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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended September 30, 2020
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-37709
AX-20200930_G1.JPG
AXOS FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0867444
(State or other jurisdiction of
incorporation or organization) 		(I.R.S. Employer
Identification No.)
9205 West Russell Road, STE 400, Las Vegas, NV                     89148
(Address of principal executive offices)                        (zip code)
Registrant’s telephone number, including area code: (858) 649-2218
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common stock, $0.01 par value AX New York Stock Exchange
6.25% Subordinated Notes Due 2026 AXO New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
__________________________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   ☒  Yes    ☐  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted 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 and post such files).   ☒  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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 Securities Exchange Act of 1934).    ☐  Yes    ☒  No
The number of shares outstanding of the registrant’s common stock on the last practicable date: 59,045,261 shares of common stock, $0.01 par value per share, as of October 23, 2020.

Table of Contents
AXOS FINANCIAL, INC.
INDEX
Page
1
1
1
2
3
4
5
6
32
36
38
47
51
51
53
54
57
57
58
58
58
58
58
58
58
59
60

Table of Contents
PART I – FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except par and stated value) September 30,
2020 		June 30,
2020
ASSETS
Cash and cash equivalents $ 907,611  $ 1,756,477 
Cash segregated for regulatory purposes 214,550  194,042 
Total cash, cash equivalents, and cash segregated 1,122,161  1,950,519 
Securities:
Trading 423  105 
Available-for-sale 203,931  187,627 
Stock of regulatory agencies 20,609  20,610 
Loans held for sale, carried at fair value 89,454  51,995 
Loans held for sale, lower of cost or fair value 14,729  44,565 
Loans and leases—net of allowance for credit losses of $132.9 million as of September 30, 2020 and $75.8 million as of June 30, 2020
10,925,450  10,631,349 
Mortgage servicing rights, carried at fair value 12,130  10,675 
Other real estate owned and repossessed vehicles 6,333  6,408 
Goodwill and other intangible assets—net 122,817  125,389 
Securities borrowed 263,470  222,368 
Customer, broker-dealer and clearing receivables 283,125  220,266 
Other assets 317,606  380,024 
TOTAL ASSETS $ 13,382,238  $ 13,851,900 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing $ 2,026,503  $ 1,936,661 
Interest bearing 8,529,155  9,400,033 
Total deposits 10,555,658  11,336,694 
Advances from the Federal Home Loan Bank 242,500  242,500 
Borrowings, subordinated notes and debentures 453,843  235,789 
Securities loaned 315,976  255,945 
Customer, broker-dealer and clearing payables 369,428  347,614 
Accounts payable and accrued liabilities and other liabilities 207,868  202,512 
Total liabilities 12,145,273  12,621,054 
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS’ EQUITY:
Preferred stock—$0.01 par value; 1,000,000 shares authorized:
Series A—$10,000 stated value and liquidation preference per share; 515 shares issued and outstanding as of September 30, 2020 and June 30, 2020
5,063  5,063 
Common stock—$0.01 par value; 150,000,000 shares authorized; 67,622,935 shares issued and 59,215,934 shares outstanding as of September 30, 2020; 67,323,053 shares issued and 59,612,635 shares outstanding as of June 30, 2020
676  673 
Additional paid-in capital 416,285  411,873 
Accumulated other comprehensive income (loss)—net of tax 345  (937)
Retained earnings 1,025,156  1,009,299 
Treasury stock, at cost; 8,407,001 shares as of September 30, 2020 and 7,710,418 shares as of June 30, 2020
(210,560) (195,125)
Total stockholders’ equity 1,236,965  1,230,846 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 13,382,238  $ 13,851,900 

See accompanying notes to the condensed consolidated financial statements.
1
Table of Contents
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) 
Three Months Ended
September 30,
(Dollars in thousands, except earnings per common share) 2020 2019
INTEREST AND DIVIDEND INCOME:
Loans and leases, including fees $ 141,424  $ 133,887 
Securities borrowed and customer receivables 5,077  6,238 
Investments 3,388  6,220 
Total interest and dividend income 149,889  146,345 
INTEREST EXPENSE:
Deposits 19,554  38,806 
Advances from the Federal Home Loan Bank 1,372  1,764 
Securities loaned 124  286 
Other borrowings 1,512  2,186 
Total interest expense 22,562  43,042 
Net interest income 127,327  103,303 
Provision for credit losses 11,800  2,700 
Net interest income, after provision for credit losses 115,527  100,603 
NON-INTEREST INCOME:
Prepayment penalty fee income 1,368  1,412 
Gain on sale – other 334  3,822 
Mortgage banking income 19,567  2,794 
Broker-dealer fee income 5,702  5,656 
Banking and service fees 8,884  7,852 
Total non-interest income 35,855  21,536 
NON-INTEREST EXPENSE:
Salaries and related costs 38,623  36,717 
Data processing 7,928  7,811 
Depreciation and amortization 6,186  5,224 
Advertising and promotional 2,556  3,790 
Professional services 5,999  1,589 
Occupancy and equipment 3,011  2,838 
FDIC and regulatory fees 2,692  191 
Broker-dealer clearing charges 2,257  2,008 
General and administrative expense 6,294  5,299 
Total non-interest expense 75,546  65,467 
INCOME BEFORE INCOME TAXES 75,836  56,672 
INCOME TAXES 22,814  15,886 
NET INCOME $ 53,022  $ 40,786 
NET INCOME ATTRIBUTABLE TO COMMON STOCK $ 52,945  $ 40,709 
COMPREHENSIVE INCOME $ 54,304  $ 41,303 
Basic earnings per common share $ 0.89  $ 0.66 
Diluted earnings per common share $ 0.88  $ 0.66 
See accompanying notes to the condensed consolidated financial statements.
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Table of Contents
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
September 30,
(Dollars in thousands) 2020 2019
NET INCOME $ 53,022  $ 40,786 
Net unrealized gain (loss) from available-for-sale securities, net of tax expense (benefit) of $503 and $217 for the three months ended September 30, 2020 and 2019, respectively.
1,282  517 
Other comprehensive income (loss) 1,282  517 
Comprehensive income $ 54,304  $ 41,303 

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, 2020
Preferred Stock Common Stock Additional Paid-in Capital Retained
Earnings 		Accumulated
Other
Comprehensive
Income (Loss),
Net of Income Tax 		Treasury
Stock 		Total
Number of Shares
(Dollars in thousands) Shares Amount Issued Treasury Outstanding Amount
BALANCE—June 30, 2020 515  $ 5,063  67,323,053  (7,710,418) 59,612,635  $ 673  $ 411,873  $ 1,009,299  $ (937) $ (195,125) $ 1,230,846 
Cumulative effect of change in accounting principle net of tax, ASU No. 2016-13
—  —  —  —  —  —  —  (37,088) —  —  $ (37,088)
Net income —  —  —  —  —  —  —  53,022  —  —  53,022 
Other comprehensive income (loss) —  —  —  —  —  —  —  —  1,282  —  1,282 
Cash dividends on preferred stock —  —  —  —  —  —  —  (77) —  —  (77)
Purchase of treasury stock —  —  —  (582,249) (582,249) —  —  —  —  (12,742) (12,742)
Stock-based compensation expense
and restricted stock unit vesting 		—  —  299,882  (114,334) 185,548  3  4,412  —  —  (2,693) 1,722 
BALANCE—September 30, 2020 515  $ 5,063  67,622,935  (8,407,001) 59,215,934  $ 676  $ 416,285  $ 1,025,156  $ 345  $ (210,560) $ 1,236,965 
For the Three Months Ended September 30, 2019
Preferred Stock Common Stock Additional Paid-in Capital Retained
Earnings 		Accumulated
Other
Comprehensive
Income (Loss),
Net of Income Tax 		Treasury
Stock 		Total
Number of Shares
(Dollars in thousands) Shares Amount Issued Treasury Outstanding Amount
BALANCE—June 30, 2019 515  $ 5,063  66,563,922  (5,435,105) 61,128,817  $ 666  $ 389,945  $ 826,170  $ 16  $ (148,810) $ 1,073,050 
Net income —  —  —  —  —  —  —  40,786  —  —  40,786 
Other comprehensive income (loss) —  —  —  —  —  —  —  —  517  —  517 
Cash dividends on preferred stock —  —  —  —  —  —  —  (77) —  —  (77)
Stock-based compensation expense
and restricted stock unit vesting 		—  —  273,115  (114,337) 158,778  2  4,959  —  —  (2,997) 1,964 
BALANCE—September 30, 2019 515  $ 5,063  66,837,037  (5,549,442) 61,287,595  $ 668  $ 394,904  $ 866,879  $ 533  $ (151,807) $ 1,116,240 
See accompanying notes to the condensed consolidated financial statements.
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Table of Contents
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
  Three Months Ended
September 30,
(Dollars in thousands) 2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 53,022  $ 40,786 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Accretion of discounts on securities 49  560 
Net accretion of discounts on loans and leases (1,492) (517)
Amortization of borrowing costs 52  52 
Amortization of operating lease right of use asset 2,655  2,638 
Stock-based compensation expense 4,415  4,961 
Provision for credit losses 11,800  2,700 
Deferred income taxes (4,264) 78 
Origination of loans held for sale (440,804) (327,812)
Unrealized (gain) loss on loans held for sale (1,303) 6 
Gain on sales of loans held for sale (19,901) (6,616)
Proceeds from sale of loans held for sale 424,987  325,968 
Change in fair value of mortgage servicing rights 1,795  683 
(Gain) loss on sale of other real estate and foreclosed assets (128) (61)
Depreciation and amortization 6,186  5,224 
Net changes in assets and liabilities which provide (use) cash:
Accrued interest receivable 118  (1,797)
Securities borrowed (41,102) (144,268)
Customer, broker-dealer and clearing receivables (62,859) (91,996)
Other assets 52,134  17,846 
Accrued interest payable 123  (247)
Securities loaned 60,031  139,514 
Customer, broker-dealer and clearing payables 21,814  59,897 
Accounts payable and other liabilities (1,037) (6,168)
Net cash provided by (used in) operating activities 66,291  21,431 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities (22,071) (77,901)
Proceeds from repayment of securities 24,984  117,772 
Proceeds from redemption of stock of regulatory agencies —  2 
Origination of loans and leases held for investment (1,081,681) (1,429,386)
Proceeds from sale of loans and leases held for investment 9,220  4,143 
Mortgage warehouse loans activity, net (249,131) (32,380)
Proceeds from sales of other real estate owned and repossessed assets 487  218 
Principal repayments on loans and leases 1,003,843  1,017,332 
Purchases of furniture, equipment and software (1,754) (3,178)
Net cash used in investing activities (316,103) (403,378)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits (781,036) 231,352 
Proceeds from the Federal Home Loan Bank term advances —  60,000 
Payments of the Federal Home Loan Bank term advances —  (5,000)
Net (repayment) proceeds of Federal Home Loan Bank other advances —  (21,000)
Net proceeds (repayments) of other borrowings 45,600  (35,300)
Tax payments related to settlement of restricted stock units (2,693) (2,997)
Repurchase of treasury stock (12,742) — 
Cash dividends paid on preferred stock (77) (154)
Payment of debt issuance costs (2,598) — 
Proceeds from issuance of subordinated notes 175,000  — 
Net cash provided by financing activities (578,546) 226,901 
NET CHANGE IN CASH AND CASH EQUIVALENTS (828,358) (155,046)
CASH AND CASH EQUIVALENTS—Beginning of year $ 1,950,519  $ 857,368 
CASH AND CASH EQUIVALENTS—End of period $ 1,122,161  $ 702,322 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid on deposits and borrowed funds $ 22,316  $ 42,200 
Income taxes paid $ 16,318  $ 9,653 
Transfers to other real estate and repossessed vehicles $ 350  $ 152 
Transfers from loans and leases held for investment to loans held for sale $ 2,189  $ 40,025 
Transfers from loans held for sale to loans held for investment $ 27,379  $ — 
Loans and leases held for investment sold, cash not received $ —  $ 39,184 
Operating lease liabilities for obtaining right of use assets $ —  $ 79,746 
Impact of adoption of ASU No. 2016-13 on retained earnings
$ 37,088  $ — 
See accompanying notes to the condensed consolidated financial statements.
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Table of Contents
AXOS FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2020 AND 2019
(Dollars in thousands, except per share and stated value amounts)
(Unaudited)

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The condensed consolidated financial statements include the accounts of Axos Financial, Inc. (“Axos”) and its wholly owned subsidiaries, Axos Bank (the “Bank”) and Axos Nevada Holding, LLC (the “Axos Nevada Holding”) and collectively, the “Company”. Axos Nevada Holding wholly owns its subsidiary Axos Securities, LLC, which wholly owns subsidiaries Axos Clearing LLC (“Axos Clearing”), a clearing broker dealer, Axos Invest, Inc., a registered investment advisor, and Axos Invest LLC, an introducing broker dealer. All significant intercompany balances and transactions have been eliminated in consolidation.
The accompanying interim condensed consolidated financial statements, presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), are unaudited and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of financial condition and results of operations for the interim periods. All adjustments are of a normal and recurring nature. Results for the three months ended September 30, 2020 are not necessarily indicative of results that may be expected for any other interim period or for the year as a whole. Certain information and note disclosures normally included in the audited annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) with respect to interim financial reporting. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended June 30, 2020 included in our Annual Report on Form 10-K.
6
As a result of the change from adopting Accounting Standard Update (“ASU”) 2016-13, “Measurement of Credit Losses on Financial Instruments” and all subsequent amendments that modified ASU 2016-13 (collectively, “ASC 326”) on July 1, 2020, the Company updated categorization of the loan portfolio. For comparability purposes, certain reclassifications have been made to the presentation of loan categories as of June 30, 2020 and as of and for the three months then ended September 30, 2019 to conform with current presentation adopted under ASC 326. The Company reclassified its loan categories to align with the segments adopted for the measurement of credit losses under ASC 326. The reclassification had no impact on the total loan balances or the allowance for credit losses - loans.
Loans and Leases - Carrying Amount
(Dollars in thousands) Single Family Real Estate Secured - Mortgage Single Family Real Estate Secured - Warehouse Single Family Real Estate Secured - Financing Multifamily Real Estate Secured - Mortgage and Financing Commercial Real Estate - Mortgage Commercial & Industrial Auto & RV - Secured Other Total
Balance July 1, 2020 Pre-ASC 326 Adoption $4,244,563 $474,318 $682,477 $2,303,216 $371,176 $2,094,322 $291,452 $241,918 $10,703,442
Commercial Real Estate - Mortgage to Multifamily and Commercial Mortgage — — — 371,176 (371,176) — — — —
Multifamily and Single Family Financing loans to Commercial Real Estate — — (679,054) (411,338) 1,090,392 — — — —
Real estate secured Commercial & Industrial to Commercial Real Estate — — — — 1,207,528 (1,207,528) — — —
Unsecured Consumer loans to Auto & Consumer — — — — — — 49,913 (49,913) —
Single Family Warehouse and Mortgage combined 477,741 (474,318) (3,423) — — — — — —
Other reclassifications — — — — — (1,474) — 1,474 —
Balance July 1, 2020 Post ASC 326 Adoption $4,722,304 $— $— $2,263,054 $2,297,920 $885,320 $341,365 $193,479 $10,703,442
Loan Category Post-ASC 326 Adoption
Single Family - Mortgage & Warehouse N/A N/A Multifamily and Commercial Mortgage Commercial Real Estate Commercial & Industrial - Non RE Auto & Consumer Other Total

7
Allowance for Credit Losses
(Dollars in thousands) Single Family Real Estate Secured - Mortgage Single Family Real Estate Secured - Warehouse Single Family Real Estate Secured - Financing Multifamily Real Estate Secured - Mortgage and Financing Commercial Real Estate - Mortgage Commercial & Industrial Auto & RV - Secured Other Total
Balance July 1, 2020 Pre-ASC 326 Adoption $24,041 $1,860 $5,094 $6,318 $1,456 $22,863 $5,738 $8,437 $75,807
Reclassification 1,860 (1,860) (5,094) (1,600) 19,596 (12,909) 3,723 (3,716) —
Balance July 1, 2020 Post Reclassification $25,901 $— $— $4,718 $21,052 $9,954 $9,461 $4,721 $75,807
Loan Category Post-ASC 326 Adoption Single Family - Mortgage & Warehouse N/A N/A Multifamily and Commercial Mortgage Commercial Real Estate Commercial & Industrial - Non RE Auto & Consumer Other Total
Allowance for Credit Losses. The allowance for credit losses (“ACL”) is a valuation account that offsets the amortized cost basis of loans and net investment in leases. Under ASC 326, amortized cost is the basis on which the ACL is determined. Amortized cost is principal outstanding, net of any purchase premiums and discounts and net of any deferred loan fees and costs.
Credit losses are charged off when the Company believes that collectability of at least some portion of outstanding principal is unlikely. These charge-offs are recorded as a reversal, thereby reducing, the allowance for credit losses. Recoveries on loans previously charged off are recorded as a provision to, thereby increasing, the allowance for credit losses. The allowance for credit losses is maintained at a level needed to absorb expected credit losses over the contractual life, considering the effects of prepayments, of the loan portfolio as of the reporting date. Determining the adequacy of the allowance is complex and requires judgment by Management about the effect of matters that are inherently uncertain. As such, a future assessment of current conditions may require material adjustments to the allowance.
The Company’s process for determining expected life-time credit losses entails a loan-level, model-based approach and requires consideration of a broad range of relevant information relating to historical loss experience, current economic conditions and reasonable and supportable forecasts.
A credit loss is estimated for all loans. Consequently, the Company stratifies the full loan population into segments sharing similar characteristics to perform the evaluation of the credit loss collectively.
The Company defines a segment as the level at which the Company develops a systematic methodology to determine the allowance for credit losses. Additionally, the Company can further stratify loans of similar type, risk attributes and methods for monitoring credit risk. The Company categorizes the loan portfolio into six segments: Single Family - Mortgage & Warehouse, Multifamily and Commercial Mortgage, Commercial Real Estate, Commercial & Industrial - Non Real Estate, Auto & Consumer and Other – refer to Note 4 – “Loans & Allowance for Credit Losses” for further detail of the segments and classes within.
The method for estimating expected life-time credit losses includes, among other things, the following main components: 1) The use of a probability of default (“PD”)/loss given default (“LGD”) model; 2) defining a number of economic scenarios across the benign to adverse spectrum; 3) an initial and reasonable forecast period of one year for all loan segments; and 4) a reversion period of 18 months using a linear transition to historical loss rates for each loan pool. After the reversion period, the historical loss rate is applied over the remaining contractual life of loan.
Given the inherent limitations of a solely quantitative model, qualitative adjustments are included to arrive at the ending calculated loss amount in order to account for data points not captured from quantitative inputs alone.

Qualitative criteria we consider includes, among other things, the following:
•Regulatory and Legal - matters that may impact the timeliness and/or amounts of repayments;
•Concentration - portfolio composition and loan concentration;
•Collateral Dependency - changes in collateral values;
•Lending/Underwriting Standards - current lending policies and the effects of any new policies;
•Nature and Volume - loan production volume and mix;
•Loan Trends - credit performance trends, including a borrower’s financial condition and credit rating.

