development to follow as Shopify continues to support entrepreneurship in a new era of e-commerce.

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Text size

eBay

Shares headed sharply lower in late trading on Wednesday after the online retail market provided a disappointing financial forecast for the March quarter and all of 2022. eBay forecasts steady revenue growth for this year.

In the after-hours session, eBay (ticker: EBAY) is down 11% to $48.60.

Over the past few years, eBay has consistently sold non-essential operations. During the last quarter, the company completed the sale of its Korean business to eMart for $3 billion, while retaining a 20% stake, and completed the sale of part of its small business stake. online ads.

Advinta

for more than 2.3 billion dollars to the investment company Permira, reducing its stake in Adevinta to 33%. These and other transactions have refocused the company on its core business, Marketplace, which is not growing as investors would like.

For the December quarter, eBay reported revenue of $2.6 billion, up 5% from a year ago, and is in the middle of the company’s guidance range from $2.57 billion to $2.62 billion. Non-GAAP earnings of $1.05 per share beat both the company’s forecast range of 97 cents to $1.01 per share and Street’s consensus forecast of 99 events per share. Under generally accepted accounting principles, the company on a continuing operations basis lost $1.47 per share during the quarter.

The company also announced a 22% increase in its quarterly dividend rate to 22 cents per quarter from 18 cents. And eBay said its board had authorized a $4 billion increase in its share buyback plan.

For the full year, eBay reported revenue of $10.4 billion, up 17%, with non-GAAP earnings of $4.02 per share. The company repurchased $7 billion in stock during the year.

The problem for the stock is clearly the high level guidance. For the March quarter, eBay forecast revenue of $2.43 billion to $2.48 billion, down 5% to 7% adjusted for currency, with non-GAAP earnings of 1. 01 to $1.05 per share. Street consensus had called for $2.62 billion and $1.10 per share.

The company forecasts annual revenue of $10.3 billion to $10.5 billion, roughly flat from 2021, with non-GAAP earnings of $4.20 to $4.40 per share, in below Street consensus at $10.95 billion and $4.51 per share.

eBay said active buyers in the fourth quarter were 147 million, down 9% from a year ago. Gross merchandise value was $20.7 billion, down 11% from a year ago, with gross merchandise value down 2% in the United States and 17% in the United States. international. Free cash flow in the fourth quarter was $372 million, down 45% from a year ago.

For 2022, the company said it expects gross merchandise value in the first half to be in the negative averages, returning to flat growth to slightly higher growth in the second half.

“By investing in our sustainable growth strategy, we have increased customer satisfaction, improved the experience for sellers and buyers, and returned value to our shareholders,” eBay CEO Jamie Iannone said in a statement. a statement. “During the quarter, we completed the transition of our multi-year payments and generated growth in both our advertising businesses and our targeted categories. As we continue to accelerate our strategy, we are well positioned for future growth. »

Write to Eric J. Savitz at eric.savitz@barrons.com

Since the introduction of new asset quality standards last November that brought shadow banks and housing financiers on par with banks, housing finance companies’ gross bad loans have increased by 70 basis points (bps ) even as their portfolio quality has improved, according to a report.

The bad debt pile is expected to stabilize by the end of this quarter, Crisil Ratings said in the report.

The Reserve Bank of India (RBI) had, on November 12, 2021, introduced stricter asset quality reporting standards for all lenders, which caused housing financiers and non-bank financial companies (NBFCs) to equality with commercial banks.

Although the new standards were to be implemented by December 31, 2021, by all; earlier this week, the monetary authority extended the deadline for NBFCs and housing finance companies (HFCs) to September 30, 2022.

While affordable housing companies saw a 140 basis point increase in gross non-performing assets, other housing finance companies saw their gross NPAs rise to 3.3% as of December 31, 2021, from 3% in September. 2021. This is mainly due to the November 12, 2021 circular on the recognition and calculation of NPAs, rather than a true asset quality haircut, Crisil Ratings said in the report on Thursday.

Without it, their gross NPAs would have been 2.6% in December, meaning the new standards had a 70 basis point impact on their overall asset quality, he added.

Crisil studied 35 HFCs representing 95% of the industry’s assets under management.

In other words, without the rule change, the quality of their portfolio over a quarter and on a comparable basis would have shown an improvement of 40 basis points.

The RBI on February 15, 2022 postponed the implementation of the revised standards for NPA upgrades to September 30, 2022, from December 31, 2021. However, this is unlikely to have much impact as the most HFCs have already moved to the new way of calculating and are well positioned to improve their gross NPA ratio to three percent by the end of this fiscal year.

Both RBI clarifications, on daily account stamping and NPA upgrades on interest repayment, have had an impact on HFCs. However, the magnitude of the impact differs by asset class and borrower segment, he noted.

He pointed out that those with relatively more vulnerable customer profiles, a higher proportion of affordable home loans, self-employed borrowers and/or property loans were more affected.

Krishnan Sitaraman, senior director and deputy director of ratings at Crisil Ratings, said affordable housing finance companies have seen an impact 140 basis points higher on average due to the revised recognition standards, as their borrowers tend to have limited financial flexibility and volatile cash flow and therefore have higher bounce rates.

Additionally, most cannot repay all of their arrears at once, which could lead to stickier gross non-performing assets (GNPAs) in the segment, he added.

HFCs, on the other hand, attempt to change borrower behavior and reduce additional slippages. However, this will lead to increased operational intensity as they strengthen their collection efforts.

Crisil Ratings director Subha Sri Narayanan said that since many HFCs have already switched to the new standards, they are unlikely to revert to the previous regime, a flexibility now available until September 2022 after the clarification of the RBI on February 15.

Because the increase in reported GNPAs for many of them is not significant and is more of an accounting impact than an economic one, Narayanan said.

Required provisioning levels were also not materially affected as HFCs generally follow Indian accounting standards, where provisioning levels are generally higher compared to IRACP requirements.

Assuming they don’t take advantage of this waiver, the sector’s overall ARPGs are expected to stand at 3% by March 2022, Narayanan said, adding that the asset quality of HFCs is expected to remain better than that of other NBFCs. .

(Only the title and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

COVID-19[female[feminine

In the first quarter of 2020, COVID-19 emerged as a global pandemic. The
continuing responses to the COVID-19 outbreak include actions that have a
significant impact on domestic and global economies, including travel
restrictions, gathering bans, stay at home orders, and many other restrictive
measures. All of our operations have been classified as essential in the states
in which we operate. We instituted many policies and procedures, in alignment
with CDC guidelines along with state and local mandates, to protect our
employees during the COVID-19 outbreak. These policies and procedures included,
but were not limited to, staggering shift times to limit the number of people in
common areas at one time, limiting meetings and meeting sizes, continual
cleaning and disinfecting of high touch and high traffic areas, including door
handles, bathrooms, bathhouses, access elevators, mining equipment, and other
areas, limiting contractor access to our properties, limiting business travel,
and instituting work from home for administrative employees. We continually
evaluate our policies and procedures, in accordance with CDC, state, and local
guidelines, and make any necessary adjustments to respond to the particular
circumstances in the areas in which we operate. During the second half of 2021,
the advent of the Delta and Omicron variants has led to increased infection
rates among our workforce at certain operations, and we have reinstated stricter
protocols at affected operations. During the second half of 2021, over fifty
unit production shifts in our metallurgical segment were adversely impacted by
staffing shortfalls related to increased COVID-19 case rates, and our requisite
quarantine protocols. We continue to encourage vaccination among our workforce
and adjust our COVID-19 responses.

We recognize that the COVID-19 outbreak and responses thereto also continue to
impact both our customers and suppliers. To date, we have not had any
significant issues with critical suppliers, and we continue to communicate with
them and closely monitor developments to ensure we have access to the goods and
services required to maintain our operations. Our customers have reacted, and
continue to react, in various ways and to varying degrees to changes in demand
for their products. In early 2022, increased case rates have negatively impacted
rail transportation, primarily for our export shipments. We remain in close
communication with our rail service providers, and work diligently with them to
mitigate potential delays. Our current view of our customer demand and logistics
situation is discussed in greater detail in the "Overview" section below.

Overview

Our results for the year ended December 31, 2021 benefited from improvement in
metallurgical and thermal coal markets. Global economic growth accelerated over
the course of the year as pent up demand from the responses to the global
pandemic seeks to be fulfilled. Global steel production in 2021 is likely to
exceed pre-pandemic levels, and energy demand is increasing with economic
growth. At the same time, certain metallurgical and thermal coal producing
jurisdictions were, at times during 2021, adversely impacted by the resurgence
of COVID-19 and its variants, weather, and logistical constraints. Specifically,
the major coal producing regions in Australia, Indonesia, China, Mongolia, and
western Canada have been adversely impacted by one or more of these factors at
various points throughout 2021. Through the year ended December 31, 2021, these
constraints have had a relatively minor impact on our shipment volumes, although
we did have one coking coal vessel and one thermal coal vessel that we planned
to ship late in the fourth quarter of 2021, delayed to early 2022. On December
30, 2021, an explosion occurred at the Curtis Bay Terminal, one of two United
States East Coast terminals we utilize to export our coking coal product
overseas. This event, coupled with the increased COVID-19 case rates our rail
service providers are experiencing, has negatively impacted our volume of coking
coal shipments in the first quarter of 2022. While we are working diligently
with our rail service provider to mitigate these impacts, our first quarter of
2022 coking coal shipment volume could be as much as 25% below our coking coal
shipment volume in the fourth quarter of 2021. At this time, we believe we will
make up the first quarter of 2022 shipment shortfall over the course of the
remainder of 2022; however, our ability to make up this shortfall will, at least
in part, be based on factors that are outside of our direct control.

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Contents

During the year ended December 31, 2021, accelerating global economic growth,
led to historically high steel prices. Steel prices did moderate some late in
the year, but remain at levels that provide steel producers with healthy
margins. On the coking coal supply side, production and supply chain constraints
combined to drive international coking coal indices to historically high levels.
Despite these historically high coking coal prices, North American coking coal
supply remains constrained compared to pre-COVID-19 levels. Some new supplies
have been added to the market, in particular, our new Leer South longwall
operation that has been be ramping up production throughout the fourth quarter
of 2021. Still, some of the high cost coking coal mine idlings announced during
2020 remain in place, and more recent supply disruptions also constrain supply.
The duration of specific supply disruptions is unknown. We believe that
underinvestment in the sector in recent years underlies the current market
situation. In the current environment, we expect coking coal prices to be
volatile. Longer term, we believe continued limited global capital investment in
new coking coal production capacity, normal reserve depletion, and continuing
economic growth will provide support to coking coal markets.

During the fourth quarter of 2020, a major political dispute that manifested
itself as a trade dispute, escalated between China, a major importer of coking
coal, and Australia, the world's largest exporter of coking coal. Specifically,
China has effectively banned the import of coking coal and thermal coal, among
other export products, from Australia. Historical trade patterns remain
disrupted, and new trade patterns have emerged in the international coking coal
markets. Indices for United States (US) East Coast coking coal reached
historically high levels in the second half of 2021 and retained most of the
increase through the end of the year. In late October, China decided to allow
several million tons of impounded Australian coal to clear customs and enter
their domestic market. Release of this previously impounded coal alleviated
supply constraints and reduced index pricing for coking coal delivered to China.
Lower pricing for coal delivered to China did weigh on US East Coast coking coal
indices in the fourth quarter of 2021; however, due to increased demand for
coking coal outside of China and related strength of Australian Premium Low
Volatile ("PLV") coking coal indices, the impact on US East Coast coking coal
indices has been muted. Despite historically high PLV indices, Australian export
volumes remain below pre-pandemic levels. China has also reduced domestic steel
production during the fourth quarter of 2021. Continuing reduction in Chinese
steel production could negatively impact coking coal prices, but a return to
previous production levels could positively impact coking coal prices.

Domestic thermal coal consumption increased during the year ended December 31,
2021, compared to the year ended December 31, 2020, due to significantly
increased natural gas prices and economic recovery from the responses to
COVID-19. Longer term, we continue to believe thermal coal demand will remain
pressured by planned closure of coal fueled generating facilities, continuing
increases in subsidized renewable generation sources, particularly wind and
solar, and the development of battery storage to support the increase in
intermittent renewable generation sources. However, during 2021, the significant
increase in natural gas prices led to an increase in coal fired generation. We
believe coal generator stockpiles likely declined significantly during 2021, and
domestic thermal coal indices have reached historically high levels.
Importantly, this increase in domestic prices has allowed us to place
significant volumes of domestic thermal coal business at prices meaningfully
higher than those seen prior to the third quarter of 2021. During the year ended
December 31, 2021, international thermal coal indices also increased to
historical highs, and although pricing retreated some during the fourth quarter
of 2021, international thermal coal indices remain at levels that economically
support exports from our thermal operations.

On September 29, 2020, the U.S. District Court ruled against our proposal with
Peabody to form a joint venture that would have combined our Powder River Basin
and Colorado mining operations with Peabody's, and we subsequently announced the
termination of our joint venture efforts. We continue to pursue other strategic
alternatives for our thermal assets, including, among other things, potential
divestiture. We are concurrently shrinking our operational footprint at our
thermal operations. During the year ended December 31, 2021, we completed
approximately $33.5 million of Asset Retirement Obligation (ARO) work at these
operations, compared to approximately $6.8 million in the year ended December
31, 2020. During the fourth quarter of 2021 we established a fund to pay for
future ARO costs at our thermal operations, with an initial $20 million deposit.
We plan to continue to grow this self-funding mechanism for our long-term
reclamation ARO liabilities at our thermal operations. For further information
on this fund, see Note 16, "Asset Retirement Obligations" to the Consolidated
Financial Statements. During the current year, we exercised our operational
flexibility to maximize cash generation from our thermal operations, and plan to
do so again in the coming year. Longer term, we will maintain our focus on
aligning our thermal production rates with the secular decline in domestic
thermal coal demand, while adjusting our thermal operating plans to minimize
future cash

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  Table of Contents

requirements and maintain flexibility to react to future short-term market
fluctuations. We continue to streamline our entire organizational structure to
reflect our long-term strategic direction as a leading producer of metallurgical
products for the steelmaking industry.

During the fourth quarter of 2021, we sold our 49.5% equity interest in Knight
Hawk Holdings, LLC. For further information on the sale of and our prior equity
investment in Knight Hawk Holdings, LLC, please see Note 4, "Divestitures", and
Note 11, "Equity Method Investments and Membership Interests in Joint Ventures"
to the Consolidated Financial Statements.

On December 31, 2020, we sold our Viper operation in Illinois, which had been
part of our Other Thermal segment, to Knight Hawk Holdings, LLC. Viper's results
for the full year of 2020 are included in our full year 2020 results, and in all
preceding periods' results presented herein. For further information on the sale
of Viper and our prior equity investment in Knight Hawk Holdings, LLC, please
see Note 4, "Divestitures", and Note 11, "Equity Method Investments and
Membership Interests in Joint Ventures" to the Consolidated Financial
Statements.

The following discussion and analysis are for the year ended December 31, 2021,
compared to the same period in 2020 unless otherwise stated. For a discussion
and analysis of the year ended December 31, 2020, compared to the same period in
2019, please refer to Management's Discussion and Analysis of Financial
Condition and Results of Operations included in Part II, Item 7 of our Annual
Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on
February 12, 2021.

Results of Operations

Year ended December 31, 2021 and 2020

Revenues. Our revenues include sales to customers of coal produced at our operations and coal purchased from third parties. Transportation costs are included in the cost of sales of coal and the amounts we charge our customers for transportation are included in revenue.

Coal sales. The following table summarizes our coal sales information for the years ended December 31, 2021 and 2020:

                            Year Ended December 31,
                 2021           2020         (Decrease) / Increase

                                 (In thousands)
Coal sales    $ 2,208,042    $ 1,467,592    $               740,450
Tons sold          73,005         63,343                      9,662


On a consolidated basis, coal sales in 2021 increased $740.5 million or 50.5%
from 2020, and tons sold increased 9.7 million tons, or 15.3%. Coal sales from
Metallurgical operations increased $507.6 million due primarily to higher
realized pricing and secondarily increased volume. Thermal coal sales increased
$255.8 million due to increased pricing and volume. In the year ended December
31, 2020, our Viper operation, which was sold in December 2020, provided
approximately $34.3 million in coal sales and 0.9 million tons sold. See
discussion in "Operational Performance" for further information about segment
results.

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  Table of Contents

Costs, expenses and other. The following table summarizes costs, expenses and
other components of operating income for the years ended December 31, 2021

and
2020:

                                                           Year Ended December 31,
                                                                                  Increase
                                                                                 (Decrease)
                                                                                   in Net
                                                     2021           2020           Income

                                                                (In thousands)
Cost of sales (exclusive of items shown
separately below)                                 $ 1,579,836    $ 1,378,479    $  (201,357)
Depreciation, depletion and amortization              120,327        121,552           1,225
Accretion on asset retirement obligations              21,748         19,887         (1,861)
Change in fair value of coal derivatives and
coal trading activities, net                          (2,392)          5,219           7,611
Selling, general and administrative expenses           92,342         82,397         (9,945)
Costs related to proposed joint venture with
Peabody Energy                                              -         16,087          16,087
Asset impairment and restructuring                          -        221,380         221,380
Gain on property insurance recovery related to
Mountain Laurel longwall                                    -       (23,518)        (23,518)
Loss (Gain) on divestitures                            24,225        (1,505)        (25,730)
Other operating loss (income), net                      4,826       (22,246)        (27,072)
Total costs, expenses and other                   $ 1,840,912    $ 

1,797,732 ($43,180)

Cost of sales. Our cost of sales for the year ended December 31, 2021 increased
$201.4 million, or 14.6%, versus the year ended December 31, 2020. In the prior
year period, our Viper operation, which was sold in December 2020, accounted for
approximately $45.5 million in cost of sales. The increase in cost of sales at
ongoing operations is directly attributable to higher sales volumes and prices;
which consists of increased transportation costs of approximately $118.3
million, increased repairs and supplies costs of approximately $90.5 million,
increased operating taxes and royalties of approximately $72.8 million, and
increased compensation costs of approximately $21.1 million. These cost
increases were partially offset by an increase in credit for ARO reclamation
work completed primarily in our Thermal Segment of approximately $24.7 million
and decreased purchased coal cost of approximately $16.4 million. See discussion
in "Operational Performance" for further information about segment results.

Depreciation, depletion and amortization. Our depreciation, depletion and
amortization costs for the year ended December 31, 2021 decreased slightly
versus the year ended December 31, 2020 primarily due to the reduced
depreciation expense resulting from the asset impairment we recorded in the
third quarter of 2020 in our Thermal Segment, partially offset by the increased
depreciation of plant and equipment, amortization of development, and depletion
in our Metallurgical Segment.

