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AX Axos Financial

0001299709 ax:CommercialandIndustrialMember us-gaap:PassMember 2019-06-30
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended March 31, 2020

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-37709
axosfina13.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 classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.01 par valueAXNew York Stock Exchange
6.25% Subordinated Notes Due 2026AXONew 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: 59,655,664 shares of common stock, $0.01 par value per share, as of April 24, 2020.



AXOS FINANCIAL, INC.
INDEX

 Page
  
  
  
  
  
  
  
  
  
  
  
  
  



PART I – FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except par and stated value)March 31,
2020
 June 30,
2019
ASSETS   
Cash and cash equivalents$671,744
 $511,225
Cash segregated for regulatory purposes182,455
 346,143
Total cash, cash equivalents, and cash segregated854,199
 857,368
Securities:   
Trading919
 
Available-for-sale191,388
 227,513
Stock of regulatory agencies23,833
 20,276
Loans held for sale, carried at fair value40,236
 33,260
Loans held for sale, lower of cost or fair value29
 4,800
Loans and leases—net of allowance for loan and lease losses of $87,097 as of March 31, 2020 and $57,085 as of June 30, 201910,372,921
 9,382,124
Mortgage servicing rights, carried at fair value9,962
 9,784
Other real estate owned and repossessed vehicles7,307
 7,485
Goodwill and other intangible assets—net127,962
 134,893
Securities borrowed53,816
 144,706
Customer, broker-dealer and clearing receivables187,353
 203,192
Other assets289,994
 194,837
TOTAL ASSETS$12,159,919
 $11,220,238
    
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Deposits:   
Non-interest bearing$2,328,660
 $1,441,930
Interest bearing7,238,678
 7,541,243
Total deposits9,567,338
 8,983,173
Advances from the Federal Home Loan Bank770,500
 458,500
Borrowings, subordinated notes and debentures76,285
 168,929
Securities loaned76,587
 198,356
Customer, broker-dealer and clearing payables318,100
 238,604
Accounts payable and accrued liabilities and other liabilities166,657
 99,626
Total liabilities10,975,467
 10,147,188
COMMITMENTS AND CONTINGENCIES (Note 10)

 

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 March 31, 2020 and June 30, 20195,063
 5,063
Common stock—$0.01 par value; 150,000,000 shares authorized; 67,084,817 shares issued and 59,653,192 shares outstanding as of March 31, 2020; 66,563,922 shares issued and 61,128,817 shares outstanding as of June 30, 2019671
 666
Additional paid-in capital406,731
 389,945
Accumulated other comprehensive income (loss)—net of tax(2,726) 16
Retained earnings964,076
 826,170
Treasury stock, at cost; 7,431,625 shares as of March 31, 2020 and 5,435,105 shares as of June 30, 2019(189,363) (148,810)
Total stockholders’ equity1,184,452
 1,073,050
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$12,159,919
 $11,220,238


See accompanying notes to the condensed consolidated financial statements.

1


AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) 
 Three Months Ended Nine Months Ended
 March 31, March 31,
(Dollars in thousands, except earnings per common share)2020 2019 2020 2019
INTEREST AND DIVIDEND INCOME:       
Loans and leases, including fees$175,065
 $157,181
 $445,554
 $397,049
Securities borrowed and customer receivables3,818
 3,970
 13,025
 3,970
Investments6,180
 8,057
 20,117
 22,225
Total interest and dividend income185,063
 169,208
 478,696
 423,244
INTEREST EXPENSE:       
Deposits31,254
 29,719
 102,974
 84,385
Advances from the Federal Home Loan Bank3,952
 8,366
 10,211
 26,848
Securities loaned115
 1,038
 564
 1,038
Other borrowings1,126
 916
 4,608
 2,805
Total interest expense36,447
 40,039
 118,357
 115,076
Net interest income148,616
 129,169
 360,339
 308,168
Provision for loan and lease losses28,500
 19,000
 35,700
 24,550
Net interest income, after provision for loan and lease losses120,116
 110,169
 324,639
 283,618
NON-INTEREST INCOME:       
Realized gain (loss) on sale of securities
 
 
 (133)
Other-than-temporary loss on securities:       
Other-than-temporary loss on securities:
 (1,666) 
 (1,666)
Less: Portion of other temporary impairment losses recognized in OCI
 845
 
 845
Change to net impairment losses recognized in earnings on securities
 (821) 
 (821)
Prepayment penalty fee income1,406
 706
 4,824
 4,077
Gain on sale – other608
 535
 6,354
 5,611
Mortgage banking income2,955
 352
 7,973
 2,959
Broker-dealer fee income6,329
 5,036
 17,540
 5,036
Banking and service fees20,244
 20,290
 37,594
 42,804
Total non-interest income31,542
 26,098
 74,285
 59,533
NON-INTEREST EXPENSE:       
Salaries and related costs36,257
 33,716
 106,932
 93,524
Data processing6,563
 7,144
 21,784
 16,792
Depreciation and amortization6,197
 4,765
 17,461
 11,348
Advertising and promotional3,887
 3,635
 11,720
 11,265
Professional services3,231
 4,286
 7,932
 8,489
Occupancy and equipment2,919
 2,584
 8,879
 5,983
FDIC and regulatory fees2,013
 2,133
 3,143
 6,587
Broker-dealer clearing charges2,180
 1,095
 6,048
 1,095
General and administrative expense8,543
 22,457
 20,323
 30,587
Total non-interest expense71,790
 81,815
 204,222
 185,670
INCOME BEFORE INCOME TAXES79,868
 54,452
 194,702
 157,481
INCOME TAXES23,811
 15,631
 56,564
 42,984
NET INCOME$56,057
 $38,821
 $138,138
 $114,497
NET INCOME ATTRIBUTABLE TO COMMON STOCK$55,980
 $38,744
 $137,906
 $114,265
COMPREHENSIVE INCOME$53,578
 $38,530
 $135,396
 $114,592
Basic earnings per common share$0.92
 $0.63
 $2.25
 $1.84
Diluted earnings per common share$0.91
 $0.63
 $2.23
 $1.83

See accompanying notes to the condensed consolidated financial statements.

2


AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 Three Months Ended Nine Months Ended
 March 31, March 31,
(Dollars in thousands)2020 2019 2020 2019
NET INCOME$56,057
 $38,821
 $138,138
 $114,497
Net unrealized gain (loss) from available-for-sale securities, net of tax expense (benefit) of $(1,032) and $128 for the three and $(1,142) and $109 for nine months ended March 31, 2020 and 2019, respectively.(2,479) 303
 (2,742) 595
Other-than-temporary impairment on securities sold, reclassed in other comprehensive income, net of tax expense (benefit) of $0 and $(251) for the three and $0 and $(251) for nine months ended March 31, 2020 and 2019, respectively.
 (594) 
 (594)
Reclassification of net (gain) loss from available-for-sale securities included in income, net of tax expense (benefit) of $(30) for the nine months ended March 31, 2019
 
 
 94
Other comprehensive income (loss)(2,479) (291) (2,742) 95
Comprehensive income$53,578
 $38,530
 $135,396
 $114,592

See accompanying notes to the condensed consolidated financial statements.



3


AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
                      
 For the Three Months Ended March 31, 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—December 31, 2019515
 $5,063
 66,915,478
 (5,577,092) 61,338,386
 $669
 $399,806
 $908,096
 $(247) $(152,635) $1,160,752
Net income
 
 
 
 
 
 
 56,057
 
 
 56,057
Other comprehensive income (loss)
 
 
 
 
 
 
 
 (2,479) 
 (2,479)
Cash dividends on preferred stock
 
 
 
 
 
 
 (77) 
 
 (77)
Purchase of treasury stock
 
 
 (1,815,783) (1,815,783) 
 
 
 
 (35,838) (35,838)
Stock-based compensation expense
and restricted stock unit vesting

 
 169,339
 (38,750) 130,589
 2
 6,925
 
 
 (890) 6,037
BALANCE—March 31, 2020515
 $5,063
 67,084,817
 (7,431,625) 59,653,192
 $671
 $406,731
 $964,076
 $(2,726) $(189,363) $1,184,452
                      
 For the Three Months Ended March 31, 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—December 31, 2018515
 $5,063
 66,169,401
 (4,961,658) 61,207,743
 $662
 $377,689
 $746,869
 $(227) $(135,655) $994,401
Net income
 
 
 
 
 
 
 38,821
 
 
 38,821
Other comprehensive income (loss)
 
 
 
 
 
 
 
 (291) 
 (291)
Cash dividends on preferred stock
 
 
 
 
 
 
 (77) 
 
 (77)
Stock-based compensation expense
and restricted stock unit vesting

 
 83,897
 (6,265) 77,632
 1
 6,802
 
 
 (172) 6,631
BALANCE—March 31, 2018515
 $5,063
 66,253,298
 (4,967,923) 61,285,375
 $663
 $384,491
 $785,613
 $(518) $(135,827) $1,039,485

See accompanying notes to the condensed consolidated financial statements.


4


AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
(Unaudited)
 For the Nine Months Ended March 31, 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, 2019515
 $5,063
 66,563,922
 (5,435,105) 61,128,817
 $666
 $389,945
 $826,170
 $16
 $(148,810) $1,073,050
Net income
 
 
 
 
 
 
 138,138
 
 
 138,138
Other comprehensive income (loss)
 
 
 
 
 
 
 
 (2,742) 
 (2,742)
Cash dividends on preferred stock
 
 
 
 
 
 
 (232) 
 
 (232)
Purchase of treasury stock
 
 
 (1,815,783) (1,815,783) 
 
 
 
 (35,838) (35,838)
Stock-based compensation expense
and restricted stock unit vesting

 
 520,895
 (180,737) 340,158
 5
 16,786
 
 
 (4,715) 12,076
BALANCE—March 31, 2020515
 $5,063
 67,084,817
 (7,431,625) 59,653,192
 $671
 $406,731
 $964,076
 $(2,726) $(189,363) $1,184,452

 For the Nine Months Ended March 31, 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, 2018515
 $5,063
 65,796,060
 (3,107,996) 62,688,064
 $658
 $366,515
 $671,348
 $(613) $(82,458) $960,513
Net income
 
 
 
 
 
 
 114,497
 
 
 114,497
Other comprehensive income (loss)
 
 
 
 
 
 
 
 95
 
 95
Cash dividends on preferred stock
 
 
 
 
 
 
 (232) 
 
 (232)
Purchase of treasury stock
 
 
 (1,704,528) (1,704,528) 
 
 
 
 (47,881) (47,881)
Stock-based compensation expense
and restricted stock unit vesting

 
 457,238
 (155,399) 301,839
 5
 17,976
 
 
 (5,488) 12,493
BALANCE—March 31, 2019515
 $5,063
 66,253,298
 (4,967,923) 61,285,375
 $663
 $384,491
 $785,613
 $(518) $(135,827) $1,039,485


See accompanying notes to the condensed consolidated financial statements.

