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Axos Financial
AX
#3017
Rank
$5.35 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$94.50
Share price
1.45%
Change (1 day)
67.68%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Axos Financial
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2022 Q1

Axos Financial - 10-Q quarterly report FY2022 Q1


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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 September 30, 2021
☐TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-37709
ax-20210930_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, Suite 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: 59,495,242 shares of common stock, $0.01 par value per share, as of October 20, 2021.

AXOS FINANCIAL, INC.
INDEX
Page
1
ITEM 1.       FINANCIAL STATEMENTS
1
Condensed Consolidated Balance Sheets (unaudited) as of September 30, 2021 and June 30, 2021
1
Condensed Consolidated Statements of Income (unaudited) for the three months ended September 30, 2021 and 2020
2
Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three months ended September 30, 2021 and 2020
3
Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three months ended September 30, 2021 and 2020
4
Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended September 30, 2021 and 2020
5
Notes to Condensed Consolidated Financial Statements
7
ITEM 2.        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
27
SELECTED FINANCIAL DATA
31
RESULTS OF OPERATIONS
33
FINANCIAL CONDITION
42
LIQUIDITY
46
OFF-BALANCE SHEET COMMITMENTS
46
CAPITAL RESOURCES AND REQUIREMENTS
47
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
48
ITEM 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
51
ITEM 4.       CONTROLS AND PROCEDURES
51
52
ITEM 1.       LEGAL PROCEEDINGS
52
ITEM 1A.    RISK FACTORS
52
ITEM 2.       UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
52
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
52
ITEM 4.     MINE SAFETY DISCLOSURES
52
ITEM 5.       OTHER INFORMATION
52
ITEM 6.       EXHIBITS
53
SIGNATURES
54

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)September 30,
2021		June 30,
2021
ASSETS
Cash and cash equivalents$1,000,076 $715,624 
Cash segregated for regulatory purposes269,358 322,153 
Total cash, cash equivalents, and cash segregated1,269,434 1,037,777 
Securities:
Trading1,941 1,983 
Available-for-sale135,996 187,335 
Stock of regulatory agencies20,368 19,995 
Loans held for sale, carried at fair value33,344 29,768 
Loans held for sale, lower of cost or fair value11,949 12,294 
Loans—net of allowance for credit losses of $136.8 million as of September 30, 2021 and $133.0 million as of June 30, 2021
11,879,021 11,414,814 
Mortgage servicing rights, carried at fair value18,438 17,911 
Other real estate owned and repossessed vehicles6,320 6,782 
Goodwill and other intangible assets—net164,944 115,972 
Securities borrowed457,282 619,088 
Customer, broker-dealer and clearing receivables427,169 369,815 
Other assets480,544 432,031 
TOTAL ASSETS$14,906,750 $14,265,565 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing$3,632,521 $2,474,424 
Interest bearing8,114,921 8,341,373 
Total deposits11,747,442 10,815,797 
Advances from the Federal Home Loan Bank157,500 353,500 
Borrowings, subordinated notes and debentures255,896 221,358 
Securities loaned539,505 728,988 
Customer, broker-dealer and clearing payables510,040 535,425 
Accounts payable and accrued liabilities and other liabilities237,746 209,561 
Total liabilities13,448,129 12,864,629 
STOCKHOLDERS’ EQUITY:
Preferred stock—$0.01 par value; 1,000,000 shares authorized:
Common stock—$0.01 par value; 150,000,000 shares authorized; 68,370,617 shares issued and 59,494,633 shares outstanding as of September 30, 2021; 68,069,321 shares issued and 59,317,944 shares outstanding as of June 30, 2021
684 681 
Additional paid-in capital436,528 432,550 
Accumulated other comprehensive income (loss)—net of tax2,000 2,507 
Retained earnings1,247,938 1,187,728 
Treasury stock, at cost; 8,875,984 shares as of September 30, 2021 and 8,751,377 shares as of June 30, 2021
(228,529)(222,530)
Total stockholders’ equity1,458,621 1,400,936 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$14,906,750 $14,265,565 

See accompanying notes to the condensed consolidated financial statements.
1
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) 
Three Months Ended
September 30,
(Dollars in thousands, except earnings per common share)20212020
INTEREST AND DIVIDEND INCOME:
Loans, including fees$149,176 $141,424 
Securities borrowed and customer receivables6,851 5,077 
Investments2,283 3,388 
Total interest and dividend income158,310 149,889 
INTEREST EXPENSE:
Deposits7,712 19,554 
Advances from the Federal Home Loan Bank1,016 1,372 
Securities loaned251 124 
Other borrowings2,689 1,512 
Total interest expense11,668 22,562 
Net interest income146,642 127,327 
Provision for credit losses4,000 11,800 
Net interest income, after provision for credit losses142,642 115,527 
NON-INTEREST INCOME:
Prepayment penalty fee income2,986 1,368 
Gain on sale – other17 334 
Mortgage banking income5,253 19,567 
Broker-dealer fee income11,766 5,702 
Banking and service fees6,680 8,884 
Total non-interest income26,702 35,855 
NON-INTEREST EXPENSE:
Salaries and related costs40,737 38,623 
Data processing12,092 7,928 
Depreciation and amortization5,728 6,186 
Advertising and promotional3,372 2,556 
Professional services4,545 5,999 
Occupancy and equipment3,181 3,011 
FDIC and regulatory fees2,266 2,692 
Broker-dealer clearing charges4,005 2,257 
General and administrative expense8,505 6,294 
Total non-interest expense84,431 75,546 
INCOME BEFORE INCOME TAXES84,913 75,836 
INCOME TAXES24,703 22,814 
NET INCOME$60,210 $53,022 
NET INCOME ATTRIBUTABLE TO COMMON STOCK$60,210 $52,945 
COMPREHENSIVE INCOME$59,703 $54,304 
Basic earnings per common share$1.01 $0.89 
Diluted earnings per common share$0.99 $0.88 
See accompanying notes to the condensed consolidated financial statements.
2
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
September 30,
(Dollars in thousands)20212020
NET INCOME$60,210 $53,022 
Net unrealized gain (loss) from available-for-sale securities, net of tax expense (benefit) of $(214) and $503 for the three months ended September 30, 2021 and 2020, respectively.
(507)1,282 
Other comprehensive income (loss)(507)1,282 
Comprehensive income$59,703 $54,304 

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 September 30, 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, 2021— $— 68,069,321 (8,751,377)59,317,944 $681 $432,550 $1,187,728 $2,507 $(222,530)$1,400,936 
Net income— — — — — — — 60,210 — — 60,210 
Other comprehensive income (loss)— — — — — — — — (507)— (507)
Stock-based compensation expense and restricted stock unit vesting— — 301,296 (124,607)176,689 3 3,978 — — (5,999)(2,018)
BALANCE—September 30, 2021— $— 68,370,617 (8,875,984)59,494,633 $684 $436,528 $1,247,938 $2,000 $(228,529)$1,458,621 

For the Three Months Ended September 30, 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, 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, ASU No. 2016-13
— — — — — — — (37,088)— — (37,088)
Net income— — — — — — — 53,022 — — 53,022 
Other comprehensive income (loss)— — — — — — — — 1,282 — 1,282 
Cash dividends on preferred stock— — — — — — — (77)— — (77)
Purchase of treasury stock— — — (582,249)(582,249)— — — — (12,742)(12,742)
Stock-based compensation expense
 and restricted stock unit vesting		— — 299,882 (114,334)185,548 3 4,412 — — (2,693)1,722 
BALANCE—September 30, 2020515 $5,063 67,622,935 (8,407,001)59,215,934 $676 $416,285 $1,025,156 $345 $(210,560)$1,236,965 
See accompanying notes to the condensed consolidated financial statements.
4
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three Months Ended
September 30,
(Dollars in thousands)20212020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$60,210 $53,022 
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion and amortization on securities, net(104)49 
Net accretion of discounts on loans and leases(2,137)(1,492)
Amortization of borrowing costs139 52 
Amortization of operating lease right of use asset2,346 2,655 
Stock-based compensation expense3,981 4,415 
Trading activity42 (318)
Provision for credit losses4,000 11,800 
Deferred income taxes1,453 (4,264)
Origination of loans held for sale(209,967)(440,804)
Unrealized (gain) loss on loans held for sale(22)(1,303)
Gain on sales of loans held for sale(5,270)(19,901)
Proceeds from sale of loans held for sale211,674 424,987 
Amortization and change in fair value of mortgage servicing rights1,185 1,795 
(Gain) loss on sale of other real estate and foreclosed assets(33)(128)
Depreciation and amortization5,728 6,186 
Net changes in assets and liabilities which provide (use) cash:
Securities borrowed161,806 (41,102)
Customer, broker-dealer and clearing receivables(53,677)(62,859)
Other assets(118,876)52,570 
Securities loaned(189,483)60,031 
Customer, broker-dealer and clearing payables(25,385)21,814 
Accounts payable and other liabilities18,949 (914)
Net cash provided by operating activities(133,441)66,291 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities(7,033)(22,071)
Proceeds from sales of securities75,022 — 
Proceeds from repayment of securities57,756 24,984 
Purchase of stock of regulatory agencies(8,219)— 
Proceeds from redemption of stock of regulatory agencies8,219 — 
Origination of loans held for investment(2,050,587)(1,081,681)
Proceeds from sale of loans held for investment12,100 9,220 
Mortgage warehouse loans activity, net(41,692)(249,131)
Proceeds from sales of other real estate owned and repossessed assets621 487 
Acquisition of business activity, net of cash paid (54,597)— 
Purchases of loans and leases, net of discounts and premiums(7,481)— 
Principal repayments on loans1,620,886 1,003,843 
Purchases of furniture, equipment, software and intangibles(3,943)(1,754)
Net cash used in investing activities(398,948)(316,103)
5
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three Months Ended
September 30,
(Dollars in thousands)20212020
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits931,645 (781,036)
Payments of the Federal Home Loan Bank term advances(10,000)— 
Net (repayment) proceeds of Federal Home Loan Bank other advances(186,000)— 
Net proceeds (repayments) of other borrowings34,400 45,600 
Tax payments related to settlement of restricted stock units(5,999)(2,693)
Repurchase of treasury stock— (12,742)
Cash dividends paid on preferred stock— (77)
Payment of debt issuance costs— (2,598)
Proceeds from issuance of subordinated notes— 175,000 
Net cash provided by financing activities764,046 (578,546)
NET CHANGE IN CASH AND CASH EQUIVALENTS231,657 (828,358)
CASH AND CASH EQUIVALENTS—Beginning of year$1,037,777 $1,950,519 
CASH AND CASH EQUIVALENTS—End of period$1,269,434 $1,122,161 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid on deposits and borrowed funds$14,989 $22,316 
Income taxes paid29,955 16,318 
Transfers to other real estate and repossessed vehicles140 350 
Transfers from loans held for investment to loans held for sale12,100 2,189 
Transfers from loans held for sale to loans held for investment376 27,379 
Operating lease liabilities for obtaining right of use assets7,842 — 
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 MONTH PERIOD ENDED SEPTEMBER 30, 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 the companies constituting the Securities Business segment. 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 three months ended September 30, 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, 2021 included in our Annual Report on Form 10-K.
Significant Accounting Policies
Our significant accounting policies are described in greater detail in Note 1 - “Summary of Significant Accounting Policies” contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended June 30, 2021.
New Accounting Standards
No new accounting standards have yet been adopted for the fiscal year beginning July 1, 2021.