Accretion on asset retirement obligations. The increase in accretion expense during the year ended December 31, 2021 is mainly related to changes in the planned schedule of refurbishment work to be carried out in our thermal sector, more specifically in the coal stream mine.

Change in fair value of coal derivatives and coal trading activities, net. The
benefit in the year ended December 31, 2021 is primarily related to
mark-to-market gains on coal derivatives that we had entered to hedge our price
risk for anticipated international thermal coal shipments, while we had
mark-to-market losses on such coal derivatives for the year ended December 31,
2020.

Selling, general and administrative expenses. Selling, general and
administrative expenses in the year ended December 31, 2021 increased versus the
year ended December 31, 2020 due primarily to increased compensation costs of
approximately $11.3 million, primarily related to higher incentive compensation
accruals recorded in the year ended December 31, 2021, partially offset by
reduced information technology related costs of approximately $1.1 million.

Costs related to proposed joint venture with Peabody Energy. We incurred
expenses of $16.1 million in the year ended December 31, 2020 associated with
the regulatory approval process related to the proposed joint venture with
Peabody that was terminated jointly by the parties following the Federal Trade
Commission's successful lawsuit to block

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Contents

the joint venture. For more information on our proposed joint venture with Peabody Energy, see Note 6, “Joint Venture with Peabody Energy,” to the consolidated financial statements.

Asset impairment and restructuring. During the year ended December 31, 2020, we
recorded $208.0 million of impairment charges primarily relating to three of our
thermal operations, Coal Creek, West Elk, and Viper, as well as, our equity
investment in Knight Hawk Holdings, LLC. Also, during the year ended December
31, 2020, we incurred $13.4 million of restructuring expense related to employee
severance from the voluntary separation plans that were accepted by 254
employees of our thermal operations and corporate staff. For further information
on our Asset Impairment costs, see Note 5, "Asset Impairment and Restructuring"
to the Consolidated Financial Statements.

Gain on property insurance recovery related to Mountain Laurel longwall. In the
year ended December 31, 2020 we recorded a $23.5 million benefit from insurance
proceeds related to the loss of certain longwall shields at our Mountain Laurel
operation. For further information on our gain on property insurance recovery,
see Note 7, "Gain on Property Insurance Recovery Related to Mountain Laurel
Longwall" to the Consolidated Financial Statements.

Loss (Gain) on Divestitures. During the fourth quarter of 2021, we sold our
49.5% ownership in Knight Hawk Holdings, LLC for $38.0 million. We received
$20.5 million during the fourth quarter of 2021 and will receive the remainder
in monthly installments through 2024. We recorded a non-cash loss in the amount
of $24.2 million during the fourth quarter of 2021. During the year ended
December 31, 2020, we recorded a $1.5 million gain on the sale of our Dal-Tex,
Briar Branch, and Viper properties. For further information on these gains and
losses, see Note 4, "Divestitures" to the Consolidated Financial Statements.

Other operating loss (income), net. The decrease in other operating income, net
in the year ended December, 31, 2021 as compared to the year ended December, 31,
2020 results primarily from the net unfavorable impact of certain coal
derivative settlements of approximately $36.7 million, partially offset by
increased income from equity investments of approximately $7.1 million and an
unfavorable impact of mark to market movements on heating oil positions of
approximately $1.8 million recorded in the year ended December 31, 2020.

Non-operating expenses. The following table summarizes non-operating expenses for the years ended December 31, 2021 and 2020:

                                                           Year Ended December 31,
                                                                                   Increase
                                                                                  (Decrease)
                                                                               in Provision for
                                                   2021            2020        Net Income Taxes

                                                                (In thousands)
Non-service related pension and
postretirement benefit costs                    $   (4,339)    $    (3,884)    $          (455)
Reorganization items, net                                 -              26                (26)
Total non-operating expenses                    $   (4,339)    $    (3,858)    $          (481)

Non-service related pension and postretirement benefit costs. The increase in
non-service related pension and postretirement benefit costs in the year ended
December 31, 2021 versus the year ended December 31, 2020 is primarily due to
increased postretirement benefit loss amortization in the year ended December
31, 2021, partially offset by increased pension settlement recorded in the

same
year period.

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Provision for (benefit from) income taxes. The following table summarizes our provision for income taxes for the years ended December 31, 2021 and 2020:

                                                      Year Ended December 31,
                                                                    Increase (Decrease)
                                               2021       2020         in Net Income

                                                           (In thousands)

Provision for (profit) income taxes $1,874 $ (7) $

(1,881)

See Note 15 to the Consolidated Financial Statements “Taxes” for a reconciliation of the statutory federal income tax provision (benefit) at the statutory rate to the actual tax benefit.

Operational performance

Year ended December 31, 2021 and 2020

On December 31, 2020, we sold our Viper operation. As a result, we revised our
reportable segments beginning in the first quarter of 2021 to better reflect the
manner in which the chief operating decision maker (CODM) views our businesses
going forward for purposes of reviewing performance, allocating resources and
assessing future prospects and strategic execution. Prior to the first quarter
of 2021, we had three reportable segments: Metallurgical, Powder River Basin
(PRB), and Other Thermal. After the divestment of Viper, we have three remaining
active thermal mines: West Elk, Black Thunder, and Coal Creek. With two distinct
lines of business, metallurgical and thermal, the movement to two segments
better aligns with how we make decisions and allocate resources. No changes were
made to the Metallurgical Segment and the three remaining thermal mines have
been combined as the "Thermal Segment". The prior periods have been recasted to
reflect the change in reportable segments.

Our mining operations are evaluated based on Adjusted EBITDA, per-ton cash
operating costs (defined as including all mining costs except depreciation,
depletion, amortization, accretion on asset retirements obligations, and
pass-through transportation expenses divided by segment tons sold), and on other
non-financial measures, such as safety and environmental performance. Adjusted
EBITDA is defined as net income (loss) attributable to the Company before the
effect of net interest expense, income taxes, depreciation, depletion and
amortization, the amortization of sales contracts, the accretion on asset
retirement obligations, and non-operating income (expense). Adjusted EBITDA may
also be adjusted for items that may not reflect the trend of future results by
excluding transactions that are not indicative of our core operating
performance. Adjusted EBITDA is not a measure of financial performance in
accordance with generally accepted accounting principles, and items excluded
from Adjusted EBITDA are significant in understanding and assessing our
financial condition. Therefore, Adjusted EBITDA should not be considered in
isolation, nor as an alternative to net income (loss), income (loss) from
operations, cash flows from operations or as a measure of our profitability,
liquidity or performance under generally accepted accounting principles.
Furthermore, analogous measures are used by industry analysts to evaluate the
Company's operating performance. Investors should be aware that our presentation
of Adjusted EBITDA may not be comparable to similarly titled measures used

by
other companies.

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The following table shows the operating results of coal operations for the years ended December 31, 2021 and 2020.

                                      Year Ended             Year Ended
                                   December 31, 2021      December 31, 2020        Variance
Metallurgical
Tons sold (in thousands)                        7,690                  6,979               711
Coal sales per ton sold           $            126.44    $             74.17    $        52.27
Cash cost per ton sold            $             68.84    $             61.13    $       (7.71)
Cash margin per ton sold          $             57.60    $             13.04    $        44.56
Adjusted EBITDA (in thousands)    $           442,830    $            91,322    $      351,508
Thermal
Tons sold (in thousands)                       65,280                 55,722             9,558
Coal sales per ton sold           $             13.95    $             13.55    $         0.40
Cash cost per ton sold            $             11.35    $             13.00    $         1.65
Cash margin per ton sold          $              2.60    $              0.55    $         2.05
Adjusted EBITDA (in thousands)    $           175,709    $            

34,035 $141,674

This table reflects numbers reported under a basis that differs from U.S. GAAP.
See the "Reconciliation of Non-GAAP measures" below for explanation and
reconciliation of these amounts to the nearest GAAP figures. Other companies may
calculate these per ton amounts differently, and our calculation may not be
comparable to other similarly titled measures.

Metallurgical - Adjusted EBITDA for the year ended December 31, 2021 increased
from the year ended December 31, 2020 due to increased pricing and increased
volume. These benefits were partially offset by increased cash cost of sales per
ton sold. The improvement in the current year over the prior year is largely due
to the difference in trajectory of the COVID-19 pandemic during the respective
periods in time. During 2021, increasing vaccine availability and generally
decreasing restrictions led to accelerating economic growth, and increasing
steel demand and pricing, improving prompt coking coal index prices. In
contrast, during 2020, coking coal prices fell as large-scale industrial
shutdowns were initiated in response to the emergence of COVID-19. Particularly,
in the second half of 2021, surging coking coal demand, largely from Asia, and
supply constrained by various disruptions, led to historically high pricing
across all coking coal indices. The increase in cash cost per ton sold is
primarily due to increased taxes and royalties that are based on a percentage of
coal sales per ton sold, and the expected ramp up of production levels at our
new Leer South longwall.

During the end of the third quarter of 2021, we completed our Leer South
longwall development, and initiated longwall production in late August of 2021.
The ramp up to planned production levels is ongoing, and productivity continued
to increase over the course of the fourth quarter of 2021. We expect to achieve
planned long-term productivity levels by the second quarter of 2022. The
addition of this second longwall operation to our Metallurgical Segment is
expected to significantly increase our future volumes and strengthen our low
average segment cost structure relative to our peers.

Our Metallurgical segment sold 7.0 million tons of coking coal and 0.7 million
tons of associated thermal coal in the year ended December 31, 2021, compared to
6.0 million tons of coking coal and 1.0 million tons of associated thermal coal
in the year ended December 31, 2020. Longwall operations accounted for
approximately 71% of our shipment volume in the year ended December 31, 2021,
compared to approximately 60% of our shipment volume in the year ended December
31, 2020.

Thermal - Adjusted EBITDA for the year ended December 31, 2021 increased versus
the year ended December 31, 2020, due to increased sales volume, increased coal
sales per ton sold, and decreased cash cost per ton sold. The improvement in
sales volume in the current year over the prior year is primarily due to
increased domestic utility coal burn, resulting from higher natural gas pricing
and improved economic growth. Sales volume also benefitted from increased
thermal exports, which more than tripled over the prior year to approximately
2.2 million tons. The increase in coal sales per ton sold reflects higher
realized prices at all of our thermal operations, and the reduction in

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cash cost per ton sold is driven by both the increase in sales volume and the
increased percentage of volume from our lower cost Black Thunder operation. Our
cash cost per ton sold benefited from our operational flexibility to take
advantage of increasing demand, despite the substantial progress we have made in
our efforts to align production levels with the secular decline in domestic
thermal coal demand. Also, contributing to the decreases in cost is the
inclusion of approximately 0.9 million tons sold from our former Viper operation
in the year ended December 31, 2020. During 2021, we completed approximately
$33.5 million of ARO work at our current Thermal Segment operations primarily in
the Powder River Basin, compared to $6.8 million during 2020.

On December 31, 2020, we sold our Other Thermal operation, Viper, to Knight Hawk
Holdings, LLC. For further information on the sale of Viper, please see Note 4,
"Divestitures" to the Consolidated Financial Statements.

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Reconciliation of NON-GAAP Measures

Non-GAAP segment coal sales per ton sold

Non-GAAP Segment coal sales per ton sold is calculated as segment coal sales
revenues divided by segment tons sold. Segment coal sales revenues are adjusted
for transportation costs, and may be adjusted for other items that, due to
generally accepted accounting principles, are classified in "other income" on
the consolidated income statements, but relate to price protection on the sale
of coal. Segment coal sales per ton sold is not a measure of financial
performance in accordance with generally accepted accounting principles. We
believe segment coal sales per ton sold provides useful information to investors
as it better reflects our revenue for the quality of coal sold and our operating
results by including all income from coal sales. The adjustments made to arrive
at these measures are significant in understanding and assessing our financial
condition. Therefore, segment coal sales revenues should not be considered in
isolation, nor as an alternative to coal sales revenues under generally accepted
accounting principles.

                                                                              Idle and
Year Ended December 31, 2021                Metallurgical       Thermal        Other        Consolidated
(In thousands)
GAAP Revenues in the Consolidated
Statements of Operations                   $     1,149,132    $ 1,057,481    $    1,429    $    2,208,042
Less: Adjustments to reconcile to
Non-GAAP Segment coal sales revenue
Coal risk management derivative
settlements classified in "other
income"                                            (1,192)         28,656             -            27,464
Coal sales revenues from idled or
otherwise disposed operations not
included in segments                                     -              -         1,424             1,424
Transportation costs                               177,917        118,270             5           296,192
Non-GAAP Segment coal sales revenues       $       972,407    $   910,555  

 $        -    $    1,882,962
Tons sold                                            7,690         65,280
Coal sales per ton sold                    $        126.44    $     13.95


                                                                            Idle and
Year Ended December 31, 2020                Metallurgical      Thermal       Other        Consolidated
(In thousands)
GAAP Revenues in the Consolidated
Statements of Operations                   $       641,536    $ 801,632    $   24,424    $    1,467,592
Less: Adjustments to reconcile to
Non-GAAP Segment coal sales revenue
Coal risk management derivative
settlements classified in "other
income"                                              (577)      (8,632)             -           (9,209)
Coal sales revenues from idled or
otherwise disposed operations not
included in segments                                     -            -        24,322            24,322
Transportation costs                               124,494       55,477           102           180,073
Non-GAAP Segment coal sales revenues       $       517,619    $ 754,787    $        -    $    1,272,406
Tons sold                                            6,979       55,722
Coal sales per ton sold                    $         74.17    $   13.55


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Non-GAAP Segment Cash Cost per Ton Sold

Non-GAAP Segment cash cost per ton sold is calculated as segment cash cost of
coal sales divided by segment tons sold. Segment cash cost of coal sales is
adjusted for transportation costs, and may be adjusted for other items that, due
to generally accepted accounting principles, are classified in "other income" on
the consolidated income statements, but relate directly to the costs incurred to
produce coal. Segment cash cost per ton sold is not a measure of financial
performance in accordance with generally accepted accounting principles. We
believe segment cash cost per ton sold better reflects our controllable costs
and our operating results by including all costs incurred to produce coal. The
adjustments made to arrive at these measures are significant in understanding
and assessing our financial condition. Therefore, segment cash cost of coal
sales should not be considered in isolation, nor as an alternative to cost of
sales under generally accepted accounting principles.

                                                                            Idle and
Year Ended December 31, 2021                Metallurgical      Thermal       Other        Consolidated
(In thousands)
GAAP Cost of sales in the Consolidated
Statements of Operations                   $       707,312    $ 859,070    $   13,454    $    1,579,836
Less: Adjustments to reconcile to
Non-GAAP Segment cash cost of coal
sales
Transportation costs                               177,917      118,270             5           296,192
Cost of coal sales from idled or
otherwise disposed operations not
included in segments                                     -            -         5,838             5,838
Other (operating overhead, certain
actuarial, etc.)                                         -            -         7,611             7,611
Non-GAAP Segment cash cost of coal
sales                                      $       529,395    $ 740,800 $           -    $    1,270,195
Tons sold                                            7,690       65,280
Cash Cost Per Ton Sold                     $         68.84    $   11.35


                                                                            Idle and

Year Ended December 31, 2020                Metallurgical      Thermal       Other        Consolidated
(In thousands)
GAAP Cost of sales in the Consolidated
Statements of Operations                   $       551,133    $ 778,267    $   49,079    $    1,378,479
Less: Adjustments to reconcile to
Non-GAAP Segment cash cost of coal
sales
Diesel fuel risk management derivative
settlements classified in "other
income"                                                  -      (1,788)             -           (1,788)
Transportation costs                               124,494       55,477           102           180,073
Cost of coal sales from idled or
otherwise disposed operations not
included in segments                                     -            -        41,322            41,322
Other (operating overhead, certain
actuarial, etc.)                                         -            -         7,655             7,655
Non-GAAP Segment cash cost of coal
sales                                      $       426,639    $ 724,578    $        -    $    1,151,217
Tons sold                                            6,979       55,722
Cash Cost Per Ton Sold                     $         61.13    $   13.00


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Reconciliation of segment adjusted EBITDA to net income (loss)

The discussion in "Results of Operations" above includes references to our
Adjusted EBITDA for each of our reportable segments. Adjusted EBITDA is defined
as net income (loss) attributable to the Company before the effect of net
interest expense, income taxes, depreciation, depletion and amortization, the
amortization of sales contracts, and the accretion on asset retirement
obligations. Adjusted EBITDA may also be adjusted for items that may not reflect
the trend of future results by excluding transactions that are not indicative of
our core operating performance. We use Adjusted EBITDA to measure the operating
performance of our segments and allocate resources to our segments. Adjusted
EBITDA is not a measure of financial performance in accordance with generally
accepted accounting principles, and items excluded from Adjusted EBITDA are
significant in understanding and assessing our financial condition. Therefore,
Adjusted EBITDA should not be considered in isolation, nor as an alternative to
net income (loss), income (loss) from operations, cash flows from operations or
as a measure of our profitability, liquidity or performance under generally
accepted accounting principles. Investors should be aware that our presentation
of Adjusted EBITDA may not be comparable to similarly titled measures used by
other companies. The table below shows how we calculate Adjusted EBITDA.

                                                           Year Ended         Year Ended
                                                          December 31,       December 31,
                                                              2021               2020

Net income (loss)                                        $       337,573    $     (344,615)

Provision for (benefit from) income taxes                          1,874                (7)
Interest expense, net                                             23,344   

10,624

Depreciation, depletion and amortization                         120,327   

121,552

Accretion on asset retirement obligations                         21,748   

19,887

Costs related to proposed joint venture with
Peabody Energy                                                         -   

16,087

Asset impairment and restructuring                                     -   

221,380

Gain on property insurance recovery related to
Mountain Laurel longwall                                               -   

(23,518)

Loss (Gain) on divestitures                                       24,225   

(1,505)

Preference Rights Lease Application settlement
income                                                                 -                  -
Non-service related pension and postretirement
benefit costs                                                      4,339              3,884
Reorganization items, net                                              -               (26)
Adjusted EBITDA                                                  533,430             23,743

EBITDA from idled or otherwise disposed operations                 2,469   

15,858

Selling, general and administrative expenses                      92,342   

82,397

Other                                                            (9,702)   

3,359

Segment Adjusted EBITDA from coal operations             $       618,539   

$125,357

Other includes primarily income from our equity investments, certain changes in
the fair value of coal derivatives and coal trading activities, certain changes
in fair value of heating oil derivatives we use to manage our exposure to diesel
fuel pricing, net EBITDA provided by our land company, and certain miscellaneous
revenue.