5

AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 Nine Months Ended
 March 31,
(Dollars in thousands)2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES:   
Net income$138,138
 $114,497
Adjustments to reconcile net income to net cash provided by (used in) operating activities:   
Accretion of discounts on securities392
 (245)
Net accretion on securities and loans and leases(35,186) (30,599)
Amortization of borrowing costs156
 156
Amortization of operating lease right of use asset(4,345) 
Stock-based compensation expense16,791
 17,981
Net (gain) loss on sale of investment securities
 133
Impairment charge on securities
 821
Provision for loan and lease losses35,700
 24,550
Broker-dealer reserve for bad debt
 15,298
Deferred income taxes(12,872) (13,640)
Origination of loans held for sale(1,286,230) (1,201,001)
Unrealized (gain) loss on loans held for sale(574) 246
Gain on sales of loans held for sale(14,327) (8,570)
Proceeds from sale of loans held for sale1,296,148
 1,227,360
Change in fair value of mortgage servicing rights3,869
 2,053
(Gain) loss on sale of other real estate and foreclosed assets(118) (253)
Depreciation and amortization17,461
 11,348
Net changes in assets and liabilities which provide (use) cash:   
Securities borrowed90,890
 30,731
Customer, broker-dealer and clearing receivables15,839
 (36,024)
Other assets17,884
 (25,307)
Securities loaned(121,769) (1,467)
Customer, broker-dealer and clearing payables79,496
 5,097
Accounts payable and other liabilities(15,381) (6,554)
Net cash provided by (used in) operating activities221,962
 126,611
CASH FLOWS FROM INVESTING ACTIVITIES:   
Purchases of investment securities(244,530) (73,664)
Proceeds from sales of securities
 1,927
Proceeds from repayment of securities276,782
 41,755
Purchase of stock of regulatory agencies(48,088) (177,326)
Proceeds from redemption of stock of regulatory agencies44,531
 177,325
Origination of loans and leases held for investment(5,363,107) (5,369,034)
Proceeds from sale of loans and leases held for investment24,667
 45,073
Origination of mortgage warehouse loans, net(130,231) (63,868)
Proceeds from sales of other real estate owned and repossessed assets704
 1,805
Cash paid for deposit acquisition
 (14,747)
Acquisition of business activity, net of cash paid
 67,911
Purchases of loans and leases, net of discounts and premiums
 (11,525)
Principal repayments on loans and leases4,461,594
 4,727,328
Purchases of furniture, equipment and software(9,956) (16,786)
Net cash used in investing activities(987,634) (663,826)
CASH FLOWS FROM FINANCING ACTIVITIES:   
Net increase (decrease) in deposits584,165
 670,105
Net (repayment) proceeds of the Federal Home Loan Bank term advances30,000
 (132,500)
Net (repayment) proceeds of Federal Home Loan Bank other advances282,000
 119,000
Net proceeds (repayments) of other borrowings(92,800) 67,200
Tax payments related to settlement of restricted stock units(4,715) (5,488)
Repurchase of treasury stock(35,838) (47,881)
Cash dividends paid on preferred stock(309) (232)
Proceeds from issuance of subordinated notes
 7,500
Net cash provided by financing activities762,503
 677,704
NET CHANGE IN CASH AND CASH EQUIVALENTS(3,169) 140,489
CASH AND CASH EQUIVALENTS—Beginning of year$857,368
 $622,850
CASH AND CASH EQUIVALENTS—End of period$854,199
 $763,339

6

AXOS FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 Nine Months Ended
 March 31,
(Dollars in thousands)2020 2019
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:   
Interest paid on deposits and borrowed funds$117,808
 $112,717
Income taxes paid$42,020
 $43,930
Transfers to other real estate and repossessed vehicles$853
 $578
Transfers from loans and leases held for investment to loans held for sale$40,025
 $57,408
Loans and leases held for investment sold, cash not received$18,662
 $33,996
Operating lease liabilities for obtaining right of use assets$82,940
 $
See accompanying notes to the condensed consolidated financial statements.

7


AXOS FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTH PERIODS ENDED MARCH 31, 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 nine months ended March 31, 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, 2019 included in our Annual Report on Form 10-K. Certain reclassifications to dividend and interest income line items for the nine months ended March 31, 2020 have been made to conform to the current period presentation. The reclassifications had no effect on total dividend and interest income, net interest income, net income nor stockholders’ equity for any period.
Business Segments. The Company determines reportable segments based on the services offered, the significance of the services offered, the significance of those services to the Company’s financial condition and operating results and management’s regular review of the operating results of those services. The Company operates through 2 operating segments: Banking Business and Securities Business. Please refer to “Note 12 - Segment Reporting” for further information on the reporting for the Company’s 2 business segments.
New Accounting Standards
Accounting Standards Adopted During Fiscal 2020
Leases. On July 1, 2019, the Company adopted Accounting Standards Codification (“ASC”) 842, Leases (Topic 842), which required lessees to recognize operating leases on the balance sheet as right-of-use assets and lease liabilities based on the value of the discounted future lease payments. Lessor accounting is largely unchanged. The Company elected to retain prior determinations of whether an existing contract contains a lease and how the lease should be classified. The Company elected to recognize leases existing on July 1, 2019 through a modified retrospective transition approach. The Company will not adjust comparative periods based on the newly adopted guidance. Upon adoption, the Company also recognized right-of-use assets $77.8 million and lease liabilities of $79.7 million.
Lessor Arrangements. The Company provides equipment financing to its customers through a variety of lessor arrangements. Direct financing leases and sales-type leases are carried at the aggregate of lease payments receivable plus the estimated residual value of the leased property less unearned income, which is accreted to interest income over the lease terms using methods that approximate the interest method. Operating lease income is recognized on a straight-line basis. Leases generally do not contain non-lease components.
Lessee Arrangements. Substantially all of the Company’s lessee arrangements are operating leases. Under these arrangements, the Company records right-of-use assets and lease liabilities at lease commencement. Right-of-use assets are reported in other assets on the March 31, 2020 unaudited Condensed Consolidated Balance Sheet, and the related lease liabilities are reported in accounts payable and accrued liabilities and other liabilities. All leases are recorded on the unaudited Condensed Consolidated Balance Sheet except leases with an initial term less than 12 months for which the Company made the short-term lease election. Lease expense is recognized on a straight-line basis over the lease term and is recorded in occupancy and equipment expense in the unaudited Condensed Consolidated Statements of Income.

8


The Company made an accounting policy election not to separate lease and non-lease components of a contract that is or contains a lease for its real estate and equipment leases. As such, lease payments represent payments on both lease and non-lease components. At lease commencement, lease liabilities are recognized based on the present value of the remaining lease payments and discounted using the Company’s incremental borrowing rate. Right-of-use assets initially equal the lease liability, adjusted for any lease payments made prior to lease commencement and for any lease incentives.
Accounting Standards Issued But Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“Topic 326”), which (i) significantly changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model; and (ii) provides for recording credit losses on available-for-sale debt securities through an allowance account. Topic 326 also requires certain incremental disclosures. Topic 326 should be applied on a modified-retrospective transition approach that would require a cumulative-effect adjustment to the opening retained earnings in the consolidated balance sheet as of the date of adoption. A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. The guidance will be effective for the Company’s financial statements beginning July 1, 2020. The Company’ working group has reviewed the Company’s methodology and model with third-party consultants, is in the process of making recommended adjustments, and is progressing in accordance with its implementation plan. The Company expects Topic 326 to have a material impact on the Company’s consolidated financial statements.


2.REVENUE RECOGNITION

The following presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the periods indicated:
 Three Months Ended Nine Months Ended
 March 31, March 31,
(Dollars in thousands, except per share data)2020 2019 2020
2019
Non-interest income       
Deposit service fees$727
 $404
 $3,564
 $3,083
Card fees1,283
 1,174
 3,904
 4,094
Broker-dealer clearing fees6,329
 1,567
 17,540
 1,567
Bankruptcy trustee and fiduciary service fees15
 1,514
 1,239
 5,724
Non-interest income (in-scope of Topic 606)8,354
 4,659
 26,247
 14,468
Non-interest income (out-of-scope of Topic 606)23,188
 21,439
 48,038
 45,065
Total non-interest income$31,542
 $26,098
 $74,285
 $59,533


3.ACQUISITIONS
The Company completed 2 business acquisitions and 2 asset acquisitions during the fiscal year ended June 30, 2019. The Company had 0 acquisitions during the nine months ended March 31, 2020. The pro forma results of operations and the results of operations for the acquisitions since the acquisition date have not been separately disclosed because the effects were not material to the consolidated financial statements. The purchase transactions are detailed below.
MWABank deposit acquisition. On March 15, 2019, the Bank closed the deposit assumption agreement with MWA Bank and acquired approximately $173 million of deposits, including approximately $151 million of checking, savings and money market accounts and $22 million of time deposits. Axos did not assume any assets, employees or branches in this transaction. The Bank received cash equal to the book value of the deposit liabilities.
WiseBanyan. On February 26, 2019 the Company’s subsidiary, Axos Securities, LLC, had completed the acquisition of WiseBanyan Holding, Inc. and its subsidiaries (collectively “WiseBanyan”). Headquartered in Las Vegas, Nevada, WiseBanyan is a provider of personal financial and investment management services through a proprietary technology platform. WiseBanyan currently serves approximately 24,000 clients with approximately $150 million of assets under management. The Company paid $3.2 million in cash to acquire the assets of WiseBanyan and recorded $2.7 million in intangible assets.

