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Axos Financial
AX
#3053
Rank
$5.24 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$92.50
Share price
-1.19%
Change (1 day)
61.60%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Axos Financial
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2023 Q1

Axos Financial - 10-Q quarterly report FY2023 Q1


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-37709
ax-20220930_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
__________________________________________________________________________________________
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: 59,999,339 shares of common stock, $0.01 par value per share, as of October 21, 2022.

AXOS FINANCIAL, INC.
INDEX
Page
1
ITEM 1.       FINANCIAL STATEMENTS
1
Condensed Consolidated Balance Sheets as of September 30, 2022 (unaudited) and June 30, 2022
1
Condensed Consolidated Statements of Income (unaudited) for the three months ended September 30, 2022 and 2021
2
Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three months ended September 30, 2022 and 2021
3
Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three months ended September 30, 2022 and 2021
4
Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended September 30, 2022 and 2021
5
Notes to Condensed Consolidated Financial Statements
6
ITEM 2.        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
28
SELECTED FINANCIAL DATA
31
RESULTS OF OPERATIONS
33
FINANCIAL CONDITION
42
LIQUIDITY
46
OFF-BALANCE SHEET COMMITMENTS
46
CAPITAL RESOURCES AND REQUIREMENTS
47
ITEM 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
48
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
(Dollars in thousands, except par and stated value)
(Unaudited) September 30, 2022
June 30,
2022
ASSETS
Cash and cash equivalents$1,369,170 $1,202,587 
Cash segregated for regulatory purposes328,878 372,112 
Total cash, cash equivalents, and cash segregated1,698,048 1,574,699 
Securities:
Trading75 1,758 
Available-for-sale257,634 262,518 
Stock of regulatory agencies20,881 20,368 
Loans held for sale, carried at fair value9,463 4,973 
Loans held for sale, lower of cost or fair value10,476 10,938 
Loans—net of allowance for credit losses of $155,472 as of September 30, 2022 and $148,617 as of June 30, 2022
15,211,573 14,091,061 
Mortgage servicing rights, carried at fair value26,373 25,213 
Securities borrowed87,622 338,980 
Customer, broker-dealer and clearing receivables410,842 417,417 
Goodwill and other intangible assets—net160,429 156,405 
Other assets513,662 496,835 
TOTAL ASSETS$18,407,078 $17,401,165 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing4,626,907 5,033,970 
Interest bearing10,549,724 8,912,452 
Total deposits15,176,631 13,946,422 
Advances from the Federal Home Loan Bank112,500 117,500 
Borrowings, subordinated notes and debentures425,818 445,244 
Securities loaned206,889 474,400 
Customer, broker-dealer and clearing payables500,584 511,654 
Accounts payable and other liabilities283,684 262,972 
Total liabilities16,706,106 15,758,192 
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS’ EQUITY:
Common stock—$0.01 par value; 150,000,000 shares authorized; 69,151,152 shares issued and 59,998,673 shares outstanding as of September 30, 2022; 68,859,722 shares issued and 59,777,949 shares outstanding as of June 30, 2022
692 689 
Additional paid-in capital459,101 453,784 
Accumulated other comprehensive income (loss)—net of tax(5,770)(2,933)
Retained earnings1,486,851 1,428,444 
Treasury stock, at cost; 9,152,479 shares as of September 30, 2022 and 9,081,773 shares as of June 30, 2022
(239,902)(237,011)
Total stockholders’ equity1,700,972 1,642,973 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$18,407,078 $17,401,165 

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)20222021
INTEREST AND DIVIDEND INCOME:
Loans, including fees$208,338 $149,176 
Securities borrowed and customer receivables4,384 6,851 
Investments11,064 2,283 
Total interest and dividend income223,786 158,310 
INTEREST EXPENSE:
Deposits32,505 7,712 
Advances from the Federal Home Loan Bank5,163 1,016 
Securities loaned943 251 
Other borrowings4,700 2,689 
Total interest expense43,311 11,668 
Net interest income180,475 146,642 
Provision for credit losses8,750 4,000 
Net interest income, after provision for credit losses171,725 142,642 
NON-INTEREST INCOME:
Broker-dealer fee income9,178 6,462 
Advisory fee income6,959 5,304 
Banking and service fees6,514 6,680 
Mortgage banking income3,365 5,270 
Prepayment penalty fee income1,192 2,986 
Total non-interest income27,208 26,702 
NON-INTEREST EXPENSE:
Salaries and related costs46,996 40,737 
Data processing14,022 12,092 
Depreciation and amortization6,094 5,728 
Advertising and promotional6,370 3,372 
Professional services8,087 4,545 
Occupancy and equipment4,054 3,181 
FDIC and regulatory fees3,735 2,266 
Broker-dealer clearing charges2,829 4,005 
General and administrative expense23,900 8,505 
Total non-interest expense116,087 84,431 
INCOME BEFORE INCOME TAXES82,846 84,913 
INCOME TAXES24,439 24,703 
NET INCOME$58,407 $60,210 
COMPREHENSIVE INCOME$55,570 $59,703 
Basic earnings per common share$0.98 $1.01 
Diluted earnings per common share$0.97 $0.99 
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)20222021
NET INCOME$58,407 $60,210 
Net unrealized gain (loss) from available-for-sale securities, net of income tax expense (benefit) of $(1,215) and $(214) for the three months ended September 30, 2022 and 2021, respectively.
(2,837)(507)
Other comprehensive income (loss)(2,837)(507)
Comprehensive income$55,570 $59,703 

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, 2022
Common StockAdditional Paid-in CapitalRetained
Earnings		Accumulated
Other
Comprehensive
Income (Loss),
Net of Income Tax		Treasury
Stock		Total
Number of Shares
(Dollars in thousands)IssuedTreasuryOutstandingAmount
BALANCE—June 30, 202268,859,722 (9,081,773)59,777,949 $689 $453,784 $1,428,444 $(2,933)$(237,011)$1,642,973 
Net income— — — — — 58,407 — — 58,407 
Other comprehensive income (loss)— — — — — — (2,837)— (2,837)
Stock-based compensation activity291,430 (70,706)220,724 3 5,317 — — (2,891)2,429 
BALANCE—September 30, 202269,151,152 (9,152,479)59,998,673 $692 $459,101 $1,486,851 $(5,770)$(239,902)$1,700,972 

For the Three Months Ended September 30, 2021
Common StockAdditional Paid-in CapitalRetained
Earnings		Accumulated
Other
Comprehensive
Income (Loss),
Net of Income Tax		Treasury
Stock		Total
Number of Shares
(Dollars in thousands)IssuedTreasuryOutstandingAmount
BALANCE—June 30, 202168,069,321 (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 activity301,296 (124,607)176,689 3 3,978 — — (5,999)(2,018)
BALANCE—September 30, 202168,370,617 (8,875,984)59,494,633 $684 $436,528 $1,247,938 $2,000 $(228,529)$1,458,621 
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)20222021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$58,407 $60,210 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and accretion6,801 5,972 
Stock-based compensation expense5,320 3,981 
Trading activity1,683 42 
Provision for credit losses8,750 4,000 
Deferred income taxes(3,807)1,453 
Origination of loans held for sale(70,073)(209,967)
Unrealized and realized gains on loans held for sale(2,433)(4,107)
Proceeds from sale of loans held for sale67,610 208,777 
Amortization and change in fair value of mortgage servicing rights(953)1,185 
Net changes in assets and liabilities which provide (use) cash:
Securities borrowed251,358 161,806 
Customer, broker-dealer and clearing receivables61,015 (53,677)
Other assets(6,347)(112,925)
Securities loaned(267,511)(189,483)
Customer, broker-dealer and clearing payables(65,484)(25,385)
Accounts payable and other liabilities26,485 18,949 
Net cash provided by (used in) operating activities70,821 (129,169)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities— (7,033)
Proceeds from sale and repayment of securities1,029 128,506 
Purchase of stock of regulatory agencies(54,964)(8,219)
Proceeds from redemption of stock of regulatory agencies54,964 8,219 
Origination of loans held for investment(2,486,224)(2,050,587)
Proceeds from sale of loans held for investment13,965 12,100 
Mortgage warehouse loans activity, net103,812 (41,692)
Proceeds from sales of other real estate owned and repossessed assets719 621 
Acquisition of business activity, net of cash acquired (5,009)(54,597)
Purchases of loans and leases, net of discounts and premiums(51)(7,481)
Principal repayments on loans1,229,390 1,620,886 
Purchases of furniture, equipment, software and intangibles(7,921)(3,943)
Net cash used in investing activities(1,150,290)(403,220)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits1,230,209 931,645 
Payments of the Federal Home Loan Bank term advances(5,000)(10,000)
Net repayment of Federal Home Loan Bank other advances— (186,000)
Net proceeds (repayments) of other borrowings(19,500)34,400 
Tax payments related to settlement of restricted stock units(2,891)(5,999)
Net cash provided by financing activities1,202,818 764,046 
NET CHANGE IN CASH AND CASH EQUIVALENTS123,349 231,657 
CASH AND CASH EQUIVALENTS—Beginning of year$1,574,699 $1,037,777 
CASH AND CASH EQUIVALENTS—End of period$1,698,048 $1,269,434 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid on deposits and borrowed funds$42,429 $14,989 
Income taxes paid37,277 29,955 
Transfers to other real estate and repossessed vehicles5,522 140 
Transfers from loans held for investment to loans held for sale— 12,100 
Transfers from loans held for sale to loans held for investment682 376 
See accompanying notes to the condensed consolidated financial statements.
5
AXOS FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2022 AND 2021
(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”) collectively, the “Company”. Axos Bank and its wholly owned subsidiary constitute the Banking Business segment and 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, 2022 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 not repeated herein 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, 2022 included in our Annual Report on Form 10-K filed with the SEC for the fiscal year ended June 30, 2022 (“2022 Form 10-K”). A reclassification of certain components of non-interest income for the three months ended September 30, 2021 has been made to conform to the current period presentation. This reclassification had no effect on the Company’s total non-interest income, net income, financial position or cash flows. Additional reclassifications of certain amounts in the Condensed Consolidated Statement of Cash Flows for the three months ended September 30, 2021 have been made to conform to the current period presentation. These reclassifications had no effect on the Company’s results of operations or financial position.
Significant Accounting Policies
Our significant accounting policies are described in greater detail in Note 1—“Organizations and Summary of Significant Accounting Policies” contained in the 2022 Form 10-K.
New Accounting Standards
Accounting Standards Issued But Not Yet Adopted
For a discussion of new accounting standards issued but not yet adopted which are applicable to the Company see Note 1—“Organizations and Summary of Significant Accounting Policies” contained in the 2022 Form 10-K. For the fiscal year beginning July 1, 2022, there have been no new accounting standards issued but not yet adopted that are expected to be material to the Company.
6
2.     ACQUISITIONS
From time to time the Company completes acquisitions and related corporate activities to supplement the organic growth and development of the business.
On August 2, 2021 the Company’s subsidiary, Axos Clearing LLC, acquired certain assets and liabilities of E*TRADE Advisor Services (“EAS”), the registered investment advisor custody business of Morgan Stanley. This business was rebranded as Axos Advisor Services (“AAS”). AAS adds incremental fee income, a turnkey technology platform used by independent registered investment advisors for trading and custody services, and low cost deposits that can be used to generate fee income from other bank partners or to fund loan growth at Axos Bank. The purchase price of $54.8 million consisted entirely of cash consideration paid upon acquisition and working capital adjustments.
The Company incurred acquisition-related costs totaling $0.04 million in total, all of which were recognized in the year ended June 30, 2022.
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 preliminary allocation of the $54.6 million purchase price consisted of $14.4 million of fair value of tangible assets acquired (which included $7.8 million of a right-of-use lease asset), $11.3 million of liabilities assumed (which included $7.8 million of a lease liability), $27.1 million of identifiable intangible assets and $24.4 million of goodwill, all of which is expected to be deductible for tax purposes. In December 2021, the Company made a $0.2 million true-up payment based on working capital adjustments, which was recorded as an increase in the purchase price up to $54.8 million with no impact on goodwill or identifiable intangible assets. After the working capital true-up, the final acquisition fair value of tangible assets acquired was $14.2 million and the final acquisition fair value of liabilities acquired was $10.9 million. 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’s existing product offerings and leveraging customer relationships through registered investment advisors (“RIAs”). The following table summarizes the fair value and useful life of each intangible asset acquired as of the acquisition date:
(Dollars in thousands)Fair ValueUseful Lives (Years)
Trade Name$290 0.16
Proprietary Technology10,990 7
Customer Relationships15,650 14
Non-Compete Agreements130 1
Total$27,060 
The following table presents the results of operations of AAS for the three months ended September 30, 2021 on an unaudited pro forma basis, as if the acquisition of the entity rebranded to AAS had been consummated on July 1, 2020. The unaudited pro forma financial information is provided for informational purposes only and is not necessarily indicative of what the Company’s results of operations would have been if the acquisition of EAS had occurred as of July 1, 2020, or the results of operations for any future periods. Additionally, the information presented does not reflect any synergies or other strategic benefits as a result of acquisition.
Pro Forma
(Dollars in thousands)For the Three Months Ended September 30, 2021
Non-interest income$8,942 
It is not practical to disclose net income on a pro forma basis as the assets and liabilities acquired are a component of a business.
7
3.     FAIR VALUE
The Company’s financial assets and liabilities measured at fair value on a recurring basis at September 30, 2022 and June 30, 2022 are classified in their entirety based on the lowest level of input significant to the fair value measurement.
September 30, 2022
(Dollars in thousands)Significant Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Total
ASSETS:
Securities—Trading: Municipal$75 $— $75 
Securities—Available-for-Sale:
Agency MBS1
23,763 — 23,763 
Non-Agency MBS2
— 184,012 184,012 
Municipal2,995 — 2,995 
Asset-backed securities and structured notes46,864 — 46,864 
Total—Securities—Available-for-Sale$73,622 $184,012 $257,634 
Loans Held for Sale$9,463 $— $9,463 
Mortgage servicing rights$— $26,373 $26,373 
Other assets—Derivative instruments$— $897 $897 
LIABILITIES:
   Other liabilities—Derivative instruments$— $362 $362 

