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Axos Financial
AX
#3103
Rank
$4.91 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$86.78
Share price
1.66%
Change (1 day)
51.93%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Axos Financial
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2021 Q3

Axos Financial - 10-Q quarterly report FY2021 Q3


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended March 31, 2021
☐TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-37709
ax-20210331_g1.jpg
AXOS FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Delaware33-0867444
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
9205 West Russell Road, STE 400, Las Vegas, NV 89148
(Address of principal executive offices) (zip code)
Registrant’s telephone number, including area code: (858) 649-2218
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.01 par valueAXNew York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
__________________________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   ☒  Yes    ☐  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   ☒  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer  ☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ☐  Yes    ☒  No
The number of shares outstanding of the registrant’s common stock on the last practicable date: 59,238,296 shares of common stock, $0.01 par value per share, as of April 21, 2021.

AXOS FINANCIAL, INC.
INDEX
Page
1
ITEM 1.       FINANCIAL STATEMENTS
1
Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2021 and June 30, 2020
1
Condensed Consolidated Statements of Income (unaudited) for the three and nine months ended March 31, 2021 and 2020
2
Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended March 31, 2021 and 2020
3
Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three and nine months ended March 31, 2021 and 2020
4
Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended March 31, 2021 and 2020
6
Notes to Condensed Consolidated Financial Statements
7
ITEM 2.        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
31
SELECTED FINANCIAL DATA
35
RESULTS OF OPERATIONS
37
FINANCIAL CONDITION
49
LIQUIDITY
53
OFF-BALANCE SHEET COMMITMENTS
54
CAPITAL RESOURCES AND REQUIREMENTS
56
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
57
ITEM 3:       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
60
ITEM 4:       CONTROLS AND PROCEDURES
60
61
ITEM 1.       LEGAL PROCEEDINGS
61
ITEM 1A.    RISK FACTORS
61
ITEM 2.       UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
61
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
61
ITEM 4.     MINE SAFETY DISCLOSURES
61
ITEM 5.       OTHER INFORMATION
61
ITEM 6.       EXHIBITS
62
SIGNATURES
63

PART I – FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except par and stated value)March 31,
2021		June 30,
2020
ASSETS
Cash and cash equivalents$1,148,052 $1,756,477 
Cash segregated for regulatory purposes294,903 194,042 
Total cash, cash equivalents, and cash segregated1,442,955 1,950,519 
Securities:
Trading254 105 
Available-for-sale218,962 187,627 
Stock of regulatory agencies20,627 20,610 
Loans held for sale, carried at fair value61,500 51,995 
Loans held for sale, lower of cost or fair value13,371 44,565 
Loans and leases—net of allowance for credit losses of $138.1 million as of March 31, 2021 and $75.8 million as of June 30, 2020
11,711,215 10,631,349 
Mortgage servicing rights, carried at fair value16,631 10,675 
Other real estate owned and repossessed vehicles6,804 6,408 
Goodwill and other intangible assets—net118,133 125,389 
Securities borrowed543,538 222,368 
Customer, broker-dealer and clearing receivables351,063 220,266 
Other assets322,821 380,024 
TOTAL ASSETS$14,827,874 $13,851,900 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing$2,619,157 $1,936,661 
Interest bearing8,993,344 9,400,033 
Total deposits11,612,501 11,336,694 
Advances from the Federal Home Loan Bank172,500 242,500 
Borrowings, subordinated notes and debentures365,753 235,789 
Securities loaned649,837 255,945 
Customer, broker-dealer and clearing payables483,677 347,614 
Accounts payable and accrued liabilities and other liabilities197,956 202,512 
Total liabilities13,482,224 12,621,054 
STOCKHOLDERS’ EQUITY:
Preferred stock—$0.01 par value; 1,000,000 shares authorized:
Series A—$10,000 stated value and liquidation preference per share; 0 shares issued and outstanding as of March 31, 2021 and 515 shares issued and outstanding as of June 30, 2020
— 5,063 
Common stock—$0.01 par value; 150,000,000 shares authorized; 67,902,239 shares issued and 59,237,765 shares outstanding as of March 31, 2021; 67,323,053 shares issued and 59,612,635 shares outstanding as of June 30, 2020
679 673 
Additional paid-in capital427,663 411,873 
Accumulated other comprehensive income (loss)—net of tax2,293 (937)
Retained earnings1,133,473 1,009,299 
Treasury stock, at cost; 8,664,474 shares as of March 31, 2021 and 7,710,418 shares as of June 30, 2020
(218,458)(195,125)
Total stockholders’ equity1,345,650 1,230,846 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$14,827,874 $13,851,900 

See accompanying notes to the condensed consolidated financial statements.
1
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) 
Three Months EndedNine Months Ended
March 31,March 31,
(Dollars in thousands, except earnings per common share)2021202020212020
INTEREST AND DIVIDEND INCOME:
Loans and leases, including fees$147,936 $175,065 $436,445 $445,554 
Securities borrowed and customer receivables4,453 3,818 14,196 13,025 
Investments3,285 6,180 10,301 20,117 
Total interest and dividend income155,674 185,063 460,942 478,696 
INTEREST EXPENSE:
Deposits14,034 31,254 49,683 102,974 
Advances from the Federal Home Loan Bank992 3,952 3,690 10,211 
Securities loaned453 115 832 564 
Other borrowings4,526 1,126 9,649 4,608 
Total interest expense20,005 36,447 63,854 118,357 
Net interest income135,669 148,616 397,088 360,339 
Provision for credit losses2,700 28,500 22,500 35,700 
Net interest income, after provision for credit losses132,969 120,116 374,588 324,639 
NON-INTEREST INCOME:
Prepayment penalty fee income1,342 1,406 4,289 4,824 
Gain on sale – other214 608 704 6,354 
Mortgage banking income9,037 2,955 39,255 7,973 
Broker-dealer fee income7,942 6,329 19,931 17,540 
Banking and service fees5,352 20,244 24,281 37,594 
Total non-interest income23,887 31,542 88,460 74,285 
NON-INTEREST EXPENSE:
Salaries and related costs38,545 36,257 115,367 106,932 
Data processing10,171 6,563 27,772 21,784 
Depreciation and amortization5,865 6,197 17,913 17,461 
Advertising and promotional4,261 3,887 10,600 11,720 
Professional services5,712 3,231 17,340 7,932 
Occupancy and equipment3,096 2,919 9,239 8,879 
FDIC and regulatory fees3,107 2,013 8,400 3,143 
Broker-dealer clearing charges3,278 2,180 7,986 6,048 
General and administrative expense6,772 8,543 18,033 20,323 
Total non-interest expense80,807 71,790 232,650 204,222 
INCOME BEFORE INCOME TAXES76,049 79,868 230,398 194,702 
INCOME TAXES22,404 23,811 68,946 56,564 
NET INCOME$53,645 $56,057 $161,452 $138,138 
NET INCOME ATTRIBUTABLE TO COMMON STOCK$53,645 $55,980 $161,262 $137,906 
COMPREHENSIVE INCOME$54,687 $53,578 $164,682 $135,396 
Basic earnings per common share$0.91 $0.92 $2.72 $2.25 
Diluted earnings per common share$0.89 $0.91 $2.67 $2.23 
See accompanying notes to the condensed consolidated financial statements.
2
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months EndedNine Months Ended
March 31,March 31,
(Dollars in thousands)2021202020212020
NET INCOME$53,645 $56,057 $161,452 $138,138 
Net unrealized gain (loss) from available-for-sale securities, net of tax expense (benefit) of $460 and $(1,032) for the three and $1,400 and $(1,142) for the nine months ended March 31, 2021 and 2020, respectively.
1,042 (2,479)3,230 (2,742)
Other comprehensive income (loss)1,042 (2,479)3,230 (2,742)
Comprehensive income$54,687 $53,578 $164,682 $135,396 

See accompanying notes to the condensed consolidated financial statements.


3
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
For the Three Months Ended March 31, 2021
Preferred StockCommon StockAdditional Paid-in CapitalRetained
Earnings		Accumulated
Other
Comprehensive
Income (Loss),
Net of Income Tax		Treasury
Stock		Total
Number of Shares
(Dollars in thousands)SharesAmountIssuedTreasuryOutstandingAmount
BALANCE—December 31, 2020— $— 67,668,664 (8,595,842)59,072,822 $677 $420,895 $1,079,828 $1,251 $(215,169)$1,287,482 
Net income— — — — — — — 53,645 — — 53,645 
Other comprehensive income (loss)— — — — — — — — 1,042 — 1,042 
Stock-based compensation expense
 and restricted stock unit vesting		— — 233,575 (68,632)164,943 2 6,768 — — (3,289)3,481 
BALANCE—March 31, 2021— $— 67,902,239 (8,664,474)59,237,765 $679 $427,663 $1,133,473 $2,293 $(218,458)$1,345,650 
For the Nine Months Ended March 31, 2021
Preferred StockCommon StockAdditional Paid-in CapitalRetained
Earnings		Accumulated
Other
Comprehensive
Income (Loss),
Net of Income Tax		Treasury
Stock		Total
Number of Shares
(Dollars in thousands)SharesAmountIssuedTreasuryOutstandingAmount
BALANCE—June 30, 2020515 $5,063 67,323,053 (7,710,418)59,612,635 $673 $411,873 $1,009,299 $(937)$(195,125)$1,230,846 
Cumulative effect of change in accounting principle net of tax, adoption of ASU No. 2016-13— — — — — — — (37,088)— — (37,088)
Net income— — — — — — — 161,452 — — 161,452 
Other comprehensive income (loss)— — — — — — — — 3,230 — 3,230 
Cash dividends on preferred stock— — — — — — — (103)— — (103)
Preferred stock - Series A redemption(515)(5,063)— — — — — (87)— — (5,150)
Purchase of treasury stock— — — (753,597)(753,597)— — — — (16,757)(16,757)
Stock-based compensation expense
 and restricted stock unit vesting		— — 579,186 (200,459)378,727 6 15,790 — — (6,576)9,220 
BALANCE—March 31, 2021— $— 67,902,239 (8,664,474)59,237,765 $679 $427,663 $1,133,473 $2,293 $(218,458)$1,345,650 

See accompanying notes to the condensed consolidated financial statements.
4
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
(Unaudited)
For the Three Months Ended March 31, 2020
Preferred StockCommon StockAdditional Paid-in CapitalRetained
Earnings		Accumulated
Other
Comprehensive
Income (Loss),
Net of Income Tax		Treasury
Stock		Total
Number of Shares
(Dollars in thousands)SharesAmountIssuedTreasuryOutstandingAmount
BALANCE—December 31, 2019515 $5,063 66,915,478 (5,577,092)61,338,386 $669 $399,806 $908,096 $(247)$(152,635)$1,160,752 
Net income— — — — — — — 56,057 — — 56,057 
Other comprehensive income (loss)— — — — — — — — (2,479)— (2,479)
Cash dividends on preferred stock— — — — — — — (77)— — (77)
Purchase of treasury stock— — — (1,815,783)(1,815,783)— — — — (35,838)(35,838)
Stock-based compensation expense
 and restricted stock unit vesting		— — 169,339 (38,750)130,589 2 6,925 — — (890)6,037 
BALANCE—March 31, 2020515 $5,063 67,084,817 (7,431,625)59,653,192 $671 $406,731 $964,076 $(2,726)$(189,363)$1,184,452 
For the Nine Months Ended March 31, 2020
Preferred StockCommon StockAdditional Paid-in CapitalRetained
Earnings		Accumulated
Other
Comprehensive
Income (Loss),
Net of Income Tax		Treasury
Stock		Total
Number of Shares
(Dollars in thousands)SharesAmountIssuedTreasuryOutstandingAmount
BALANCE—June 30, 2019515 $5,063 66,563,922 (5,435,105)61,128,817 $666 $389,945 $826,170 $16 $(148,810)$1,073,050 
Net income— — — — — — — 138,138 — — 138,138 
Other comprehensive income (loss)— — — — — — — — (2,742)— (2,742)
Cash dividends on preferred stock— — — — — — — (232)— — (232)
Purchase of treasury stock— — — (1,815,783)(1,815,783)— — — — (35,838)(35,838)
Stock-based compensation expense
 and restricted stock unit vesting		— — 520,895 (180,737)340,158 5 16,786 — — (4,715)12,076 
BALANCE—March 31, 2020515 $5,063 67,084,817 (7,431,625)59,653,192 $671 $406,731 $964,076 $(2,726)$(189,363)$1,184,452 

See accompanying notes to the condensed consolidated financial statements.
5
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Nine Months Ended
March 31,
(Dollars in thousands)20212020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$161,452 $138,138 
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion and amortization on securities, net(124)392 
Net accretion of discounts on loans and leases(4,717)(35,186)
Amortization of borrowing costs1,431 156 
Amortization of operating lease right of use asset7,965 7,889 
Stock-based compensation expense15,796 16,791 
Provision for credit losses22,500 35,700 
Deferred income taxes(10,388)(12,872)
Origination of loans held for sale(1,349,683)(1,286,230)
Unrealized (gain) loss on loans held for sale781 (574)
Gain on sales of loans held for sale(39,959)(14,327)
Proceeds from sale of loans held for sale1,378,323 1,296,148 
Amortization and change in fair value of mortgage servicing rights5,266 3,869 
(Gain) loss on sale of other real estate and foreclosed assets(113)(118)
Depreciation and amortization17,913 17,461 
Net changes in assets and liabilities which provide (use) cash:
Securities borrowed(321,170)90,890 
Customer, broker-dealer and clearing receivables(130,797)15,839 
Other assets40,204 11,685 
Securities loaned393,892 (121,769)
Customer, broker-dealer and clearing payables136,063 79,496 
Accounts payable and other liabilities(11,908)(21,416)
Net cash provided by operating activities312,727 221,962 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities(66,617)(244,530)
Proceeds from repayment of securities57,518 276,782 
Purchase of stock of regulatory agencies(17)(48,088)
Proceeds from redemption of stock of regulatory agencies— 44,531 
Origination of loans and leases held for investment(3,936,776)(5,363,107)
Proceeds from sale of loans and leases held for investment18,011 24,667 
Mortgage warehouse loans activity, net(493,764)(130,231)
Proceeds from sales of other real estate owned and repossessed assets839 704 
Purchases of loans and leases, net of discounts and premiums(2,184)— 
Principal repayments on loans and leases3,305,931 4,461,594 
Purchases of furniture, equipment, software and intangibles(8,986)(9,956)
Net cash used in investing activities(1,126,045)(987,634)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits275,807 584,165 
Proceeds from the Federal Home Loan Bank term advances— 60,000 
Payments of the Federal Home Loan Bank term advances(65,000)(30,000)
Net (repayment) proceeds of Federal Home Loan Bank other advances(5,000)282,000 
Net proceeds (repayments) of other borrowings7,281 (92,800)
Redemption of subordinated notes(51,000)— 
Tax payments related to settlement of restricted stock units(6,576)(4,715)
Redemption of preferred stock, Series A(5,150)— 
Repurchase of treasury stock(16,757)(35,838)
Cash dividends paid on preferred stock(103)(309)
Payment of debt issuance costs(2,748)— 
Proceeds from issuance of subordinated notes175,000 — 
Net cash provided by financing activities305,754 762,503 
NET CHANGE IN CASH AND CASH EQUIVALENTS(507,564)(3,169)
CASH AND CASH EQUIVALENTS—Beginning of year$1,950,519 $857,368 
CASH AND CASH EQUIVALENTS—End of period$1,442,955 $854,199 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid on deposits and borrowed funds$59,154 $117,808 
Income taxes paid$72,236 $42,020 
Transfers to other real estate and repossessed vehicles$1,223 $853 
Transfers from loans and leases held for investment to loans held for sale$8,680 $40,025 
Transfers from loans held for sale to loans held for investment$28,125 $— 
Loans and leases held for investment sold, cash not received$— $18,662 
Operating lease liabilities for obtaining right of use assets$— $82,940 
Impact of adoption of ASU No. 2016-13 on retained earnings
$37,088 $— 
See accompanying notes to the condensed consolidated financial statements.
6
AXOS FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTH PERIODS ENDED MARCH 31, 2021 AND 2020
(Dollars in thousands, except per share and stated value amounts)
(Unaudited)

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The condensed consolidated financial statements include the accounts of Axos Financial, Inc. (“Axos”) and its wholly owned subsidiaries, Axos Bank (the “Bank”) and Axos Nevada Holding, LLC (the “Axos Nevada Holding”) and collectively, the “Company”. Axos Nevada Holding wholly owns its subsidiary Axos Securities, LLC, which wholly owns subsidiaries Axos Clearing LLC (“Axos Clearing”), a clearing broker dealer, Axos Invest, Inc., a registered investment advisor, and Axos Invest LLC, an introducing broker dealer. All significant intercompany balances and transactions have been eliminated in consolidation.
The accompanying interim condensed consolidated financial statements, presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), are unaudited and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of financial condition and results of operations for the interim periods. All adjustments are of a normal and recurring nature. Results for the nine months ended March 31, 2021 are not necessarily indicative of results that may be expected for any other interim period or for the year as a whole. Certain information and note disclosures normally included in the audited annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) with respect to interim financial reporting. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended June 30, 2020 included in our Annual Report on Form 10-K.
7
As a result of the change from adopting Accounting Standard Update (“ASU”) 2016-13, “Measurement of Credit Losses on Financial Instruments” and all subsequent amendments that modified ASU 2016-13 (collectively, “ASC 326”) on July 1, 2020, the Company updated categorization of the loan portfolio. For comparability purposes, certain reclassifications have been made to the presentation of loan categories as of June 30, 2020 and as of and for the nine months then ended March 31, 2020 to conform with current presentation adopted under ASC 326. The Company reclassified its loan categories to align with the classes adopted for the measurement of credit losses under ASC 326. The reclassification had no impact on the total loan balances or the allowance for credit losses - loans.
Loans and Leases - Carrying Amount
(Dollars in thousands)Single Family Real Estate Secured - MortgageSingle Family Real Estate Secured - WarehouseSingle Family Real Estate Secured - FinancingMultifamily Real Estate Secured - Mortgage and FinancingCommercial Real Estate - MortgageCommercial & IndustrialAuto & RV - SecuredOtherTotal
Balance July 1, 2020 Pre-ASC 326 Adoption$4,244,563$474,318$682,477$2,303,216$371,176$2,094,322$291,452$241,918$10,703,442
Commercial Real Estate - Mortgage to Multifamily and Commercial Mortgage———371,176(371,176)————
Multifamily and Single Family Financing loans to Commercial Real Estate——(679,054)(411,338)1,090,392————
Real estate secured Commercial & Industrial to Commercial Real Estate————1,207,528(1,207,528)———
Unsecured Consumer loans to Auto & Consumer——————49,913(49,913)—
Single Family Warehouse and Mortgage combined477,741(474,318)(3,423)——————
Other reclassifications—————(1,474)—1,474—
Balance July 1, 2020 Post ASC 326 Adoption$4,722,304$—$—$2,263,054$2,297,920$885,320$341,365$193,479$10,703,442
Loan Category Post-ASC 326 Adoption
Single Family - Mortgage & WarehouseN/AN/AMultifamily and Commercial MortgageCommercial Real EstateCommercial & Industrial - Non REAuto & ConsumerOtherTotal