9


COR Securities Holdings. On January 28, 2019 (“Acquisition Date”), Axos Clearing, LLC and Axos Clarity MergeCo., Inc. completed the acquisition of COR Securities Holdings Inc.(“COR Securities”), the parent company of COR Clearing LLC (“COR Clearing”), pursuant to the terms of the Agreement and Plan of Merger, dated as of September 28, 2018 (the “Merger Agreement”).
Headquartered in Omaha, Nebraska, COR Clearing is a full-service correspondent clearing firm for independent broker-dealers. COR Clearing provides clearing, settlement, custody, securities and margin lending, and technology solutions to more than 60 introducing broker-dealers and 90,000 customers. The total cash consideration of approximately $80.9 million was funded with existing capital. The Company issued subordinated notes totaling $7.5 million to the principal stockholders of COR Securities in an equal principal amount, with a maturity of 15 months, to serve as the sole source of payment of indemnification obligations of the principal stakeholders of COR Securities under the Merger Agreement.
The acquisition of COR Securities is being accounted for as a business combination using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration paid are recorded at estimated fair values on the Acquisition Date. The Company recorded goodwill of $35.5 million and an additional $20.1 million in intangible assets as of the Acquisition Date. Included in the professional services line of the statement of income the Company recognized $0.4 million in transaction costs.
The consideration paid for COR Securities common equity and the provisional fair values of acquired identifiable assets and liabilities assumed as of the Acquisition Date were as follows:
(Dollars in thousands)January 28, 2019
ASSETS 
Cash and due from banks$16,604
Cash segregated for regulatory purposes142,016
Securities, available for sale9,585
Stock of the regulatory agencies, at cost2,431
Securities borrowed157,898
Customer, broker-dealer and clearing receivables234,352
Other assets5,487
Total identifiable assets$568,373
  
LIABILITIES AND STOCKHOLDERS’ EQUITY 
Notes payable to banks$85,100
Securities loaned203,041
Customer, broker-dealer and clearing payables240,110
Accounts payable and accrued liabilities7,383
Total identifiable liabilities$535,634
 
Goodwill$35,501
Intangible assets20,120
Total cash purchase price$80,860
Notes issued$7,500
Total fair value of consideration paid88,360

Nationwide Bank deposit acquisition. On November 16, 2018, the Bank completed the acquisition of substantially all of Nationwide Bank’s (“Nationwide”) deposits at the time of closing, adding $2.4 billion in deposits, including $0.7 billion in checking, savings and money market accounts and $1.7 billion in time deposit accounts. The Bank received cash for the deposit balances transferred less a premium of $13.5 million, commensurate with the fair market value of the deposits purchased.


10


4.FAIR VALUE
Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic 820, Fair Value Measurement, also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis at March 31, 2020 and June 30, 2019. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
 March 31, 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$
 $919
 $
 $919
Securities—Available-for-Sale:       
Agency Debt1
$
 $1,700
 $
 $1,700
Agency RMBS1

 14,443
 
 14,443
Non-Agency RMBS2

 
 11,706
 11,706
Municipal
 10,389
 
 10,389
Asset-backed securities and structured notes
 153,150
 
 153,150
Total—Securities—Available-for-Sale$
 $179,682
 $11,706
 $191,388
Loans Held for Sale$
 $40,236
 $
 $40,236
Mortgage servicing rights$
 $
 $9,962
 $9,962
Other assets—Derivative instruments$
 $
 $5,626
 $5,626
LIABILITIES:       
   Other liabilities—Derivative instruments$
 $
 $2,978
 $2,978
        
 June 30, 2019
(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—Available-for-Sale:       
Agency Debt1
$
 $1,685
 $
 $1,685
Agency RMBS1

 9,586
 
 9,586
Non-Agency RMBS2

 
 13,025
 13,025
Municipal
 21,162
 
 21,162
Asset-backed securities and structured notes
 182,055
 
 182,055
Total—Securities—Available-for-Sale$
 $214,488
 $13,025
 $227,513
Loans Held for Sale$
 $33,260
 $
 $33,260
Mortgage servicing rights$
 $
 $9,784
 $9,784
Other assets—Derivative instruments$
 $
 $1,978
 $1,978
LIABILITIES:       
Other liabilities—Derivative instruments$
 $
 $732
 $732
1 
U.S. government-backed or government sponsored enterprises including Fannie Mae, Freddie Mac and Ginnie Mae.
2 
Private sponsors of securities collateralized primarily by pools of 1-4 family residential first mortgages. Primarily super senior securities secured by Alt-A or pay-option ARM mortgages.

11


The following tables present additional information about assets measured at fair value on a recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
 For the Three Months Ended
 March 31, 2020
(Dollars in thousands)Securities – Available-for-Sale: Non-Agency RMBS Mortgage Servicing Rights Derivative Instruments, net Total
        
Opening balance$12,787
 $11,262
 $1,017
 $25,066
Total gains or losses for the period:       
Included in earnings—Mortgage banking income
 (2,597) 1,631
 (966)
Included in other comprehensive income(548) 
 
 (548)
Purchases/originations
 1,297
 
 1,297
Settlements(533) 
 
 (533)
Closing balance$11,706
 $9,962
 $2,648
 $24,316
        
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period$
 $(2,597) $1,631
 $(966)
        
 For the Nine Months Ended
 March 31, 2020
(Dollars in thousands)Securities – Available-for-Sale: Non-Agency 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
 (3,869) 1,402
 (2,467)
Included in other comprehensive income292
 
 
 292
Purchases
 4,047
 
 4,047
Settlements(1,611) 
 
 (1,611)
Closing balance$11,706
 $9,962
 $2,648
 $24,316
        
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period$
 $(3,869) $1,402
 $(2,467)

12


 For the Three Months Ended
 March 31, 2019
(Dollars in thousands)Securities – Available-for-Sale: Non-Agency RMBS Mortgage Servicing Rights Derivative Instruments, net Total
        
Opening balance$14,421
 $11,215
 $469
 $26,105
Total gains or losses for the period:       
Included in earnings—Mortgage banking income
 (1,199) 153
 (1,046)
Included in other comprehensive income(108) 
 
 (108)
Purchases/originations
 339
 
 339
Settlements(370) 
 
 (370)
Other-than-temporary impairment(821) 
 
 (821)
Closing balance$13,122
 $10,355
 $622
 $24,099
        
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period$
 $(1,199) $153
 $(1,046)
        
 For the Nine Months Ended
 March 31, 2019
(Dollars in thousands)Securities – Available-for-Sale: Non-Agency RMBS Mortgage Servicing Rights Derivative Instruments, net Total
        
Opening Balance$17,443
 $10,752
 $953
 $29,148
Total gains or losses for the period:       
Included in earnings—Sale of securities(133) 
 
 (133)
Included in earnings—Mortgage banking income
 (2,053) (331) (2,384)
Included in other comprehensive income442
 
 
 442
Purchases
 1,656
 
 1,656
Sales(2,058) 
 
 (2,058)
Settlements(1,751) 
 
 (1,751)
Other-than-temporary impairment(821) 
 
 (821)
Closing balance$13,122
 $10,355
 $622
 $24,099
        
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period$(133) $(2,053) $(331) $(2,517)

The table below summarizes the quantitative information about level 3 fair value measurements as of the dates indicated:
 March 31, 2020
(Dollars in thousands)Fair ValueValuation TechniqueUnobservable InputRange (Weighted Average)
Securities – Non-agency RMBS$11,706
Discounted Cash FlowProjected Constant Prepayment Rate,
Projected Constant Default Rate,
Projected Loss Severity,
Discount Rate over LIBOR
1.0 to 25.6% (8.9%)
1.5 to 20.0% (4.8%)
40.0 to 68.4% (59.5%)
3.1 to 9.4% (5.1%)
Mortgage Servicing Rights$9,962
Discounted Cash FlowProjected Constant Prepayment Rate,
Life (in years),
Discount Rate
4.9 to 29.4% (10.9%)
1.9 to 8.3 (6.3)
9.5 to 13.0% (9.8%)
Derivative Instruments$2,648
Sales Comparison ApproachProjected Sales Profit of Underlying Loans0.0 to 0.8% (0.4%)

13


 June 30, 2019
(Dollars in thousands)Fair ValueValuation TechniqueUnobservable InputRange (Weighted Average)
Securities – Non-agency RMBS$13,025
Discounted Cash FlowProjected Constant Prepayment Rate,
Projected Constant Default Rate,
Projected Loss Severity,
Discount Rate over LIBOR
2.9 to 32.5% (10.0%)
1.5 to 10.2% (4.4%)
40.0 to 68.3% (59.4%)
2.7 to 6.9% (4.1%)
Mortgage Servicing Rights$9,784
Discounted Cash FlowProjected Constant Prepayment Rate,
Life (in years),
Discount Rate
4.7 to 33.7% (10.1%)
1.9 to 8.8 (6.4)
9.5 to 13.0% (9.8%)
Derivative Instruments$1,246
Sales Comparison ApproachProjected Sales Profit of Underlying Loans0.4 to 0.8% (0.6%)


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.

14


The table below summarizes assets measured for impairment on a non-recurring basis:
 March 31, 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
Impaired Loans and Leases:       
Single family real estate secured:       
Mortgage$
 $
 $54,106
 $54,106
Multifamily real estate secured
 
 1,176
 1,176
Commercial real estate secured
 
 1,909
 1,909
Auto and RV secured
 
 339
 339
Other
 
 406
 406
Total$
 $
 $57,936
 $57,936
Other real estate owned and foreclosed assets:       
Single family real estate$
 $
 $7,010
 $7,010
Autos and RVs
 
 297
 297
Total$
 $
 $7,307
 $7,307
        
 June 30, 2019
(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
Impaired Loans and Leases:       
Single family real estate secured:       
Mortgage$
 $
 $46,005
 $46,005
Multifamily real estate secured
 
 2,108
 2,108
Auto and RV secured
 
 115
 115
Other
 
 216
 216
Total$
 $
 $48,444
 $48,444
Other real estate owned and foreclosed assets:       
Single family real estate$
 $
 $7,449
 $7,449
Autos and RVs
 
 36
 36
Total$
 $
 $7,485
 $7,485

Impaired loans and leases measured for impairment on a non-recurring basis using the fair value of the collateral for collateral-dependent loans and leases have a carrying amount of $57,936, after charge-offs of $558 for the nine months ended March 31, 2020, life to date charge-offs of $5,847, life to date interest payments applied to principal of $1,074 for total life to date principal balance adjustments of $6,921. Impaired loans had a related allowance of $304 at March 31, 2020.
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 $7,307 after charge-offs of $427 for the nine months ended March 31, 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 March 31, 2020 and June 30, 2019.