7
2.     ACQUISITIONS
On August 2, 2021 the Company’s subsidiary, Axos Clearing, LLC, acquired certain assets and liabilities of E*TRADE Advisor Services (“EAS”), rebranded Axos Advisor Services (“AAS”), the registered investment advisor custody business of Morgan Stanley. AAS adds incremental fee income, a turnkey technology platform used by independent registered investment advisors for trading and custody services, and low cost deposits that can be used to generate fee income from other bank partners or to fund loan growth at Axos Bank. The initial purchase price of $54.6 million consists entirely of cash consideration paid upon acquisition and is pending final working capital adjustments.
The Company incurred acquisition-related costs totaling $0.04 million for the three months ended September 30, 2021. These costs are recognized in general and administrative expenses in the unaudited consolidated statements of income.
The acquisition is accounted for as a business combination under the acquisition method of accounting. Accordingly, tangible and intangible assets acquired (and liabilities assumed) are recorded at their estimated fair values as of the date of acquisition. The Company allocated the purchase price to the tangible and intangible assets acquired based on information available through September 30, 2021. The Company’s accounting for the acquisition has not been finalized as the Company continues to evaluate the working capital adjustment, which is expected to have an immaterial effect on the value of the goodwill recognized. The allocation will be updated, if necessary, through the measurement period, which is no later than one year from the acquisition date.
The preliminary allocation of the $54.6 million purchase price consists of $6.5 million of fair value of tangible assets acquired, $3.4 million of liabilities assumed, $27.1 million of identifiable intangible assets and $24.4 million of goodwill, all of which is expected to be deductible for tax purposes. Identifiable intangible assets with a finite useful are amortized on a straight-line basis. Goodwill was calculated as the excess of consideration exchanged over the fair value of identifiable net assets acquired. The goodwill includes synergies expected to result from combining the acquired assets and liabilities with existing operations, coupling its custody platform with the Company existing product offerings and leveraging customer relationships through RIAs. The following table summarizes the fair value and useful life of each intangible asset acquired as of the acquisition date:
($ in thousands)Fair ValueUseful Lives (Years)
Trade Name$290 0.16
Proprietary Technology10,990 7
Customer Relationships15,650 14
Non-Compete Agreements130 1
$27,060 

The pro forma results of operations and the results of operations since the acquisition date have not been separately disclosed because the effects were not material to the consolidated financial statements.




8
3.     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, 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 September 30, 2021 and June 30, 2021. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
September 30, 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$— $1,941 $— $1,941 
Securities—Available-for-Sale:
Agency Debt1
$— $— $— $— 
Agency MBS1
— 24,526 — 24,526 
Non-Agency MBS2
— — 59,851 59,851 
Municipal— 3,501 — 3,501 
Asset-backed securities and structured notes— 48,118 — 48,118 
Total—Securities—Available-for-Sale$— $76,145 $59,851 $135,996 
Loans Held for Sale$— $33,344 $— $33,344 
Mortgage servicing rights$— $— $18,438 $18,438 
Other assets—Derivative instruments$— $— $2,292 $2,292 
LIABILITIES:
   Other liabilities—Derivative instruments$— $— $66 $66 
June 30, 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
$— $1,983 $— $1,983 
Securities—Available-for-Sale:
Agency Debt1
$— $— $— $— 
Agency MBS1
— 23,913 — 23,913 
Non-Agency MBS2
— — 67,615 67,615 
Municipal— 3,565 — 3,565 
Asset-backed securities and structured notes— 92,242 — 92,242 
Total—Securities—Available-for-Sale$— $119,720 $67,615 $187,335 
Loans Held for Sale$— $29,768 $— $29,768 
Mortgage servicing rights$— $— $17,911 $17,911 
Other assets—Derivative instruments$— $— $2,280 $2,280 
LIABILITIES:
Other liabilities—Derivative instruments$— $— $75 $75 
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 first-lien mortgage loans on commercial properties or by pools of 1-4 family residential first mortgages. Primarily super senior securities secured by Alt-A or pay-option ARM mortgages.
9
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
September 30, 2021
(Dollars in thousands)Securities – Available-for-Sale: Non-Agency MBSMortgage Servicing RightsDerivative Instruments, netTotal
Opening balance$67,615 $17,911 $2,205 $87,731 
Included in earnings—Mortgage banking income— (1,185)21 (1,164)
Included in other comprehensive income(112)— — (112)
Purchases, retentions, issues, sales and settlements:
Purchases/Retentions— 1,712 — 1,712 
Settlements(7,652)— — (7,652)
Closing balance$59,851 $18,438 $2,226 $80,515 
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period$— $(1,185)$21 $(1,164)

For the Three Months Ended
September 30, 2020
(Dollars in thousands)Securities – Available-for-Sale: Non-Agency MBSMortgage Servicing RightsDerivative Instruments, netTotal
Opening balance$18,332 $10,675 $7,416 $36,423 
Included in earnings—Mortgage banking income— (1,795)5,583 3,788 
Included in other comprehensive income(323)— — (323)
Purchases, retentions, issues, sales and settlements:
Purchases/Retentions— 3,250 — 3,250 
Settlements(397)— — (397)
Closing balance$17,612 $12,130 $12,999 $42,741 
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period$— $(1,795)$5,583 $3,788 

The table below summarizes the quantitative information about level 3 fair value measurements as of the dates indicated:
September 30, 2021
(Dollars in thousands)Fair ValueValuation TechniqueUnobservable InputRange (Weighted Average)
Securities – Non-agency MBS$59,851 Discounted Cash FlowProjected Constant Prepayment Rate,
Projected Constant Default Rate,
Projected Loss Severity,
Discount Rate over LIBOR
0.0 to 33.9% (2.3%)
0.0 to 4.7% (0.4%)
0.0 to 68.3% (9.4%)
2.7 to 6.3% (3.0%)
Mortgage Servicing Rights$18,438 Discounted Cash FlowProjected Constant Prepayment Rate,
Life (in years),
Discount Rate
6.9 to 37.2% (11.2%)
1.6 to 7.7 (6.5)
9.5 to 14.0% (9.6%)
Derivative Instruments$2,226 Sales Comparison ApproachProjected Sales Profit of Underlying Loans
0.2 to 0.9% (0.5%)
June 30, 2021
(Dollars in thousands)Fair ValueValuation TechniqueUnobservable InputRange (Weighted Average)
Securities – Non-agency MBS$67,615 Discounted Cash FlowProjected Constant Prepayment Rate,
Projected Constant Default Rate,
Projected Loss Severity,
Discount Rate over LIBOR
0.0 to 25.0% (2.7%)
0.0 to 5.6% (0.6%)
0.0 to 100.0% (19.4%)
2.7 to 7.2% (3.1%)
Mortgage Servicing Rights$17,911 Discounted Cash FlowProjected Constant Prepayment Rate,
Life (in years),
Discount Rate
7.5 to 37.4% (11.5%)
1.7 to 7.5 (6.4)
9.5 to 13.0% (9.6%)
Derivative Instruments$2,205 Sales Comparison ApproachProjected Sales Profit of Underlying Loans
0.2 to 0.5% (0.3%)
10
The significant unobservable inputs used in the fair value measurement of the Company’s residential mortgage-backed securities are projected prepayment rates, probability of default, and projected loss severity in the event of default. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the projected loss severity and a directionally opposite change in the assumption used for projected prepayment rates.
The table below summarizes assets measured for impairment on a non-recurring basis:
September 30, 2021
(Dollars in thousands)Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Balance
Other real estate owned and foreclosed assets:
Single family real estate$— $— $6,114 $6,114 
Autos and RVs— — 206 206 
Total$— $— $6,320 $6,320 
June 30, 2021
(Dollars in thousands)Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Balance
Other real estate owned and foreclosed assets:
Single family real estate$— $— $6,547 $6,547 
Autos and RVs— — 235 235 
Total$— $— $6,782 $6,782 
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 $6,320 after charge-offs of $12 for the three months ended September 30, 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 September 30, 2021 and June 30, 2021.
As of September 30, 2021 and June 30, 2021, 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)September 30, 2021June 30, 2021
Aggregate fair value$33,344 $29,768 
Contractual balance32,494 28,940 
Unrealized gain $850 $828 
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 Ended
September 30,
(Dollars in thousands)20212020
Interest income$200 $382 
Change in fair value43 6,885 
Total $243 $7,267 
11
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:
September 30, 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$6,114 Sales comparison approachAdjustment for differences between the comparable sales
(3.8) to 0.9% (0.1%)
Autos and RVs$206 Sales comparison approachAdjustment for differences between the comparable sales
1.5 to 21.5% (1.5%)
June 30, 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$6,547 Sales comparison approachAdjustment for differences between the comparable sales
(1.5) to 6.1% (2.0%)
Autos and RVs$235 Sales comparison approachAdjustment for differences between the comparable sales
(2.1) to 14.7% (2.1%)
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.

12
Fair value of Financial Instruments
The carrying amounts and estimated fair values of financial instruments at September 30, 2021 and June 30, 2021 were as follows:
September 30, 2021
Fair Value
(Dollars in thousands)Carrying
Amount		Level 1Level 2Level 3Total Fair Value
Financial assets:
Cash and cash equivalents$1,269,434 $1,269,434 $— $— $1,269,434 
Securities — trading1,941 — 1,941 — 1,941 
Securities — available-for-sale135,996 — 76,145 59,851 135,996 
Loans held for sale, at fair value33,344 — 33,344 — 33,344 
Loans held for sale, at lower of cost or fair value11,949 — — 12,041 12,041 
Loans held for investment—net11,879,021 — — 12,252,262 12,252,262 
Securities borrowed457,282 — — 457,282 457,282 
Customer, broker-dealer and clearing receivables427,169 — — 427,297 427,297 
Mortgage servicing rights18,438 — — 18,438 18,438 
Financial liabilities:
Total deposits11,747,442 — 11,191,110 — 11,191,110 
Advances from the Federal Home Loan Bank157,500 — 157,500 — 157,500 
Borrowings, subordinated notes and debentures255,896 — 251,279 — 251,279 
Securities loaned539,505 — — 541,339 541,339 
Customer, broker-dealer and clearing payables510,040 — — 510,040 510,040 
June 30, 2021
Fair Value
(Dollars in thousands)Carrying
Amount		Level 1Level 2Level 3Total Fair Value
Financial assets:
Cash and cash equivalents$1,037,777 $1,037,777 $— $— $1,037,777 
Securities — trading1,983 — 1,983 — 1,983 
Securities — available-for-sale187,335 — 119,720 67,615 187,335 
Loans held for sale, at fair value29,768 — 29,768 — 29,768 
Loans held for sale, at lower of cost or fair value12,294 — — 12,336 12,336 
Loans held for investment—net11,414,814 — — 11,833,102 11,833,102 
Securities borrowed619,088 — — 619,274 619,274 
Customer, broker-dealer and clearing receivables369,815 — — 369,815 369,815 
Mortgage servicing rights17,911 — — 17,911 17,911 
Financial liabilities:
Total deposits10,815,797 — 10,297,450 — 10,297,450 
Advances from the Federal Home Loan Bank353,500 — 353,500 — 353,500 
Borrowings, subordinated notes and debentures221,358 — 210,196 — 210,196 
Securities loaned728,988 — — 731,467 731,467 
Customer, broker-dealer and clearing payables535,425 — — 535,425 535,425 
13
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 or deposits that reprice frequently and fully. For fixed rate loans, deposits, borrowings or subordinated debt and for variable rate loans, 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 3 – “Fair Value” of our Form 10-K for the year ended June 30, 2021. 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.
4.     SECURITIES
The amortized cost, carrying amount and fair value for the trading and available-for-sale securities at September 30, 2021 and June 30, 2021 were:
September 30, 2021
TradingAvailable-for-sale
(Dollars in thousands)Fair
Value		Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Fair
Value
Mortgage-backed securities (MBS):
U.S. agencies1
$— $24,362 $356 $(192)$24,526 
Non-agency2
— 57,522 2,718 (389)59,851 
Total mortgage-backed securities— 81,884 3,074 (581)84,377 
Non-MBS:
Municipal1,941 3,437 64 — 3,501 
Asset-backed securities and structured notes— 46,889 1,229 — 48,118 
Total Non-MBS1,941 50,326 1,293 — 51,619 
Total debt securities$1,941 $132,210 $4,367 $(581)$135,996 
June 30, 2021
TradingAvailable-for-sale
(Dollars in thousands)Fair
Value		Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Fair
Value
Mortgage-backed securities (MBS):
U.S. agencies1
$— $23,639 $420 $(146)$23,913 
Non-agency2
— 65,174 2,862 (421)67,615 
Total mortgage-backed securities— 88,813 3,282 (567)91,528 
Non-MBS:
Municipal1,983 3,466 99 — 3,565 
Asset-backed securities and structured notes— 90,549 1,693 — 92,242 
Total Non-MBS1,983 94,015 1,792 — 95,807 
Total debt securities$1,983 $182,828 $5,074 $(567)$187,335 
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 first-lien mortgage loans on commercial properties or 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 MBS available-for-sale portfolio with a total fair value of $59,851 at September 30, 2021 consists of 14 different issues of super senior securities.
The face amounts of debt securities available-for-sale that were pledged to secure borrowings at September 30, 2021 and June 30, 2021 were $1.3 million and $1.4 million, respectively.
14
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:
September 30, 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
MBS:
U.S. agencies$11,127 $(192)$— $— $11,127 $(192)
Non-agency— — 5,676 (389)5,676 (389)
Total MBS11,127 (192)5,676 (389)16,803 (581)
Non-MBS:
U.S. agencies— — — — — — 
Total Non-MBS— — — — — — 
Total debt securities$11,127 $(192)$5,676 $(389)$16,803 $(581)
June 30, 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
MBS:
U.S. agencies$10,001 $(146)$— $— $10,001 $(146)
Non-agency— — 6,018 (421)6,018 (421)
Total MBS10,001 (146)6,018 (421)16,019 (567)
Non-MBS:
Municipal debt— — — — — — 
Asset-backed securities and structured notes— — — — — — 
Total Non-MBS— — — — — — 
Total debt securities$10,001 $(146)$6,018 $(421)$16,019 $(567)
On September 30, 2021, there were seven securities in a continuous loss position for a period of more than 12 months, and nine securities in a continuous loss position for a period of less than 12 months. At June 30, 2021, there were seven securities in a continuous loss position for a period of more than 12 months, and seven securities in a continuous loss position for a period of less than 12 months.
At September 30, 2021, one non-agency RMBS with a total carrying amount of $2.8 million was determined to have cumulative credit losses of $0.8 million of which none was recognized in earnings during the three months ended September 30, 2021.
During the three months ended September 30, 2020, the company sold no available-for-sale securities. During the three months ended September 30, 2021, the company sold no available-for-sale securities.
The Company had recorded unrealized gains and unrealized losses in accumulated other comprehensive loss as follows:
(Dollars in thousands)September 30,
2021		June 30,
2021
Available-for-sale debt securities—net unrealized gains (losses)$3,786 $4,507 
Available-for-sale debt securities—non-credit related losses(845)(845)
Subtotal2,941 3,662 
Tax benefit (expense)(941)(1,155)
Net unrealized gain (loss) on investment securities in accumulated other comprehensive income (loss)$2,000 $2,507 