For the year ended December 31, 2021, amounts included in Other increased
Adjusted EBITDA by approximately $9.7 million versus decreasing Adjusted EBITDA
approximately $3.4 million in the year ended December 31, 2020. The net increase
in Adjusted EBITDA from Other was primarily related to favorable change in value
of coal derivatives of approximately $7.7 million, and increased income from
equity investments of approximately $7.1 million.

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Cash and capital resources

Our primary sources of liquidity are proceeds from coal sales to customers and
certain financing arrangements. Excluding significant investing activity, we
intend to satisfy our working capital requirements and fund capital expenditures
and debt-service obligations with cash generated from operations and cash on
hand. We remain focused on prudently managing costs, including capital
expenditures, maintaining a strong balance sheet, and ensuring adequate
liquidity.

Given the volatile nature of coal markets, and the significant challenges and
uncertainty surrounding the COVID-19 pandemic, we believe it remains important
to take a prudent approach to managing our balance sheet and liquidity.
Additionally, banks and other lenders have become increasingly unwilling to
provide financing to coal producers, especially those with significant thermal
coal exposure. Due to the nature of our business, we may be limited in accessing
debt capital markets or obtaining additional bank financing, or the cost of
accessing this financing could become more expensive.

With the completion of the Leer South development, our capital spending returned
to maintenance levels in the fourth quarter of 2021, and we expect our capital
spending to remain at maintenance levels for the foreseeable future. In light of
the reduced capital requirements and current favorable pricing environment, we
generated significant cash flows in the fourth quarter of 2021 and expect cash
flows to remain strong in 2022. Our priority is to improve our financial
position, through enhancing liquidity and reducing our debt and other
liabilities. During the fourth quarter of 2021, our cash balance increased
$129.9 million and we ended the year with cash of $339.7 million and total
liquidity of $389.9 million. Also, during the fourth quarter, we made an initial
deposit of $20.0 million into a fund to pay for future ARO costs at our legacy
thermal operations, primarily in the Powder River Basin, and repurchased $5.0
million of our term loan at a slight discount. We believe our current liquidity
level is sufficient to fund our business and meet both our short-term (next
twelve months) and reasonably foreseeable long-term requirements and
obligations, especially in light of reduced capital spending requirements. In
2022, we have continued to reduce debt by repaying an additional $271.3 million
of our term loan throughout January and the first half of February.
Additionally, during 2022, we plan to make contributions to the thermal ARO fund
on a quarterly basis and expect total contributions could be at least $100.0
million if market conditions remain favorable.

On March 7, 2017, we entered into a senior secured term loan credit agreement in
an aggregate principal amount of $300 million (the "Term Loan Debt Facility")
with Credit Suisse AG, Cayman Islands Branch, as administrative agent and
collateral agent and the other financial institutions from time to time party
thereto. The Term Loan Debt Facility was issued at 99.50% of the face amount and
will mature on March 7, 2024. The term loans provided under the Term Loan Debt
Facility (the "Term Loans") are subject to quarterly principal amortization
payments in an amount equal to $0.8 million. Proceeds from the Term Loan Debt
Facility were used to repay all outstanding obligations under our previously
existing term loan credit agreement, dated as of October 5, 2016. The interest
rate on the Term Loan is, at our option, either (i) the London interbank offered
rate ("LIBOR") plus an applicable margin of 2.75%, subject to a 1.00% LIBOR
floor, or (ii) a base rate plus an applicable margin of 1.75%. For further
information regarding the Term Loan Debt Facility, see Note 14, "Debt and
Financing Arrangements" to the Consolidated Financial Statements.

We have entered into a series of interest rate swaps to fix a portion of the
LIBOR interest payments due under the term loan. As interest payments are made
on the term loan, amounts in accumulated other comprehensive income will be
reclassified into earnings through interest expense to reflect a net interest on
the term loan equal to the effective yield of the fixed rate of the swap plus
2.75% which is the spread on the LIBOR term loan as amended. For further
information regarding the interest rate swaps see Note 14, "Debt and Financing
Arrangements" to the Consolidated Financial Statements.

On September 30, 2020, we extended and amended our existing trade accounts
receivable securitization facility provided to Arch Receivable Company, LLC, a
special-purpose entity that is a wholly owned subsidiary of Arch Resources
("Arch Receivable") (the "Securitization Facility"), which supports the issuance
of letters of credit and requests for cash advances. The amendment to the
Securitization Facility reduced the facility size from $160 million to

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$110 million and extended the due date to September 29, 2023. For more information regarding the securitization facility, see note 14, “Debts and financing arrangements” to the consolidated financial statements.

On September 30, 2020, we amended the senior secured inventory-based revolving
credit facility in an aggregate principal amount of $50 million (the "Inventory
Facility") with Regions Bank ("Regions") as administrative agent and collateral
agent, as lender and swingline lender (in such capacities, the "Lender") and as
letter of credit issuer. Availability under the Inventory Facility is subject to
a borrowing base consisting of (i) 85% of the net orderly liquidation value of
eligible coal inventory, plus (ii) the lesser of (x) 85% of the net orderly
liquidation value of eligible parts and supplies inventory and (y) 35% of the
amount determined pursuant to clause (i), plus (iii) 100% of our Eligible Cash
(defined in the Inventory Facility), subject to reduction for reserves imposed
by Regions. The amendment of the Inventory Facility extended the maturity date
to September 29, 2023, eliminated the provision that accelerated maturity of the
facility upon falling below a specified level of liquidity, and reduced the
minimum liquidity requirement from $175 million to $100 million. Additionally,
the amendment includes provisions that reduce the advance rates for coal
inventory and parts and supplies, depending on liquidity. For further
information regarding the Inventory Facility, see Note 14, "Debt and Financing
Arrangements" to the Consolidated Financial Statements.

On July 2, 2020, the West Virginia Economic Development Authority (the "Issuer")
issued $53.1 million aggregate principal amount of Solid Waste Disposal Facility
Revenue Bonds (Arch Resources Project), Series 2020 (the "2020 Tax Exempt
Bonds") pursuant to an Indenture of Trust dated as of June 1, 2020 (the
"Indenture of Trust") between the Issuer and Citibank, N.A., as trustee (the
"Trustee"). As a follow-on to our $53.1 million offering, on March 4, 2021, the
Issuer issued an additional $45.0 million in Series 2021 Tax Exempt Bonds (the
"2021 Tax Exempt Bonds" and together with the 2020 Tax Exempt Bonds, the "Tax
Exempt Bonds"). The proceeds of the Tax Exempt Bonds were loaned to us as we
made qualifying expenditures pursuant to a Loan Agreement dated as of June 1,
2020, as supplemented by a First Amendment to the Loan Agreement dated March 1,
2021 (collectively, the "Loan Agreement"), each between the Issuer and us. The
Tax Exempt Bonds are payable solely from payments to be made by us under the
Loan Agreement as evidenced by Notes from us to the Trustee. The proceeds of the
Tax Exempt Bonds were used to finance certain costs of the acquisition,
construction, reconstruction, and equipping of solid waste disposal facilities
at our Leer South development, and for capitalized interest and certain costs
related to the issuance of the Tax Exempt Bonds. As of December 31, 2021, we
have utilized the total Tax Exempt Bond proceeds. For further information
regarding the Tax Exempt Bonds, see Note 14, "Debt and Financing Arrangements"
to the Consolidated Financial Statements.

In November, 2020, we issued $155.3 million in aggregate principal amount of
5.25% convertible senior notes due 2025 ("Convertible Notes" or "Convertible
Debt"). The net proceeds from the issuance of the Convertible Notes, after
deducting offering related costs of $5.1 million and the cost of a capped call
transaction of $17.5 million, were approximately $132.7 million. The Convertible
Notes bear interest at the annual rate of 5.25%, payable semiannually in arrears
on May 15 and November 15 of each year, and will mature on November 15, 2025,
unless earlier converted, redeemed or repurchased by us. For further information
regarding the Convertible Debt, see Note 14, "Debt and Financing Arrangements"
to the Consolidated Financial Statements.

During the fourth quarter of 2021, the common stock price condition of the
Convertible Notes was satisfied, as the closing stock price exceeded 130% of the
conversion price of approximately $37.208 for at least 20 trading days of the
last 30 trading days prior to quarter end. As a result, the Convertible Notes
are convertible at the election of the noteholders during the first quarter of
2022, and due to our stated intent to settle the principal value in cash, the
liability portion of $121.6 million of the Convertible Notes is included in
current maturities of debt on our Consolidated Balance Sheet at December 31,
2021. As of the date of this Annual Report on Form 10-K, we have not received
any conversion requests for the Convertible Notes and do not anticipate
receiving any conversion requests, as the market value of the Convertible Notes
exceeds the conversion value of the Convertible Notes. As of December 31, 2021,
the if-converted value of the Convertible Notes exceeded the principal amount by
$225.3 million. For further information regarding the Convertible Notes and the
capped call transactions, see Note 14, "Debt and Financing Arrangements" to the
Consolidated Financial Statements.

At April 27, 2017, our Board of Directors has authorized a capital repayment program consisting of a share buyback program and a quarterly cash dividend. The share buyback plan has a total authorization of $1.05 billion of which we

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have used $827.4 million. During the year ended December 31, 2021, we did not
repurchase any shares of our stock. On April 23, 2020, we announced the
suspension of our quarterly dividend due to the significant economic uncertainty
surrounding the COVID-19 pandemic and the steps being taken to control the
virus. On October 26, 2021, as a result of improved liquidity, we announced the
initiation of a $0.25 per share quarterly dividend. Through the addition of Leer
South, we believe we have significantly increased our future cash-generating
capabilities and as a result we plan to launch an adjusted and more
comprehensive capital return program in the second quarter of 2022. We plan to
return to stockholders approximately 50% of the prior quarter's discretionary
cash flow via a variable rate quarterly cash dividend that will complement our
existing fixed rate cash dividend of $0.25 per share, and to use the remaining
50% of our discretionary cash flow for potential share buybacks, special
dividends, the repurchase of potentially dilutive securities, and capital
preservation. All of these potential uses of capital are subject to board
approval and declaration. Any shares acquired would be in the open market or
through private transactions in accordance with Securities and Exchange
Commission requirements.

On December 31, 2021, we had total liquidity of approximately $389.9 million
including $339.7 million in unrestricted cash and equivalents, and short-term
investments in debt securities, with the remainder provided by availability
under our credit facilities, and funds withdrawable from brokerage accounts. The
table below summarizes our availability under our credit facilities as of
December 31, 2021:

                                                                  Letters of
                                                   Borrowing        Credit                            Contractual
                                   Face Amount        Base       Outstanding     Availability          Expiration
                                                                 (Dollars in thousands)
Securitization Facility           $     110,000    $  110,000    $     67,483   $       42,517      September 29, 2023
Inventory Facility                       50,000        34,111          27,712            6,399      September 29, 2023
Total                             $     160,000    $  144,111    $     95,195   $       48,916

The above standby letters of credit outstanding have primarily been issued to
satisfy certain insurance-related collateral requirements. The amount of
collateral required by counterparties is based on their assessment of our
ability to satisfy our obligations and may change at the time of policy renewal
or based on a change in their assessment. Future increases in the amount of
collateral required by counterparties would reduce our available liquidity.

Contractual obligations

The table below summarizes our contractual obligations as of December 31, 2021:

                                                                    Payments Due by Period
                                                2022       2023-2024     2025-2026      after 2026       Total

                                                                    (Dollars in thousands)

Long-term debt, including related interest    $ 133,624    $  279,017    $ 

267,075    $          -    $ 679,716
Leases                                            4,599         8,976         8,376           1,533       23,484
Coal lease rights                                 3,248         6,082         5,037          37,009       51,376

Coal purchase obligations                         3,336             -             -               -        3,336
Unconditional purchase obligations              129,351             -             -               -      129,351
Total contractual obligations                 $ 274,158    $  294,075    $ 

280 488 $38,542 $887,263

The related interest on long-term debt was calculated using rates in effect at
December 31, 2021, for the remaining term of outstanding borrowings. In 2022, we
have continued to reduce debt by repaying an additional $271.3 million of our
term loan throughout January and the first half of February.

Coal lease rights represent non-cancellable royalty leases, as well as lease premiums due.

Unconditional purchase obligations include outstanding purchase orders and other purchase commitments, which have not been recognized as a liability. The commitments shown in the table above relate to contractual commitments for the purchase of materials and supplies, payments for services and capital expenditures.

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The table above excludes our asset retirement obligations. Our consolidated
balance sheet reflects a liability of $214.5 million including amounts
classified as a current liability for asset retirement obligations that arise
from SMCRA and similar state statutes, which require that mine property be
restored in accordance with specified standards and an approved reclamation
plan. Asset retirement obligations are recorded at fair value when incurred and
accretion expense is recognized through the expected date of settlement.
Determining the fair value of asset retirement obligations involves a number of
estimates, as discussed in the section entitled "Critical Accounting Estimates"
below, including the timing of payments to satisfy the obligations. The timing
of payments to satisfy asset retirement obligations is based on numerous
factors, including mine closure dates. Please see Note 16, "Asset Retirement
Obligations" to our Consolidated Financial Statements for further information
about our asset retirement obligations.

The table above also excludes certain other obligations reflected in our
consolidated balance sheet, including estimated funding for pension and
postretirement benefit plans and worker's compensation obligations. The timing
of contributions to our pension plans varies based on a number of factors,
including changes in the fair value of plan assets and actuarial assumptions.
Please see the section entitled "Critical Accounting Estimates" below for more
information about these assumptions. We expect to make no contributions to our
pension plans in 2022.

Please see Note 20, "Workers' Compensation Expense", and Note 21, "Employee
Benefit Plans" to our Consolidated Financial Statements for more information
about the amounts we have recorded for workers' compensation and pension and
postretirement benefit obligations, respectively.

Off-balance sheet arrangements

In the normal course of business, we are a party to certain off-balance sheet
arrangements. These arrangements include guarantees, indemnifications, financial
instruments with off-balance sheet risk, such as bank letters of credit and
performance or surety bonds. Liabilities related to these arrangements are not
reflected in our consolidated balance sheets, and we do not expect any material
adverse effects on our financial condition, results of operations or cash flows
to result from these off-balance sheet arrangements.

We use a combination of surety bonds and letters of credit to secure our financial obligations for reclamation, workers’ compensation, coal lease obligations and other obligations as follows from December 31, 2021:

                                                         Workers'
                      Reclamation         Lease        Compensation
                      Obligations      Obligations      Obligations      Other        Total

                                              (Dollars in thousands)
Surety bonds         $     500,486    $      26,013    $      50,028    $  7,530    $  584,057
Letters of credit           20,000                -           65,683       1,354        87,037


Cash Flow

The following is a summary of the cash provided or used in each of the types of activities indicated during the year ended December 31, 2021 and 2020:

                                 Year Ended December 31,
                                   2021            2020
(In thousands)
Cash provided by (used in):
Operating activities           $     238,284    $    61,106
Investing activities               (141,215)      (226,009)
Financing activities                  35,781        205,328

Cash provided by operating activities increased in the year ended December 31,
2021 versus the year ended December 31, 2020 mainly due to the improvement in
results from operations discussed in the "Overview" and "Operational
Performance" sections above, partially offset by a greater increase in working
capital requirements of

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about $207 million, mainly in receivables; receipt of approximately $38 million income tax refund during the previous year period; an increase in the restoration work carried out by approximately $25 million; and the creation and financing of a fund for retirement obligations of approximately $20 million in the current period of the year.

Cash used in investing activities decreased in the year ended December 31, 2021
versus the year ended December 31, 2020 primarily due to an approximately $49
million increase in net proceeds from short term investments; decreased capital
expenditures of approximately $40 million, as the Leer South mine completed
development; and an approximately $20 million increase from proceeds of
disposals and divestitures, mainly proceeds from the divestiture of Knight Hawk
Holdings; which were partially offset by an approximately $24 million in
property insurance proceeds on our Mountain Laurel longwall claim in the prior
year period.

Cash provided by financing activities decreased in the year ended December 31,
2021 versus the year ended December 31, 2020 primarily due to the net proceeds
of approximately $138 million from issuance of the Convertible Notes in the
prior year period; a net decrease in proceeds from Equipment Financing
transactions of approximately $34 million; and a net decrease in proceeds from
the issuance of our Tax Exempt Bonds of approximately $8 million; which were
partially offset by a decrease in debt financing costs of approximately $8
million; and a decrease in dividends paid of approximately $4 million.

Critical accounting estimates

We prepare our financial statements in accordance with accounting principles
that are generally accepted in the United States. The preparation of these
financial statements requires management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses as
well as the disclosure of contingent assets and liabilities. Management bases
our estimates and judgments on historical experience and other factors that are
believed to be reasonable under the circumstances. Additionally, these estimates
and judgments are discussed with our audit committee on a periodic basis. Actual
results may differ from the estimates used under different assumptions or
conditions. We have provided a description of all significant accounting
policies in the notes to our Consolidated Financial Statements. We believe that
of these significant accounting policies, the following may involve a
significant level of estimation uncertainty and have had or are reasonably
likely to have a material impact on our financial condition or results of
operations:

Derivative financial instruments

We utilize derivative instruments to manage exposures to commodity prices and
interest rate risk on long-term debt. Additionally, we may hold certain coal
derivative instruments for trading purposes. Derivative financial instruments
are recognized in the balance sheet at fair value. Certain coal contracts may
meet the definition of a derivative instrument, but because they provide for the
physical purchase or sale of coal in quantities expected to be used or sold by
us over a reasonable period in the normal course of business, they are not
recognized on the balance sheet and changes in the fair value of the derivative
instrument are recorded in the consolidated statements of operations.

Certain derivative instruments are designated as the hedge instrument in a
hedging relationship. In a cash flow hedge, we hedge the risk of changes in
future cash flows related to the underlying item being hedged. Changes in the
fair value of the derivative instrument used as a hedge instrument in a cash
flow hedge are recorded in other comprehensive income. Amounts in other
comprehensive income are reclassified to earnings when the hedged transaction
affects earnings and are classified in a manner consistent with the transaction
being hedged.

We formally document all relationships between hedging instruments and hedged
items, as well as our risk management objectives for undertaking various hedge
transactions. We evaluate the effectiveness of our hedging relationships both at
the hedge inception and on an ongoing basis.

See note 12 to the consolidated financial statements, “Derivatives”, for further information on the Company’s derivative instruments.

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Impairment of long-lived assets

We review our long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. These events and circumstances include, but are not limited to, a
current expectation that a long-lived asset will be disposed of significantly
before the end of its previously estimated useful life, a significant adverse
change in the extent or manner in which we use a long-lived asset or a change in
its physical condition.

When such events or changes in circumstances occur, a recoverability test is
performed comparing projected undiscounted cash flows from the use and eventual
disposition of an asset or asset group to its carrying amount. If the projected
undiscounted cash flows are less than the carrying amount, an impairment is
recorded for the excess of the carrying amount over the estimate fair value,
which is generally determined using discounted future cash flows. If we
recognize an impairment loss, the adjusted carrying amount of the asset becomes
the new cost basis. For a depreciable long-lived asset, the new cost basis will
be depreciated (amortized) over the remaining estimated useful life of the
asset.