June 30, 2022
(Dollars in thousands)Significant Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Total
ASSETS:
Securities—Trading: Municipal
$1,758 $— $1,758 
Securities—Available-for-Sale:
Agency MBS1
25,325 — 25,325 
Non-Agency MBS2
— 186,814 186,814 
Municipal3,248 — 3,248 
Asset-backed securities and structured notes47,131 — 47,131 
Total—Securities—Available-for-Sale$75,704 $186,814 $262,518 
Loans Held for Sale$4,973 $— $4,973 
Mortgage servicing rights$— $25,213 $25,213 
Other assets—Derivative instruments$— $464 $464 
LIABILITIES:
Other liabilities—Derivative instruments$— $— $— 
1Includes securities guaranteed by Ginnie Mae, a U.S. government agency, and the government sponsored enterprises Fannie Mae and Freddie Mac.
2 Private 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.
8
Additional information is presented below about assets measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value:
For the Three Months Ended
September 30, 2022
(Dollars in thousands)Securities – Available-for-Sale: Non-Agency RMBS
Mortgage Servicing Rights1
Derivative Instruments, netTotal
Opening Balance$186,814 $25,213 $464 $212,491 
Total gains or losses for the period:
Included in earnings—Mortgage banking income— 953 71 1,024 
Included in other comprehensive income(2,473)— — (2,473)
Purchases, retentions, issues, sales and settlements:
Purchases/Retentions— 207 — 207 
Settlements(329)— — (329)
Closing balance$184,012 $26,373 $535 $210,920 
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period$— $953 $71 $1,024 
1 Earnings from mortgage servicing rights (“MSR”) were attributable to: Time and payoffs, representing a decrease in MSR value due to passage of time, including the impact from both regularly scheduled loan principal payments and loans that were paid down or paid off during the period of $0.4 million, and an increase in MSR value resulting from market-driven changes in interest rates of $1.4 million. Additions to mortgage servicing rights were retained upon sale of loans held for sale.

For the Three Months Ended
September 30, 2021
(Dollars in thousands)Securities – Available-for-Sale: Non-Agency RMBS
Mortgage Servicing Rights1
Derivative Instruments, netTotal
Opening Balance$67,615 $17,911 $2,205 $87,731 
Total gains or losses for the period:
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)
1 Earnings from mortgage servicing rights were attributable to: Time and payoffs, representing a decrease in MSR value due to passage of time, including the impact from both regularly scheduled loan principal payments and loans that were paid down or paid off during the period of $1.6 million, and an increase in MSR value resulting from market-driven changes in interest rates of $0.4 million. Additions to mortgage servicing rights were retained upon sale of loans held for sale.
The table below summarizes the quantitative information about level 3 fair value measurements as of the dates indicated:
September 30, 2022
(Dollars in thousands)Fair ValueValuation TechniqueUnobservable InputRange (Weighted Average)
Securities – Non-agency MBS$184,012 Discounted Cash FlowProjected Constant Prepayment Rate,
Projected Constant Default Rate,
Projected Loss Severity,
Discount Rate over LIBOR
0.0 to 30.0% (21.4%)
0.0 to 15.9% (2.3%)
0.0 to 68.6% (26.6%)
2.7 to 8.8% (2.7%)
Mortgage Servicing Rights$26,373 Discounted Cash FlowProjected Constant Prepayment Rate,
Life (in years),
Discount Rate
3.8 to 38.0% (9.3%)
0.9 to 13.0 (9.4)
9.5 to 11.0% (9.5%)
Derivative Instruments$535 Sales Comparison ApproachProjected Sales Profit of Underlying Loans
-3.1 to 1.2% (-1.2%)
9
June 30, 2022
(Dollars in thousands)Fair ValueValuation TechniqueUnobservable InputRange (Weighted Average)
Securities – Non-agency MBS$186,814 Discounted Cash FlowProjected Constant Prepayment Rate,
Projected Constant Default Rate,
Projected Loss Severity,
Discount Rate over LIBOR
0.0 to 30.0% (21.4%)
0.0 to 7.9% (2.2%)
0.0 to 68.4% (26.7%)
2.7 to 9.3% (2.8%)
Mortgage Servicing Rights$25,213 Discounted Cash FlowProjected Constant Prepayment Rate,
Life (in years),
Discount Rate
7.9 to 56.3% (11.0%)
1.2 to 9.9 (8.4)
9.5 to 11.5% (9.5%)
Derivative Instruments$464 Sales Comparison ApproachProjected Sales Profit of Underlying Loans
-3.1 to 0.8% (-1.2%)
The significant unobservable inputs used in the fair value measurement of the Company’s residential mortgage-backed securities are projected prepayment rates, probability of default, projected loss severity in the event of default and discount rate over LIBOR. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the projected loss severity and a directionally opposite change in the assumption used for projected prepayment rates.
The table below summarizes assets measured for impairment on a non-recurring basis:
September 30, 2022
(Dollars in thousands)Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Balance
Other real estate owned and foreclosed assets:
Single family real estate$— $— $4,534 $4,534 
Autos and RVs$— $— $768 $768 
Total$— $— $5,302 $5,302 
June 30, 2022
(Dollars in thousands)Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)		Significant Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Balance
Other real estate owned and foreclosed assets:
Autos and RVs— — 798 798 
Total$— $— $798 $798 
Non-recurring fair value measurements for other real estate owned and foreclosed assets represent charge-offs of $307 thousand for the three months ended September 30, 2022 and $12 thousand 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 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. None of these loans are 90 days or more past due nor on nonaccrual as of September 30, 2022 and June 30, 2022.
As of September 30, 2022 and June 30, 2022, 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, 2022June 30, 2022
Aggregate fair value$9,463 $4,973 
Contractual balance9,348 4,881 
Unrealized gain$115 $92 
10
Gains and losses from changes in fair value included in earnings for loans held for sale for the periods indicated below were:
For the Three Months Ended
September 30,
(Dollars in thousands)20222021
Interest income$50 $200 
Change in fair value91 43 
Total $141 $243 
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, 2022
(Dollars in thousands)Fair ValueValuation Technique(s)Unobservable Input
Range (Weighted Average) 1
Other real estate owned and foreclosed assets:
Single family real estate$4,534 Sales comparison approachAdjustment for differences between the comparable sales
3.5 to 12.1% (4.1%)
Autos and RVs$768 Sales comparison approachAdjustment for differences between the comparable sales
-13.7 to -0.5% (-3.4%)
June 30, 2022
(Dollars in thousands)Fair ValueValuation Technique(s)Unobservable Input
Range (Weighted Average) 1
Other real estate owned and foreclosed assets:
Autos and RVs$798 Sales comparison approachAdjustment for differences between the comparable sales
-17.2 to 4.6% (-7.5%)
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.