8
On a quarterly basis, Management convenes a Credit Review meeting in which current information and trends are collectively assessed to forecast future economic impact for purposes of assessing the adequacy of the ACL. The forecasted direction and magnitude of change with respect to future economic conditions is then assessed against the estimate in the model.
Accrued Interest. Accrued interest receivable is excluded from amortized cost and is presented separately in “Other Assets” on the unaudited Condensed Consolidated Balance Sheets. Additionally, the Company does not estimate an allowance for credit losses on accrued interest receivable as the Company has a policy to charge off accrued interest deemed uncollectible in a timely manner. When a loan is placed on non-accrual status, which occurs when a borrower becomes delinquent by 90 days, interest previously accrued but not collected is reversed against current period interest income.
Individually Assessed Loans. Credit loss is estimated for any individual loan on a collective basis, unless an individual loan’s credit characteristics has deteriorated below a range of the overall group, in which case the loan would then be individually assessed. Individually assessed loans are measured for credit loss based on present value of future expected cash flows, discounted at the loan’s effective interest rate or the fair value of the collateral, less estimated selling costs, if the loan is collateral-dependent.
Available-for-Sale Debt Securities. Unrealized credit losses will be recognized through an allowance for credit losses instead of an adjustment to amortized cost basis, eliminating the other-than-temporary impairment concept. For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not, that it will be required to sell the security before recovery of its amortized cost basis. If either criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through earnings. For available-for-sale debt securities that do not meet the above conditions, the Company evaluates at the individual security level whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, Management considers the extent to which fair value is less than amortized cost and unfavorable conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recognized for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. All other changes in fair value of the security that have not been recognized through an allowance for credit losses are recognized in other comprehensive income. Changes in the allowance for credit losses, if any, are recognized as a provision for (or reversal of) credit losses. Losses are charged against the allowance when management believes an available-for-sale investment security is uncollectible or when either of the criteria regarding intent or requirement to sell is met.
Loan Commitments. Loans commitments not unconditionally cancellable are subject to an estimate of credit loss under a current expected credit loss model. The Company’s process for determining the estimate of credit loss on loan commitments is the same as it is on loans. Refer to detail of Allowance on Credit Losses above.
New Accounting Standards
Accounting Standards Adopted During Fiscal 2021
Financial Instruments. Credit Losses. On July 1, 2020, the Company adopted ASC 326. The update replaces incurred loss models based on the probable recognition threshold with a current expected credit loss model to estimate all credit losses over the contractual life for financial instruments carried at amortized cost and certain off-balance sheet credit exposures, such as loan commitments. The new model requires consideration of a broader range of relevant information, such as historical loss experience, current economic conditions and reasonable and supportable forecasts. The change will generally result in earlier, accelerated loss recognition. For available-for-sale debt securities, unrealized credit losses will be recognized through an allowance for credit losses rather than as adjustment to amortized cost basis, eliminating the other-than-temporary impairment concept. No credit loss adjustment on available-for-sale debt securities resulted upon adoption of ASC 326.
The Company adopted this standard using the modified retrospective transition method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Prior period amounts are not retroactively adjusted. A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date.
9
The table that follows reflects the cumulative-effect adjustments the Company recorded on July 1, 2020 for the adoption of ASC 326:
July 1, 2020
(Dollars in thousands) Pre-ASC 326 Adoption
Impact of ASC 326 Adoption
Post-ASC 326 Adoption
Assets:
Allowance for Credit Losses - Loans $ (75,807) $ (47,300) $ (123,107)
Deferred tax asset (Other Assets) 30,749  15,912  46,661 
Liabilities:
Unfunded Loan Commitment Liabilities (Accounts payable and accrued liabilities and other liabilities) (323) (5,700) (6,023)
Stockholder’s Equity:
Retained Earnings $ (1,009,299) $ 37,088  $ (972,211)


10
2.     FAIR VALUE
Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic 820, Fair Value Measurement, also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis at September 30, 2020 and June 30, 2020. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
September 30, 2020
(Dollars in thousands) Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) 		Significant Other
Observable
Inputs
(Level 2) 		Significant
Unobservable
Inputs
(Level 3) 		Total
ASSETS:
Securities—Trading: Municipal $ —  $ 423  $ —  $ 423 
Securities—Available-for-Sale:
Agency Debt1
$ —  $ 1,800  $ —  $ 1,800 
Agency RMBS1
—  16,057  —  16,057 
Non-Agency RMBS2
—  —  17,612  17,612 
Municipal —  4,170  —  4,170 
Asset-backed securities and structured notes —  164,292  —  164,292 
Total—Securities—Available-for-Sale $ —  $ 186,319  $ 17,612  $ 203,931 
Loans Held for Sale $ —  $ 89,454  $ —  $ 89,454 
Mortgage servicing rights $ —  $ —  $ 12,130  $ 12,130 
Other assets—Derivative instruments $ —  $ —  $ 14,150  $ 14,150 
LIABILITIES:
   Other liabilities—Derivative instruments $ —  $ —  $ 1,151  $ 1,151 
June 30, 2020
(Dollars in thousands) Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) 		Significant Other
Observable
Inputs
(Level 2) 		Significant
Unobservable
Inputs
(Level 3) 		Total
ASSETS:
Securities—Trading: Municipal
$ —  $ 105  $ —  $ 105 
Securities—Available-for-Sale:
Agency Debt1
$ —  $ 1,799  $ —  $ 1,799 
Agency RMBS1
—  16,826  —  16,826 
Non-Agency RMBS2
—  —  18,332  18,332 
Municipal —  10,400  —  10,400 
Asset-backed securities and structured notes —  140,270  —  140,270 
Total—Securities—Available-for-Sale $ —  $ 169,295  $ 18,332  $ 187,627 
Loans Held for Sale $ —  $ 51,995  $ —  $ 51,995 
Mortgage servicing rights $ —  $ —  $ 10,675  $ 10,675 
Other assets—Derivative instruments $ —  $ —  $ 9,131  $ 9,131 
LIABILITIES:
Other liabilities—Derivative instruments $ —  $ —  $ 1,715  $ 1,715 
1Includes securities guaranteed by Ginnie Mae, a U.S. government agency, and the government sponsored enterprises Fannie Mae and Freddie Mac.
2Private sponsors of securities collateralized primarily by pools of 1-4 family residential first mortgages. Primarily super senior securities secured by Alt-A or pay-option ARM mortgages.
11
The following tables present additional information about assets measured at fair value on a recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
For the Three Months Ended
September 30, 2020
(Dollars in thousands) Securities – Trading: Collateralized Debt Obligations Securities – Available-for-Sale: Non-Agency RMBS Mortgage Servicing Rights Derivative Instruments, net Total
Opening balance $ —  $ 18,332  $ 10,675  $ 7,416  $ 36,423 
Total gains or losses for the period:
Included in earnings—Mortgage banking income —  —  (1,795) 5,583  3,788 
Included in other comprehensive income —  (323) —  —  (323)
Purchases, issues, sales and settlements:
Purchases —  —  3,250  —  3,250 
Settlements —  (397) —  —  (397)
Closing balance $ —  $ 17,612  $ 12,130  $ 12,999  $ 42,741 
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period $ —  $ —  $ (1,795) $ 5,583  $ 3,788 

For the Three Months Ended
September 30, 2019
(Dollars in thousands) Securities – Trading: Collateralized Debt Obligations Securities – Available-for-Sale: Non-Agency RMBS Mortgage Servicing Rights Derivative Instruments, net Total
Opening Balance $ —  $ 13,025  $ 9,784  $ 1,246  $ 24,055 
Total gains or losses for the period:
Included in earnings—Mortgage banking income —  —  (683) 481  (202)
Included in other comprehensive income —  689  —  —  689 
Purchases, issues, sales and settlements:
Purchases —  —  1,531  —  1,531 
Settlements —  (582) —  —  (582)
Closing balance $ —  $ 13,132  $ 10,632  $ 1,727  $ 25,491 
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period $ —  $ —  $ (683) $ 481  $ (202)

The table below summarizes the quantitative information about level 3 fair value measurements as of the dates indicated:
September 30, 2020
(Dollars in thousands) Fair Value Valuation Technique Unobservable Input Range (Weighted Average)
Securities – Non-agency RMBS $ 17,612  Discounted Cash Flow Projected Constant Prepayment Rate,
Projected Constant Default Rate,
Projected Loss Severity,
Discount Rate over LIBOR
2.5 to 30.5% (18.5%)
0.0 to 7.1% (2.2%)
35.0 to 68.4% (49.6%)
2.8 to 8.0% (4.9%)
Mortgage Servicing Rights $ 12,130  Discounted Cash Flow Projected Constant Prepayment Rate,
Life (in years),
Discount Rate
4.9 to 39.8% (11.8%)
1.4 to 7.5 (6.1)
9.5 to 14.0% (9.7%)
Derivative Instruments $ 12,999  Sales Comparison Approach Projected Sales Profit of Underlying Loans
(0.3) to 0.4% (0.2%)
12
June 30, 2020
(Dollars in thousands) Fair Value Valuation Technique Unobservable Input Range (Weighted Average)
Securities – Non-agency RMBS $ 18,332  Discounted Cash Flow Projected Constant Prepayment Rate,
Projected Constant Default Rate,
Projected Loss Severity,
Discount Rate over LIBOR
2.5 to 47.9% (26.1%)
0.5 to 4.5% (2.0%)
35.0 to 68.4% (50.1%)
2.9 to 9.4% (5.0%)

Mortgage Servicing Rights $ 10,675  Discounted Cash Flow Projected Constant Prepayment Rate,
Life (in years),
Discount Rate
4.7 to 39.6% (11.4%)
1.6 to 7.7 (6.2)
9.5 to 14.0% (9.8%)

Derivative Instruments $ 7,416  Sales Comparison Approach Projected Sales Profit of Underlying Loans
(0.3) to 0.8% ((0.2)%)
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, and projected loss severity in the event of default. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the projected loss severity and a directionally opposite change in the assumption used for projected prepayment rates.
The table below summarizes assets measured for impairment on a non-recurring basis:
September 30, 2020
(Dollars in thousands) Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) 		Significant Other
Observable
Inputs
(Level 2) 		Significant
Unobservable
Inputs
(Level 3) 		Balance
Other real estate owned and foreclosed assets:
Single family real estate $ —  $ —  $ 6,114  $ 6,114 
Autos and RVs —  —  219  219 
Total $ —  $ —  $ 6,333  $ 6,333 
June 30, 2020
(Dollars in thousands) Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) 		Significant Other
Observable
Inputs
(Level 2) 		Significant
Unobservable
Inputs
(Level 3) 		Balance
Other real estate owned and foreclosed assets:
Single family real estate $ —  $ —  $ 6,114  $ 6,114 
Autos and RVs —  —  294  294 
Total $ —  $ —  $ 6,408  $ 6,408 
Other real estate owned and foreclosed assets, which are measured at the lower of carrying value or fair value less costs to sell, had a net carrying amount of $6,333 after charge-offs of $0 for the three months ended September 30, 2020.
The Company has elected the fair value option for Agency loans held for sale. These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on loans held for investment. None of these loans are 90 days or more past due nor on nonaccrual as of September 30, 2020 and June 30, 2020.
As of September 30, 2020 and June 30, 2020, the aggregate fair value of loans held for sale, carried at fair value, contractual balance (including accrued interest), and unrealized gain was as follows:
(Dollars in thousands) September 30, 2020 June 30, 2020
Aggregate fair value $ 89,454  $ 51,995 
Contractual balance —  49,700 
Unrealized gain $ 89,454  $ 2,295 
13
The total amount of gains and losses from changes in fair value included in earnings for the period indicated below for loans held for sale were:
For the Three Months Ended
September 30,
(Dollars in thousands) 2020 2019
Interest income $ 382  $ 305 
Change in fair value 6,885  475 
Total $ 7,267  $ 780 
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The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at the periods indicated:
September 30, 2020
(Dollars in thousands) Fair Value Valuation Technique(s) Unobservable Input
Range (Weighted Average) 1
Other real estate owned and foreclosed assets:
Single family real estate $ 6,114  Sales comparison approach Adjustment for differences between the comparable sales
0.1 to 0.1% (0.1%)
Autos and RVs $ 219  Sales comparison approach Adjustment for differences between the comparable sales
0.0 to 1.0% (0.1%)
June 30, 2020
(Dollars in thousands) Fair Value Valuation Technique(s) Unobservable Input
Range (Weighted Average) 1
Other real estate owned and foreclosed assets:
Single family real estate $ 6,114  Sales comparison approach Adjustment for differences between the comparable sales
18.7 to 18.7% (18.7%)
Autos and RVs $ 294  Sales comparison approach Adjustment for differences between the comparable sales
(24.6) to 44.2% (2.8%)
1 For other real estate owned and foreclosed assets the ranges shown may vary positively or negatively based on the comparable sales reported in the current appraisal. In certain instances, the range can be significant due to small sample sizes and in some cases the property being valued having limited comparable sales with similar characteristics at the time the current appraisal is conducted.

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Fair value of Financial Instruments
The carrying amounts and estimated fair values of financial instruments at September 30, 2020 and June 30, 2020 were as follows:
September 30, 2020
Fair Value
(Dollars in thousands) Carrying
Amount 		Level 1 Level 2 Level 3 Total Fair Value
Financial assets:
Cash and cash equivalents $ 1,122,161  $ 1,122,161  $ —  $ —  $ 1,122,161 
Securities trading 423  —  423  —  423 
Securities available-for-sale 203,931  —  186,319  17,612  203,931 
Loans held for sale, at fair value 89,454  —  89,454  —  89,454 
Loans held for sale, at lower of cost or fair value 14,729  —  —  14,777  14,777 
Loans and leases held for investment—net 10,925,450  —  —  11,415,058  11,415,058 
Securities borrowed 263,470  —  —  263,760  263,760 
Customer, broker-dealer and clearing receivables 283,125  —  —  283,380  283,380 
Mortgage servicing rights 12,130  —  —  12,130  12,130 
Financial liabilities:
Total deposits 10,555,658  —  10,249,862  —  10,249,862 
Advances from the Federal Home Loan Bank 242,500  —  253,603  —  253,603 
Borrowings, subordinated notes and debentures 453,843  —  461,856  —  461,856 
Securities loaned 315,976  —  —  317,050  317,050 
Customer, broker-dealer and clearing payables 369,428  —  —  369,428  369,428 
June 30, 2020
Fair Value
(Dollars in thousands) Carrying
Amount 		Level 1 Level 2 Level 3 Total Fair Value
Financial assets:
Cash and cash equivalents $ 1,950,519  $ 1,950,519  $ —  $ —  $ 1,950,519 
Securities trading 105  —  105  —  105 
Securities available-for-sale 187,627  —  169,295  18,332  187,627 
Loans held for sale, at fair value 51,995  —  51,995  —  51,995 
Loans held for sale, at lower of cost or fair value 44,565  —  —  44,625  44,625 
Loans and leases held for investment—net 10,631,349  —  —  11,138,255  11,138,255 
Securities borrowed 222,368  —  —  222,613  222,613 
Customer, broker-dealer and clearing receivables 220,266  —  —  220,464  220,464 
Mortgage servicing rights 10,675  —  —  10,675  10,675 
Financial liabilities:
Total deposits 11,336,694  —  11,088,447  —  11,088,447 
Advances from the Federal Home Loan Bank 242,500  —  254,114  —  254,114 
Borrowings, subordinated notes and debentures 235,789  —  234,445  —  234,445 
Securities loaned 255,945  —  —  256,790  256,790 
Customer, broker-dealer and clearing payables 347,614  —  —  347,614  347,614 
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The methods and assumptions, not previously presented, used to estimate fair value are described as follows: Carrying amount is the estimated fair value for cash and cash equivalents, interest bearing deposits, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans and leases or deposits that reprice frequently and fully. For fixed rate loans and leases, deposits, borrowings or subordinated debt and for variable rate loans and leases, deposits, borrowings or subordinated debt with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. A discussion of the methods of valuing trading securities, available for sale securities and loans held for sale can be found earlier in this footnote. The carrying amount of stock of regulatory agencies approximates the estimated fair value of this investment. The fair value of off-balance sheet items is not considered material.
3.     SECURITIES
The amortized cost, carrying amount and fair value for the trading and available-for-sale securities at September 30, 2020 and June 30, 2020 were:
September 30, 2020
Trading Available-for-sale
(Dollars in thousands) Fair
Value 		Amortized
Cost 		Unrealized
Gains 		Unrealized
Losses 		Fair
Value
Mortgage-backed securities (RMBS):
U.S. agencies1
$ —  $ 15,461  $ 596  $ —  $ 16,057 
Non-agency2
—  17,782  793  (963) 17,612 
Total mortgage-backed securities —  33,243  1,389  (963) 33,669 
Non-RMBS:
U.S. agencies1
—  1,799  1  —  1,800 
Municipal 423  4,142  76  (48) 4,170 
Asset-backed securities and structured notes —  163,394  898  —  164,292 
Total Non-RMBS 423  169,335  975  (48) 170,262 
Total debt securities $ 423  $ 202,578  $ 2,364  $ (1,011) $ 203,931 
June 30, 2020
Trading Available-for-sale
(Dollars in thousands) Fair
Value 		Amortized
Cost 		Unrealized
Gains 		Unrealized
Losses 		Fair
Value
Mortgage-backed securities (RMBS):
U.S. agencies1
$ —  $ 16,192  $ 634  $ —  $ 16,826 
Non-agency2
—  18,180  1,024  (872) 18,332 
Total mortgage-backed securities —  34,372  1,658  (872) 35,158 
Non-RMBS:
U.S. agencies1
—  1,799  —  —  1,799 
Municipal 105  10,550  44  (194) 10,400 
Asset-backed securities and structured notes —  141,338  1  (1,069) 140,270 
Total Non-RMBS 105  153,687  45  (1,263) 152,469 
Total debt securities $ 105  $ 188,059  $ 1,703  $ (2,135) $ 187,627 
1Includes securities guaranteed by Ginnie Mae, a U.S. government agency, and the government sponsored enterprises Fannie Mae and Freddie Mac.
2Private sponsors of securities collateralized primarily by pools of 1-4 family residential first mortgages. Primarily super senior securities secured by Alt-A or pay-option ARM mortgages.