We make various assumptions, including assumptions regarding future cash flows
in our assessments of long-lived assets for impairment. The assumptions about
future cash flows and growth rates are based on the current and long-term
business plans related to the long-lived assets. Discount rate assumptions are
based on an assessment of the risk inherent in the future cash flows of the
long-lived assets. These assumptions require significant judgments on our part,
and the conclusions that we reach could vary significantly based upon these
judgments.

During the year ended December, 31, 2020, we determined that we had indicators
of impairment related to three of our thermal operations, Coal Creek, West Elk,
and Viper, as well as, our equity investment in Knight Hawk Holdings, LLC. Our
analyses of future expected cash flows from these assets indicated full
impairment of our listed thermal operations and partial impairment of our equity
investment in Knight Hawk Holdings, LLC. As of December 31, 2021, there were no
indicators of impairment identified.

Please see the Note 5, "Asset impairment and restructuring" to our Consolidated
Financial Statements for more information about the amounts we have recorded for
Asset Impairment.

Asset retirement obligations

Our asset retirement obligations arise from SMCRA and similar state statutes,
which require that mine property be restored in accordance with specified
standards and an approved reclamation plan. Significant reclamation activities
include reclaiming refuse and slurry ponds, reclaiming the pit and support
acreage at surface mines, and sealing portals at deep mines. Our asset
retirement obligations are initially recorded at fair value, or the amount at
which the obligations could be settled in a current transaction between willing
parties. This involves determining the present value of estimated future cash
flows on a mine-by-mine basis based upon current permit requirements and various
estimates and assumptions, including estimates of disturbed acreage, reclamation
costs and assumptions regarding equipment productivity. We estimate disturbed
acreage based on approved mining plans and related engineering data. Since we
plan to use internal resources to perform the majority of our reclamation
activities, our estimate of reclamation costs involves estimating third-party
profit margins, which we base on our historical experience with contractors that
perform certain types of reclamation activities. We base productivity
assumptions on historical experience with the equipment that we expect to
utilize in the reclamation activities. In order to determine fair value, we
discount our estimates of cash flows to their present value. We base our
discount rate on the rates of treasury bonds with maturities similar to expected
mine lives, adjusted for our credit standing.

Accretion expense is recognized on the obligation through the expected
settlement date. On at least an annual basis, we review our entire reclamation
liability and make necessary adjustments for permit changes as granted by state
authorities, changes in the timing and extent of reclamation activities, and
revisions to cost estimates and productivity assumptions, to reflect current
experience. Any difference between the recorded amount of the liability and the
actual cost of reclamation will be recognized as a gain or loss when the
obligation is settled. We expect our actual cost to reclaim our properties will
be less than the expected cash flows used to determine the asset retirement
obligation. At December 31, 2021, our balance sheet reflected asset retirement
obligation liabilities of $214.5 million, including

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amounts classified as current liabilities. From December 31, 2021we estimate the total uninflated and undiscounted cost of final mine closures to be approximately $346.0 million.

See the deferral of the asset retirement obligation liability in Note 16, “Asset retirement obligations”, to the consolidated financial statements.

Employee benefit plans

We have non-contributory defined benefit pension plans covering certain of our
salaried and hourly employees. Benefits are generally based on the
employee's years of service and compensation. The actuarially-determined funded
status of the defined benefit plans is reflected in the balance sheet.

The calculation of our net periodic benefit costs (pension expense) and benefit
obligation (pension liability) associated with our defined benefit pension plan
requires the use of a number of assumptions. These assumptions are summarized in
Note 21, "Employee Benefit Plans", to the Consolidated Financial Statements.
Changes in these assumptions can result in different pension expense and
liability amounts, and actual experience can differ from the assumptions.

? The expected long-term rate of return on plan assets is an assumption
reflecting the average rate of earnings expected on the funds invested or to be
invested to provide for the benefits included in the projected benefit
obligation. We establish the expected long-term rate of return at the beginning
of each fiscal year based upon historical returns and projected returns on the
underlying mix of invested assets. The pension plan's investment targets are 15%
equity and 85% fixed income securities. Investments are rebalanced on a periodic
basis to approximate these targeted guidelines. The long-term rate of return
assumptions are less than the plan's actual life-to-date returns.

? The discount rate represents our estimate of the interest rate at which
pension benefits could be effectively settled. Assumed discount rates are used
in the measurement of the projected, accumulated and vested benefit obligations
and the service and interest cost components of the net periodic pension cost.
The determination of the discount rate was updated from our actuary's
proprietary Yield Curve model, under which the expected benefit payments of the
plan are matched against a series of spot rates from a market basket of high
quality fixed income securities.

The differences generated from changes in assumed discount rates and returns on
plan assets are amortized into earnings using the corridor method, whereby the
unrecognized (gains)/losses in excess of 10% of the greater of the beginning of
the year projected benefit obligation or market-related value of assets are
amortized over the average remaining life expectancy of the plan participants.

We also currently provide certain post-retirement health and life insurance coverage to eligible employees. Generally, covered employees who terminate their employment after meeting the eligibility criteria are eligible for post-retirement coverage for themselves and their dependents. The post-retirement benefit plans for salaried employees are contributory, with retiree contributions adjusted periodically, and contain other cost-sharing elements such as deductibles and coinsurance.

Actuarial assumptions are required to determine the amounts reported as
obligations and costs related to the postretirement benefit plan. The discount
rate assumption reflects the rates available on high-quality fixed-income debt
instruments at year-end and is calculated in the same manner as discussed above
for the pension plan.

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Income Taxes

We provide for deferred income taxes for temporary differences arising from
differences between the financial statement and tax basis of assets and
liabilities existing at each balance sheet date using enacted tax rates expected
to be in effect when the related taxes are expected to be paid or recovered. We
initially recognize the effects of a tax position when it is more than 50%
likely, based on the technical merits, that that position will be sustained upon
examination, including resolution of the related appeals or litigation
processes, if any. Our determination of whether or not a tax position has met
the recognition threshold considers the facts, circumstances, and information
available at the reporting date.

On the basis of this evaluation, a full valuation allowance has been in place
against the Company's net deferred tax assets since 2015. Through December 31,
2018, the Company was in a cumulative loss position. Since 2019, the Company has
been in a cumulative income position, however, the Company has fluctuated
between income and loss for individual years and quarters within each cumulative
three-year period.

We utilize three years of pre-tax income or loss to measure of our cumulative
results in recent years. A valuation allowance is difficult to avoid when a
company is in a cumulative loss position, as it constitutes significant negative
evidence with regards to future taxable income. However, a cumulative loss is
not solely determinative of the need for a valuation allowance. The Company
considers all other positive and negative evidence available as part of its
assessment of the need for a valuation allowance, including but not limited to
future taxable income, available tax planning strategies and the reversal of
temporary differences.

See Note 15 to the consolidated financial statements, “Taxes”, for further information on income taxes.

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PThey are family and we care about their health and happiness as such. But it’s hard for pet owners to accurately budget for their pets’ healthcare expenses when they get sick or injured. Trupanion (NASDAQ: TRUP), a leading provider of pet medical insurance, helps pet owners take the guesswork out of the cost of pet healthcare. As the company continues to grow rapidly, investors have three main reasons to take a closer look.

Pet insurance is in its infancy

When Darryl Rawlings was 14, his family could not afford to have their dog Mitzi operated on. Inspired by this experience, Rawlings founded Trupanion in 2000 with a mission to make the best possible medical care more affordable and accessible to pet owners.

Pet insurance has grown in popularity over the past two decades, yet less than 3% of the 180 million pet dogs and cats in North America are registered for insurance. The United States and Canada lag behind some European counterparts like the United Kingdom and Sweden, where 25% and 40% of pets are covered by insurance, respectively. Considering that 120 million pets in North America visit veterinarians each year, the potential market opportunity for Trupanion can be very compelling if pet insurance adoption in North America can reach even a fraction of what we see in Europe.

Image source: Getty Images.

Trupanion built a strong moat with two decades of learning

Insurance companies succeed in part because they are able to predict payouts to their customers with reasonable accuracy. As an early entrant into the industry, Trupanion has a natural edge over its competition with its two decades of data on pets of different breeds, pet care spending, and pet owners. The insights gained from this data help Trupanion more accurately assess the risk of each policy and price its policies to avoid losing money.

The company, with its growing understanding of pet care, is also delivering more and more value to customers. Trupanion believes it offers the broadest coverage in the industry with comprehensive lifetime pet coverage, encompassing hereditary and congenital conditions with no payout limits. More and more customers choose Trupanion, stick to their insurance plans and pay more.

Customer Metrics	2016	2017	2018	2019	2020	2021*
Total registered pets (thousands)	344	423	521	647	863	1,104
Average Monthly Retention	98.60%	98.63%	98.60%	98.58%	98.71%	–
Avg. monthly income per animal	$47.82	$52.07	$54.34	$57.52	$60.37	–

SOURCE: Company earnings release. (* 2021 figures are from January to September 2021)

The company has developed strong relationships with veterinarians, whose credibility makes customers more likely to sign up when veterinarians recommend Trupanion’s services. Trupanion has dedicated sales staff working with veterinarians and offers these veterinarians a patented veterinarian software platform that streamlines the financial aspects of pet healthcare for veterinarians and owners. The software can send insurance payments directly to veterinary offices as soon as clients leave, eliminating additional paperwork and saving everyone time and effort. It also provides veterinarians with all relevant information about the animal in question and its previous treatments, complaints and pre-existing conditions. Veterinarians and owners can review various treatment options and make an informed decision for the next course of action. These advantages helped Trupanion establish a strong competitive moat.

Trupanion translated its early lead and significant market opportunity into rapid revenue growth. By the end of the third quarter, Trupanion reached 1.1 million total registered pets, up 37% year over year. In the first nine months of 2021, the company grew revenue by 40% year over year, reaching $504.6 million. Trupanion has now grown its revenue by more than 20% for 56 consecutive quarters.

Long-term vision and effective execution for continued success

Trupanion holds a leading position in its industry, but it faces growing competition. There are established competitors such as National insurance and Allstate, emerging competitors such as Lemonade, and specialty insurers for small pets such as Healthy Paws.

Trupanion will need to continue to reinvent its business and execute a clearly defined long-term strategy to fend off the competition. Founder and CEO Rawlings outlined a five-year plan to reach $1.5 billion in annual revenue by 2025. To achieve this goal, Trupanion plans to expand partnerships, enter international markets, grow other types of pet insurance more suited to different segments. customers, and also introduce new product categories such as pet food and GPS devices for locating pets. The company recently partnered with the popular online pet food and service company Soft, allowing Chewy’s 20 million customers to purchase Trupanion’s insurance plans on Chewy’s website. Although the two companies did not disclose details of the partnership, it gives Trupanion access to a very large cohort of potential customers.

Investors should remember that Trupanion is not yet profitable as the company continues to invest in technology, sales and marketing to drive growth. For the first nine months of 2021, Trupanion spent 20.4% of its revenue on operating expenses, compared to 16.7% for the same period last year. As a result, the net loss margin worsened to around 6% from less than 1%, and the company burned through $6.2 million in cash, after posting $13.2 million in free cash flow. during the period of the previous year. Although its losses are quite small at the moment, investors should keep a close eye on Trupanion’s operating expenses and focus on profitability.

The current setback may be an opportunity

Similar to many high-flying growth stocks, shares of Trupanion have been battered as part of the market sell-off, down around 50% from their November 2021 highs. negotiate at an estimate of the sales price. around 5.6, still at the top of its previous trading range. However, Trupanion’s growth record, standing in the industry, and long track ahead of him probably justifies this bounty. Now may be the time for long-term investors to add this strong company to their portfolio.

TRUP PS Ratio data by YCharts

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The following discussion provides information about the results of operations,
financial condition, liquidity, off balance sheet items and capital resources of
Axos Financial, Inc. and subsidiaries (collectively, "we", "us" or the
"Company"). This information is intended to facilitate the understanding and
assessment of significant changes and trends related to our financial condition
and the results of our operations. This discussion and analysis should be read
in conjunction with our financial information in our Annual Report on Form 10-K
for the year ended June 30, 2021, and the interim unaudited condensed
consolidated financial statements and notes thereto contained in this report.
Some matters discussed in this report may constitute forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and as such, may involve risks and uncertainties.
These forward-looking statements can be identified by the use of terminology
such as "estimate," "project," "anticipate," "expect," "intend," "believe,"
"will," or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy that involve risks and uncertainties.
These forward-looking statements relate to, among other things, the effects on
our business of the current novel coronavirus pandemic ("COVID-19"), the
Company's financial prospects and other projections of its performance and asset
quality, our ability to continue to grow profitably and increase its business,
our ability to continue to diversify lending and deposit franchises, and the
anticipated timing and financial performance of other offerings, initiatives,
and acquisitions, expectations of the environment in which we operate and
projections of future performance. Forward-looking statements are inherently
unreliable and actual results may vary. Factors that could cause actual results
to differ from these forward-looking statements include uncertainties
surrounding the severity, duration, and effects of the COVID-19 pandemic, our
ability to successfully integrate acquisitions and realize the anticipated
benefits of the transactions, changes in the interest rate environment,
inflation, government regulation, general economic conditions, changes in the
competitive marketplace, conditions in the real estate markets in which we
operate, risks associated with credit quality, the outcome and effects of
pending class action litigation filed against the Company and other risk factors
discussed under the heading "Item 1A. Risk Factors" of this Quarterly Report on
Form 10-Q for the quarter ended December 31, 2021 and in our Annual Report on
Form 10-K for the year ended June 30, 2021, which has been filed with the
Securities and Exchange Commission. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. All written and oral forward-looking
statements made in connection with this report, which are attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
foregoing information.
General
Our Company, the holding company for Axos Bank (the "Bank"), is a diversified
financial services company with approximately $15.5 billion in assets that
provides consumer and business banking products through its online, low-cost
distribution channels and affinity partners. Our Bank has deposit and loan
customers nationwide including consumer and business checking, savings and time
deposit accounts and financing for single family and multifamily residential
properties, small-to-medium size businesses in target sectors, and automobiles.
Our Bank generates fee income from consumer and business products including fees
from loans originated for sale and transaction fees earned from processing
payment activity. Our securities products and services are offered through Axos
Clearing LLC ("Axos Clearing") and its business division Axos Advisor Services
("AAS"), formerly E*TRADE Advisor Services, and Axos Invest, Inc. ("Axos
Invest"), which generate interest and fee income by providing comprehensive
securities clearing and custody services to introducing broker-dealers and
registered investment advisor correspondents and digital investment advisory
services to retail investors, respectively. Axos Financial, Inc.'s common stock
is listed on the New York Stock Exchange and is a component of the Russell 2000®
Index, the KBW Nasdaq Financial Technology Index, the S&P SmallCap 600® Index,
the KBW Nasdaq Financial Technology Index, and the Travillian Tech-Forward Bank
Index.
Our Bank is a federal savings bank wholly-owned by our Company and regulated by
the Office of the Comptroller of the Currency ("OCC"), and the Federal Deposit
Insurance Corporation ("FDIC") as its deposit insurer. The Bank must file
reports with the OCC and the FDIC concerning its activities and financial
condition. As a depository institution with more than $10 billion in assets, our
Bank and our affiliates are subject to direct supervision by the Consumer
Financial Protection Bureau.
Axos Clearing is a broker-dealer registered with the SEC and the Financial
Industry Regulatory Authority, Inc. ("FINRA"). Axos Invest is a Registered
Investment Advisor under the Investment Advisers Act of 1940, that is registered
with the SEC, and Axos Invest LLC is an introducing broker-dealer that is
registered with the SEC and FINRA.