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5.    LOANS & ALLOWANCE FOR CREDIT LOSSES
The following table sets forth the composition of the loan portfolio as of the dates indicated:
(Dollars in thousands)September 30, 2021June 30, 2021
Single Family - Mortgage & Warehouse$4,341,174 $4,359,472 
Multifamily and Commercial Mortgage2,458,200 2,470,454 
Commercial Real Estate3,492,926 3,180,453 
Commercial & Industrial - Non-RE1,239,354 1,123,869 
Auto & Consumer446,656 362,180 
Other42,672 58,316 
Total gross loans and leases12,020,982 11,554,744 
Allowance for credit losses - loans(136,778)(132,958)
Unaccreted premiums (discounts) and loan and lease fees(5,183)(6,972)
Total net loans and leases$11,879,021 $11,414,814 
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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 September 30, 2021
(Dollars in thousands)Single Family-Mortgage & WarehouseMultifamily and Commercial MortgageCommercial Real EstateCommercial & Industrial - Non-REAuto & ConsumerOtherTotal
Balance at July 1, 2021$26,604 $13,146 $57,928 $28,460 $6,519 $301 $132,958 
Provision for credit losses - loans(1,351)36 7,295 (5,646)3,626 40 4,000 
Charge-offs— — — (322)(394)— (716)
Recoveries76 177 — 27 256 — 536 
Balance at September 30, 2021$25,329 $13,359 $65,223 $22,519 $10,007 $341 $136,778 
For the Three Months Ended September 30, 2020
(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 for credit losses - loans(2,439)293 2,253 6,512 (1,087)6,268 11,800 
Charge-offs(1,489)— — (213)(736)— (2,438)
Recoveries16 — — — 430 — 446 
Balance at September 30, 2020$28,307 $12,419 $49,198 $23,295 $8,678 $11,018 $132,915 

Credit Quality Disclosures. Nonaccrual loans consisted of the following as of the dates indicated:
As of September 30, 2021
(Dollars in thousands)With AllowanceWith No AllowanceTotal
Single Family - Mortgage & Warehouse$53,000 $58,257 $111,257 
Multifamily and Commercial Mortgage— 6,964 6,964 
Commercial Real Estate15,539 — 15,539 
Commercial & Industrial - Non-RE— — — 
Auto & Consumer311 63 374 
Other— — — 
     Total nonaccrual loans$68,850 $65,284 $134,134 
Nonaccrual loans to total loans1.12 %


As of September 30, 2020
(Dollars in thousands)With AllowanceWith No AllowanceTotal
Single Family - Mortgage & Warehouse$76,032 $56,894 $132,926 
Multifamily and Commercial Mortgage31,001 1,847 32,848 
Commercial Real Estate— — — 
Commercial & Industrial - Non-RE5,580 — 5,580 
Auto & Consumer623 131 754 
Other— — — 
     Total nonaccrual loans$113,236 $58,872 $172,108 
Nonaccrual loans to total loans1.56 %
No interest income was recognized in either the three months ended September 30, 2021 or September 30, 2020.
Approximately 0.58% of our nonaccrual loans at September 30, 2021 were considered troubled debt restructurings (“TDRs”), compared to 0.55% at June 30, 2021. 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 82.94% of the Bank’s nonaccrual loans are single family first mortgages.
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The following tables present the outstanding unpaid balance of loans that are performing and nonaccrual by portfolio class:
September 30, 2021
(Dollars in thousands)Single Family-Mortgage & WarehouseMultifamily and Commercial MortgageCommercial Real EstateCommercial & Industrial - Non-REAuto & ConsumerOtherTotal
Performing$4,229,917 $2,451,236 $3,477,387 $1,239,354 $446,282 $42,672 $11,886,848 
Nonaccrual111,257 6,964 15,539 — 374 — 134,134 
          Total$4,341,174 $2,458,200 $3,492,926 $1,239,354 $446,656 $42,672 $12,020,982 
June 30, 2021
(Dollars in thousands)Single Family-Mortgage & WarehouseMultifamily and Commercial MortgageCommercial Real EstateCommercial & Industrial - Non-REAuto & ConsumerOtherTotal
Performing$4,253,764 $2,450,026 $3,164,614 $1,120,927 $361,902 $58,316 $11,409,549 
Nonaccrual105,708 20,428 15,839 2,942 278 — 145,195 
          Total$4,359,472 $2,470,454 $3,180,453 $1,123,869 $362,180 $58,316 $11,554,744 

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 September 30, 2021 or June 30, 2021.


Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans based on credit risk. The Company uses the following definitions for risk ratings.
Pass. Loans classified as pass are well protected by the current net worth and paying capacity of the obligor or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner.
Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
The Company reviews and grades loans following a continuous review process, featuring coverage of all loan types and business lines at least quarterly. Continuous reviewing provides more effective risk monitoring because it immediately tests for potential impacts caused by changes in personnel, policy, products or underwriting standards.

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The amortized cost basis by year of origination and credit quality indicator of the Company’s loans as of September 30, 2021 was as follows:
Loans Held for Investment Origination YearRevolving Loans Total
(Dollars in thousands)20222021202020192018Prior
Single Family-Mortgage & Warehouse
Pass426,455 864,201 600,147 437,648 398,728 818,420 636,138 4,181,737 
Special Mention— 79 2,321 4,020 1,934 6,452 19,678 34,484 
Substandard— 962 31,726 21,071 18,766 52,428 — 124,953 
Doubtful— — — — — — — — 
Total426,455 865,242 634,194 462,739 419,428 877,300 655,816 4,341,174 
Multifamily and Commercial Mortgage
Pass125,467 632,033 539,154 339,602 274,135 460,901 — 2,371,292 
Special Mention— — 3,408 17,787 849 2,517 — 24,561 
Substandard— 4,934 29,378 3,518 10,459 14,058 — 62,347 
Doubtful— — — — — — — — 
Total125,467 636,967 571,940 360,907 285,443 477,476 — 2,458,200 
Commercial Real Estate
Pass543,531 1,237,401 823,096 446,460 81,563 — 232,244 3,364,295 
Special Mention— — 70,664 15,487 — — — 86,151 
Substandard— — 24,843 — 15,539 — 2,098 42,480 
Doubtful— — — — — — — — 
Total543,531 1,237,401 918,603 461,947 97,102 — 234,342 3,492,926 
Commercial & Industrial - Non-RE
Pass38,438 44,235 81,009 15,678 20,553 5,251 1,018,136 1,223,300 
Special Mention— — — 243 1,002 — — 1,245 
Substandard— 2,989 11,717 — 103 — — 14,809 
Doubtful— — — — — — — — 
Total38,438 47,224 92,726 15,921 21,658 5,251 1,018,136 1,239,354 
Auto & Consumer
Pass116,492 153,678 68,587 60,356 27,664 18,760 — 445,537 
Special Mention— 79 62 49 30 — — 220 
Substandard23 125 291 371 68 21 — 899 
Doubtful— — — — — — — — 
Total116,515 153,882 68,940 60,776 27,762 18,781 — 446,656 
Other
Pass2,088 13,121 24,422 — 1,588 1,453 — 42,672 
Special Mention— — — — — — — — 
Substandard— — — — — — — — 
Doubtful— — — — — — — — 
Total2,088 13,121 24,422 — 1,588 1,453 — 42,672 
Total
Pass1,252,471 2,944,669 2,136,415 1,299,744 804,231 1,304,785 1,886,518 11,628,833 
Special Mention— 158 76,455 37,586 3,815 8,969 19,678 146,661 
Substandard23 9,010 97,955 24,960 44,935 66,507 2,098 245,488 
Doubtful— — — — — — — — 
Total1,252,494 2,953,837 2,310,825 1,362,290 852,981 1,380,261 1,908,294 12,020,982 
As a % of total gross loans10.42 %24.57 %19.22 %11.33 %7.10 %11.48 %15.87 %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. 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 took proactive measures to manage loans that became delinquent during the recent economic downturn as a result of the COVID-19 pandemic. As of September 30, 2021, no loans were on forbearance status for forbearance granted from any prior date. Any forbearance granted out of COVID-19 was for six months or less. Additionally, no forbearance or deferral of payment obligation was granted to any borrower during the three months ended September 30, 2021.
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The following tables provide the outstanding unpaid balance of loans that are past due 30 days or more by portfolio class as of the dates indicated:
September 30, 2021
(Dollars in thousands)30-59 Days Past Due60-89 Days Past Due90+ Days Past DueTotal
Single Family-Mortgage & Warehouse$34,876 $7,480 $96,850 $139,206 
Multifamily and Commercial Mortgage8,071 2,567 1,055 11,693 
Commercial Real Estate3,100 — — 3,100 
Commercial & Industrial - Non-RE— — — — 
Auto & Consumer1,841 363 241 2,445 
Other216 — — 216 
Total$48,104 $10,410 $98,146 $156,660 
As a % of total gross loans0.40 %0.09 %0.82 %1.30 %