The Company’s non-agency RMBS available-for-sale portfolio with a total fair value of $17,612 at September 30, 2020 consists of 15 different issues of super senior securities.
    The face amounts of debt securities available-for-sale that were pledged to secure borrowings at September 30, 2020 and June 30, 2020 were $3.4 million and $3.5 million, respectively.
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The securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows:
September 30, 2020
Available-for-sale securities in loss position for
Less Than
12 Months 		More Than
12 Months 		Total
(Dollars in thousands) Fair
Value 		Gross
Unrealized
Losses 		Fair
Value 		Gross
Unrealized
Losses 		Fair
Value 		Gross
Unrealized
Losses
RMBS:
U.S. agencies $ —  $ —  $ —  $ —  $ —  $ — 
Non-agency —  —  6,652  (963) 6,652  (963)
Total RMBS securities —  —  6,652  (963) 6,652  (963)
Non-RMBS:
Municipal debt —  —  718  (48) 718  (48)
Asset-backed securities and structured notes —  —  —  —  —  — 
Total Non-RMBS —  —  718  (48) 718  (48)
Total debt securities $ —  $ —  $ 7,370  $ (1,011) $ 7,370  $ (1,011)
June 30, 2020
Available-for-sale securities in loss position for
Less Than
12 Months 		More Than
12 Months 		Total
(Dollars in thousands) Fair
Value 		Gross
Unrealized
Losses 		Fair
Value 		Gross
Unrealized
Losses 		Fair
Value 		Gross
Unrealized
Losses
RMBS:
U.S. agencies $ 85  $ —  $ —  $ —  $ 85  $ — 
Non-agency —  —  6,978  (872) 6,978  (872)
Total RMBS securities 85  —  6,978  (872) 7,063  (872)
Non-RMBS:
Municipal debt —  —  2,002  (194) 2,002  (194)
Asset-backed securities and structured notes 139,883  (1,069) —  —  139,883  (1,069)
Total Non-RMBS 139,883  (1,069) 2,002  (194) 141,885  (1,263)
Total debt securities $ 139,968  $ (1,069) $ 8,980  $ (1,066) $ 148,948  $ (2,135)
There were nine securities that were in a continuous loss position at September 30, 2020 for a period of more than 12 months. There were zero securities that were in a continuous loss position at September 30, 2020 for a period of less than 12 months. There were ten securities that were in a continuous loss position at June 30, 2020 for a period of more than 12 months. There were four securities that were in a continuous loss position at June 30, 2020 for a period of less than 12 months.
At September 30, 2020, one non-agency RMBS with a total carrying amount of $2.8 million was determined to have cumulative credit losses of $0.8 million of which none was recognized in earnings during the three months ended September 30, 2020. For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates at the individual security level whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses, if any, are recorded as a provision for (or reversal of) credit losses. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale investment security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
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During the three months ended September 30, 2019, the company sold no available-for-sale securities. During the three months ended September 30, 2020, the company sold no available-for-sale securities.
The Company had recorded unrealized gains and unrealized losses in accumulated other comprehensive loss as follows:
(Dollars in thousands) September 30,
2020 		June 30,
2020
Available-for-sale debt securities—net unrealized gains (losses) $ 1,353  $ (432)
Available-for-sale debt securities—non-credit related losses (845) (845)
Subtotal 508  (1,277)
Tax benefit (expense) (163) 340 
Net unrealized gain (loss) on investment securities in accumulated other comprehensive income (loss) $ 345  $ (937)


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4.    LOANS & ALLOWANCE FOR CREDIT LOSSES
In conjunction with the adoption of ASC 326 on July 1, 2020, the Company updated categorization of the loan portfolio (for further detail of the change in accounting principle, refer to Note 1 - “Summary of Significant Accounting Policies”). As of and for the three months ended September 30, 2020, the Company’s loan portfolio consists of the following segments:
Single Family - Mortgage & Warehouse. The Single Family Real Estate portfolio primarily consists of two loan types: single family mortgage secured and single family warehouse. The single family mortgage secured type consists of fixed-rate and adjustable-rate loans secured by one-to-four family residences located in the U.S. The Company’s lending policies generally limit the maximum LTV ratio on one-to-four family loans to 80% of the lesser of the appraised value or the purchase price, plus pledged collateral. Terms of maturity typically range from 15 to 30 years. The Company attempts to mitigate residential lending risks by adhering to its underwriting policies in evaluating the collateral and the credit-worthiness of the borrower. The Company also originates home equity lines of credit and second mortgage loans. Single family warehouse loans consist of short-term, secured advances to mortgage bankers on a revolving basis. These facilities enable the mortgage originators to close loans in their own names and temporarily finance inventories of closed mortgage loans until they can be sold to an approved investor. The Company attempts to mitigate residential lending risks by adhering to its underwriting policies in evaluating the collateral and the credit-worthiness of the borrower. Mortgage loans aged on a mortgage banking customer’s line longer than 60 days are investigated by the Bank, which can require the borrower to buy the loan out of the line.
Multifamily and Commercial Mortgage. The Company originates loans secured by multifamily real estate (more than four units) and small balance commercial real estate (typically from $0.5 million to $10 million). These loans involve a greater degree of risk than one-to-four family residential mortgage loans as these loans can be greater in amount, dependent on the cash flow capacity of the project, and may be more difficult to evaluate and monitor. Repayment of loans secured by properties frequently depends on the successful operation and management of the properties. Consequently, repayment of such loans may be affected by adverse conditions in the real estate market or economy. The Company attempts to mitigate these risks by monitoring the LTV and minimum debt service coverage ratios, in addition to thoroughly evaluating the global financial condition of the borrower, the management experience of the borrower, and the quality of the collateral property securing the loan.
Commercial Real Estate. The Company originates loans across the U.S. secured by commercial real estate properties (“CRE”) under a variety of structures that it classifies as commercial real estate. A few examples are as follows: Commercial Bridge to Sale, Commercial Bridge to Construction, Commercial Bridge to Refinance and Acquisition, Development, and Construction. CRE Loans are originated to businesses secured by first liens on single family, multifamily or small business mortgage loans. Repayment of CRE loans depends on the successful completion of the real estate transition project and permanent take-out. The Company attempts to mitigate risk by adhering to its underwriting policies in evaluating the collateral and the credit-worthiness of the borrowers and guarantors.
Commercial & Industrial - Non-Real Estate (Non-RE). Comprising the majority of this portfolio are commercial and industrial non-real estate, asset-backed loans and lines of credit made to commercial borrowers secured by commercial assets and non-bank lenders that provide financing to customers. The Company typically reduces it exposure in these asset-backed loans by entering into a structured facility, under which the Company takes a senior lien position collateralized by the underlying assets at advance rates well below the collateral value. Commercial and industrial leases comprise the remainder of this portfolio and are primarily made based on the operating cash flows of the borrower or conversion of working capital assets to cash and secondarily on the underlying collateral provided by the borrower. Although commercial and industrial loans and leases are often collateralized directly or indirectly by equipment, inventory, accounts or loans receivable or other business assets, the liquidation of collateral in the event of a borrower default may be an insufficient source of repayment because accounts or loans receivable may be uncollectible and inventories and equipment may be obsolete or of limited use. The Company attempts to mitigate these risks through the structuring of these lending products, adhering to its underwriting policies in evaluating the management of the business and the credit-worthiness of borrowers and guarantors.
Auto and Consumer. This segment consists of the following distinct classes:
Auto. The Company originates prime loans to customers secured by new and used vehicles. The Company holds all of the auto loans originated and performs loan servicing functions for these loans. Auto loans carry a fixed interest rate and have terms that range from three to eight years. The Company attempts to mitigate auto lending risks by adhering to its underwriting policies in evaluating the collateral and the credit-worthiness of the borrower.
Consumer Unsecured Lending. The Company originates fixed rate unsecured loans to individual borrowers in all fifty states. Loans are normally in the range between $5,000 and $35,000 with terms that range between twelve and sixty months to well-qualified borrowers. The minimum credit score is 720. All applicants apply digitally and are required to supply proof of income, identity, and bank account documentation. The Company attempts to mitigate risks by using seasoned underwriters to review each loan, leveraging customer interviews and data analytics in the underwriting process.
Other. The Company originates other loans, which include structured settlements, Small Business Administration (“SBA”) consumer loans and refund advance loans. Structured settlements are originated through the wholesale and retail
20
purchase of state lottery prize and structured settlement annuities. These annuities are high credit quality deferred payment receivables having a state lottery commission or primarily highly rated insurance company payor. Purchases of state lottery prize or structured settlement annuities are governed by specific state statutes requiring judicial approval of each transaction. No transaction is funded before an order approving such transaction has been entered by a court of competent jurisdiction. The Company’s commission-based sales force originates contracts for the retail purchase of such payments from leads generated by the Company’s dedicated research department through the use of proprietary research techniques. The Company attempts to mitigate these risks by adhering to its underwriting policies in evaluating the credit-worthiness of the state or insurer. The Bank exclusively originated and funded all of H&R Block’s interest-free Refund Advance loans for the 2019 tax season. Repayment of the Refund Advance loan is deducted from the client’s tax refund proceeds; if an insufficient refund to repay the Refund Advance loan is received, there is no recourse to the client, no negative credit reporting occurs in respect of the client and no collection efforts are made against the client. Federal Paycheck Protection Program (“PPP”) loans made by the Bank under the Federal Coronavirus Aid, Relief and Economic Security Act (“CARES”) Act are guaranteed by the Small Business Administration (“SBA”) and, if the loan funds are used by the borrower for specific purposes as provided under the PPP, may be fully or partially forgiven by the SBA at which time, the Bank will receive funds related to the PPP loan forgiveness directly from the SBA. Because of the underwriting policies and SBA guarantee, the Company does not expect any probable incurred credit losses and has provided a de minimis amount of allowance for credit losses.
The following table(s) sets forth the composition of the loan portfolio as of the dates indicated:
(Dollars in thousands) September 30, 2020 June 30, 2020
Single Family - Mortgage & Warehouse $ 4,935,351  $ 4,722,304 
Multifamily and Commercial Mortgage 2,299,332  2,263,054 
Commercial Real Estate 2,443,646  2,297,920 
Commercial & Industrial - Non-RE 866,508  885,320 
Auto & Consumer 330,093  341,365 
Other 180,248  193,479 
Total gross loans and leases 11,055,178  10,703,442 
Allowance for credit losses - loans (132,915) (75,807)
Unaccreted premiums (discounts) and loan and lease fees 3,187  3,714 
Total net loans and leases $ 10,925,450  $ 10,631,349 

21
The following tables summarize activity in the allowance for credit losses - loans by portfolio classes for the periods indicated.
For the Three Months Ended September 30, 2020
(Dollars in thousands) Single Family-Mortgage & Warehouse Multifamily and Commercial Mortgage Commercial Real Estate Commercial & Industrial - Non-RE Auto & Consumer Other Total
Balance at July 1, 2020 $ 25,901  $ 4,718  $ 21,052  $ 9,954  $ 9,461  $ 4,721  $ 75,807 
Effect of Adoption of ASC 326
6,318  7,408  25,893  7,042  610  29  47,300 
Provision for credit losses - loans (2,439) 293  2,253  6,512  (1,087) 6,268  11,800 
Charge-offs (1,489) —  —  (213) (736) —  (2,438)
Recoveries 16  —  —  —  430  —  446 
Balance at September 30, 2020 $ 28,307  $ 12,419  $ 49,198  $ 23,295  $ 8,678  $ 11,018  $ 132,915 
For the Three Months Ended September 30, 2019
(Dollars in thousands) Single Family-Mortgage & Warehouse Multifamily and Commercial Mortgage Commercial Real Estate Commercial & Industrial - Non-RE Auto & Consumer Other Total
Balance at July 1, 2019 $ 22,290  $ 3,807  $ 14,632  $ 9,544  $ 6,339  $ 473  $ 57,085 
Provision for credit losses - loans (680) 198  (2,170) 4,858  1,181  (687) 2,700 
Charge-offs (6) —  —  —  (1,021) (50) (1,077)
Recoveries 108  —  —  —  86  325  519 
Balance at September 30, 2019 $ 21,712  $ 4,005  $ 12,462  $ 14,402  $ 6,585  $ 61  $ 59,227 
Credit Quality Disclosures. Nonaccrual loans consisted of the following as of the dates indicated:
As of September 30, 2020
(Dollars in thousands) With Allowance With No Allowance Total
Single Family - Mortgage & Warehouse $ 76,032  $ 56,894  $ 132,926 
Multifamily and Commercial Mortgage 31,001  1,847  32,848 
Commercial Real Estate —  —  — 
Commercial & Industrial - Non-RE 5,580  —  5,580 
Auto & Consumer 623  131  754 
Other —  —  — 
     Total nonaccrual loans $ 113,236  $ 58,872  $ 172,108 
Nonaccrual loans to total loans 1.56  %

Approximately 0.17% of our nonaccrual loans at September 30, 2020 were considered TDRs, compared to 0.34% at June 30, 2020. Borrowers that make timely payments after TDRs are considered non-performing for at least six months. Generally, after six months of timely payments, those TDRs are reclassified from the nonaccrual loan category to the performing loan category and any previously deferred interest income is recognized. Approximately 77% of the Bank’s nonaccrual loans are single family first mortgages, repaid and written down to 88.45% in aggregate, of the original loan value of the underlying properties.
No interest income was recognized in three months ended September 30, 2020 on nonaccrual loans.
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The following tables present the outstanding unpaid balance of loans that are performing and nonaccrual by portfolio class:
September 30, 2020
(Dollars in thousands) Single Family-Mortgage & Warehouse Multifamily and Commercial Mortgage Commercial Real Estate Commercial & Industrial - Non-RE Auto & Consumer Other Total
Performing $ 4,802,425  $ 2,266,484  $ 2,443,646  $ 860,928  $ 329,339  $ 180,248  $ 10,883,070 
Nonaccrual 132,926  32,848  —  5,580  754  —  172,108 
          Total $ 4,935,351  $ 2,299,332  $ 2,443,646  $ 866,508  $ 330,093  $ 180,248  $ 11,055,178 
June 30, 2020
(Dollars in thousands) Single Family-Mortgage & Warehouse Multifamily and Commercial Mortgage Commercial Real Estate Commercial & Industrial - Non-RE Auto & Consumer Other Total
Performing $ 4,638,274  $ 2,259,629  $ 2,297,920  $ 885,107  $ 341,092  $ 193,479  $ 10,615,501 
Nonaccrual 84,030  3,425  —  213  273  —  87,941 
          Total $ 4,722,304  $ 2,263,054  $ 2,297,920  $ 885,320  $ 341,365  $ 193,479  $ 10,703,442 

From time to time the Company modifies loan terms temporarily for borrowers who are experiencing financial stress. These loans are performing and accruing and will generally return to the original loan terms after the modification term expires. The Company had no TDRs classified as performing loans at September 30, 2020 or June 30, 2020. Under guidelines set forth in the CARES Act, the Company had provided borrowers the ability to delay payments. As of September 30, 2020, the Company is no longer allowing delayed payments.
Credit Quality Indicators
The Company categorizes loans and leases into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans and leases individually by classifying the loans and leases based on credit risk. The Company uses the following definitions for risk ratings.
Pass. Loans and leases 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 and leases 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 lease or of the institution’s credit position at some future date.
Substandard. Loans and leases 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 and leases 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 and leases 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 and leases following a continuous review process, featuring coverage of all loan and lease 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.

23
The amortized cost basis by year of origination and credit quality indicator of the Company’s loan and leases as of September 30, 2020 was as follows:
Loans Held for Investment Origination Year Revolving Loans Revolving Loans Converted to Term Loans Total
(Dollars in thousands) 2021 2020 2019 2018 2017 Prior
Single Family-Mortgage & Warehouse
Pass 311,097  1,059,487  735,757  625,305  489,394  772,076  701,462  —  4,694,578 
Special Mention —  11,265  9,003  26,881  15,565  9,742  21,987  —  94,443 
Substandard —  3,370  28,447  22,999  19,588  71,926  —  —  146,330 
Doubtful —  —  —  —  —  —  —  —  — 
Total 311,097  1,074,122  773,207  675,185  524,547  853,744  723,449  —  4,935,351 
Multifamily and Commercial Mortgage
Pass 111,808  626,529  514,610  361,029  226,120  402,248  —  —  2,242,344 
Special Mention —  10,723  3,137  1,502  3,527  634  —  —  19,523 
Substandard —  24,500  1,088  8,511  1,493  1,873  —  —  37,465 
Doubtful —  —  —  —  —  —  —  —  — 
Total 111,808  661,752  518,835  371,042  231,140  404,755  —  —  2,299,332 
Commercial Real Estate
Pass 220,174  1,062,300  532,758  146,999  45,701  79,675  140,596  —  2,228,203 
Special Mention —  —  47,373  14,080  11,221  —  4,230  —  76,904 
Substandard —  43,775  54,643  40,121  —  —  —  —  138,539 
Doubtful —  —  —  —  —  —  —  —  — 
Total 220,174  1,106,075  634,774  201,200  56,922  79,675  144,826  —  2,443,646 
Commercial & Industrial - Non-RE
Pass 8,129  95,571  20,509  35,694  17,741  5,780  528,162  127,946  839,532 
Special Mention —  13,522  315  2,940  175  —  —  —  16,952 
Substandard —  926  7,166  1,551  381  —  —  —  10,024 
Doubtful —  —  —  —  —  —  —  —  — 
Total 8,129  110,019  27,990  40,185  18,297  5,780  528,162  127,946  866,508 
Auto & Consumer
Pass 23,410  112,951  102,304  49,748  27,359  12,837  —  —  328,609 
Special Mention —  63  62  38  —  3  —  —  166 
Substandard —  361  593  270  75  19  —  —  1,318 
Doubtful —  —  —  —  —  —  —  —  — 
Total 23,410  113,375  102,959  50,056  27,434  12,859  —  —  330,093 
Other
Pass —  165,189  —  1,940  959  1,573  —  —  169,661 
Special Mention —  —  —  —  —  —  —  —  — 
Substandard —  10,587  —  —  —  —  —  —  10,587 
Doubtful —  —  —  —  —  —  —  —  — 
Total —  175,776  —  1,940  959  1,573  —  —  180,248 
Total
Pass 674,618  3,122,027  1,905,938  1,220,715  807,274  1,274,189  1,370,220  127,946  10,502,927 
Special Mention —  35,573  59,890  45,441  30,488  10,379  26,217  —  207,988 
Substandard —  83,519  91,937  73,452  21,537  73,818  —  —  344,263 
Doubtful —  —  —  —  —  —  —  —  — 
Total 674,618  3,241,119  2,057,765  1,339,608  859,299  1,358,386  1,396,437  127,946  11,055,178 
As a % of total gross loans and leases 6.10  % 29.32  % 18.61  % 12.12  % 7.77  % 12.29  % 12.63  % 1.16  % 100.0  %

The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses - loans. The Company also evaluates credit quality based on the aging status of its loans and leases. During the year, the Company holds certain short-term loans that do not have a fixed maturity date that are treated as delinquent if not paid in full 90 days after the origination date.
The Company has taken proactive measures to manage loans that became delinquent during the recent economic downturn as a result of the COVID-19 pandemic. As of September 30, 2020, the Company provided no forbearance nor deferrals of payment obligations on any single family, multifamily and commercial mortgage loans, warehouse loans, commercial real estate loans. For non-real estate commercial and industrial loans, the Company provided three lessor with outstanding balances totaling $10.0 million with a short-term interest-only payment option that expires October 1, 2020. Deferrals totaling $0.9 million of auto and consumers loans were granted during the quarter ended September 30, 2020. No other forbearance or deferrals were provided to non-real estate commercial and industrial and auto and consumer borrowers.
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The following tables provide the outstanding unpaid balance of loans and leases that are past due 30 days or more by portfolio class as of the dates indicated:
September 30, 2020
(Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due 90+ Days Past Due Total
Single Family-Mortgage & Warehouse $ 32,615  $ 22,618  $ 111,528  $ 166,761 
Multifamily and Commercial Mortgage 4,394  1,009  24,500  29,903 
Commercial Real Estate —  —  —  — 
Commercial & Industrial - Non-RE —  —  —  — 
Auto & Consumer 1,236  195  563  1,994 
Other —  —  —  — 
Total $ 38,245  $ 23,822  $ 136,591  $ 198,658 
As a % of total gross loans and leases 0.35  % 0.22  % 1.24  % 1.80  %