8
Allowance for Credit Losses
(Dollars in thousands)Single Family Real Estate Secured - MortgageSingle Family Real Estate Secured - WarehouseSingle Family Real Estate Secured - FinancingMultifamily Real Estate Secured - Mortgage and FinancingCommercial Real Estate - MortgageCommercial & IndustrialAuto & RV - SecuredOtherTotal
Balance July 1, 2020 Pre-ASC 326 Adoption$24,041$1,860$5,094$6,318$1,456$22,863$5,738$8,437$75,807
Reclassification1,860(1,860)(5,094)(1,600)19,596(12,909)3,723(3,716)—
Balance July 1, 2020 Post Reclassification$25,901$—$—$4,718$21,052$9,954$9,461$4,721$75,807
Loan Category Post-ASC 326 AdoptionSingle Family - Mortgage & WarehouseN/AN/AMultifamily and Commercial MortgageCommercial Real EstateCommercial & Industrial - Non REAuto & ConsumerOtherTotal
Allowance for Credit Losses. The allowance for credit losses (“ACL”) is a valuation account that offsets the amortized cost basis of loans and net investment in leases. Under ASC 326, amortized cost is the basis on which the ACL is determined. Amortized cost is principal outstanding, net of any purchase premiums and discounts and net of any deferred loan fees and costs.
Credit losses are charged off when the Company believes that collectability of at least some portion of outstanding principal is unlikely. These charge-offs are recorded as a reversal, thereby reducing, the allowance for credit losses. Recoveries on loans previously charged off are recorded as a provision to, thereby increasing, the allowance for credit losses. The allowance for credit losses is maintained at a level needed to absorb expected credit losses over the contractual life, considering the effects of prepayments, of the loan portfolio as of the reporting date. Determining the adequacy of the allowance is complex and requires judgment by Management about the effect of matters that are inherently uncertain. As such, a future assessment of current conditions may require material adjustments to the allowance.
The Company’s process for determining expected life-time credit losses entails a loan-level, model-based approach and requires consideration of a broad range of relevant information relating to historical loss experience, current economic conditions as well as reasonable and supportable forecasts.
A credit loss is estimated for all loans. Consequently, the Company stratifies the full loan population into segments sharing similar characteristics to perform the evaluation of the credit loss collectively.
The Company defines a segment as the level at which the Company develops a systematic methodology to determine the allowance for credit losses. Additionally, the Company can further stratify loans of similar type, risk attributes and methods for monitoring credit risk. The Company categorizes the loan portfolio into six segments: Single Family - Mortgage & Warehouse, Multifamily and Commercial Mortgage, Commercial Real Estate, Commercial & Industrial - Non Real Estate, Auto & Consumer and Other – refer to Note 4 – “Loans & Allowance for Credit Losses” for further detail of the segments and classes within.
The method for estimating expected life-time credit losses includes, among other things, the following main components: 1) The use of a probability of default (“PD”)/loss given default (“LGD”) model; 2) defining a number of economic scenarios across the benign to adverse spectrum; 3) an initial and reasonable forecast period of one year for all loan segments; and 4) a reversion period of 18 months using a linear transition to historical loss rates for each loan pool. After the reversion period, the historical loss rate is applied over the remaining contractual life of loan.
Given the inherent limitations of a solely quantitative model, qualitative adjustments are included to arrive at the ending calculated loss amount in order to account for data points not captured from quantitative inputs alone.
Qualitative criteria we consider includes, among other things, the following:
•Regulatory and Legal - matters that may impact the timeliness and/or amounts of repayments;
•Concentration - portfolio composition and loan concentration;
•Collateral Dependency - changes in collateral values;
•Lending/Underwriting Standards - current lending policies and the effects of any new policies;
•Nature and Volume - loan production volume and mix;
•Loan Trends - credit performance trends, including a borrower’s financial condition and credit rating.



9
On a quarterly basis, Management convenes a Credit Review meeting in which current information and trends are collectively assessed to forecast future economic impact for purposes of assessing the adequacy of the ACL. The forecasted direction and magnitude of change with respect to future economic conditions is then assessed against the estimate in the model.
Accrued Interest. Accrued interest receivable is excluded from amortized cost and is presented separately in “Other Assets” on the unaudited Condensed Consolidated Balance Sheets. Additionally, the Company does not estimate an allowance for credit losses on accrued interest receivable as the Company has a policy to charge off accrued interest deemed uncollectible in a timely manner. When a loan is placed on non-accrual status, which occurs when a borrower becomes delinquent by 90 days, interest previously accrued, but not collected, is reversed against current period interest income.
Individually Assessed Loans. Credit loss is estimated for any individual loan on a collective basis, unless an individual loan’s credit characteristics has deteriorated below a range of the overall group, in which case the loan would then be individually assessed. Individually assessed loans are measured for credit loss based on present value of future expected cash flows, discounted at the loan’s effective interest rate or the fair value of the collateral, less estimated selling costs, if the loan is collateral-dependent.
Available-for-Sale Debt Securities. Unrealized credit losses will be recognized through an allowance for credit losses instead of an adjustment to amortized cost basis, eliminating the other-than-temporary impairment concept. For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not, that it will be required to sell the security before recovery of its amortized cost basis. If either criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through earnings. For available-for-sale debt securities that do not meet the above conditions, the Company evaluates at the individual security level whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, Management considers the extent to which fair value is less than amortized cost and unfavorable conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recognized for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. All other changes in fair value of the security that have not been recognized through an allowance for credit losses are recognized in other comprehensive income. Changes in the allowance for credit losses, if any, are recognized as a provision for (or reversal of) credit losses. Losses are charged against the allowance when management believes an available-for-sale investment security is uncollectible or when either of the criteria regarding intent or requirement to sell is met.
Loan Commitments. Loans commitments not unconditionally cancellable are subject to an estimate of credit loss under a current expected credit loss model. The Company’s process for determining the estimate of credit loss on loan commitments is the same as it is on loans. Refer to detail of Allowance on Credit Losses above.
New Accounting Standards
Accounting Standards Adopted During Fiscal 2021
Financial Instruments. Credit Losses. On July 1, 2020, the Company adopted ASC 326. The update replaces incurred loss models based on the probable recognition threshold with a current expected credit loss model to estimate all credit losses over the contractual life for financial instruments carried at amortized cost and certain off-balance sheet credit exposures, such as loan commitments. The new model requires consideration of a broader range of relevant information, such as historical loss experience, current economic conditions and reasonable and supportable forecasts. The change will generally result in earlier, accelerated loss recognition. For available-for-sale debt securities, unrealized credit losses will be recognized through an allowance for credit losses rather than as adjustment to amortized cost basis, eliminating the other-than-temporary impairment concept. No credit loss adjustment on available-for-sale debt securities resulted upon adoption of ASC 326.
The Company adopted this standard using the modified retrospective transition method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Prior period amounts are not retroactively adjusted. A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date.



10
2.     FAIR VALUE
Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic 820, Fair Value Measurement, also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis at March 31, 2021 and June 30, 2020. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
March 31, 2021
(Dollars in thousands)Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Total
ASSETS:
Securities—Trading: Municipal$— $254 $— $254 
Securities—Available-for-Sale:
Agency Debt1
$— $1,800 $— $1,800 
Agency RMBS1
— 17,918 — 17,918 
Non-Agency RMBS2
— — 17,377 17,377 
Municipal— 3,521 — 3,521 
Asset-backed securities and structured notes— 178,346 — 178,346 
Total—Securities—Available-for-Sale$— $201,585 $17,377 $218,962 
Loans Held for Sale$— $61,500 $— $61,500 
Mortgage servicing rights$— $— $16,631 $16,631 
Other assets—Derivative instruments$— $— $8,595 $8,595 
LIABILITIES:
   Other liabilities—Derivative instruments$— $— $1,767 $1,767 
June 30, 2020
(Dollars in thousands)Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Total
ASSETS:
Securities—Trading: Municipal
$— $105 $— $105 
Securities—Available-for-Sale:
Agency Debt1
$— $1,799 $— $1,799 
Agency RMBS1
— 16,826 — 16,826 
Non-Agency RMBS2
— — 18,332 18,332 
Municipal— 10,400 — 10,400 
Asset-backed securities and structured notes— 140,270 — 140,270 
Total—Securities—Available-for-Sale$— $169,295 $18,332 $187,627 
Loans Held for Sale$— $51,995 $— $51,995 
Mortgage servicing rights$— $— $10,675 $10,675 
Other assets—Derivative instruments$— $— $9,131 $9,131 
LIABILITIES:
Other liabilities—Derivative instruments$— $— $1,715 $1,715 
1Includes securities guaranteed by Ginnie Mae, a U.S. government agency, and the government sponsored enterprises Fannie Mae and Freddie Mac.
2Private sponsors of securities collateralized primarily by pools of 1-4 family residential first mortgages. Primarily super senior securities secured by Alt-A or pay-option ARM mortgages.
11
The following tables present additional information about assets measured at fair value on a recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
For the Three Months Ended
March 31, 2021
(Dollars in thousands)Securities – Available-for-Sale: Non-Agency RMBSMortgage Servicing RightsDerivative Instruments, netTotal
Opening balance$17,135 $14,314 $7,979 $39,428 
Included in earnings—Mortgage banking income— (1,221)(1,151)(2,372)
Included in other comprehensive income913 — — 913 
Purchases, originations, issues, sales and settlements:
Purchases/originations— 3,538 — 3,538 
Settlements(671)— — (671)
Closing balance$17,377 $16,631 $6,828 $40,836 
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period$— $(1,221)$(1,151)$(2,372)
For the Nine Months Ended
March 31, 2021
(Dollars in thousands)Securities – Available-for-Sale: Non-Agency RMBSMortgage Servicing RightsDerivative Instruments, netTotal
Opening Balance$18,332 $10,675 $7,416 $36,423 
Included in earnings—Mortgage banking income— (5,266)(588)(5,854)
Included in other comprehensive income607 — — 607 
Purchases, originations, issues, sales and settlements:
Purchases/originations— 11,222 — 11,222 
Settlements(1,562)— — (1,562)
Closing balance$17,377 $16,631 $6,828 $40,836 
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period$— $(5,266)$(588)$(5,854)

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For the Three Months Ended
March 31, 2020
(Dollars in thousands)Securities – Available-for-Sale: Non-Agency RMBSMortgage Servicing RightsDerivative Instruments, netTotal
Opening balance$12,787 $11,262 $1,017 $25,066 
Included in earnings—Mortgage banking income— (2,597)1,631 (966)
Included in other comprehensive income(548)— — (548)
Purchases, originations, issues, sales and settlements:
Purchases/originations— 1,297 — 1,297 
Settlements(533)— — (533)
Closing balance$11,706 $9,962 $2,648 $24,316 
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period$— $(2,597)$1,631 $(966)
For the Nine Months Ended
March 31, 2020
(Dollars in thousands)Securities – Available-for-Sale: Non-Agency RMBSMortgage Servicing RightsDerivative Instruments, netTotal
Opening Balance$13,025 $9,784 $1,246 $24,055 
Total gains or losses for the period:
Included in earnings—Mortgage banking income— (3,869)1,402 (2,467)
Included in other comprehensive income292 — — 292 
Purchases, originations, issues, sales and settlements:
Purchases/originations— 4,047 — 4,047 
Settlements(1,611)— — (1,611)
Closing balance$11,706 $9,962 $2,648 $24,316 
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period$— $(3,869)$1,402 $(2,467)

The table below summarizes the quantitative information about level 3 fair value measurements as of the dates indicated:
March 31, 2021
(Dollars in thousands)Fair ValueValuation TechniqueUnobservable InputRange (Weighted Average)
Securities – Non-agency RMBS$17,377 Discounted Cash FlowProjected Constant Prepayment Rate,
Projected Constant Default Rate,
Projected Loss Severity,
Discount Rate over LIBOR
1.5 to 44.5% (8.8%)
1.5 to 6.3% (1.6%)
40.0 to 100.0% (76.9%)
2.7 to 7.0% (4.2%)
Mortgage Servicing Rights$16,631 Discounted Cash FlowProjected Constant Prepayment Rate,
Life (in years),
Discount Rate
7.7 to 72.2% (12.0%)
0.7 to 7.8 (6.4)
9.5 to 14.0% (9.7%)
Derivative Instruments$6,828 Sales Comparison ApproachProjected Sales Profit of Underlying Loans
0.2 to 0.4% (0.2%)
June 30, 2020
(Dollars in thousands)Fair ValueValuation TechniqueUnobservable InputRange (Weighted Average)
Securities – Non-agency RMBS$18,332 Discounted Cash FlowProjected Constant Prepayment Rate,
Projected Constant Default Rate,
Projected Loss Severity,
Discount Rate over LIBOR
2.5 to 47.9% (26.1%)
0.5 to 4.5% (2.0%)
35.0 to 68.4% (50.1%)
2.9 to 9.4% (5.0%)
Mortgage Servicing Rights$10,675 Discounted Cash FlowProjected Constant Prepayment Rate,
Life (in years),
Discount Rate
4.7 to 39.6% (11.4%)
1.6 to 7.7 (6.2)
9.5 to 14.0% (9.8%)
Derivative Instruments$7,416 Sales Comparison ApproachProjected Sales Profit of Underlying Loans
(0.3) to 0.8% (0.2%)
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The significant unobservable inputs used in the fair value measurement of the Company’s residential mortgage-backed securities are projected prepayment rates, probability of default, and projected loss severity in the event of default. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the projected loss severity and a directionally opposite change in the assumption used for projected prepayment rates.
The table below summarizes assets measured for impairment on a non-recurring basis:
March 31, 2021
(Dollars in thousands)Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Balance
Other real estate owned and foreclosed assets:
Single family real estate$— $— $6,538 $6,538 
Autos and RVs— — 266 266 
Total$— $— $6,804 $6,804 
June 30, 2020
(Dollars in thousands)Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Balance
Other real estate owned and foreclosed assets:
Single family real estate$— $— $6,114 $6,114 
Autos and RVs— — 294 294 
Total$— $— $6,408 $6,408 
Other real estate owned and foreclosed assets, which are measured at the lower of carrying value or fair value less costs to sell, had a net carrying amount of $6,804 after charge-offs of $0 for the nine months ended March 31, 2021.
The Company has elected the fair value option for Agency loans held for sale. These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on loans held for investment. None of these loans are 90 days or more past due nor on nonaccrual as of March 31, 2021 and June 30, 2020.
As of March 31, 2021 and June 30, 2020, the aggregate fair value of loans held for sale, carried at fair value, contractual balance (including accrued interest), and unrealized gain was as follows:
(Dollars in thousands)March 31, 2021June 30, 2020
Aggregate fair value$61,500 $51,995 
Contractual balance59,985 49,700 
Unrealized gain $1,515 $2,295 
The total amount of gains and losses from changes in fair value included in earnings for the period indicated below for loans held for sale were:
For the Three Months EndedFor the Nine Months Ended
March 31,March 31,
(Dollars in thousands)2021202020212020
Interest income$387 $216 $1,189 $812 
Change in fair value(1,829)2,228 (1,369)1,976 
Total $(1,442)$2,444 $(180)$2,788 
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The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at the periods indicated:
March 31, 2021
(Dollars in thousands)Fair ValueValuation Technique(s)Unobservable Input
Range (Weighted Average) 1
Other real estate owned and foreclosed assets:
Single family real estate$6,538 Sales comparison approachAdjustment for differences between the comparable sales
(3.7) to 1.7% ((0.2)%)
Autos and RVs$266 Sales comparison approachAdjustment for differences between the comparable sales
0.0 to 19.7% (0.0%)
June 30, 2020
(Dollars in thousands)Fair ValueValuation Technique(s)Unobservable Input
Range (Weighted Average) 1
Other real estate owned and foreclosed assets:
Single family real estate$6,114 Sales comparison approachAdjustment for differences between the comparable sales
18.7 to 18.7% (18.7%)
Autos and RVs$294 Sales comparison approachAdjustment for differences between the comparable sales
(24.6) to 44.2% (2.8%)
1 For other real estate owned and foreclosed assets the ranges shown may vary positively or negatively based on the comparable sales reported in the current appraisal. In certain instances, the range can be significant due to small sample sizes and in some cases the property being valued having limited comparable sales with similar characteristics at the time the current appraisal is conducted.