June 30, 2021
(Dollars in thousands)30-59 Days Past Due60-89 Days Past Due90+ Days Past DueTotal
Single Family-Mortgage & Warehouse$24,150 $46,552 $69,169 $139,871 
Multifamily and Commercial Mortgage7,991 1,816 12,122 21,929 
Commercial Real Estate36,786 — — 36,786 
Commercial & Industrial - Non-RE— — 2,960 2,960 
Auto & Consumer601 306 235 1,142 
Other— — — — 
Total$69,528 $48,674 $84,486 $202,688 
As a % of total gross loans0.60 %0.42 %0.73 %1.75 %

Allowance for Credit Losses
The allowance for credit losses is the sum of the allowance for credit losses - loans and unfunded loan commitment liabilities. Unfunded loan commitment liabilities are included in “Accounts payable, accrued liabilities and other liabilities” in the unaudited Condensed Consolidated Balance Sheets. Provisions for the unfunded loan commitments are included in “General and administrative expenses” in the unaudited Condensed Consolidated Statements of Income.
The following tables present a summary of the activity in the allowance for credit losses for the periods indicated:
Three Months Ended September 30, 2021
(Dollars in thousands)Allowance for Credit Losses - LoansUnfunded Loan Commitment LiabilitiesTotal Allowance for Credit Losses
Balance at July 1, 2021$132,958 $5,723 $138,681 
Provision for Credit Losses4,000 2,000 6,000 
Charge-offs(716)— (716)
Recoveries536 — 536 
Balance at September 30, 2021$136,778 $7,723 $144,501 

Three Months Ended September 30, 2020
(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 326
47,300 5,700 53,000 
Provision for Credit Losses11,800 700 12,500 
Charge-offs(2,438)— (2,438)
Recoveries446 — 446 
Balance at September 30, 2020$132,915 $6,723 $139,638 


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6.    EQUITY AND STOCK-BASED COMPENSATION
    Restricted Stock Units. During the three months ended September 30, 2021 and 2020, the Company granted 298,644 and 435,381 restricted stock unit awards (“RSUs”) to employees and directors, and during the three months ended September 30, 2021 granted 478,353 RSU’s to the chief executive officer, which vest ratably on each of the four fiscal year ends after the issue date. All other RSUs granted during these quarters generally vest over 3 years, one-third on each anniversary date. On October 21, 2021, stockholders approved an additional one million shares for the Company’s equity compensation.
    The Company’s pre-tax income and net income for the three months ended September 30, 2021 and 2020 include stock award expense of $4.0 million and $4.4 million, with total income tax benefit of $1.2 million and $1.3 million, 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 September 30, 2021, unrecognized compensation expense related to non-vested awards aggregated to $37.0 million and is expected to be recognized in future periods as follows:
(Dollars in thousands)Stock Award
Compensation
Expense
For the fiscal year remainder:
2022$14,021 
202313,740 
20247,900 
20251,271 
2026101 
Total$37,033 

    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, 20201,445,540 $28.62 
Granted617,833 32.12 
Vested(666,790)29.23 
Forfeited(176,113)27.42 
Non-vested balance at June 30, 20211,220,470 $30.18 
Granted776,997 48.50 
Vested(301,296)28.28 
Forfeited(21,423)32.84 
Non-vested balance at September 30, 20211,674,748 $39.03 
    The total fair value of shares vested for the three months ended September 30, 2021 was $14,485. The total fair value of shares vested for the three months ended September 30, 2020 was $6,602.
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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.
The following table presents the calculation of basic and diluted EPS:
Three Months Ended
September 30,
(Dollars in thousands, except per share data)20212020
Earnings Per Common Share
Net income$60,210 $53,022 
Preferred stock dividends— (77)
Net income attributable to common stockholders$60,210 $52,945 
Average common shares outstanding59,390,846 59,509,320 
Total qualifying shares59,390,846 59,509,320 
Earnings per common share$1.01 $0.89 
Diluted Earnings Per Common Share
Net income attributable to common stockholders$60,210 $52,945 
Average common shares issued and outstanding59,390,846 59,509,320 
Dilutive effect of average unvested RSUs1,253,442 417,464 
Total dilutive common shares outstanding60,644,288 59,926,784 
Diluted earnings per common share$0.99 $0.88 

8.    COMMITMENTS AND CONTINGENCIES
COVID-19 Impact. The Company has closely monitored the rapid developments of and uncertainties caused by the COVID-19 pandemic. In response to the changes in economic and business conditions as a result of the COVID-19 pandemic, the Company continues to take the necessary and appropriate actions to support customers, employees, partners and shareholders.
The Company took proactive measures to manage loans that became delinquent during the recent economic downturn as a result of the COVID-19 pandemic. As of September 30, 2021, no loans were on forbearance status for a forbearance granted from any prior date. Any forbearance granted out of COVID-19 was for six months or less.
The Company will continue to monitor uncertainties caused by and developments of COVID-19.
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 September 30, 2021 in the corresponding fiscal years:
22
(Dollars in thousands)
Remainder of 2022$7,464 
202310,216 
20249,849 
20259,673 
20269,336 
Thereafter35,894 
Total lease payments82,432 
Less: amount representing interest(9,122)
Total Lease Liability$73,310 

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.
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 September 30, 2021, the Company had commitments to originate $60.9 million in fixed rate loans and $1,007.7 million in variable rate loans, totaling an aggregate outstanding principal balance of $1,068.7 million. At September 30, 2021, the Company’s fixed rate commitments to originate had a weighted-average rate of 1.92%. At September 30, 2021, the Company also had commitments to sell $56.1 million in fixed rate loans and none in variable rate loans, totaling an aggregate outstanding principal balance of $56.1 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.
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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.
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.
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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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9.    SEGMENT REPORTING
The operating segments reported below are the segments of the Company for which separate financial information is available and for which 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.
The Securities Business segment added the RIA custody business from the certain assets and liabilities acquired from EAS. Refer to Note 2 - “Acquisitions” for further detail on the EAS acquisition. Operating results from the EAS acquisition are included in the unaudited consolidated statements of income from the date of acquisition and reported under the Securities Business segment.
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:
Three Months Ended September 30, 2021
(Dollars in thousands)Banking
Business		Securities BusinessCorporate/EliminationsAxos Consolidated
Net interest income$142,241 $6,176 $(1,775)$146,642 
Provision for credit losses4,000 — — 4,000 
Non-interest income14,828 13,106 (1,232)26,702 
Non-interest expense62,725 19,273 2,433 84,431 
Income before taxes$90,344 $9 $(5,440)$84,913 
Three Months Ended September 30, 2020
(Dollars in thousands)Banking
Business		Securities BusinessCorporate/EliminationsAxos Consolidated
Net interest income$123,008 $4,894 $(575)$127,327 
Provision for credit losses11,800 — — 11,800 
Non-interest income30,212 5,784 (141)35,855 
Non-interest expense61,217 11,352 2,977 75,546 
Income before taxes$80,203 $(674)$(3,693)$75,836 
As of September 30, 2021
(Dollars in thousands)Banking BusinessSecurities BusinessCorporate/EliminationsAxos Consolidated
Goodwill$35,721 $59,953 $— $95,674 
Total Assets$13,471,669 $1,357,576 $77,505 $14,906,750 
As of June 30, 2021
(Dollars in thousands)Banking BusinessSecurities BusinessCorporate/EliminationsAxos Consolidated
Goodwill$35,721 $35,501 $— $71,222 
Total Assets$12,745,029 $1,450,512 $70,024 $14,265,565 
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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, 2021, and the interim unaudited condensed consolidated financial statements and notes thereto contained in this report.
Some matters discussed in this report may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as such, may involve risks and uncertainties. These forward-looking statements can be identified by the use of terminology such as “estimate,” “project,” “anticipate,” “expect,” “intend,” “believe,” “will,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. These forward-looking statements relate to, among other things, the effects on our business of the current novel coronavirus pandemic (“COVID-19”), the Company’s financial prospects and other projections of its performance and asset quality, our ability to continue to grow profitably and increase its business, our ability to continue to diversify lending and deposit franchises, and the anticipated timing and financial performance of other offerings, initiatives, and acquisitions, expectations of the environment in which we operate and projections of future performance. Forward-looking statements are inherently unreliable and actual results may vary. Factors that could cause actual results to differ from these forward-looking statements include uncertainties surrounding the severity, duration, and effects of the COVID-19 pandemic, our ability to successfully integrate acquisitions and realize the anticipated benefits of the transactions, changes in the interest rate environment, inflation, government regulation, general economic conditions, changes in the competitive marketplace, conditions in the real estate markets in which we operate, risks associated with credit quality, the outcome and effects of pending class action litigation filed against the Company and other risk factors discussed under the heading “Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 and in our Annual Report on Form 10-K for the year ended June 30, 2021, which has been filed with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All written and oral forward-looking statements made in connection with this report, which are attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing information.
General
Our Company, the holding company for Axos Bank (the “Bank”), is a diversified financial services company with approximately $14.9 billion in assets that provides consumer and business banking products through its online, low-cost distribution channels and affinity partners. Our Bank has deposit and loan customers nationwide including consumer and business checking, savings and time deposit accounts and financing for single family and multifamily residential properties, small-to-medium size businesses in target sectors, and automobiles. Our Bank generates fee income from consumer and business products including fees from loans originated for sale and transaction fees earned from processing payment activity. Our securities products and services are offered through Axos Clearing LLC (“Axos Clearing”) and its business division Axos Advisor Services (“AAS”), formerly E*TRADE Advisor Services, and Axos Invest, Inc. (“Axos Invest”), which generate interest and fee income by providing comprehensive securities clearing and custody services to introducing broker-dealers and registered investment advisor correspondents and digital investment advisory services to retail investors, respectively. Axos Financial, Inc.’s common stock is listed on the New York Stock Exchange and is a component of the Russell 2000® Index, the KBW Nasdaq Financial Technology Index, the S&P SmallCap 600® Index, the KBW Nasdaq Financial Technology Index, and the Travillian Tech-Forward Bank Index.
Our Bank is a federal savings bank wholly-owned by our Company and regulated by the Office of the Comptroller of the Currency (“OCC”), and the Federal Deposit Insurance Corporation (“FDIC”) as its deposit insurer. The Bank must file reports with the OCC and the FDIC concerning its activities and financial condition. As a depository institution with more than $10 billion in assets, our Bank and our affiliates are subject to direct supervision by the Consumer Financial Protection Bureau (“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.