June 30, 2020
(Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due 90+ Days Past Due Total
Single Family-Mortgage & Warehouse $ 17,931  $ 23,115  $ 66,813  $ 107,859 
Multifamily and Commercial Mortgage 7,744  5,287  —  13,031 
Commercial Real Estate —  —  —  — 
Commercial & Industrial - Non-RE —  —  —  — 
Auto & Consumer 973  166  326  1,465 
Other —  —  —  — 
Total $ 26,648  $ 28,568  $ 67,139  $ 122,355 
As a % of total gross loans and leases 0.25  % 0.27  % 0.63  % 1.13  %

Allowance for Credit Losses
The allowance for credit losses is the sum of the allowance for credit losses - loans and the unfunded loan commitment liabilities. Unfunded loan commitment liabilities is included in “Accounts payable, accrued liabilities and other liabilities” in the unaudited Condensed Consolidated Balance Sheets.
The following tables present a summary of the activity in the allowance for credit losses for the periods indicated:
Three Months Ended September 30, 2020
(Dollars in thousands) Allowance for Credit Losses - Loans Unfunded Loan Commitment Liabilities Total Allowance for Credit Losses
Balance at July 1, 2020 $ 75,807  $ 323  $ 76,130 
Effect of Adoption of ASC 326
47,300  5,700  53,000 
Provision for Credit Losses 11,800  700  12,500 
Charge-offs (2,438) —  (2,438)
Recoveries 446  —  446 
Balance at September 30, 2020 $ 132,915  $ 6,723  $ 139,638 

Three Months Ended September 30, 2019
(Dollars in thousands) Allowance for Credit Losses - Loans Unfunded Loan Commitment Liabilities Total Allowance for Credit Losses
Balance at July 1, 2019 $ 57,085  $ 227  $ 57,312 
Provision for Credit Losses 2,700  —  2,700 
Charge-offs (1,077) —  (1,077)
Recoveries 519  —  519 
Balance at September 30, 2019 $ 59,227  $ 227  $ 59,454 


5.    SUBORDINATED NOTES
In September 2020, the Company completed the sale of $175.0 million aggregate principal amount of its 4.875% Fixed-to-Floating Rate Subordinated Notes due October 1, 2030 (the “Notes”). The Notes mature on October 1, 2030 and will accrue
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interest at a fixed rate per annum equal to 4.875%, payable semi-annually in arrears on April 1 and October 1 of each year, commencing on April 1, 2021. From and including October 1, 2025, to, but excluding October 1, 2030 or the date of early redemption, the Notes will bear interest at a floating rate per annum equal to a benchmark rate (which is expected to be the Three-Month Term Secured Overnight Financing Rate) plus a spread of 476 basis points, payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, commencing on January 2026. The Notes may be redeemed on or after October 1, 2025, which date may be extended at the Company’s discretion, at a redemption price equal to principal plus accrued and unpaid interest, subject to certain conditions. Fees and costs incurred in connection with the debt offering will be amortized to interest expense over the term of the Notes.

6.    EQUITY AND STOCK-BASED COMPENSATION
    Common Stock Repurchases. On March 17, 2016, the Board of Directors of the Company (the “Board”), authorized a program to repurchase up to $100 million of common stock and extended the program by $100 million on August 2, 2019. The Company may repurchase shares on the open market or through privately negotiated transactions at times and prices considered appropriate, at the discretion of the Company, and subject to its assessment of alternative uses of capital, stock trading price, general market conditions and regulatory factors. The repurchase program does not obligate the Company to acquire any specific number of shares. The share repurchase program will continue in effect until terminated by the Board. With the March 17, 2016 authorization the Company repurchased a total of $100 million or 3,567,051 common shares at an average price of $28.03 per share. With the August 2, 2019 authorization, the Company has repurchased a total of $43.2 million or 2,228,505 common shares at an average price of $19.39 per share and there remains $56.8 million under the plan. During the three months ended September 30, 2020, the Company repurchased a total of $12.7 million, or 582,249 common shares at an average price of $21.89 per share. The Company has $56.8 million remaining under the Board authorized stock repurchase program. The Company accounts for treasury stock using the cost method as a reduction of stockholders’ equity in the accompanying unaudited condensed consolidated financial statements.
    Restricted Stock Units. During the three months ended September 30, 2020 and 2019, the Company granted 435,381 and 375,077 restricted stock unit awards (“RSUs”) to employees and directors, respectively. RSUs granted during these quarters generally vest over three years, one-third on each anniversary date, except for any RSUs granted to the Company’s CEO, which vest one-fourth on each fiscal year end.
    The Company’s income before income taxes and net income for the three months ended September 30, 2020 and 2019 include stock award expense of $4,415 and $4,961, with total income tax benefit of $1,328 and $1,391, respectively. The Company recognizes compensation expense based upon the grant-date fair value divided by the vesting and the service period between each vesting date. At September 30, 2020, unrecognized compensation expense related to non-vested awards aggregated to $31,427 and is expected to be recognized in future periods as follows:
(Dollars in thousands) Stock Award
Compensation
Expense
For the fiscal year remainder:
2021 $ 16,245 
2022 9,912 
2023 3,500 
2024 1,338 
2025 331 
Thereafter 101 
Total $ 31,427 

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    The following table presents the status and changes in restricted stock units for the periods indicated:
Restricted
Stock Units 		Weighted-Average
Grant-Date
Fair Value
Non-vested balance at June 30, 2019 1,546,848  $ 30.73 
Granted 714,569  24.05 
Vested (693,660) 28.52 
Canceled (122,217) 29.10 
Non-vested balance at June 30, 2020 1,445,540  $ 28.62 
Granted 435,381  24.75 
Vested (281,482) 28.90 
Canceled (48,040) 26.92 
Non-vested balance at September 30, 2020 1,551,399  $ 27.54 
    The total fair value of shares vested for the three months ended September 30, 2020 was $6,602. The total fair value of shares vested for the three months ended September 30, 2019 was $7,183.
7.    EARNINGS PER COMMON SHARE
    Earnings per common share (“EPS”) are presented under two formats: basic EPS and diluted EPS. Basic EPS is computed by dividing the net income attributable to common stock (net income after deducting dividends on preferred stock) by the sum of the weighted-average number of common shares outstanding during the year and the unvested average of participating RSUs. Diluted EPS is computed by dividing the sum of net income attributable to common stock and dividends on diluted preferred stock by the sum of the weighted-average number of common shares outstanding during the year and the impact of dilutive potential common shares, such as nonparticipating RSUs, stock options and convertible preferred stock.
    The Company accounts for unvested stock-based compensation awards containing non-forfeitable rights to dividends or dividend equivalents (collectively, “dividends”) as participating securities and includes the awards in the EPS calculation using the two-class method. The Company had granted restricted stock units under the 2004 Stock Incentive Plan to certain directors and employees, which entitle the recipients to receive non-forfeitable dividends during the vesting period on a basis equivalent to the dividends paid to holders of common stock. These unvested awards meet the definition of participating securities. Under the two class method, all earnings (distributed and undistributed) are allocated to each class of common stock and participating securities, based on their respective rights to receive dividends. Under the 2014 Stock Incentive Plan, RSUs have no stockholder rights, meaning they are not entitled to dividends and are considered nonparticipating. These nonparticipating RSUs are not included in the basic EPS calculation and are included in the diluted EPS calculation using the treasury stock method.
The following table presents the calculation of basic and diluted EPS:
Three Months Ended
September 30,
(Dollars in thousands, except per share data) 2020 2019
Earnings Per Common Share
Net income $ 53,022  $ 40,786 
Preferred stock dividends (77) (77)
Net income attributable to common stockholders $ 52,945  $ 40,709 
Average common shares outstanding 59,509,320  61,246,664 
Total qualifying shares 59,509,320  61,246,664 
Earnings per common share $ 0.89  $ 0.66 
Diluted Earnings Per Common Share
Dilutive net income attributable to common stockholders $ 52,945  $ 40,709 
Average common shares issued and outstanding 59,509,320  61,246,664 
Dilutive effect of average unvested RSUs 417,464  532,861 
Total dilutive common shares outstanding 59,926,784  61,779,525 
Diluted earnings per common share $ 0.88  $ 0.66 

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8.    COMMITMENTS AND CONTINGENCIES
COVID-19 Impact. The Company is closely monitoring the rapid developments of and uncertainties caused by the COVID-19 pandemic. In response to the changes in economic and business conditions as a result of the COVID-19 pandemic, the Company has taken the following actions to support customers, employees, partners and shareholders:
•Actively communicating with borrowers and partners to assess individual needs;
•Participating as a lender in the Paycheck Protection Program (PPP) and evaluating various components of the CARES Act applicability to the Company;
•Provided secure and efficient remote work options for our team members;
•Increasing provisions for credit losses as a result of a weakening economy and reduced business activities;
•Tightening underwriting standards;
•Reallocated personnel to increase resources for customer service and portfolio management; and
•Limiting business travel.
Under the guidelines set forth in the CARES Act, the Company had provided certain borrowers the ability to delay or make interest-only payments. As of September 30, 2020, the Company is no longer allowing delayed or interest-only payments.
Operating Leases. The Company leases office space under operating lease agreements scheduled to expire at various dates. The following table represents maturities of lease liabilities as of September 30, 2020 in the corresponding fiscal years:
(Dollars in thousands)
Remainder of 2021 $ 7,043 
2022 9,548 
2023 9,820 
2024 9,422 
2025 8,791 
Thereafter 41,968 
Total lease payments 86,592 
Less: present value discount (11,030)
Total Lease Liability $ 75,562 

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, 2020, the Company had commitments to originate $105.0 million in fixed rate loans and leases and $562.2 million in variable rate loans, totaling an aggregate outstanding principal balance of $667.2 million. For September 30, 2020, the Company’s fixed rate commitments to originate had a weighted-average rate of 2.76%. At September 30, 2020, the Company also had commitments to sell $170.7 million in fixed rate loans and $0 in variable rate loans, totaling an aggregate outstanding principal balance of $170.7 million.
Commitments to extend credit are agreements to lend to a customer so long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for equity lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.
In the normal course of business, Axos Clearing’s customer activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose Axos Clearing to off-balance-sheet risk in the event the customer or other broker is unable to fulfill its contracted obligations and Axos Clearing has to purchase or sell the financial instrument underlying the contract at a loss. Axos Clearing’s clearing agreements with broker-dealers for which it provides clearing services requires them to indemnify Axos Clearing if customers fail to satisfy their contractual obligation.
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Litigation. On October 15, 2015, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a putative class action lawsuit styled Golden v. BofI Holding, Inc., et al, and brought in United States District Court for the Southern District of California (the “Golden Case”). On November 3, 2015, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a second putative class action lawsuit styled Hazan v. BofI Holding, Inc., et al, and also brought in the United States District Court for the Southern District of California (the “Hazan Case”). On February 1, 2016, the Golden Case and the Hazan Case were consolidated as In re BofI Holding, Inc. Securities Litigation, Case #: 3:15-cv-02324-GPC-KSC (the “Class Action”), and the Houston Municipal Employees Pension System was appointed lead plaintiff. The plaintiffs allege that the Company and other named defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by failing to disclose wrongful conduct that was alleged in a complaint filed in connection with a wrongful termination of employment lawsuit filed on October 13, 2015 (the “Employment Matter”) and that as a result the Company’s statements regarding its internal controls, as well as portions of its financial statements, were false and misleading. On March 21, 2018, the Court entered a final order dismissing the Class Action with prejudice. Subsequently, the plaintiff appealed, the Court overturned the dismissal and the Company filed a petition for a rehearing.
On April 3, 2017, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a putative class action lawsuit styled Mandalevy v. BofI Holding, Inc., et al, and brought in United States District Court for the Southern District of California (the “Mandalevy Case”). The Mandalevy Case seeks monetary damages and other relief on behalf of a putative class that has not been certified by the Court. The complaint in the Mandalevy Case (the “Mandalevy Complaint”) alleges a class period that differs from that alleged in the First Class Action, and that the Company and other named defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by failing to disclose wrongful conduct that was alleged in a March 2017 media article. The Mandalevy Case has not been consolidated into the First Class Action. On December 7, 2018, the Court entered a final order granting the defendants’ motion and dismissing the Mandalevy Case with prejudice. Subsequently, the plaintiff filed a notice of appeal and opening brief, the Company filed its answering brief, arguments in the appeal occurred and the Court has taken the matter under advisement and has yet to issue its ruling.
The Company and the other named defendants dispute the allegations of wrongdoing advanced by the plaintiffs in the Class Action, the Mandalevy Case, and in the Employment Matter, as well as those plaintiffs’ statement of the underlying factual circumstances, and are vigorously defending each case.
In addition to the First Class Action and the Mandalevy Case, two separate shareholder derivative actions were filed in December, 2015, purportedly on behalf of the Company. The first derivative action, Calcaterra v. Garrabrants, et al, was filed in the United States District Court for the Southern District of California on December 3, 2015. The second derivative action, Dow v. Micheletti, et al, was filed in the San Diego County Superior Court on December 16, 2015. A third derivative action, DeYoung v. Garrabrants, et al, was filed in the United States District Court for the Southern District of California on January 22, 2016, a fourth derivative action, Yong v. Garrabrants, et al, was filed in the United States District Court for the Southern District of California on January 29, 2016, a fifth derivative action, Laborers Pension Trust Fund of Northern Nevada v. Allrich et al, was filed in the United States District Court for the Southern District of California on February 2, 2016, and a sixth derivative action, Garner v. Garrabrants, et al, was filed in the San Diego County Superior Court on August 10, 2017. Each of these six derivative actions names the Company as a nominal defendant, and certain of its officers and directors as defendants. Each complaint sets forth allegations of breaches of fiduciary duties, gross mismanagement, abuse of control, and unjust enrichment against the defendant officers and directors. The plaintiffs in these derivative actions seek damages in unspecified amounts on the Company’s behalf from the officer and director defendants, certain corporate governance actions, and an award of their costs and attorney’s fees.
The United States District Court for the Southern District of California ordered the four above-referenced derivative actions pending before it to be consolidated and appointed lead counsel in the consolidated action. On June 7, 2018, the Court entered an order granting defendant’s motion for judgment on the pleadings, but giving the plaintiffs limited leave to amend by June 28, 2018. The plaintiffs failed to file an amended complaint, and instead plaintiffs filed on June 28, 2018 a motion to stay the case pending resolution of the securities class action and Employment Matter. On August 10, 2018, defendants filed an opposition to plaintiffs’ motion. On September 11, 2018, the plaintiffs filed a second amended complaint. On October 16, 2018, defendants filed a motion to dismiss the second amended complaint. On October 16, 2018, defendants filed a motion to dismiss the second amended complaint. The Court dismissed the second amended complaint with prejudice on May 23, 2019. Subsequently, the plaintiff filed a notice of appeal and opening brief and the Company filed its answering brief. Oral argument was held September 2, 2020 and the Court took the matter under advisement.
The two derivative actions pending before the San Diego County Superior Court have been consolidated and have been stayed by agreement of the parties.
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In view of the inherent difficulty of predicting the outcome of each legal action, particularly since claimants seek substantial or indeterminate damages, it is not possible to reasonably predict or estimate the eventual loss or range of loss, if any, related to each legal action.
9.    RELATED PARTY TRANSACTIONS
    In the ordinary course of business, the Company has granted related party loans collateralized by real property to certain executive officers, directors and their affiliates. There were two new related party loans for approximate amount of $1.0 million funded under the provisions of the employee loan program and no refinances of an existing loan during the three months ended September 30, 2020, and one new loan in the amount of $0.55 million and no refinances of existing loans during the three months ended September 30, 2019.