15


As of March 31, 2020 and June 30, 2019, the aggregate fair value of loans held for sale, carried at fair value, contractual balance (including accrued interest), and unrealized gain was as follows:
(Dollars in thousands)March 31, 2020 June 30, 2019
Aggregate fair value$40,236
 $33,260
Contractual balance38,724
 32,342
Unrealized gain$1,512
 $918
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 For the Nine Months Ended
 March 31, March 31,
(Dollars in thousands)2020 2019 2020 2019
Interest income$216
 $258
 $812
 $824
Change in fair value2,228
 134
 1,976
 (577)
Total$2,444
 $392
 $2,788
 $247


16


The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at the periods indicated:
 March 31, 2020
(Dollars in thousands)Fair ValueValuation Technique(s)Unobservable Input
Range (Weighted Average) 1
Impaired loans and leases:    
Single family real estate secured:    
Mortgage$54,106
Sales comparison approachAdjustment for differences between the comparable sales-15.3 to 18.5% (-0.4%)
Multifamily real estate secured$1,176
Sales comparison approach, income approach,
Discounted cash flows
Adjustment for differences between the comparable sales and adjustments for differences in net operating income expectations, capitalization rate4.5 to 15.0% (9.3%)
Commercial real estate secured$1,909
Sales comparison approach and income approachAdjustment for differences between the comparable sales and adjustments for differences in net operating income expectations1.5 to 1.5% (1.5%)
Auto and RV secured$339
Sales comparison approachAdjustment for differences between the comparable sales-63.2 to 13.2% (-15.4%)
Other$406
Discounted cash flow
Projected Constant Prepayment Rate,
Projected Constant Default Rate,
Projected Loss Severity,
Discount Rate
0.0 to 0.0% (0.0%)
0.0 to 10.0% (5.0%)
100.0 to 100.0% (100.0%)
-3.3 to 2.2% (-0.5%)
Other real estate owned and foreclosed assets:   
Single family real estate$7,010
Sales comparison approachAdjustment for differences between the comparable sales8.8 to 18.7% (16.7%)
Autos and RVs$297
Sales comparison approachAdjustment for differences between the comparable sales-30.2 to 2.2% (-3.4%)
1 For impaired loans, 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.

 June 30, 2019
(Dollars in thousands)Fair ValueValuation Technique(s)Unobservable Input
Range (Weighted Average) 1
Impaired loans and leases:    
Single family real estate secured:    
Mortgage$46,005
Sales comparison approachAdjustment for differences between the comparable sales-83.2 to 80% (-2.0%)
Multifamily real estate secured$2,108
Sales comparison approach and income approachAdjustment for differences between the comparable sales and adjustments for differences in net operating income expectations, capitalization rate-87.9 to 102.7% (-0.1%)
Auto and RV secured$115
Sales comparison approachAdjustment for differences between the comparable sales-49.0 to 24.0% (2.6%)
Other$216
Discounted cash flowProjected Constant Prepayment Rate,
Projected Constant Default Rate,
Projected Loss Severity,
Discount Rate
0.0 to 0.0% (0.0%)
0.0 to 10.0% (5.0%)
100.0 to 100.0% (100.0%)
-2.2 to 1.1% (-0.6%)
Other real estate owned and foreclosed assets:
   
Single family real estate$7,449
Sales comparison approachAdjustment for differences between the comparable sales-46.3 to 53.0% (5.3%)
Autos and RVs$36
Sales comparison approachAdjustment for differences between the comparable sales-13.6 to 56.3% (8.0%)

1 For impaired loans, 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.


17


Fair value of Financial Instruments
The carrying amounts and estimated fair values of financial instruments at March 31, 2020 and June 30, 2019 were as follows:
 March 31, 2020
   Fair Value  
(Dollars in thousands)Carrying
Amount
 Level 1 Level 2 Level 3 Total Fair Value
Financial assets:         
Cash and cash equivalents$854,199
 $854,199
 $
 $
 $854,199
Securities trading919
 
 919
 
 919
Securities available-for-sale191,388
 
 179,682
 11,706
 191,388
Loans held for sale, at fair value40,236
 
 40,236
 
 40,236
Loans held for sale, at lower of cost or fair value29
 
 
 29
 29
Loans and leases held for investment—net10,372,921
 
 
 10,926,375
 10,926,375
Securities borrowed53,816
 
 
 53,827
 53,827
Customer, broker-dealer and clearing receivables187,353
 
 
 187,447
 187,447
Mortgage servicing rights9,962
 
 
 9,962
 9,962
Financial liabilities:        

Total deposits9,567,338
 
 9,312,380
 
 9,312,380
Advances from the Federal Home Loan Bank770,500
 
 780,580
 
 780,580
Borrowings, subordinated notes and debentures76,285
 
 77,104
 
 77,104
Securities loaned76,587
 
 
 76,587
 76,587
Customer, broker-dealer and clearing payables318,100
 
 
 291,679
 291,679
 June 30, 2019
 
 Fair Value  
(Dollars in thousands)Carrying
Amount
 Level 1 Level 2 Level 3 Total Fair Value
Financial assets:         
Cash and cash equivalents$857,368
 $857,368
 $
 $
 $857,368
Securities available-for-sale227,513
 
 214,488
 13,025
 227,513
Loans held for sale, at fair value33,260
 
 33,260
 
 33,260
Loans held for sale, at lower of cost or fair value4,800
 
 
 4,990
 4,990
Loans and leases held for investment—net9,382,124
 
 
 9,630,061
 9,630,061
Securities borrowed144,706
 
 
 144,720
 144,720
Customer, broker-dealer and clearing receivables203,192
 
 
 203,355
 203,355
Mortgage servicing rights9,784
 
 
 9,784
 9,784
Financial liabilities:
       
Total deposits8,983,173
 
 8,758,861
 
 8,758,861
Advances from the Federal Home Loan Bank458,500
 
 461,156
 
 461,156
Borrowings, subordinated notes and debentures168,929
 
 169,212
 
 169,212
Securities loaned198,356
 
 
 198,197
 198,197
Customer, broker-dealer and clearing payables238,604
 
 
 229,987
 229,987
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.

18


5.SECURITIES
The amortized cost, carrying amount and fair value for the trading and available-for-sale securities at March 31, 2020 and June 30, 2019 were:
 March 31, 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
$
 $13,933
 $510
 $
 $14,443
Non-agency2

 11,878
 388
 (560) 11,706
Total mortgage-backed securities
 25,811
 898
 (560) 26,149
Non-RMBS:         
U.S. agencies1

 1,700
 
 
 1,700
Municipal919
 10,544
 28
 (183) 10,389
Asset-backed securities and structured notes
 156,315
 495
 (3,660) 153,150
Total Non-RMBS919
 168,559
 523
 (3,843) 165,239
Total debt securities$919
 $194,370
 $1,421
 $(4,403) $191,388
          
          
 June 30, 2019
 Trading Available-for-sale
(Dollars in thousands)
Fair
Value
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
Mortgage-backed securities (RMBS):         
U.S. agencies1
$
 $9,486
 $179
 $(79) $9,586
Non-agency2

 13,489
 226
 (690) 13,025
Total mortgage-backed securities
 22,975
 405
 (769) 22,611
Non-RMBS:         
U.S. agencies1

 1,682
 3
 
 1,685
Municipal
 21,974
 16
 (828) 21,162
Asset-backed securities and structured notes
 179,976
 2,088
 (9) 182,055
Total Non-RMBS
 203,632
 2,107
 (837) 204,902
Total debt securities$
 $226,607
 $2,512
 $(1,606) $227,513
1 
U.S. government-backed including and Ginnie Mae, or government sponsored enterprises including Fannie Mae and Freddie Mac.
2 
Private 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 $11,706 at March 31, 2020 consists of 14 different issues of super senior securities.
The face amounts of debt securities available-for-sale that were pledged to secure borrowings at March 31, 2020 and June 30, 2019 were $3,399 and $3,555, respectively.

19


The securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows:
 March 31, 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-agency28
 (1) 7,652
 (559) 7,680
 (560)
Total RMBS securities28
 (1) 7,652
 (559) 7,680
 (560)
Non-RMBS:           
Municipal debt5,028
 (1) 2,017
 (182) 7,045
 (183)
Asset-backed securities and structured notes152,678
 (3,657) 472
 (3) 153,150
 (3,660)
Total Non-RMBS157,706
 (3,658) 2,489
 (185) 160,195
 (3,843)
Total debt securities$157,734
 $(3,659) $10,141
 $(744) $167,875
 $(4,403)
            
 June 30, 2019
 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$44
 $(2) $4,612
 $(77) $4,656
 $(79)
Non-agency32
 (1) 8,527
 (689) 8,559
 (690)
Total RMBS securities76
 (3) 13,139
 (766) 13,215
 (769)
Non-RMBS:           
Municipal debt
 
 12,997
 (828) 12,997
 (828)
Asset-backed securities and structured notes101
 (1) 1,779
 (8) 1,880
 (9)
Total Non-RMBS101
 (1) 14,776
 (836) 14,877
 (837)
Total debt securities$177
 $(4) $27,915
 $(1,602) $28,092
 $(1,606)

There were 10 securities that were in a continuous loss position at March 31, 2020 for a period of more than 12 months. There were 6 securities that were in a continuous loss position at March 31, 2020 for a period of less than 12 months. There were NaN securities that were in a continuous loss position at June 30, 2019 for a period of more than 12 months. There were 3 securities that were in a continuous loss position at June 30, 2019 for a period of less than 12 months.
    

At March 31, 2020, 1 non-agency RMBS with a total carrying amount of $2,929 was determined to have cumulative credit losses of $821 of which NaN was recognized in earnings during the three months ended March 31, 2020. The Company measures its non-agency RMBS in an unrealized loss position at the end of the reporting period for other-than-temporary impairment by comparing the present value of the cash flows currently expected to be collected from the security with its amortized cost basis. If the calculated present value is lower than the amortized cost, the difference is the credit component of an other-than-temporary impairment of its debt securities. The excess of present value over the fair value of the security, if any, is the noncredit component of the other-than-temporary impairment. If the Company does not intend to sell the security and will not be required to sell the security before recovery of its amortized cost basis, the credit component of other-than-temporary impairment is recorded as a loss in earnings and the noncredit component of other-than-temporary impairment is recorded in comprehensive income, net of the related income tax benefit. If the Company does not intend to hold the security, or will be required to sell the security prior to a recovery of the amortized cost basis of the security, the credit component and noncredit component of the other-than-temporary impairment is recorded as a loss in earnings.
To determine the cash flow expected to be collected and to calculate the present value for purposes of testing for other-than-temporary impairment, the Company utilizes the same industry-standard tool and the same cash flows as those calculated for Level 3 fair values as discussed in Note 4 – “Fair Value” in our Annual Report on Form 10-K for the year ended June 30, 2019. The discount rates used to compute the present value of the expected cash flows for purposes of testing for the credit component of the other-than-temporary impairment are either the implicit rate calculated in each of the Company’s securities at acquisition or the last accounting

20


yield. The Company calculates the implicit rate at acquisition based on the contractual terms of the security, considering scheduled payments (and minimum payments in the case of pay-option ARMs) without prepayment assumptions. Once the discount rate (or discount margin in the case of floating rate securities) is calculated as described above, the discount is used in the industry-standard model to calculate the present value of the cash flows.
During the three months ended March 31, 2019, the company sold 0 available-for-sale securities. During the three months ended March 31, 2020, the company sold trading securities with a carrying value of $7,866 resulting in a gain of $54 and 0 available-for-sale securities.
        