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Segment Information
The Company determines reportable segments based on what separate financial information is available and what segment results are evaluated regularly by the Chief Executive Officer in deciding how to allocate resources and in assessing performance. We operate through two segments: Banking Business and Securities Business.
Banking Business. The Banking Business includes a broad range of banking services including online banking, concierge banking, and mortgage, vehicle and unsecured lending through online and telephonic distribution channels to serve the needs of consumer and small businesses nationally. Our deposit products consist of demand, savings, money market and time deposit accounts. In addition, the Banking Business focuses on providing deposit products nationwide to industry verticals (e.g., Title and Escrow), cash management products to a variety of businesses, and commercial & industrial and commercial real estate lending to clients. The Banking Business also includes a bankruptcy trustee and fiduciary service that provides specialized software and consulting services to Chapter 7 bankruptcy and non-Chapter 7 trustees and fiduciaries.
We distribute our loan products through our retail, correspondent and wholesale channels, and the loans we retain are primarily first mortgages secured by single family real property and by multifamily real property as well as commercial & industrial loans to businesses. Our investment securities consist of agency and non-agency mortgage-backed securities, municipal securities and other non-agency debt securities. We believe our flexibility to adjust our asset generation channels has been a competitive advantage allowing us to avoid markets and products where credit fundamentals are poor or risks and rewards are not sufficient to support our required return on equity.
Securities Business. The Securities Business includes the Clearing Broker-Dealer, Registered Investment Advisor custody business, Registered Investment Advisor, and Introducing Broker-Dealer lines of businesses. These lines of business offer products independently to their own customers as well as to Banking Business clients. The products offered by the lines of business in the Securities Business primarily generate net interest income and non-banking service fee income.
Securities services includes fully disclosed clearing services through Axos Clearing to FINRA- and SEC-registered member firms for trade execution and clearance as well as back-office services such as record keeping, trade and performance reporting, accounting, general back-office support, securities and margin lending, reorganization assistance and custody of securities. We provide financing to our brokerage customers for their securities trading activities through margin loans that are collateralized by securities, cash, or other acceptable collateral. Securities lending activities include borrowing and lending securities with other broker-dealers. These activities involve borrowing securities to cover short sales and to complete transactions in which clients have failed to deliver securities by the required settlement date, and lending securities to other broker dealers for similar purposes.
Through the RIA custody business, we provide a proprietary, turnkey technology platform for custody services for our RIA customers. This platform provides fee income and service that complement our securities business products, while also generating low cost core deposits.
Axos Invest includes our digital wealth management business, which provides our retail customers with self-directed trading and investment management services through a comprehensive and flexible technology platform.
Segment results are compiled based upon the management reporting system, which assigns balance sheet and income statement items to each of the business segments. The process is designed around the organizational and management structure and, accordingly, the results derived are not necessarily comparable with similar information published by other financial institutions or in accordance with generally accepted accounting principles.
The Company evaluates performance and allocates resources based on profit or loss from operations. There are no material inter-segment sales or transfers. Certain corporate administration costs and income taxes have not been allocated to the reportable segments. Therefore, in order to reconcile the two segments to the unaudited condensed consolidated totals, we include parent-only activities and intercompany eliminations.
COVID-19 Impact
The Company has closely monitored the rapid developments of and uncertainties caused by the COVID-19 pandemic. In response to the changes in economic and business conditions as a result of the COVID-19 pandemic, the Company continues to take the necessary and appropriate actions to support customers, employees, partners and shareholders.
The Company took proactive measures to manage loans that became delinquent during the economic downturn as a result of the COVID-19 pandemic. As of September 30, 2021, no loans were on forbearance status for a forbearance granted from any prior date. Any forbearance granted out of COVID-19 was for six months or less.
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The Company will continue to monitor uncertainties caused by and developments of COVID-19.
Mergers and Acquisitions
From time to time we undertake acquisitions or similar transactions consistent with our Company’s operating and growth strategies. On August 2, 2021 Axos Clearing, LLC, acquired certain assets and liabilities of E*TRADE Advisor Services (“EAS”), rebranded Axos Advisors Services (“AAS”), the registered investment advisor custody business of Morgan Stanley. AAS adds incremental fee income, a turnkey technology platform used by independent registered investment advisors for trading and custody services, and low-cost deposits that can be used to generate fee income from other bank partners or to fund loan growth at Axos Bank. The initial purchase price of $54.6 million consists entirely of cash consideration paid upon acquisition and is pending final working capital adjustments.
The acquisition is accounted for as a business combination under the acquisition method of accounting. Accordingly, tangible and intangible assets acquired (and liabilities assumed) are recorded at their estimated fair values as of the date of acquisition. The Company allocated the purchase price to the tangible and intangible assets acquired based on information available through September 30, 2021. The Company’s accounting for the acquisition has not been finalized as the Company continues to evaluate the working capital adjustment, which is expected to have an immaterial effect on the value of the goodwill recognized. The allocation will be updated, if necessary, through the measurement period, which is no later than one year from the acquisition date.
Critical Accounting Policies
The following discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements and the notes thereto, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited condensed consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the unaudited condensed consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various factors and circumstances. We believe that our estimates and assumptions are reasonable under the circumstances. However, actual results may differ significantly from these estimates and assumptions that could have a material effect on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods.
Our significant accounting policies and practices are described in greater detail in Note 1 - “Summary of Significant Accounting Policies” and under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended June 30, 2021.
USE OF NON-GAAP FINANCIAL MEASURES
In addition to the results presented in accordance with GAAP, this report includes 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.
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Below is a reconciliation of net income, the nearest compatible GAAP measure, to adjusted earnings and adjusted EPS (Non-GAAP) for the periods shown:
Three Months Ended
September 30,
(Dollars in thousands, except per share amounts)20212020
Net income$60,210 $53,022 
Acquisition-related costs
2,846 2,602 
Tax effects of adjustments(828)(783)
Adjusted earnings (Non-GAAP)$62,228 $54,841 
Adjusted EPS (Non-GAAP)$1.03 $0.91 

    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:
September 30,
(Dollars in thousands)20212020
Total stockholders’ equity$1,458,621 $1,236,965 
Less: preferred stock— 5,063 
Common stockholders’ equity1,458,621 1,231,902 
Less: mortgage servicing rights, carried at fair value18,438 12,130 
Less: goodwill and other intangible assets164,944 122,817 
Tangible common stockholders’ equity (Non-GAAP)$1,275,239 $1,096,955 
Common shares outstanding at end of period59,494,633 59,215,934 
Tangible book value per common share (Non-GAAP)$21.43 $18.52 
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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)September 30,
2021		June 30,
2021		September 30,
2020
Selected Balance Sheet Data:
Total assets$14,906,750 $14,265,565 $13,382,238 
Loans—net of allowance for credit losses11,879,021 11,414,814 10,925,450 
Loans held for sale, carried at fair value33,344 29,768 89,454 
Loans held for sale, lower of cost or fair value11,949 12,294 14,729 
Allowance for credit losses - loans136,778 132,958 132,915 
Securities—trading1,941 1,983 423 
Securities—available-for-sale135,996 187,335 203,931 
Securities borrowed457,282 619,088 263,470 
Customer, broker-dealer and clearing receivables427,169 369,815 283,125 
Total deposits11,747,442 10,815,797 10,555,658 
Advances from the FHLB157,500 353,500 242,500 
Borrowings, subordinated notes and debentures
255,896 221,358 453,843 
Securities loaned539,505 728,988 315,976 
Customer, broker-dealer and clearing payables510,040 535,425 369,428 
Total stockholders’ equity1,458,621 1,400,936 1,236,965 
Capital Ratios:
Equity to assets at end of period9.78 %9.82 %9.24 %
Axos Financial, Inc.:
Tier 1 leverage (core) capital to adjusted average assets9.19 %8.82 %8.52 %
Common equity tier 1 capital (to risk-weighted assets)10.79 %11.36 %11.08 %
Tier 1 capital (to risk-weighted assets)10.79 %11.36 %11.13 %
Total capital (to risk-weighted assets)13.10 %13.78 %14.39 %
Axos Bank:
Tier 1 leverage (core) capital to adjusted average assets10.14 %9.45 %8.83 %
Common equity tier 1 capital (to risk-weighted assets)11.89 %12.28 %11.52 %
Tier 1 capital (to risk-weighted assets)11.89 %12.28 %11.52 %
Total capital (to risk-weighted assets)12.80 %13.21 %12.55 %
Axos Clearing, LLC:
Net capital39,663 35,950 34,322 
Excess capital31,435 27,904 28,830 
Net capital as a percentage of aggregate debit items9.64 %8.94 %12.50 %
Net capital in excess of 5% aggregate debit items19,092 15,836 20,590 



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AXOS FINANCIAL, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL INFORMATION
At or for the Three Months Ended
September 30,
(Dollars in thousands, except per share data)20212020
Selected Income Statement Data:
Interest and dividend income$158,310 $149,889 
Interest expense11,668 22,562 
Net interest income146,642 127,327 
Provision for credit losses4,000 11,800 
Net interest income after provision for credit losses142,642 115,527 
Non-interest income26,702 35,855 
Non-interest expense84,431 75,546 
Income before income tax expense84,913 75,836 
Income tax expense24,703 22,814 
Net income$60,210 $53,022 
Net income attributable to common stock$60,210 $52,945 
Per Common Share Data:
Net income:
Basic$1.01 $0.89 
Diluted$0.99 $0.88 
Adjusted earnings (Non-GAAP)
$1.03 $0.91 
Book value$24.52 $20.80 
Tangible book value (Non-GAAP)$21.43 $18.52 
Weighted average number of common shares outstanding:
     Basic59,390,846 59,509,320 
     Diluted60,644,288 59,926,784 
Common shares outstanding at end of period59,494,633 59,215,934 
Common shares issued at end of period68,370,617 67,622,935 
Performance Ratios and Other Data:
Loan originations for investment$2,092,279 $1,330,812 
Loan originations for sale$209,967 $440,804 
Return on average assets1.66 %1.56 %
Return on average common stockholders’ equity16.20 %17.26 %
Interest rate spread1
4.04 %3.62 %
Net interest margin2
4.22 %3.84 %
Net interest margin2 – Banking Business Segment only
4.48 %3.91 %
Efficiency ratio3
48.71 %46.30 %
Efficiency ratio3 – Banking Business Segment only
39.93 %39.95 %
Asset Quality Ratios:
Net annualized charge-offs to average loans0.01 %0.07 %
Non-performing loans to total loans1.12 %1.56 %
Non-performing assets to total assets0.94 %1.33 %
Allowance for credit losses - loans to total loans held for investment at end of period1.14 %1.20 %
Allowance for credit losses - loans to non-performing loans101.97 %77.23 %
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 Months Ended September 30, 2021 and 2020
For the three months ended September 30, 2021, we had net income of $60.2 million compared to net income of $53.0 million for the three months ended September 30, 2020. Net income attributable to common stockholders was $60.2 million or $0.99 per diluted share for the three months ended September 30, 2021 compared to net income attributable to common stockholders of $52.9 million or $0.88 per diluted share for the three months ended September 30, 2020.
Adjusted earnings and adjusted EPS, non-GAAP measures, which exclude non-cash amortization expenses and non-recurring costs related to mergers and acquisitions expenses, increased 13.5% to $62.2 million and $1.03, for the quarter ended September 30, 2021 compared to $54.8 million and $0.91, respectively, for the quarter ended September 30, 2020.
Net Interest Income
Net interest income for the three months ended September 30, 2021 totaled $146.6 million, an increase of 15.2% compared to net interest income of $127.3 million for the three months ended September 30, 2020. The growth of net interest income for the three months ended September 30, 2021 compared to September 30, 2020 is primarily due to increased average earnings assets from net loan portfolio growth and reduced rates paid on interest-bearing demand and savings deposits and time deposits, partially offset by reduced yields on interest earning assets. During the three months ended September 30, 2021, non-interest bearing deposits increased $1,158.1 million, primarily from the deposits acquired through the acquisition of AAS.
Total interest and dividend income during the three months ended September 30, 2021 increased 5.6% to $158.3 million, compared to $149.9 million during the three months ended September 30, 2020. The increase in interest and dividend income for the three months ended September 30, 2021 was primarily attributable to the growth in average earning assets from loan originations and securities borrowed and margin lending, partially offset by reduced yields on loans and securities borrowed and margin lending. The average balance of loans and securities borrowed increased by 7.6% and 84.6%, respectively, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.
Total interest expense was $11.7 million for the three months ended September 30, 2021, a decrease of $10.9 million or 48.3% as compared with the quarter ended September 30, 2020. The decrease in the average cost of funds rate for the three months ended September 30, 2021 compared to 2020 was primarily due to a 30 basis point decrease in average rates paid on interest-bearing demand and savings deposits due to decreases in prevailing market deposit rates, an 81 basis point decrease in average rates paid on time deposits due to decreases in prevailing deposit rates across the industry and a 33.8% decrease in the average balance of time deposits. During the three months ended September 30, 2021, non-interest bearing deposits increased $1,158.1 million, primarily from the EAS acquisition replacing interest bearing deposits and borrowings.
Net interest margin, defined as annualized net interest income divided by average interest-earning assets, increased by 38 basis points to 4.22% for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. During the three months ended September 30, 2021, the primary contributors to the 38 basis point increase were the increase in non-interest bearing deposits of $1,158.1 million, primarily from the deposits acquired through the acquisition of AAS, along with a reduction in the level of low-yielding interest-earning deposits in other financial institutions.
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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
September 30,
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:
Loans3, 4
$11,662,383 $149,176 5.12 %$10,842,218 $141,424 5.22 %
Interest-earning deposits in other financial institutions1,163,143 591 0.20 %1,706,582 507 0.12 %
Mortgage-backed and other investment securities4
156,360 1,421 3.64 %189,631 2,677 5.65 %
Securities borrowed and margin lending5
903,542 6,851 3.03 %489,565 5,077 4.15 %
Stock of the regulatory agencies20,694 271 5.24 %20,609 204 3.96 %
Total interest-earning assets13,906,122 158,310 4.55 %13,248,605 149,889 4.53 %
Non-interest-earning assets596,295 362,957 
Total assets$14,502,417 $13,611,562 
Liabilities and Stockholders’ Equity:
Interest-bearing demand and savings$6,564,620 $3,567 0.22 %$7,052,323 $9,091 0.52 %
Time deposits1,363,061 4,145 1.22 %2,058,540 10,463 2.03 %
Securities loaned660,040 251 0.15 %302,601 124 0.16 %
Advances from the FHLB295,402 1,016 1.38 %242,500 1,372 2.26 %
Borrowings, subordinated notes and debentures223,837 2,689 4.81 %256,563 1,512 2.36 %
Total interest-bearing liabilities9,106,960 11,668 0.51 %9,912,527 22,562 0.91 %
Non-interest-bearing demand deposits3,191,171 1,903,205 
Other non-interest-bearing liabilities717,725 563,450 
Stockholders’ equity1,486,561 1,232,380 
Total liabilities and stockholders’ equity$14,502,417 $13,611,562 
Net interest income$146,642 $127,327 
Interest rate spread6
4.04 %3.62 %
Net interest margin7
4.22 %3.84 %
1Average balances are obtained from daily data.
2Annualized.
3Loans include loans held for sale, loan premiums and unearned fees.
4Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees. Loan fee income is not significant. Loans include average balances of $26.7 million and $27.5 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 sets forth the effects of changing rates and volumes on our net interest income. Information is provided with respect to (i) effects on interest income and interest expense attributable to changes in volume (changes in volume multiplied by prior rate); (ii) effects on interest income and interest expense attributable to changes in rate (changes in rate multiplied by prior volume). The change in interest due to both volume and rate has been allocated proportionally to both, based on their relative absolute values.
For the Three Months Ended
September 30,
2021 vs 2020
Increase (Decrease) Due to
(Dollars in thousands)VolumeRateTotal
Increase
(Decrease)
Increase (decrease) in interest income:
Loans$10,512 $(2,760)$7,752 
Interest-earning deposits in other financial institutions(193)277 84 
Mortgage-backed and other investment securities(415)(841)(1,256)
Securities borrowed and margin lending3,423 (1,649)1,774 
Stock of the regulatory agencies1 66 67 
$13,328 $(4,907)$8,421 
Increase (decrease) in interest expense:
Interest-bearing demand and savings$(591)$(4,933)$(5,524)
Time deposits(2,897)(3,421)(6,318)
Securities loaned135 (8)127 
Advances from the FHLB256 (612)(356)
Borrowings, subordinated notes and debentures(215)1,392 1,177 
$(3,312)$(7,582)$(10,894)