10.    SEGMENT REPORTING
The operating segments reported below are the segments of the Company for which separate financial information is available and for which segment results are evaluated regularly by the Chief Executive Officer in deciding how to allocate resources and in assessing performance. The Company operates through two operating segments: Banking Business and Securities Business.
Banking Business. The Banking Business includes a broad range of banking services including online banking, concierge banking, prepaid card services, and mortgage, vehicle and unsecured lending through online and telephonic distribution channels to serve the needs of consumer and small businesses nationally. In addition, the Banking Business focuses on providing deposit products nationwide to industry verticals (e.g., Title and Escrow), cash management products to a variety of businesses, and commercial & industrial and commercial real estate lending to clients. The Banking Business also includes a bankruptcy trustee and fiduciary service that provides specialized software and consulting services to Chapter 7 bankruptcy and non-Chapter 7 trustees and fiduciaries.
Securities Business. The Securities Business consists of two sets of products and services: securities services provided to third-party securities firms and investment management provided to consumers.
Securities services include fully disclosed clearing services through Axos Clearing to FINRA- and SEC-registered member firms for trade execution and clearance as well as back office services such as record keeping, trade reporting, accounting, general back-office support, securities and margin lending, reorganization assistance and custody of securities. The Securities Business provides financing to brokerage customers for their securities trading activities through margin loans that are collateralized by securities, cash, or other acceptable collateral. Securities lending activities include borrowing and lending securities with other broker-dealers. These activities involve borrowing securities to cover short sales and to complete transactions in which clients have failed to deliver securities by the required settlement date, and lending securities to other broker dealers for similar purposes.
Investment management includes our digital wealth management business, which provides our retail customers with investment management services through a comprehensive and flexible technology platform.
There are no material inter-segment sales or transfers. The accounting policies used by each reportable segment are the same as those discussed in Note 1 - “Organizations and Summary of Significant Accounting Policies” in our Annual Report on Form 10-K for the year ended June 30, 2020. All costs, except certain corporate administration costs and income taxes, have been allocated to the reportable segments. Therefore, combined amounts agree to the unaudited condensed consolidated totals.
In order to reconcile the two segments to the unaudited condensed consolidated totals, the Company includes parent-only activities and intercompany eliminations. The following tables present the operating results, goodwill, and assets of the segments:
Three Months Ended September 30, 2020
(Dollars in thousands) Banking
Business 		Securities Business Corporate/Eliminations Axos Consolidated
Net interest income $ 123,008  $ 4,894  $ (575) $ 127,327 
Provision for credit losses 11,800  —  —  11,800 
Non-interest income 30,212  5,784  (141) 35,855 
Non-interest expense 61,217  11,352  2,977  75,546 
Income before taxes $ 80,203  $ (674) $ (3,693) $ 75,836 
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Three Months Ended September 30, 2019
(Dollars in thousands) Banking
Business 		Securities Business Corporate/Eliminations Axos Consolidated
Net interest income $ 99,472  $ 5,146  $ (1,315) $ 103,303 
Provision for credit losses 2,700  —  —  2,700 
Non-interest income 15,790  6,401  (655) 21,536 
Non-interest expense 50,633  11,064  3,770  65,467 
Income before taxes $ 61,929  $ 483  $ (5,740) $ 56,672 
As of September 30, 2020
(Dollars in thousands) Banking Business Securities Business Corporate/Eliminations Axos Consolidated
Goodwill $ 35,721  $ 35,501  $ —  $ 71,222 
Total Assets $ 12,426,063  $ 864,098  $ 92,077  $ 13,382,238 
As of June 30, 2020
(Dollars in thousands) Banking Business Securities Business Corporate/Eliminations Axos Consolidated
Goodwill $ 35,721  $ 35,501  $ —  $ 71,222 
Total Assets $ 13,018,814  $ 737,419  $ 95,667  $ 13,851,900 
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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides information about the results of operations, financial condition, liquidity, off balance sheet items, contractual obligations and capital resources of Axos Financial, Inc. and subsidiaries (the “Company”). This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of our operations. This discussion and analysis should be read in conjunction with our financial information in our Annual Report on Form 10-K for the year ended June 30, 2020, and the interim unaudited condensed consolidated financial statements and notes thereto contained in this report.
Some matters discussed in this report may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as such, may involve risks and uncertainties. These forward-looking statements can be identified by the use of terminology such as “estimate,” “project,” “anticipate,” “expect,” “intend,” “believe,” “will,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. These forward-looking statements relate to, among other things, the effects on our business of the current novel coronavirus pandemic (“COVID-19”), the Company’s financial prospects and other projections of its performance and asset quality, our ability to continue to grow profitably and increase its business, our ability to continue to diversify lending and deposit franchises, and the anticipated timing and financial performance of other offerings, initiatives, and acquisitions, expectations of the environment in which we operate and projections of future performance. Forward-looking statements are inherently unreliable and actual results may vary. Factors that could cause actual results to differ from these forward-looking statements include uncertainties surrounding the severity, duration, and effects of the COVID-19 pandemic, our ability to successfully integrate acquisitions and realize the anticipated benefits of the transactions, changes in the interest rate environment, inflation, government regulation, general economic conditions, changes in the competitive marketplace, conditions in the real estate markets in which we operate, risks associated with credit quality, the outcome and effects of pending class action litigation filed against the Company and other risk factors discussed under the heading “Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 and in our Annual Report on Form 10-K for the year ended June 30, 2020, which has been filed with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All written and oral forward-looking statements made in connection with this report, which are attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing information.
General
Our Company, the holding company for Axos Bank (the “Bank”), is a diversified financial services company with approximately $13.4 billion in assets that provides consumer and business banking products through its online, low-cost distribution channels and affinity partners. Our Bank has deposit and loan and lease customers nationwide including consumer and business checking, savings and time deposit accounts and financing for single family and multifamily residential properties, small-to-medium size businesses in target sectors, and automobiles. Our Bank generates fee income from consumer and business products including fees from loans originated for sale and transaction fees earned from processing payment activity. Our wholly-owned subsidiaries, Axos Clearing LLC (“Axos Clearing”) and Axos Invest, Inc. (“Axos Invest”), generate interest and fee income by providing comprehensive securities clearing services to introducing broker-dealers and registered investment advisor correspondents and digital investment advisory services to retail investors, respectively. Axos Financial, Inc.’s common stock is listed on the New York Stock Exchange and is a component of the Russell 2000® Index and the S&P SmallCap 600® Index.
Our Bank is a federal savings bank wholly-owned by our Company and regulated by the Office of the Comptroller of the Currency (“OCC”), and the Federal Deposit Insurance Corporation (“FDIC”) as its deposit insurer. The Bank must file reports with the OCC and the FDIC concerning its activities and financial condition. As a depository institution with more than $10 billion in assets, our Bank and our affiliates are subject to direct supervision by the Consumer Financial Protection Bureau (“CFPB”).
Axos Clearing is a broker-dealer registered with the SEC and the Financial Industry Regulatory Authority, Inc. (“FINRA”). Axos Invest is a Registered Investment Advisor under the Investment Advisers Act of 1940, that is registered with the SEC, and Axos Invest LLC is an introducing broker-dealer that is registered with the SEC and FINRA.
We distribute our deposit products through a wide range of retail distribution channels, and our deposits consist of demand, savings and time deposits accounts. We distribute our loan products through our retail, correspondent and wholesale channels, and the loans we retain are primarily first mortgages secured by single family real property and by multifamily real property as well as commercial & industrial loans to businesses. Our mortgage-backed securities consist of mortgage pass-through securities issued by government-sponsored entities and non-agency collateralized mortgage obligations and asset-backed mortgage-backed securities issued by private sponsors. We believe our flexibility to adjust our asset generation channels has been a competitive advantage
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Table of Contents
allowing us to avoid markets and products where credit fundamentals are poor or risks and rewards are not sufficient to support our required return on equity.
Segment Information
The Company determines reportable segments based on what separate financial information is available and what segment results are evaluated regularly by the Chief Executive Officer in deciding how to allocate resources and in assessing performance. We operate through two segments: Banking Business and Securities Business.
Banking Business. The Banking Business includes a broad range of banking services including online banking, concierge banking, prepaid card services, and mortgage, vehicle and unsecured lending through online and telephonic distribution channels to serve the needs of consumer and small businesses nationally. In addition, the Banking Business focuses on providing deposit products nationwide to industry verticals (e.g., Title and Escrow), cash management products to a variety of businesses, and commercial & industrial and commercial real estate lending to clients. The Banking Business also includes a bankruptcy trustee and fiduciary service that provides specialized software and consulting services to Chapter 7 bankruptcy and non-Chapter 7 trustees and fiduciaries.
Securities Business. The Securities Business consists of two sets of products and services, securities services provided to third-party securities firms and investment management provided to consumers.
Securities services includes fully disclosed clearing services through Axos Clearing to FINRA- and SEC-registered member firms for trade execution and clearance as well as back office services such as record keeping, trade reporting, accounting, general back-office support, securities and margin lending, reorganization assistance and custody of securities. We provide financing to our brokerage customers for their securities trading activities through margin loans that are collateralized by securities, cash, or other acceptable collateral. Securities lending activities include borrowing and lending securities with other broker-dealers. These activities involve borrowing securities to cover short sales and to complete transactions in which clients have failed to deliver securities by the required settlement date, and lending securities to other broker dealers for similar purposes.
Investment management includes our digital wealth management business, which provides our retail customers with investment management services through a comprehensive and flexible technology platform.
Segment results are compiled based upon the management reporting system, which assigns balance sheet and income statement items to each of the business segments. The process is designed around the organizational and management structure and, accordingly, the results derived are not necessarily comparable with similar information published by other financial institutions or in accordance with generally accepted accounting principles.
The Company evaluates performance and allocates resources based on profit or loss from operations. There are no material inter-segment sales or transfers. Certain corporate administration costs and income taxes have not been allocated to the reportable segments. Therefore, in order to reconcile the two segments to the unaudited condensed consolidated totals, we include parent-only activities and intercompany eliminations.
COVID-19 Impact
We are closely monitoring the rapid developments of and uncertainties caused by the COVID-19 pandemic. In response to the changes in economic and business conditions as a result of the COVID-19 pandemic, we have taken the following actions to support customers, employees, partners and shareholders:
•Actively communicating with borrowers and partners to assess individual needs;
•Participating as a lender in the Paycheck Protection Program (PPP) and evaluating various components of the CARES Act applicability to the Company;
•Provided secure and efficient remote work options for our team members;
•Increasing provisions for credit losses as a result of a weakening economy and reduced business activities;
•Tightening underwriting standards;
•Reallocated personnel to increase resources for customer service and portfolio management; and
•Limiting business travel.

Under the guidelines set forth in the CARES Act, for our borrowers who are one or less payments past due on April 1, 2020, we may delay payments for an agreed upon timeframe, depending on each individual borrower’s characteristics. The Company has taken proactive measures to manage loans that became delinquent during the recent economic downturn as a result of the COVID-19 pandemic. As of September 30, 2020, the Company provided no forbearance nor deferrals of payment obligations on any single family, multifamily and commercial mortgage loans, warehouse loans, commercial real estate loans. For non-real estate
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commercial and industrial loans, the Company provided three lessors with outstanding balances totaling $10.0 million with a short-term interest-only payment option that expires October 1, 2020. Deferrals totaling $0.9 million of auto and consumers loans were granted during the quarter ended September 30, 2020. No other forbearance or deferrals were provided to non-real estate commercial and industrial and auto and consumer borrowers.
Mergers and Acquisitions
From time to time we undertake acquisitions or similar transactions consistent with our Company’s operating and growth strategies. There were no transactions during the quarter ended September 30, 2020, nor the year ended June 30, 2020.
Critical Accounting Policies
The following discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements and the notes thereto, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited condensed consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the unaudited condensed consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various factors and circumstances. We believe that our estimates and assumptions are reasonable under the circumstances. However, actual results may differ significantly from these estimates and assumptions that could have a material effect on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods.
Except as discussed below, there have been no changes to our significant accounting policies and practices as described in greater detail in Note 1 to our June 30, 2020 audited consolidated financial statements and under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended June 30, 2020.
Allowance for Credit Losses. On July 1, 2020, we adopted ASC 326. The allowance for credit losses is maintained at a level needed to absorb expected credit losses over the contractual life, considering the effects of prepayments, of the loan portfolio as of the reporting date. Determining the adequacy of the allowance is complex and requires judgment by our management team about the effect of matters that are inherently uncertain. As such, a future assessment of current conditions may require material adjustments to the allowance.
Our process for determining expected life-time credit losses entails a loan-level, model-based approach and requires consideration of a broad range of relevant information relating to historical loss experience, current economic conditions and reasonable and supportable forecasts.
A credit loss is estimated for all loans. Consequently, we stratify the full loan population into segments sharing similar characteristics to perform the evaluation of the credit loss collectively.
We define a segment as the level at which we develop a systematic methodology to determine the allowance for credit losses. Additionally, we can further stratify loans of similar type, risk attributes and methods for monitoring credit risk. We categorize the loan portfolio into six segments: Single Family - Mortgage & Warehouse, Multifamily and Commercial Mortgage, Commercial Real Estate, Commercial & Industrial - Non Real Estate, Auto & Consumer and Other – refer to Note 4 – “Loans & Allowance for Credit Losses” for further detail of the segments and classes within.

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

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

Qualitative criteria we consider includes, among other things, the following:
•Regulatory and Legal - matters that may impact the timeliness and/or amounts of repayments;
•Concentration - portfolio composition and loan concentration;
•Collateral Dependency - changes in collateral values;
•Lending/Underwriting Standards - current lending policies and the effects of any new policies;
•Nature and Volume - loan production volume and mix;
•Loan Trends - credit performance trends, including a borrower’s financial condition and credit rating.

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On a quarterly basis, our management team convenes a Credit Review meeting in which current information and trends are collectively assessed to forecast future economic impact for purposes of assessing the adequacy of the ACL. The forecasted direction and magnitude of change with respect to future economic conditions is then assessed against the estimate in the model.
For further information on the Allowance for Credit Losses, refer to Note 1 - “Summary of Significant Accounting Policies”.

USE OF NON-GAAP FINANCIAL MEASURES
In addition to the results presented in accordance with GAAP, this report includes non-GAAP financial measures such as adjusted earnings, adjusted earnings per common share, and tangible book value per common share. Non-GAAP financial measures have inherent limitations, may not be comparable to similarly titled measures used by other companies and are not audited. Readers should be aware of these limitations and should be cautious as to their reliance on such measures. Although we believe the non-GAAP financial measures disclosed in this report enhance investors’ understanding of our business and performance, these non-GAAP measures should not be considered in isolation, or as a substitute for GAAP basis financial measures.
We define “adjusted earnings”, a non-GAAP financial measure, as net income without the after-tax impact of non-recurring acquisition-related costs (including amortization of intangible assets related to acquisitions), and other costs (unusual or non-recurring charges). Adjusted earnings per diluted common share (“adjusted EPS”), a non-GAAP financial measure, is calculated by dividing non-GAAP adjusted earnings by the average number of diluted common shares outstanding during the period. We believe the non-GAAP measures of adjusted earnings and adjusted EPS provide useful information about the Bank’s operating performance. We believe excluding the non-recurring acquisition related costs, and other costs provides investors with an alternative understanding of Axos’ business without these non-recurring costs.
Below is a reconciliation of net income, the nearest compatible GAAP measure, to adjusted earnings and adjusted EPS (Non-GAAP) for the periods shown:
Three Months Ended
September 30,
(Dollars in thousands, except per share amounts) 2020 2019
Net income $ 53,022  $ 40,786 
Acquisition-related costs
2,602  1,647 
Income taxes (783) (462)
Adjusted earnings (Non-GAAP) $ 54,841  $ 41,971 
Adjusted EPS (Non-GAAP) $ 0.91  $ 0.68 

    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) 2020 2019
Total stockholders’ equity $ 1,236,965  $ 1,116,240 
Less: preferred stock 5,063  5,063 
Common stockholders’ equity 1,231,902  1,111,177 
Less: mortgage servicing rights, carried at fair value 12,130  10,632 
Less: goodwill and other intangible assets 122,817  133,147 
Tangible common stockholders’ equity (Non-GAAP) $ 1,096,955  $ 967,398 
Common shares outstanding at end of period 59,215,934  61,287,595 
Tangible book value per common share (Non-GAAP) $ 18.52  $ 15.78 

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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,
2020 		June 30,
2020 		September 30,
2019
Selected Balance Sheet Data:
Total assets 13,382,238  $ 13,851,900  $ 11,770,861 
Loans and leases—net of allowance for credit losses 10,925,450  10,631,349  9,784,217 
Loans held for sale, carried at fair value 89,454  51,995  40,554 
Loans held for sale, lower of cost or fair value 14,729  44,565  2,604 
Allowance for credit losses - loans 132,915  75,807  59,227 
Securities—available-for-sale 203,931  187,627  187,816 
Securities borrowed 263,470  222,368  288,974 
Customer, broker-dealer and clearing receivables 283,125  220,266  295,188 
Total deposits 10,555,658  11,336,694  9,214,525 
Advances from the FHLB 242,500  242,500  492,500 
Borrowings, subordinated notes and debentures
453,843  235,789  133,681 
Securities loaned 315,976  255,945  337,870 
Customer, broker-dealer and clearing payables 369,428  347,614  298,501 
Total stockholders’ equity 1,236,965  1,230,846  1,116,240 
Capital Ratios:
Equity to assets at end of period 9.24  % 8.89  % 9.48  %
Axos Financial, Inc.:
Tier 1 leverage (core) capital to adjusted average assets 8.52  % 8.97  % 8.76  %
Common equity tier 1 capital (to risk-weighted assets) 11.08  % 11.22  % 10.97  %
Tier 1 capital (to risk-weighted assets) 11.13  % 11.27  % 11.02  %
Total capital (to risk-weighted assets) 14.39  % 12.64  % 12.34  %
Axos Bank:
Tier 1 leverage (core) capital to adjusted average assets 8.83  % 9.25  % 9.12  %
Common equity tier 1 capital (to risk-weighted assets) 11.52  % 11.79  % 11.25  %
Tier 1 capital (to risk-weighted assets) 11.52  % 11.79  % 11.25  %
Total capital (to risk-weighted assets) 12.55  % 12.62  % 11.95  %
Axos Clearing, LLC:
Net capital 34,322  34,022  24,979 
Excess capital 28,830  29,450  5,587 
Net capital as a percentage of aggregate debit items 12.50  % 14.88  % 8.94  %
Net capital in excess of 5% aggregate debit items 20,590  22,593  11,012 