The Company had recorded unrealized gains and unrealized losses in accumulated other comprehensive loss as follows:
(Dollars in thousands)March 31,
2020
 June 30,
2019
Available-for-sale debt securities—net unrealized gains (losses)$(2,982) $905
Available-for-sale debt securities—non-credit related losses(845) (845)
Subtotal(3,827) 60
Tax benefit (expense)1,101
 (44)
Net unrealized gain (loss) on investment securities in accumulated other comprehensive income (loss)$(2,726) $16


The expected maturity distribution of the Company’s mortgage-backed securities and the contractual maturity distribution of the Company’s Non-RMBS securities classified as available-for-sale were:

March 31, 2020

 Available for sale
(Dollars in thousands) 
Amortized
Cost
 
Fair
Value
RMBS—U.S. agencies1:
    
Due within one year $1,969
 $2,040
Due one to five years 6,288
 6,508
Due five to ten years 2,940
 3,053
Due after ten years 2,736
 2,842
Total RMBS—U.S. agencies1
 13,933
 14,443
RMBS—Non-agency:    
Due within one year 2,372
 2,326
Due one to five years 6,260
 6,096
Due five to ten years 2,594
 2,566
Due after ten years 652
 718
Total RMBS—Non-agency 11,878
 11,706
Non-RMBS:    
Due within one year 22,244
 22,521
Due one to five years 140,857
 137,416
Due five to ten years 769
 722
Due after ten years 4,689
 4,580
Total Non-RMBS 168,559
 165,239
Total $194,370
 $191,388

1 Residential mortgage-backed security (RMBS) distributions include impact of expected prepayments and other timing factors.


21


6.LOANS, LEASES & ALLOWANCE FOR LOAN AND LEASE LOSSES
The following table sets forth the composition of the loan and lease portfolio as of the dates indicated:
(Dollars in thousands)March 31, 2020 June 30, 2019
Single family real estate secured:   
Mortgage$4,139,163
 $4,281,080
Warehouse380,146
 301,999
Financing1
663,367
 518,560
Multifamily secured - mortgage and financing2,197,889
 1,948,513
Commercial real estate secured - mortgage
409,844
 326,154
Auto and RV secured311,740
 290,894
Commercial & Industrial2,214,292
 1,662,629
Other136,863
 119,481
Total gross loans and leases10,453,304
 9,449,310
Allowance for loan and lease losses(87,097) (57,085)
Unaccreted premiums (discounts) and loan and lease fees6,714
 (10,101)
Total net loans and leases$10,372,921
 $9,382,124

1Single family real estate secured: Financing consists of commercial specialty and lender finance loans secured by single family real estate.

Allowance for Loan and Lease Losses. We are committed to maintaining the allowance for loan and lease losses (sometimes referred to as the “allowance”) at a level that is considered to be commensurate with estimated probable incurred credit losses in the portfolio. The assessment of the adequacy of the Company’s allowance for loan and lease losses is based upon a number of quantitative and qualitative factors, including levels and trends of past due and nonaccrual loans, changes in the volume and mix of loans, collateral values and charge-off history. Although the adequacy of the allowance is reviewed quarterly, the Company performs an ongoing assessment of the risks inherent in the portfolio. The Company is closely monitoring the rapid developments and uncertainties caused by the COVID-19 pandemic and has increased provisions for loan and lease losses by $6.6 million as a result of reduced business activities due to the weakening economy. While the Company believes that the allowance for loan and lease losses is adequate at March 31, 2020, future additions to the allowance will be subject to continuing evaluation of estimated and known, as well as inherent risks in the loan and lease portfolio.

22


The following tables summarize activity in the allowance for loan and lease losses by portfolio classes for the periods indicated:
 For the Three Months Ended March 31, 2020
 Single Family Real Estate Secured            
(Dollars in thousands)Mortgage Warehouse Financing MF secured CRE secured Auto and RV Secured Commercial & Industrial Other Total
Balance at January 1, 2020$20,234
 $1,428
 $3,591
 $5,322
 $1,191
 $5,064
 $18,762
 $3,922
 $59,514
Provision for loan and lease losses705
 1
 866
 653
 354
 1,269
 4,277
 20,375
 28,500
Charge-offs
 
 
 
 
 (450) 
 (840) (1,290)
Recoveries62
 
 
 
 
 132
 
 179
 373
Balance at March 31, 2020$21,001
 $1,429
 $4,457
 $5,975
 $1,545
 $6,015
 $23,039
 $23,636
 $87,097
                  
                  
 For the Three Months Ended March 31, 2019
 Single Family Real Estate Secured            
(Dollars in thousands)Mortgage Warehouse Financing MF secured CRE secured Auto and RV Secured Commercial & Industrial Other Total
Balance at January 1, 2019$22,249
 $615
 $2,722
 $4,833
 $974
 $4,013
 $15,181
 $3,119
 $53,706
Provision for loan and lease losses(1,168) (49) 840
 (407) 117
 655
 3,038
 15,974
 19,000
Charge-offs(59) 
 
 
 
 (288) 
 (714) (1,061)
Recoveries3
 
 
 
 
 42
 
 56
 101
Balance at March 31, 2019$21,025
 $566
 $3,562
 $4,426
 $1,091
 $4,422
 $18,219
 $18,435
 $71,746
                  
                  
  
 For the Nine Months Ended March 31, 2020
 Single Family Real Estate Secured            
(Dollars in thousands)Mortgage Warehouse Financing MF secured CRE secured Auto and RV Secured Commercial & Industrial Other Total
Balance at July 1, 2019$21,295
 $996
 $5,331
 $4,097
 $1,044
 $4,818
 $17,514
 $1,990
 $57,085
Provision for loan and lease losses(383) 433
 (874) 1,759
 501
 1,981
 9,657
 22,626
 35,700
Charge-offs(151) 
 
 
 
 (1,069) (4,132) (2,401) (7,753)
Recoveries240
 
 
 119
 
 285
 
 1,421
 2,065
Balance at March 31, 2020$21,001
 $1,429
 $4,457
 $5,975
 $1,545
 $6,015
 $23,039
 $23,636
 $87,097
                  
                  
 For the Nine Months Ended March 31, 2019
 Single Family Real Estate Secured            
(Dollars in thousands)Mortgage Warehouse Financing MF secured CRE secured Auto and RV Secured Commercial & Industrial Other Total
Balance at July 1, 2018$20,382
 $523
 $1,557
 $5,010
 $849
 $3,178
 $16,282
 $1,370
 $49,151
Provision for loan and lease losses1,038
 43
 2,005
 (693) 242
 1,947
 3,086
 16,882
 24,550
Charge-offs(799) 
 
 
 
 (832) (1,149) (1,706) (4,486)
Recoveries404
 
 
 109
 
 129
 
 1,889
 2,531
Balance at March 31, 2019$21,025
 $566
 $3,562
 $4,426
 $1,091
 $4,422
 $18,219
 $18,435
 $71,746



23


The following tables present our loans and leases evaluated individually for impairment by portfolio class:
 March 31, 2020
(Dollars in thousands)
Unpaid
Principal Balance
 
Principal Balance Adjustment1
 Recorded Investment 
Accrued Interest /
Origination Fees
 Total Related Allocation of General Allowance Related Allocation of Specific Allowance
With no related allowance recorded:             
Single family real estate secured:             
Mortgage:             
     In-house originated$2,538
 $529
 $2,009
 $163
 $2,172
 $
 $
     Purchased1,237
 872
 365
 1
 366
 
 
Auto and RV secured:             
     In-house originated549
 386
 163
 8
 171
 
 
     Purchased
 
 
 
 
 
 
Other4,606
 4,606
 
 437
 437
 
 
              
With an allowance recorded:             
Single family real estate secured:             
Mortgage:             
     In-house originated50,294
 301
 49,993
 1,036
 51,029
 247
 
     Purchased1,929
 190
 1,739
 103
 1,842
 10
 
Multifamily secured - mortgage and financing:             
     In-house originated1,191
 15
 1,176
 8
 1,184
 1
 
Commercial real estate secured:             
     In-house originated1,921
 12
 1,909
 19
 1,928
 2
 
Auto and RV secured186
 10
 176
 3
 179
 11
 
Other406
 
 406
 
 406
 33
 
Total$64,857
 $6,921
 $57,936
 $1,778
 $59,714
 $304
 $
As a % of total gross loans and leases0.62% 0.07% 0.55% 0.02% 0.57% % %

 June 30, 2019
(Dollars in thousands)Unpaid Principal Balance 
Principal Balance Adjustment1
 Recorded Investment 
Accrued Interest /
Origination Fees
 Total Related Allocation of General Allowance Related Allocation of Specific Allowance
With no related allowance recorded:             
Single family real estate secured:             
Mortgage:             
     In-house originated$4,874
 $1,775
 $3,099
 $255
 $3,354
 $
 $
     Purchased2,237
 1,142
 1,095
 
 1,095
 
 
Auto and RV secured:             
     In-house originated326
 221
 105
 4
 109
 
 
              
With an allowance recorded:             
Single family real estate secured:             
Mortgage:             
     In-house originated40,758
 348
 40,410
 731
 41,141
 393
 
     Purchased1,418
 17
 1,401
 109
 1,510
 12
 
Multifamily secured - mortgage and financing:             
     In-house originated2,108
 
 2,108
 9
 2,117
 3
 
Auto and RV Secured10
 
 10
 
 10
 1
 
Other216
 
 216
 
 216
 13
 
Total$51,947
 $3,503
 $48,444
 $1,108
 $49,552
 $422
 $
As a % of total gross loans and leases0.55% 0.04% 0.51% 0.01% 0.52% % %

1 
Impaired loans with an allowance recorded do not have any charge-offs. Principal balance adjustments on impaired loans with an allowance recorded represent interest payments that have been applied to the book balance as a result of the loans’ non-accrual status.