11
Fair Value of Financial Instruments
Carrying amounts and estimated fair values of financial instruments at September 30, 2022 and June 30, 2022 were:
September 30, 2022
Fair Value
(Dollars in thousands)Carrying
Amount		Level 1Level 2Level 3Total Fair Value
Financial assets:
Cash and cash equivalents$1,698,048 $1,698,048 $— $— $1,698,048 
Securities — trading75 — 75 — 75 
Securities — available-for-sale257,634 — 73,622 184,012 257,634 
Loans held for sale, at fair value9,463 — 9,463 — 9,463 
Loans held for sale, at lower of cost or fair value10,476 — — 10,489 10,489 
Loans held for investment—net15,211,573 — — 14,893,655 14,893,655 
Securities borrowed87,622 — — 86,728 86,728 
Customer, broker-dealer and clearing receivables410,842 — — 411,171 411,171 
Mortgage servicing rights26,373 — — 26,373 26,373 
Financial liabilities:
Total deposits15,176,631 — 13,373,113 — 13,373,113 
Advances from the Federal Home Loan Bank112,500 — 105,387 — 105,387 
Borrowings, subordinated notes and debentures425,818 — 385,257 — 385,257 
Securities loaned206,889 — — 206,910 206,910 
Customer, broker-dealer and clearing payables500,584 — — 500,584 500,584 
June 30, 2022
Fair Value
(Dollars in thousands)Carrying
Amount		Level 1Level 2Level 3Total Fair Value
Financial assets:
Cash and cash equivalents$1,574,699 $1,574,699 $— $— $1,574,699 
Securities — trading1,758 — 1,758 — 1,758 
Securities — available-for-sale262,518 — 75,704 186,814 262,518 
Loans held for sale, at fair value4,973 — 4,973 — 4,973 
Loans held for sale, at lower of cost or fair value10,938 — — 10,985 10,985 
Loans held for investment—net14,091,061 — — 14,015,157 14,015,157 
Securities borrowed338,980 — — 329,963 329,963 
Customer, broker-dealer and clearing receivables417,417 — — 414,383 414,383 
Mortgage servicing rights25,213 — — 25,213 25,213 
Financial liabilities:
Total deposits13,946,422 — 12,812,512 — 12,812,512 
Advances from the Federal Home Loan Bank117,500 — 117,500 — 117,500 
Borrowings, subordinated notes and debentures445,244 — 416,947 — 416,947 
Securities loaned474,400 — — 473,831 473,831 
Customer, broker-dealer and clearing payables511,654 — — 471,859 471,859 
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 the 2022 Form 10-K. 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 material.
12
4.     SECURITIES
The amortized cost, carrying amount and fair value for the trading and available-for-sale securities at September 30, 2022 and June 30, 2022 were:
September 30, 2022
TradingAvailable-for-sale
(Dollars in thousands)Fair
Value		Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Fair
Value
Mortgage-backed securities (MBS):
U.S. agencies1
$— $27,187 $1 $(3,425)$23,763 
Non-agency2
— 187,287 1,300 (4,575)184,012 
Total mortgage-backed securities— 214,474 1,301 (8,000)207,775 
Non-MBS:
Municipal75 3,560 — (565)2,995 
Asset-backed securities and structured notes— 47,000 — (136)46,864 
Total Non-MBS75 50,560 — (701)49,859 
Total debt securities$75 $265,034 $1,301 $(8,701)$257,634 
June 30, 2022
TradingAvailable-for-sale
(Dollars in thousands)Fair
Value		Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Fair
Value
Mortgage-backed securities (MBS):
U.S. agencies1
$— $27,722 $9 $(2,406)$25,325 
Non-agency2
— 187,616 1,832 (2,634)186,814 
Total mortgage-backed securities— 215,338 1,841 (5,040)212,139 
Non-MBS:
Municipal1,758 3,529 — (281)3,248 
Asset-backed securities and structured notes— 47,000 131 — 47,131 
Total Non-MBS1,758 50,529 131 (281)50,379 
Total debt securities$1,758 $265,867 $1,972 $(5,321)$262,518 
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.
No credit losses were recognized on available-for-sale securities in the three months ended September 30, 2022 and September 30, 2021. No allowance for credit losses for available-for-sale debt securities was recorded at September 30, 2022 and June 30, 2022 based on an analysis of: (1) the credit characteristics of the securities, including the forecasted cash flows, credit ratings, credit enhancement, and any external government backing, and (2) whether the Company is intending to sell or is required to sell any securities before recovering the amortized cost basis of the securities.
The Company’s non-agency MBS available-for-sale portfolio with a total fair value of $184,012 at September 30, 2022 consists of 17 different issues of super senior securities.
The face amounts of debt securities available-for-sale pledged to secure borrowings at September 30, 2022 and June 30, 2022 were $1.1 million and $1.2 million, respectively.
13
Securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were:
September 30, 2022
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$15,070 $(1,882)$8,493 $(1,543)$23,563 $(3,425)
Non-agency127,685 (4,095)4,516 (480)132,201 (4,575)
Total MBS142,755 (5,977)13,009 (2,023)155,764 (8,000)
Non-MBS:
Municipal debt2,995 (565)— — 2,995 (565)
Asset-backed securities and structured notes46,864 (136)— — 46,864 (136)
Total Non-MBS49,859 (701)— — 49,859 (701)
Total debt securities$192,614 $(6,678)$13,009 $(2,023)$205,623 $(8,701)
June 30, 2022
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$16,446 $(1,338)$8,097 $(1,068)$24,543 $(2,406)
Non-agency92,796 (2,204)4,751 (430)97,547 (2,634)
Total MBS109,242 (3,542)12,848 (1,498)122,090 (5,040)
Non-MBS:
Municipal debt3,248 (281)— — 3,248 (281)
Asset-backed securities and structured notes— — — — — — 
Total Non-MBS3,248 (281)— — 3,248 (281)
Total debt securities$112,490 $(3,823)$12,848 $(1,498)$125,338 $(5,321)
On September 30, 2022, there were sixteen securities in a continuous loss position for a period of more than 12 months, and thirty-seven securities in a continuous loss position for a period of less than 12 months. At June 30, 2022, there were fourteen securities in a continuous loss position for a period of more than 12 months, and twenty-five securities in a continuous loss position for a period of less than 12 months.
At September 30, 2022, one non-agency RMBS with a total carrying amount of $1.9 million was determined to have cumulative credit losses of $0.8 million of which none was recognized in earnings during the three months ended September 30, 2022.
During the three months ended September 30, 2022 and September 30, 2021, the Company sold no available-for-sale securities.
The components of the Company’s accumulated other comprehensive income (loss) are:
(Dollars in thousands)September 30,
2022		June 30,
2022
Available-for-sale debt securities—net unrealized gains (losses)$(7,400)$(3,349)
Available-for-sale debt securities—non-credit related losses(845)(845)
Subtotal(8,245)(4,194)
Tax benefit (expense)2,475 1,261 
Net unrealized gain (loss) on investment securities in accumulated other comprehensive income (loss)$(5,770)$(2,933)

14
The following table sets forth the expected maturity distribution of our mortgage-backed securities and the contractual maturity distribution of our Non-RMBS securities and the weighted-average yield for each range of maturities:
At September 30, 2022
Total AmountDue Within One YearDue After One but within Five YearsDue After Five but within Ten YearsDue After Ten Years
(Dollars in thousands)Amount
Yield1
Amount
Yield1
Amount
Yield1
Amount
Yield1
Amount
Yield1
Available-for-sale
Mortgage-backed securities:
Agency2
$27,187 1.79 %$5,018 1.83 %$13,175 1.79 %$7,063 1.76 %$1,931 1.86 %
Non-Agency3
187,287 5.41 %1,285 16.89 %183,937 5.30 %1,726 8.90 %339 4.63 %
Total Mortgage-Backed Securities$214,474 4.95 %$6,303 4.90 %$197,112 5.07 %$8,789 3.17 %$2,270 2.28 %
Non-RMBS
Municipal3,560 3.57 %— — %— — %— — %3,560 3.57 %
Asset-backed securities and structured notes47,000 8.43 %35,155 8.43 %11,845 8.43 %— — %— — %
Total Non-RMBS$50,560 8.09 %$35,155 8.43 %$11,845 8.43 %$— — %$3,560 3.57 %
Available-for-sale—Amortized Cost$265,034 5.55 %$41,458 7.89 %$208,957 5.26 %$8,789 3.17 %$5,830 3.07 %
Available-for-sale—Fair Value$257,634 5.57 %$41,010 7.89 %$203,814 5.26 %$7,807 3.17 %$5,003 3.07 %
Total available-for-sale securities$257,634 5.57 %$41,010 7.89 %$203,814 5.26 %$7,807 3.17 %$5,003 3.07 %
1 Weighted-average yield is based on amortized cost of the securities. Residential mortgage-backed security yields and maturities include impact of expected prepayments and other timing factors such as interest rate forward curve.
2 Includes securities guaranteed by Ginnie Mae, a U.S. government agency, and the government sponsored enterprises Fannie Mae and Freddie Mac.
3 Private sponsors of securities collateralized primarily by pools of 1-4 family residential first mo prime, Alt-A or pay-option ARM mortgages.
15
5.    LOANS & ALLOWANCE FOR CREDIT LOSSES
The composition of the loan portfolio was:
(Dollars in thousands)September 30, 2022June 30, 2022
Single Family - Mortgage & Warehouse$4,009,809 $3,988,462 
Multifamily and Commercial Mortgage2,964,982 2,877,680 
Commercial Real Estate5,523,895 4,781,044 
Commercial & Industrial - Non-RE2,244,342 2,028,128 
Auto & Consumer631,344 567,228 
Other9,954 11,134 
Total gross loans and leases15,384,326 14,253,676 
Allowance for credit losses - loans(155,472)(148,617)
Unaccreted premiums (discounts) and loan and lease fees(17,281)(13,998)
Total net loans and leases$15,211,573 $14,091,061 
Activity in the allowance for credit losses by portfolio classes for the periods was:
For the Three Months Ended September 30, 2022
(Dollars in thousands)Single Family-Mortgage & WarehouseMultifamily and Commercial MortgageCommercial Real EstateCommercial & Industrial - Non-REAuto & ConsumerOtherTotal
Balance at July 1, 2022$19,670 $14,655 $69,339 $30,808 $14,114 $31 $148,617 
Provision (benefit) for credit losses - loans(1,642)(6)4,437 3,557 2,405 (1)8,750 
Charge-offs(4)— — — (2,362)— (2,366)
Recoveries15 — — 18 438 — 471 
Balance at September 30, 2022$18,039 $14,649 $73,776 $34,383 $14,595 $30 $155,472 
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 (benefit) 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 

16
Credit Quality Disclosures. Nonaccrual loans consisted of the following as of the dates indicated:
(Dollars in thousands)As of September 30, 2022
Single Family - Mortgage & Warehouse$65,687 
Multifamily and Commercial Mortgage35,837 
Commercial Real Estate14,852 
Commercial & Industrial - Non-RE2,989 
Auto & Consumer990 
Other126 
     Total nonaccrual loans$120,481 
Nonaccrual loans to total loans0.78 %


(Dollars in thousands)As of June 30, 2022
Single Family - Mortgage & Warehouse$66,424 
Multifamily and Commercial Mortgage33,410 
Commercial Real Estate14,852 
Commercial & Industrial - Non-RE2,989 
Auto & Consumer439 
Other80 
     Total nonaccrual loans$118,194 
Nonaccrual loans to total loans0.83 %
No interest income was recognized on nonaccrual loans in the three months ended September 30, 2022 or September 30, 2021 and there were no nonaccrual loans without an allowance for credit losses as of September 30, 2022 and June 30, 2022.
Approximately 1.13% of our nonaccrual loans at September 30, 2022 were considered troubled debt restructurings (“TDRs”), compared to 0.55% at June 30, 2022. 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 54.52% of the Bank’s nonaccrual loans are single family first mortgages.
The outstanding unpaid balance of loans that are either performing or nonaccrual by portfolio class was:
September 30, 2022
(Dollars in thousands)Single Family-Mortgage & WarehouseMultifamily and Commercial MortgageCommercial Real EstateCommercial & Industrial - Non-REAuto & ConsumerOtherTotal
Performing$3,944,122 $2,929,145 $5,509,043 $2,241,353 $630,354 $9,828 $15,263,845 
Nonaccrual65,687 35,837 14,852 2,989 990 126 120,481 
          Total$4,009,809 $2,964,982 $5,523,895 $2,244,342 $631,344 $9,954 $15,384,326 
June 30, 2022
(Dollars in thousands)Single Family-Mortgage & WarehouseMultifamily and Commercial MortgageCommercial Real EstateCommercial & Industrial - Non-REAuto & ConsumerOtherTotal
Performing$3,922,038 $2,844,270 $4,766,192 $2,025,139 $566,789 $11,054 $14,135,482 
Nonaccrual66,424 33,410 14,852 2,989 439 80 118,194 
          Total$3,988,462 $2,877,680 $4,781,044 $2,028,128 $567,228 $11,134 $14,253,676 

From time to time the Company modifies loan terms temporarily for borrowers who are experiencing financial stress. These loans are performing and accruing and generally return to the original loan terms after the modification term expires. The Company had no TDRs classified as performing loans at September 30, 2022 or June 30, 2022.
17
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. 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.
