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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) 2020 2019
Selected Income Statement Data:
Interest and dividend income $ 149,889  $ 146,345 
Interest expense 22,562  43,042 
Net interest income 127,327  103,303 
Provision for credit losses 11,800  2,700 
Net interest income after provision for credit losses 115,527  100,603 
Non-interest income 35,855  21,536 
Non-interest expense 75,546  65,467 
Income before income tax expense 75,836  56,672 
Income tax expense 22,814  15,886 
Net income $ 53,022  $ 40,786 
Net income attributable to common stock $ 52,945  $ 40,709 
Per Common Share Data:
Net income:
Basic $ 0.89  $ 0.66 
Diluted $ 0.88  $ 0.66 
Adjusted earnings (Non-GAAP)
$ 0.91  $ 0.68 
Book value $ 20.80  $ 18.13 
Tangible book value (Non-GAAP) $ 18.52  $ 15.78 
Weighted average number of common shares outstanding:
     Basic 59,509,320  61,246,664 
     Diluted 59,926,784  61,779,525 
Common shares outstanding at end of period 59,215,934  61,287,595 
Common shares issued at end of period 67,622,935  66,837,037 
Performance Ratios and Other Data:
Loan and lease originations for investment $ 1,330,812  $ 1,461,766 
Loan originations for sale $ 440,804  $ 327,812 
Return on average assets 1.56  % 1.44  %
Return on average common stockholders’ equity 17.26  % 14.85  %
Interest rate spread1
3.62  % 3.35  %
Net interest margin2
3.84  % 3.77  %
Net interest margin2 – Banking Business Segment only
3.91  % 3.83  %
Efficiency ratio3
46.30  % 52.44  %
Efficiency ratio3 – Banking Business Segment only
39.95  % 43.93  %
Asset Quality Ratios:
Net annualized charge-offs to average loans and leases 0.07  % 0.02  %
Non-performing loans to total loans 1.56  % 0.57  %
Non-performing assets to total assets 1.33  % 0.54  %
Allowance for credit losses - loans to total loans held for investment at end of period 1.20  % 0.60  %
Allowance for credit losses - loans to non-performing loans 77.23  % 105.89  %
1     Interest rate spread represents the difference between the annualized weighted average yield on interest-earning assets and the annualized weighted average
rate paid on interest-bearing liabilities.
2    Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
3 Efficiency ratio represents non-interest expense as a percentage of the aggregate of net interest income and non-interest income.
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RESULTS OF OPERATIONS
Comparison of the Three Months Ended September 30, 2020 and 2019
For the three months ended September 30, 2020, we had net income of $53.0 million compared to net income of $40.8 million for the three months ended September 30, 2019. Net income attributable to common stockholders was $52.9 million or $0.88 per diluted share for the three months ended September 30, 2020 compared to net income attributable to common stockholders of $40.7 million or $0.66 per diluted share for the three months ended September 30, 2019.
Other key comparisons between our operating results for the three months ended September 30, 2020 and 2019 are as follows:
•Net interest income increased $24.0 million and our net interest margin increased 7 basis points in the three months ended September 30, 2020 compared to the three months ended September 30, 2019 due to a 20.8% increase in average earning assets and a reduction in the rates paid on interest-bearing demand and savings deposits due to decreases in prevailing deposit rates across the industry.
•Non-interest income increased $14.3 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. The $14.3 million increase in non-interest income for the three months ended September 30, 2020 was primarily the result of an increase in mortgage banking of $16.8 million, partially offset by a decrease of $3.5 million in gain on sale – other, as certain sales of lottery and structured settlement receivables during the three months ended September 30, 2019 did not recur in the three months ended September 30, 2020.
•Non-interest expense increased $10.1 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. The change was primarily driven by increases of $4.4 million in professional services, $2.5 million in FDIC and regulatory fees, $1.9 million in salary and payroll costs due to growth in Bank staffing, partially offset by a decrease of $1.2 million to advertising and promotional costs.
Adjusted earnings and adjusted EPS, non-GAAP measures, which exclude non-cash amortization expenses and non-recurring costs related to mergers and acquisitions expenses, increased 30.7% to $54.8 million and $0.91, for the quarter ended September 30, 2020 compared to $42.0 million and $0.68, respectively, for the quarter ended September 30, 2019.
Net Interest Income
Net interest income for the three months ended September 30, 2020 totaled $127.3 million, an increase of 23.3% compared to net interest income of $103.3 million for the three months ended September 30, 2019. The growth of net interest income for the three months ended September 30, 2020 compared to September 30, 2019 is primarily due to increased average earnings assets from net loan and lease portfolio growth and reduced rates paid on interest-bearing demand and savings deposits, partially offset by reduced yields on interest earning assets.
Total interest and dividend income during the three months ended September 30, 2020 increased 2.4% to $149.9 million, compared to $146.3 million during the three months ended September 30, 2019. The increase in interest and dividend income for the three months ended September 30, 2020 was primarily attributable to the growth in average earning assets from loan and lease originations, partially offset by reduced yields on loans and leases and interest-earning deposits. The average balance of loans and leases increased 13.1% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.
Total interest expense was $22.6 million for the three months ended September 30, 2020, a decrease of $20.5 million or 47.6% as compared with the quarter ended September 30, 2019. The decrease in the average cost of funds rate for the three months ended September 30, 2020 compared to 2019 was primarily due to a 128 basis point decrease in average rates paid on interest-bearing demand and savings deposits due to decreases in prevailing deposit rates across the industry. The decrease in rates was partially offset by growth in interest-bearing liabilities for the three months ended September 30, 2020 compared to 2019.
Net interest margin, defined as annualized net interest income divided by average earning assets, increased by 7 basis points to 3.84% for the three months ended September 30, 2020.
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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,
2020 2019
(Dollars in thousands)
Average
Balance1
Interest
Income/
Expense
Average Yields
Earned/Rates
Paid2
Average
Balance1
Interest
Income/
Expense
Average Yields
Earned/Rates
Paid2
Assets:
Loans and leases3, 4
$ 10,842,218  $ 141,424  5.22  % $ 9,585,454  $ 133,887  5.59  %
Interest-earning deposits in other financial institutions 1,706,582  507  0.12  % 736,482  4,233  2.30  %
Mortgage-backed and other investment securities4
189,631  2,677  5.65  % 209,922  2,582  4.92  %
Securities borrowed and margin lending5
489,565  5,077  4.15  % 419,215  5,342  5.10  %
Stock of the regulatory agencies 20,609  204  3.96  % 20,276  301  5.94  %
Total interest-earning assets 13,248,605  149,889  4.53  % 10,971,349  146,345  5.34  %
Non-interest-earning assets 362,957  379,620 
Total assets $ 13,611,562  $ 11,350,969 
Liabilities and Stockholders’ Equity:
Interest-bearing demand and savings $ 7,052,323  $ 9,091  0.52  % $ 5,185,384  $ 23,361  1.80  %
Time deposits 2,058,540  10,463  2.03  % 2,485,900  15,445  2.49  %
Securities loaned 302,601  124  0.16  % 479,597  286  0.24  %
Advances from the FHLB 242,500  1,372  2.26  % 306,771  1,764  2.30  %
Borrowings, subordinated notes and debentures 256,563  1,512  2.36  % 179,578  2,186  4.87  %
Total interest-bearing liabilities 9,912,527  22,562  0.91  % 8,637,230  43,042  1.99  %
Non-interest-bearing demand deposits 1,903,205  1,453,327 
Other non-interest-bearing liabilities 563,450  164,048 
Stockholders’ equity 1,232,380  1,096,364 
Total liabilities and stockholders’ equity $ 13,611,562  $ 11,350,969 
Net interest income $ 127,327  $ 103,303 
Interest rate spread6
3.62  % 3.35  %
Net interest margin7
3.84  % 3.77  %
1Average balances are obtained from daily data.
2Annualized.
3Loans include loans held for sale, loan premiums and unearned fees.
4Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees. Loan fee income is not significant. Loans and leases include average balances of $27.5 million and $28.2 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 2020 and 2019 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 for the three months ended September 30, 2020 and 2019. 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,
2020 vs 2019
Increase (Decrease) Due to
(Dollars in thousands) Volume Rate Total
Increase
(Decrease)
Increase (decrease) in interest income:
Loans and leases $ 16,793  $ (9,256) $ 7,537 
Interest-earning deposits in other financial institutions 2,502  (6,228) (3,726)
Mortgage-backed and other investment securities (265) 360  95 
Securities borrowed and margin lending 818  (1,083) (265)
Stock of the FHLB, at cost 5  (102) (97)
$ 19,853  $ (16,309) $ 3,544 
Increase (decrease) in interest expense:
Interest-bearing demand and savings $ 6,358  $ (20,628) $ (14,270)
Time deposits (2,401) (2,581) (4,982)
Securities loaned (85) (77) (162)
Advances from the FHLB (362) (30) (392)
Subordinated notes and debentures and other 717  (1,391) (674)
$ 4,227  $ (24,707) $ (20,480)

Provision for Credit Losses
The provision for credit losses was $11.8 million for the three months ended September 30, 2020 compared to $2.7 million for the three months ended September 30, 2019. The increase in the provision was primarily due to additional reserves of $6.5 million on seasonal tax product loans that continue to have delays in collections due to IRS processing delays. Additional contributing factors to the provision for credit losses were loan growth, changes in macroeconomic factors impacting our loss model related to decreased consumer income and a change in the provision for credit losses methodology from the incurred loss model as described under”Critical Accounting Policies.” Provisions for credit losses are charged to income to bring the allowance for credit losses - loans to a level deemed appropriate by management based on the factors discussed under “Financial Condition—Asset Quality and Allowance for Credit Losses - Loans.” On July 1, 2020, the Company adopted ASC 326, adding approximately $53.0 million to the allowance for credit losses. The increase was primarily related to two factors:
•The difference between loss emergence periods previously utilized, as compared to estimating lifetime credit losses as required by ASC 326.
•The lifetime impact of COVID-19 on the Company’s loan and lease portfolio, or more specifically the impact on macroeconomic factors across the loan and lease portfolio, with the largest impacts shown in hospitality and retail real estate loans.
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Non-Interest Income
The following table sets forth information regarding our non-interest income for the periods shown:
For the Three Months Ended
September 30,
(Dollars in thousands) 2020 2019 Inc (Dec)
Prepayment penalty fee income 1,368  1,412  (44)
Gain on sale – other 334  3,822  (3,488)
Mortgage banking income 19,567  2,794  16,773 
Broker-dealer fee income 5,702  5,656  46 
Banking and service fees 8,884  7,852  1,032 
Total non-interest income $ 35,855  $ 21,536  $ 14,319 
Non-interest income increased $14.3 million to $35.9 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. The increase was the result of an increase of $16.8 million in mortgage banking income due to increased origination volume, an increase of $1.0 million in banking and service fees, partially offset by a decrease of $3.5 million in gain on sale – other, as certain sales of lottery receivables in the three months ended September 30, 2019 did not recur in the three months ended September 30, 2020.
Included in gain on sale – other are sales of unsecured and secured consumer and business loans originated through introductions from our third-party partner relationships, for example H&R Block-branded Emerald Advance, and sales of structured settlement annuity and state lottery receivables. We engage in the wholesale and retail purchase of state lottery prize and structured settlement annuity payments. These payments are high credit quality deferred payment receivables having a state lottery commission or investment grade (top two tiers) insurance company payor. The Bank originates contracts for the retail purchase of such payments and classifies these under the category of Other in the loan portfolio. Factoring yields are typically higher than mortgage loan rates. Typically, the gain received upon sale of these payment streams is greater than the gain received from an equivalent amount of mortgage loan sales. Since 2013, pools of structured settlement receivables have been originated for sale depending upon management’s assessment of interest rate risk, liquidity, and offers containing favorable terms and are classified on our balance sheet as loans held for sale. Increased sales on favorable terms during the three months ended September 30, 2019 resulted in an increase in gain on sale from structured settlement annuity and state lottery receivables. Such sales did not recur to the same degree for the three months ended September 30, 2020.

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Non-Interest Expense
    The following table sets forth information regarding our non-interest expense for the periods shown:
For the Three Months Ended
September 30,
(Dollars in thousands) 2020 2019 Inc (Dec)
Salaries and related costs $ 38,623  $ 36,717  $ 1,906 
Data processing 7,928  7,811  117 
Depreciation and amortization 6,186  5,224  962 
Advertising and promotional 2,556  3,790  (1,234)
Professional services 5,999  1,589  4,410 
Occupancy and equipment 3,011  2,838  173 
FDIC and regulator fees 2,692  191  2,501 
Broker-dealer clearing charges 2,257  2,008  249 
Other general and administrative 6,294  5,299  995 
Total non-interest expenses
$ 75,546  $ 65,467  $ 10,079 
Non-interest expense, which is comprised of compensation, data processing, depreciation and amortization, advertising and promotional, professional services, occupancy and equipment, FDIC and regulator fees, broker-dealer clearing charges and other operating expenses, was $75.5 million for the three months ended September 30, 2020, up from $65.5 million for the three months ended September 30, 2019. The increase in non-interest expense for the three months ended September 30, 2020 was primarily due to the expansion of the Bank specifically in areas related to lending and deposits.
Total salaries and related costs increased $1.9 million to $38.6 million for the quarter ended September 30, 2020, compared to $36.7 million for the quarter ended September 30, 2019, due to increased staffing levels to support growth in deposit and lending activities. Our staff increased to 1,108 from 1,021, or 8.5% between September 30, 2020 and 2019.
Data processing expense increased $0.1 million for the three months ended September 30, 2020, compared to the three months ended September 30, 2019. The increase was primarily due to additions enhancements to customer interfaces and the Bank’s core processing system.
Depreciation and amortization expense increased $1.0 million for the three months ended September 30, 2020, compared to the three months ended September 30, 2019. The increase was primarily due to amortization of intangibles and depreciation on lending platform enhancements and infrastructure development.
Advertising and promotional expense decreased $1.2 million for the three months ended September 30, 2020, compared to the three months ended September 30, 2019. The decrease was primarily due to decreased lead generation and deposit marketing costs.
Professional services, which include accounting, consulting and legal fees, increased $4.4 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily attributable to increased legal and consulting fees.
Occupancy and equipment expense increased $0.2 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, due to annual increases in our office space lease agreements.
The cost of our FDIC and OCC standard regulatory charges increased $2.5 million for the three months ended September 30, 2020, compared to the three month period ending September 30, 2019. The increase was due to a small bank assessment credit received from the FDIC during the quarter ended September 30, 2019, which did not recur in 2020. As an FDIC-insured institution, the Bank is required to pay deposit insurance premiums to the FDIC.
Broker-dealer clearing charges increased $0.2 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. The increase was attributable to increased activity in the Securities Business.
Other general and administrative costs increased by $1.0 million for the three months ended September 30, 2020, compared to the three month period ended September 30, 2019 primarily related to costs supporting loan and deposit production.
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Provision for Income Taxes
Income tax expense was $22.8 million for the three months ended September 30, 2020 compared to $15.9 million for three months ended September 30, 2019. Our effective income tax rates (income tax provision divided by net income before income tax) for the three months ended September 30, 2020 and 2019 were 30.08% and 28.03%, respectively. The change in effective income tax rates between periods are primarily the result of changes in tax benefits from stock compensation and reduced tax credits.
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, 2020
(Dollars in thousands) Banking Business Securities Business Corporate/Eliminations Axos Consolidated
Net interest income $ 123,008  $ 4,894  $ (575) $ 127,327 
Provision for credit losses 11,800  —  —  11,800 
Non-interest income 30,212  5,784  (141) 35,855 
Non-interest expense 61,217  11,352  2,977  75,546 
Income before taxes $ 80,203  $ (674) $ (3,693) $ 75,836 
Three Months Ended September 30, 2019
(Dollars in thousands) Banking Business Securities Business Corporate/Eliminations Axos Consolidated
Net interest income $ 99,472  $ 5,146  $ (1,315) $ 103,303 
Provision for credit losses 2,700  —  —  2,700 
Non-interest income 15,790  6,401  (655) 21,536 
Non-interest expense 50,633  11,064  3,770  65,467 
Income before taxes $ 61,929  $ 483  $ (5,740) $ 56,672 
Banking Business
For the three months ended September 30, 2020, we had income before taxes of $80.2 million compared to income before taxes of $61.9 million for the three months ended September 30, 2019. For the three months ended September 30, 2020, the increase in income before taxes was related to increased net interest income due to an increase in average earning assets and a reduction in the rates paid on interest-bearing demand and savings deposits and an increase in non-interest income due to increased mortgage banking income.
We consider the ratios shown in the table below to be key indicators of the performance of our Banking Business segment:
At or for the Three Months Ended
September 30, 2020 September 30, 2019
Efficiency ratio 39.95  % 43.93  %
Return on average assets 1.78  % 1.69  %
Interest rate spread 3.70  % 3.36  %
Net interest margin 3.91  % 3.83  %
Our Banking segment’s net interest margin exceeds our consolidated net interest margin. Our consolidated net interest margin includes certain items that are not reflected in the calculation of our net interest margin within our Banking Business and reduce our consolidated net interest margin, such as the borrowing costs at our Holding Company and the yields and costs associated with certain items within interest-earning assets and interest-bearing liabilities in our Securities Business, including items related to borrowings that particularly decrease net interest margin.
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Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents our Banking segment’s information regarding (i) average balances; (ii) the total amount of interest income from interest-earning assets and the weighted average yields on such assets; (iii) the total amount of interest expense on interest-bearing liabilities and the weighted average rates paid on such liabilities; (iv) net interest income; (v) interest rate spread; and (vi) net interest margin for the three months ended September 30, 2020 and 2019:
  For the Three Months Ended
September 30,
  2020 2019
(Dollars in thousands)
Average
Balance1
Interest
Income/
Expense
Average Yields
Earned/Rates
Paid2
Average
Balance1
Interest
Income/
Expense
Average Yields
Earned/Rates
Paid2
Assets:
Loans and leases3, 4
$ 10,790,869  $ 140,678  5.21  % $ 9,585,445  $ 133,887  5.59  %
Interest-earning deposits in other financial institutions 1,542,335  392  0.10  % 584,336  3,327  2.28  %
Mortgage-backed and other investment securities4
227,081  2,856  5.03  % 208,234  2,581  4.96  %
Stock of the regulatory agencies 17,250  203  4.71  % 17,250  299  6.93  %
Total interest-earning assets 12,577,535  144,129  4.58  % 10,395,265  140,094  5.39  %
Non-interest-earning assets 152,209  —  191,717 
Total assets $ 12,729,744  —  $ 10,586,982 
Liabilities and Stockholders’ Equity: — 
Interest-bearing demand and savings $ 7,099,034  $ 9,155  0.52  % $ 5,205,124  $ 23,413  1.80  %
Time deposits 2,058,540  10,463  2.03  % 2,485,900  15,445  2.49  %
Advances from the FHLB 242,500  1,372  2.26  % 306,771  1,764  2.30  %
Borrowings, subordinated notes and debentures
151,952  132  0.35  % —  —  —  %
Total interest-bearing liabilities 9,552,026  21,122  0.88  % 7,997,795  40,622  2.03  %
Non-interest-bearing demand deposits 1,918,856  1,464,053 
Other non-interest-bearing liabilities 135,467  86,344 
Stockholders’ equity 1,123,395  1,038,790 
Total liabilities and stockholders’ equity $ 12,729,744  $ 10,586,982 
Net interest income $ 123,007  $ 99,472 
Interest rate spread5
3.70  % 3.36  %
Net interest margin6
3.91  % 3.83  %
1Average balances are obtained from daily data.
2Annualized.
3Loans and leases include loans held for sale, loan premiums and unearned fees.
4Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees. Loans and leases include average balances of $27.5 million and $28.2 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 2020 and 2019 three-month periods, respectively.
5Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.
6Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.