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Fair value of Financial Instruments
The carrying amounts and estimated fair values of financial instruments at March 31, 2021 and June 30, 2020 were as follows:
March 31, 2021
Fair Value
(Dollars in thousands)Carrying
Amount		Level 1Level 2Level 3Total Fair Value
Financial assets:
Cash and cash equivalents$1,442,955 $1,442,955 $— $— $1,442,955 
Securities — trading254 — 254 — 254 
Securities — available-for-sale218,962 — 201,585 17,377 218,962 
Loans held for sale, at fair value61,500 — 61,500 — 61,500 
Loans held for sale, at lower of cost or fair value13,371 — — 13,416 13,416 
Loans and leases held for investment—net11,711,215 — — 12,138,239 12,138,239 
Securities borrowed543,538 — — 543,755 543,755 
Customer, broker-dealer and clearing receivables351,063 — — 351,063 351,063 
Mortgage servicing rights16,631 — — 16,631 16,631 
Financial liabilities:
Total deposits11,612,501 — 11,314,340 — 11,314,340 
Advances from the Federal Home Loan Bank172,500 — 173,682 — 173,682 
Borrowings, subordinated notes and debentures365,753 — 360,454 — 360,454 
Securities loaned649,837 — — 652,111 652,111 
Customer, broker-dealer and clearing payables483,677 — — 483,677 483,677 
June 30, 2020
Fair Value
(Dollars in thousands)Carrying
Amount		Level 1Level 2Level 3Total Fair Value
Financial assets:
Cash and cash equivalents$1,950,519 $1,950,519 $— $— $1,950,519 
Securities — trading105 — 105 — 105 
Securities — available-for-sale187,627 — 169,295 18,332 187,627 
Loans held for sale, at fair value51,995 — 51,995 — 51,995 
Loans held for sale, at lower of cost or fair value44,565 — — 44,625 44,625 
Loans and leases held for investment—net10,631,349 — — 11,138,255 11,138,255 
Securities borrowed222,368 — — 222,613 222,613 
Customer, broker-dealer and clearing receivables220,266 — — 220,464 220,464 
Mortgage servicing rights10,675 — — 10,675 10,675 
Financial liabilities:
Total deposits11,336,694 — 11,088,447 — 11,088,447 
Advances from the Federal Home Loan Bank242,500 — 254,114 — 254,114 
Borrowings, subordinated notes and debentures235,789 — 234,445 — 234,445 
Securities loaned255,945 — — 256,790 256,790 
Customer, broker-dealer and clearing payables347,614 — — 347,614 347,614 
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The methods and assumptions, not previously presented, used to estimate fair value are described as follows: Carrying amount is the estimated fair value for cash and cash equivalents, interest bearing deposits, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans and leases or deposits that reprice frequently and fully. For fixed rate loans and leases, deposits, borrowings or subordinated debt and for variable rate loans and leases, deposits, borrowings or subordinated debt with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. A discussion of the methods of valuing trading securities, available for sale securities and loans held for sale can be found in Note 4 – “Fair Value” of our Form 10-K for the year ended June 30, 2020. The carrying amount of stock of regulatory agencies approximates the estimated fair value of this investment. The fair value of off-balance sheet items is not considered material.
3.     SECURITIES
The amortized cost, carrying amount and fair value for the trading and available-for-sale securities at March 31, 2021 and June 30, 2020 were:
March 31, 2021
TradingAvailable-for-sale
(Dollars in thousands)Fair
Value		Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Fair
Value
Mortgage-backed securities (RMBS):
U.S. agencies1
$— $17,763 $362 $(207)$17,918 
Non-agency2
— 16,618 1,409 (650)17,377 
Total mortgage-backed securities— 34,381 1,771 (857)35,295 
Non-RMBS:
U.S. agencies1
— 1,800 — — 1,800 
Municipal254 3,436 85 — 3,521 
Asset-backed securities and structured notes— 175,147 3,199 — 178,346 
Total Non-RMBS254 180,383 3,284 — 183,667 
Total debt securities$254 $214,764 $5,055 $(857)$218,962 
June 30, 2020
TradingAvailable-for-sale
(Dollars in thousands)Fair
Value		Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Fair
Value
Mortgage-backed securities (RMBS):
U.S. agencies1
$— $16,192 $634 $— $16,826 
Non-agency2
— 18,180 1,024 (872)18,332 
Total mortgage-backed securities— 34,372 1,658 (872)35,158 
Non-RMBS:
U.S. agencies1
— 1,799 — — 1,799 
Municipal105 10,550 44 (194)10,400 
Asset-backed securities and structured notes— 141,338 1 (1,069)140,270 
Total Non-RMBS105 153,687 45 (1,263)152,469 
Total debt securities$105 $188,059 $1,703 $(2,135)$187,627 
1Includes securities guaranteed by Ginnie Mae, a U.S. government agency, and the government sponsored enterprises Fannie Mae and Freddie Mac.
2Private sponsors of securities collateralized primarily by pools of 1-4 family residential first mortgages. Primarily super senior securities secured by Alt-A or pay-option ARM mortgages.

The Company’s non-agency RMBS available-for-sale portfolio with a total fair value of $17,377 at March 31, 2021 consists of 15 different issues of super senior securities.
The face amounts of debt securities available-for-sale that were pledged to secure borrowings at March 31, 2021 and June 30, 2020 were $3.3 million and $3.5 million, respectively.
17
The securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows:
March 31, 2021
Available-for-sale securities in loss position for
Less Than
12 Months		More Than
12 Months		Total
(Dollars in thousands)Fair
Value		Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses
RMBS:
U.S. agencies$7,929 $(207)$— $— $7,929 $(207)
Non-agency— — 6,206 (650)6,206 (650)
Total RMBS securities7,929 (207)6,206 (650)14,135 (857)
Non-RMBS:
U.S. agencies— — — — — — 
Total Non-RMBS— — — — — — 
Total debt securities$7,929 $(207)$6,206 $(650)$14,135 $(857)
June 30, 2020
Available-for-sale securities in loss position for
Less Than
12 Months		More Than
12 Months		Total
(Dollars in thousands)Fair
Value		Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses
RMBS:
U.S. agencies$85 $— $— $— $85 $— 
Non-agency— — 6,978 (872)6,978 (872)
Total RMBS securities85 — 6,978 (872)7,063 (872)
Non-RMBS:
Municipal debt— — 2,002 (194)2,002 (194)
Asset-backed securities and structured notes139,883 (1,069)— — 139,883 (1,069)
Total Non-RMBS139,883 (1,069)2,002 (194)141,885 (1,263)
Total debt securities$139,968 $(1,069)$8,980 $(1,066)$148,948 $(2,135)
On March 31, 2021, there were seven securities in a continuous loss position for a period of more than 12 months, and six securities in a continuous loss position for a period of less than 12 months. At June 30, 2020, there were ten securities in a continuous loss position for a period of more than 12 months, and four securities in a continuous loss position for a period of less than 12 months.
At March 31, 2021, one non-agency RMBS with a total carrying amount of $3.1 million was determined to have cumulative credit losses of $0.8 million of which none was recognized in earnings during the three months ended March 31, 2021. For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates at the individual security level whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses, if any, are recorded as a provision for (or reversal of) credit losses. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale investment security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
During the three months ended March 31, 2020, the company sold no available-for-sale securities. During the three months ended March 31, 2021, the company sold no available-for-sale securities.
18
The Company had recorded unrealized gains and unrealized losses in accumulated other comprehensive loss as follows:
(Dollars in thousands)March 31,
2021		June 30,
2020
Available-for-sale debt securities—net unrealized gains (losses)$4,198 $(432)
Available-for-sale debt securities—non-credit related losses(845)(845)
Subtotal3,353 (1,277)
Tax benefit (expense)(1,060)340 
Net unrealized gain (loss) on investment securities in accumulated other comprehensive income (loss)$2,293 $(937)


4.    LOANS & ALLOWANCE FOR CREDIT LOSSES
The following table(s) sets forth the composition of the loan portfolio as of the dates indicated:
(Dollars in thousands)March 31, 2021June 30, 2020
Single Family - Mortgage & Warehouse$4,899,188 $4,722,304 
Multifamily and Commercial Mortgage2,424,185 2,263,054 
Commercial Real Estate3,042,896 2,297,920 
Commercial & Industrial - Non-RE1,030,879 885,320 
Auto & Consumer323,662 341,365 
Other135,705 193,479 
Total gross loans and leases11,856,515 10,703,442 
Allowance for credit losses - loans(138,107)(75,807)
Unaccreted premiums (discounts) and loan and lease fees(7,193)3,714 
Total net loans and leases$11,711,215 $10,631,349 

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The following tables summarize activity in the allowance for credit losses - loans by portfolio classes for the periods indicated.
For the Three Months Ended March 31, 2021
(Dollars in thousands)Single Family-Mortgage & WarehouseMultifamily and Commercial MortgageCommercial Real EstateCommercial & Industrial - Non-REAuto & ConsumerOtherTotal
Balance at January 1, 2021$32,727 $12,889 $56,715 $19,129 $7,413 $7,520 $136,393 
Provision (benefit) for credit losses - loans(2,785)704 (133)4,506 317 91 2,700 
Charge-offs(110)(177)(255)— (863)— (1,405)
Recoveries83 — — 18 318 — 419 
Balance at March 31, 2021$29,915 $13,416 $56,327 $23,653 $7,185 $7,611 $138,107 
For the Three Months Ended March 31, 2020
(Dollars in thousands)Single Family-Mortgage & WarehouseMultifamily and Commercial MortgageCommercial Real EstateCommercial & Industrial - Non-REAuto & ConsumerOtherTotal
Balance at January 1, 2020$21,662 $4,045 $12,691 $12,126 $7,168 $1,822 $59,514 
Provision for credit losses - loans706 592 5,344 214 3,869 17,775 28,500 
Charge-offs— — — — (1,290)— (1,290)
Recoveries62 — — — 271 40 373 
Balance at March 31, 2020$22,430 $4,637 $18,035 $12,340 $10,018 $19,637 $87,097 
For the Nine Months Ended March 31, 2021
(Dollars in thousands)Single Family-Mortgage & WarehouseMultifamily and Commercial MortgageCommercial Real EstateCommercial & Industrial - Non-REAuto & ConsumerOtherTotal
Balance at July 1, 2020$25,901 $4,718 $21,052 $9,954 $9,461 $4,721 $75,807 
Effect of Adoption of ASC 326
6,318 7,408 25,893 7,042 610 29 47,300 
Provision (benefit) for credit losses - loans47 1,467 9,637 9,472 (984)2,861 22,500 
Charge-offs(2,469)(177)(255)(2,833)(2,819)— (8,553)
Recoveries118 — — 18 917 — 1,053 
Balance at March 31, 2021$29,915 $13,416 $56,327 $23,653 $7,185 $7,611 $138,107 
For the Nine Months Ended March 31, 2020
(Dollars in thousands)Single Family-Mortgage & WarehouseMultifamily and Commercial MortgageCommercial Real EstateCommercial & Industrial - Non-REAuto & ConsumerOtherTotal
Balance at July 1, 2019$22,290 $3,807 $14,632 $9,544 $6,339 $473 $57,085 
Provision for credit losses - loans50 711 3,403 2,796 6,620 22,120 35,700 
Charge-offs(151)— — — (3,420)(4,182)(7,753)
Recoveries241 119 — — 479 1,226 2,065 
Balance at March 31, 2020$22,430 $4,637 $18,035 $12,340 $10,018 $19,637 $87,097 

Credit Quality Disclosures. Nonaccrual loans consisted of the following as of the dates indicated:
As of March 31, 2021
(Dollars in thousands)With AllowanceWith No AllowanceTotal
Single Family - Mortgage & Warehouse$51,628 $33,415 $85,043 
Multifamily and Commercial Mortgage25,275 5,469 30,744 
Commercial Real Estate16,414 — 16,414 
Commercial & Industrial - Non-RE2,942 18 2,960 
Auto & Consumer392 54 446 
     Total nonaccrual loans$96,651 $38,956 $135,607 
Nonaccrual loans to total loans1.14 %

Approximately 0.61% of our nonaccrual loans at March 31, 2021 were considered TDRs, compared to 0.34% at June 30, 2020. Borrowers that make timely payments after TDRs are considered non-performing for at least six months. Generally, after six months of timely payments, those TDRs are reclassified from the nonaccrual loan category to the performing loan category and any previously deferred interest income is recognized. Approximately 62.71% of the Bank’s nonaccrual loans are single family first mortgages.
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No interest income was recognized in the three and nine months ended March 31, 2021 and March 31, 2020 on nonaccrual loans.
The following tables present the outstanding unpaid balance of loans that are performing and nonaccrual by portfolio class:
March 31, 2021
(Dollars in thousands)Single Family-Mortgage & WarehouseMultifamily and Commercial MortgageCommercial Real EstateCommercial & Industrial - Non-REAuto & ConsumerOtherTotal
Performing$4,814,145 $2,393,441 $3,026,482 $1,027,919 $323,216 $135,705 $11,720,908 
Nonaccrual85,043 30,744 16,414 2,960 446 — 135,607 
          Total$4,899,188 $2,424,185 $3,042,896 $1,030,879 $323,662 $135,705 $11,856,515 
June 30, 2020
(Dollars in thousands)Single Family-Mortgage & WarehouseMultifamily and Commercial MortgageCommercial Real EstateCommercial & Industrial - Non-REAuto & ConsumerOtherTotal
Performing$4,638,274 $2,259,629 $2,297,920 $885,107 $341,092 $193,479 $10,615,501 
Nonaccrual84,030 3,425 — 213 273 — 87,941 
          Total$4,722,304 $2,263,054 $2,297,920 $885,320 $341,365 $193,479 $10,703,442 

From time to time, the Company modifies loan terms temporarily for borrowers who are experiencing financial stress. These loans are performing and accruing and will generally return to the original loan terms after the modification term expires. The Company had no TDRs classified as performing loans at March 31, 2021 or June 30, 2020. Under guidelines set forth in the CARES Act, the Company had provided certain borrowers the ability to delay payments and not consider them to be TDRs. Starting at September 30, 2020, the Company no longer allowed delayed payments. No loans existed as of March 31, 2021 that were in a forbearance status.





























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Credit Quality Indicators
The amortized cost basis by fiscal year of origination and credit quality indicator of the Company’s loan and leases as of March 31, 2021 was as follows:
Loans Held for Investment Origination YearRevolving Loans Revolving Loans Converted to Loans HFITotal
(Dollars in thousands)20212020201920182017Prior
Single Family-Mortgage & Warehouse
Pass$728,933 $863,897 $582,138 $545,832 $408,071 $662,523 $951,752 $— $4,743,146 
Special Mention79 10,389 4,639 5,364 9,927 9,895 16,330 — 56,623 
Substandard— 4,342 23,248 19,107 13,547 39,175 — — 99,419 
Doubtful— — — — — — — — — 
Total729,012 878,628 610,025 570,303 431,545 711,593 968,082 — 4,899,188 
Multifamily and Commercial Mortgage
Pass417,032 594,368 442,501 332,436 208,758 366,914 — — 2,362,009 
Special Mention— 26,225 1,400 1,333 992 630 — — 30,580 
Substandard— 24,323 1,084 4,385 — 1,804 — — 31,596 
Doubtful— — — — — — — — — 
Total417,032 644,916 444,985 338,154 209,750 369,348 — — 2,424,185 
Commercial Real Estate
Pass976,356 1,052,529 395,334 169,804 45,701 63,750 216,189 — 2,919,663 
Special Mention— 24,842 12,473 — 11,221 — 2,533 — 51,069 
Substandard— — 55,750 16,414 — — — — 72,164 
Doubtful— — — — — — — — — 
Total976,356 1,077,371 463,557 186,218 56,922 63,750 218,722 — 3,042,896 
Commercial & Industrial - Non-RE
Pass50,084 110,720 18,262 30,901 11,629 — 710,995 90,898 1,023,489 
Special Mention— — — — — — — — — 
Substandard2,824 800 2,942 810 14 — — — 7,390 
Doubtful— — — — — — — — — 
Total52,908 111,520 21,204 31,711 11,643 — 710,995 90,898 1,030,879 
Auto & Consumer
Pass84,551 90,098 81,340 38,098 19,361 9,056 — — 322,504 
Special Mention— 46 127 13 — — — — 186 
Substandard— 349 427 110 57 29 — — 972 
Doubtful— — — — — — — — — 
Total84,551 90,493 81,894 38,221 19,418 9,085 — — 323,662 
Other
Pass15,546 109,157 — 1,752 681 1,282 — — 128,418 
Special Mention— — — — — — — — — 
Substandard— 7,287 — — — — — — 7,287 
Doubtful— — — — — — — — — 
Total15,546 116,444 — 1,752 681 1,282 — — 135,705 
Total
Pass2,272,502 2,820,769 1,519,575 1,118,823 694,201 1,103,525 1,878,936 90,898 11,499,229 
Special Mention79 61,502 18,639 6,710 22,140 10,525 18,863 — 138,458 
Substandard2,824 37,101 83,451 40,826 13,618 41,008 — — 218,828 
Doubtful— — — — — — — — — 
Total$2,275,405 $2,919,372 $1,621,665 $1,166,359 $729,959 $1,155,058 $1,897,799 $90,898 $11,856,515 
As a % of total gross loans and leases19.19 %24.62 %13.68 %9.84 %6.16 %9.74 %16.01 %0.77 %100.0 %

The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses - loans. The Company also evaluates credit quality based on the aging status of its loans and leases. During the year, the Company holds certain short-term loans that do not have a fixed maturity date that are treated as delinquent if not paid in full 90 days after the origination date.
The Company has taken proactive measures to manage loans that became delinquent during the recent economic downturn as a result of the COVID-19 pandemic. No forbearance or deferrals were provided to any borrowers during the three months ended March 31, 2021.


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The following tables provide the outstanding unpaid balance of loans and leases that are past due 30 days or more by portfolio class as of the dates indicated:
March 31, 2021
(Dollars in thousands)30-59 Days Past Due60-89 Days Past Due90+ Days Past DueTotal
Single Family-Mortgage & Warehouse$19,348 $12,367 $83,621 $115,336 
Multifamily and Commercial Mortgage6,952 859 25,406 33,217 
Commercial Real Estate— — 35,164 35,164 
Commercial & Industrial - Non-RE— — 2,960 2,960 
Auto & Consumer1,098 176 331 1,605 
Other— — — — 
Total$27,398 $13,402 $147,482 $188,282 
As a % of total gross loans and leases0.23 %0.11 %1.24 %1.59 %
June 30, 2020
(Dollars in thousands)30-59 Days Past Due60-89 Days Past Due90+ Days Past DueTotal
Single Family-Mortgage & Warehouse$17,931 $23,115 $66,813 $107,859 
Multifamily and Commercial Mortgage7,744 5,287 — 13,031 
Commercial Real Estate— — — — 
Commercial & Industrial - Non-RE— — — — 
Auto & Consumer973 166 326 1,465 
Other— — — — 
Total$26,648 $28,568 $67,139 $122,355 
As a % of total gross loans and leases0.25 %0.27 %0.63 %1.13 %

Allowance for Credit Losses
The allowance for credit losses is the sum of the allowance for credit losses - loans and the unfunded loan commitment liabilities. Unfunded loan commitment liabilities is included in “Accounts payable, accrued liabilities and other liabilities” in the unaudited Condensed Consolidated Balance Sheets.
The following tables present a summary of the activity in the allowance for credit losses for the periods indicated:
Three Months Ended March 31, 2021
(Dollars in thousands)Allowance for Credit Losses - LoansUnfunded Loan Commitment LiabilitiesTotal Allowance for Credit Losses
Balance at January 1, 2021$136,393 $5,723 $142,116 
Provision for Credit Losses2,700 — 2,700 
Charge-offs(1,405)— (1,405)
Recoveries419 — 419 
Balance at March 31, 2021$138,107 $5,723 $143,830 
Three Months Ended March 31, 2020
(Dollars in thousands)Allowance for Credit Losses - LoansUnfunded Loan Commitment LiabilitiesTotal Allowance for Credit Losses
Balance at January 1, 2020$59,514 $244 $59,758 
Provision for Credit Losses28,500 29 28,529 
Charge-offs(1,290)— (1,290)
Recoveries373 — 373 
Balance at March 31, 2020$87,097 $273 $87,370 
For the Nine Months Ended March 31, 2021
(Dollars in thousands)Allowance for Credit Losses - LoansUnfunded Loan Commitment LiabilitiesTotal Allowance for Credit Losses
Balance at July 1, 2020$75,807 $323 $76,130 
Effect of Adoption of ASC 32647,300 5,700 53,000 
Provision for Credit Losses22,500 (300)22,200 
Charge-offs(8,553)— (8,553)
Recoveries1,053 — 1,053 
Balance at March 31, 2021$138,107 $5,723 $143,830 
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For the Nine Months Ended March 31, 2020
(Dollars in thousands)Allowance for Credit Losses - LoansUnfunded Loan Commitment LiabilitiesTotal Allowance for Credit Losses
Balance at July 1, 2019$57,085 $227 $57,312 
Provision for Credit Losses35,700 46 35,746 
Charge-offs(7,753)— (7,753)
Recoveries2,065 — 2,065 
Balance at March 31, 2020$87,097 $273 $87,370 


5.    SUBORDINATED NOTES
In September 2020, the Company completed the sale of $175.0 million aggregate principal amount of its 4.875% Fixed-to-Floating Rate Subordinated Notes due October 1, 2030 (the “Notes”). The Notes mature on October 1, 2030 and accrue interest at a fixed rate per annum equal to 4.875%, payable semi-annually in arrears on April 1 and October 1 of each year, commencing on April 1, 2021. From and including October 1, 2025, to, but excluding October 1, 2030 or the date of early redemption, the Notes will bear interest at a floating rate per annum equal to a benchmark rate (which is expected to be the Three-Month Term Secured Overnight Financing Rate) plus a spread of 476 basis points, payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, commencing on January 2026. The Notes may be redeemed on or after October 1, 2025, which date may be extended at the Company’s discretion, at a redemption price equal to principal plus accrued and unpaid interest, subject to certain conditions. Fees and costs incurred in connection with the debt offering amortize to interest expense over the term of the Notes.
On March 31, 2021, the Company completed the redemption of $51.0 million aggregate principal amount of its 6.25% Subordinated Notes due 2026 (the “Notes 2026”). The Notes 2026 were redeemed for cash by the Company at 100% of their principal amount, plus accrued and unpaid interest, in accordance with the terms of the indenture governing the Notes 2026. Remaining unamortized deferred financing costs associated with such notes were expensed and included under Interest Expense - Other Borrowings in the Condensed Consolidated Statements of Income.