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Segment Information
The Company determines reportable segments based on what separate financial
information is available and what segment results are evaluated regularly by the
Chief Executive Officer in deciding how to allocate resources and in assessing
performance. We operate through two segments: Banking Business and Securities
Business.
Banking Business. The Banking Business includes a broad range of banking
services including online banking, concierge banking, and mortgage, vehicle and
unsecured lending through online and telephonic distribution channels to serve
the needs of consumer and small businesses nationally. Our deposit products
consist of demand, savings, money market and time deposit accounts. In addition,
the Banking Business focuses on providing deposit products nationwide to
industry verticals (e.g., Title and Escrow), cash management products to a
variety of businesses, and commercial & industrial and commercial real estate
lending to clients. The Banking Business also 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.
We distribute our loan products through our retail, correspondent and wholesale
channels, and the loans we retain are primarily first mortgages secured by
single family real property and by multifamily real property as well as
commercial & industrial loans to businesses. Our investment securities consist
of agency and non-agency mortgage-backed securities, municipal securities and
other non-agency debt securities. We believe our flexibility to adjust our asset
generation channels has been a competitive advantage allowing us to avoid
markets and products where credit fundamentals are poor or risks and rewards are
not sufficient to support our required return on equity.
Securities Business. 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 products offered by the lines of business in
the Securities Business primarily generate net interest income and non-banking
service fee income.
Securities services includes 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 and
performance reporting, accounting, general back-office support, securities and
margin lending, reorganization assistance and custody of securities. We provide
financing to our brokerage customers for their securities trading activities
through margin loans that are collateralized by securities, cash, or other
acceptable collateral. Securities lending activities 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.
Through the RIA custody business, we provide a proprietary, turnkey technology
platform for custody services for our RIA customers. This platform provides fee
income and service that complement our securities business products, while also
generating low cost core deposits.
Axos Invest includes our digital wealth management business, which provides our
retail customers with self-directed trading and investment management services
through a comprehensive and flexible technology platform.
Segment results are compiled based upon the management reporting system, which
assigns balance sheet and income statement items to each of the business
segments. The process is designed around the organizational and management
structure and, accordingly, the results derived are not necessarily comparable
with similar information published by other financial institutions or in
accordance with generally accepted accounting principles.
The Company evaluates performance and allocates resources based on profit or
loss from operations. There are no material inter-segment sales or transfers.
Certain corporate administration costs and income taxes have not been allocated
to the reportable segments. Therefore, in order to reconcile the two segments to
the unaudited condensed consolidated totals, we include parent-only activities
and intercompany eliminations.
COVID-19 Impact
The Company has closely monitored the rapid developments of and uncertainties
caused by the COVID-19 pandemic. In response to the changes in economic and
business conditions as a result of the COVID-19 pandemic, the Company continues
to take the necessary and appropriate actions to support customers, employees,
partners and shareholders.
The Company took proactive measures to manage loans that became delinquent
during the economic downturn as a result of the COVID-19 pandemic. As of
December 31, 2021, no loans were on forbearance status for a forbearance granted
from any prior date. Any forbearance granted out of COVID-19 was for six months
or less.
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The Company will continue to monitor uncertainties caused by and developments of
COVID-19.
Mergers and Acquisitions
From time to time we undertake acquisitions or similar transactions consistent
with our Company's operating and growth strategies. On August 2, 2021 Axos
Clearing, LLC, acquired certain assets and liabilities of E*TRADE Advisor
Services ("EAS"), the registered investment advisor custody business of Morgan
Stanley. This business was rebranded as Axos Advisors Services ("AAS"). AAS adds
incremental fee income, a turnkey technology platform used by independent
registered investment advisors for trading and custody services, and low-cost
deposits that can be used to generate fee income from other bank partners or to
fund loan growth at Axos Bank. The purchase price of $54.8 million consisted
entirely of cash consideration paid upon acquisition and working capital
adjustments.
The acquisition is accounted for as a business combination under the acquisition
method of accounting. Accordingly, tangible and intangible assets acquired (and
liabilities assumed) are recorded at their estimated fair values as of the date
of acquisition. The Company allocated the purchase price to the tangible and
intangible assets acquired based on information available through December 31,
2021.
Critical Accounting Policies
The following discussion and analysis of our financial condition and results of
operations is based upon our unaudited condensed consolidated financial
statements and the notes thereto, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these unaudited condensed consolidated financial statements
requires us to make a number of estimates and assumptions that affect the
reported amounts and disclosures in the unaudited condensed consolidated
financial statements. On an ongoing basis, we evaluate our estimates and
assumptions based upon historical experience and various factors and
circumstances. We believe that our estimates and assumptions are reasonable
under the circumstances. However, actual results may differ significantly from
these estimates and assumptions that could have a material effect on the
carrying value of assets and liabilities at the balance sheet dates and our
results of operations for the reporting periods.
Our significant accounting policies and practices are described in greater
detail in Note 1 - "Summary of Significant Accounting Policies" and under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Critical Accounting Policies" contained in our Annual Report on
Form 10-K filed with the Securities and Exchange Commission for the fiscal year
ended June 30, 2021.
USE OF NON-GAAP FINANCIAL MEASURES
In addition to the results presented in accordance with GAAP, this report
includes the non-GAAP financial measures adjusted earnings, adjusted earnings
per common share, and tangible book value per common share. Non-GAAP financial
measures have inherent limitations, may not be comparable to similarly titled
measures used by other companies and are not audited. Readers should be aware of
these limitations and should be cautious as to their reliance on such measures.
Although we believe the non-GAAP financial measures disclosed in this report
enhance investors' understanding of our business and performance, these non-GAAP
measures should not be considered in isolation, or as a substitute for GAAP
basis financial measures.
We define "adjusted earnings", a non-GAAP financial measure, as net income
without the after-tax impact of non-recurring acquisition-related costs
(including amortization of intangible assets related to acquisitions), and other
costs (unusual or non-recurring charges). Adjusted earnings per diluted common
share ("adjusted EPS"), a non-GAAP financial measure, is calculated by dividing
non-GAAP adjusted earnings by the average number of diluted common shares
outstanding during the period. We believe the non-GAAP measures of adjusted
earnings and adjusted EPS provide useful information about the Company's
operating performance. We believe excluding the non-recurring acquisition
related costs, and other costs (unusual or non-recurring charges) provides
investors with an alternative understanding of Axos' business without these
non-recurring costs.
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Below is a reconciliation of net income, the nearest compatible GAAP measure, to
adjusted earnings and adjusted EPS (Non-GAAP) for the periods shown:
                                                Three Months Ended                          Six Months Ended
                                                   December 31,                               December 31,
(Dollars in thousands, except per
share amounts)                              2021                  2020                  2021                 2020
Net income                            $      60,787          $     54,785          $   120,997          $   107,807
Acquisition-related costs                     3,026                 2,552                5,872                5,154

Tax effects of adjustments                     (896)                 (771)              (1,723)              (1,554)

Adjusted earnings (non-GAAP) $62,917 $56,566

       $   125,146          $   111,407

Adjusted EPS (Non-GAAP)               $        1.04          $       0.94          $      2.06          $      1.85



  We define "tangible book value", a non-GAAP financial measure, as book value
adjusted for goodwill and other intangible assets. Tangible book value is
calculated using common stockholders' equity minus mortgage servicing rights,
goodwill and other intangible assets. Tangible book value per common share, a
non-GAAP financial measure, is calculated by dividing tangible book value by the
common shares outstanding at the end of the period. We believe tangible book
value per common share is useful in evaluating the Company's capital strength,
financial condition, and ability to manage potential losses.
Below is a reconciliation of total stockholders' equity, the nearest compatible
GAAP measure, to tangible book value (Non-GAAP) as of the dates indicated:
                                                                    December 31,
  (Dollars in thousands)                                       2021             2020

  Common stockholders' equity                              $ 1,523,157      

$1,287,482

Less: mortgage service rights, recorded at fair value 20,110

14,314

  Less: goodwill and other intangible assets                   161,954      

120,644

Tangible equity (non-GAAP) $1,341,093 $1,152,524

  Common shares outstanding at end of period                59,498,575      

59,072,822

Tangible book value per common share (non-GAAP) $22.54 $19.51

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SELECTED FINANCIAL DATA
The following tables set forth certain selected financial data concerning the
periods indicated:
                     AXOS FINANCIAL, INC. AND SUBSIDIARIES
                  SELECTED CONSOLIDATED FINANCIAL INFORMATION
                                                                        December 31,            June 30,            December 31,
(Dollars in thousands)                                                      2021                  2021                  2020
Selected Balance Sheet Data:
Total assets                                                           $ 

15,547,947 $14,265,565 $14,393,267
Loans net of allowance for credit losses

                                 12,607,179            11,414,814            11,609,584
Loans held for sale, carried at fair value                                   27,428                29,768                64,287
Loans held for sale, lower of cost or fair value                             11,446                12,294                13,769
Allowance for credit losses - loans                                         140,489               132,958               136,393
Securities-trading                                                            1,223                 1,983                   362
Securities-available-for-sale                                               139,581               187,335               209,828

Securities borrowed                                                         534,243               619,088               317,571
Customer, broker-dealer and clearing receivables                            429,634               369,815               264,572
Total deposits                                                           12,269,172            10,815,797            11,463,136

Advances from the FHLB                                                      157,500               353,500               182,500
Borrowings, subordinated notes and debentures                               260,435               221,358               418,480
Securities loaned                                                           578,762               728,988               362,170
Customer, broker-dealer and clearing payables                               528,796               535,425               475,473
Total stockholders' equity                                                1,523,157             1,400,936             1,287,482

Capital Ratios:
Equity to assets at end of period                                              9.80  %               9.82  %               8.95  %
Axos Financial, Inc.:
Tier 1 leverage (core) capital to adjusted average assets                      9.42  %               8.82  %               8.68  %
Common equity tier 1 capital (to risk-weighted assets)                        10.08  %              11.36  %              10.85  %
Tier 1 capital (to risk-weighted assets)                                      10.08  %              11.36  %              10.85  %
Total capital (to risk-weighted assets)                                       12.16  %              13.78  %              13.88  %
Axos Bank:
Tier 1 leverage (core) capital to adjusted average assets                     10.13  %               9.45  %               9.08  %
Common equity tier 1 capital (to risk-weighted assets)                        10.91  %              12.28  %              11.45  %
Tier 1 capital (to risk-weighted assets)                                      10.91  %              12.28  %              11.45  %
Total capital (to risk-weighted assets)                                       11.73  %              13.21  %              12.44  %
Axos Clearing, LLC:
Net capital                                                            $     39,453          $     35,950                34,417
Excess capital                                                         $     32,171          $     27,904                28,941
Net capital as a percentage of aggregate debit items                          10.84  %               8.94  %              12.57  %
Net capital in excess of 5% aggregate debit items                      $     21,249          $     15,836                20,726





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Contents

                     AXOS FINANCIAL, INC. AND SUBSIDIARIES
                  SELECTED CONSOLIDATED FINANCIAL INFORMATION
                                              At or for the Three Months Ended                   At or for the Six Months Ended
                                                        December 31,                                      December 31,
(Dollars in thousands, except per share
data)                                             2021                    2020                   2021                         2020
Selected Income Statement Data:
Interest and dividend income              $        157,076           $   155,379          $       315,386                $   305,268
Interest expense                                    11,508                21,287                   23,176                     43,849
Net interest income                                145,568               134,092                  292,210                    261,419
Provision for credit losses                          4,000                 8,000                    8,000                     19,800
Net interest income after provision for                                                           284,210                    241,619
credit losses                                      141,568               126,092
Non-interest income                                 30,787                28,718                   57,489                     64,573
Non-interest expense                                86,019                76,297                  170,450                    151,843
Income before income tax expense                    86,336                78,513                  171,249                    154,349
Income tax expense                                  25,549                23,728                   50,252                     46,542
Net income                                $         60,787           $    54,785          $       120,997                $   107,807
Net income attributable to common stock   $         60,787           $    54,672          $       120,997                $   107,617

Per Common Share Data:
Net income:
Basic                                     $           1.02           $      0.93          $          2.04                $      1.82
Diluted                                   $           1.00           $      0.91          $          1.99                $      1.79
Adjusted earnings (Non-GAAP)              $           1.04           $      0.94          $          2.06                $      1.85
Book value                                $          25.60           $     21.79          $         25.60                $     21.79
Tangible book value (Non-GAAP)            $          22.54           $     19.51          $         22.54                $     19.51

Weighted average number of common shares
outstanding:
   Basic                                        59,496,489            59,049,697               59,443,667                 59,278,672
   Diluted                                      60,755,981            60,040,723               60,749,383                 60,196,516
Common shares outstanding at end of                                                            59,498,575                 59,072,822
period                                          59,498,575            

59,072,822

Common shares issued at end of period           68,376,837            67,668,664               68,376,837                 67,668,664

Performance Ratios and Other Data:
Loan originations for investment          $      2,525,871           $ 1,909,978          $     4,618,150                $ 3,240,790
Loan originations for sale                $        193,320           $   490,261          $       403,287                $   931,065

Return on average assets                              1.63   %              1.57  %                  1.65   %                   1.56  %
Return on average common stockholders'                                                              16.51   %                  17.21  %
equity                                               16.29   %             17.30  %
Interest rate spread1                                 3.90   %              3.71  %                  3.97   %                   3.67  %
Net interest margin2                                  4.10   %              3.94  %                  4.16   %                   3.89  %
Net interest margin2 - Banking Business                                                              4.39   %                   4.01  %
Segment                                               4.30   %              4.11  %
Efficiency ratio3                                    48.78   %             46.86  %                 48.74   %                  46.58  %
Efficiency ratio3 - Banking Business
Segment                                              39.39   %             40.45  %                 39.66   %                  40.20  %

Asset Quality Ratios:
Net annualized charge-offs to average                                                                0.01   %                   0.12  %
loans                                                 0.01   %              0.16  %
Non-performing loans to total loans                   1.14   %              1.44  %                  1.14   %                   1.44  %
Non-performing assets to total assets                 0.94   %              1.22  %                  0.94   %                   1.22  %
Allowance for credit losses - loans to
total loans held for investment at end of             1.10   %              1.16  %                  1.10   %                   1.16  %

period

Allowance for credit losses - loans to               96.27   %             80.58  %                 96.27   %                  80.58  %

non-performing loans

1   Interest rate spread represents the difference between the annualized
weighted average yield on interest-earning assets and the annualized weighted
average
rate paid on interest-bearing liabilities.
2  Net interest margin represents annualized net interest income as a percentage
of average interest-earning assets.
3 Efficiency ratio represents non-interest expense as a percentage of the
aggregate of net interest income and non-interest income.
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RESULTS OF OPERATIONS
Comparison of the Three and Six Months Ended December 31, 2021 and 2020
For the three months ended December 31, 2021, we had net income of $60.8 million
compared to net income of $54.8 million for the three months ended December 31,
2020. Net income attributable to common stockholders was $60.8 million or $1.00
per diluted share for the three months ended December 31, 2021 compared to net
income attributable to common shareholders of $54.7 million, or $0.91 per
diluted share for the three months ended December 31, 2020. For the six months
ended December 31, 2021, we had net income of $121.0 million compared to net
income of $107.8 million for the six months ended December 31, 2020. Net income
attributable to common stockholders was $121.0 million, or $1.99 per diluted
share for the six months ended December 31, 2021 compared to net income
attributable to common shareholders of $107.6 million, or $1.79 per diluted
share for the six months ended December 31, 2020.
Adjusted earnings and adjusted EPS, non-GAAP measures, which exclude
non-recurring costs related to mergers and acquisitions (including amortization
of intangible assets related to acquisitions), increased 11.2% to $62.9 million
and 10.6% to $1.04, respectively, for the quarter ended December 31, 2021
compared to $56.6 million and $0.94, respectively, for the quarter ended
December 31, 2020. Adjusted earnings and adjusted EPS increased 12.3% to $125.1
million and 11.4% to $2.06, respectively, for the six months ended December 31,
2021 compared to $111.4 million and $1.85, respectively, for the six months
ended December 31, 2020.
Net Interest Income
Net interest income for the three and six months ended December 31, 2021 totaled
$145.6 million and $292.2 million, an increase of 8.6% and 11.8%, compared to
net interest income of $134.1 million and $261.4 million for the three and six
months ended December 31, 2020, respectively. The increase for the three and six
months were primarily due to increased average earnings assets from net loan
portfolio growth and reduced rates paid on interest-bearing demand and savings
deposits and time deposits, partially offset by reduced yields on interest
earning assets. During the three and six months ended December 31, 2021, average
non-interest bearing deposits increased $1,695.0 million and $1,460.0 million,
respectively, primarily from the deposits acquired through the acquisition of
AAS.
Total interest and dividend income during the three and six months ended
December 31, 2021 increased 1.1% to $157.1 million and 3.3% to $315.4 million,
compared to $155.4 million and $305.3 million during the three and six months
ended December 31, 2020, respectively. The increase in interest and dividend
income for the three and six months ended December 31, 2021 was primarily
attributable to the growth in average earning assets from loan originations and
securities borrowed and margin lending, partially offset by reduced yields on
loans and securities borrowed and margin lending. The average balance of loans
and securities borrowed increased by 6.2% and 41.1%, respectively, for the three
months ended December 31, 2021 compared to the three months ended December 31,
2020. The average balance of loans and securities borrowed increased by 6.9% and
62.9%, respectively, for the six months ended December 31, 2021 compared to the
six months ended December 31, 2020.
Total interest expense was $11.5 million for the three months ended December 31,
2021, a decrease of $9.8 million or 45.9% as compared with the three months
ended December 31, 2020. Total interest expense was $23.2 million for the six
months ended December 31, 2021, a decrease of $20.7 million or 47.1% as compared
with the six months ended December 31, 2020. The decrease in the average cost of
funds rate for the three months ended December 31, 2021 compared to 2020 was
primarily due to 19 basis point decrease on interest-bearing demand and savings
deposits due to decreases in prevailing deposit rates across the industry and a
66 basis point decrease in the three month average rates paid on time deposits,
due to higher rate time deposits maturing. The decrease in the average cost of
funds rate for the six months ended December 31, 2021 compared to 2020 was
primarily due to a 24 basis point decrease on interest-bearing demand and
savings deposits due to decreases in prevailing deposit rates across the
industry and a 75 basis point decrease in the six month average rates paid on
time deposits, due to higher rate time deposits maturing. During the three and
six months ended December 31, 2021, average non-interest bearing deposits
increased $1,695.0 million and $1,460.0 million, respectively, primarily from
the deposits acquired through the acquisition of AAS.
Net interest margin, defined as annualized net interest income divided by
average earning assets, increased 16 basis points to 4.10% for the three months
ended December 31, 2021 from 3.94% for the three months ended December 31, 2020,
and increased 27 basis points to 4.16% for the six months ended December 31,
2021 from 3.89% for the six months ended December 31, 2020. During the three and
six months ended December 31, 2021, the primary contributors to the 16 and 27
basis point increases, respectively, was the increase in non-interest bearing
deposits increased $1,695.0 million and $1,460.0 million, respectively,
primarily from the deposits acquired through the acquisition of AAS and
decreased rates on interest-bearing deposits.
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Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents information regarding (i) average balances;
(ii) the total amount of interest income from interest-earning assets and the
weighted average yields on such assets; (iii) the total amount of interest
expense on interest-bearing liabilities and the weighted average rates paid on
such liabilities; (iv) net interest income; (v) interest rate spread; and
(vi) net interest margin:
                                                                                                   For the Three Months Ended
                                                                                                          December 31,
                                                                           2021                                                                   2020
                                                                     Interest             Average Yields                                    Interest             Average Yields
                                                 Average             Income/               Earned/Rates                 Average             Income/               Earned/Rates

(Dollars in thousands)                          Balance1             Expense                   Paid2                   Balance1             Expense                   Paid2
Assets:
Loans3, 4                                    $ 12,116,565          $ 149,469                          4.93  %       $ 11,409,942          $ 147,085                          5.16  %
Interest-earning deposits in other financial
institutions                                    1,247,675                642                          0.21  %          1,495,760                493                          0.13  %
Mortgage-backed and other investment
securities4                                       139,711              1,338                          3.83  %            202,363              2,917                          5.77  %
Securities borrowed and margin lending5           686,920              5,366                          3.12  %            486,692              4,666                          3.83  %
Stock of the regulatory agencies                   20,519                261                          5.11  %             20,611                218                          4.23  %
Total interest-earning assets                  14,211,390            157,076                          4.42  %         13,615,368            155,379                          4.56  %
Non-interest-earning assets                       676,030                                                                363,373
Total assets                                 $ 14,887,420                                                           $ 13,978,741
Liabilities and Stockholders' Equity:
Interest-bearing demand and savings          $  6,587,348          $   4,299                          0.26  %       $  7,215,813          $   8,131                          0.45  %
Time deposits                                   1,333,848              3,506                          1.05  %          1,860,058              7,964                          1.71  %
Securities loaned                                 439,035                218                          0.20  %            305,900                255                          0.33  %

Advances from the FHLB                            272,033                973                          1.43  %            234,649              1,326                          2.26  %
Borrowings, subordinated notes and
debentures                                        262,781              2,512                          3.82  %            429,833              3,611                          3.36  %
Total interest-bearing liabilities              8,895,045             11,508                          0.52  %         10,046,253             21,287                          0.85  %
Non-interest-bearing demand deposits            3,734,029                                                              2,039,064
Other non-interest-bearing liabilities            765,946                                                                624,220
Stockholders' equity                            1,492,400                                                              1,269,204
Total liabilities and stockholders' equity   $ 14,887,420                                                           $ 13,978,741
Net interest income                                                $ 145,568                                                              $ 134,092
Interest rate spread6                                                                                 3.90  %                                                                3.71  %
Net interest margin7                                                                                  4.10  %                                                                3.94  %


1Average balances are obtained from daily data.
2Annualized.
3Loans include loans held for sale, loan premiums and unearned fees.
4Interest income includes reductions for amortization of loan and investment
securities premiums and earnings from accretion of discounts and loan fees. Loan
fee income is not significant Loans include average balances of $26.5 million
and $27.3 million of Community Reinvestment Act loans which are taxed at a
reduced rate for the 2021 and 2020 three-month periods, respectively.
5Margin lending is the significant component of the asset titled customer,
broker-dealer and clearing receivables on the unaudited condensed consolidated
balance sheets.
6Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average rate paid on
interest-bearing liabilities.
7Net interest margin represents annualized net interest income as a percentage
of average interest-earning assets.