18
The amortized cost basis of the Company’s loans by year of origination and credit quality indicator are:
September 30, 2022
Loans Held for Investment Origination YearRevolving Loans Total
(Dollars in thousands)20232022202120202019Prior
Single Family-Mortgage & Warehouse
Pass$309,401 $1,427,758 $579,544 $380,330 $277,775 $767,417 $168,798 $3,911,023 
Special Mention— — — 4,971 2,165 18,091 7,532 32,759 
Substandard— 3,201 3,171 5,017 18,700 35,518 420 66,027 
Doubtful— — — — — — — — 
Total309,401 1,430,959 582,715 390,318 298,640 821,026 176,750 4,009,809 
Multifamily and Commercial Mortgage
Pass187,856 1,004,942 541,338 403,340 247,670 483,365 — 2,868,511 
Special Mention— 9,706 3,980 532 3,269 — — 17,487 
Substandard— 3,145 5,759 32,935 6,832 30,313 — 78,984 
Doubtful— — — — — — — — 
Total187,856 1,017,793 551,077 436,807 257,771 513,678 — 2,964,982 
Commercial Real Estate
Pass509,209 2,613,562 953,785 312,381 182,800 28,759 760,859 5,361,355 
Special Mention— — 55,820 12,138 1,000 15,000 — 83,958 
Substandard— — 38,290 — 15,487 23,507 1,298 78,582 
Doubtful— — — — — — — — 
Total509,209 2,613,562 1,047,895 324,519 199,287 67,266 762,157 5,523,895 
Commercial & Industrial - Non-RE
Pass63,185 402,229 35,057 19,008 10,858 6,520 1,671,859 2,208,716 
Special Mention— — — — — — — — 
Substandard— 2,988 — 8,500 — — 24,138 35,626 
Doubtful— — — — — — — — 
Total63,185 405,217 35,057 27,508 10,858 6,520 1,695,997 2,244,342 
Auto & Consumer
Pass115,451 328,900 96,119 37,417 31,545 20,039 — 629,471 
Special Mention— 328 218 44 16 38 — 644 
Substandard— 509 291 154 231 44 — 1,229 
Doubtful— — — — — — — — 
Total115,451 329,737 96,628 37,615 31,792 20,121 — 631,344 
Other
Pass698 2,000 3,310 — — 1,525 — 7,533 
Special Mention— — 2,295 — — — — 2,295 
Substandard— — — — — 126 — 126 
Doubtful— — — — — — — — 
Total698 2,000 5,605 — — 1,651 — 9,954 
Total
Pass1,185,800 5,779,391 2,209,153 1,152,476 750,648 1,307,625 2,601,516 14,986,609 
Special Mention— 10,034 62,313 17,685 6,450 33,129 7,532 137,143 
Substandard— 9,843 47,511 46,606 41,250 89,508 25,856 260,574 
Doubtful— — — — — — — — 
Total$1,185,800$5,799,268$2,318,977$1,216,767$798,348$1,430,262$2,634,904$15,384,326
As a % of total gross loans7.71%37.70%15.07%7.91%5.19%9.30%17.13%100.0%

19
June 30, 2022
Loans Held for Investment Origination YearRevolving Loans Total
(Dollars in thousands)20222021202020192018Prior
Single Family-Mortgage & Warehouse
Pass$1,484,027 $600,054 $402,712 $303,999 $279,248 $548,703 $241,925 $3,860,668 
Special Mention— — 4,790 2,505 4,125 10,971 38,637 61,028 
Substandard— 2,288 3,928 18,407 5,955 36,188 — 66,766 
Doubtful— — — — — — — — 
Total1,484,027 602,342 411,430 324,911 289,328 595,862 280,562 3,988,462 
Multifamily and Commercial Mortgage
Pass999,819 569,486 429,247 259,161 219,548 316,013 — 2,793,274 
Special Mention1,200 — 534 539 — 968 — 3,241 
Substandard— 5,772 34,343 9,613 7,308 24,129 — 81,165 
Doubtful— — — — — — — — 
Total1,001,019 575,258 464,124 269,313 226,856 341,110 — 2,877,680 
Commercial Real Estate
Pass2,482,366 990,887 358,422 186,800 28,758 — 602,412 4,649,645 
Special Mention— 32,351 12,138 16,487 15,000 — — 75,976 
Substandard— — 12,575 18,043 23,507 — 1,298 55,423 
Doubtful— — — — — — — — 
Total2,482,366 1,023,238 383,135 221,330 67,265 — 603,710 4,781,044 
Commercial & Industrial - Non-RE
Pass435,228 66,226 25,629 61,932 9,268 — 1,388,435 1,986,718 
Special Mention13 — — 186 710 — — 909 
Substandard2,988 28,359 9,154 — — — — 40,501 
Doubtful— — — — — — — — 
Total438,229 94,585 34,783 62,118 9,978 — 1,388,435 2,028,128 
Auto & Consumer
Pass352,468 107,882 43,377 37,008 16,147 8,891 — 565,773 
Special Mention204 188 24 110 — 1 — 527 
Substandard157 311 224 205 25 6 — 928 
Doubtful— — — — — — — — 
Total352,829 108,381 43,625 37,323 16,172 8,898 — 567,228 
Other
Pass3,057 6,185 — — 1,091 721 — 11,054 
Special Mention— — — — — — — — 
Substandard— — 46 — — 34 — 80 
Doubtful— — — — — — — — 
Total3,057 6,185 46 — 1,091 755 — 11,134 
Total
Pass5,756,965 2,340,720 1,259,387 848,900 554,060 874,328 2,232,772 13,867,132 
Special Mention1,417 32,539 17,486 19,827 19,835 11,940 38,637 141,681 
Substandard3,145 36,730 60,270 46,268 36,795 60,357 1,298 244,863 
Doubtful— — — — — — — — 
Total$5,761,527 $2,409,989 $1,337,143 $914,995 $610,690 $946,625 $2,272,707 $14,253,676 
As a % of total gross loans40.42%16.91%9.38%6.42%4.28%6.64%15.95%100.0%
The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses and evaluates credit quality based on the aging status of its loans. Certain short-term loans do not have a fixed maturity date and are treated as delinquent if not paid in full 90 days after the origination date.
20
The outstanding unpaid balance of loans past due 30 days or more by portfolio class are:
September 30, 2022
(Dollars in thousands)30-59 Days Past Due60-89 Days Past Due90+ Days Past DueTotal
Single Family-Mortgage & Warehouse$13,021 $5,494 $57,883 $76,398 
Multifamily and Commercial Mortgage5,909 358 30,001 36,268 
Commercial Real Estate9,655 — 14,852 24,507 
Commercial & Industrial - Non-RE— — — — 
Auto & Consumer4,174 945 495 5,614 
Other1,162 — 126 1,288 
Total$33,921 $6,797 $103,357 $144,075 
As a % of total gross loans0.22 %0.05 %0.67 %0.94 %
June 30, 2022
(Dollars in thousands)30-59 Days Past Due60-89 Days Past Due90+ Days Past DueTotal
Single Family-Mortgage & Warehouse$5,167 $1,518 $63,286 $69,971 
Multifamily and Commercial Mortgage9,455 2,115 26,556 38,126 
Commercial Real Estate— 14,852 — 14,852 
Commercial & Industrial - Non-RE— — — — 
Auto & Consumer4,865 1,009 466 6,340 
Other413 — 193 606 
Total$19,900 $19,494 $90,501 $129,895 
As a % of total gross loans0.14 %0.14 %0.63 %0.91 %
Loans reaching 90+ days past due are placed on non-accrual as required under Company policy. No loans 90+ days past due were still accruing interest as of September 30, 2022 and June 30, 2022.
Loans in process of foreclosure were $20.4 million and $20.7 million as of September 30, 2022 and June 30, 2022, respectively.
Unfunded Loan Commitment Reserves
Unfunded loan commitment reserves are included in “Accounts payable and other liabilities” in the unaudited Condensed Consolidated Balance Sheets. Provisions for the unfunded loan commitments are included in the unaudited Condensed Consolidated Statements of Income in “General and administrative expenses”.
The following tables present a summary of the activity in the unfunded loan commitment reserves for the periods indicated:
Three Months Ended September 30,
(Dollars in thousands)20222021
BALANCE—beginning July 1$10,973 $5,723 
Provision— 2,000 
BALANCE—end September 30$10,973 $7,723 
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6.    EQUITY AND STOCK-BASED COMPENSATION
The Company has an equity incentive plan, the Amended and Restated 2014 Stock Incentive Plan (the “2014 Plan”), which provides for the granting of non-qualified and incentive stock options, restricted stock and restricted stock units, stock appreciation rights and other awards to employees, directors and consultants. The Plan is designed to encourage selected employees and directors to improve operations and increase profits, and to accept or continue employment or association with the Company through participation in the growth in the value of the common stock. The Company also has an employment agreement with its Chief Executive Officer that authorizes an award of restricted stock units (the “RSU award”). For additional information regarding the Company’s stock-based compensation plans, see Note 16—“Stock-based Compensation” contained in the 2022 Form 10-K.
At September 30, 2022, 1,614,701 shares of common stock remained available for issuance pursuant to grant awards under the 2014 Plan and unrecognized compensation expense related to non-vested awards aggregated to $47.6 million and is expected to be recognized in future periods as follows:
(Dollars in thousands)Stock Award
Compensation
Expense
For the fiscal year remainder:
Remainder of fiscal year 2023$18,487 
202417,408 
20259,372 
20261,913 
2027400 
Total$47,580 

The status and changes in restricted stock units for the period indicated:
Restricted
Stock Units		Weighted-Average
Grant-Date
Fair Value
Non-vested balance at June 30, 20221,350,763 $41.16 
Granted400,339 38.99 
Vested(291,430)31.88 
Forfeited(19,210)41.62 
Non-vested balance at September 30, 20221,440,462 $42.43 
The total fair value of shares vested for the three months ended September 30, 2022 was $12.0 million. The weighted-average remaining time period until vesting for restricted stock units as of September 30, 2022 was 1.5 years.
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7.    EARNINGS PER COMMON SHARE
The following table presents the calculation of basic and diluted EPS:
Three Months Ended
September 30,
(Dollars in thousands, except per share data)20222021
Earnings Per Common Share
Net income attributable to common stockholders$58,407 $60,210 
Average common shares issued and outstanding59,854,584 59,390,846 
Earnings per common share$0.98 $1.01 
Diluted Earnings Per Common Share
Net income attributable to common stockholders$58,407 $60,210 
Average common shares issued and outstanding59,854,584 59,390,846 
Dilutive effect of average unvested RSUs631,810 1,253,442 
Total dilutive common shares outstanding60,486,394 60,644,288 
Diluted earnings per common share$0.97 $0.99 
8.    COMMITMENTS AND CONTINGENCIES
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, 2022 in the corresponding fiscal years:
(Dollars in thousands)
Remainder of fiscal year 2023$8,151 
202410,976 
202511,143 
202610,811 
202710,870 
Thereafter29,177 
Total lease payments81,128 
Less: amount representing interest(8,074)
Total Lease Liability$73,054 
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, 2022, the Company had commitments to originate $192.1 million in fixed rate loans and $3,181.9 million in variable rate loans, totaling an aggregate principal balance of $3,374.0 million. At September 30, 2022, the Company’s fixed rate commitments to originate had a weighted-average rate of 6.70%. At September 30, 2022, the Company also had commitments to sell $12.6 million in fixed rate loans and no variable rate loans, totaling an aggregate principal balance of $12.6 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
23
instrument underlying the contract at a loss. Axos Clearing’s clearing agreements with broker-dealers for which it provides clearing services requires them to indemnify Axos Clearing if customers fail to satisfy their contractual obligation.
Litigation. On October 15, 2015, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a putative class action lawsuit, 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, 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 “HMEPS 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 April 13, 2022, the parties executed a Stipulation and Agreement of Settlement. The Stipulation and Agreement of Settlement was submitted to the District Court for approval on April 15, 2022. On June 8, 2022, the court granted preliminary approval of the settlement and scheduled a hearing with respect to final approval of the settlement for October 7, 2022. On October 14, 2022, the District Court entered an order granting final approval of such settlement. The settlement was reached because the parties were able to negotiate terms within available insurance coverage and without attribution of wrongdoing to Axos, its management or its directors.
On April 3, 2017, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a putative class action lawsuit, 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. On January 31, 2022, a Stipulation of Settlement was submitted to the District Court for approval. On May 17, 2022, the court granted preliminary approval of the settlement and scheduled a hearing with respect to final approval for September 23, 2022. On September 26, 2022, the District Court entered an order granting final approval of such settlement. The settlement was reached because the parties were able to negotiate terms within available insurance coverage and without attribution of wrongdoing to Axos, its management or its directors.
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 six 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
24
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. On February 25, 2021, the Ninth Circuit issued a memorandum decision affirming the dismissal of the Calcaterra derivative action. However, the Ninth Circuit reversed the district court’s order denying a stay of the action and remanded to the district court to reconsider whether it should grant the plaintiff leave to amend. The Ninth Circuit issued its mandate to the district court on April 9, 2021, and the plaintiff has opted for a stay on remand rather than amending the complaint. The two derivative actions pending before the San Diego County Superior Court have been consolidated and have been stayed by agreement of the parties.
The Company and the other named defendants dispute, and intend to vigorously defend against, the allegations raised in the consolidated action and the state court derivative actions. 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, unless otherwise disclosed above.
On October 26, 2022, a jury verdict was reached in the case of MUFG Union Bank, N.A. v. Axos Bank, et al, resulting in an award to Union Bank. The Company continues to believe that the evidence supports the defendants’ understanding of the facts and that meritorious defenses exist to substantially all claims made by Union Bank. In addition, the Company believes that there exists substantial grounds for post-verdict relief and appeal. The Company recorded a $16 million accrued expense in accounts payable and other liabilities on the condensed consolidated balance sheets and in general and administrative expense on the condensed consolidated statements of income as of and for the three months ended September 30, 2022, respectively.
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9.    SEGMENT REPORTING AND REVENUE INFORMATION
Segment Information. 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 operating segments and segment results of the Company are determined based upon the management reporting system, which assigns balance sheet and income statement items to each of the business segments and by which segment results are evaluated by the Chief Executive Officer in deciding how to allocate resources and in assessing performance.
The Company evaluates performance and allocates resources based on pre-tax profit or loss from operations. Certain corporate administration costs and income taxes have not been allocated to the reportable segments. The Company operates through two operating segments: Banking Business and Securities Business. Inter-segment transactions are eliminated in consolidation and primarily include non-interest income earned by the Securities Business segment and non-interest expense incurred by the Banking Business segment for cash sorting fees related to deposits sourced from Securities Business segment customers, as well as interest expense paid by the Banking Business segment to each of the wholly-owned subsidiaries of the Company and to the Company itself for their operating cash held on deposit with the Business Banking 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, 2022
(Dollars in thousands)Banking
Business		Securities BusinessCorporate/EliminationsAxos Consolidated
Net interest income$179,730 $4,275 $(3,530)$180,475 
Provision for credit losses8,750 — — 8,750 
Non-interest income10,712 29,165 (12,669)27,208 
Non-interest expense100,796 24,515 (9,224)116,087 
Income before taxes$80,896 $8,925 $(6,975)$82,846 
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 
As of September 30, 2022
(Dollars in thousands)Banking
Business		Securities BusinessCorporate/EliminationsAxos Consolidated
Goodwill$35,721 $61,967 $— $97,688 
Total Assets$17,320,661 $1,027,815 $58,602 $18,407,078 
As of June 30, 2022
(Dollars in thousands)Banking
Business		Securities BusinessCorporate/EliminationsAxos Consolidated
Goodwill$35,721 $59,953 $— $95,674 
Total Assets$16,002,714 $1,328,558 $69,893 $17,401,165 