Provision for Credit Losses
The provision for credit losses was $4.0 million for the three months ended September 30, 2021 compared to $11.8 million for the three months ended September 30, 2020. The decrease in the provision was primarily due to a $6.5 million additional reserve for non-recurring Refund Advance loans for the three months ended September 30, 2020, and favorable changes in economic and business conditions resulting from the reduced levels of COVID-19 infections between September 30, 2020 and September 30, 2021. Provisions for credit losses for the three months ended September 30, 2021 were primarily comprised of provisions in commercial real estate and consumer and auto due to growth in these segments of the loan portfolio, partially offset by a decrease in provisions for commercial and industrial - non-RE as a result of changes in loan mix in this loan portfolio segment. Provisions for credit losses are charged to income to bring the allowance for credit losses - loans to a level deemed appropriate by management based on the factors discussed under “Financial Condition—Asset Quality and Allowance for Credit Losses - Loans.”
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Non-Interest Income
The following table sets forth information regarding our non-interest income for the periods shown:
For the Three Months Ended
September 30,
(Dollars in thousands)20212020Inc (Dec)
Prepayment penalty fee income$2,986 $1,368 $1,618 
Gain on sale – other17 334 (317)
Mortgage banking income5,253 19,567 (14,314)
Broker-dealer fee income11,766 5,702 6,064 
Banking and service fees6,680 8,884 (2,204)
Total non-interest income$26,702 $35,855 $(9,153)
Non-interest income decreased $9.2 million to $26.7 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The decrease was primarily the result of a decrease of $14.3 million in mortgage banking income, a decrease of $2.2 million in banking and service fees primarily due to Emerald Prepaid Mastercard® and Refund Transfer products associated with H&R Block that did not recur in the three months ended September 30, 2021, partially offset by an increase of $6.1 million in broker-dealer fee income driven by custody and mutual fund fees earned by the newly acquired AAS division and an increase of $1.6 million in prepayment penalty fee income.


36
Non-Interest Expense
    The following table sets forth information regarding our non-interest expense for the periods shown:
For the Three Months Ended
September 30,
(Dollars in thousands)20212020Inc (Dec)
Salaries and related costs$40,737 $38,623 $2,114 
Data processing12,092 7,928 4,164 
Advertising and promotional3,372 2,556 816 
Depreciation and amortization5,728 6,186 (458)
Professional services4,545 5,999 (1,454)
Occupancy and equipment3,181 3,011 170 
FDIC and regulator fees2,266 2,692 (426)
Broker-dealer clearing charges4,005 2,257 1,748 
Other general and administrative8,505 6,294 2,211 
Total non-interest expenses
$84,431 $75,546 $8,885 
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 $84.4 million for the three months ended September 30, 2021, up from $75.5 million for the three months ended September 30, 2020. The increase in non-interest expense for the three months ended September 30, 2021 was generally due to the addition of AAS and the expansion of the Company specifically in areas related to lending and deposits.
Total salaries and related costs increased $2.1 million to $40.7 million for the quarter ended September 30, 2021, compared to $38.6 million for the quarter ended September 30, 2020, due to increased staffing levels as a result of the AAS acquisition. Our staff increased to 1,282 from 1,108, or 15.7% between September 30, 2021 and September 30, 2020, which includes the addition of 124 employees for AAS.
Data processing expense increased $4.2 million for the three months ended September 30, 2021, compared to the three months ended September 30, 2020. The increase was primarily due to additions enhancements to customer interfaces and the Company’s core processing systems.
Depreciation and amortization expense decreased $0.5 million for the three months ended September 30, 2021, compared to the three months ended September 30, 2020. The decrease largely resulted from useful lives terminating on certain intangible assets acquired through acquisitions that reached the end of their useful lives as planned prior to the three months ended September 30, 2021.
Advertising and promotional expense increased $0.8 million for the three months ended September 30, 2021, compared to the three months ended September 30, 2020. The increase was primarily due to increased lead generation and deposit
marketing costs.
Professional services, which include accounting, consulting and legal fees, decreased $1.5 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The decrease is primarily the result of lower legal expenses.
Occupancy and equipment expense increased $0.2 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, due to annual increases in our office space lease agreements and the addition of an assumed office space lease for our AAS employees.
The cost of our FDIC and OCC standard regulatory charges decreased $0.4 million for the three months ended September 30, 2021, compared to the three month period ending September 30, 2020 due to the changes in the Bank’s mix of liabilities used for the assessment. As an FDIC-insured institution, the Bank is required to pay deposit insurance premiums to the FDIC.
Broker-dealer clearing charges increased $1.7 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase was attributable to increased activity and correlated clearing charges in the Securities Business including the acquisition of AAS.
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Other general and administrative costs increased by $2.2 million for the three months ended September 30, 2021, compared to the three month period ended September 30, 2020 primarily related a $2.0 million provision to allowance for credit losses of unfunded commitments.
Provision for Income Taxes
Income tax expense was $24.7 million for the three months ended September 30, 2021 compared to $22.8 million for three months ended September 30, 2020. Our effective income tax rates (income tax provision divided by net income before income tax) for the three months ended September 30, 2021 and 2020 were 29.09% and 30.08%, 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. Our Company operates through two segments: Banking Business and Securities Business. In order to reconcile the two segments to the unaudited condensed consolidated totals, our Company includes parent-only activities and intercompany eliminations. The following tables present the operating results of the segments:
Three Months Ended September 30, 2021
(Dollars in thousands)Banking
Business		Securities BusinessCorporate/EliminationsAxos Consolidated
Net interest income$142,241 $6,176 $(1,775)$146,642 
Provision for credit losses4,000 — — 4,000 
Non-interest income14,828 13,106 (1,232)26,702 
Non-interest expense62,725 19,273 2,433 84,431 
Income before taxes$90,344 $9 $(5,440)$84,913 
Three Months Ended September 30, 2020
(Dollars in thousands)Banking
Business		Securities BusinessCorporate/EliminationsAxos Consolidated
Net interest income$123,008 $4,894 $(575)$127,327 
Provision for credit losses11,800 — — 11,800 
Non-interest income30,212 5,784 (141)35,855 
Non-interest expense61,217 11,352 2,977 75,546 
Income before taxes$80,203 $(674)$(3,693)$75,836 
Banking Business
For the three months ended September 30, 2021, we had income before taxes of $90.3 million compared to income before taxes of $80.2 million for the three months ended September 30, 2020. For the three months ended September 30, 2021, the increase in income before taxes was related to increased net interest income due to an increase in average earning assets, a reduction in the rates paid on interest-bearing deposits, and a decrease in the provision for credit losses, partially offset by a decrease in non-interest income primarily driven by decreased 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 Ended
September 30, 2021September 30, 2020
Efficiency ratio39.93 %39.95 %
Return on average assets1.92 %1.78 %
Interest rate spread4.34 %3.70 %
Net interest margin4.48 %3.91 %
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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 Holding 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 borrowings that particularly decrease net interest margin.
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
September 30,
 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:
Loans3, 4
$11,622,074 $148,843 5.12 %$10,790,869 $140,678 5.21 %
Interest-earning deposits in other financial institutions879,856 337 0.15 %1,542,335 392 0.10 %
Mortgage-backed and other investment securities4
180,545 1,546 3.43 %227,081 2,856 5.03 %
Stock of the regulatory agencies17,824 270 6.06 %17,250 203 4.71 %
Total interest-earning assets12,700,299 150,996 4.76 %12,577,535 144,129 4.58 %
Non-interest-earning assets286,810 152,209 
Total assets$12,987,109 $12,729,744 
Liabilities and Stockholders’ Equity:
Interest-bearing demand and savings$6,614,799 $3,594 0.22 %$7,099,034 $9,155 0.52 %
Time deposits1,363,061 4,145 1.22 %2,058,540 10,463 2.03 %
Advances from the FHLB295,402 1,016 1.38 %242,500 1,372 2.26 %
Borrowings, subordinated notes and debentures
43 — — %151,952 132 0.35 %
Total interest-bearing liabilities8,273,305 8,755 0.42 %9,552,026 21,122 0.88 %
Non-interest-bearing demand deposits3,238,709 1,918,856 
Other non-interest-bearing liabilities124,213 135,467 
Stockholders’ equity1,350,882 1,123,395 
Total liabilities and stockholders’ equity$12,987,109 $12,729,744 
Net interest income$142,241 $123,007 
Interest rate spread5
4.34 %3.70 %
Net interest margin6
4.48 %3.91 %
1Average balances are obtained from daily data.
2Annualized.
3Loans include loans held for sale, loan premiums and unearned fees.
4Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees. Loans include average balances of $26.7 million and $27.5 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 2021 and 2020 three-month periods, respectively.
5Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.
6Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.