6.    EQUITY AND STOCK-BASED COMPENSATION
    Common Stock Repurchases. On March 17, 2016, the Board of Directors of the Company (the “Board”), authorized a program to repurchase up to $100 million of common stock and extended the program by $100 million on August 2, 2019. The Company may repurchase shares on the open market or through privately negotiated transactions at times and prices considered appropriate, at the discretion of the Company, and subject to its assessment of alternative uses of capital, stock trading price, general market conditions and regulatory factors. The repurchase program does not obligate the Company to acquire any specific number of shares. The share repurchase program will continue in effect until terminated by the Board. With the March 17, 2016 authorization, the Company repurchased a total of $100 million or 3,567,051 common shares at an average price of $28.03 per share. With the August 2, 2019 authorization, the Company has repurchased a total of $47.2 million or 2,399,853 common shares at an average price of $19.68 per share and there remains $52.8 million under the plan. During the nine months ended March 31, 2021, the Company repurchased a total of $16.8 million, or 753,597 common shares at an average price of $22.24 per share. The Company accounts for treasury stock using the cost method as a reduction of stockholders’ equity in the accompanying unaudited condensed consolidated financial statements.
Preferred Stock. The Company redeemed for cash all 515 outstanding shares of Series A-6% Cumulative Nonparticipating Perpetual Preferred Stock on October 30, 2020, at the face value $10,000 liquidation price per share plus accrued dividends.
    Restricted Stock Units. During the nine months ended March 31, 2021 and 2020, the Company granted 614,406 and 710,032 restricted stock unit awards (“RSUs”) to employees and directors, respectively. RSUs granted generally vest over 3 years, one-third on each anniversary date, except for any RSUs granted to the Company’s CEO, which vest one-fourth on each fiscal year end.
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    The Company’s income before income taxes and net income for the nine months ended March 31, 2021 and 2020 include stock award expense of $15,795 and $16,786, with total income tax benefit of $4,726 and $4,880, respectively. The Company recognizes compensation expense based upon the grant-date fair value divided by the vesting and the service period between each vesting date. At March 31, 2021, unrecognized compensation expense related to non-vested awards aggregated to $33,756 and is expected to be recognized in future periods as follows:
(Dollars in thousands)Stock Award
Compensation
Expense
For the fiscal year remainder:
2021$5,099 
202215,346 
20239,534 
20243,345 
2025331 
Thereafter101 
Total$33,756 
    
The following table presents the status and changes in restricted stock units for the periods indicated:
Restricted
Stock Units		Weighted-Average
Grant-Date
Fair Value
Non-vested balance at June 30, 20191,546,848 $30.73 
Granted714,569 24.05 
Vested(693,660)28.52 
Canceled(122,217)29.10 
Non-vested balance at June 30, 20201,445,540 $28.62 
Granted614,406 32.03 
Vested(499,708)27.68 
Canceled(128,940)26.31 
Non-vested balance at March 31, 20211,431,298 $30.62 
    The total fair value of shares vested for the three and nine months ended March 31, 2021 was $8,366 and $16,612. The total fair value of shares vested for the three and nine months ended March 31, 2020 was $2,374 and $11,906.

7.    EARNINGS PER COMMON SHARE
    Earnings per common share (“EPS”) are presented under two formats: basic EPS and diluted EPS. Basic EPS is computed by dividing the net income attributable to common stock (net income after deducting dividends on preferred stock and preferred stock redemption charge) by the sum of the weighted-average number of common shares outstanding during the year and the unvested average of participating RSUs. Diluted EPS is computed by dividing the sum of net income attributable to common stock and dividends on diluted preferred stock by the sum of the weighted-average number of common shares outstanding during the year and the impact of dilutive potential common shares, such as nonparticipating RSUs, stock options and convertible preferred stock.
    The unvested stock-based compensation awards issued under the 2014 Stock Incentive Plan, have no stockholder rights, meaning they are not entitled to dividends and are considered nonparticipating. The Company does not include these nonparticipating RSUs in the basic EPS calculation but are included in the diluted EPS calculation using the treasury stock method.
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The following table presents the calculation of basic and diluted EPS:
Three Months EndedNine Months Ended
March 31,March 31,
(Dollars in thousands, except per share data)2021202020212020
Earnings Per Common Share
Net income$53,645 $56,057 $161,452 $138,138 
Preferred stock dividends— (77)(103)(232)
Preferred stock redemption charge— — (87)— 
Net income attributable to common stockholders$53,645 $55,980 $161,262 $137,906 
Average common shares outstanding59,118,884 60,967,892 59,225,409 61,176,715 
Total qualifying shares59,118,884 60,967,892 59,225,409 61,176,715 
Earnings per common share$0.91 $0.92 $2.72 $2.25 
Diluted Earnings Per Common Share
Dilutive net income attributable to common stockholders$53,645 $55,980 $161,262 $137,906 
Average common shares issued and outstanding59,118,884 60,967,892 59,225,409 61,176,715 
Dilutive effect of average unvested RSUs1,363,849 555,621 1,227,811 635,130 
Total dilutive common shares outstanding60,482,733 61,523,513 60,453,220 61,811,845 
Diluted earnings per common share$0.89 $0.91 $2.67 $2.23 

8.    COMMITMENTS AND CONTINGENCIES
COVID-19 Impact. The Company is closely monitoring 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 following actions to support customers, employees, partners and shareholders:
•Actively communicating with borrowers and partners to assess individual needs;
•Providing secure and efficient remote work options for our team members;
•Adjusting provisions for credit losses;
•Tightening underwriting standards;
•Reallocating personnel to increase resources for customer service and portfolio management; and
•Limiting business travel.
Under the guidelines set forth in the CARES Act, the Company had provided certain borrowers the ability to delay or make interest-only payments. Starting on September 30, 2020, the Company no longer allows delayed or interest-only payments.
Operating Leases. The Company leases office space under operating lease agreements scheduled to expire at various dates. The following table represents maturities of lease liabilities as of March 31, 2021 in the corresponding fiscal years:
(Dollars in thousands)
Remainder of 2021$2,443 
20229,548 
20239,820 
20249,422 
20258,791 
Thereafter41,968 
Total lease payments81,992 
Less: amount representing interest(9,949)
Total Lease Liability$72,043 

Credit-Related Financial Instruments. The Company is a party to credit-related financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are commitments to extend credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the unaudited condensed consolidated balance sheets.
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The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance-sheet instruments.
At March 31, 2021, the Company had commitments to originate $72.7 million in fixed rate loans and leases and $614.4 million in variable rate loans, totaling an aggregate outstanding principal balance of $687.1 million. At March 31, 2021, the Company’s fixed rate commitments to originate had a weighted-average rate of 2.75%. At March 31, 2021, the Company also had commitments to sell $112.4 million in fixed rate loans and none in variable rate loans, totaling an aggregate outstanding principal balance of $112.4 million.
Commitments to extend credit are agreements to lend to a customer so long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for equity lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.
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.
Acquisition. On April 20, 2021, the Company announced that it signed a definitive agreement to acquire certain assets and liabilities of E*TRADE Advisor Services, the registered investment advisor custody business Morgan Stanley acquired in its acquisition of E*TRADE Financial Corporation in 2020. The $55 million cash purchase price will be funded with existing capital at Axos Financial, Inc. The Company expects this transaction to close in the third calendar quarter of 2021. Following closing, this transaction will materially increase the Company’s non-interest income and non-interest expense for the Securities Business segment.
Litigation. On October 15, 2015, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a putative class action lawsuit styled Golden v. BofI Holding, Inc., et al, and brought in United States District Court for the Southern District of California (the “Golden Case”). On November 3, 2015, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a second putative class action lawsuit styled Hazan v. BofI Holding, Inc., et al, and also brought in the United States District Court for the Southern District of California (the “Hazan Case”). On February 1, 2016, the Golden Case and the Hazan Case were consolidated as In re BofI Holding, Inc. Securities Litigation, Case #: 3:15-cv-02324-GPC-KSC (the “Class Action”), and the Houston Municipal Employees Pension System was appointed lead plaintiff. The plaintiffs allege that the Company and other named defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by failing to disclose wrongful conduct that was alleged in a complaint filed in connection with a wrongful termination of employment lawsuit filed on October 13, 2015 (the “Employment Matter”) and that as a result the Company’s statements regarding its internal controls, as well as portions of its financial statements, were false and misleading. On March 21, 2018, the Court entered a final order dismissing the Class Action with prejudice. Subsequently, the plaintiff appealed, the Court overturned the dismissal and the Company is preparing a petition for a rehearing.
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On April 3, 2017, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a putative class action lawsuit styled Mandalevy v. BofI Holding, Inc., et al, and brought in United States District Court for the Southern District of California (the “Mandalevy Case”). The Mandalevy Case seeks monetary damages and other relief on behalf of a putative class that has not been certified by the Court. The complaint in the Mandalevy Case (the “Mandalevy Complaint”) alleges a class period that differs from that alleged in the First Class Action, and that the Company and other named defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by failing to disclose wrongful conduct that was alleged in a March 2017 media article. The Mandalevy Case has not been consolidated into the First Class Action. On December 7, 2018, the Court entered a final order granting the defendants’ motion and dismissing the Mandalevy Case with prejudice. Subsequently, the plaintiff filed a notice of appeal and the Court took the matter under advisement. On November 3, 2020, the Court issued a ruling affirming in part and reversing in part the District Court's Order dismissing the Class Action Second Amended Complaint. The defendants filed a petition for rehearing en banc on November 17, 2020, which petition was denied on December 16, 2020. The defendants filed a motion to dismiss the remanded complaint on February 19, 2021.
The Company and the other named defendants dispute the allegations of wrongdoing advanced by the plaintiffs in the Class Action, the Mandalevy Case, and in the Employment Matter, as well as those plaintiffs’ statement of the underlying factual circumstances, and are vigorously defending each case.
In addition to the First Class Action and the Mandalevy Case, two separate shareholder derivative actions were filed in December, 2015, purportedly on behalf of the Company. The first derivative action, Calcaterra v. Garrabrants, et al, was filed in the United States District Court for the Southern District of California on December 3, 2015. The second derivative action, Dow v. Micheletti, et al, was filed in the San Diego County Superior Court on December 16, 2015. A third derivative action, DeYoung v. Garrabrants, et al, was filed in the United States District Court for the Southern District of California on January 22, 2016, a fourth derivative action, Yong v. Garrabrants, et al, was filed in the United States District Court for the Southern District of California on January 29, 2016, a fifth derivative action, Laborers Pension Trust Fund of Northern Nevada v. Allrich et al, was filed in the United States District Court for the Southern District of California on February 2, 2016, and a sixth derivative action, Garner v. Garrabrants, et al, was filed in the San Diego County Superior Court on August 10, 2017. Each of these six derivative actions names the Company as a nominal defendant, and certain of its officers and directors as defendants. Each complaint sets forth allegations of breaches of fiduciary duties, gross mismanagement, abuse of control, and unjust enrichment against the defendant officers and directors. The plaintiffs in these derivative actions seek damages in unspecified amounts on the Company’s behalf from the officer and director defendants, certain corporate governance actions, and an award of their costs and attorney’s fees.
The United States District Court for the Southern District of California ordered the four above-referenced derivative actions pending before it to be consolidated and appointed lead counsel in the consolidated action. On June 7, 2018, the Court entered an order granting defendant’s motion for judgment on the pleadings, but giving the plaintiffs limited leave to amend by June 28, 2018. The plaintiffs failed to file an amended complaint, and instead plaintiffs filed on June 28, 2018 a motion to stay the case pending resolution of the securities class action and Employment Matter. On August 10, 2018, defendants filed an opposition to plaintiffs’ motion. On September 11, 2018, the plaintiffs filed a second amended complaint. On October 16, 2018, defendants filed a motion to dismiss the second amended complaint. On October 16, 2018, defendants filed a motion to dismiss the second amended complaint. The Court dismissed the second amended complaint with prejudice on May 23, 2019. Subsequently, the plaintiff filed a notice of appeal and opening brief and the Company filed its answering brief. Oral argument was held September 2, 2020 and the Court took the matter under advisement.
The two derivative actions pending before the San Diego County Superior Court have been consolidated and have been stayed by agreement of the parties.
In view of the inherent difficulty of predicting the outcome of each legal action, particularly since claimants seek substantial or indeterminate damages, it is not possible to reasonably predict or estimate the eventual loss or range of loss, if any, related to each legal action.
9.    RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company has granted related party loans collateralized by real property to certain executive officers, directors and their affiliates. There were three new related party loans for an approximate amount of $2.3 million funded under the provisions of the employee loan program and one refinance of an existing loan for approximately $1.4 million during the nine months ended March 31, 2021. There were three new related party loans in the amount of $4.0 million and one loan refinance of an existing loan of $1.2 million during the nine months ended March 31, 2020.

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10.    SEGMENT REPORTING
There are no material inter-segment sales or transfers. The accounting policies used by each reportable segment are the same as those discussed in Note 1 - “Organizations and Summary of Significant Accounting Policies” in our Annual Report on Form 10-K for the year ended June 30, 2020. All costs, except certain corporate administration costs and income taxes, have been allocated to the reportable segments. Therefore, combined amounts agree to the unaudited condensed consolidated totals. 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, goodwill, and assets of the segments:
For the Three Months Ended March 31, 2021
(Dollars in thousands)Banking
Business		Securities BusinessCorporate/EliminationsAxos Consolidated
Net interest income$135,092 $3,847 $(3,270)$135,669 
Provision for credit losses2,700 — — 2,700 
Non-interest income16,201 8,369 (683)23,887 
Non-interest expense64,040 13,282 3,485 80,807 
Income before taxes$84,553 $(1,066)$(7,438)$76,049 
For the Three Months Ended March 31, 2020
(Dollars in thousands)Banking
Business		Securities BusinessCorporate/EliminationsAxos Consolidated
Net interest income$145,372 $3,954 $(710)$148,616 
Provision for credit losses28,500 — — 28,500 
Non-interest income25,259 6,402 (119)31,542 
Non-interest expense56,661 11,137 3,992 71,790 
Income before taxes$85,470 $(781)$(4,821)$79,868 
Nine Months Ended March 31, 2021
(Dollars in thousands)Banking
Business		Securities BusinessCorporate/EliminationsAxos Consolidated
Net interest income$390,267 $13,002 $(6,181)$397,088 
Provision for credit losses22,500 — — 22,500 
Non-interest income68,708 20,725 (973)88,460 
Non-interest expense187,733 35,946 8,971 232,650 
Income before taxes$248,742 $(2,219)$(16,125)$230,398 
Nine Months Ended March 31, 2020
(Dollars in thousands)Banking
Business		Securities BusinessCorporate/EliminationsAxos Consolidated
Net interest income$350,184 $13,137 $(2,982)$360,339 
Provision for credit losses35,700 — — 35,700 
Non-interest income57,274 19,087 (2,076)74,285 
Non-interest expense160,547 32,656 11,019 204,222 
Income before taxes$211,211 $(432)$(16,077)$194,702 




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As of March 31, 2021
(Dollars in thousands)Banking BusinessSecurities BusinessCorporate/EliminationsAxos Consolidated
Goodwill$35,721 $35,501 $— $71,222 
Total Assets$13,423,454 $1,317,859 $86,561 $14,827,874 
As of June 30, 2020
(Dollars in thousands)Banking BusinessSecurities BusinessCorporate/EliminationsAxos Consolidated
Goodwill$35,721 $35,501 $— $71,222 
Total Assets$13,018,814 $737,419 $95,667 $13,851,900 

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 (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, 2020, 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 March 31, 2021 and in our Annual Report on Form 10-K for the year ended June 30, 2020, 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 $14.8 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 and lease 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 wholly-owned subsidiaries, Axos Clearing LLC (“Axos Clearing”) and Axos Invest, Inc. (“Axos Invest”), generate interest and fee income by providing comprehensive securities clearing 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 and the S&P SmallCap 600® 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 (“CFPB”).
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.
We distribute our deposit products through a wide range of retail distribution channels, and our deposits consist of demand, savings and time deposits accounts. 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 mortgage-backed securities consist of mortgage pass-through securities issued by government-sponsored entities and non-agency collateralized mortgage obligations and asset-backed mortgage-backed securities issued by private sponsors. We believe our flexibility to adjust our asset generation channels has been a competitive advantage
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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.
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, prepaid card services, and mortgage, vehicle and unsecured lending through online and telephonic distribution channels to serve the needs of consumer and small businesses nationally. 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.
Securities Business. The Securities Business consists of two sets of products and services, securities services provided to third-party securities firms and investment management provided to consumers.
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 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.
Investment management includes our digital wealth management business, which provides our retail customers with 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
We are closely monitoring 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, we continue to take the following actions to support customers, employees, partners and shareholders:
•Actively communicating with borrowers and partners to assess individual needs;
•Providing secure and efficient remote work options for our team members;
•Adjusting provisions for credit losses;
•Tightening underwriting standards;
•Reallocating personnel to increase resources for customer service and portfolio management; and
•Limiting business travel.