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Revenue information. The following presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606 for the periods indicated. For further information of the Company’s recognition of revenue and Topic 606 see Note 1—“Organizations and Summary of Significant Accounting Policies” contained in the 2022 Form 10-K.
For the Three Months Ended
 September 30,
(Dollars in thousands)20222021
Advisory fee income$6,959 $5,304 
Broker-dealer clearing fees5,233 5,670 
Deposit service fees1,106 626 
Card fees789 1,007 
Bankruptcy trustee and fiduciary service fees773 780 
    Non-interest income (in-scope Topic 606)14,860 13,387 
    Non-interest income (out-of-scope Topic 606)12,348 13,315 
    Total non-interest income$27,208 $26,702 
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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 (collectively, “we”, “us” or the “Company”). This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of our operations. This discussion and analysis should be read in conjunction with our financial information in our 2022 Form 10-K, 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 our performance and asset quality, our ability to continue to grow profitably and increase our 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 litigation and other risk factors discussed under the heading “Item 1A. Risk Factors” and in our 2022 Form 10-K, which has been filed with the SEC. 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 is a diversified financial services company with approximately $18.4 billion in assets. Axos Bank (the “Bank”) 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”) 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 Invest LLC is an introducing broker-dealer which supports direct trading and Axos Invest, Inc. 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.
Axos Financial, Inc. is supervised and regulated as a savings and loan holding company by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and is required to file reports with, comply with the rules and regulations of, and is subject to, examination by the Federal Reserve.
Our Bank is a federal savings bank wholly-owned by our Company and regulated by the Office of the Comptroller of the Currency (“OCC”), and the Federal Deposit Insurance Corporation (“FDIC”) as its deposit insurer. The Bank must file reports with the OCC and the FDIC concerning its activities and financial condition. As a depository institution with more than $10 billion in assets, our Bank and our affiliates are subject to direct supervision by the Consumer Financial Protection Bureau.
Axos Clearing is a broker-dealer registered with the SEC and the Financial Industry Regulatory Authority, Inc. (“FINRA”). Axos Invest is a Registered Investment Advisor under the Investment Advisers Act of 1940, that is registered with the SEC, and Axos Invest LLC is an introducing broker-dealer that is registered with the SEC and FINRA.

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Segment Information
The Company determines reportable segments based on what separate financial information is available and what segment results are evaluated regularly by the Chief Executive Officer in deciding how to allocate resources and in assessing performance. We operate through two segments: the Banking Business segment and the Securities Business segment.
Banking Business. The Banking Business segment 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 segment 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 segment includes a bankruptcy trustee and fiduciary service that provides specialized software and consulting services to Chapter 7 bankruptcy and non-Chapter 7 trustees and fiduciaries.
Securities Business. The Securities Business segment 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 segment clients.
Critical Accounting Estimates
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 our estimates and assumptions are reasonable under the circumstances. However, actual results may differ significantly from these estimates and assumptions and could have a material effect on the carrying value of assets and liabilities, our results of operations and/or our cash flows.
Critical accounting estimates are those we consider most important to the portrayal of our financial condition and results of operations because they require our most difficult judgments, often as a result of the need to make estimates that are inherently uncertain. Our critical accounting estimates are described in detail in Note 1 - “Organizations and Summary of Significant Accounting Policies” and under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” contained in the 2022 Form 10-K.
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USE OF NON-GAAP FINANCIAL MEASURES
In addition to the results presented in accordance with GAAP, this report includes the non-GAAP financial measures adjusted earnings, adjusted earnings per common share, and tangible book value per common share. Non-GAAP financial measures have inherent limitations, may not be comparable to similarly titled measures used by other companies and are not audited. Readers should be aware of these limitations and should be cautious as to their reliance on such measures. Although we believe the non-GAAP financial measures disclosed in this report enhance investors’ understanding of our business and performance, these non-GAAP measures should not be considered in isolation, or as a substitute for GAAP basis financial measures.
We define “adjusted earnings”, a non-GAAP financial measure, as net income without the after-tax impact of non-recurring acquisition-related costs (including amortization of intangible assets related to acquisitions) and other costs (unusual or non-recurring charges). Adjusted earnings per diluted common share (“adjusted EPS”), a non-GAAP financial measure, is calculated by dividing non-GAAP adjusted earnings by the average number of diluted common shares outstanding during the period. We believe the non-GAAP measures of adjusted earnings and adjusted EPS provide useful information about the Company’s operating performance. We believe excluding the non-recurring acquisition-related costs, and other costs provides investors with an alternative understanding of our core business.
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)20222021
Net income$58,407 $60,210 
Acquisition-related costs
2,734 2,846 
Other costs16,000 — 
Tax effects of adjustments(5,526)(828)
Adjusted earnings (Non-GAAP)$71,615 $62,228 
Adjusted EPS (Non-GAAP)$1.18 $1.03 
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)20222021
Common stockholders’ equity$1,700,972 $1,458,621 
Less: mortgage servicing rights, carried at fair value26,373 18,438 
Less: goodwill and other intangible assets160,429 164,944 
Tangible common stockholders’ equity (Non-GAAP)$1,514,170 $1,275,239 
Common shares outstanding at end of period59,998,673 59,494,633 
Tangible book value per common share (Non-GAAP)$25.24 $21.43 

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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,
2022		June 30,
2022		September 30,
2021
Selected Balance Sheet Data:
Total assets$18,407,078 $17,401,165 $14,906,750 
Loans—net of allowance for credit losses15,211,573 14,091,061 11,879,021 
Loans held for sale, carried at fair value9,463 4,973 33,344 
Loans held for sale, lower of cost or fair value10,476 10,938 11,949 
Allowance for credit losses - loans155,472 148,617 136,778 
Securities—trading75 1,758 1,941 
Securities—available-for-sale257,634 262,518 135,996 
Securities borrowed87,622 338,980 457,282 
Customer, broker-dealer and clearing receivables410,842 417,417 427,169 
Total deposits15,176,631 13,946,422 11,747,442 
Advances from the FHLB112,500 117,500 157,500 
Borrowings, subordinated debentures and other borrowings
425,818 445,244 255,896 
Securities loaned206,889 474,400 539,505 
Customer, broker-dealer and clearing payables500,584 511,654 510,040 
Total stockholders’ equity1,700,972 1,642,973 1,458,621 
Capital Ratios:
Equity to assets at end of period9.24 %9.44 %9.78 %
Axos Financial, Inc.:
Tier 1 leverage (to adjusted average assets)8.98 %9.25 %9.19 %
Common equity tier 1 capital (to risk-weighted assets)9.97 %9.86 %10.79 %
Tier 1 capital (to risk-weighted assets)9.97 %9.86 %10.79 %
Total capital (to risk-weighted assets)12.90 %12.73 %13.10 %
Axos Bank:
Tier 1 leverage (to adjusted average assets)10.30 %10.65 %10.14 %
Common equity tier 1 capital (to risk-weighted assets)10.87 %11.24 %11.89 %
Tier 1 capital (to risk-weighted assets)10.87 %11.24 %11.89 %
Total capital (to risk-weighted assets)11.71 %12.01 %12.80 %
Axos Clearing LLC:
Net capital$49,183 $38,915 $39,663 
Excess capital$42,324 $32,665 $31,435 
Net capital as a percentage of aggregate debit items14.34 %12.45 %9.64 %
Net capital in excess of 5% aggregate debit items$32,035 $23,290 $19,092 