24


The following tables present the balance in the allowance for loan and lease losses and the recorded investment in loans and leases by portfolio segment and based on impairment evaluation method:
 March 31, 2020
 Single Family Real Estate Secured            
(Dollars in thousands)Mortgage Warehouse Financing MF secured CRE secured Auto and RV secured Commercial & Industrial Other Total
Allowance for loan and lease losses:                
Ending allowance balance attributable to loans and leases:            
Individually evaluated for impairment – general allowance$257
 $
 $
 $1
 $2
 $11
 $
 $33
 $304
Collectively evaluated for impairment20,744
 1,429
 4,457
 5,974
 1,543
 6,004
 23,039
 23,603
 86,793
Total ending allowance balance$21,001
 $1,429
 $4,457
 $5,975
 $1,545
 $6,015
 $23,039
 $23,636
 $87,097
Loans and leases:                 
Loans and leases individually evaluated for impairment$54,106
 $
 $
 $1,176
 $1,909
 $339
 $
 $406
 $57,936
Loans and leases collectively evaluated for impairment4,085,057
 380,146
 663,367
 2,196,713
 407,935
 311,401
 2,214,292
 136,457
 10,395,368
Principal loan and lease balance4,139,163
 380,146
 663,367
 2,197,889
 409,844
 311,740
 2,214,292
 136,863
 10,453,304
Unaccreted discounts and loan and lease fees9,170
 
 (3,071) 3,914
 681
 2,623
 (3,374) (3,229) 6,714
Total recorded investment in loans and leases$4,148,333
 $380,146
 $660,296
 $2,201,803
 $410,525
 $314,363
 $2,210,918
 $133,634
 $10,460,018

 June 30, 2019
 Single Family Real Estate Secured            
(Dollars in thousands)Mortgage Warehouse Financing MF secured CRE secured Auto and RV secured Commercial & Industrial Other Total
Allowance for loan and lease losses:                
Ending allowance balance attributable to loans and leases:            
Individually evaluated for impairment – general allowance$405
 $
 $
 $3
 $
 $1
 $
 $13
 $422
Collectively evaluated for impairment20,890
 996
 5,331
 4,094
 1,044
 4,817
 17,514
 1,977
 56,663
Total ending allowance balance$21,295
 $996
 $5,331
 $4,097
 $1,044
 $4,818
 $17,514
 $1,990
 $57,085
Loans and leases:                 
Loans and leases individually evaluated for impairment$46,005
 $
 $
 $2,108
 $
 $115
 $
 $216
 $48,444
Loans and leases collectively evaluated for impairment4,235,075
 301,999
 518,560
 1,946,405
 326,154
 290,779
 1,662,629
 119,265
 9,400,866
Principal loan and lease balance4,281,080
 301,999
 518,560
 1,948,513
 326,154
 290,894
 1,662,629
 119,481
 9,449,310
Unaccreted discounts and loan and lease fees8,790
 
 (1,773) 5,090
 649
 2,631
 (3,188) (22,300) (10,101)
Total recorded investment in loans and leases$4,289,870
 $301,999
 $516,787
 $1,953,603
 $326,803
 $293,525
 $1,659,441
 $97,181
 $9,439,209




25


Credit Quality Disclosures. Nonaccrual loans and leases consisted of the following as of the dates indicated:
(Dollars in thousands)March 31,
2020
 June 30,
2019
Single Family Real Estate Secured:   
Mortgage:   
In-house originated$52,002
 $43,509
Purchased2,104
 2,496
Multifamily secured - mortgage and financing:   
In-house originated1,176
 2,108
Commercial real estate secured:   
In-house originated1,909
 
Total nonaccrual loans secured by real estate57,191
 48,113
Auto and RV secured339
 115
Other406
 216
Total nonaccrual loans and leases$57,936
 $48,444
Nonaccrual loans and leases to total loans and leases0.55% 0.51%


Approximately 0.55% of our nonaccrual loans and leases at March 31, 2020 were considered TDRs, compared to 1.29% at June 30, 2019. 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 and lease category to the performing loan and lease category and any previously deferred interest income is recognized. Approximately 93.39% of the Bank’s nonaccrual loans and leases are single family first mortgages, repaid and written down to 91.37% in aggregate, of the original loan value of the underlying properties.
The following tables present the outstanding unpaid balance of loans and leases that are performing and nonaccrual by portfolio class:
 March 31, 2020
 Single Family Real Estate Secured            
(Dollars in thousands)Mortgage Warehouse Financing MF secured CRE secured Auto and RV secured Commercial & Industrial Other Total
Performing$4,085,057
 $380,146
 $663,367
 $2,196,713
 $407,935
 $311,401
 $2,214,292
 $136,457
 $10,395,368
Nonaccrual54,106
 
 
 1,176
 1,909
 339
 
 406
 57,936
Total$4,139,163
 $380,146
 $663,367
 $2,197,889
 $409,844
 $311,740
 $2,214,292
 $136,863
 $10,453,304

 June 30, 2019
 Single Family Real Estate Secured            
(Dollars in thousands)Mortgage Warehouse Financing MF secured CRE secured Auto and RV secured Commercial & Industrial Other Total
Performing$4,235,075
 $301,999
 $518,560
 $1,946,405
 $326,154
 $290,779
 $1,662,629
 $119,265
 $9,400,866
Nonaccrual46,005
 
 
 2,108
 
 115
 
 216
 48,444
Total$4,281,080
 $301,999
 $518,560
 $1,948,513
 $326,154
 $290,894
 $1,662,629
 $119,481
 $9,449,310


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 0 TDRs classified as performing loans at March 31, 2020 or June 30, 2019. There have been no loan modifications as a result of the COVID-19 pandemic as of March 31, 2020. Under the guidelines set forth in the CARES Act, for our borrowers who are one or less payments past due on April 1, 2020, the Company may delay payments for an agreed upon timeframe, depending on each individual borrower’s characteristics.

                  
                  
                    
                    
                    



26


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.

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The following table presents the composition of the Company’s loan and lease portfolio by credit quality indicators:
 March 31, 2020
(Dollars in thousands)Pass Special
Mention
 Substandard Doubtful Total
Single family real estate secured:         
Mortgage         
    In-house originated$3,982,119
 $70,561
 $54,940
 $
 $4,107,620
    Purchased29,279
 160
 2,104
 
 31,543
Warehouse363,874
 16,272
 
 
 380,146
Financing596,593
 51,479
 15,295
 
 663,367
Multifamily secured - mortgage and financing         
    In-house originated2,138,805
 12,064
 2,047
 
 2,152,916
    Purchased44,056
 
 917
 
 44,973
Commercial real estate secured - mortgage         
    In-house originated401,579
 
 1,909
 
 403,488
    Purchased6,356
 
 
 
 6,356
Auto and RV secured310,924
 234
 582
 
 311,740
Commercial & Industrial2,173,632
 30,935
 9,725
 
 2,214,292
Other136,296
 161
 406
 
 136,863
Total$10,183,513
 $181,866
 $87,925
 $
 $10,453,304
As a % of total gross loans and leases97.4% 1.7% 0.8% % 100.0%
          
 June 30, 2019
(Dollars in thousands)Pass Special
Mention
 Substandard Doubtful Total
Single family real estate secured:         
Mortgage         
    In-house originated$4,157,665
 $37,219
 $44,568
 $
 $4,239,452
    Purchased38,534
 598
 2,496
 
 41,628
Warehouse301,999
 
 
 
 301,999
Financing440,298
 21,600
 56,662
 
 518,560
Multifamily secured - mortgage and financing         
    In-house originated1,890,524
 427
 2,108
 
 1,893,059
    Purchased54,514
 
 940
 
 55,454
Commercial real estate secured - mortgage         
    In-house originated318,629
 
 
 
 318,629
    Purchased7,525
 
 
 
 7,525
Auto and RV secured290,691
 68
 135
 
 290,894
Commercial & Industrial1,660,821
 1,722
 86
 
 1,662,629
Other119,036
 229
 216
 
 119,481
Total$9,280,236
 $61,863
 $107,211
 $
 $9,449,310
As a % of total gross loans and leases98.2% 0.7% 1.1% % 100.0%




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The Company considers the performance of the loan and lease portfolio and its impact on the allowance for loan and lease losses. 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 following table provides the outstanding unpaid balance of loans and leases that are past due 30 days or more by portfolio class as of the period indicated:
 March 31, 2020
(Dollars in thousands)30-59 Days Past Due 60-89 Days Past Due 90+ Days Past Due Total
Single family real estate secured:       
Mortgage       
In-house originated$20,480
 $17,146
 $48,738
 $86,364
Purchased62
 457
 850
 1,369
Multifamily secured - mortgage and financing639
 423
 
 1,062
Auto and RV secured1,804
 356
 212
 2,372
Commercial & Industrial
 
 
 
Other247
 193
 341
 781
Total$23,232
 $18,575
 $50,141
 $91,948
As a % of total gross loans and leases0.22% 0.18% 0.48% 0.88%
        
 June 30, 2019
(Dollars in thousands)30-59 Days Past Due 60-89 Days Past Due 90+ Days Past Due Total
Single family real estate secured:       
Mortgage       
In-house originated$12,008
 $15,616
 $35,700
 $63,324
Purchased228
 
 1,458
 1,686
Multifamily secured - mortgage and financing1,684
 
 1,588
 3,272
Auto and RV secured476
 155
 17
 648
Other250
 229
 216
 695
Total$14,646
 $16,000
 $38,979
 $69,625
As a % of total gross loans and leases0.15% 0.17% 0.41% 0.74%



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7.LEASES
The Company determines if an arrangement is a lease at inception. Operating leases with a term of greater than one year are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the Company’s unaudited condensed consolidated balance sheets. The Company has lease agreements with lease and non-lease components, which are generally accounted for as a single lease component. Leases of low-value assets are assessed on a lease-by-lease basis to determine the need for balance sheet capitalization. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized on the lease commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses the incremental borrowing rate commensurate with the lease term based on the information available at the lease commencement date in determining the present value of lease payments. No significant judgments or assumptions were involved in developing the estimated operating lease liabilities as the Company’s operating lease liabilities largely represent the future rental expenses associated with operating leases, and the incremental borrowing rates are based on publicly available interest rates. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease. These options to extend or terminate are assessed on a lease-by-lease basis, and the ROU assets and lease liabilities are adjusted when it is reasonably certain that an option will be exercised. Rental expense for lease payments is recognized on a straight-line basis over the lease term and is included in occupancy and equipment, net within our unaudited condensed consolidated statements of operations.
The components of lease expense were as follows:
(Dollars in thousands) Three Months Ended March 31, 2020For the Nine Months Ended March 31, 2020
Operating Lease Expense $2,654
$7,889