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Contents

Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents information regarding (i) average balances;
(ii) the total amount of interest income from interest-earning assets and the
weighted average yields on such assets; (iii) the total amount of interest
expense on interest-bearing liabilities and the weighted average rates paid on
such liabilities; (iv) net interest income; (v) interest rate spread; and
(vi) net interest margin:
                                                                                                    For the Six Months Ended
                                                                                                          December 31,
                                                                           2021                                                                   2020
                                                                     Interest             Average Yields                                    Interest             Average Yields
                                                 Average             Income/               Earned/Rates                 Average             Income/               Earned/Rates

(Dollars in thousands)                          Balance1             Expense                   Paid2                   Balance1             Expense                   Paid2
Assets:
Loans3, 4                                    $ 11,889,439          $ 298,645                          5.02  %       $ 11,125,812          $ 288,509                          5.19  %
Interest-earning deposits in other financial
institutions                                    1,205,409              1,233                          0.20  %          1,601,170              1,000                          0.12  %
Mortgage-backed and other investment
securities4                                       148,000              2,759                          3.73  %            196,270              5,594                          5.70  %
Securities borrowed and margin lending5           795,231             12,217                          3.07  %            488,129              9,743                          3.99  %
Stock of the regulatory agencies                   20,607                532                          5.17  %             20,610                422                          4.10  %
Total interest-earning assets                  14,058,686            315,386                          4.49  %         13,431,991            305,268                          4.55  %
Non-interest-earning assets                       587,794                                                                363,165
Total assets                                 $ 14,646,480                                                           $ 13,795,156
Liabilities and Stockholders' Equity:
Interest-bearing demand and savings          $  6,568,907          $   7,866                          0.24  %       $  7,134,068          $  17,222                          0.48  %
Time deposits                                   1,348,454              7,651                          1.13  %          1,959,299             18,427                          1.88  %
Securities loaned                                 549,538                469                          0.17  %            304,251                379                          0.25  %

Advances from the FHLB                            283,717              1,989                          1.40  %            238,574              2,698                          2.26  %
Borrowings, subordinated notes and
debentures                                        249,170              5,201                          4.17  %            343,198              5,123                          2.99  %
Total interest-bearing liabilities              8,999,786             23,176                          0.52  %          9,979,390             43,849                          0.88  %
Non-interest-bearing demand deposits            3,431,150                                                              1,971,139
Other non-interest-bearing liabilities            749,781                                                                593,835
Stockholders' equity                            1,465,763                                                              1,250,792
Total liabilities and stockholders' equity   $ 14,646,480                                                           $ 13,795,156
Net interest income                                                $ 292,210                                                              $ 261,419
Interest rate spread6                                                                                 3.97  %                                                                3.67  %
Net interest margin7                                                                                  4.16  %                                                                3.89  %


1Average balances are obtained from daily data.
2Annualized.
3Loans include loans held for sale, loan premiums and unearned fees.
4Interest income includes reductions for amortization of loan and investment
securities premiums and earnings from accretion of discounts and loan fees. Loan
fee income is not significant. Loans include average balances of $26.6 million
and $27.4 million of Community Reinvestment Act loans which are taxed at a
reduced rate for the 2021 and 2020 six-month periods, respectively.
5Margin lending is the significant component of the asset titled customer,
broker-dealer and clearing receivables on the unaudited condensed consolidated
balance sheets.
6Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average rate paid on
interest-bearing liabilities.
7Net interest margin represents annualized net interest income as a percentage
of average interest-earning assets.
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Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table sets forth the effects of changing rates and volumes on our
net interest income. Information is provided with respect to (i) effects on
interest income and interest expense attributable to changes in volume (changes
in volume multiplied by prior rate); (ii) effects on interest income and
interest expense attributable to changes in rate (changes in rate multiplied by
prior volume). The change in interest due to both volume and rate has been
allocated proportionally to both, based on their relative absolute values.:
                                                      For the Three Months Ended                           For the Six Months Ended
                                                             December 31,                                        December 31,
                                                             2021 vs 2020                                        2021 vs 2020
                                                      Increase (Decrease) Due to                          Increase (Decrease) Due to
                                                                                                  Total                                                           Total
                                                                                                Increase                                                        Increase
(Dollars in thousands)                            Volume                Rate                   (Decrease)            Volume              Rate                  (Decrease)
Increase / (decrease) in interest income:
Loans                                        $        9,016          $ (6,632)               $      2,384          $ 19,665          $  (9,529)               $   10,136

Interest-earning deposits in other financial
institutions                                            (96)              245                         149              (283)               516                       233
Mortgage-backed and other investment
securities                                             (758)             (822)                     (1,580)           (1,179)            (1,657)                   (2,836)
Securities borrowed and margin lending                1,674              (974)                        700             5,097             (2,623)                    2,474
Stock of the regulatory agencies                         (1)               45                          44                 -                111                       111
                                             $        9,835          $ (8,138)               $      1,697          $ 23,300          $ (13,182)               $   10,118
Increase / (decrease) in interest expense:
Interest-bearing demand and savings          $         (655)         $ (3,177)               $     (3,832)         $ (1,313)         $  (8,043)               $   (9,356)
Time deposits                                        (1,886)           (2,572)                     (4,458)           (4,727)            (6,049)                  (10,776)
Securities loaned                                        85              (122)                        (37)              239               (149)                       90

Advances from the FHLB                                  188              (541)                       (353)              446             (1,155)                     (709)
Borrowings, subordinated notes and
debentures                                           (1,544)              445                      (1,099)           (1,628)             1,706                        78
                                             $       (3,812)         $ (5,967)               $     (9,779)         $ (6,983)         $ (13,690)   

           $  (20,673)



Provision for Credit Losses
The provision for credit losses was $4.0 million for the three months ended
December 31, 2021 compared to $8.0 million for the three months ended
December 31, 2020. The provision for credit losses was $8.0 million for the six
months ended December 31, 2021 compared to $19.8 million for the six months
ended December 31, 2020. The decreases in the provision for the three and six
months ended December 31, 2021 were due to favorable changes in economic and
business conditions resulting from reduced levels of disruptions from the
COVID-19 pandemic between December 31, 2020 and December 31, 2021, partially
offset by loan growth and changes in loan mix. The Provisions for credit losses
for the three and six months ended December 31, 2021 were primarily comprised of
provisions in commercial real estate and consumer and auto due to growth in
these segments of the loan portfolio. Provisions for credit losses are charged
to income to bring the allowance for credit losses - loans to a level deemed
appropriate by management based on the factors discussed under "Financial
Condition-Asset Quality and Allowance for Credit Losses - Loans."



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Non-Interest Income
The following table sets forth information regarding our non-interest income for
the periods shown:
                                                          For the Three Months Ended                                 For the Six Months Ended
                                                                 December 31,                                              December 31,
(Dollars in thousands)                            2021                2020             Inc (Dec)            2021              2020            Inc (Dec)

Prepayment penalty fee income                $    3,294            $  1,579          $    1,715          $  6,280          $  2,947          $   3,333
Gain on sale - other                                 28                 156                (128)               45               490               (445)
Mortgage banking income                           4,612              10,651              (6,039)            9,865            30,218            (20,353)
Broker-dealer fee income                         14,367               6,287               8,080            26,133            11,989             14,144
Banking and service fees                          8,486              10,045              (1,559)           15,166            18,929             (3,763)
Total non-interest income                    $   30,787            $ 28,718          $    2,069          $ 57,489          $ 64,573          $  (7,084)


Non-interest income increased $2.1 million to $30.8 million for the three months
ended December 31, 2021 compared to the three months ended December 31, 2020.
The increase was primarily the result of an $8.1 million increase in
broker-dealer fee income driven by custody and mutual fund fees earned by the
newly acquired AAS division and an increase of $1.7 million in prepayment
penalty fee income, partially offset by a decrease of $6.0 million mortgage
banking income and a decrease of $1.6 million in banking and service fees, from
Emerald Prepaid Mastercard® and Refund Transfer products associated with H&R
Block that did not recur for the three months ended December 31, 2021.
Non-interest income decreased $7.1 million to $57.5 million for the six months
ended December 31, 2021 compared to the six months ended December 31, 2020. The
change was primarily the result of a $20.4 million decrease in mortgage banking
income and a $3.8 million decrease in banking and service fees, from Emerald
Prepaid Mastercard® and Refund Transfer products associated with H&R Block that
did not recur in the six months ended December 31, 2021, partially offset by a
$14.1 million increase in broker-dealer fee income driven by custody and mutual
fund fees earned by the newly acquired AAS division and an increase of $3.3
million in prepayment penalty fee income.



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Non-Interest Expense
  The following table sets forth information regarding our non-interest expense
for the periods shown:
                                                      For the Three Months Ended                                  For the Six Months Ended
                                                             December 31,                                               December 31,
(Dollars in thousands)                        2021                2020             Inc (Dec)             2021               2020            Inc (Dec)
Salaries and related costs               $   39,979            $ 38,199     

$1,780 $80,716 $76,822 $3,894
Data processing

                              12,199               9,673               2,526             24,291             17,601              6,690
Advertising and promotional                   3,402               3,783                (381)             6,774              6,339                435
Depreciation and amortization                 6,785               5,862                 923             12,513             12,048                465
Professional services                         5,943               5,629                 314             10,488             11,628             (1,140)
Occupancy and equipment                       3,342               3,132                 210              6,523              6,143                380
FDIC and regulatory fees                      2,475               2,601                (126)             4,741              5,293               (552)

Broker-dealer clearing charges                3,678               2,451               1,227              7,683              4,708              2,975
General and administrative expense            8,216               4,967               3,249             16,721             11,261              5,460
Total non-interest expenses              $   86,019            $ 76,297     

$9,722 $170,450 $151,843 $18,607

Non-interest expense, which is comprised of compensation, data processing,
depreciation and amortization, advertising and promotional, professional
services, occupancy and equipment, FDIC and regulator fees, broker-dealer
clearing charges and other operating expenses, was $86.0 million for the three
months ended December 31, 2021, compared to $76.3 million for the three months
ended December 31, 2020. Non-interest expense was $170.5 million for the six
months ended December 31, 2021, up from $151.8 million for the six months ended
December 31, 2020. The increases for the three and six months ended December 31,
2021 were generally due to the addition of AAS and the expansion of the Company
specifically in areas related to lending and deposits.
Total salaries and related costs increased $1.8 million to $40.0 million for the
three months ended December 31, 2021 compared to $38.2 million for the three
months ended December 31, 2020 and increased $3.9 million to $80.7 million for
the six months ended December 31, 2021 compared to $76.8 million for the six
months ended December 31, 2020. The increases in compensation expense for the
three and six months ended December 31, 2021 were primarily due to increased
staffing levels as a result of the AAS acquisition. Our staff increased to 1,280
from 1,157, or 10.6% between December 31, 2021 and 2020.
Data processing expense increased $2.5 million for the three months ended
December 31, 2021 compared to three months ended December 31, 2020, and
increased $6.7 million for the six months ended December 31, 2021 compared to
the six month period ended December 31, 2020, primarily due to enhancements to
customer interfaces and the Company's core processing systems.
Advertising and promotional expense decreased $0.4 million and increased $0.4
million for the three and six months ended December 31, 2021, compared to the
three and six months ended December 31, 2020, respectively. Fluctuations are
mainly the result of changes in lead generation and deposit marketing costs.
Depreciation and amortization expense increased $0.9 million and $0.5 million
for the three and six months ended December 31, 2021, compared to the three and
six months ended December 31, 2020, respectively. The increases for the three
and six months ended December 31, 2021 were primarily due to amortization of
intangibles as a result of the AAS acquisition and depreciation on lending
platform enhancements and infrastructure development.
Professional services expense increased $0.3 million and decreased $1.1 million
for the three and six months ended December 31, 2021, compared to the three and
six months ended December 31, 2020, respectively. Professional services charges
increased due primarily to increased legal expense during the three months ended
December 31, 2021. The decreased for the six months ended December 31, 2021, was
primarily the result of lower legal expense, compared to the six months ended
December 31, 2020.
Occupancy and equipment expense increased by $0.2 million and $0.4 million for
the three and six months ended December 31, 2021 compared to the three and six
months ended December 31, 2020, respectively. The changes for the three and six
months ended December 31, 2021 are primarily due to annual cost increases in our
office space lease agreements and the addition of an assumed office space lease
for our AAS employees.



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Our cost of FDIC and regulatory fees decreased $0.1 million and $0.6 million for
the three and six months ended December 31, 2021, compared to the three and six
month period last year, respectively. The decreases were due to favorable
fluctuations in the Bank's assessment rate. As an FDIC-insured institution, the
Bank is required to pay deposit insurance premiums to the FDIC.
Broker-dealer clearing charges increased $1.2 million and $3.0 million for the
three and six months ended December 31, 2021 compared to the three and six
months ended December 31, 2020, respectively. The increases were attributable to
the acquisition of AAS and increased clearing charges due to higher activity
during the three and six months ended December 31, 2021.
Other general and administrative costs increased by $3.2 million and $5.5
million for the three and six months ended December 31, 2021, compared to the
three and six months ended December 31, 2020, respectively. The increase in the
three months ended December 31, 2021 as compared to the three months ended
December 31, 2020 was primarily due to a $1.0 million provision to allowance for
credit losses of unfunded commitments, compared to a $1.0 million reduction in
the 2020 period, increased loan processing costs, and increased travel costs.
The increase in the six months ended December 31, 2021 as compared to
December 31, 2020 was primarily due to a $3.0 million provision to allowance for
credit losses of unfunded commitments, increased loan processing costs and
increased travel costs.
Provision for Income Taxes
Our effective income tax rates (income tax provision divided by net income
before income tax) for the three months ended December 31, 2021 and 2020 were
29.59% and 30.22%, respectively. Our effective income tax rates for the six
months ended December 31, 2021 and 2020 were 29.34% and 30.15%, respectively.
The change in effective income tax rates between periods are primarily the
result of changes in tax benefits from stock compensation.
SEGMENT RESULTS
Our Company determines reportable segments based on what separate financial
information is available and what segment results are evaluated regularly by the
Chief Executive Officer in deciding how to allocate resources and in assessing
performance. The Company operates through two operating segments: Banking
Business and Securities Business. In order to reconcile the two segments to the
unaudited condensed consolidated totals, the Company includes parent-only
activities and intercompany eliminations. The following tables present the
operating results of the segments:
                                                                            

For the three months ended December 31, 2021

Securities

(Dollars in thousands)                              Banking Business          Business             Corporate/Eliminations           Axos Consolidated
Net interest income                                 $     142,259          $      4,506          $                (1,197)         $          145,568
Provision for credit losses                                 4,000                     -                                -                       4,000
Non-interest income                                        16,295                16,454                           (1,962)                     30,787
Non-interest expense                                       62,449                21,654                            1,916                      86,019
Income before taxes                                 $      92,105          $       (694)         $                (5,075)         $           86,336


                                                                               For the Three Months Ended December 31, 2020
                                                                            

Securities

(Dollars in thousands)                              Banking Business          Business             Corporate/Eliminations           Axos Consolidated
Net interest income                                 $     132,166          $      4,260          $                (2,334)         $          134,092
Provision for credit losses                                 8,000                     -                                -                       8,000
Non-interest income                                        22,295                 6,572                             (149)                     28,718
Non-interest expense                                       62,474                11,312                            2,511                      76,297
Income before taxes                                 $      83,987          $       (480)         $                (4,994)         $           78,513


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Contents

For the six months ended December 31, 2021

                                                        Banking             

Securities

(Dollars in thousands)                                 Business              Business             Corporate/Eliminations           Axos Consolidated
Net interest income                                 $    284,500          $     10,682          $                (2,972)         $          292,210
Provision for credit losses                                8,000                     -                                -                       8,000
Non-interest income                                       31,123                29,560                           (3,194)                     57,489
Non-interest expense                                     125,174                40,927                            4,349                     170,450
Income before taxes                                 $    182,449          $       (685)         $               (10,515)         $          171,249


                                                                                For the Six Months Ended December 31, 2020
                                                        Banking             

Securities

(Dollars in thousands)                                 Business              Business             Corporate/Eliminations           Axos Consolidated
Net interest income                                 $    255,174          $      9,154          $                (2,909)         $          261,419
Provision for credit losses                               19,800                     -                                -                      19,800
Non-interest income                                       52,507                12,356                             (290)                     64,573
Non-interest expense                                     123,691                22,664                            5,488                     151,843
Income before taxes                                 $    164,190          $     (1,154)         $                (8,687)         $          154,349


Banking Business
For the three months ended December 31, 2021, our Banking Business segment had
income before taxes of $92.1 million compared to income before taxes of $84.0
million for the three months ended December 31, 2020. For the six months ended
December 31, 2021, we had income before taxes of $182.4 million compared to
income before taxes of $164.2 million for the six months ended December 31,
2020. For the three and six months ended December 31, 2020, the increase in
income before taxes was mainly due to an increase in net interest income
primarily from a decline in rates of interest-bearing demand and savings
deposits and time deposits and a decrease in provision for credit losses,
partially offset by a decrease in mortgage banking, compared to the three and
six months ended December 31, 2020.
We consider the ratios shown in the table below to be key indicators of the
performance of our Banking Business segment:
                                                 At or for the Three Months Ended                       At or for the Six Months Ended
                                           December 31, 2021          December 31, 2020          December 31, 2021          December 31, 2020
Efficiency ratio                                      39.39  %                   40.45  %                   39.66  %                   40.20  %
Return on average assets                               1.92  %                    1.80  %                    1.92  %                    1.79  %
Interest rate spread                                   4.14  %                    3.93  %                    4.23  %                    3.82  %
Net interest margin                                    4.30  %                    4.11  %                    4.39  %                    4.01  %


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 and reduce our consolidated net interest margin, such as the
borrowing costs at our Parent Company and the yields and costs associated with
certain items within interest-earning assets and interest-bearing liabilities in
our Securities Business, including items related to securities financing
operations that typically decrease net interest margin.