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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)20222021
Selected Income Statement Data:
Interest and dividend income$223,786 $158,310 
Interest expense43,311 11,668 
Net interest income180,475 146,642 
Provision for credit losses8,750 4,000 
Net interest income after provision for credit losses171,725 142,642 
Non-interest income27,208 26,702 
Non-interest expense116,087 84,431 
Income before income tax expense82,846 84,913 
Income tax expense24,439 24,703 
Net income$58,407 $60,210 
Per Common Share Data:
Net income:
Basic$0.98 $1.01 
Diluted$0.97 $0.99 
Adjusted earnings per common share (Non-GAAP)1
$1.18 $1.03 
Book value per common share$28.35 $24.52 
Tangible book value per common share (Non-GAAP)1
$25.24 $21.43 
Weighted average number of common shares outstanding:
     Basic59,854,584 59,390,846 
     Diluted60,486,394 60,644,288 
Common shares outstanding at end of period59,998,673 59,494,633 
Common shares issued at end of period69,151,152 68,370,617 
Performance Ratios and Other Data:
Loan originations for investment$2,486,224 $2,092,279 
Loan originations for sale$70,073 $209,967 
Return on average assets1.32 %1.66 %
Return on average common stockholders’ equity13.91 %16.20 %
Interest rate spread2
3.66 %4.04 %
Net interest margin3
4.26 %4.22 %
Net interest margin3 – Banking Business Segment
4.50 %4.48 %
Efficiency ratio4
55.90 %48.71 %
Efficiency ratio4 – Banking Business Segment
52.93 %39.93 %
Asset Quality Ratios:
Net annualized charge-offs to average loans5
0.05 %0.01 %
Non-performing loans and leases to total loans0.78 %1.12 %
Non-performing assets to total assets0.68 %0.94 %
Allowance for credit losses - loans to total loans held for investment1.01 %1.14 %
Allowance for credit losses - loans to non-performing loans129.04 %101.97 %
1    See “Use of Non-GAAP Financial Measures.”
2     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.
3    Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
4 Efficiency ratio represents non-interest expense as a percentage of the aggregate of net interest income and non-interest income.
5 Net charge-offs do not include any amounts transferred to loans held for sale.
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RESULTS OF OPERATIONS
Comparison of the Three Months Ended September 30, 2022 and 2021
For the three months ended September 30, 2022, we had net income of $58.4 million or $0.97 per diluted share compared to net income of $60.2 million or $0.99 per diluted share for the three months ended September 30, 2021.
Net Interest Income
Net interest income for the three months ended September 30, 2022 totaled $180.5 million, an increase of 23.1% compared to net interest income of $146.6 million for the three months ended September 30, 2021. The increase in net interest income for the three months ended September 30, 2022 compared to September 30, 2021 was primarily due to higher average balances and rates earned in the loan portfolio and a higher average balance of non-interest bearing deposits, partially offset by higher rates paid on deposits.
Total interest and dividend income during the three months ended September 30, 2022 increased 41.4% to $223.8 million, compared to $158.3 million during the three months ended September 30, 2021. The increase in interest and dividend income for the three months ended September 30, 2022 was primarily attributable to higher average balances and rates earned in the loan portfolio and higher rates on deposits placed with other financial institutions. The average balance of loans increased by 26.6% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.
Total interest expense was $43.3 million for the three months ended September 30, 2022, an increase of $31.6 million or 271.2% as compared with the quarter ended September 30, 2021. The increase in total interest expense for the three months ended September 30, 2022 compared to the three months ended September 30, 2021 was primarily due to higher rates paid on deposits, reflecting a 122 basis point increase in average rates paid on interest-bearing demand and savings deposits and a 44 basis point increase in average rates paid on time deposits, as deposit rates continue to increase across the industry. Also contributing to the increase was higher interest expense on advances from the Federal Home Loan Bank (“FHLB”) and other borrowings, both mainly attributable to higher average balances.
Net interest margin, defined as annualized net interest income divided by average interest-earning assets, increased by 4 basis points to 4.26% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.
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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,
20222021
(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
$14,761,077 $208,338 5.65 %$11,662,383 $149,176 5.12 %
Interest-earning deposits in other financial institutions1,235,712 7,347 2.38 %1,163,143 591 0.20 %
Mortgage-backed and other investment securities4
257,119 3,298 5.13 %156,360 1,421 3.64 %
Securities borrowed and margin lending5
669,150 4,384 2.62 %903,542 6,851 3.03 %
Stock of the regulatory agencies28,281 419 5.93 %20,694 271 5.24 %
Total interest-earning assets16,951,339 223,786 5.28 %13,906,122 158,310 4.55 %
Non-interest-earning assets689,230 596,295 
Total assets$17,640,569 $14,502,417 
Liabilities and Stockholders’ Equity:
Interest-bearing demand and savings$7,715,655 $27,709 1.44 %$6,564,620 $3,567 0.22 %
Time deposits1,156,717 4,796 1.66 %1,363,061 4,145 1.22 %
Securities loaned534,538 943 0.71 %660,040 251 0.15 %
Advances from the FHLB880,348 5,163 2.35 %295,402 1,016 1.38 %
Borrowings, subordinated notes and debentures385,148 4,700 4.88 %223,837 2,689 4.81 %
Total interest-bearing liabilities10,672,406 43,311 1.62 %9,106,960 11,668 0.51 %
Non-interest-bearing demand deposits4,517,918 3,191,171 
Other non-interest-bearing liabilities770,189 717,725 
Stockholders’ equity1,680,056 1,486,561 
Total liabilities and stockholders’ equity$17,640,569 $14,502,417 
Net interest income$180,475 $146,642 
Interest rate spread6
3.66 %4.04 %
Net interest margin7
4.26 %4.22 %
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 $25.9 million and $26.7 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 2022 and 2021 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,
2022 vs 2021
Increase (Decrease) Due to
(Dollars in thousands)VolumeRateTotal
Increase
(Decrease)
Increase (decrease) in interest income:
Loans$42,575 $16,587 $59,162 
Interest-earning deposits38 6,718 6,756 
Securities1,148 729 1,877 
Securities borrowed and margin lending(1,622)(845)(2,467)
Stock of the regulatory agencies109 39 148 
$42,248 $23,228 $65,476 
Increase (decrease) in interest expense:
Interest-bearing demand and savings$740 $23,402 $24,142 
Time deposits(694)1,345 651 
Securities loaned(56)748 692 
Advances from the FHLB3,061 1,086 4,147 
Borrowings, subordinated notes and debentures1,971 40 2,011 
$5,022 $26,621 $31,643 
Provision for Credit Losses
The provision for credit losses was $8.8 million for the three months ended September 30, 2022 compared to $4.0 million for the three months ended September 30, 2021 primarily due to growth in the loan portfolio and changes in loan mix in each period. 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 Income1
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)20222021Inc (Dec)
Broker-dealer fee income9,178 6,462 2,716 
Advisory fee income6,959 5,304 1,655 
Banking and service fees6,514 6,680 (166)
Mortgage banking income3,365 5,270 (1,905)
Prepayment penalty fee income1,192 2,986 (1,794)
Total non-interest income$27,208 $26,702 $506 
1.Certain components of non-interest income for the three months ended September 30, 2021 have been reclassified to conform to the current period presentation. See Note 1—”Organizations and Summary of Significant Accounting Policies” in the condensed consolidated financial statements for additional information.
Non-interest income increased to $27.2 million for the three months ended September 30, 2022 compared to $26.7 million for the three months ended September 30, 2021. Increases in broker-dealer fee income of $2.7 million from higher rates earned on cash sorting balances placed at non-affiliated banks and in advisory fee income of $1.7 million as a result of incremental revenues from the AAS acquisition were mostly offset by decreases in mortgage banking income of $1.9 million and prepayment penalty fee income of $1.8 million as higher mortgage rates contributed to lower originations and slower prepayments, respectively.