Supplemental cash flow information related to leases was as follows:
(Dollars in thousands) March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities for operating leases:  
Operating cash flows $5,993
ROU assets obtained in the exchange for lease liabilities:  
ROU assets obtained in exchange for lease liabilities $
ROU assets recognized upon adoption of new lease standard $77,794

Supplemental balance sheet information related to leases was as follows:
(Dollars in thousands) March 31, 2020
Operating lease right-of-use assets $75,237
Operating lease liabilities $78,637
Weighted-average remaining lease term (in years):  
Operating leases 9.33 years
Weighted-average discount rate:  
Operating leases 2.90%





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Maturities of lease liabilities at March 31, 2020 were as follows:
(Dollars in thousands) Operating Leases
Remainder of 2020 $2,420
2021 8,878
2022 9,546
2023 9,817
2024 9,420
Thereafter 50,742
Total lease payments 90,823
Less: present value discount (12,186)
Total Lease Liability $78,637


8.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. During the nine months ended March 31, 2020, the Company repurchased a total of $35.8 million, or 1,815,783 common shares at an average price of $19.74 per share. The Company has $72.5 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 nine months ended March 31, 2020 and 2019, the Company granted 710,032 and 1,101,724 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 nine months ended March 31, 2020 and 2019 include stock award expense of $16,786 and $17,979, with total income tax benefit of $4,880 and $4,773, respectively. The Company recognizes compensation expense based upon the grant-date fair value divided by the vesting and the service period between each vesting date. At March 31, 2020, unrecognized compensation expense related to non-vested awards aggregated to $36,607 and is expected to be recognized in future periods as follows:
(Dollars in thousands)
Stock Award
Compensation
Expense
For the fiscal year remainder: 
2020$5,384
202116,486
202210,057
20233,514
2024734
Thereafter432
Total$36,607


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, 20181,233,731
 $24.84
Granted1,103,249
 34.68
Vested(699,223) 26.74
Canceled(90,909) 29.46
Non-vested balance at June 30, 20191,546,848
 $30.73
Granted710,032
 24.09
Vested(455,424) 27.71
Canceled(98,757) 29.46
Non-vested balance at March 31, 20201,702,699
 $28.84

The total fair value of shares vested for the three and nine months ended March 31, 2020 was $2,374 and $11,906. The total fair value of shares vested for the three and nine months ended March 31, 2019 was $421 and $13,609.
9.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 Nine Months Ended
 March 31, March 31,
(Dollars in thousands, except per share data)2020 2019 2020 2019
Earnings Per Common Share       
Net income$56,057
 $38,821
 $138,138
 $114,497
Preferred stock dividends(77) (77) (232) (232)
Net income attributable to common stockholders$55,980
 $38,744
 $137,906
 $114,265
Average common shares outstanding60,967,892
 61,259,419
 61,176,715
 62,130,598
Total qualifying shares60,967,892
 61,259,419
 61,176,715
 62,130,598
Earnings per common share$0.92
 $0.63
 $2.25
 $1.84
Diluted Earnings Per Common Share       
Dilutive net income attributable to common stockholders$55,980
 $38,744
 $137,906
 $114,265
Average common shares issued and outstanding60,967,892
 61,259,419
 61,176,715
 62,130,598
Dilutive effect of average unvested RSUs555,621
 330,243
 635,130
 466,685
Total dilutive common shares outstanding61,523,513
 61,589,662
 61,811,845
 62,597,283
Diluted earnings per common share$0.91
 $0.63
 $2.23
 $1.83


10.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 loan and lease 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.
There have been no loan modifications as a result of the COVID-19 pandemic as of March 31, 2020. Under the guidelines set forth in the CARES Act, for our borrowers who are one or less payments past due on April 1, 2020, the Company may delay payments for an agreed upon timeframe, depending on each individual borrower’s characteristics.

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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 March 31, 2020, the Company had commitments to originate $132,672 in fixed rate loans and leases and $703,457 in variable rate loans, totaling an aggregate outstanding principal balance of $836,129. For March 31, 2020, the Company’s fixed rate commitments to originate had a weighted-average rate of 2.94%. At March 31, 2020, the Company also had commitments to sell $166,080 in fixed rate loans and $0 in variable rate loans, totaling an aggregate outstanding principal balance of $166,080.
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.
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 filed a notice of appeal and opening brief, the Company has filed its answering brief and argument in the appeal from dismissal was held.
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 and the Company filed its answering brief, on May 8, 2019. Oral arguments are scheduled via video for May 7, 2020.
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, 2 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

32


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 6 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 4 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. On June 20, 2019, the plaintiff filed a notice of appeal to the United States Court of Appeals for the Ninth Circuit and subsequently opening and answering briefs were filed.
The 2 derivative actions pending before the San Diego County Superior Court have been consolidated and have been stayed by agreement of the parties.
In view of the inherent difficulty of predicting the outcome of each legal action, particularly since claimants seek substantial or indeterminate damages, it is not possible to reasonably predict or estimate the eventual loss or range of loss, if any, related to each legal action.
11.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 3 new related party loans for approximate amount of $4.0 million funded under the provisions of the employee loan program and 1 refinance of an existing loan during the nine months ended March 31, 2020, and 1 new loan and 1 refinances of existing loans during the nine months ended March 31, 2019.

33


12.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 2 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 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. Providing 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 that 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, 2019. 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.

34


In order to reconcile the 2 segments to the unaudited condensed consolidated totals, the Company includes parent-only activities and intercompany eliminations. The following tables present the operating results, goodwill, and assets of the segments:
 For the Three Months Ended March 31, 2020
(Dollars in thousands)
Banking
Business
 Securities Business Corporate/Eliminations Axos Consolidated
Net interest income$145,372
 $3,954
 $(710) $148,616
Provision for loan losses28,500
 
 
 28,500
Non-interest income25,259
 6,402
 (119) 31,542
Non-interest expense56,661
 11,137
 3,992
 71,790
Income before taxes$85,470
 $(781) $(4,821) $79,868

 For the Three Months Ended March 31, 2019
(Dollars in thousands)Banking
Business
 Securities Business Corporate/Eliminations Axos Consolidated
Net interest income$127,072
 $2,951
 $(854) $129,169
Provision for loan losses19,000
 
 
 19,000
Non-interest income21,027
 5,071
 
 26,098
Non-interest expense52,224
 23,102
 6,489
 81,815
Income before taxes$76,875
 $(15,080) $(7,343) $54,452
 Nine Months Ended March 31, 2020
(Dollars in thousands)Banking
Business
 Securities Business Corporate/Eliminations Axos Consolidated
Net interest income$350,184
 $13,137
 $(2,982) $360,339
Provision for loan losses35,700
 
 
 35,700
Non-interest income57,274
 19,087
 (2,076) 74,285
Non-interest expense160,547
 32,656
 11,019
 204,222
Income before taxes$211,211
 $(432) $(16,077) $194,702
 Nine Months Ended March 31, 2019
(Dollars in thousands)Banking
Business
 Securities Business Corporate/Eliminations Axos Consolidated
Net interest income$307,564
 $2,951
 $(2,347) $308,168
Provision for loan losses24,550
 
 
 24,550
Non-interest income54,462
 5,071
 
 59,533
Non-interest expense142,291
 23,102
 20,277
 185,670
Income before taxes$195,185
 $(15,080) $(22,624) $157,481
 As of March 31, 2020
(Dollars in thousands)Banking Business Securities Business Corporate/Eliminations Axos Consolidated
Goodwill$35,721
 $35,501
 $
 $71,222
Total Assets$11,543,844
 $522,670
 $93,405
 $12,159,919

 As of March 31, 2019
(Dollars in thousands)Banking Business Securities Business Corporate/Eliminations Axos Consolidated
Goodwill$35,721
 $34,933
 $
 $70,654
Total Assets$10,166,064
 $701,102
 $8,395
 $10,875,561



35


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, 2019, 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 successfully integrate recent acquisitions and realize the anticipated benefits of the transactions, 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, changes in the interest rate environment, inflation, government regulation, general economic conditions, changes in the competitive marketplace, conditions in the real estate markets in which we operate, risks associated with credit quality, the outcome and effects of pending class action litigation filed against the Company and other risk factors discussed under the heading “Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and in our Annual Report on Form 10-K for the year ended June 30, 2019, 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 $12.2 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 selected specialty finance receivables. 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 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.

36


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 loan and lease 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.

There have been no loan modifications as a result of the COVID-19 pandemic as of March 31, 2020. 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.


37


Mergers and Acquisitions
From time to time we undertake acquisitions or similar transactions consistent with our Company’s operating and growth strategies. We completed two business acquisition and two asset acquisitions during the fiscal year ended June 30, 2019, with no new acquisition activity during the nine months ended March 31, 2020. Additionally, in October 2019, the Bank renewed its agreement with H&R Block to be the exclusive provider of interest-free Refund Advance loans to customers during the 2020 tax season. Further discussion of our Brand Partnership Products can be found under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended June 30, 2019.
Critical Accounting Policies
The following discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements and the notes thereto, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited condensed consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the unaudited condensed consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various factors and circumstances. We believe that our estimates and assumptions are reasonable under the circumstances. However, actual results may differ significantly from these estimates and assumptions that could have a material effect on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods.
Our significant accounting policies and practices are described in greater detail in Note 1 to our June 30, 2019 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, 2019.