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Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table sets forth the effects of changing rates and volumes on our net interest income for our Banking segment. Information is provided with respect to (i) effects on interest income and interest expense attributable to changes in volume (changes in volume multiplied by prior rate); (ii) effects on interest income and interest expense attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) changes in rate/volume (change in rate multiplied by change in volume) for the three months ended September 30, 2020 and 2019:
  For the Three Months Ended
September 30
2020 vs 2019
  Increase (Decrease) Due to
(Dollars in thousands) Volume Rate Total
Increase
(Decrease)
Increase / (decrease) in interest income:
Loans and leases $ 16,230  $ (9,439) $ 6,791 
Interest-earning deposits in other financial institutions 2,170  (5,105) (2,935)
Mortgage-backed and other investment securities 238  37  275 
Stock of the regulatory agencies, at cost —  (96) (96)
$ 18,638  $ (14,603) $ 4,035 
Increase / (decrease) in interest expense:
Interest-bearing demand and savings $ 6,450  $ (20,708) $ (14,258)
Time deposits (2,401) (2,581) (4,982)
Advances from the FHLB (362) (30) (392)
Borrowings, subordinated notes and debentures
—  132  132 
$ 3,687  $ (23,187) $ (19,500)
The Banking segment’s net interest income for the three months ended September 30, 2020 totaled $123.0 million, an increase of 23.7%, compared to net interest income of $99.5 million for the three months ended September 30, 2019. The growth of net interest income for the three months ended September 30, 2020 is primarily due an increase in average loans and leases and lowered funding costs from interest-bearing demand and savings deposits and time deposits.
The Banking segment’s non-interest income increased $14.4 million from $15.8 million to $30.2 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. The $14.4 million increase in non-interest income for the three months ended September 30, 2020, was primarily the result of an increase in mortgage banking income of $16.8 million, a $1.2 million increase in banking and service fees, which was partially offset by a decrease in gain on sale - other of $3.5 million.
The Banking segment’s non-interest expense increased $10.6 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. For the three months ended September 30, 2020 compared to the three months ended September 30, 2019, the $10.6 million increase of non-interest expense was primarily due to a $4.1 million increase of professional services, a $3.2 million increase of salaries and related expenses related to staffing increase to support the overall growth of the Bank, a $2.4 million increase in FDIC and regulatory fees, a $1.4 million increase in other and general expense, a $0.9 million increase of depreciation and amortization, which was partially offset by a decrease of $1.8 million in advertising and promotional expense.
Securities Business
For the three months ended September 30, 2020, our Securities Business segment had a loss before taxes of $0.7 million compared to income before taxes of $0.5 million for the three months ended September 30, 2019.
Net interest income for the three months ended September 30, 2020, decreased $0.2 million to $4.9 million compared to $5.1 million for the three months ended September 30, 2019, primarily as a result of decreases in prevailing market rates. In the Securities Business, interest is earned through margin loan balances, securities borrowed, and cash deposit balances. Interest expense is incurred from cash borrowed through bank lines and securities lending.
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The non-interest income during the three months ended September 30, 2020, was $5.8 million compared to $6.4 million for the three months ended September 30, 2019. Non-interest income consists of $5.7 million in broker-dealer fee income and $0.1 million of service fees for the three months ended September 30, 2020 and of $6.3 million in broker-dealer fee income and $0.1 million of service fees for the three months ended September 30, 2019. The decrease in non-interest income is primarily due to decreased sweep fee income as a result of decreases in prevailing deposit rates, partially offset by increases in trading activity fees.
Non-interest expense increased from $11.1 million for the three months ended September 30, 2019 to $11.4 million for the three months ended September 30, 2020. For the three months ended September 30, 2020, non-interest expense was primarily made up of $4.9 million in salaries and related expenses related to staffing, $2.3 million in broker-dealer clearing charges, $1.4 million in data processing, $1.0 million in professional services and $0.7 million in other and general expense. For the three months ended September 30, 2019, non-interest expense was primarily made up of $4.6 million in salaries and related expenses related to staffing, $2.0 million in broker-dealer clearing charges, $1.4 million in data processing, $1.0 million in professional services and $1.0 million in other and general expense.
Selected information concerning Axos Clearing LLC follows as of or for the three months ended:
September 30,
(Dollars in thousands) 2020 2019
Compensation as a % of net revenue 40.1  % 31.8  %
FDIC insured program balances at banks (end of period) $ 672,822  $ 366,794 
Customer margin balances (end of period) $ 252,867  $ 274,536 
Customer funds on deposit, including short credits (end of period) $ 214,550  $ 127,571 
Clearing:
Total tickets 1,154,422  616,708 
Correspondents (end of period) 60  60 
Securities lending:
Interest-earning assets – stock borrowed (end of period) $ 263,470  $ 288,974 
Interest-bearing liabilities – stock loaned (end of period) $ 315,976  $ 337,870 
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FINANCIAL CONDITION
Balance Sheet Analysis
Our total assets decreased $0.5 billion, or 3.4%, to $13.4 billion, as of September 30, 2020, down from $13.9 billion at June 30, 2020. The decrease in total assets was primarily due to a decrease in cash of $828.4 million, partially offset by an increase of $294.1 million in loans and leases. Total liabilities decreased $0.5 billion, primarily from a decrease in deposits of $781.0 million, partially offset by an increase in borrowings of $218.1 million and an increase in securities loaned of $81.8 million.
Loans
Net loans and leases held for investment increased 2.8% to $10.9 billion at September 30, 2020 from $10.6 billion at June 30, 2020. The increase in the loan and lease portfolio was primarily due to loan and lease originations of $1,330.8 million, partially offset by loan and lease repayments and other adjustments of $1.0 billion and an adjustment of approximately $47.3 million to the allowance for credit losses - loans resulting from the adoption of ASC 326 during the three months ended September 30, 2020.
The following table sets forth the composition of the loan and lease portfolio as of the dates indicated:
September 30, 2020 June 30, 2020
(Dollars in thousands) Amount Percent Amount Percent
Single Family - Mortgage & Warehouse 4,935,351  44.6  % 4,722,304  44.1  %
Multifamily and Commercial Mortgage 2,299,332  20.8  % 2,263,054  21.1  %
Commercial Real Estate 2,443,646  22.1  % 2,297,920  21.5  %
Commercial & Industrial - Non-RE 866,508  7.8  % 885,320  8.3  %
Auto & Consumer 330,093  3.0  % 341,365  3.1  %
Other 180,248  1.7  % 193,479  1.8  %
Total gross loans and leases 11,055,178  100.0  % 10,703,442  100.0  %
Allowance for credit losses - loans (132,915) (75,807)
Unaccreted discounts and loan and lease fees 3,187  3,714 
Total net loans and leases $ 10,925,450  $ 10,631,349 
The Bank originates some single family interest only loans with terms that include repayments that are less than the repayments for fully amortizing loans. The Bank’s lending guidelines for interest only loans are adjusted for the increased credit risk associated with these loans by requiring borrowers with such loans to borrow at LTVs that are lower than standard amortizing ARM loans and by calculating debt to income ratios for qualifying borrowers based upon a fully amortizing payment, not the interest only payment. The Bank monitors and performs reviews of interest only loans. Adverse trends reflected in the Company’s delinquency statistics, grading and classification of interest only loans would be reported to management and the Board of Directors. As of September 30, 2020, the Company had $1.3 billion of interest only mortgage loans.
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Asset Quality and Allowance for Credit Losses - Loans
Non-performing Assets
Non-performing loans are comprised of loans past due 90 days or more on nonaccrual status and other nonaccrual loans. Non-performing assets include non-performing loans plus other real estate owned and repossessed vehicles. At September 30, 2020, our non-performing loans totaled $172.1 million, or 1.56% of total gross loans and our total non-performing assets totaled $178.4 million, or1.33% 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, 2020 June 30, 2020 Inc (Dec)
Non-performing assets:
Non-accrual loans:
Single Family - Mortgage & Warehouse $ 132,926  $ 84,030  48,896 
Multifamily and Commercial Mortgage 32,848  3,425  29,423 
Commercial & Industrial - Non-RE 5,580  213  5,367 
Auto & Consumer 754  273  481 
Total non-performing loans 172,108  87,941  84,167 
Foreclosed real estate 6,114  6,114  — 
Repossessed—Auto and RV 219  294  (75)
Total non-performing assets $ 178,441  $ 94,349  $ 84,092 
Total non-performing loans as a percentage of total loans 1.56  % 0.82  % 0.74  %
Total non-performing assets as a percentage of total assets 1.33  % 0.68  % 0.65  %
Total non-performing assets increased from $94.3 million at June 30, 2020 to $178.4 million at September 30, 2020. The increase in non-performing assets is primarily attributable to single family and multifamily real estate loans. Single family mortgage increased $48.9 million to $132.9 million primarily as a result of loans coming off forbearance temporarily granted due to COVID-19. The Company ended forbearance for all single family mortgage borrowers during the quarter ended September 30, 2020. The weighted average LTV of the non-performing single family mortgage loans is 59.9%. Multifamily mortgage loans increased $29.4 million to $32.8 million as a result of decline on a macroeconomic level. The weighted average LTV of the non-performing multifamily mortgage loans is 57.7%.
The Bank had no performing troubled debt restructurings at September 30, 2020 and June 30, 2020. A troubled debt restructuring is a concession made to a borrower experiencing financial difficulties, typically permanent or temporary modifications of principal and interest payments or an extension of maturity dates. When a loan is delinquent and classified as a troubled debt restructuring no interest is accrued until the borrower demonstrates over time (typically six months) that it can make payments. When a loan is considered a troubled debt restructuring and is on nonaccrual, it is considered non-performing and included in the table above.
Allowance for Credit Losses - Loans
On July 1, 2020, the Company adopted ASC 326. The update replaces the historical incurred loss model to a current expected loss model, resulting generally, in earlier recognition of loss. Refer to Note 1 - Summary of Significant Accounting Policies within this Form 10-Q for the Quarterly Period ended September 30, 2020 for further detail on the accounting adoption along with detail of the processes and approaches involved in determining the allowance for credit losses under the new guidance.
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The following table reflects management’s allocation of the allowance for credit losses - loans by loan category and the ratio of each loan category to total loans as of the dates indicated:
September 30, 2020 June 30, 2020
(Dollars in thousands) Amount
of
Allowance 		Allocation
as a % of
Allowance 		Amount
of
Allowance 		Allocation
as a % of
Allowance
Single Family Real Estate $ 28,307  21.3  % $ 25,901  34.2  %
Multifamily Real Estate 12,419  9.3  % 4,718  6.2  %
Commercial Real Estate 49,198  37.0  % 21,052  27.8  %
Commercial and Industrial - Non-RE 23,295  17.5  % 9,954  13.1  %
Consumer and Auto 8,678  6.5  % 9,461  12.5  %
Other 11,018  8.3  % 4,721  6.2  %
Total $ 132,915  100.0  % $ 75,807  100.0  %

The provision for credit losses was $11.8 million and $2.7 million for the three months ended September 30, 2020 and September 30, 2019, respectively. The increase for the three months ended September 30, 2020 in the provision for credit losses was primarily due to additional reserves of $6.5 million on seasonal tax product loans that continue to have delays in collections due to IRS processing delays. Additional contributing factors to the provision for credit losses were loan growth, changes in macroeconomic factors impacting our loss model related to decreased consumer income and a change in the provision for credit losses methodology from the incurred loss model to a current expected credit loss model as described under “Critical Accounting Policies” and net charge-offs of $2.0 million. 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 $204.4 million as of September 30, 2020, compared with $187.7 million at June 30, 2020. During the three months ended September 30, 2020, we purchased securities for $22.1 million, and received principal repayments of approximately $25.0 million in our available-for-sale portfolio. The remainder of the change for the available-for-sale portfolio is attributable to accretion and other activities.
Deposits
Deposits decreased a net $781.0 million, or 6.9%, to $10,555.7 million at September 30, 2020, from $11,336.7 million at June 30, 2020. Interest bearing deposits decreased $537.4 million and time deposits decreased $333.5 million as higher costing deposits were run off. Non-interest bearing deposits increased $89.8 million, or 4.6%, to $2,026,503 at September 30, 2020, from $1,936,661 at June 30, 2020.
The following table sets forth the composition of the deposit portfolio as of the dates indicated:
September 30, 2020 June 30, 2020
(Dollars in thousands) Amount
Rate1
Amount
Rate1
Non-interest bearing $ 2,026,503  —  % $ 1,936,661  —  %
Interest-bearing:
Demand 3,122,085  0.37  % 3,456,127  0.37  %
Savings 3,493,872  0.49  % 3,697,188  0.78  %
Total interest-bearing demand and savings 6,615,957  0.43  % 7,153,315  0.58  %
Time deposits:
$250 and under2
1,267,403  1.92  % 1,584,034  2.12  %
Greater than $250 645,794  1.26  % 662,684  1.39  %
Total time deposits
1,913,197  1.70  % 2,246,718  1.91  %
Total interest bearing2
8,529,154  0.72  % 9,400,033  0.90  %
Total deposits $ 10,555,657  0.58  % $ 11,336,694  0.75  %
1 Based on weighted-average stated interest rates at end of period.
2 The total interest-bearing includes brokered deposits of $954.9 million and $1,318.0 million as of September 30, 2020 and June 30, 2020, respectively, of which $431.9 million and $603.6 million, respectively, are time deposits classified as $250 and under.
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The following table sets forth the number of accounts by type as of the date indicated:
September 30, 2020 June 30, 2020 September 30, 2019
Non-interest bearing prepaid and other accounts 2,887,751  3,361,965  2,937,407 
Interest-bearing checking and savings accounts 314,774  310,463 308,331 
Time deposits 16,594  18,450 23,798 
Total number of accounts 3,219,119  3,690,878 3,269,536

Borrowings
The following table sets forth the composition of our borrowings and the interest rates at the dates indicated:
September 30, 2020 June 30, 2020 September 30, 2019
(Dollars in thousands) Balance Weighted Average Rate Balance Weighted Average Rate Balance Weighted Average Rate
FHLB Advances 242,500  2.22  % 242,500  2.22  % 492,500  2.17  %
Borrowings, subordinated notes and debentures 453,843  3.14  % 235,789  5.18  % 133,681  4.77  %
Total borrowings $ 696,343  2.82  % $ 478,289  3.68  % $ 626,181  2.72  %
Weighted average cost of borrowings during the quarter 2.30  % 1.26  % 3.25  %
Borrowings as a percent of total assets 5.20  % 3.45  % 5.30  %