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)20222021Inc (Dec)
Salaries and related costs$46,996 $40,737 $6,259 
Data processing14,022 12,092 1,930 
Depreciation and amortization6,094 5,728 366 
Advertising and promotional6,370 3,372 2,998 
Professional services8,087 4,545 3,542 
Occupancy and equipment4,054 3,181 873 
FDIC and regulator fees3,735 2,266 1,469 
Broker-dealer clearing charges2,829 4,005 (1,176)
Other general and administrative23,900 8,505 15,395 
Total non-interest expenses
$116,087 $84,431 $31,656 
Non-interest expense was $116.1 million for the three months ended September 30, 2022, up from $84.4 million for the three months ended September 30, 2021. The increase was primarily attributable to higher other general and administrative expenses, salaries and related costs, professional services, advertising and promotional and data processing expenses.
Total salaries and related costs increased $6.3 million to $47.0 million for the quarter ended September 30, 2022, compared to $40.7 million for the quarter ended September 30, 2021, primarily as a result of a 9.9% increase in headcount to 1,409 as well as an increase in salaries.
Data processing expense increased $1.9 million for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase was primarily due to enhancements to customer interfaces and the Company’s processing systems as well as incremental expenses as a result of the AAS acquisition.
Depreciation and amortization expense increased $0.4 million for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase was primarily attributable to the amortization of intangibles as a result of the AAS acquisition.
Advertising and promotional expense increased $3.0 million for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase was primarily due to increased lead generation and deposit marketing costs.
Professional services, which include accounting, consulting and legal fees, increased $3.5 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. The increase was primarily the result of higher legal expenses related to litigation.
Occupancy and equipment expense increased $0.9 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, due to annual rent increases and growth in our office footprint.
FDIC and regulator fees increased $1.5 million for the three months ended September 30, 2022, compared to the three month period ending September 30, 2021 due to balance sheet growth and changes in product mix at the Bank. As an FDIC-insured institution, the Bank is required to pay deposit insurance premiums to the FDIC.
Broker-dealer clearing charges decreased $1.2 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. The decrease was attributable to reduced customer trading activity in the three months ended September 30, 2022.
Other general and administrative costs increased by $15.4 million for the three months ended September 30, 2022, compared to the three month period ended September 30, 2021 primarily reflecting a $16.0 million accrual in the current quarter as a result of an adverse legal judgement that has not been finalized.
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Provision for Income Taxes
Income tax expense was $24.4 million for the three months ended September 30, 2022 compared to $24.7 million for three months ended September 30, 2021. Our effective income tax rates (income tax provision divided by net income before income tax) for the three months ended September 30, 2022 and 2021 were 29.50% and 29.09%, respectively.
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, 2022
(Dollars in thousands)Banking
Business		Securities BusinessCorporate/EliminationsAxos Consolidated
Net interest income$179,730 $4,275 $(3,530)$180,475 
Provision for credit losses8,750 — — 8,750 
Non-interest income10,712 29,165 (12,669)27,208 
Non-interest expense100,796 24,515 (9,224)116,087 
Income before taxes$80,896 $8,925 $(6,975)$82,846 
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 
Banking Business
For the three months ended September 30, 2022, our Banking Business segment had income before taxes of $80.9 million compared to income before taxes of $90.3 million for the three months ended September 30, 2021. The decrease was due to increases in non-interest expense and the provision for credit losses and lower non-interest income, partially offset by an increase in net interest 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,
20222021
Efficiency ratio52.93 %39.93 %
Return on average assets1.66 %1.92 %
Interest rate spread3.92 %4.34 %
Net interest margin4.50 %4.48 %
Our Banking Business segment’s net interest margin exceeds our consolidated net interest margin. Our consolidated net interest margin includes certain items that are not reflected in the calculation of our net interest margin within our Banking Business and reduce our consolidated net interest margin, such as the borrowing costs at our 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.
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 For the Three Months Ended
Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents our Banking Business segment’s information regarding (i) average balances; (ii) the total amount of interest income from interest-earning assets and the weighted average yields on such assets; (iii) the total amount of interest expense on interest-bearing liabilities and the weighted average rates paid on such liabilities; (iv) net interest income; (v) interest rate spread; and (vi) net interest margin for the three months ended September 30, 2022 and 2021:
 For the Three Months Ended
September 30,
 20222021
(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
$14,735,034 $208,010 5.65 %$11,622,074 $148,843 5.12 %
Interest-earning deposits in other financial institutions929,206 5,631 2.42 %879,856 337 0.15 %
Mortgage-backed and other investment securities4
275,975 3,371 4.89 %180,545 1,546 3.43 %
Stock of the regulatory agencies28,281 418 5.91 %17,824 270 6.06 %
Total interest-earning assets15,968,496 217,430 5.45 %12,700,299 150,996 4.76 %
Non-interest-earning assets312,320 286,810 
Total assets$16,280,816 $12,987,109 
Liabilities and Stockholders’ Equity:
Interest-bearing demand and savings$7,809,552 $27,741 1.42 %$6,614,799 $3,594 0.22 %
Time deposits1,156,717 4,796 1.66 %1,363,061 4,145 1.22 %
Advances from the FHLB880,348 5,163 2.35 %295,402 1,016 1.38 %
Borrowings, subordinated notes and debentures
22 — — %43 — — %
Total interest-bearing liabilities9,846,639 37,700 1.53 %8,273,305 8,755 0.42 %
Non-interest-bearing demand deposits4,583,593 3,238,709 
Other non-interest-bearing liabilities190,997 124,213 
Stockholders’ equity1,659,587 1,350,882 
Total liabilities and stockholders’ equity$16,280,816 $12,987,109 
Net interest income$179,730 $142,241 
Interest rate spread5
3.92 %4.34 %
Net interest margin6
4.50 %4.48 %
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 $25.9 million and $26.7 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 2022 and 2021 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 Banking Business segment’s 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); and (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,
2022 vs 2021
 Increase (Decrease) Due to
(Dollars in thousands)VolumeRateTotal
Increase
(Decrease)
Increase / (decrease) in interest income:
Loans$42,675 $16,492 $59,167 
Interest-earning deposits20 5,274 5,294 
Securities1,011 814 1,825 
Stock of the regulatory agencies, at cost155 (7)148 
$43,861 $22,573 $66,434 
Increase / (decrease) in interest expense:
Interest-bearing demand and savings$774 $23,372 $24,146 
Time deposits(694)1,345 651 
Advances from the FHLB3,061 1,086 4,147 
Borrowings, subordinated notes and debentures
— — — 
$3,141 $25,803 $28,944 
The Banking Business segment’s net interest income for the three months ended September 30, 2022 totaled $179.7 million, an increase of 26.4%, compared to net interest income of $142.2 million for the three months ended September 30, 2021. The increase in net interest income for the three months ended September 30, 2022 was primarily due to higher average balances and rates earned in the loan portfolio, partially offset by higher rates paid on deposits.
The Banking Business segment’s non-interest income decreased $4.1 million from $14.8 million to $10.7 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. The decrease was primarily the result of a decrease in mortgage banking income of $1.9 million and a decrease in prepayment penalty fee income of $1.8 million as higher mortgage rates contributed to lower originations and slower prepayments.
The Banking Business segment’s non-interest expense increased $38.1 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. The increase was primarily due to a $16.0 million accrual in the current quarter as a result of an adverse legal judgement that has not been finalized, an increase in advertising and promotional expenses of $13.7 million primarily due to amounts paid to our Securities Business segment for non-interest bearing deposits, higher salaries and related costs of $5.3 million as a result of higher headcount and an increase in salaries, and higher professional services of $2.3 million resulting from higher legal expenses related to litigation.
Securities Business
For the three months ended September 30, 2022, our Securities Business segment had income before taxes of $8.9 million compared to income before taxes of $9 thousand for the three months ended September 30, 2021. The increase was due to higher non-interest income, partially offset by higher non-interest expense and lower net interest income.
Net interest income for the three months ended September 30, 2022, decreased $1.9 million to $4.3 million compared to $6.2 million for the three months ended September 30, 2021, primarily as a result of lower securities lending activity, partially offset by higher cash deposit balances.
Non-interest income for the three months ended September 30, 2022, was $29.2 million compared to $13.1 million for the three months ended September 30, 2021. The increase of $16.1 million was primarily the result of an increase in fees earned
40
on FDIC insured bank deposits, including amounts received from our Banking Business segment, and incremental revenues as a result of the AAS acquisition.
Non-interest expense increased $5.2 million to $24.5 million for the three months ended September 30, 2022 from the $19.3 million for the three months ended September 30, 2021. The increase was primarily related to an increase in salaries and related costs as a result of higher headcount and an increase in salaries as well as an increase in professional services, partially offset by a decrease in broker-dealer clearing charges on reduced customer trading activity.
The following table provides selected information for Axos Clearing LLC as of each period indicated:
(Dollars in thousands)September 30, 2022
June 30, 2022
FDIC insured deposit program balances at banks$3,268,927 $3,452,358 
Customer margin balances$257,307 $285,894 
Cash reserves for the benefit of customers$328,878 $372,112 
Securities lending:
Interest-earning assets – stock borrowed$87,622 $338,980 
Interest-bearing liabilities – stock loaned$206,889 $474,400 
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FINANCIAL CONDITION
Balance Sheet Analysis
Our total assets increased $1.0 billion, or 5.8%, to $18.4 billion, as of September 30, 2022, up from $17.4 billion at June 30, 2022. The increase in total assets was primarily due to an increase of $1.1 billion in loans. Total liabilities increased $0.9 billion, primarily from an increase in deposits of $1.3 billion partially offset by a decrease in securities loaned of $0.3 billion.
Loans
Net loans held for investment increased 8.0% to $15.2 billion at September 30, 2022 from $14.1 billion at June 30, 2022. The increase in the loan portfolio was primarily due to loan originations of $2.5 billion, partially offset by loan repayments and other adjustments of $1.2 billion.
The following table sets forth the composition of the loan portfolio as of the dates indicated:
September 30, 2022June 30, 2022
(Dollars in thousands)AmountPercentAmountPercent
Single Family - Mortgage & Warehouse$4,009,809 26.0 %$3,988,462 28.0 %
Multifamily and Commercial Mortgage2,964,982 19.3 %2,877,680 20.2 %
Commercial Real Estate5,523,895 35.9 %4,781,044 33.5 %
Commercial & Industrial - Non-RE2,244,342 14.6 %2,028,128 14.2 %
Auto & Consumer631,344 4.1 %567,228 4.0 %
Other9,954 0.1 %11,134 0.1 %
Total gross loans15,384,326 100.0 %14,253,676 100.0 %
Allowance for credit losses - loans(155,472)(148,617)
Unaccreted discounts and loan fees(17,281)(13,998)
Total net loans$15,211,573 $14,091,061 
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 as part of its loan portfolio management process. 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, 2022, the Company had $1.3 billion of interest only mortgage loans with a weighted average loan-to-value of 58.5%.
42
Asset Quality and Allowance for Credit Losses - Loans
Non-performing Assets
Non-performing loans are comprised of those past due 90 days or more and other nonaccrual loans. Non-performing assets include non-performing loans plus other real estate owned and repossessed vehicles. At September 30, 2022, our non-performing loans totaled $120.5 million, or 0.78% of total gross loans and our total non-performing assets totaled $125.8 million, or 0.68% 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, 2022June 30, 2022Inc (Dec)
Non-performing assets:
Non-accrual loans:
Single Family - Mortgage & Warehouse$65,687 $66,424 $(737)
Multifamily and Commercial Mortgage35,837 33,410 2,427 
Commercial Real Estate14,852 14,852 — 
Commercial & Industrial - Non-RE2,989 2,989 — 
Auto & Consumer990 439 551 
Other126 80 46 
Total non-performing loans120,481 118,194 2,287 
Foreclosed real estate4,534 — 4,534 
Repossessed—Auto and RV768 798 (30)
Total non-performing assets$125,783 $118,992 $6,791 
Total non-performing loans as a percentage of total loans0.78 %0.83 %(0.05)%
Total non-performing assets as a percentage of total assets0.68 %0.68 %— %
Total non-performing assets increased from $119.0 million at June 30, 2022 to $125.8 million at September 30, 2022. The increase in non-performing assets was primarily attributable to additional non-performing loans and foreclosed real estate. The weighted average LTV of the non-performing single family mortgage loans is 58.4%.
The Bank had no performing troubled debt restructurings at September 30, 2022 or June 30, 2022. 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.
Management establishes an allowance for credit losses based upon its evaluation of the expected life-time credit losses related to the amortized cost basis of loans on the balance sheet. For additional information regarding the Company’s allowance for credit losses see Note 5 - Loans and Allowance for Credit Losses in the condensed consolidated financial statements.
The provision for credit losses was $8.8 million for the three months ended September 30, 2022 compared to $4.0 million for the three months ended September 30, 2021. The provision for credit losses was primarily due to growth in the loan portfolio and changes in loan mix in each period. The provision for credit losses for the three months ended September 30, 2022 increased over the three months ended September 30, 2021 primarily due to a higher provision in Commercial and Industrial - Non-RE, partially offset by lower provisions in Commercial Real Estate and Auto & Consumer. 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 $257.7 million as of September 30, 2022, compared with $264.3 million at June 30, 2022. During the three months ended September 30, 2022, we did not purchase any investment securities and received principal repayments of approximately $1.0 million in our available-for-sale portfolio. The remainder of the change for the available-for-sale portfolio is attributable to unrealized losses, accretion and other activities.
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Deposits
Deposits increased by $1.3 billion, or 8.8%, to $15.2 billion at September 30, 2022, from $13.9 billion at June 30, 2022. Interest bearing demand and savings increased $1.4 billion and time deposits increased $0.1 billion. Non-interest bearing deposits decreased $0.4 billion, or 8.1%, to $4.6 billion at September 30, 2022, from $5.0 billion at June 30, 2022.
The following table sets forth the composition of the deposit portfolio as of the dates indicated:
September 30, 2022June 30, 2022
(Dollars in thousands)Amount
Rate1
Amount
Rate1
Non-interest bearing$4,626,907 — %$5,033,970 — %
Interest-bearing:
Demand4,678,634 1.36 %3,611,889 0.61 %
Savings4,628,376 1.86 %4,245,555 0.95 %
Total interest-bearing demand and savings9,307,010 1.61 %7,857,444 0.79 %
Time deposits:
$250 and under2
845,134 1.72 %651,392 1.22 %
Greater than $250397,580 2.31 %403,616 1.41 %
Total time deposits
1,242,714 1.88 %1,055,008 1.25 %
Total interest bearing2
10,549,724 1.64 %8,912,452 0.85 %