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Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table sets forth the effects of changing rates and volumes on our net interest income. Information is provided with respect to (i) effects on interest income and interest expense attributable to changes in volume (changes in volume multiplied by prior rate); (ii) effects on interest income and interest expense attributable to changes in rate (changes in rate multiplied by prior volume). The change in interest due to both volume and rate has been allocated proportionally to both, based on their relative absolute values.
 For the Three Months Ended
September 30
2021 vs 2020
 Increase (Decrease) Due to
(Dollars in thousands)VolumeRateTotal
Increase
(Decrease)
Increase / (decrease) in interest income:
Loans$10,636 $(2,471)$8,165 
Interest-earning deposits in other financial institutions(204)149 (55)
Mortgage-backed and other investment securities(513)(797)(1,310)
Stock of the regulatory agencies, at cost7 60 67 
$9,926 $(3,059)$6,867 
Increase / (decrease) in interest expense:
Interest-bearing demand and savings$(588)$(4,973)$(5,561)
Time deposits(2,897)(3,421)(6,318)
Advances from the FHLB256 (612)(356)
Borrowings, subordinated notes and debentures
(66)(66)(132)
$(3,295)$(9,072)$(12,367)
The Banking segment’s net interest income for the three months ended September 30, 2021 totaled $142.2 million, an increase of 15.6%, compared to net interest income of $123.0 million for the three months ended September 30, 2020. The growth of net interest income for the three months ended September 30, 2021 is primarily due to an increase in average interest-earning assets and lowered funding costs from interest-bearing demand and savings deposits and time deposits.
The Banking segment’s non-interest income decreased $15.4 million from $30.2 million to $14.8 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The $15.4 million decrease in non-interest income for the three months ended September 30, 2021, was primarily the result of a decrease in mortgage banking income of $14.3 million and a decrease in banking and service fees of $2.2 million, partially offset by an increase in prepayment penalty fee income of $1.6 million.
The Banking segment’s non-interest expense increased $1.5 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. For the three months ended September 30, 2021 compared to the three months ended September 30, 2020, the $1.5 million increase of non-interest expense was primarily due to an increase of $3.8 million for data processing, an increase in advertising and promotional expenses of $1.9 million, and an increase in other general and administrative costs of $1.7 million, partially offset by a decrease of $2.8 million for salaries and a decrease in professional services of $1.6 million.
Securities Business
For the three months ended September 30, 2021, our Securities Business segment had income before taxes of $9.0 thousand compared to a loss before taxes of $0.7 million for the three months ended September 30, 2020.
Net interest income for the three months ended September 30, 2021, increased $1.3 million to $6.2 million compared to $4.9 million for the three months ended September 30, 2020, primarily as a result of increase in the average interest-earning balance of securities borrowed and margin lending. In the Securities Business, interest is earned through margin loan balances, securities borrowed, and cash deposit balances. Interest expense is incurred from cash borrowed through bank lines and securities lending.
The non-interest income during the three months ended September 30, 2021, was $13.1 million compared to $5.8 million for the three months ended September 30, 2020. The increase of $7.3 million is the result of an increase of $5.3 million
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attributable to the addition of AAS custody and mutual funds fees, an increase of $0.8 million of clearing and custodial related fees, an increase of $0.6 million in correspondent fees, an increase of $0.5 million in fees earned on FDIC insured bank deposits, and an increase of $0.1 million of clearing technology services.
Non-interest expense increased $7.9 million to $19.3 million for the three months ended September 30, 2021 from the $11.4 million for the three months ended September 30, 2020. The increase was primarily related to an increase of $4.4 million in salaries and related expenses related to staffing and the acquisition of AAS, an increase of $1.7 million in broker-dealer clearing charges, an increase of $0.6 million in occupancy and equipment expense, and an increase of $0.4 million depreciation and amortization expense.
The following table provides selected information for Axos Clearing LLC as of or for the three months ended:
(Dollars in thousands)September 30, 2021September 30, 2020
Compensation as a % of net revenue43.8 %40.1 %
FDIC insured deposit program balances at banks (end of period)$1,971,355 $672,822 
Customer margin balances (end of period)$340,995 $252,867 
Cash reserves for the benefit of customers (end of period)$269,358 $214,550 
Securities lending:
Interest-earning assets – stock borrowed (end of period)$457,282 $263,470 
Interest-bearing liabilities – stock loaned (end of period)$539,505 $315,976 
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FINANCIAL CONDITION
Balance Sheet Analysis
Our total assets increased $0.6 billion, or 4.5%, to $14.9 billion, as of September 30, 2021, up from $14.3 billion at June 30, 2021. The increase in total assets was primarily due to an increase of $464.2 million in loans. Total liabilities increased $0.6 billion, primarily from an increase in deposits of $931.6 million, partially offset by a decrease in securities loaned of $189.5 million.
Loans
Net loans held for investment increased 4.1% to $11.9 billion at September 30, 2021 from $11.4 billion at June 30, 2021. The increase in the loan portfolio was primarily due to loan originations of $2.1 billion, partially offset by loan repayments and other adjustments of $1.6 billion.
The following table sets forth the composition of the loan portfolio as of the dates indicated:
September 30, 2021June 30, 2021
(Dollars in thousands)AmountPercentAmountPercent
Single Family - Mortgage & Warehouse$4,341,174 36.1 %$4,359,472 37.8 %
Multifamily and Commercial Mortgage2,458,200 20.4 %2,470,454 21.4 %
Commercial Real Estate3,492,926 29.1 %3,180,453 27.5 %
Commercial & Industrial - Non-RE1,239,354 10.3 %1,123,869 9.7 %
Auto & Consumer446,656 3.7 %362,180 3.1 %
Other42,672 0.4 %58,316 0.5 %
Total gross loans12,020,982 100.0 %11,554,744 100.0 %
Allowance for credit losses - loans(136,778)(132,958)
Unaccreted discounts and loan fees(5,183)(6,972)
Total net loans$11,879,021 $11,414,814 
The Bank originates some single family interest only loans with terms that include repayments that are less than the repayments for fully amortizing loans. The Bank’s lending guidelines for interest only loans are adjusted for the increased credit risk associated with these loans by requiring borrowers with such loans to borrow at LTVs that are lower than standard amortizing ARM loans and by calculating debt to income ratios for qualifying borrowers based upon a fully amortizing payment, not the interest only payment. The Bank monitors and performs reviews of interest only loans. Adverse trends reflected in the Company’s delinquency statistics, grading and classification of interest only loans would be reported to management and the Board of Directors. As of September 30, 2021, the Company had $1,076.9 million of interest only mortgage loans.
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Asset Quality and Allowance for Credit Losses - Loans
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 September 30, 2021, our non-performing loans totaled $134.1 million, or 1.12% of total gross loans and our total non-performing assets totaled $140.5 million, or 0.94% of total assets.
Non-performing loans and foreclosed assets or “non-performing assets” consisted of the following as of the dates indicated:
(Dollars in thousands)September 30, 2021June 30, 2021Inc (Dec)
Non-performing assets:
Non-accrual loans:
Single Family - Mortgage & Warehouse$111,257 $105,708 $5,549 
Multifamily and Commercial Mortgage6,964 20,428 (13,464)
Commercial Real Estate15,539 15,839 (300)
Commercial & Industrial - Non-RE— 2,942 (2,942)
Auto & Consumer374 278 96 
Total non-performing loans134,134 145,195 (11,061)
Foreclosed real estate6,114 6,547 (433)
Repossessed—Auto and RV206 235 (29)
Total non-performing assets$140,454 $151,977 $(11,523)
Total non-performing loans as a percentage of total loans1.12 %1.26 %(0.14)%
Total non-performing assets as a percentage of total assets0.94 %1.10 %(0.16)%
Total non-performing assets decreased from $152.0 million at June 30, 2021 to $140.5 million at September 30, 2021. The decrease in non-performing assets is primarily attributable to resolutions in multifamily and commercial mortgage loans. The Company ended forbearance for all single family mortgage borrowers during the quarter ended September 30, 2020. The weighted average LTV of the non-performing single family mortgage loans is 51.3%.
The Bank had no performing troubled debt restructurings at September 30, 2021 and June 30, 2021. A troubled debt restructuring is a concession made to a borrower experiencing financial difficulties, typically permanent or temporary modifications of principal and interest payments or an extension of maturity dates. When a loan is delinquent and classified as a troubled debt restructuring no interest is accrued until the borrower demonstrates over time (typically six months) that it can make payments. When a loan is considered a troubled debt restructuring and is on nonaccrual, it is considered non-performing and included in the table above.
Allowance for Credit Losses - Loans
On July 1, 2020, the Company adopted ASC 326. The update replaces the historical incurred loss model to a current expected loss model, resulting generally, in earlier recognition of loss. Refer to Note 1 - Summary of Significant Accounting Policies in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021 for further detail on the accounting adoption along with detail of the processes and approaches involved in determining the allowance for credit losses under the new guidance.
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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:
September 30, 2021June 30, 2021
(Dollars in thousands)Amount
of
Allowance		Allocation
as a % of
Allowance		Amount
of
Allowance		Allocation
as a % of
Allowance
Single Family Real Estate$25,329 18.5 %$26,604 20.0 %
Multifamily Real Estate13,359 9.8 %13,146 9.9 %
Commercial Real Estate65,223 47.7 %57,928 43.6 %
Commercial and Industrial - Non-RE22,519 16.5 %28,460 21.4 %
Consumer and Auto10,007 7.3 %6,519 4.9 %
Other341 0.2 %301 0.2 %
Total$136,778 100.0 %$132,958 100.0 %

The provision for credit losses was $4.0 million for the three months ended September 30, 2021 compared to $11.8 million for the three months ended September 30, 2020. The decrease in the provision was primarily due to a $6.5 million additional reserve for non-recurring Refund Advance loans for the three months ended September 30, 2020, and favorable changes in economic and business conditions resulting from the COVID-19 pandemic between September 30, 2020 and September 30, 2021. Provisions for credit losses for the three months ended September 30, 2021 were primarily comprised of provisions in commercial real estate and consumer and auto due to growth in these segments of the loan portfolio, partially offset by a decrease in provisions for commercial and industrial - non-RE as a result of changes in loan mix in this loan portfolio segment. 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 $137.9 million as of September 30, 2021, compared with $189.3 million at June 30, 2021. During the three months ended September 30, 2021, we purchased securities for $7.0 million, and received principal repayments of approximately $57.8 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.
Deposits
Deposits increased by $931.6 million, or 8.6%, to $11,747.4 million at September 30, 2021, from $10,815.8 million at June 30, 2021. Interest bearing deposits decreased $94.1 million and time deposits decreased $132.4 million as higher costing deposits were run off. Non-interest bearing deposits increased $1,158.1 million, or 46.8%, to $3,632.5 million at September 30, 2021, from $2,474.4 million at June 30, 2021, primarily due to deposits provided by the AAS acquisition.
The following table sets forth the composition of the deposit portfolio as of the dates indicated:
September 30, 2021June 30, 2021
(Dollars in thousands)Amount
Rate1
Amount
Rate1
Non-interest bearing$3,632,521 — %$2,474,424 — %
Interest-bearing:
Demand3,582,826 0.14 %3,369,845 0.15 %
Savings3,151,651 0.22 %3,458,687 0.21 %
Total interest-bearing demand and savings6,734,477 0.18 %6,828,532 0.18 %
Time deposits:
$250 and under2
962,782 1.31 %1,070,139 1.30 %
Greater than $250417,662 0.54 %442,702 1.03 %
Total time deposits
1,380,444 1.08 %1,512,841 1.22 %
Total interest bearing2
8,114,921 0.33 %8,341,373 0.37 %
Total deposits$11,747,442 0.23 %$10,815,797 0.29 %
1 Based on weighted-average stated interest rates at end of period.
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2 The total interest-bearing includes brokered deposits of $704.3 million and $621.4 million as of September 30, 2021 and June 30, 2021, respectively, of which $370.2 million and $380.0 million, respectively, are time deposits classified as $250 and under.