At September 30, 2020, total borrowings amounted to $696.3 million, up $218.1 million or 45.59%, from June 30, 2020 and up $70.2 million or 11.20% from September 30, 2019. Borrowings as a percent of total assets were 5.2%, 3.5% and 5.3% at September 30, 2020, June 30, 2020 and September 30, 2019, respectively. Weighted average cost of borrowings during the quarter were 2.30%, 1.26% and 3.25% for the quarters ended September 30, 2020, June 30, 2020 and September 30, 2019, respectively.
In September 2020, the Company completed the sale of $175.0 million aggregate principal amount of its 4.875% Fixed-to-Floating Rate Subordinated Notes due October 1, 2030 (the “Notes”). The Notes mature on October 1, 2030 and will accrue interest at a fixed rate per annum equal to 4.875%, payable semi-annually in arrears on April 1 and October 1 of each year, commencing on April 1, 2021. From and including October 1, 2025, to, but excluding October 1, 2030 or the date of early redemption, the Notes will bear interest at a floating rate per annum equal to a benchmark rate (which is expected to be the Three-Month Term Secured Overnight Financing Rate) plus a spread of 476 basis points, payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, commencing on January 2026. The Notes may be redeemed on or after October 1, 2025, which date may be extended at the Company’s discretion, at a redemption price equal to principal plus accrued and unpaid interest, subject to certain conditions.
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 $6.1 million to $1,237.0 million at September 30, 2020 compared to $1,230.8 million at June 30, 2020. The increase was the result of our net income for the three months ended September 30, 2020 of $53.0 million, stock compensation expense of $1.7 million, a $1.3 million increase in other comprehensive income, net of tax, less a reduction of $0.1 million for dividends declared on preferred stock, $12.7 million for common stock repurchases and an opening day adjustment of $37.1 million for the change to ASC 326 - refer to Note 1 - Summary of Significant Accounting Policies for further detail of the adoption.
During the three months ended September 30, 2020, the Company repurchased a total of $12.7 million, or 582,249 common shares at an average price of $21.89 per share. The Company has $56.8 million remaining under the Board authorized stock repurchase program.
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LIQUIDITY
Cash flow information is as follows:
For the Three Months Ended
September 30,
(Dollars in thousands) 2020 2019
Operating Activities $ 66,291  $ 21,431 
Investing Activities $ (316,103) $ (403,378)
Financing Activities $ (578,546) $ 226,901 
During the three months ended September 30, 2020, we had net cash inflows from operating activities of $66.3 million compared to inflows of $21.4 million for the three months ended September 30, 2019, primarily due to net income for each period. Net operating cash inflows and outflows fluctuate primarily due to the timing of the following: originations of loans held for sale, proceeds from loan sales, securities borrowed and loaned, and customer, broker-dealer and clearing receivables and payables.
Net cash outflows from investing activities totaled $316.1 million for the three months ended September 30, 2020, while outflows totaled $403.4 million for the three months ended September 30, 2019. The decrease in outflows was primarily due to a decrease in originations of loans and leases held for investment, partially offset by reduced proceeds from repayment of securities and increased mortgage warehouse loans activity compared to the three months ended September 30, 2019.
Net cash outflows from financing activities totaled $578.5 million for the three months ended September 30, 2020, compared to net cash inflows from financing activities of $226.9 million for the three months ended September 30, 2019. The change was primarily due to decreased deposits partially offset by the net proceeds of $172.4 million of subordinated notes in the three months ended September 30, 2020.
During the three months ended September 30, 2020, 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, 2020, the Company had $3,040.9 million available immediately and $2,166.6 million available with additional collateral. At September 30, 2020, 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, 2020, the Bank did not have any borrowings outstanding and the amount available from this source was $1,717.0 million. The credit line is collateralized by consumer loans and mortgage-backed securities.
Axos Clearing has a total of $230.0 million uncommitted secured lines of credit available for borrowing as needed. As of September 30, 2020, there was $67.1 million outstanding. These credit facilities bear interest at rates based on the Federal Funds rate and are due upon demand.
Axos Clearing has a $50.0 million committed unsecured line of credit available for limited purpose borrowing. As of September 30, 2020, there was none outstanding. This credit facility bears interest at rates based on the Federal Funds rate and are due upon demand.
We believe our liquidity sources to be stable and adequate for our anticipated needs and contingencies for the next 12 months and beyond. We believe we have the ability to increase our level of deposits and borrowings to address our liquidity needs for the foreseeable future.
OFF-BALANCE SHEET COMMITMENTS
At September 30, 2020, we had commitments to originate loans with an aggregate outstanding principal balance of $667.2 million, and commitments to sell loans with an aggregate outstanding principal balance of $170.7 million. We have no commitments to purchase loans, leases, investment securities or any other unused lines of credit.
In the normal course of business, Axos Clearing’s customer activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose Axos Clearing to off-balance-sheet risk in the event the customer or other broker is unable to fulfill its contracted obligations and Axos Clearing has to purchase or sell the financial instrument underlying the contract at a loss. Axos Clearing’s clearing agreements with broker-dealers for which it provides clearing services requires them to indemnify Axos Clearing if customers fail to satisfy their contractual obligation.
Litigation. On October 15, 2015, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a putative class action lawsuit styled Golden v. BofI Holding, Inc., et al, and brought in United States District
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Court for the Southern District of California (the “Golden Case”). On November 3, 2015, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a second putative class action lawsuit styled Hazan v. BofI Holding, Inc., et al, and also brought in the United States District Court for the Southern District of California (the “Hazan Case”). On February 1, 2016, the Golden Case and the Hazan Case were consolidated as In re BofI Holding, Inc. Securities Litigation, Case #: 3:15-cv-02324-GPC-KSC (the “Class Action”), and the Houston Municipal Employees Pension System was appointed lead plaintiff. The plaintiffs allege that the Company and other named defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by failing to disclose wrongful conduct that was alleged in a complaint filed in connection with a wrongful termination of employment lawsuit filed on October 13, 2015 (the “Employment Matter”) and that as a result the Company’s statements regarding its internal controls, as well as portions of its financial statements, were false and misleading. On March 21, 2018, the Court entered a final order dismissing the Class Action with prejudice. Subsequently, the plaintiff appealed, the Court overturned the dismissal and the Company filed a petition for a rehearing.
On April 3, 2017, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a putative class action lawsuit styled Mandalevy v. BofI Holding, Inc., et al, and brought in United States District Court for the Southern District of California (the “Mandalevy Case”). The Mandalevy Case seeks monetary damages and other relief on behalf of a putative class that has not been certified by the Court. The complaint in the Mandalevy Case (the “Mandalevy Complaint”) alleges a class period that differs from that alleged in the First Class Action, and that the Company and other named defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by failing to disclose wrongful conduct that was alleged in a March 2017 media article. The Mandalevy Case has not been consolidated into the First Class Action. On December 7, 2018, the Court entered a final order granting the defendants’ motion and dismissing the Mandalevy Case with prejudice. Subsequently, the plaintiff filed a notice of appeal and opening brief, the Company filed its answering brief, arguments in the appeal occurred and the Court has taken the matter under advisement and has yet to issue its ruling.
The Company and the other named defendants dispute the allegations of wrongdoing advanced by the plaintiffs in the Class Action, the Mandalevy Case, and in the Employment Matter, as well as those plaintiffs’ statement of the underlying factual circumstances, and are vigorously defending each case.
In addition to the First Class Action and the Mandalevy Case, two separate shareholder derivative actions were filed in December, 2015, purportedly on behalf of the Company. The first derivative action, Calcaterra v. Garrabrants, et al, was filed in the United States District Court for the Southern District of California on December 3, 2015. The second derivative action, Dow v. Micheletti, et al, was filed in the San Diego County Superior Court on December 16, 2015. A third derivative action, DeYoung v. Garrabrants, et al, was filed in the United States District Court for the Southern District of California on January 22, 2016, a fourth derivative action, Yong v. Garrabrants, et al, was filed in the United States District Court for the Southern District of California on January 29, 2016, a fifth derivative action, Laborers Pension Trust Fund of Northern Nevada v. Allrich et al, was filed in the United States District Court for the Southern District of California on February 2, 2016, and a sixth derivative action, Garner v. Garrabrants, et al, was filed in the San Diego County Superior Court on August 10, 2017. Each of these six derivative actions names the Company as a nominal defendant, and certain of its officers and directors as defendants. Each complaint sets forth allegations of breaches of fiduciary duties, gross mismanagement, abuse of control, and unjust enrichment against the defendant officers and directors. The plaintiffs in these derivative actions seek damages in unspecified amounts on the Company’s behalf from the officer and director defendants, certain corporate governance actions, and an award of their costs and attorney’s fees.
The United States District Court for the Southern District of California ordered the four above-referenced derivative actions pending before it to be consolidated and appointed lead counsel in the consolidated action. On June 7, 2018, the Court entered an order granting defendant’s motion for judgment on the pleadings, but giving the plaintiffs limited leave to amend by June 28, 2018. The plaintiffs failed to file an amended complaint, and instead plaintiffs filed on June 28, 2018 a motion to stay the case pending resolution of the securities class action and Employment Matter. On August 10, 2018, defendants filed an opposition to plaintiffs’ motion. On September 11, 2018, the plaintiffs filed a second amended complaint. On October 16, 2018, defendants filed a motion to dismiss the second amended complaint. On October 16, 2018, defendants filed a motion to dismiss the second amended complaint. The Court dismissed the second amended complaint with prejudice on May 23, 2019. Subsequently, the plaintiff filed a notice of appeal and opening brief and the Company filed its answering brief. Oral argument was held September 2, 2020 and the Court took the matter under advisement.
The two derivative actions pending before the San Diego County Superior Court have been consolidated and have been stayed by agreement of the parties.
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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.
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, 2020, reflects the Basel III capital requirements that became effective January 1, 2015 for both our Company and Bank. Under these capital requirements and the regulatory framework for prompt corrective action, our Company and Bank must meet specific capital guidelines that involve quantitative measures of our Company and Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Our Company’s and Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors.
Quantitative measures established by regulation require our Company and Bank to maintain certain minimum capital amounts and ratios. Federal bank regulators require our Company and Bank maintain minimum ratios of core capital to adjusted average assets of 4.0%, common equity tier 1 capital to risk-weighted assets of 4.5%, tier 1 capital to risk-weighted assets of 6.0% and total risk-based capital to risk-weighted assets of 8.0%. To be “well capitalized,” our Company and Bank must maintain minimum leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios of at least 5.0%, 6.5%, 8.0% and 10.0%, respectively. At September 30, 2020, 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, 2020 that would materially adversely change the Company’s and Bank’s capital classifications. From time to time, we may need to raise additional capital to support our Company’s and Bank’s further growth and to maintain their “well capitalized” status.
The Company and Bank elected the CECL 5-year transition guidance for calculating regulatory capital ratios and the September 30, 2020 ratios include this election. This guidance allows an entity to add back to capital 100% of the capital impact from the day one CECL transition adjustment and 25% of subsequent increases to the allowance for credit losses through June 30, 2023. This cumulative amount will then be phased out of regulatory capital over the next three years.
The Company’s and Bank’s estimated capital amounts, capital ratios and capital requirements under Basel III were as follows:
Axos Financial, Inc. Axos Bank “Well 
Capitalized”
Ratio 		Minimum Capital
Ratio
(Dollars in millions) September 30, 2020 June 30,
2020 		September 30, 2020 June 30,
2020
Regulatory Capital:
Tier 1 $ 1,138,102  $ 1,106,393  $ 1,122,398  $ 1,080,455 
Common equity tier 1 $ 1,133,039  $ 1,101,330  $ 1,122,398  $ 1,080,455 
Total capital (to risk-weighted assets) $ 1,470,926  $ 1,240,923  $ 1,205,726  $ 1,156,401 
Assets:
Average adjusted $ 13,359,386  $ 12,333,030  $ 12,532,953  $ 11,679,819 
Total risk-weighted $ 10,223,614  $ 9,817,374  $ 9,608,335  $ 9,160,365 
Regulatory Capital Ratios:
Tier 1 leverage (core) capital to adjusted average assets 8.52  % 8.97  % 8.83  % 9.25  % 5.00  % 4.00  %
Common equity tier 1 capital (to risk-weighted assets) 11.08  % 11.22  % 11.52  % 11.79  % 6.50  % 4.50  %
Tier 1 capital (to risk-weighted assets) 11.13  % 11.27  % 11.52  % 11.79  % 8.00  % 6.00  %
Total capital (to risk-weighted assets) 14.39  % 12.64  % 12.55  % 12.62  % 10.00  % 8.00  %
Basel III implemented a requirement for all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively composed of common equity
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tier 1 capital, and it applies to each of the three risk-based capital ratios but not the leverage ratio. At September 30, 2020, our Company and Bank are in compliance with the capital conservation buffer requirement, which sets the common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratio minimums to 7.0%, 8.5% and 10.5%, respectively.
Securities Business
Pursuant to the net capital requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Axos Clearing, is subject to the SEC Uniform Net Capital (Rule 15c3-1 of the Exchange Act). Under this rule, the Company has elected to operate under the alternate method and is required to maintain minimum net capital of $250,000 or 2% of aggregate debit balances arising from client transactions, as defined. Under the alternate method, the Company may not repay subordinated debt, pay cash distributions, or make any unsecured advances or loans to its parent or employees if such payment would result in net capital of less than 5% of aggregate debit balances or less than 120% of its minimum dollar requirement.
The net capital position of Axos Clearing were as follows:
(Dollars in thousands) September 30, 2020 June 30, 2020
Net capital $ 34,322  $ 34,022 
Excess Capital $ 28,830  $ 29,450 
Net capital as a percentage of aggregate debit items 12.50  % 14.88  %
Net capital in excess of 5% aggregate debit items $ 20,590  $ 22,593 
Axos Clearing as a clearing broker, is subject to SEC Customer Protection Rule (Rule 15c3-3 of the Exchange Act) which requires segregation of funds in a special reserve account for the benefit of customers. At September 30, 2020, the Company had a deposit requirement of $207.0 million and maintained a deposit of $203.4 million. On October 1, 2020, the company made a deposit of $5.9 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, 2020, the Company had a deposit requirement of $10.8 million and maintained a deposit of $11.1 million. On October 1, 2020, the Company made a deposit in the amount of $0.2 million.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We measure interest rate sensitivity as the difference between amounts of interest-earning assets and interest-bearing liabilities that mature or contractually re-price within a given period of time. The difference, or the interest rate sensitivity gap, provides an indication of the extent to which an institution’s interest rate spread will be affected by changes in interest rates. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities and negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. In a rising interest rate environment, an institution with a positive gap would be in a better position than an institution with a negative gap to invest in higher yielding assets or to have its asset yields adjusted upward, which would cause the yield on its assets to increase at a faster pace than the cost of its interest-bearing liabilities. During a period of falling interest rates, however, an institution with a positive gap would tend to have its assets reprice at a faster rate than one with a negative gap, which would tend to reduce the growth in its net interest income.
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Banking Business
The following table sets forth the amounts of interest earning assets and interest bearing liabilities that were outstanding at September 30, 2020 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, 2020
(Dollars in thousands) Six Months or Less Over Six
Months Through
One Year 		Over One
Year Through
Five Years 		Over Five
Years 		Total
Interest-earning assets:
Cash and cash equivalents $ 891,770  $ —  $ —  $ —  $ 891,770 
Securities1
213,627  1,311  8,674  11,055  234,667 
Stock of the regulatory agencies 17,250  —  —  —  17,250 
Loans and leases—net of allowance for credit loss 4,607,192  2,106,877  3,122,932  1,042,242  10,879,243 
Loans held for sale 104,183  —  —  —  104,183 
Total interest-earning assets 5,834,022  2,108,188  3,131,606  1,053,297  12,127,113 
Non-interest earning assets —  —  —  —  298,950 
Total assets $ 5,834,022  $ 2,108,188  $ 3,131,606  $ 1,053,297  $ 12,426,063 
Interest-bearing liabilities:
Interest-bearing deposits $ 1,135,031  $ 6,804,631  $ 721,964  $ 48,484  $ 8,710,110 
Advances from the FHLB 70,000  15,000  97,500  60,000  242,500 
Borrowings, subordinated notes and debentures 260,810  —  —  14,001  274,811 
Total interest-bearing liabilities 1,465,841  6,819,631  819,464  122,485  9,227,421 
Other non-interest-bearing liabilities —  —  —  —  2,049,114 
Stockholders’ equity —  —  —  —  1,149,528 
Total liabilities and equity $ 1,465,841  $ 6,819,631  $ 819,464  $ 122,485  $ 12,426,063 
Net interest rate sensitivity gap $ 4,368,181  $ (4,711,443) $ 2,312,142  $ 930,812  $ 2,899,692 
Cumulative gap $ 4,368,181  $ (343,262) $ 1,968,880  $ 2,899,692  $ 2,899,692 
Net interest rate sensitivity gap—as a % of total interest earning assets 36.02  % (38.85) % 19.07  % 7.68  % 23.91  %
Cumulative gap—as % of total interest earning assets 36.02  % (2.83) % 16.24  % 23.91  % 23.91  %
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, 2020 on the basis of contractual maturities, adjusted for anticipated prepayments of principal and scheduled rate adjustments. The loan and securities prepayment rates reflected herein are based on historical experience. For the non-maturity deposit liabilities, we use decay rates and rate adjustments based upon our historical experience. Actual repayments of these instruments could vary substantially if future experience differs from our historic experience.
Although “gap” analysis is a useful measurement device available to management in determining the existence of interest rate exposure, its static focus as of a particular date makes it necessary to utilize other techniques in measuring exposure to changes in interest rates. For example, gap analysis is limited in its ability to predict trends in future earnings and makes no assumptions about changes in prepayment tendencies, deposit or loan maturity preferences or repricing time lags that may occur in response to a change in the interest rate environment.
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The following table indicates the sensitivity of net interest income movements to parallel instantaneous shocks in interest rates for the future 1-12 months and 13-24 months’ time periods. For purposes of modeling net interest income sensitivity the Bank assumes no growth in the balance sheet other than for retained earnings:
As of September 30, 2020
First 12 Months Next 12 Months
(Dollars in thousands) Net Interest Income Percentage Change from Base Net Interest Income Percentage Change from Base
Up 200 basis points $ 514,976  8.6  % $ 468,724  4.4  %
Base $ 474,128  —  % $ 449,109  —  %
Down 100 basis points $ 471,333  (0.6) % $ 456,018  1.5  %
We attempt to measure the effect market interest rate changes will have on the net present value of assets and liabilities, which is defined as market value of equity. We analyze the market value of equity sensitivity to an immediate parallel and sustained shift in interest rates derived from the current treasury and LIBOR yield curves. For rising interest rate scenarios, the base market interest rate forecast was increased by 100, 200 and 300 basis points. For falling interest rate scenarios, we used a 100 basis point decrease due to limitations inherent in the current rate environment.
The following table indicates the sensitivity of market value of equity to the interest rate movement described above:
As of September 30, 2020
(Dollars in thousands) Net
Present Value 		Percentage Change from Base Net
Present
Value as a
Percentage
of Assets
Up 300 basis points $ 1,178,483  (8.0) % 9.6  %
Up 200 basis points $ 1,247,044  (2.7) % 10.0  %
Up 100 basis points $ 1,282,114  —  % 10.1  %
Base $ 1,281,632  —  % 9.9  %
Down 100 basis points $ 1,151,517  (10.2) % 8.9  %
The computation of the prospective effects of hypothetical interest rate changes is based on numerous assumptions, including relative levels of interest rates, asset prepayments, runoffs in deposits and changes in repricing levels of deposits to general market rates, and should not be relied upon as indicative of actual results. Furthermore, these computations do not take into account any actions that we may undertake in response to future changes in interest rates. Those actions include, but are not limited to, making change in loan and deposit interest rates and changes in our asset and liability mix.
Securities Business
Our Securities Business is exposed to market risk primarily due to its role as a financial intermediary in customer transactions, which may include purchases and sales of securities, securities lending activities, and in our trading activities, which are used to support sales, underwriting and other customer activities. We are subject to the risk of loss that may result from the potential change in value of a financial instrument as a result of fluctuations in interest rates, market prices, investor expectations and changes in credit ratings of the issuer.
Our Securities Business is exposed to interest rate risk as a result of maintaining inventories of interest rate sensitive financial instruments and other interest earning assets including customer and correspondent margin loans and securities borrowing activities. Our exposure to interest rate risk is also from our funding sources including customer and correspondent cash balances, bank borrowings and securities lending activities. Interest rates on customer and correspondent balances and securities produce a positive spread with rates generally fluctuating in parallel.
With respect to securities held, our interest rate risk is managed by setting and monitoring limits on the size and duration of positions and on the length of time securities can be held. Much of the interest rates on customer and correspondent margin loans are indexed and can vary daily. Our funding sources are generally short term with interest rates that can vary daily.
At September 30, 2020, Axos Clearing held municipal obligations, these positions were classified as trading securities and had maturities greater than 10 years.
Our Securities Business is engaged in various brokerage and trading activities that expose us to credit risk arising from potential non-performance from counterparties, customers or issuers of securities. This risk is managed by setting and
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monitoring position limits for each counterparty, conducting periodic credit reviews of counterparties, reviewing concentrations of securities and conducting business through central clearing organizations.
Collateral underlying margin loans to customers and correspondents and with respect to securities lending activities is marked to market daily and additional collateral is required as necessary.

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

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

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

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


ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The table below sets forth our market repurchases of Axos common stock and the Axos common shares retained in connection with net settlement of restricted stock awards during the quarter ended September 30, 2020.
(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, 2020
July 1, 2020 to July 31, 2020 184,159  $ 19.80  184,159  $ 65,875 
August 1, 2020 to August 31, 2020 5,200  $ 22.03  5,200  $ 65,760 
September 1, 2020 to September 30, 2020 392,890  $ 22.86  392,890  $ 56,778 
For the Three Months Ended September 30, 2020 582,249  $ 21.89  582,249  $ 56,778 
Stock Retained in Net Settlement2
July 1, 2020 to July 31, 2020 30,204 
August 1, 2020 to August 31, 2020 53,139 
September 1, 2020 to September 30, 2020 30,991 
For the Three Months Ended September 30, 2020 114,334 
1 On March 17, 2016, the Board of Directors of the Company authorized a program to repurchase up to $100 million of common stock and extended the program by an additional $100 million on August 2, 2019. The share repurchase program will continue in effect until terminated by the Board of Directors of the Company. Purchases were made in open-market transactions.
2 In October 2019, the stockholders of the Company approved the amended and restated the 2014 Stock Incentive Plan, which among other changes permitted net settlement of stock issuances related to equity awards for purposes of payment of a grantee’s minimum income tax obligation. Stock Retained in Net Settlement was at the vesting price of the associated restricted stock unit.


ITEM 3.    DEFAULTS UPON SENIOR SECURITIES
None.

ITEM 4.    MINE SAFETY DISCLOSURES
None.

ITEM 5.    OTHER INFORMATION
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    None.

ITEM 6.EXHIBITS
Exhibit
Number 		Description Incorporated By Reference to
4.1 Indenture, dated as of March 3, 2016, between Axos Financial, Inc. and U.S. Bank National Association, as trustee
4.2 Second Supplemental Indenture, dated as of September 18, 2020, between Axos Financial, Inc. and U.S. Bank
National Association, as trustee
4.3 Form of Global Note to represent the 4.875% Fixed-to-Floating Rate Subordinated Notes due 2030 of Axos Financial, Inc.
10.1 Description of Amendment to Employment Letter between Raymond Matsumoto and Axos Financial, Inc.
31.1 Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Chief 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.SCH XBRL Taxonomy Extension Schema Document Filed herewith.
101.CAL XBRL Taxonomy Calculation Linkbase Document Filed herewith.
101.LAB XBRL Taxonomy Label Linkbase Document Filed herewith.
101.PRE XBRL Taxonomy Presentation Linkbase Document Filed herewith.
101.DEF XBRL Taxonomy Definition Document Filed herewith.
101.INS XBRL Instance Document The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.



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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Axos Financial, Inc.
Dated: October 29, 2020 By:     /s/ Gregory Garrabrants
Gregory Garrabrants
President and Chief Executive Officer
(Principal Executive Officer)
Dated: October 29, 2020 By:     /s/ Andrew J. Micheletti
Andrew J. Micheletti
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
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Exhibit 10.1

DESCRIPTION OF AMENDMENT TO EMPLOYMENT LETTER
On September 19, 2017, an original offer letter was provided to Raymond Matsumoto. The summary below represents the understanding of the parties as of July 1, 2019 with respect to employment of Mr. Matsumoto:
•Base compensation: $300,000 per year, reviewed annually;
•Annual bonus target of 155% of annual salary payable in cash and restricted stock units of common stock of Axos Financial, Inc. ("RSUs") with performance evaluated and bonus paid semi-annually. The RSUs granted for bonus will vest over future employment service, generally within three years, and the mix of cash and RSUs may change at the discretion of the CEO or the Board.
•Three weeks of annual vacation per year;
•Eligible to join Axos medical, dental, 401(k) and other benefit plans.



Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Gregory Garrabrants, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Axos Financial, Inc. (the “registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d -15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
Dated: October 29, 2020   /s/ GREGORY GARRABRANTS
   
GREGORY GARRABRANTS
President and Chief Executive Officer (Principal Executive Officer)


Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Andrew J. Micheletti, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Axos Financial, Inc. (the “registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d -15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
Dated: October 29, 2020   /s/ ANDREW J. MICHELETTI
   
ANDREW J. MICHELETTI
Executive Vice President and Chief Financial Officer (Principal Financial Officer)


Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Axos Financial, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2020, the (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Gregory Garrabrants, hereby certify in my capacity as President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 that:
a)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
b)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the financial statements included in such Report.
Dated: October 29, 2020   /s/ GREGORY GARRABRANTS
   
GREGORY GARRABRANTS
President and Chief Executive Officer (Principal Executive Officer)


Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Axos Financial, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2020, the (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Andrew J. Micheletti, hereby certify in my capacity as Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 that:
a)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
b)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the financial statements included in such Report.

Dated: October 29, 2020   /s/ ANDREW J. MICHELETTI
    
ANDREW J. MICHELETTI
Executive Vice President and Chief Financial Officer (Principal Financial Officer)