Total deposits$15,176,631 1.14 %$13,946,422 0.54 %
1 Based on weighted-average stated interest rates at end of period.
2 The total interest-bearing includes brokered deposits of $2,312.6 million and $1,032.7 million as of September 30, 2022 and June 30, 2022, respectively, of which $474.9 million and $250.0 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, 2022June 30, 2022September 30, 2021
Non-interest bearing43,539 42,372 38,725 
Interest-bearing checking and savings accounts351,988 344,593342,860 
Time deposits8,134 8,73411,082 
Total number of accounts403,661 395,699392,667
Total deposits that exceeded the FDIC insurance limit of $250,000 at September 30, 2022 and June 30, 2022 were $1.9 billion and $2.3 billion, respectively. The maturities of certificates of deposit that exceeded the FDIC insurance limit of $250,000 at September 30, 2022 were as follows:
(Dollars in thousands)September 30, 2022
3 months or less$3,560 
3 months to 6 months5,844 
6 months to 12 months5,494 
Over 12 months13,034 
Total$27,932 
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Borrowings
The following table sets forth the composition of our borrowings and the interest rates at the dates indicated:
September 30, 2022June 30, 2022September 30, 2021
(Dollars in thousands)BalanceWeighted Average RateBalanceWeighted Average RateBalanceWeighted Average Rate
FHLB Advances$112,500 2.27 %$117,500 2.26 %$157,500 2.29 %
Borrowings, subordinated notes and debentures425,818 4.13 %445,244 3.86 %255,896 4.05 %
Total borrowings$538,318 3.74 %$562,744 3.53 %$413,396 3.38 %
Weighted average cost of borrowings during the quarter3.12 %2.85 %2.85 %
Borrowings as a percent of total assets2.92 %3.23 %2.77 %
At September 30, 2022, total borrowings amounted to $538.3 million, down $24.4 million or 4.3%, from June 30, 2022 and up $124.9 million or 30.2% from September 30, 2021. Borrowings as a percent of total assets were 2.92%, 3.23% and 2.77% at September 30, 2022, June 30, 2022 and September 30, 2021, respectively. Weighted average cost of borrowings during the quarter were 3.12%, 2.85% and 2.85% for the quarters ended September 30, 2022, June 30, 2022 and September 30, 2021, 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 $58.0 million to $1,701.0 million at September 30, 2022 compared to $1,643.0 million at June 30, 2022. The increase was the result of net income for the three months ended September 30, 2022 of $58.4 million and stock compensation expense and restricted stock units vesting which combined for an increase of $2.4 million, partially offset by a $2.8 million decrease in accumulated other comprehensive income, net of tax.
During the three months ended September 30, 2022, the Company did not repurchase any shares of its common stock. The Company had $52.8 million remaining under the Board authorized stock repurchase program as of September 30, 2022.
45
LIQUIDITY
Cash flow information is as follows:
For the Three Months Ended
September 30,
(Dollars in thousands)20222021
Operating Activities$70,821 $(129,169)
Investing Activities$(1,150,290)$(403,220)
Financing Activities$1,202,818 $764,046 
During the three months ended September 30, 2022, we had net cash inflows from operating activities of $70.8 million compared to outflows of $129.2 million for the three months ended September 30, 2021. 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.
Net cash outflows from investing activities totaled $1,150.3 million for the three months ended September 30, 2022, while outflows totaled $403.2 million for the three months ended September 30, 2021. The increase in outflows was primarily due to increased originations of loans and lower repayments on loans.
Net cash inflows from financing activities totaled $1,202.8 million for the three months ended September 30, 2022, compared to net cash inflows from financing activities of $764.0 million for the three months ended September 30, 2021. The primary driver behind the increase in net cash inflows was a net increase in deposits and net repayments of other FHLB advances in the three months ended September 30, 2021.
During the three months ended September 30, 2022, 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, 2022, the Company had $2,037.6 million available immediately and $4,363.6 million available with additional collateral. At September 30, 2022, 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, 2022, the Bank did not have any borrowings outstanding and the amount available from this source was $2,958.5 million. The credit line is collateralized by consumer loans and mortgage-backed securities.
Axos Clearing has a total of $170 million in uncommitted secured lines of credit for borrowing as needed. As of September 30, 2022, there was $55.7 million outstanding. These credit facilities bear interest at rates based on the Federal Funds rate and are due upon demand.
Axos Clearing has a $175.0 million committed unsecured line of credit available for limited purpose borrowing, which includes $100.0 million from Axos Financial, Inc. As of September 30, 2022, there was $36.3 million outstanding on this credit facility after elimination of intercompany balances. 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, 2022, we had commitments to originate loans with an aggregate outstanding principal balance of $3,374.0 million, and commitments to sell loans with an aggregate outstanding principal balance of $12.6 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.
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CAPITAL RESOURCES AND REQUIREMENTS
Our Company and Bank are subject to regulatory capital adequacy requirements promulgated by federal bank regulatory agencies. Failure by our Company or Bank to meet minimum capital requirements could result in certain mandatory and discretionary actions by regulators that could have a material adverse effect on our unaudited condensed consolidated financial statements. The Federal Reserve establishes capital requirements for our Company and the OCC has similar requirements for our Bank. The following tables present regulatory capital information for our Company and Bank. Information presented for September 30, 2022, reflects the Basel III capital requirements 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 to 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, 2022, 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, 2022 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 both elected the five-year CECL transition guidance for calculating regulatory capital and ratios and the September 30, 2022 and June 30, 2022 amounts reflect this election. This guidance allowed an entity to add back to regulatory capital 100% of the impact of the day one CECL transition adjustment and 25% of subsequent increases to the allowance for credit losses through June 30, 2022. Beginning with fiscal year 2023, this cumulative amount is phased out of regulatory capital at 25% per year until it is 100% phased out of regulatory capital beginning in fiscal year 2026.
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, 2022June 30,
2022		September 30, 2022June 30,
2022
Regulatory Capital:
Tier 1 $1,571 $1,522 $1,675 $1,615 
Common equity tier 1 $1,571 $1,522 $1,675 $1,615 
Total capital$2,033 $1,966 $1,804 $1,726 
Assets:
Average adjusted$17,501 $16,461 $16,250 $15,165 
Total risk-weighted $15,757 $15,443 $15,410 $14,366 
Regulatory Capital Ratios:
Tier 1 leverage (to adjusted average assets)8.98 %9.25 %10.30 %10.65 %5.00%4.00%
Common equity tier 1 capital (to risk-weighted assets)9.97 %9.86 %10.87 %11.24 %6.50%4.50%
Tier 1 capital (to risk-weighted assets)9.97 %9.86 %10.87 %11.24 %8.00%6.00%
Total capital (to risk-weighted assets)12.90 %12.73 %11.71 %12.01 %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, 2022 and June 30, 2022, our Company and Bank were in compliance with the capital conservation buffer requirement, which sets the
47
common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratio minimums to 7.0%, 8.5% and 10.5%, respectively.
Securities Business
Pursuant to the net capital requirements of the Exchange Act, Axos Clearing, is subject to the SEC Uniform Net Capital (Rule 15c3-1 of the Exchange Act). Under this rule, the Company has elected to operate under the alternate method and is required to maintain minimum net capital of $250,000 or 2% of aggregate debit balances arising from client transactions, as defined. Under the alternate method, the Company may not repay subordinated debt, pay cash distributions, or make any unsecured advances or loans to its parent or employees if such payment would result in net capital of less than 5% of aggregate debit balances or less than 120% of its minimum dollar requirement.
The net capital positions of Axos Clearing were as follows:
(Dollars in thousands)September 30, 2022June 30, 2022
Net capital$49,183 $38,915 
Excess Capital$42,324 $32,665 
Net capital as a percentage of aggregate debit items14.34 %12.45 %
Net capital in excess of 5% aggregate debit items$32,035 $23,290 
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, 2022, the Company had a deposit requirement of $292.7 million and maintained a deposit of $292.0 million. On October 1, 2022, the company made a deposit of $10.0 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, 2022, the Company had a deposit requirement of $28.5 million and maintained a deposit of $36.8 million. On October 3, 2022, the Company made a withdrawal in the amount of $7.3 million.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For further discussion of the Company’s market risk, see “Quantitative and Qualitative Disclosures About Market Risk” in the 2022 Form 10-K.
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, 2022 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, 2022
(Dollars in thousands)Six Months or LessOver Six
Months Through
One Year		Over One
Year Through
Five Years		Over Five
Years		Total
Interest-earning assets:
Cash and cash equivalents$1,346,498 $— $— $— $1,346,498 
Securities1
233,481 1,209 11,131 19,514 265,335 
Stock of the FHLB, at cost17,250 — — — 17,250 
Loans—net of allowance for credit loss9,769,494 1,424,010 3,985,251 165,887 15,344,642 
Loans held for sale19,939 — — — 19,939 
Total interest-earning assets11,386,662 1,425,219 3,996,382 185,401 16,993,664 
Non-interest earning assets— — — — 326,997 
Total assets$11,386,662 $1,425,219 $3,996,382 $185,401 $17,320,661 
Interest-bearing liabilities:
Interest-bearing deposits$8,478,160 $1,855,568 $303,336 $214 $10,637,278 
Advances from the FHLB22,500 — 30,000 60,000 112,500 
Total interest-bearing liabilities8,500,660 1,855,568 333,336 60,214 10,749,778 
Other non-interest-bearing liabilities— — — — 4,873,163 
Stockholders’ equity— — — — 1,697,720 
Total liabilities and equity$8,500,660 $1,855,568 $333,336 $60,214 $17,320,661 
Net interest rate sensitivity gap$2,886,002 $(430,349)$3,663,046 $125,187 $6,243,886 
Cumulative gap$2,886,002 $2,455,653 $6,118,699 $6,243,886 $6,243,886 
Net interest rate sensitivity gap—as a % of total interest earning assets16.98 %(2.53)%21.56 %0.74 %36.74 %
Cumulative gap—as % of total interest earning assets16.98 %14.45 %36.01 %36.74 %36.74 %
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, 2022 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, 2022
First 12 MonthsNext 12 Months
(Dollars in thousands)Net Interest IncomePercentage Change from BaseNet Interest IncomePercentage Change from Base
Up 200 basis points$785,696 7.7 %$885,569 7.2 %
Base$729,676 — %$825,716 — %
Down 200 basis points$667,918 (8.5)%$754,746 (8.6)%
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.
The following table indicates the sensitivity of market value of equity to the interest rate movement described above:
As of September 30, 2022
(Dollars in thousands)Net
Present Value		Percentage Change from BaseNet
Present
Value as a
Percentage
of Assets
Up 200 basis points$1,856,089 (4.1)%11.2 %
Up 100 basis points$1,912,247 (1.2)%11.4 %
Base$1,934,665 — %11.4 %
Down 100 basis points$1,895,905 (2.0)%11.0 %
Down 200 basis points$1,768,706 (8.6)%10.2 %
The computation of the prospective effects of hypothetical interest rate changes is based on numerous assumptions, including relative levels of interest rates, asset prepayments, runoffs in deposits and changes in repricing levels of deposits to general market rates, and should not be relied upon as indicative of actual results. Furthermore, these computations do not take into account any actions that we may undertake in response to future changes in interest rates. Those actions include, but are not limited to, making change in loan and deposit interest rates and changes in our asset and liability mix.
Securities Business
Our Securities Business is exposed to market risk primarily due to its role as a financial intermediary in customer transactions, which may include purchases and sales of securities, securities lending activities, and in our trading activities, which are used to support sales, underwriting and other customer activities. We are subject to the risk of loss that may result from the potential change in value of a financial instrument as a result of fluctuations in interest rates, market prices, investor expectations and changes in credit ratings of the issuer.
Our Securities Business is exposed to interest rate risk as a result of maintaining inventories of interest rate sensitive financial instruments and other interest earning assets, including customer and correspondent margin loans and securities borrowing activities. Our exposure to interest rate risk is also from our funding sources including customer and correspondent cash balances, bank borrowings and securities lending activities. Interest rates on customer and correspondent balances and securities produce a positive spread with rates generally fluctuating in parallel.
With respect to securities held, our interest rate risk is managed by setting and monitoring limits on the size and duration of positions and on the length of time securities can be held. Much of the interest rates on customer and correspondent margin loans are indexed and can vary daily. Our funding sources are generally short term with interest rates that can vary daily.
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 monitoring position limits for each counterparty, conducting periodic credit reviews of counterparties, reviewing concentrations of securities and conducting business through central clearing organizations.
50
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 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.
During the quarter ended September 30, 2022 the Company integrated the internal controls over financial reporting of AAS into its company-wide internal controls over financial reporting.
Management, including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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PART II—OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
The information set forth in Note 8 – “Commitments And Contingencies” to the Unaudited Condensed Consolidated Financial Statements is incorporated herein by reference.
In addition, from time to time we may be a party to other claims or litigation that arise in the ordinary course of business, such as claims to enforce liens, claims involving the origination and servicing of loans, and other issues related to the Company’s business operations. 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 2022 Form 10-K. 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, 2022.
(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, 2022
July 1, 2022 to July 31, 2022— $— — $— 
August 1, 2022 to August 31, 2022— $— — $— 
September 1, 2022 to September 30, 2022— $— — $— 
For the Three Months Ended September 30, 2022— $— — $52,764 
Stock Retained in Net Settlement2
July 1, 2022 to July 31, 2022324 
August 1, 2022 to August 31, 202248,115 
September 1, 2022 to September 30, 202222,267 
For the Three Months Ended September 30, 202270,706 
1 On August 2, 2019, the Board of Directors of the Company authorized a program to repurchase up to $100 million of common stock. 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 On October 28, 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 purchased at the vesting price of the associated restricted stock unit.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES
None.

ITEM 4.    MINE SAFETY DISCLOSURES
Not applicable.

ITEM 5.    OTHER INFORMATION
    None.
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Table of Contents
ITEM 6.EXHIBITS
Exhibit
Number		DescriptionIncorporated By Reference to
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 27, 2022By:    /s/ Gregory Garrabrants
Gregory Garrabrants
President and Chief Executive Officer
(Principal Executive Officer)
Dated:October 27, 2022By:    /s/ Derrick K. Walsh
Derrick K. Walsh
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
54

What is the market capitalization of a company?

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

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