Under the guidelines set forth in the CARES Act, for our borrowers who are one or less payments past due on April 1, 2020, we may delay payments for an agreed upon timeframe, depending on each individual borrower’s characteristics. The Company has taken proactive measures to manage loans that became delinquent during the recent economic downturn as a result of the COVID-19 pandemic. As of March 31, 2021, the Company provided no forbearance nor deferrals of payment obligations on any single family, multifamily and commercial mortgage loans, warehouse loans and commercial real estate loans. No forbearance or deferrals were provided to any borrowers during the three months ended March 31, 2021. Deferrals totaling $0.9 million of auto and consumers loans were granted during the nine months ended March 31, 2021.
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Mergers and Acquisitions
From time to time we undertake acquisitions or similar transactions consistent with our Company’s operating and growth strategies.
On April 20, 2021, we announced that we signed a definitive agreement to acquire certain assets and liabilities of E*TRADE Advisor Services, the registered investment advisor custody business Morgan Stanley acquired in its acquisition of E*TRADE Financial Corporation in 2020. The $55 million cash purchase price will be funded with existing capital at Axos Financial, Inc. We expect this transaction to close in the third calendar quarter of 2021. Following closing, this transaction will materially increase our non-interest income and non-interest expense for the Securities Business segment.
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.
Except as discussed below, there have been no changes to our significant accounting policies and practices as described in greater detail in Note 1 to our June 30, 2020 audited consolidated financial statements 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, 2020.
Allowance for Credit Losses. On July 1, 2020, we adopted ASC 326. The allowance for credit losses is maintained at a level needed to absorb expected credit losses over the contractual life, considering the effects of prepayments, of the loan portfolio as of the reporting date. Determining the adequacy of the allowance is complex and requires judgment by our management team about the effect of matters that are inherently uncertain. As such, a future assessment of current conditions may require material adjustments to the allowance.
Our process for determining expected life-time credit losses entails a loan-level, model-based approach and requires consideration of a broad range of relevant information relating to historical loss experience, current economic conditions and reasonable and supportable forecasts.
A credit loss is estimated for all loans. Consequently, we stratify the full loan population into segments sharing similar characteristics to perform the evaluation of the credit loss collectively.
We define a segment as the level at which we develop a systematic methodology to determine the allowance for credit losses. Additionally, we can further stratify loans of similar type, risk attributes and methods for monitoring credit risk. We categorize the loan portfolio into six segments: Single Family - Mortgage & Warehouse, Multifamily and Commercial Mortgage, Commercial Real Estate, Commercial & Industrial - Non Real Estate, Auto & Consumer and Other – refer to Note 4 – “Loans & Allowance for Credit Losses” for further detail of the segments and classes within.

The method for estimating expected life-time credit losses includes, among other things, the following main components: 1) The use of a probability of default (“PD”)/loss given default (“LGD”) model; 2) defining a number of economic scenarios across the benign to adverse spectrum; 3) an initial and reasonable forecast period of one year for all loan segments; and 4) a reversion period of 18 months using a linear transition to historical loss rates for each loan pool. After the reversion period, the historical loss rate is applied over the remaining contractual life of loan.

Given the inherent limitations of a solely quantitative model, qualitative adjustments are included to arrive at the ending calculated loss amount in order to account for data points not captured from quantitative inputs alone.

Qualitative criteria we consider includes, among other things, the following:
•Regulatory and Legal - matters that may impact the timeliness and/or amounts of repayments;
•Concentration - portfolio composition and loan concentration;
•Collateral Dependency - changes in collateral values;
•Lending/Underwriting Standards - current lending policies and the effects of any new policies;
•Nature and Volume - loan production volume and mix;
•Loan Trends - credit performance trends, including a borrower’s financial condition and credit rating.
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On a quarterly basis, our management team convenes a Credit Review meeting in which current information and trends are collectively assessed to forecast future economic impact for purposes of assessing the adequacy of the ACL. The forecasted direction and magnitude of change with respect to future economic conditions is then assessed against the estimate in the model.

For further information on the Allowance for Credit Losses, refer to Note 1 - “Summary of Significant Accounting Policies”.

USE OF NON-GAAP FINANCIAL MEASURES
In addition to the results presented in accordance with GAAP, this report includes non-GAAP financial measures such as 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 Bank’s operating performance. We believe excluding the non-recurring acquisition related costs, and other costs provides investors with an alternative understanding of Axos’ business without these non-recurring costs.
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 EndedNine Months Ended
March 31,March 31,
(Dollars in thousands, except per share amounts)2021202020212020
Net income$53,645 $56,057 $161,452 $138,138 
Acquisition-related costs
2,511 2,273 7,665 6,520 
Income taxes(740)(678)(2,285)(1,895)
Adjusted earnings (Non-GAAP)$55,416 $57,652 $166,832 $142,763 
Adjusted EPS (Non-GAAP)$0.92 $0.94 $2.76 $2.31 

    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:
March 31,
(Dollars in thousands)20212020
Total stockholders’ equity1,345,650 1,184,452 
Less: preferred stock— 5,063 
Common stockholders’ equity1,345,650 1,179,389 
Less: mortgage servicing rights, carried at fair value16,631 9,962 
Less: goodwill and other intangible assets118,133 127,962 
Tangible common stockholders’ equity (Non-GAAP)1,210,886 1,041,465 
Common shares outstanding at end of period59,237,765 59,653,192 
Tangible book value per common share (Non-GAAP)20.44 17.46 
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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
(Dollars in thousands)March 31,
2021		June 30,
2020		March 31,
2020
Selected Balance Sheet Data:
Total assets14,827,874 $13,851,900 $12,159,919 
Loans and leases—net of allowance for credit losses11,711,215 10,631,349 10,372,921 
Loans held for sale, carried at fair value61,500 51,995 40,236 
Loans held for sale, lower of cost or fair value13,371 44,565 29 
Allowance for credit losses - loans138,107 75,807 87,097 
Securities—trading254 105 919 
Securities—available-for-sale218,962 187,627 191,388 
Securities borrowed543,538 222,368 53,816 
Customer, broker-dealer and clearing receivables351,063 220,266 187,353 
Total deposits11,612,501 11,336,694 9,567,338 
Advances from the FHLB172,500 242,500 770,500 
Borrowings, subordinated notes and debentures
365,753 235,789 76,285 
Securities loaned649,837 255,945 76,587 
Customer, broker-dealer and clearing payables483,677 347,614 318,100 
Total stockholders’ equity1,345,650 1,230,846 1,184,452 
Capital Ratios:
Equity to assets at end of period9.08 %8.89 %9.74 %
Axos Financial, Inc.:
Tier 1 leverage (core) capital to adjusted average assets8.99 %8.97 %8.55 %
Common equity tier 1 capital (to risk-weighted assets)10.86 %11.22 %11.34 %
Tier 1 capital (to risk-weighted assets)10.86 %11.27 %11.39 %
Total capital (to risk-weighted assets)13.32 %12.64 %12.96 %
Axos Bank:
Tier 1 leverage (core) capital to adjusted average assets9.56 %9.25 %8.72 %
Common equity tier 1 capital (to risk-weighted assets)11.74 %11.79 %11.62 %
Tier 1 capital (to risk-weighted assets)11.74 %11.79 %11.62 %
Total capital (to risk-weighted assets)12.71 %12.62 %12.60 %
Axos Clearing, LLC:
Net capital33,845 34,022 33,863 
Excess capital26,338 29,450 30,341 
Net capital as a percentage of aggregate debit items9.02 %14.88 %19.23 %
Net capital in excess of 5% aggregate debit items15,077 22,593 25,057 



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AXOS FINANCIAL, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL INFORMATION
At or for the Three Months EndedAt or for the Nine Months Ended
March 31,March 31,
(Dollars in thousands, except per share data)2021202020212020
Selected Income Statement Data:
Interest and dividend income$155,674 $185,063 $460,942 $478,696 
Interest expense20,005 36,447 63,854 118,357 
Net interest income135,669 148,616 397,088 360,339 
Provision for credit losses2,700 28,500 22,500 35,700 
Net interest income after provision for credit losses132,969 120,116 374,588 324,639 
Non-interest income23,887 31,542 88,460 74,285 
Non-interest expense80,807 71,790 232,650 204,222 
Income before income tax expense76,049 79,868 230,398 194,702 
Income tax expense22,404 23,811 68,946 56,564 
Net income$53,645 $56,057 $161,452 $138,138 
Net income attributable to common stock$53,645 $55,980 $161,262 $137,906 
Per Common Share Data:
Net income:
Basic$0.91 $0.92 $2.72 $2.25 
Diluted$0.89 $0.91 $2.67 $2.23 
Adjusted earnings (Non-GAAP)
$0.92 $0.94 $2.76 $2.31 
Book value$22.72 $19.77 $22.72 $19.77 
Tangible book value (Non-GAAP)$20.44 $17.46 $20.44 $17.46 
Weighted average number of common shares outstanding:
     Basic59,118,884 60,967,892 59,225,409 61,176,715 
     Diluted60,482,733 61,523,513 60,453,220 61,811,845 
Common shares outstanding at end of period59,237,765 59,653,192 59,237,765 59,653,192 
Common shares issued at end of period67,902,239 67,084,817 67,902,239 67,084,817 
Performance Ratios and Other Data:
Loan and lease originations for investment$1,189,750 $2,596,420 $4,430,540 $5,493,338 
Loan originations for sale$418,618 $292,226 $1,349,683 $1,286,230 
Return on average assets1.52 %1.79 %1.55 %1.56 %
Return on average common stockholders’ equity16.12 %18.65 %16.90 %15.99 %
Interest rate spread1
3.73 %4.33 %3.69 %3.70 %
Net interest margin2
3.96 %4.90 %3.91 %4.20 %
Net interest margin2 – Banking Business Segment only
4.23 %4.97 %4.09 %4.28 %
Efficiency ratio3
50.64 %39.85 %47.91 %46.99 %
Efficiency ratio3 – Banking Business Segment only
42.33 %33.21 %40.90 %39.40 %
Asset Quality Ratios:
Net annualized charge-offs to average loans and leases0.03 %0.03 %0.09 %0.08 %
Non-performing loans to total loans1.14 %0.55 %1.14 %0.55 %
Non-performing assets to total assets0.96 %0.54 %0.96 %0.54 %
Allowance for credit losses - loans to total loans held for investment at end of period1.16 %0.83 %1.16 %0.83 %
Allowance for credit losses - loans to non-performing loans101.84 %150.33 %101.84 %150.33 %
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 Nine Months Ended March 31, 2021 and 2020
For the three months ended March 31, 2021, we had net income of $53.6 million compared to net income of $56.1 million for the three months ended March 31, 2020. Net income attributable to common stockholders was $53.6 million or $0.89 per diluted share for the three months ended March 31, 2021 compared to net income attributable to common shareholders of $56.0 million, or $0.91 per diluted share for the three months ended March 31, 2020. For the nine months ended March 31, 2021, we had net income of $161.5 million compared to net income of $138.1 million for the nine months ended March 31, 2020. Net income attributable to common stockholders was $161.3 million, or $2.67 per diluted share for the nine months ended March 31, 2021 compared to net income attributable to common shareholders of $137.9 million, or $2.23 per diluted share for the nine months ended March 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), decreased 3.9% to $55.4 million and 2.1% to $0.92, respectively, for the quarter ended March 31, 2021 compared to $57.7 million and $0.94, respectively, for the quarter ended March 31, 2020. Adjusted earnings and adjusted EPS increased 16.9% to $166.8 million and 19.5% to $2.76, respectively, for the nine months ended March 31, 2021 compared to $142.8 million and $2.31, respectively, for the nine months ended March 31, 2020.
Net Interest Income
Net interest income for the three and nine months ended March 31, 2021 totaled $135.7 million and $397.1 million, a decrease of 8.7% and increase of 10.2%, compared to net interest income of $148.6 million and $360.3 million for the three and nine months ended March 31, 2020, respectively. The decrease for the three months was primarily due to non-recurring interest income from seasonal tax loan products offered during the three months ended March 31, 2020 partially offset by the reduction in the rates paid on interest-bearing demand and savings deposits and an increase in other non-tax related loan and lease volumes for the three months ended March 31, 2021. The growth of net interest income for the nine months ended March 31, 2021 is primarily due to increased average earnings assets from net loan and lease portfolio growth and reduced rates paid on interest-bearing demand and savings deposits, partially offset by reduced yields on interest earning assets.
Total interest and dividend income during the three and nine months ended March 31, 2021 decreased 15.9% to $155.7 million and 3.7% to $460.9 million, compared to $185.1 million and $478.7 million during the three and nine months ended March 31, 2020, respectively. The decrease in interest and dividend income for the three and nine months ended March 31, 2021 was primarily attributable to the decrease in interest income from non-recurring seasonal tax related products and interest earned on cash balances, partially offset by the increase in average earning assets from other non-tax related loan and lease originations. The average balance of interest-earning loans and leases increased 9.1% and 12.7% for the three and nine months ended March 31, 2021 compared to the three and nine months ended March 31, 2020.
Total interest expense was $20.0 million for the three months ended March 31, 2021, a decrease of $16.4 million or 45.1% as compared with the three months ended March 31, 2020. Total interest expense was $63.9 million for the nine months ended March 31, 2021, a decrease of $54.5 million or 46.0% as compared with the nine months ended March 31, 2020. The decrease in the average cost of funds rate for the three months ended March 31, 2021 compared to 2020 was primarily due to 99 basis point and 114 basis point decreases in the three and nine month average rates paid on interest-bearing demand and savings deposits due to decreases in prevailing deposit rates across the industry.
Net interest margin, defined as annualized net interest income divided by average earning assets, decreased 94 basis points to 3.96% for the three months ended March 31, 2021 from 4.90% for the three months ended March 31, 2020, and decreased 29 basis points to 3.91% for the nine months ended March 31, 2021 from 4.20% for the nine months ended March 31, 2020. The decrease in net interest margin for the three and nine months ended March 31, 2021, was primarily due to high yielding tax loan products offered during the three and nine months ended March 31, 2020 that did not recur due to the termination of the H&R Block relationship.
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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 March 31, 2021 and 2020:
 For the Three Months Ended
March 31,
 20212020
(Dollars in thousands)
Average
Balance1
Interest
Income/
Expense
Average Yields
Earned/Rates
Paid2
Average
Balance1
Interest
Income/
Expense
Average Yields
Earned/Rates
Paid2
Assets:
Loans and leases3, 4
$11,600,551 $147,936 5.10 %$10,628,840 $175,065 6.59 %
Interest-earning deposits in other financial institutions1,267,091 482 0.15 %913,996 3,068 1.34 %
Securities4
214,712 2,590 4.83 %227,582 2,570 4.52 %
Securities borrowed and margin lending5
616,774 4,453 2.89 %330,050 3,818 4.63 %
Stock of the regulatory agencies20,612 213 4.13 %33,561 542 6.46 %
Total interest-earning assets13,719,740 155,674 4.54 %12,134,029 185,063 6.10 %
Non-interest-earning assets413,297 387,725 
Total assets$14,133,037 $12,521,754 
Liabilities and Stockholders’ Equity:
Interest-bearing demand and savings$7,083,540 $6,691 0.38 %$4,628,867 $15,882 1.37 %
Time deposits1,748,271 7,343 1.68 %2,457,991 15,372 2.50 %
Securities loaned443,502 453 0.41 %141,932 115 0.32 %
Advances from the FHLB194,564 992 2.04 %929,151 3,952 1.70 %
Borrowings, subordinated notes and debentures413,858 4,526 4.37 %68,552 1,126 6.57 %
Total interest-bearing liabilities9,883,735 20,005 0.81 %8,226,493 36,447 1.77 %
Non-interest-bearing demand deposits2,209,297 2,619,102 
Other non-interest-bearing liabilities708,542 470,546 
Stockholders’ equity1,331,463 1,205,613 
Total liabilities and stockholders’ equity$14,133,037 $12,521,754 
Net interest income$135,669 $148,616 
Interest rate spread6
3.73 %4.33 %
Net interest margin7
3.96 %4.90 %
1Average balances are obtained from daily data.
2Annualized.
3Loans and leases 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. Loans and leases include average balances of $27.1 million and $27.8 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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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 nine months ended March 31, 2021 and 2020:
 For the Nine Months Ended
March 31,
 20212020
(Dollars in thousands)
Average
Balance1
Interest
Income/
Expense
Average Yields
Earned/Rates
Paid2
Average
Balance1
Interest
Income/
Expense
Average Yields
Earned/Rates
Paid2
Assets:
Loans and leases3, 4
$11,281,748 $436,445 5.16 %$10,011,320 $445,554 5.93 %
Interest-earning deposits in other financial institutions1,491,437 1,482 0.13 %801,510 10,541 1.75 %
Securities4
202,327 8,184 5.39 %212,529 8,203 5.15 %
Securities borrowed and margin lending5
530,384 14,196 3.57 %383,540 13,025 4.53 %
Stock of the regulatory agencies20,611 635 4.11 %28,795 1,373 6.36 %
Total interest-earning assets13,526,507 460,942 4.54 %11,437,694 478,696 5.58 %
Non-interest-earning assets379,629 390,516 
Total assets$13,906,136 $11,828,210 
Liabilities and Stockholders’ Equity:
Interest-bearing demand and savings$7,117,471 $23,913 0.45 %$4,762,651 $56,661 1.59 %
Time deposits1,889,983 25,770 1.82 %2,493,812 46,313 2.48 %
Securities loaned380,035 832 0.29 %278,475 564 0.27 %
Advances from the FHLB224,119 3,690 2.20 %727,397 10,211 1.87 %
Borrowings, subordinated notes and debentures366,407 9,649 3.51 %111,708 4,608 5.50 %
Total interest-bearing liabilities9,978,015 63,854 0.85 %8,374,043 118,357 1.88 %
Non-interest-bearing demand deposits2,049,366 1,940,516 
Other non-interest-bearing liabilities603,999 358,417 
Stockholders’ equity1,274,756 1,155,234 
Total liabilities and stockholders’ equity$13,906,136 $11,828,210 
Net interest income$397,088 $360,339 
Interest rate spread6
3.69 %3.70 %
Net interest margin7
3.91 %4.20 %
1Average balances are obtained from daily data.
2Annualized.
3Loans and leases 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. Loans and leases include average balances of $27.3 million and $27.8 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 2021 and 2020 nine-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); and (iii) changes in rate/volume (change in rate multiplied by change in volume) for the three and nine months ended March 31, 2021 and 2020:
 For the Three Months EndedFor the Nine Months Ended
March 31,March 31,
2021 vs 20202021 vs 2020
 Increase (Decrease) Due toIncrease (Decrease) Due to
(Dollars in thousands)VolumeRateTotal
Increase
(Decrease)		VolumeRateTotal
Increase
(Decrease)
Increase / (decrease) in interest income:
Loans and leases$14,988 $(42,117)$(27,129)$52,649 $(61,758)$(9,109)
Interest-earning deposits in other financial institutions865 (3,451)(2,586)5,019 (14,078)(9,059)
Securities(150)170 20 (398)379 (19)
Securities borrowed and margin lending2,448 (1,813)635 4,309 (3,138)1,171 
Stock of the regulatory agencies(170)(159)(329)(329)(409)(738)
$17,981 $(47,370)$(29,389)$61,250 $(79,004)$(17,754)
Increase / (decrease) in interest expense:
Interest-bearing demand and savings$5,807 $(14,998)$(9,191)$19,874 $(52,622)$(32,748)
Time deposits(3,759)(4,270)(8,029)(9,787)(10,756)(20,543)
Securities loaned298 40 338 223 45 268 
Advances from the FHLB(3,623)663 (2,960)(8,064)1,543 (6,521)
Borrowings, subordinated notes and debentures
3,895 (495)3,400 7,228 (2,187)5,041 
$2,618 $(19,060)$(16,442)$9,474 $(63,977)$(54,503)