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Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents our Banking Business segment's information
regarding (i) average balances; (ii) the total amount of interest income from
interest-earning assets and the weighted average yields on such assets;
(iii) the total amount of interest expense on interest-bearing liabilities and
the weighted average rates paid on such liabilities; (iv) net interest income;
(v) interest rate spread; and (vi) net interest margin:
                                                                                                   For the Three Months Ended
                                                                                                          December 31,
                                                                           2021                                                                   2020
                                                                     Interest             Average Yields                                    Interest             Average Yields
                                                 Average             Income/               Earned/Rates                 Average             Income/               Earned/Rates

(Dollars in thousands)                          Balance1             Expense                   Paid2                   Balance1             Expense                   Paid2
Assets:
Loans3, 4                                    $ 12,076,831          $ 148,960                          4.93  %       $ 11,364,115          $ 146,327                          5.15  %
Interest-earning deposits in other financial
institutions                                      963,533                376                          0.16  %          1,239,160                324                           0.10 %
Mortgage-backed and other investment
securities4                                       163,417              1,458                          3.57  %            232,518              3,072                          5.28  %
Stock of the regulatory agencies                   17,402                260                          5.98  %             17,250                216                          5.01  %
Total interest-earning assets                  13,221,183            151,054                          4.57  %         12,853,043            149,939                          4.67  %
Non-interest-earning assets                       301,502                                                                159,802
Total assets                                 $ 13,522,685                                                           $ 13,012,845
Liabilities and Stockholders' Equity:
Interest-bearing demand and savings          $  6,619,803          $   4,316                          0.26  %       $  7,391,544          $   8,354                          0.45  %
Time deposits                                   1,333,848              3,506                          1.05  %          1,860,058              7,964                          1.71  %

Advances from the FHLB                            272,033                973                          1.43  %            234,649              1,326                           2.26 %
Borrowings, subordinated notes and
debentures                                            261                  -                             -  %            147,354                130                           0.35 %
Total interest-bearing liabilities              8,225,945              8,795                          0.43  %          9,633,605             17,774                          0.74  %
Non-interest-bearing demand deposits            3,784,965                                                              2,057,615
Other non-interest-bearing liabilities            131,229                                                                126,001
Stockholders' equity                            1,380,546                                                              1,195,624
Total liabilities and stockholders' equity   $ 13,522,685                                                           $ 13,012,845
Net interest income                                                $ 142,259                                                              $ 132,165
Interest rate spread5                                                                                 4.14  %                                                                3.93  %
Net interest margin6                                                                                  4.30  %                                                                4.11  %


1Average balances are obtained from daily data.
2Annualized.
3Loans include loans held for sale, loan premiums and unearned fees.
4Interest income includes reductions for amortization of loan and investment
securities premiums and earnings from accretion of discounts and loan fees. Loan
fee income is not significant. Loans include average balances of $26.5 million
and $27.3 million of Community Reinvestment Act loans which are taxed at a
reduced rate for the 2021 and 2020 three-month periods, respectively.
5Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average rate paid on
interest-bearing liabilities.
6Net interest margin represents annualized net interest income as a percentage
of average interest-earning assets.




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Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents our Banking Business segment's information
regarding (i) average balances; (ii) the total amount of interest income from
interest-earning assets and the weighted average yields on such assets;
(iii) the total amount of interest expense on interest-bearing liabilities and
the weighted average rates paid on such liabilities; (iv) net interest income;
(v) interest rate spread; and (vi) net interest margin:
                                                                                                    For the Six Months Ended
                                                                                                          December 31,
                                                                           2021                                                                   2020
                                                                     Interest             Average Yields                                    Interest             Average Yields
                                                 Average             Income/               Earned/Rates                 Average             Income/               Earned/Rates

(Dollars in thousands)                          Balance1             Expense                   Paid2                   Balance1             Expense                   Paid2
Assets:
Loans3, 4                                    $ 11,849,452          $ 297,803                          5.03  %       $ 11,077,492          $ 287,005                          5.18  %
Interest-earning deposits in other financial
institutions                                      921,695                713                          0.15  %          1,390,747                716                           0.10 %
Mortgage-backed and other investment
securities4                                       171,981              3,004                          3.49  %            229,799              5,928                          5.16  %
Stock of the regulatory agencies                   17,613                530                          6.02  %             17,250                419                          4.86  %
Total interest-earning assets                  12,960,741            302,050                          4.66  %         12,715,288            294,068                          4.63  %
Non-interest-earning assets                       294,156                                                                156,007
Total assets                                 $ 13,254,897                                                           $ 12,871,295
Liabilities and Stockholders' Equity:
Interest-bearing demand and savings          $  6,617,301          $   7,910                          0.24  %       $  7,245,289          $  17,509                          0.48  %
Time deposits                                   1,348,454              7,651                          1.13  %          1,959,299             18,427                          1.88  %

Advances from the FHLB                            283,717              1,989                          1.40  %            238,574              2,698                          2.26  %
Borrowings, subordinated notes and
debentures                                            152                  -                             -  %            149,653                262                          0.35  %
Total interest-bearing liabilities              8,249,624             17,550                          0.43  %          9,592,815             38,896                          0.81  %
Non-interest-bearing demand deposits            3,511,837                                                              1,988,235
Other non-interest-bearing liabilities            141,222                                                                130,736
Stockholders' equity                            1,352,214                                                              1,159,509
Total liabilities and stockholders' equity   $ 13,254,897                                                           $ 12,871,295
Net interest income                                                $ 284,500                                                              $ 255,172
Interest rate spread5                                                                                 4.23  %                                                                3.82  %
Net interest margin6                                                                                  4.39  %                                                                4.01  %


1Average balances are obtained from daily data.
2Annualized.
3Loans include loans held for sale, loan premiums and unearned fees.
4Interest income includes reductions for amortization of loan and investment
securities premiums and earnings from accretion of discounts and loan fees. Loan
fee income is not significant. Loans include average balances of $26.6 million
and $27.4 million of Community Reinvestment Act loans which are taxed at a
reduced rate for the 2021 and 2020 six-month periods, respectively.
5Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average rate paid on
interest-bearing liabilities.
6Net interest margin represents annualized net interest income as a percentage
of average interest-earning assets.


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Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table sets forth the effects of changing rates and volumes on our
net interest income for our Banking Business segment. Information is provided
with respect to (i) effects on interest income and interest expense attributable
to changes in volume (changes in volume multiplied by prior rate); (ii) effects
on interest income and interest expense attributable to changes in rate (changes
in rate multiplied by prior volume). The change in interest due to both volume
and rate has been allocated proportionally to both, based on their relative
absolute values.:
                                                      For the Three Months Ended                                  For the Six Months Ended
                                                             December 31,                                               December 31,
                                                             2021 vs 2020                                               2021 vs 2020
                                                      Increase (Decrease) Due to                                 Increase (Decrease) Due to
                                                                                              Total                                                            Total
                                                                                             Increase                                                        Increase
(Dollars in thousands)                            Volume                Rate                (Decrease)            Volume              Rate          

(To diminish)

Increase / (decrease) in interest income:
Loans                                        $        9,002          $ (6,369)            $     2,633           $ 19,367          $  (8,569)       

$10,798

Interest-earning deposits in other financial
institutions                                            (87)              139                      52               (282)               279                        (3)
Mortgage-backed and other investment
securities                                             (772)             (842)                 (1,614)            (1,279)            (1,645)         

(2,924)

Stock of the regulatory agencies, at cost                 2                42                      44                  9                102                       111
                                             $        8,145          $ (7,030)            $     1,115           $ 17,815          $  (9,833)               $    7,982
Increase / (decrease) in interest expense:
Interest-bearing demand and savings          $         (800)         $ (3,238)            $    (4,038)          $ (1,418)         $  (8,181)               $   (9,599)
Time deposits                                        (1,886)           (2,572)                 (4,458)            (4,727)            (6,049)                  (10,776)

Advances from the FHLB                                  188              (541)                   (353)               446             (1,155)                     (709)
Borrowings, subordinated notes and
debentures                                              (65)              (65)                   (130)              (131)              (131)                     (262)
                                             $       (2,563)         $ (6,416)            $    (8,979)          $ (5,830)         $ (15,516)               $  (21,346)


The Banking Business segment's net interest income for the three and six months
ended December 31, 2021 totaled $142.3 million and $284.5 million, an increase
of 7.6% and an increase of 11.5%, compared to net interest income of $132.2
million and $255.2 million for the three and six months ended December 31, 2020,
respectively. The increase for the three and six months ended December 31, 2021
was primarily due to the reduction in the rates paid on interest-bearing demand
and savings deposits, and increased interest income due to growth in the loan
portfolio, partially offset by reduced yields on interest earning assets.
The Banking Business segment's non-interest income decreased $6.0 million to
$16.3 million and decreased $21.4 million to $31.1 million for the three and six
months ended December 31, 2021 compared to the three and six months ended
December 31, 2020, respectively. The net decrease was mainly the result of
decreased mortgage banking income and decreased banking and service fees from
Emerald Prepaid Mastercard® and Refund Transfer products associated with H&R
Block that did not recur for the six months ended December 31, 2021, partially
offset by increases in prepayment penalty fee income for the three and six
months ended December 31, 2021, as compared to the three and six months ended
December 31, 2020.
The Banking Business segment's non-interest expense was flat for the three
months ended December 31, 2021 and increased $1.5 million for the six months
ended December 31, 2021 compared to the three and six months ended December 31,
2020. For the three months ended December 31, 2021 compared to the three months
ended December 31, 2020, non-interest expense was flat due to a $3.4 million
increase in other general and administrative expenses, partially offset by a
$3.3 million decrease of salaries and related expenses. For the six months ended
December 31, 2021 compared to the six months ended December 31, 2020, the $1.5
million increase was primarily due to a $5.2 million increase in other general
and administrative expenses, a $4.8 million increase in data processing expense,
and a $2.9 million increase in advertising and promotional expense, partially
offset by a $6.4 million decrease of salaries and related expenses, a $2.1
million decrease in professional fees, a $1.3 million decrease in Depreciation
and amortization, a $0.7 million decrease in Occupancy and equipment, and a $0.5
million decrease in regulatory fees.
Securities Business
For the three months ended December 31, 2021, our Securities Business segment
had a loss before taxes of $0.7 million compared to a loss before taxes of $0.5
million for the three months ended December 31, 2020. For the six months ended
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December 31, 2021, our Securities Business segment had a loss before taxes of
$0.7 million compared to a loss before taxes of $1.2 million for the six months
ended December 31, 2020.
Net interest income for the three months ended December 31, 2021, increased $0.2
million to $4.5 million compared to the three months ended December 31, 2020.
Net interest income for the six months ended December 31, 2021 increased $1.5
million to $10.7 million compared to the six months ended December 31, 2020. The
increases were primarily a result of increase in the average interest-earning
balance of securities borrowed and margin lending. In the Securities Business,
interest is earned through margin loan balances, securities borrowed, and cash
deposit balances. Interest expense is incurred from cash borrowed through bank
lines and securities lending.
Non-interest income during the three months ended December 31, 2021, increased
$9.9 million to $16.5 million compared to the three months ended December 31,
2020. The increases were primarily $8.0 million attributable to the addition of
AAS custody and mutual funds fees, an increase of $1.2 million in fees earned on
FDIC insured bank deposits, an increase of $0.3 million in correspondent fees,
and an increase of $0.2 million of clearing and custodial related fees.
Non-interest income during the six months ended December 31, 2021 increased
$17.2 million to $29.6 million compared to the six months ended December 31,
2020. The increases were primarily $13.3 million attributable to the addition of
AAS custody and mutual funds fees, an increase of $2.1 million in fees earned on
FDIC insured bank deposits, an increase of $0.9 million in correspondent fees,
an increase of $0.6 million of clearing and custodial related fees, and an
increase of $0.2 million of clearing technology services.
Non-interest expense increased $10.3 million to $21.7 million for the three
months ended December 31, 2021 from the $11.3 million for the three months ended
December 31, 2020. The increase was primarily related to an increase of $4.7
million in salaries and related expenses related to staffing and the acquisition
of AAS, an increase of $1.5 million in data processing, an increase of $1.3
million depreciation and amortization expense, and an increase of $1.2 million
in broker-dealer clearing charges. Non-interest expense increased $18.3 million
to $40.9 million for the six months ended December 31, 2021, from $22.7 million
for the six months ended December 31, 2020. The increase was primarily related
to an increase of $9.1 million in salaries and related expenses related to
staffing and the acquisition of AAS, an increase of $3.0 million in
broker-dealer clearing charges, an increase of $1.8 million in data processing,
an increase of $1.7 million depreciation and amortization expense, and an
increase of $1.1 million occupancy and equipment expense. The increases were
primarily the result of the addition of AAS.
Selected information concerning the Securities segment follows as of and for the
three months ended:
                                                                         December 31,
(Dollars in thousands)                                          2021                     2020
Compensation as a % of net revenue                                  39.9  %                  33.2  %
FDIC insured program balances (end of period)             $    2,216,939          $       772,801
Customer margin balances (end of period)                  $      328,607          $       231,189
Customer funds on deposit, including short credits (end
of period)                                                $      259,626          $       313,297

Clearing:
Total tickets                                                  2,113,270                1,314,534
Correspondents (end of period)                                        68                       63

Securities lending:
Interest-earning assets - stock borrowed (end of period)  $      534,243          $       317,571
Interest-bearing liabilities - stock loaned (end of
period)                                                   $      578,762          $       362,170


FINANCIAL CONDITION
Balance Sheet Analysis
Total assets increased $1,282.4 million, or 9.0%, to $15.5 billion, as of
December 31, 2021, up from $14.3 billion at June 30, 2021. The increase in total
assets was mainly due to an increase of $1,192.4 million in net loans held for
investment, an increase of $80.6 million in cash and cash equivalents, and an
increase of $59.8 million in customer, broker-dealer and clearing payables,
partially offset by a decrease of $84.8 million in securities borrowed. Total
liabilities increased $1,160.2 million, primarily due to growth in deposits of
$1,453.4 million, partially offset by a decrease of $196.0 million in advances
from the FHLB and a decrease of $150.2 million in securities loaned.
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Loans
Net loans held for investment increased 10.4% to $12.6 billion as of December
31, 2021 from $11.4 billion at June 30, 2021. The increase in the loan portfolio
was primarily due to loan originations of $4.6 billion, partially offset by loan
repayments and other adjustments of $3.4 billion.
The following table sets forth the composition of the loan portfolio as of the
dates indicated:
                                              December 31, 2021                   June 30, 2021
(Dollars in thousands)                       Amount            Percent         Amount         Percent
Single Family - Mortgage & Warehouse   $       4,281,646        33.5  %    $  4,359,472        37.8  %
Multifamily and Commercial Mortgage            2,483,932        19.5  %       2,470,454        21.4  %
Commercial Real Estate                         3,857,367        30.2  %       3,180,453        27.5  %
Commercial & Industrial - Non-RE               1,631,811        12.8  %       1,123,869         9.7  %
Auto & Consumer                                  478,636         3.8  %         362,180         3.1  %
Other                                             22,282         0.2  %          58,316         0.5  %
Total gross loans                             12,755,674       100.0  %      11,554,744       100.0  %
Allowance for credit losses - loans             (140,489)                   

(132,958)

Unaccreted discounts and loan fees                (8,006)                        (6,972)
Total net loans                        $      12,607,179                   $ 11,414,814


The Bank originates some single family interest only loans with terms that
include repayments that are less than the repayments for fully amortizing loans.
The Bank's lending guidelines for interest only loans are adjusted for the
increased credit risk associated with these loans by requiring borrowers with
such loans to borrow at LTVs that are lower than standard amortizing ARM loans
and by calculating debt to income ratios for qualifying borrowers based upon a
fully amortizing payment, not the interest only payment. The Bank monitors and
performs reviews of interest only loans. Adverse trends reflected in the
Company's delinquency statistics, grading and classification of interest only
loans would be reported to management and the Board of Directors. As of
December 31, 2021, the Company had $1.1 billion of interest only mortgage loans.
Asset Quality and Allowance for Loan and Lease Losses
Non-performing Assets
Non-performing loans are comprised of loans past due 90 days or more on
nonaccrual status and other nonaccrual loans. Non-performing assets include
non-performing loans plus other real estate owned and repossessed vehicles. At
December 31, 2021, our non-performing loans totaled $145.9 million, or 1.14% of
total gross loans and our non-performing loans and foreclosed assets or
"non-performing assets" totaled $146.2 million, or 0.94% of total assets.
Non-performing assets consisted of the following as of the dates indicated:
(Dollars in thousands)                               December 31, 2021         June 30, 2021           Inc (Dec)
Non-performing assets:
Non-accrual loans and leases:
Single Family - Mortgage & Warehouse                $        122,326          $     105,708          $   16,618
Multifamily and Commercial Mortgage                            7,688                 20,428             (12,740)
Commercial Real Estate                                        15,244                 15,839                (595)
Commercial & Industrial - Non-RE                                   -                  2,942              (2,942)
Auto & Consumer                                                  620                    278                 342
Other                                                             55                      -                  55
Total non-performing loans                                   145,933                145,195                 738
Foreclosed real estate                                             -                  6,547              (6,547)
Repossessed-Auto and RV                                          251                    235                  16
Total non-performing assets                         $        146,184       

$151,977 ($5,793)
Total non-performing loans as a percentage of total loans

                                                           1.14  %                1.26  %            (0.12) %
Total non-performing assets as a percentage of
total assets                                                    0.94  %                1.07  %            (0.13) %


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Total non-performing assets decreased from $152.0 million at June 30, 2021 to
$146.2 million at December 31, 2021. The decrease in non-performing assets of
approximately $5.8 million, was primarily attributable to resolutions of
multifamily and commercial mortgage loans, and foreclosed real estate.
Non-performing single-family loans increased by $16.6 million. The Company ended
forbearance for all single family mortgage borrowers during the quarter ended
September 30, 2020. The weighted-average LTV of the non-performing single family
mortgage loans was 56.5% as of December 31, 2021.
The Bank had no performing troubled debt restructurings as of December 31, 2021
and June 30, 2021. A troubled debt restructuring is a concession made to a
borrower experiencing financial difficulties, typically permanent or temporary
modifications of principal and interest payments or an extension of maturity
dates. When a loan is delinquent and classified as a troubled debt
restructuring, no interest is accrued until the borrower demonstrates over time
(typically six months) that it can make payments. When a loan is considered a
troubled debt restructuring and is on nonaccrual, it is considered
non-performing and included in the table above.
Allowance for Credit Losses - Loans

On July 1, 2020, the Company adopted ASC 326. The update replaces the historical
incurred loss model to a current expected loss model, resulting, generally, in
earlier recognition of loss. Refer to Note 1 - Summary of Significant Accounting
Policies in our Annual Report on Form 10-K for the fiscal year ended June 30,
2021 for greater detail on the accounting adoption along with detail of the
processes and approaches involved in determining the allowance for credit losses
under the new guidance.