The following table sets forth the number of accounts by type as of the date indicated:
September 30, 2021June 30, 2021September 30, 2020
Non-interest bearing prepaid and other accounts38,725 36,726 2,887,751 
Interest-bearing checking and savings accounts342,860 336,068314,774 
Time deposits11,082 12,81516,594 
Total number of accounts392,667 385,6093,219,119
Our non-interest bearing, prepaid and other accounts contained two omnibus accounts that when condensed for regulatory reporting purposes result in 29,317 accounts at September 30, 2020. 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.
Borrowings
The following table sets forth the composition of our borrowings and the interest rates at the dates indicated:
September 30, 2021June 30, 2021September 30, 2020
(Dollars in thousands)BalanceWeighted Average RateBalanceWeighted Average RateBalanceWeighted Average Rate
FHLB Advances$157,500 2.29 %$353,500 1.18 %$242,500 2.22 %
Borrowings, subordinated notes and debentures255,896 4.05 %221,358 4.68 %453,843 3.14 %
Total borrowings$413,396 3.38 %$574,858 0.73 %$696,343 2.82 %
Weighted average cost of borrowings during the quarter2.85 %2.93 %2.30 %
Borrowings as a percent of total assets2.77 %4.03 %5.20 %

At September 30, 2021, total borrowings amounted to $413.4 million, down $161.5 million or 28.09%, from June 30, 2021 and down $282.9 million or 40.63% from September 30, 2020. Borrowings as a percent of total assets were 2.8%, 4.0% and 5.2% at September 30, 2021, June 30, 2021 and September 30, 2020, respectively. Weighted average cost of borrowings during the quarter were 2.85%, 2.93% and 2.30% for the quarters ended September 30, 2021, June 30, 2021 and September 30, 2020, respectively.
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 origination of loans and to provide us with interest rate risk protection should rates rise.
Stockholders’ Equity
Stockholders’ equity increased $57.7 million to $1,458.6 million at September 30, 2021 compared to $1,400.9 million at June 30, 2021. The increase was the result of our net income for the three months ended September 30, 2021 of $60.2 million, partially offset by stock compensation expense and restricted stock units vesting which combined for a decrease of $2.0 million and a $0.5 million decrease in other comprehensive income, net of tax.
During the three months ended September 30, 2021, the Company did not repurchase any common stock shares. The Company has $52.8 million remaining under the Board authorized stock repurchase program.
45
LIQUIDITY
Cash flow information is as follows:
For the Three Months Ended
September 30,
(Dollars in thousands)20212020
Operating Activities$(133,441)$66,291 
Investing Activities$(398,948)$(316,103)
Financing Activities$764,046 $(578,546)
During the three months ended September 30, 2021, we had net cash outflows from operating activities of $133.4 million compared to inflows of $66.3 million for the three months ended September 30, 2020, primarily due to net income for each period. Net operating cash inflows and outflows fluctuate primarily due to the timing of the following: originations of loans held for sale, proceeds from loan sales, securities borrowed and loaned, and customer, broker-dealer and clearing receivables and payables, and changes in other assets and payables were the primary drivers.
Net cash outflows from investing activities totaled $398.9 million for the three months ended September 30, 2021, while outflows totaled $316.1 million for the three months ended September 30, 2020. The increase in outflows was primarily due to increased originations of loans partially offset by increased repayments on loans and the $54.6 million acquisition of AAS.
Net cash inflows from financing activities totaled $764.0 million for the three months ended September 30, 2021, compared to net cash outflows from financing activities of $578.5 million for the three months ended September 30, 2020. The primary driver behind the increase in net cash inflows was increased deposits provided by the acquisition of AAS for the three months ended September 30, 2021.
During the three months ended September 30, 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 September 30, 2021, the Company had $1,709.3 million available immediately and $3,388.7 million available with additional collateral. At September 30, 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 September 30, 2021, the Bank did not have any borrowings outstanding and the amount available from this source was $2,024.3 million. The credit line is collateralized by consumer loans and mortgage-backed securities.
Axos Clearing has a total of $99.4 million uncommitted secured lines of credit available for borrowing as needed. As of September 30, 2021, there was $70.6 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 million committed unsecured line of credit available for limited purpose borrowing. As of September 30, 2021, there was $0 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 September 30, 2021, we had commitments to originate loans with an aggregate outstanding principal balance of $1,068.7 million, and commitments to sell loans with an aggregate outstanding principal balance of $56.1 million. We have no commitments to purchase loans, investment securities or any other unused lines of credit.
In the normal course of business, Axos Clearing’s customer activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose Axos Clearing to off-balance-sheet risk in the event the customer or other broker is unable to fulfill its contracted obligations and Axos Clearing has to purchase or sell the financial instrument underlying the contract at a loss. Axos Clearing’s clearing agreements with broker-dealers for which it provides clearing services requires them to indemnify Axos Clearing if customers fail to satisfy their contractual obligation.
46
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 September 30, 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 September 30, 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 September 30, 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 September 30, 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)September 30, 2021June 30,
2021		September 30, 2021June 30,
2021
Regulatory Capital:
Tier 1 $1,320 $1,309 $1,313 $1,263 
Common equity tier 1 $1,320 $1,309 $1,313 $1,263 
Total capital (to risk-weighted assets)$1,603 $1,588 $1,413 $1,358 
Assets:
Average adjusted$14,365 $14,851 $12,952 $13,360 
Total risk-weighted $12,231 $11,523 $11,043 $10,283 
Regulatory Capital Ratios:
Tier 1 leverage (core) capital to adjusted average assets9.19 %8.82 %10.14 %9.45 %5.00 %4.00 %
Common equity tier 1 capital (to risk-weighted assets)10.79 %11.36 %11.89 %12.28 %6.50 %4.50 %
Tier 1 capital (to risk-weighted assets)10.79 %11.36 %11.89 %12.28 %8.00 %6.00 %
Total capital (to risk-weighted assets)13.10 %13.78 %12.80 %13.21 %10.00 %8.00 %
Basel III implemented a requirement for all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively composed of common equity tier 1 capital, and it applies to each of the three risk-based capital ratios but not the leverage ratio. At September 30, 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.
47
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)September 30, 2021June 30, 2021
Net capital$39,663 $35,950 
Excess Capital$31,435 $27,904 
Net capital as a percentage of aggregate debit items9.64 %8.94 %
Net capital in excess of 5% aggregate debit items$19,092 $15,836 
Axos Clearing as a clearing broker, is subject to SEC Customer Protection Rule (Rule 15c3-3 of the Exchange Act) which requires segregation of funds in a special reserve account for the benefit of customers. At September 30, 2021, the Company had a deposit requirement of $241.0 million and maintained a deposit of $214.3 million. On October 1, 2021, the company made a deposit of $31.0 million.
Certain broker-dealers have chosen to maintain brokerage customer accounts at Axos Clearing. To allow these broker-dealers to classify their assets held by the Company as allowable assets in their computation of net capital, the Company computes a separate reserve requirement for Proprietary Accounts of Brokers (PAB). At September 30, 2021, the Company had a deposit requirement of $47.8 million and maintained a deposit of $55.0 million. On October 1, 2021, the Company made a withdrawal in the amount of $6.9 million.
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.
48
Banking Business
The following table sets forth the amounts of interest earning assets and interest bearing liabilities that were outstanding at September 30, 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
September 30, 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$966,301 $— $— $— $966,301 
Securities1
132,274 1,684 12,025 14,957 160,940 
Stock of the FHLB, at cost17,250 — — — 17,250 
Loans—net of allowance for credit loss7,618,288 1,504,579 2,806,303 46,635 11,975,805 
Loans held for sale45,293 — — — 45,293 
Total interest-earning assets8,779,406 1,506,263 2,818,328 61,592 13,165,589 
Non-interest earning assets— — — — 306,080 
Total assets$8,779,406 $1,506,263 $2,818,328 $61,592 $13,471,669 
Interest-bearing liabilities:
Interest-bearing deposits$6,154,180 $1,513,649 $486,745 $171 $8,154,745 
Advances from the FHLB5,000 40,000 52,500 60,000 157,500 
Borrowings, subordinated notes and debentures126,088 — — 14,000 140,088 
Total interest-bearing liabilities6,285,268 1,553,649 539,245 74,171 8,452,333 
Other non-interest-bearing liabilities— — — — 3,672,639 
Stockholders’ equity— — — — 1,346,697 
Total liabilities and equity$6,285,268 $1,553,649 $539,245 $74,171 $13,471,669 
Net interest rate sensitivity gap$2,494,138 $(47,386)$2,279,083 $(12,579)$4,713,256 
Cumulative gap$2,494,138 $2,446,752 $4,725,835 $4,713,256 $4,713,256 
Net interest rate sensitivity gap—as a % of total interest earning assets18.94 %(0.36)%17.31 %(0.10)%35.80 %
Cumulative gap—as % of total interest earning assets18.94 %18.58 %35.90 %35.80 %35.80 %
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 September 30, 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.
49
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 September 30, 2021
First 12 MonthsNext 12 Months
(Dollars in thousands)Net Interest IncomePercentage Change from BaseNet Interest IncomePercentage Change from Base
Up 200 basis points$585,772 10.6 %$570,219 11.7 %
Base$529,586 — %$510,581 — %
Down 100 basis points$519,007 (2.0)%$492,226 (3.6)%
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 September 30, 2021
(Dollars in thousands)Net
Present Value		Percentage Change from BaseNet
Present
Value as a
Percentage
of Assets
Up 300 basis points$1,645,754 4.6 %12.2 %
Up 200 basis points$1,670,166 6.2 %12.3 %
Up 100 basis points$1,633,809 3.9 %11.9 %
Base$1,572,806 — %11.4 %
Down 100 basis points$1,370,455 (12.9)%9.8 %
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 September 30, 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
50
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
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.
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.
51
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, 2021. 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 September 30, 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 September 30, 2021
July 1, 2021 to July 31, 2021— $— — $— 
August 1, 2021 to August 31, 2021— $— — $— 
September 1, 2021 to September 30, 2021— $— — $— 
For the Three Months Ended September 30, 2021— $— — $52,764 
Stock Retained in Net Settlement2
July 1, 2021 to July 31, 202112,729 
August 1, 2021 to August 31, 202182,797 
September 1, 2021 to September 30, 202129,081 
For the Three Months Ended September 30, 2021124,607 
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 2021, 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.

52
ITEM 5.    OTHER INFORMATION
    None.

ITEM 6.EXHIBITS
Exhibit
Number		DescriptionIncorporated By Reference to
10.1Amendment to Offer Letter between Derrick K. Walsh and Axos Financial, Inc.
10.2Change of Control Severance Agreement between Derrick K. Walsh and Axos Financial, Inc. and Axos Bank
10.3Amended and Restated Employment Agreement between Andrew J. Micheletti and Axos Bank
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



53
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:October 28, 2021By:    /s/ Gregory Garrabrants
Gregory Garrabrants
President and Chief Executive Officer
(Principal Executive Officer)
Dated:October 28, 2021By:    /s/ Derrick K. Walsh
Derrick K. Walsh
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
54

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