Provision for Credit Losses
The provision for credit losses was $2.7 million for the three months ended March 31, 2021 compared to $28.5 million for the three months ended March 31, 2020. The provision for credit losses was $22.5 million for the nine months ended March 31, 2021 compared to $35.7 million for the nine months ended March 31, 2020. The decrease in the provision for the three months ended March 31, 2021 compared to the provision for the three months ended March 31, 2020 was mainly attributable to a decrease in provisions associated with non-recurring Refund Advance loans due to the termination of our relationship with H&R Block and macroeconomic updates relating to COVID-19. The decrease in the provision for the nine months ended March 31, 2021 compared to the provision for the nine months ended March 31, 2020 was due to the decrease in provisions associated with non-recurring Refund Advance loans, macroeconomic updates relating to COVID-19 and a change in the provision for credit losses methodology from the incurred loss model to a current expected credit loss model as described under “Critical Accounting Policies.” 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.” On July 1, 2020, the Company adopted ASC 326, adding approximately $53.0 million to the allowance for credit losses. The increase was primarily related to two factors:
•The difference between loss emergence periods previously utilized, as compared to estimating lifetime credit losses as required by ASC 326.
•The lifetime impact of COVID-19 on the Company’s loan and lease portfolio, or more specifically the impact on macroeconomic factors across the loan and lease portfolio, with the largest impacts shown in hospitality and retail real estate 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 EndedFor the Nine Months Ended
March 31,March 31,
(Dollars in thousands)20212020Inc (Dec)20212020Inc (Dec)
Prepayment penalty fee income1,342 1,406 (64)4,289 4,824 (535)
Gain on sale – other214 608 (394)704 6,354 (5,650)
Mortgage banking income9,037 2,955 6,082 39,255 7,973 31,282 
Broker-dealer fee income7,942 6,329 1,613 19,931 17,540 2,391 
Banking and service fees5,352 20,244 (14,892)24,281 37,594 (13,313)
Total non-interest income$23,887 $31,542 $(7,655)$88,460 $74,285 $14,175 
Non-interest income decreased $7.7 million to $23.9 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The net decrease was mainly the result of decreased banking and service fees of $14.9 million primarily from Emerald Prepaid Mastercard® and Refund Transfer products associated with H&R Block that did not recur in the three months ended March 31, 2021, partially offset by increased mortgage banking income of $6.1 million and an increase of $1.6 million in broker-dealer fee income. Non-interest income increased $14.2 million to $88.5 million for the nine months ended March 31, 2021 compared to the nine months ended March 31, 2020. The increase was primarily the result of an increase of $31.3 million in mortgage banking driven by the decline of mortgage rates to record lows over the year and and an increase of $2.4 million in broker-dealer fee income, partially offset by a decrease of $13.3 million in banking and service fees, primarily from Emerald Prepaid Mastercard® and Refund Transfer products associated with H&R Block that did not recur in the nine months ended March 31, 2021, and a decrease of $5.7 million in gain on sale-other, as certain sales of lottery receivables and sales of Emerald Advance loans to H&R Block in the nine months ended March 31, 2020 did not recur in the nine months ended March 31, 2021.
Included in gain on sale – other are sales of unsecured and secured consumer and business loans originated through introductions from our third-party partner relationships and sales of structured settlement annuity and state lottery receivables. We engage in the wholesale and retail purchase of state lottery prize and structured settlement annuity payments. These payments are high credit quality deferred payment receivables having a state lottery commission or investment grade (top two tiers) insurance company payor. The Bank originates contracts for the retail purchase of such payments and classifies these under the category of Other in the loan portfolio. Factoring yields are typically higher than mortgage loan rates. Typically, the gain received upon sale of these payment streams is greater than the gain received from an equivalent amount of mortgage loan sales. Since 2013, pools of structured settlement receivables have been originated for sale depending upon management’s assessment of interest rate risk, liquidity, and offers containing favorable terms and are classified on our balance sheet as loans held for sale. Increased sales on favorable terms during the three and nine months ended March 31, 2020 resulted in an increase in gain on sale from structured settlement annuity and state lottery receivables. Such sales did not recur to the same degree for the three and nine months ended March 31, 2021.
41
Non-Interest Expense
    The following table sets forth information regarding our non-interest expense for the periods shown:
 For the Three Months EndedFor the Nine Months Ended
March 31,March 31,
(Dollars in thousands)20212020Inc (Dec)20212020Inc (Dec)
Salaries and related costs$38,545 $36,257 $2,288 $115,367 $106,932 $8,435 
Data processing10,171 6,563 3,608 27,772 21,784 5,988 
Advertising and promotional4,261 3,887 374 10,600 11,720 (1,120)
Depreciation and amortization5,865 6,197 (332)17,913 17,461 452 
Professional services5,712 3,231 2,481 17,340 7,932 9,408 
Occupancy and equipment3,096 2,919 177 9,239 8,879 360 
FDIC and regulatory fees3,107 2,013 1,094 8,400 3,143 5,257 
Broker-dealer clearing charges3,278 2,180 1,098 7,986 6,048 1,938 
General and administrative expense6,772 8,543 (1,771)18,033 20,323 (2,290)
Total non-interest expenses
$80,807 $71,790 $9,017 $232,650 $204,222 $28,428 
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 $80.8 million for the three months ended March 31, 2021, compared to $71.8 million for the three months ended March 31, 2020. Non-interest expense was $232.7 million for the nine months ended March 31, 2021, up from $204.2 million for the nine months ended March 31, 2020. The increases for the three and nine months ended March 31, 2021 were primarily due to to the expansion of the Bank, specifically in areas related to lending and deposits.
Total salaries and related costs increased $2.3 million to $38.5 million for the three months ended March 31, 2021 compared to $36.3 million for the three months ended March 31, 2020 and costs increased $8.4 million to $115.4 million for the nine months ended March 31, 2021 compared to $106.9 million for the nine months ended March 31, 2020. The increases in compensation expense for the three and nine months ended March 31, 2021 were primarily due to staffing additions to support growth in deposit and lending activities. Our staff increased to 1,152 from 1,047, or 10.0% between March 31, 2021 and 2020.
Data processing expense increased $3.6 million for the three months ended March 31, 2021 compared to three months ended March 31, 2020, and increased $6.0 million for the nine months ended March 31, 2021 compared to the nine month period ended March 31, 2020, primarily due to enhancements to customer interfaces and the Bank’s core processing system.
Advertising and promotional expense increased $0.4 million and decreased $1.1 million for the three and nine months ended March 31, 2021, compared to the three and nine months ended March 31, 2020, respectively. Fluctuations are mainly the result of activity in loan and deposit marketing.
Depreciation and amortization expense decreased $0.3 million and increased $0.5 million for the three and nine months ended March 31, 2021, compared to the three and nine months ended March 31, 2020, respectively. The decrease for the three months ended March 31, 2021 was primarily due to reduced depreciation of computer hardware and furniture and fixtures. The increase for the nine months ended March 31, 2021 was primarily due to amortization of intangibles and depreciation on lending platform enhancements and infrastructure development.
Professional services expense increased $2.5 million and $9.4 million for the three and nine months ended March 31, 2021, compared to the three and nine months ended March 31, 2020, respectively. Professional services charges increased due primarily to increased legal expense.
Occupancy and equipment expense increased by $0.2 million and $0.4 million for the three and nine months ended March 31, 2021 compared to the three and nine months ended March 31, 2020, respectively. The changes for the three and nine months ended March 31, 2021 are primarily related to the timing of new property leases.
Our cost of FDIC and regulatory fees increased $1.1 million and $5.3 million for the three and nine months ended March 31, 2021, compared to the three and nine month period last year, respectively. The increase in FDIC and regulatory fees for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 corresponds to growth in average liabilities. The increase in FDIC and regulatory fees for the nine months ended March 31, 2021 as compared to the nine months ended March 31, 2020 corresponds to growth in average liabilities and a small bank assessment credit received from the
42
FDIC during the nine months ended March 31, 2020, which did not recur in 2021. As an FDIC-insured institution, the Bank is required to pay deposit insurance premiums to the FDIC.
Broker-dealer clearing charges increased $1.1 million and $1.9 million for the three and nine months ended March 31, 2021 compared to the three and nine months ended March 31, 2020. The increases were attributable to increased activity in the Securities Business.
Other general and administrative costs decreased by $1.8 million and $2.3 million for the three and nine months ended March 31, 2021, compared to the three and nine month period ended March 31, 2020, respectively. The decrease in costs in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 was primarily due to loan processing costs associated with seasonal tax loan products, which did not recur in 2021. The decrease in the nine months ended March 31, 2021 as compared to March 31, 2020 was due to decreased travel costs resulting from COVID-19 travel restrictions and loan processing costs associated with seasonal tax loan products, which did not recur in 2021.
Provision for Income Taxes
Our effective income tax rates (income tax provision divided by net income before income tax) for the three months ended March 31, 2021 and 2020 were 29.46% and 29.81%, respectively. Our effective income tax rates for the nine months ended March 31, 2021 and 2020 were 29.92% and 29.05%, 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 March 31, 2021
(Dollars in thousands)Banking BusinessSecurities BusinessCorporate/EliminationsAxos Consolidated
Net interest income$135,092 $3,847 $(3,270)$135,669 
Provision for credit losses2,700 — — 2,700 
Non-interest income16,201 8,369 (683)23,887 
Non-interest expense64,040 13,282 3,485 80,807 
Income before taxes$84,553 $(1,066)$(7,438)$76,049 
For the Three Months Ended March 31, 2020
(Dollars in thousands)Banking BusinessSecurities BusinessCorporate/EliminationsAxos Consolidated
Net interest income$145,372 $3,954 $(710)$148,616 
Provision for credit losses28,500 — — 28,500 
Non-interest income25,259 6,402 (119)31,542 
Non-interest expense56,661 11,137 3,992 71,790 
Income before taxes$85,470 $(781)$(4,821)$79,868 
For the Nine Months Ended March 31, 2021
(Dollars in thousands)Banking BusinessSecurities BusinessCorporate/EliminationsAxos Consolidated
Net interest income$390,267 $13,002 $(6,181)$397,088 
Provision for credit losses22,500 — — 22,500 
Non-interest income68,708 20,725 (973)88,460 
Non-interest expense187,733 35,946 8,971 232,650 
Income before taxes$248,742 $(2,219)$(16,125)$230,398 
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For the Nine Months Ended March 31, 2020
(Dollars in thousands)Banking BusinessSecurities BusinessCorporate/EliminationsAxos Consolidated
Net interest income$350,184 $13,137 $(2,982)$360,339 
Provision for credit losses35,700 — — 35,700 
Non-interest income57,274 19,087 (2,076)74,285 
Non-interest expense160,547 32,656 11,019 204,222 
Income before taxes$211,211 $(432)$(16,077)$194,702 
Banking Business
For the three months ended March 31, 2021, our Banking Business segment had income before taxes of $84.6 million compared to income before taxes of $85.5 million for the three months ended March 31, 2020. For the nine months ended March 31, 2021, we had income before taxes of $248.7 million compared to income before taxes of $211.2 million for the nine months ended March 31, 2020. For the three months ended March 31, 2021, the decrease in income before taxes was mainly due to interest income from seasonal loan products associated with H&R Block that did not recur in the three months ended March 31, 2021. For the nine months ended March 31, 2021, the increase in income before taxes was the result of an increase in average earning assets and a reduction in the rates paid on interest-bearing demand and savings deposits and an increase in non-interest income primarily from increased mortgage banking income.
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 EndedAt or for the Nine Months Ended
March 31, 2021March 31, 2020March 31, 2021March 31, 2020
Efficiency ratio42.33 %33.21 %40.90 %39.40 %
Return on average assets1.81 %2.03 %1.80 %1.80 %
Interest rate spread4.05 %4.43 %3.90 %3.77 %
Net interest margin4.23 %4.97 %4.09 %4.28 %
Our Banking 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.

44
Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents our Banking 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 March 31, 2021 and 2020:
 For the Three Months Ended
March 31,
 20212020
(Dollars in thousands)
Average
Balance1
Interest
Income/
Expense
Average Yields
Earned/Rates
Paid2
Average
Balance1
Interest
Income/
Expense
Average Yields
Earned/Rates
Paid2
Assets:
Loans and leases3, 4
$11,556,228 $147,264 5.10 %$10,572,444 $174,497 6.60 %
Interest-earning deposits in other financial institutions949,259 230 0.10 %826,965 2,686 1.30 %
Securities4
242,422 2,733 4.51 %267,036 2,891 4.33 %
Stock of the regulatory agencies17,250 212 4.92 %30,535 540 7.07 %
Total interest-earning assets12,765,159 150,439 4.71 %11,696,980 180,614 6.18 %
Non-interest-earning assets161,541 164,867 
Total assets$12,926,700 $11,861,847 
Liabilities and Stockholders’ Equity:
Interest-bearing demand and savings$7,256,096 $6,904 0.38 %$4,645,978 $15,918 1.37 %
Time deposits1,748,271 7,343 1.68 %2,457,991 15,372 2.50 %
Advances from the FHLB194,564 992 2.04 %929,162 3,952 1.70 %
Borrowings, subordinated notes and debentures
120,037 104 0.35 %— — — %
Total interest-bearing liabilities9,318,968 15,343 0.66 %8,033,131 35,242 1.75 %
Non-interest-bearing demand deposits2,239,439 2,632,027 
Other non-interest-bearing liabilities119,605 81,021 
Stockholders’ equity1,248,688 1,115,668 
Total liabilities and stockholders’ equity$12,926,700 $11,861,847 
Net interest income$135,096 $145,372 
Interest rate spread5
4.05 %4.43 %
Net interest margin6
4.23 %4.97 %
1Average balances are obtained from daily data.
2Annualized.
3Loans and leases 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. Loans and leases include average balances of $27.1 million and $27.8 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.