The following table reflects management's allocation of the allowance for credit
losses - loans by loan category and the ratio of each loan category to total
loans as of the dates indicated:
                                                         December 31, 2021                                June 30, 2021
                                                 Amount               Allocation                 Amount                Allocation
                                                   of                  as a % of                   of                   as a % of
(Dollars in thousands)                          Allowance              Allowance               Allowance                Allowance
Single Family Real Estate                     $   25,580                      18.2  %       $      26,604                      20.0  %
Multifamily Real Estate                           13,628                       9.7  %              13,146                       9.9  %
Commercial Real Estate                            67,581                      48.0  %              57,928                      43.6  %
Commercial and Industrial - Non-RE                22,716                      16.2  %              28,460                      21.4  %
Consumer and Auto                                 10,921                       7.8  %               6,519                       4.9  %
Other                                                 63                       0.1  %                 301                       0.2  %
Total                                         $  140,489                     100.0  %       $     132,958                     100.0  %


The provision for credit losses was $4.0 million and $8.0 million for the three
months ended December 31, 2021 and 2020, respectively. The provision for credit
losses was $8.0 million and $19.8 million for the six months ended December 31,
2021 and 2020, respectively. The decrease in the provision for credit losses for
three and six months ended December 31, 2021, were due to favorable changes in
economic and business conditions resulting from reduced levels of disruptions
from the COVID-19 pandemic between December 31, 2020 and December 31, 2021,
partially offset by loan growth and changes in loan mix. We believe that the
lower average LTV in the Bank's mortgage loan portfolio will continue to result
in future lower average mortgage loan charge-offs when compared to many other
comparable banks. The resolution of the Bank's existing other real estate owned
and non-performing loans should not have a significant adverse impact on our
operating results.
Investment Securities
Total investment securities were $140.8 million as of December 31, 2021,
compared with $189.3 million at June 30, 2021. During the six months ended
December 31, 2021, we purchased securities for $12.3 million and received
principal repayments of approximately $58.6 million in our available-for-sale
portfolio. The remainder of the change for the available-for-sale portfolio is
attributable to accretion and other activities.
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Deposits
Deposits increased a net $1.5 billion, or 13.4%, to $12.3 billion at
December 31, 2021, from $10.8 billion at June 30, 2021. Non-interest bearing
deposits increased $1.4 billion, or 55.5%, to $3.8 billion at December 31, 2021,
from June 30, 2021, primarily due to deposits provided by the AAS acquisition.
Time deposits decreased $226.4 million as higher costing time deposits were run
off.
The following table sets forth the composition of the deposit portfolio as of
the dates indicated:
                                                            December 31, 2021                                June 30, 2021
(Dollars in thousands)                                 Amount                   Rate1                Amount                 Rate1
Non-interest bearing                            $       3,847,461                     -  %       $  2,474,424                     -  %
Interest bearing:
Demand                                                  3,620,686                  0.16  %          3,369,845                  0.15  %
Savings                                                 3,514,610                  0.23  %          3,458,687                  0.21  %
Total interest-bearing demand and savings               7,135,296                  0.20  %          6,828,532                  0.18  %
Time deposits:
$250 and under2                                           877,488                  1.26  %          1,070,139                  1.30  %
Greater than $250                                         408,927                  0.45  %            442,702                  1.03  %
Total time deposits                                     1,286,415                  1.01  %          1,512,841                  1.22  %
Total interest bearing2                                 8,421,711                  0.32  %          8,341,373                  0.37  %
Total deposits                                  $      12,269,172                  0.22  %       $ 10,815,797                  0.29  %


1 Based on weighted-average stated interest rates at end of period.
2 The total interest bearing includes brokered deposits of $415.3 million and
$621.4 million as of December 31, 2021 and June 30, 2021, respectively, of which
$350.0 million and $380.0 million, respectively, are time deposits classified as
$250 and under.

The following table shows the number of deposit accounts by type as of the date indicated:

                                                      December 31, 2021              June 30, 2021              December 31, 2020
Non-interest bearing, prepaid and other                     39,698                              36,726                30,068
Checking and savings accounts                              342,127                             336,068               314,145
Time deposits                                               10,234                              12,815                15,797
Total number of deposit accounts                           392,059                             385,609                       360,010



Borrowings

The following table presents the composition of our borrowings and the interest rates on the dates indicated:

                                               December 31, 2021                              June 30, 2021                              December 31, 2020
                                                           Weighted Average                            Weighted Average                              Weighted Average
(Dollars in thousands)                  Balance                  Rate                Balance                 Rate                 Balance                  Rate

FHLB Advances                           $157,500                    2.29  %          $353,500                   1.18  %           $182,500                    2.21  %
Borrowings, subordinated
notes and debentures                    260,435                     4.37  %          221,358                     4.68 %           418,480                     3.45  %
Total borrowings                        $417,935                    3.59  %          $574,858                   0.73  %           $600,980                    3.07  %

Weighted average cost of
borrowings during the quarter                2.64  %                                     2.93  %                                       2.97  %
Borrowings as a percent of
total assets                                 2.69  %                                     4.03  %                                       4.18  %


At December 31, 2021, total borrowings amounted to $417.9 million, down $156.9
million, or 27.3%, from June 30, 2021 and down $183.0 million or 30.5% from
December 31, 2020. Borrowings as a percent of total assets were 2.69%, 4.03% and
4.18% at December 31, 2021, June 30, 2021 and December 31, 2020, respectively.
Weighted average cost of borrowings during the quarter were 2.64%, 2.93% and
2.97% for the quarters ended December 31, 2021, June 30, 2021 and December 31,
2020, respectively.
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We regularly use advances from the FHLB to manage our interest rate risk and, to
a lesser extent, manage our liquidity position. Generally, FHLB advances with
terms between three and ten years have been used to fund the purchase of single
family and multifamily mortgages and to provide us with interest rate risk
protection should rates rise.
Stockholders' Equity
  Stockholders' equity increased $122.2 million to $1,523.2 million at
December 31, 2021 compared to $1,400.9 million at June 30, 2021. The increase
was the result of our net income for the six months ended December 31, 2021 of
$121.0 million, stock compensation expense of $2.4 million, partially offset by
a $1.2 million decrease in other comprehensive income, net of tax.
During the three and six months ended December 31, 2021, the Company did not
repurchase any common stock shares. The Company has $52.8 million remaining
under the Board authorized stock repurchase program.

LIQUIDITY

The cash flow information is as follows:

                                               For the Six Months Ended
                                                     December 31,
                (Dollars in thousands)          2021              2020
                Operating Activities       $    (76,773)     $    284,417
                Investing Activities       $ (1,132,694)     $ (1,015,293)
                Financing Activities       $  1,290,048      $    223,552


During the six months ended December 31, 2021, we had net cash outflows from
operating activities of $76.8 million compared to inflows of $284.4 million for
the six months ended December 31, 2020, primarily due to net income for each
period. Net operating cash inflows and outflows fluctuate primarily due to the
timing of the following: originations of loans held for sale, proceeds from loan
sales, securities borrowed and loaned, and customer, broker-dealer and clearing
receivables and payables, and changes in other assets and payables were the
primary drivers.
Net cash outflows from investing activities totaled $1,132.7 million for the six
months ended December 31, 2021, while outflows totaled $1,015.3 million for the
six months ended December 31, 2020. The increase in outflows was primarily due
to increased originations of loans partially offset by increased repayments on
loans and the $54.8 million acquisition of AAS.
Net cash inflows from financing activities totaled $1,290.0 million for the six
months ended December 31, 2021, compared to net cash outflows from financing
activities of $223.6 million for the six months ended December 31, 2020. The
primary driver behind the increase in net cash inflows was increased deposits
provided in part, by the acquisition of AAS for the six months ended
December 31, 2021.
During the six months ended December 31, 2021, the Bank could borrow up to 40.0%
of its total assets from the FHLB. Borrowings are collateralized by the pledge
of certain mortgage loans and investment securities to the FHLB. At December 31,
2021, the Company had $1,939.2 million available immediately and $3,449.5
million available with additional collateral. At December 31, 2021, we also had
two unsecured federal funds purchase lines with two different banks totaling
$175.0 million, under which no borrowings were outstanding.
The Bank has the ability to borrow short-term from the Federal Reserve Bank of
San Francisco Discount Window. At December 31, 2021, the Bank did not have any
borrowings outstanding and the amount available from this source was $2,433.9
million. The credit line is collateralized by consumer loans and mortgage-backed
securities.
Axos Clearing has a total of $170.0 million in uncommitted secured lines of
credit for borrowing as needed. As of December 31, 2021, there was $75.0 million
outstanding. These credit facilities bear interest at rates based on the Federal
Funds rate and are due upon demand.
Axos Clearing has a $50.0 million committed unsecured line of credit available
for limited purpose borrowing. As of December 31, 2021, no borrowings were
outstanding. This credit facility bears interest at rates based on the Federal
Funds rate and are due upon demand.
We believe our liquidity sources to be stable and adequate for our anticipated
needs and contingencies for the next 12 months and beyond. We believe we have
the ability to increase our level of deposits and borrowings to address our
liquidity needs for the foreseeable future.
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OFF-BALANCE SHEET COMMITMENTS
At December 31, 2021, we had commitments to originate loans with an aggregate
outstanding principal balance of $2,483.0 million, and commitments to sell loans
with an aggregate outstanding principal balance of $50.0 million. We have no
commitments to purchase loans, investment securities or any other unused lines
of credit.
In the normal course of business, Axos Clearing's customer activities involve
the execution, settlement, and financing of various customer securities
transactions. These activities may expose Axos Clearing to off-balance-sheet
risk in the event the customer or other broker is unable to fulfill its
contracted obligations and Axos Clearing has to purchase or sell the financial
instrument underlying the contract at a loss. Axos Clearing's clearing
agreements with broker-dealers for which it provides clearing services requires
them to indemnify Axos Clearing if customers fail to satisfy their contractual
obligation.
CAPITAL RESOURCES AND REQUIREMENTS
Our Company and Bank are subject to regulatory capital adequacy requirements
promulgated by federal bank regulatory agencies. Failure by our 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
our unaudited condensed consolidated financial statements. The Federal Reserve
establishes capital requirements for our Company and the OCC has similar
requirements for our Bank. The following tables present regulatory capital
information for our Company and Bank. Information presented for December 31,
2021, reflects the Basel III capital requirements that became effective January
1, 2015 for both our Company and Bank. Under these capital requirements and the
regulatory framework for prompt corrective action, our Company and Bank must
meet specific capital guidelines that involve quantitative measures of our
Company and Bank's assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. Our 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 our Company and Bank to
maintain certain minimum capital amounts and ratios. Federal bank regulators
require our 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%. To be "well capitalized," our 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. At December 31, 2021, our Company and Bank met all the
capital adequacy requirements to which they were subject and were "well
capitalized" under the regulatory framework for prompt corrective action.
Management believes that no conditions or events have occurred since
December 31, 2021 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 our Company's and Bank's further growth and to
maintain their "well capitalized" status.
The Company and Bank elected the CECL 5-year transition guidance for calculating
regulatory capital ratios and the December 31, 2021 ratios include this
election. This guidance allows an entity to add back to capital 100% of the
capital impact from the day one CECL transition adjustment and 25% of subsequent
increases to the allowance for credit losses through June 30, 2023. This
cumulative amount will then be phased out of regulatory capital over the next
three years.
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The Company's and Bank's estimated capital amounts, capital ratios and capital
requirements under Basel III were as follows:

                                     Axos Financial, Inc.                       Axos Bank                         "Well
                                December 31,         June 30,         December 31,        June 30,             Capitalized"           Minimum Capital
(Dollars in millions)               2021               2021               2021              2021                  Ratio                    Ratio
Regulatory Capital:
Tier 1                         $     1,390          $  1,309          $   1,366          $  1,263
Common equity tier 1           $     1,390          $  1,309          $   1,366          $  1,263
Total capital (to
risk-weighted assets)          $     1,676          $  1,588          $   1,469          $  1,358

Assets:
Average adjusted               $    14,755          $ 14,851          $  13,491          $ 13,360
Total risk-weighted            $    13,781          $ 11,523          $  12,523          $ 10,283

Regulatory Capital Ratios:
Tier 1 leverage (core) capital
to adjusted average assets            9.42  %           8.82  %           10.13  %           9.45  %                    5.00  %               4.00  %
Common equity tier 1 capital
(to risk-weighted assets)            10.08  %          11.36  %           10.91  %          12.28  %                    6.50  %               4.50  %
Tier 1 capital (to
risk-weighted assets)                10.08  %          11.36  %           10.91  %          12.28  %                    8.00  %               6.00  %
Total capital (to
risk-weighted assets)                12.16  %          13.78  %           11.73  %          13.21  %                   10.00  %               8.00  %


Basel III implemented 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 is 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
December 31, 2021, our Company and Bank are in compliance with the capital
conservation buffer requirement, which sets the common equity tier 1 risk-based,
tier 1 risk-based and total risk-based capital ratio minimums to 7.0%, 8.5% and
10.5%, respectively.
Securities Business
Pursuant to the net capital requirements of 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. 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 positions of Axos Clearing were as follows:
(Dollars in thousands)                                      December 31, 2021         June 30, 2021
Net capital                                               $         39,453          $       35,950
Excess Capital                                            $         32,171          $       27,904

Net capital as a percentage of aggregate debit items                 10.84  %                 8.94  %

Net capital exceeding 5% of total debtor items $21,249

$15,836

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 December 31, 2021, the
Company had a deposit requirement of $224.1 million and maintained a deposit of
$213.1 million. On January 3, 2022, the company made a deposit of $11.0 million.
Certain broker-dealers have chosen to maintain brokerage customer accounts at
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 December 31, 2021, the Company had a deposit requirement of $44.0
million and maintained a deposit of $46.5 million. On January 3, 2022, the
Company made a withdrawal in the amount of $2.5 million.
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Mumbai: The third wave of Covid has not significantly harmed collection efficiency and increased delinquency levels of non-bank finance companies, rating agency India Ratings said in a report. Analysts suggest that delinquencies 1 to 90 days past due continue to be in the 5% to 15% range, and bad debt additions have slowed significantly.

“Collection efficiency data indicates a recovery in the overall operating environment. The commercial vehicle segment, where collection efficiency fell 60% to 70% in 1QFY22, has recovered and is close to pre-Covid levels,” India Ratings said.

On the microfinance lending front, collection efficiency declined by 20-25% during the second wave and has recovered significantly since then, he said.

Data on the ground suggests that the impact of the third wave may not be disproportionate, given that it is not so much a health crisis as in the second wave and the rebound shows the resilience of the segments, he said.

According to the rating agency, having learned from the impact of the first two waves, NBFCs are in a much better position to manage the possible impact of the third wave.

As the third wave spreads faster, the need for hospitalization and casualties has been less. Additionally, the health care infrastructure appears to be ready to handle the increase in numbers. The likelihood of a severe national lockdown, for now, appears low with restrictions imposed regionally.

“In the absence of any restrictions, the cash flow impact on NBFC borrowers may remain modest. Additionally, a large portion of NBFC’s weaker borrowers would have been filtered out in the first 2 waves,” said India Ratings. NBFCs witnessed a national lockdown for three weeks in the first wave and regional lockdowns in the second wave.

According to the rating agency, large NBFCs have strong balance sheet buffers to absorb the impact of any disruptions. Entities have sufficient liquidity to meet at least three months of debt repayment, as well as easy access to capital markets and banks to raise funds.

“An increased focus on collections and a reduced disbursement rate has helped NBFCs conserve liquidity,” he said. “They also protected their balance sheet by building higher provisions on non-performing advances and standard assets to shield the impact of the cost of additional credit.”

Professionals on the Move is an overview of recent promotions and hires in companies in the tax and accounting field.

Lavine, Lofgren, Morris & Engelberg, LLP welcomes two tax directors

The accounting firm Lavine, Lofgren, Morris & Engelberg, LLP, the largest independent public accounting firm in San Diego, recently announced that Felix Jandoquile and Matt Lundgren have joined the firm as tax directors.

Jadoquile is a registered agent with 25 years of experience providing accounting services to S companies and partnerships. He specializes in the preparation of tax and financial returns, internal audits, fixed assets, cash flow and bank reconciliations. He received his Bachelor of Science in Business Administration with a specialization in Accounting from the University of the Philippines.

Lundgren is a CPA with seven years of experience providing tax and accounting services. Lundgren also specializes in foreign affairs, focusing on the taxation of American volleyball players playing abroad in Europe and Asia. He teaches an accounting course at California State University, San Marcos, where he received his Bachelor of Science in Accounting. He holds a Masters of Business Administration in Advanced Accounting from Colorado Christian University.

FASB appoints new members to its non-profit advisory board

The Financial Accounting Standards Board (FASB) today announced the appointment of seven new members to its Nonprofit Advisory Board (NAC), effective January 1, 2022.

The NAC serves as a permanent resource for the FASB. Its role is to seek feedback from the nonprofit sector on existing financial reporting guidelines, current and proposed draft technical agendas, and long-term or pervasive financial reporting issues affecting these organizations.

The new members of the NBOD are:

1. Brian Conner, Partner, Moss Adams LLP

2. Alex Galeano, Senior Executive Vice President and Chief Financial Officer, Independent Community Bankers of America

3. Andrea Kantor, Senior Vice President, Group Head: Non Profit Banking Services, BHI

4. Brian McAllister, Professor, University of Colorado — Colorado Springs

5. JR Miller, Executive Vice President, Chief Financial Officer, Leukemia & Lymphoma Society

6. Deana Paradis, Financial Director, Louisville Collegiate School

7. Ksenia Popke, Partner, Eide Bailly.

Each new member was appointed for a four-year term ending December 31, 2025.

John Campell promoted to member (partner) at Isdaner & Company, LLC

Isdaner & Company, LLC, an independent Philadelphia-area accounting firm, recently announced that John Campell, CPA has been promoted to Fellow (Partner) in the Tax Department of Isdaner & Company, LLC effective January 1, 2022.

John joined the firm in 2017 as Head of the Department. For more than a decade, John has provided clients with expertise in multi-state income tax returns, advice on evolving tax laws and regulations, and strategic tax planning at the federal, state and local levels. He also solved several IRS and state level exams for his clients.

John received his Bachelor of Science degree from Temple University with a major in Computer Science and Accounting. Its professional memberships include the American Institute of Certified Public Accountants and the Pennsylvania Institute of Certified Public Accountants.