45
Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents our Banking 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 nine months ended March 31, 2021 and 2020:
 For the Nine Months Ended
March 31,
 20212020
(Dollars in thousands)
Average
Balance1
Interest
Income/
Expense
Average Yields
Earned/Rates
Paid2
Average
Balance1
Interest
Income/
Expense
Average Yields
Earned/Rates
Paid2
Assets:
Loans and leases3, 4
$11,234,740 $434,269 5.15 %$9,992,436 $444,986 5.94 %
Interest-earning deposits in other financial institutions1,245,733 946 0.10 %679,702 8,647 1.70 %
Securities4
233,946 8,661 4.94 %224,842 8,524 5.05 %
Stock of the regulatory agencies17,250 631 4.88 %25,770 1,367 7.07 %
Total interest-earning assets12,731,669 444,507 4.66 %10,922,750 463,524 5.66 %
Non-interest-earning assets157,825 189,562 
Total assets$12,889,494 $11,112,312 
Liabilities and Stockholders’ Equity:
Interest-bearing demand and savings$7,248,839 $24,413 0.45 %$4,783,758 $56,816 1.58 %
Time deposits1,889,983 25,770 1.82 %2,493,812 46,313 2.48 %
Advances from the FHLB224,119 3,690 2.20 %727,404 10,211 1.87 %
Borrowings, subordinated notes and debentures
139,925 366 0.35 %— — — %
Total interest-bearing liabilities9,502,866 54,239 0.76 %8,004,974 113,340 1.89 %
Non-interest-bearing demand deposits2,070,747 1,951,809 
Other non-interest-bearing liabilities127,079 81,956 
Stockholders’ equity1,188,802 1,073,573 
Total liabilities and stockholders’ equity$12,889,494 $11,112,312 
Net interest income$390,268 $350,184 
Interest rate spread5
3.90 %3.77 %
Net interest margin6
4.09 %4.28 %
1Average balances are obtained from daily data.
2Annualized.
3Loans and leases 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. Loans and leases include average balances of $27.3 million and $27.8 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 2021 and 2020 nine-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 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); and (iii) changes in rate/volume (change in rate multiplied by change in volume) for the three and nine months ended March 31, 2021 and 2020:
 For the Three Months EndedFor the Nine Months Ended
March 31,March 31,
2021 vs 20202021 vs 2020
 Increase (Decrease) Due toIncrease (Decrease) Due to
(Dollars in thousands)VolumeRateTotal
Increase
(Decrease)		VolumeRateTotal
Increase
(Decrease)
Increase / (decrease) in interest income:
Loans and leases$15,123 $(42,356)$(27,233)$52,032 $(62,749)$(10,717)
Interest-earning deposits in other financial institutions346 (2,802)(2,456)4,043 (11,744)(7,701)
Mortgage-backed and other investment securities(274)116 (158)330 (193)137 
Stock of the regulatory agencies, at cost(193)(135)(328)(380)(356)(736)
$15,002 $(45,177)$(30,175)$56,025 $(75,042)$(19,017)
Increase / (decrease) in interest expense:
Interest-bearing demand and savings$6,117 $(15,131)$(9,014)$18,410 $(50,813)$(32,403)
Time deposits(3,759)(4,270)(8,029)(7,376)(13,167)(20,543)
Advances from the FHLB(3,623)663 (2,960)(11,731)5,210 (6,521)
Borrowings, subordinated notes and debentures
104 — 104 366 — 366 
$(1,161)$(18,738)$(19,899)$(331)$(58,770)$(59,101)
The Banking segment’s net interest income for the three and nine months ended March 31, 2021 totaled $135.1 million and $390.3 million, a decrease of 7.1% and an increase of 11.4%, compared to net interest income of $145.4 million and $350.2 million for the three and nine months ended March 31, 2020, respectively. The decrease for the three months was primarily due to interest income from seasonal tax loan products in the three months ended March 31, 2020 which didn’t recur in the three months ended March 31, 2021, partially offset by the reduction in the rates paid on interest-bearing demand and savings deposits for the three months ended March 31, 2021. The growth of net interest income for nine months ended March 31, 2021 is primarily due to increased average earnings assets from net loan and lease portfolio growth and reduced rates paid on interest-bearing demand and savings deposits, partially offset by reduced yields on interest earning assets.
The Banking segment’s non-interest income decreased $9.1 million from $25.3 million to $16.2 million and increased $11.4 million from $57.3 million to $68.7 million for the three and nine months ended March 31, 2021 compared to the three and nine months ended March 31, 2020, respectively. The net decrease was mainly the result of decreased banking and service fees of $14.7 million primarily from Emerald Prepaid Mastercard® and Refund Transfer products associated with H&R Block that did not recur in the three months ended March 31, 2021, partially offset by increased mortgage banking income of $6.1 million. Non-interest income increased $14.2 million to $88.5 million for the nine months ended March 31, 2021 compared to the nine months ended March 31, 2020. The increase was primarily the result of an increase of $31.3 million in mortgage banking driven by the decline of mortgage rates to record lows over the year, partially offset by a decrease of $13.3 million in banking and service fees, primarily from Emerald Prepaid Mastercard® and Refund Transfer associated with H&R Block that did not recur in the nine months ended March 31, 2021, and a decrease of $5.7 million in gain on sale-other, as certain sales of lottery receivables and sales of Emerald Advance loans to H&R Block in the nine months ended March 31, 2020 did not recur in the nine months ended March 31, 2021.
The Banking segment’s non-interest expense increased $7.4 million and $27.2 million for the three and nine months ended March 31, 2021 compared to the three and nine months ended March 31, 2020, respectively. For the three months ended March 31, 2021 compared to the three months ended March 31, 2020, the $7.4 million increase of non-interest expense was primarily due to a $3.4 million increase in data processing expense, $3.3 million increase of salaries and related expenses related to an increase in staffing to support the overall growth of the Bank, an increase of $1.0 million in FDIC and regulatory fees, and a $1.0 million increase in professional services, partially offset by a $2.1 million decrease in other and general
47
expense and a $0.4 million decrease in depreciation and amortization expense. For the nine months ended March 31, 2021 compared to the nine months ended March 31, 2020, the $27.2 million increase was primarily due to a $12.4 million increase in salaries and related expenses related to an increase in staffing to support the overall growth of the Bank, a $6.7 million increase in professional services, an increase of $5.9 million in data processing expense, a $5.0 million increase in FDIC and regulatory fees, and a $0.6 million increase in occupancy and equipment related charges, partially offset by a $2.2 million decrease in other general and administrative expenses and a decrease of $1.7 million in advertising and promotional expense.
Securities Business
For the three months ended March 31, 2021, our Securities Business segment had a loss before taxes of $1.1 million compared to a loss before taxes of $0.8 million for the three months ended March 31, 2020. For the nine months ended March 31, 2021, our Securities Business segment had a loss before taxes of $2.2 million compared to a loss before taxes of $0.4 million for the nine months ended March 31, 2021.
Net interest income for the three months ended March 31, 2021, decreased $0.1 million to $3.9 million compared to $4.0 million for the three months ended March 31, 2020. Net interest income for the nine months ended March 31, 2021 decreased $0.1 million to $13.0 million compared to $13.1 million for the nine months ended March 31, 2020. The $0.1 million decrease for the three months ended March 31, 2021 was primarily the result of an increase in other borrowings interest expense. The $0.1 million decrease for the nine months ended March 31, 2021 was due to a decrease in investment income. 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 March 31, 2021, was $8.4 million compared to $6.4 million for the three months ended March 31, 2020. Non-interest income during the nine months ended March 31, 2021 was $20.7 million compared to $19.1 million for the nine months ended March 31, 2020. The increases were primarily the result of a increased clearing and custodial related fees and clearing technology services, partially offset by a decrease in fees earned on FDIC insured bank deposits.
Non-interest expense was $13.3 million and $35.9 million during the three and nine months ended March 31, 2021 compared to $11.1 million and $32.7 million for the three and nine months ended March 31, 2020, respectively.
Non-interest expense increased $2.1 million for the three months ended March 31, 2021, primarily the result of a $1.1 million increase in broker-dealer clearing charges and a $0.9 million increase in professional services, partially offset by a decrease of $0.2 million decrease in advertising and promotional expenses. For the three months ended March 31, 2021, non-interest expense was primarily made up of $4.7 million in salaries and related expenses related to staffing, $3.3 million in broker-dealer clearing charges, $1.5 million in data processing, $1.7 million in professional services and $0.9 million in general and administrative expense. For the three months ended March 31, 2020, non-interest expense was primarily made up of $4.7 million in salaries and related expenses related to staffing, $2.1 million in broker-dealer clearing charges, $1.4 million in data processing, $0.8 million in professional services and $0.9 million in other and general expense.
Non-interest expense increased $3.3 million for the nine months ended March 31, 2021, primarily the result of a $1.9 million increase in professional services and a $1.9 million increase in broker-dealer clearing charges, partially offset by a $0.2 million decrease in salaries and related expenses and a $0.3 million decrease in other general and administrative expenses. For the nine months ended March 31, 2021, non-interest expense was primarily made up of $13.8 million in salaries and related staffing expense, $7.9 million in broker-dealer clearing charges, $4.2 million in data processing, $4.0 million in professional services, $2.7 million in general expense and administrative and $2.0 million in depreciation and amortization expense. For the nine months ended March 31, 2020, non-interest expense was primarily made up of $14.1 million in salaries and staffing related expenses, $6.0 million in broker-dealer clearing charges, $4.2 million in data processing, $2.1 million in professional services, $3.0 million in general and administrative expense, and $1.9 million in depreciation and amortization expense.
48
Selected information concerning the Securities segment follows as of and for the three months ended:
March 31,
(Dollars in thousands)20212020
Compensation as a % of net revenue32.4 %36.8 %
FDIC insured program balances (end of period)$794,614 $413,441 
Customer margin balances (end of period)$310,695 $158,993 
Customer funds on deposit, including short credits (end of period)$294,903 $182,455 
Clearing:
Total tickets1,998,293 1,046,572 
Correspondents (end of period)64 60 
Securities lending:
Interest-earning assets – stock borrowed (end of period)$543,538 $53,816 
Interest-bearing liabilities – stock loaned (end of period)$649,837 $76,587 
FINANCIAL CONDITION
Balance Sheet Analysis
Total assets increased $976.0 million, or 7.0%, to $14.8 billion, as of March 31, 2021, up from $13.9 billion at June 30, 2020. The increase in total assets was mainly due to an increase of $1,079.9 million in net loans and leases held for investment and an increase of $321.2 million in securities borrowed, partially offset by a decrease in cash and cash equivalents of $507.6 million. Total liabilities increased $861.2 million, primarily due to an increase of $393.9 million in securities loaned, growth in deposits of $275.8 million, an increase in customer, broker-dealer and clearing payables of $136.1 million, and increased borrowings of $130.0 million, partially offset by a decrease of $70.0 million in advances from the FHLB.
Loans
Net loans and leases held for investment increased 10.2% to $11.7 billion at March 31, 2021 from $10.6 billion at June 30, 2020. The increase in the loan and lease portfolio was primarily due to loan and lease originations of $3.9 billion and mortgage warehouse loan originations of $0.5 billion, partially offset by loan and lease repayments and other adjustments of $3.3 billion and an adjustment of approximately $47.3 million to the allowance for credit losses - loans resulting from the adoption of ASC 326 during the nine months ended March 31, 2021.
The following table sets forth the composition of the loan and lease portfolio as of the dates indicated:
March 31, 2021June 30, 2020
(Dollars in thousands)AmountPercentAmountPercent
Single Family - Mortgage & Warehouse$4,899,188 41.4 %$4,722,304 44.1 %
Multifamily and Commercial Mortgage2,424,185 20.4 %2,263,054 21.1 %
Commercial Real Estate3,042,896 25.7 %2,297,920 21.5 %
Commercial & Industrial - Non-RE1,030,879 8.7 %885,320 8.3 %
Auto & Consumer323,662 2.7 %341,365 3.2 %
Other135,705 1.1 %193,479 1.8 %
Total gross loans and leases 11,856,515 100.0 %10,703,442 100.0 %
Allowance for loan and lease losses(138,107)(75,807)
Unaccreted discounts and loan and lease fees(7,193)3,714 
Total net loans and leases$11,711,215 $10,631,349 
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
49
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 March 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 March 31, 2021, our non-performing loans totaled $135.6 million, or 1.14% of total gross loans and our non-performing loans and foreclosed assets or “non-performing assets” totaled $142.4 million, or 0.96% of total assets.
Non-performing assets consisted of the following as of the dates indicated:
(Dollars in thousands)March 31, 2021June 30, 2020Inc (Dec)
Non-performing assets:
Non-accrual loans and leases:
Single Family - Mortgage & Warehouse$85,043 $84,030 $1,013 
Multifamily and Commercial Mortgage30,744 3,425 27,319 
Commercial Real Estate16,414 — 16,414 
Commercial & Industrial - Non-RE2,960 213 2,747 
Auto & Consumer446 273 173 
Other— — — 
Total non-performing loans135,607 87,941 47,666 
Foreclosed real estate6,538 6,114 424 
Repossessed—Auto and RV266 294 (28)
Total non-performing assets$142,411 $94,349 $48,062 
Total non-performing loans as a percentage of total loans1.14 %0.82 %0.32 %
Total non-performing assets as a percentage of total assets0.96 %0.68 %0.28 %
Total non-performing assets increased from $94.3 million at June 30, 2020 to $142.4 million at March 31, 2021. The increase in non-performing assets of approximately $48.1 million, was primarily attributable to multifamily and commercial mortgage and commercial real estate loans. Non-performing multifamily and commercial mortgage loans increased $27.3 million to $30.7 million. Non-performing commercial real estate loans increased $16.4 million. The weighted average LTV of the non-performing multifamily and commercial mortgage loans was 54.5% at March 31, 2021. The weighted average LTV of the non-performing commercial real estate loans was 47% at March 31, 2021.
The Bank had no performing troubled debt restructurings at March 31, 2021 and June 30, 2020. 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.
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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 within this Form 10-Q for the Quarterly Period ended March 31, 2021 for further detail on the accounting adoption along with detail of the processes 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:
March 31, 2021June 30, 2020
(Dollars in thousands)Amount
of
Allowance		Allocation
as a % of
Allowance		Amount
of
Allowance		Allocation
as a % of
Allowance
Single Family Real Estate$29,915 21.7 %$25,901 34.2 %
Multifamily Real Estate13,416 9.7 %4,718 6.2 %
Commercial Real Estate56,327 40.8 %21,052 27.8 %
Commercial and Industrial - Non-RE23,653 17.1 %9,954 13.1 %
Consumer and Auto7,185 5.2 %9,461 12.5 %
Other7,611 5.5 %4,721 6.2 %
Total$138,107 100.0 %$75,807 100.0 %
The provision for credit losses was $2.7 million and $28.5 million for the three months ended March 31, 2021 and 2020, respectively. The provision for credit losses was $22.5 million and $35.7 million for the nine months ended March 31, 2021 and 2020, respectively. The decrease in the provision for credit losses for the three and nine months ended March 31, 2021, were primarily due to a decrease in provisions associated with Refund Advance loans due to the termination of our relationship with H&R Block and macroeconomic updates relating to COVID-19. 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 $219.2 million as of March 31, 2021, compared with $187.7 million at June 30, 2020. During the nine months ended March 31, 2021, we purchased securities for $66.6 million and received principal repayments of approximately $57.5 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.
51
Deposits
Deposits increased a net $275.8 million, or 2.4%, to $11.6 billion at March 31, 2021, from $11.3 billion at June 30, 2020. Non-interest bearing deposits increased $682.5 million, or 35.2%, to $2.6 billion at March 31, 2021, from $1.9 billion at June 30, 2020.
The following table sets forth the composition of the deposit portfolio as of the dates indicated:
March 31, 2021June 30, 2020
(Dollars in thousands)Amount
Rate1
Amount
Rate1
Non-interest bearing$2,619,157 — %$1,936,661 — %
Interest bearing:
Demand3,740,767 0.25 %3,456,127 0.37 %
Savings3,559,990 0.38 %3,697,188 0.78 %
Total interest-bearing demand and savings7,300,757 0.31 %7,153,315 0.58 %
Time deposits:
$250 and under2
1,153,179 1.50 %1,584,034 2.12 %
Greater than $250539,408 1.19 %662,684 1.39 %
Total time deposits
1,692,587 1.40 %2,246,718 1.91 %
Total interest bearing2
8,993,344 0.52 %9,400,033 0.90 %
Total deposits$11,612,501 0.40 %$11,336,694 0.75 %
1 Based on weighted-average stated interest rates at end of period.
2 The total interest bearing includes brokered deposits of $620.8 million and $1,318.0 million as of March 31, 2021 and June 30, 2020, respectively, of which $380.0 million and $603.6 million, respectively, are time deposits classified as $250 and under.

The following table sets forth the number of deposit accounts by type as of the date indicated:
March 31, 2021June 30, 2020March 31, 2020
Non-interest bearing, prepaid and other33,442 3,361,9653,842,799 
Checking and savings accounts326,536 310,463302,998 
Time deposits14,430 18,45020,485 
Total number of deposit accounts374,408 3,690,8784,166,282
Our non-interest bearing, prepaid and other accounts contained two omnibus accounts that when condensed for regulatory reporting purposes result in 27,108 accounts at June 30, 2020 and 22,883 accounts as of March 31, 2020. The two omnibus accounts represented $351.9 million and $816.1 million at June 30, 2020 and March 31, 2020, respectively. The decrease in the number of accounts is the result of the termination of our third-party prepaid card relationships, such as H&R Block, due to the reduction of our interchange fees effective July 1, 2020 as a result of the Durbin Amendment. See the Regulation of Banking Business in our Form 10-K for the year ended June 30, 2020 for additional information.

Borrowings
    The following table sets forth the composition of our borrowings and the interest rates at the dates indicated:
March 31, 2021June 30, 2020March 31, 2020
(Dollars in thousands)BalanceWeighted Average RateBalanceWeighted Average RateBalanceWeighted Average Rate
FHLB Advances$172,5002.26 %$242,5002.22 %$770,5000.90 %
Borrowings, subordinated notes and debentures365,7533.23 %235,7895.18 %76,2855.44 %
Total borrowings$538,2532.92 %$478,2893.68 %$846,7851.31 %
Weighted average cost of borrowings during the quarter3.63 %1.26 %2.04 %
Borrowings as a percent of total assets3.63 %3.45 %7.00 %
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At March 31, 2021, total borrowings amounted to $538.3 million, up $60.0 million, or 12.5%, from June 30, 2020 and down $308.5 million or 36.4% from March 31, 2020. Borrowings as a percent of total assets were 3.63%, 3.45% and 7.00% at March 31, 2021, June 30, 2020 and March 31, 2020, respectively. Weighted average cost of borrowings during the quarter were 3.63%, 1.26% and 2.04% for the quarters ended March 31, 2021, June 30, 2020 and March 31, 2020, respectively.
In September 2020, the Company completed the sale of $175.0 million aggregate principal amount of its 4.875% Fixed-to-Floating Rate Subordinated Notes due October 1, 2030 (the “Notes”). The Notes mature on October 1, 2030 and will accrue interest at a fixed rate per annum equal to 4.875%, payable semi-annually in arrears on April 1 and October 1 of each year, commencing on April 1, 2021. From and including October 1, 2025, to, but excluding October 1, 2030 or the date of early redemption, the Notes will bear interest at a floating rate per annum equal to a benchmark rate (which is expected to be the Three-Month Term Secured Overnight Financing Rate) plus a spread of 476 basis points, payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, commencing on January 2026. The Notes may be redeemed on or after October 1, 2025, which date may be extended at the Company’s discretion, at a redemption price equal to principal plus accrued and unpaid interest, subject to certain conditions.
On March 31, 2021, the Company completed the redemption of $51.0 million aggregate principal amount of its 6.25% Subordinated Notes due 2026 (the “Notes 2026”). The Notes 2026 were redeemed for cash by the Company at 100% of their principal amount, plus accrued and unpaid interest, in accordance with the terms of the indenture governing the Notes 2026.
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 $114.8 million to $1,345.7 million at March 31, 2021 compared to $1,230.8 million at June 30, 2020. The increase was the result of our net income for the nine months ended March 31, 2021 of $161.5 million, stock compensation expense of $9.2 million, a $3.2 million increase in other comprehensive income, net of tax, partially offset by $0.1 million for dividends declared on preferred stock, $5.2 million for the redemption of the series-A preferred stock, $16.8 million for common stock repurchases, and an opening day adjustment of $37.1 million for the change to ASC 326 - refer to Note 1 - Summary of Significant Accounting Policies for further detail of the adoption.
During the nine months ended March 31, 2021, the Company repurchased a total of $16.8 million, or 753,597 common shares at an average price of $22.24 per share. The Company has $52.8 million remaining under the Board authorized stock repurchase program.
We redeemed in full the 515 outstanding shares of Series A-6% Cumulative Nonparticipating Perpetual Preferred Stock on October 20, 2020 at $10,000 per share plus accrued dividends.

LIQUIDITY
Cash flow information is as follows:
For the Nine Months Ended
March 31,
(Dollars in thousands)20212020
Operating Activities$312,727 $221,962 
Investing Activities$(1,126,045)$(987,634)
Financing Activities$305,754 $762,503 
During the nine months ended March 31, 2021, we had net cash inflows from operating activities of $312.7 million compared to inflows of $222.0 million for the nine months ended March 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.
Net cash outflows from investing activities totaled $1,126.0 million for the nine months ended March 31, 2021, while outflows totaled $987.6 million for the nine months ended March 31, 2020. The increase in outflows was primarily due to increased net originations of mortgage warehouse loans and decreased repayments on loans and leases, partially offset by decreased originations of loans held for investment compared to the nine months ended March 31, 2020.
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Net cash inflows from financing activities totaled $305.8 million for the nine months ended March 31, 2021, compared to net cash inflows from financing activities of $762.5 million for the nine months ended March 31, 2020. The change was primarily due to reduced deposit growth partially offset by the proceeds of $175.0 million of subordinated notes in the nine months ended March 31, 2021.
During the nine months ended March 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 March 31, 2021, the Company had $2,766.6 million available immediately and $2,553.9 million available with additional collateral. At March 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 March 31, 2021, the Bank did not have any borrowings outstanding and the amount available from this source was $2,275.4 million. The credit line is collateralized by consumer loans and mortgage-backed securities. Additionally, the Bank can borrow through the Paycheck Protection Program Liquidity Facility (“PPPLF”). Advances under the PPPLF are collateralized by pledged Small Business Administration Paycheck Protection Program Loans. Advances under the PPPLF were $108.6 million million at March 31, 2021, had interest rates of 0.35% and mature at the earlier of PPP borrower forgiveness or June 2022.
Axos Clearing has a total of $350 million uncommitted secured lines of credit available for borrowing as needed. As of March 31, 2021, there was $32.4 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 March 31, 2021, there was $39.7 million 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.
OFF-BALANCE SHEET COMMITMENTS
At March 31, 2021, we had commitments to originate loans with an aggregate outstanding principal balance of $687.1 million, and commitments to sell loans with an aggregate outstanding principal balance of $112.4 million. We have no commitments to purchase loans, leases, 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.
Litigation. On October 15, 2015, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a putative class action lawsuit styled Golden v. BofI Holding, Inc., et al, and brought in United States District Court for the Southern District of California (the “Golden Case”). On November 3, 2015, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a second putative class action lawsuit styled Hazan v. BofI Holding, Inc., et al, and also brought in the United States District Court for the Southern District of California (the “Hazan Case”). On February 1, 2016, the Golden Case and the Hazan Case were consolidated as In re BofI Holding, Inc. Securities Litigation, Case #: 3:15-cv-02324-GPC-KSC (the “Class Action”), and the Houston Municipal Employees Pension System was appointed lead plaintiff. The plaintiffs allege that the Company and other named defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by failing to disclose wrongful conduct that was alleged in a complaint filed in connection with a wrongful termination of employment lawsuit filed on October 13, 2015 (the “Employment Matter”) and that as a result the Company’s statements regarding its internal controls, as well as portions of its financial statements, were false and misleading. On March 21, 2018, the Court entered a final order dismissing the Class Action with prejudice. Subsequently, the plaintiff appealed, the Court overturned the dismissal and the Company is preparing a petition for a rehearing.
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On April 3, 2017, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a putative class action lawsuit styled Mandalevy v. BofI Holding, Inc., et al, and brought in United States District Court for the Southern District of California (the “Mandalevy Case”). The Mandalevy Case seeks monetary damages and other relief on behalf of a putative class that has not been certified by the Court. The complaint in the Mandalevy Case (the “Mandalevy Complaint”) alleges a class period that differs from that alleged in the First Class Action, and that the Company and other named defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by failing to disclose wrongful conduct that was alleged in a March 2017 media article. The Mandalevy Case has not been consolidated into the First Class Action. On December 7, 2018, the Court entered a final order granting the defendants’ motion and dismissing the Mandalevy Case with prejudice. Subsequently, the plaintiff filed a notice of appeal and the Court took the matter under advisement. On November 3, 2020, the Court issued a ruling affirming in part and reversing in part the District Court's Order dismissing the Class Action Second Amended Complaint.
The Company and the other named defendants dispute the allegations of wrongdoing advanced by the plaintiffs in the Class Action, the Mandalevy Case, and in the Employment Matter, as well as those plaintiffs’ statement of the underlying factual circumstances, and are vigorously defending each case.
In addition to the First Class Action and the Mandalevy Case, two separate shareholder derivative actions were filed in December, 2015, purportedly on behalf of the Company. The first derivative action, Calcaterra v. Garrabrants, et al, was filed in the United States District Court for the Southern District of California on December 3, 2015. The second derivative action, Dow v. Micheletti, et al, was filed in the San Diego County Superior Court on December 16, 2015. A third derivative action, DeYoung v. Garrabrants, et al, was filed in the United States District Court for the Southern District of California on January 22, 2016, a fourth derivative action, Yong v. Garrabrants, et al, was filed in the United States District Court for the Southern District of California on January 29, 2016, a fifth derivative action, Laborers Pension Trust Fund of Northern Nevada v. Allrich et al, was filed in the United States District Court for the Southern District of California on February 2, 2016, and a sixth derivative action, Garner v. Garrabrants, et al, was filed in the San Diego County Superior Court on August 10, 2017. Each of these six derivative actions names the Company as a nominal defendant, and certain of its officers and directors as defendants. Each complaint sets forth allegations of breaches of fiduciary duties, gross mismanagement, abuse of control, and unjust enrichment against the defendant officers and directors. The plaintiffs in these derivative actions seek damages in unspecified amounts on the Company’s behalf from the officer and director defendants, certain corporate governance actions, and an award of their costs and attorney’s fees.
The United States District Court for the Southern District of California ordered the four above-referenced derivative actions pending before it to be consolidated and appointed lead counsel in the consolidated action. On June 7, 2018, the Court entered an order granting defendant’s motion for judgment on the pleadings, but giving the plaintiffs limited leave to amend by June 28, 2018. The plaintiffs failed to file an amended complaint, and instead plaintiffs filed on June 28, 2018 a motion to stay the case pending resolution of the securities class action and Employment Matter. On August 10, 2018, defendants filed an opposition to plaintiffs’ motion. On September 11, 2018, the plaintiffs filed a second amended complaint. On October 16, 2018, defendants filed a motion to dismiss the second amended complaint. On October 16, 2018, defendants filed a motion to dismiss the second amended complaint. The Court dismissed the second amended complaint with prejudice on May 23, 2019. Subsequently, the plaintiff filed a notice of appeal and opening brief and the Company filed its answering brief. Oral argument was held September 2, 2020 and the Court took the matter under advisement.
The two derivative actions pending before the San Diego County Superior Court have been consolidated and have been stayed by agreement of the parties.
In view of the inherent difficulty of predicting the outcome of each legal action, particularly since claimants seek substantial or indeterminate damages, it is not possible to reasonably predict or estimate the eventual loss or range of loss, if any, related to each legal action.
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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 March 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 March 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 March 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 March 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.
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 
Capitalized”
Ratio		Minimum Capital
Ratio
(Dollars in millions)March 31, 2021June 30,
2020		March 31, 2021June 30,
2020
Regulatory Capital:
Tier 1 $1,252 $1,106 $1,220 $1,080 
Common equity tier 1 $1,252 $1,101 $1,220 $1,080 
Total capital (to risk-weighted assets)$1,536 $1,241 $1,321 $1,156 
Assets:
Average adjusted$13,919 $12,333 $12,768 $11,680 
Total risk-weighted $11,531 $9,817 $10,392 $9,160 
Regulatory Capital Ratios:
Tier 1 leverage (core) capital to adjusted average assets8.99 %8.97 %9.56 %9.25 %5.00 %4.00 %
Common equity tier 1 capital (to risk-weighted assets)10.86 %11.22 %11.74 %11.79 %6.50 %4.50 %
Tier 1 capital (to risk-weighted assets)10.86 %11.27 %11.74 %11.79 %8.00 %6.00 %
Total capital (to risk-weighted assets)13.32 %12.64 %12.71 %12.62 %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 March 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.
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Securities Business
Pursuant to the net capital requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Axos Clearing, is subject to the SEC Uniform Net Capital (Rule 15c3-1 of the Exchange Act). Under this rule, the Company has elected to operate under the alternate method and is required to maintain minimum net capital of $250,000 or 2% of aggregate debit balances arising from client transactions, as defined. 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)March 31, 2021June 30, 2020
Net capital$33,845 $34,022 
Excess Capital$26,338 $29,450 
Net capital as a percentage of aggregate debit items9.02 %14.88 %
Net capital in excess of 5% aggregate debit items$15,077 $22,593 
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 March 31, 2021, the Company had a deposit requirement of $238.0 million and maintained a deposit of $253.6 million. On April 1, 2021, the company made a withdrawal of $11.6 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 March 31, 2021, the Company had a deposit requirement of $41.7 million and maintained a deposit of $41.3 million. On April 1, 2021, the Company made a deposit in the amount of $1.0 million.
Acquisition. On April 20, 2021, the Company announced that it signed a definitive agreement to acquire certain assets and liabilities of E*TRADE Advisor Services, the registered investment advisor custody business Morgan Stanley acquired in its acquisition of E*TRADE Financial Corporation in 2020. The $55 million cash purchase price will be funded with existing capital at Axos Financial, Inc. We expect this transaction to close in the third calendar quarter of 2021. Following closing, this transaction will materially increase our non-interest income and non-interest expense for the Securities Business segment.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We measure interest rate sensitivity as the difference between amounts of interest-earning assets and interest-bearing liabilities that mature or contractually re-price within a given period of time. The difference, or the interest rate sensitivity gap, provides an indication of the extent to which an institution’s interest rate spread will be affected by changes in interest rates. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities and negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. In a rising interest rate environment, an institution with a positive gap would be in a better position than an institution with a negative gap to invest in higher yielding assets or to have its asset yields adjusted upward, which would cause the yield on its assets to increase at a faster pace than the cost of its interest-bearing liabilities. During a period of falling interest rates, however, an institution with a positive gap would tend to have its assets reprice at a faster rate than one with a negative gap, which would tend to reduce the growth in its net interest income.
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Banking Business
The following table sets forth the amounts of interest earning assets and interest bearing liabilities that were outstanding at March 31, 2021 and the portions of each financial instrument that are expected to mature or reset interest rates in each future period:
Term to Repricing, Repayment, or Maturity at
March 31, 2021
(Dollars in thousands)Six Months or LessOver Six
Months Through
One Year		Over One
Year Through
Five Years		Over Five
Years		Total
Interest-earning assets:
Cash and cash equivalents$1,123,821 $— $— $— $1,123,821 
Securities1
222,522 1,227 9,121 11,991 244,861 
Stock of the regulatory agencies17,250 — — — 17,250 
Loans and leases—net of allowance for credit loss7,269,761 1,553,005 2,949,917 35,533 11,808,216 
Loans held for sale74,871 — — — 74,871 
Total interest-earning assets8,708,225 1,554,232 2,959,038 47,524 13,269,019 
Non-interest earning assets— — — — 154,435 
Total assets$8,708,225 $1,554,232 $2,959,038 $47,524 $13,423,454 
Interest-bearing liabilities:
Interest-bearing deposits$6,706,106 $1,918,414 $493,859 $782 $9,119,161 
Advances from the FHLB15,000 5,000 92,500 60,000 172,500 
Borrowings, subordinated notes and debentures204,463 — — 14,000 218,463 
Total interest-bearing liabilities6,925,569 1,923,414 586,359 74,782 9,510,124 
Other non-interest-bearing liabilities— — — — 2,654,416 
Stockholders’ equity— — — — 1,258,914 
Total liabilities and equity$6,925,569 $1,923,414 $586,359 $74,782 $13,423,454 
Net interest rate sensitivity gap$1,782,656 $(369,182)$2,372,679 $(27,258)$3,758,895 
Cumulative gap$1,782,656 $1,413,474 $3,786,153 $3,758,895 $3,758,895 
Net interest rate sensitivity gap—as a % of total interest earning assets13.43 %(2.78)%17.88 %(0.21)%28.33 %
Cumulative gap—as % of total interest earning assets13.43 %10.65 %28.53 %28.33 %28.33 %
1    Comprised of agency and non-agency mortgage-backed securities, municipal securities and other non-agency debt securities, which are classified as available-for-sale.
The above table provides an approximation of the projected re-pricing of assets and liabilities at March 31, 2021 on the basis of contractual maturities, adjusted for anticipated prepayments of principal and scheduled rate adjustments. The loan and securities prepayment rates reflected herein are based on historical experience. For the non-maturity deposit liabilities, we use decay rates and rate adjustments based upon our historical experience. Actual repayments of these instruments could vary substantially if future experience differs from our historic experience.
Although “gap” analysis is a useful measurement device available to management in determining the existence of interest rate exposure, its static focus as of a particular date makes it necessary to utilize other techniques in measuring exposure to changes in interest rates. For example, gap analysis is limited in its ability to predict trends in future earnings and makes no assumptions about changes in prepayment tendencies, deposit or loan maturity preferences or repricing time lags that may occur in response to a change in the interest rate environment.
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The following table indicates the sensitivity of net interest income movements to parallel instantaneous shocks in interest rates for the future 1-12 months and 13-24 months’ time periods. For purposes of modeling net interest income sensitivity the Bank assumes no growth in the balance sheet other than for retained earnings:
As of March 31, 2021
First 12 MonthsNext 12 Months
(Dollars in thousands)Net Interest IncomePercentage Change from BaseNet Interest IncomePercentage Change from Base
Up 200 basis points$573,589 10.0 %$552,652 8.5 %
Base$521,465 — %$509,547 — %
Down 100 basis points$508,679 (2.5)%$493,781 (3.1)%
We attempt to measure the effect market interest rate changes will have on the net present value of assets and liabilities, which is defined as market value of equity. We analyze the market value of equity sensitivity to an immediate parallel and sustained shift in interest rates derived from the current treasury and LIBOR yield curves. For rising interest rate scenarios, the base market interest rate forecast was increased by 100, 200 and 300 basis points. For falling interest rate scenarios, we used a 100 basis point decrease due to limitations inherent in the current rate environment.
The following table indicates the sensitivity of market value of equity to the interest rate movement described above:
As of March 31, 2021
(Dollars in thousands)Net
Present Value		Percentage Change from BaseNet
Present
Value as a
Percentage
of Assets
Up 300 basis points$1,493,941 9.7 %10.0 %
Up 200 basis points$1,484,867 9.0 %9.9 %
Up 100 basis points$1,435,012 5.3 %9.5 %
Base$1,362,263 — %8.9 %
Down 100 basis points$1,259,069 (7.6)%8.2 %
The computation of the prospective effects of hypothetical interest rate changes is based on numerous assumptions, including relative levels of interest rates, asset prepayments, runoffs in deposits and changes in repricing levels of deposits to general market rates, and should not be relied upon as indicative of actual results. Furthermore, these computations do not take into account any actions that we may undertake in response to future changes in interest rates. Those actions include, but are not limited to, making change in loan and deposit interest rates and changes in our asset and liability mix.
Securities Business
Our Securities Business is exposed to market risk primarily due to its role as a financial intermediary in customer transactions, which may include purchases and sales of securities, securities lending activities, and in our trading activities, which are used to support sales, underwriting and other customer activities. We are subject to the risk of loss that may result from the potential change in value of a financial instrument as a result of fluctuations in interest rates, market prices, investor expectations and changes in credit ratings of the issuer.
Our Securities Business is exposed to interest rate risk as a result of maintaining inventories of interest rate sensitive financial instruments and other interest earning assets including customer and correspondent margin loans and securities borrowing activities. Our exposure to interest rate risk is also from our funding sources including customer and correspondent cash balances, bank borrowings and securities lending activities. Interest rates on customer and correspondent balances and securities produce a positive spread with rates generally fluctuating in parallel.
With respect to securities held, our interest rate risk is managed by setting and monitoring limits on the size and duration of positions and on the length of time securities can be held. Much of the interest rates on customer and correspondent margin loans are indexed and can vary daily. Our funding sources are generally short term with interest rates that can vary daily.
At March 31, 2021, Axos Clearing held municipal obligations, these positions were classified as trading securities and had maturities greater than 10 years.
Our Securities Business is engaged in various brokerage and trading activities that expose us to credit risk arising from potential non-performance from counterparties, customers or issuers of securities. This risk is managed by setting and
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monitoring position limits for each counterparty, conducting periodic credit reviews of counterparties, reviewing concentrations of securities and conducting business through central clearing organizations.
Collateral underlying margin loans to customers and correspondents and with respect to securities lending activities is marked to market daily and additional collateral is required as necessary.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
For quantitative and qualitative disclosures regarding market risks in our portfolio, see, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk.”

ITEM 4.CONTROLS AND PROCEDURES
The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation, our Chief Executive Officer along with our Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Beginning July 1, 2020, the Company adopted ASC 326. As a result, the Company made changes to and incorporated new policies, processes and controls over the estimation of the allowance for credit losses. These changes were not undertaken in response to any identified deficiency in the Company’s internal control over financial reporting. There have been no other changes in the Company’s internal control.
Management, including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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PART II—OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS
The information set forth in Note 8 – “Commitments And Contingencies” to the Unaudited Condensed Consolidated Financial Statements is incorporated herein by reference.
In addition, from time to time we may be a party to other claims or litigation that arise in the ordinary course of business, such as claims to enforce liens, claims involving the origination and servicing of loans, and other issues related to the business of the Bank. None of such matters are expected to have a material adverse effect on the Company’s financial condition, results of operations or business.

ITEM 1A.RISK FACTORS
We face a variety of risks that are inherent in our business and our industry. These risks are described in more detail under Part 1, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2020. We encourage you to read these factors in their entirety. Moreover, other factors may also exist that we cannot anticipate or that we currently do not consider to be significant based on information that is currently available.


ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The table below sets forth our market repurchases of Axos common stock and the Axos common shares retained in connection with net settlement of restricted stock awards during the quarter ended March 31, 2021.
(Dollars in thousands, except per share data)Number
of Shares
Purchased		Average Price
Paid Per Shares		Total Number of
Shares
Purchased as Part of Publicly  Announced
Plans or Programs		Approximate Dollar value of
Shares that May
Yet be Purchased
Under the Plans
or Programs
Stock Repurchases1
Quarter Ended March 31, 2021
January 1, 2021 to January 31, 2021— $— — $— 
February 1, 2021 to February 28, 2021— $— — $— 
March 1, 2021 to March 31, 2021— $— — $— 
For the Three Months Ended March 31, 2021— $— — $52,764 
Stock Retained in Net Settlement2
January 1, 2021 to January 31, 20212,350 
February 1, 2021 to February 28, 20212,389 
March 1, 2021 to March 31, 202163,893 
For the Three Months Ended March 31, 202168,632 
1 On March 17, 2016, the Board of Directors of the Company authorized a program to repurchase up to $100 million of common stock and extended the program by an additional $100 million on August 2, 2019. The share repurchase program will continue in effect until terminated by the Board of Directors of the Company. Purchases were made in open-market transactions.
2 In October 2019, the stockholders of the Company approved the amended and restated 2014 Stock Incentive Plan, which among other changes permitted net settlement of stock issuances related to equity awards for purposes of payment of a grantee’s minimum income tax obligation. Stock Retained in Net Settlement was at the vesting price of the associated restricted stock unit.


ITEM 3.    DEFAULTS UPON SENIOR SECURITIES
None.

ITEM 4.    MINE SAFETY DISCLOSURES
None.

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ITEM 5.    OTHER INFORMATION
    None.

ITEM 6.EXHIBITS
Exhibit
Number		DescriptionIncorporated By Reference to
3.1Amended and Restated Bylaws of Axos Financial, Inc. as amended and restated through February 25, 2021.
4.1Indenture, dated as of March 3, 2016, between Axos Financial, Inc. and U.S. Bank National Association, as trustee
4.2Second Supplemental Indenture, dated as of September 18, 2020, between Axos Financial, Inc. and U.S. Bank
National Association, as trustee
4.3Form of Global Note to represent the 4.875% Fixed-to-Floating Rate Subordinated Notes due 2030 of Axos Financial, Inc.
31.1Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INSInline XBRL Instance DocumentThe instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema DocumentFiled herewith.
101.CALInline XBRL Taxonomy Calculation Linkbase DocumentFiled herewith.
101.LABInline XBRL Taxonomy Label Linkbase DocumentFiled herewith.
101.PREInline XBRL Taxonomy Presentation Linkbase DocumentFiled herewith.
101.DEFInline XBRL Taxonomy Definition DocumentFiled herewith.
104Cover Page Interactive Data FileFormatted as Inline XBRL and contained in Exhibit 101



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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Axos Financial, Inc.
Dated:April 29, 2021By:    /s/ Gregory Garrabrants
Gregory Garrabrants
President and Chief Executive Officer
(Principal Executive Officer)
Dated:April 29, 2021By:    /s/ Andrew J. Micheletti
Andrew J. Micheletti
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
63

What is the market capitalization of a company?

The market capitalization sometimes referred as Marketcap, is the value of a publicly listed company.
In most cases it can be easily calculated by multiplying the share price with the amount of outstanding shares.

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