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, are not required to be uniformly applied and are not audited. Readers should be aware of these limitations and should be cautious as to their use of 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 net income without the after-tax impact of non-recurring acquisition-related costs (including amortization of intangible assets related to acquisitions), and excess FDIC expense, and other costs (unusual or non-recurring charges), (“adjusted earnings”), a non-GAAP financial measure. Excess FDIC expense is defined as the higher insurance costs associated with increased levels of short-term brokered deposits in anticipation of the acquisition of deposits from Nationwide Bank. Other costs for the three and nine months ended March 31, 2019, are due to a $15.3 million bad debt expense related to a correspondent customer of our clearing broker-dealer. 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. Excluding the non-recurring acquisition related costs, excessive FDIC expense, and other costs provides investors with an understanding of Axos’ business without these non-recurring costs.
Below is a reconciliation of net income to adjusted earnings and adjusted EPS (Non-GAAP) for the periods shown:
 Three Months Ended Nine Months Ended
 March 31, March 31,
(Dollars in thousands, except per share amounts)2020 2019 2020 2019
Net income$56,057
 $38,821
 $138,138
 $114,497
Acquisition-related costs
2,273
 2,511
 6,520
 4,644
Excess FDIC expense
 
 
 1,111
Other costs
 15,299
 
 15,299
Income taxes(678) (5,113) (1,895) (5,746)
Adjusted earnings (Non-GAAP)$57,652
 $51,518
 $142,763
 $129,805
Adjusted EPS (Non-GAAP)$0.94
 $0.84
 $2.31
 $2.07


38


We define book value adjusted for goodwill and other intangible assets as tangible book value (“tangible book value”),
a non-GAAP financial measure. 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 to tangible book value (Non-GAAP) as of the dates indicated:
 March 31,
(Dollars in thousands)2020 2019
Total stockholders’ equity$1,184,452
 $1,039,485
Less: preferred stock5,063
 5,063
Common stockholders’ equity1,179,389
 1,034,422
Less: mortgage servicing rights, carried at fair value9,962
 10,355
Less: goodwill and other intangible assets127,962
 136,076
Tangible common stockholders’ equity (Non-GAAP)$1,041,465
 $887,991
Common shares outstanding at end of period59,653,192
 61,285,375
Tangible book value per common share (Non-GAAP)$17.46
 $14.49


39


SELECTED FINANCIAL DATA
The following tables set forth certain selected financial data concerning the periods indicated:
AXOS FINANCIAL, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Dollars in thousands)March 31,
2020
 June 30,
2019
 March 31,
2019
Selected Balance Sheet Data:     
Total assets12,159,919
 $11,220,238
 $10,875,561
Loans and leases—net of allowance for loan and lease losses10,372,921
 9,382,124
 9,098,453
Loans held for sale, carried at fair value40,236
 33,260
 15,714
Loans held for sale, lower of cost or fair value29
 4,800
 3,267
Allowance for loan and lease losses87,097
 57,085
 71,746
Securities—trading919
 
 
Securities—available-for-sale191,388
 227,513
 219,156
Securities borrowed53,816
 144,706
 127,167
Customer, broker-dealer and clearing receivables187,353
 203,192
 252,900
Total deposits9,567,338
 8,983,173
 8,655,455
Advances from the FHLB770,500
 458,500
 443,500
Borrowings, subordinated notes and debentures

76,285
 168,929
 214,477
Securities loaned76,587
 198,356
 201,574
Customer, broker-dealer and clearing payables318,100
 238,604
 245,208
Total stockholders’ equity1,184,452
 1,073,050
 1,039,485
      
Capital Ratios:     
Equity to assets at end of period9.74% 9.56% 9.56%
Axos Financial, Inc.:     
Tier 1 leverage (core) capital to adjusted average assets8.55% 8.75% 8.36%
Common equity tier 1 capital (to risk-weighted assets)11.34% 11.43% 11.46%
Tier 1 capital (to risk-weighted assets)11.39% 11.49% 11.52%
Total capital (to risk-weighted assets)12.96% 12.91% 13.19%
Axos Bank:     
Tier 1 leverage (core) capital to adjusted average assets8.72% 9.21% 8.68%
Common equity tier 1 capital (to risk-weighted assets)11.62% 12.14% 12.33%
Tier 1 capital (to risk-weighted assets)11.62% 12.14% 12.33%
Total capital (to risk-weighted assets)12.60% 12.89% 13.31%
Axos Clearing, LLC:     
Net capital33,863
 21,669
 22,381
Excess capital30,341
 17,858
 17,759
Net capital as a percentage of aggregate debit items19.23% 11.37% 9.68%
Net capital in excess of 5% aggregate debit items25,057
 12,142
 10,825




40


AXOS FINANCIAL, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL INFORMATION

 At or for the Three Months Ended At or for the Nine Months Ended
 March 31, March 31,
(Dollars in thousands, except per share data)2020 2019 2020 2019
Selected Income Statement Data:       
Interest and dividend income$185,063
 $169,208
 $478,696
 $423,244
Interest expense36,447
 40,039
 118,357
 115,076
Net interest income148,616
 129,169
 360,339
 308,168
Provision for loan and lease losses28,500
 19,000
 35,700
 24,550
Net interest income after provision for loan and lease losses120,116
 110,169
 324,639
 283,618
Non-interest income31,542
 26,098
 74,285
 59,533
Non-interest expense71,790
 81,815
 204,222
 185,670
Income before income tax expense79,868
 54,452
 194,702
 157,481
Income tax expense23,811
 15,631
 56,564
 42,984
Net income$56,057
 $38,821
 $138,138
 $114,497
Net income attributable to common stock$55,980
 $38,744
 $137,906
 $114,265
        
Per Common Share Data:       
Net income:       
Basic$0.92
 $0.63
 $2.25
 $1.84
Diluted$0.91
 $0.63
 $2.23
 $1.83
Adjusted earnings (Non-GAAP)$0.94
 $0.84
 $2.31
 $2.07
Book value$19.77
 $16.88
 $19.77
 $16.88
Tangible book value (Non-GAAP)$17.46
 $14.49
 $17.46
 $14.49
        
Weighted average number of common shares outstanding:       
Basic60,967,892
 61,259,419
 61,176,715
 62,130,598
Diluted61,523,513
 61,589,662
 61,811,845
 62,597,283
Common shares outstanding at end of period59,653,192
 61,285,375
 59,653,192
 61,285,375
Common shares issued at end of period67,084,817
 66,253,298
 67,084,817
 66,253,298
        
Performance Ratios and Other Data:       
Loan and lease originations for investment$2,596,420
 $2,227,387
 $5,493,338
 $5,432,902
Loan originations for sale$292,226
 $287,869
 $1,286,230
 $1,201,001
Loan and lease purchases$
 $
 $
 $11,009
Return on average assets1.79% 1.42% 1.56% 1.52%
Return on average common stockholders’ equity18.65% 15.34% 15.99% 15.32%
Interest rate spread1
4.33% 4.39% 3.70% 3.79%
Net interest margin2
4.90% 4.84% 4.20% 4.19%
Net interest margin2 – Banking Business Segment only
4.97% 4.94% 4.28% 4.24%
Efficiency ratio3
39.85% 52.69% 46.99% 50.49%
Efficiency ratio3 – Banking Business Segment only
33.21% 35.26% 39.40% 39.30%
        
Asset Quality Ratios:       
Net annualized charge-offs to average loans and leases0.03% 0.04% 0.08% 0.03%
Non-performing loans and leases to total loans and leases0.55% 0.49% 0.55% 0.49%
Non-performing assets to total assets0.54% 0.48% 0.54% 0.48%
Allowance for loan and lease losses to total loans and leases held for investment at end of period0.83% 0.78% 0.83% 0.78%
Allowance for loan and lease losses to non-performing loans and leases150.33% 161.11% 150.33% 161.11%
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.

41


RESULTS OF OPERATIONS
Comparison of the Three and Nine Months Ended March 31, 2020 and 2019
For the three months ended March 31, 2020, we had net income of $56.1 million compared to net income of $38.8 million for the three months ended March 31, 2019. Net income attributable to common stockholders was $56.0 million or $0.91 per diluted share for the three months ended March 31, 2020 compared to net income attributable to common shareholders of $38.7 million, or $0.63 per diluted share for the three months ended March 31, 2019. For the nine months ended March 31, 2020, we had net income of $138.1 million compared to net income of $114.5 million for the nine months ended March 31, 2019. Net income attributable to common stockholders was $137.9 million, or $2.23 per diluted share for the nine months ended March 31, 2020 compared to net income attributable to common shareholders of $114.3 million, or $1.83 per diluted share for the nine months ended March 31, 2019. For the three months ended March 31, 2020, the increase in net income was primarily due to growth in net interest income and non-interest income, and a decrease in non-interest expense, partially offset by an increase in provision for loan losses and income tax expense. For the nine months ended March 31, 2020, the increase in net income was primarily due to growth in net interest income and non-interest income, partially offset by increases in the provision for loan losses, non-interest expenses, and income tax expense.

Adjusted earnings and adjusted EPS, non-GAAP measures, which exclude non-recurring costs related to mergers and acquisitions (including amortization of intangible assets related to acquisitions) and excess FDIC expense, increased 11.9% to $57.7 million and 11.9% to $0.94, respectively, for the quarter ended March 31, 2020 compared to $51.5 million and $0.84, respectively, for the quarter ended March 31, 2019. Adjusted earnings and adjusted EPS increased 10.0% to $142.8 million and 11.6% to $2.31, respectively, for the nine months ended March 31, 2020 compared to $129.8 million and $2.07, respectively, for the nine months ended March 31, 2019.
Net Interest Income
Net interest income for the three and nine months ended March 31, 2020 totaled $148.6 million and $360.3 million, an increase of 15.1% and 16.9%, compared to net interest income of $129.2 million and $308.2 million for the three and nine months ended March 31, 2019. The growth of net interest income for both the three and nine months ended March 31, 2020 is primarily due to increased average earnings assets from net loan and lease portfolio growth.
Total interest and dividend income during the three and nine months ended March 31, 2020 increased 9.4% to $185.1 million and 13.1% to $478.7 million, respectively, compared to $169.2 million and $423.2 million during the three and nine months ended March 31, 2019. The increases in interest and dividend income for the three and nine months ended March 31, 2020 was primarily attributable to the continued growth in average earning assets from loan and lease originations, as well as the addition of securities borrowed and margin lending from our Securities Business. The average balance of interest-earning loans and leases increased 12.8% and 12.6% for the three and nine months ended March 31, 2020 compared to the three and nine months ended March 31, 2019.
Total interest expense was $36.4 million for the three months ended March 31, 2020, a decrease of $3.6 million or 9.0% as compared with the three months ended March 31, 2019. Total interest expense was $118.4 million for the nine months ended March 31, 2020, an increase of $3.3 million or 2.9% as compared with the nine months ended March 31, 2019.
The decrease for the three months ended March 31, 2020 compared to the same 2019 period was primarily due to growth of $1.0 billion in non-interest-bearing deposits, as well as, decreased rates for interest-bearing demand and savings accounts and FHLB advances due primarily to the Fed rate reductions in March 2020, and a decreased level of average FHLB borrowing. The increase in expense for the nine months ended March 31, 2020 compared to the same 2019 period was due primarily to increased average interest-bearing deposits which grew by 19.8%, partially offset by the decreases in rate and volume of FHLB advances.
For the three months ended March 31, 2020, the net interest margin, defined as annualized net interest income divided by average earning assets, increased from 4.84% to 4.90% compared to the three months ended March 31, 2019. For the nine months ended March 31, 2020, the net interest margin increased from 4.19% to 4.20% compared to the nine months ended March 31, 2019.

42


Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents information regarding (i) average balances; (ii) the total amount of interest income from interest-earning assets and the weighted average yields on such assets; (iii) the total amount of interest expense on interest-bearing liabilities and the weighted average rates paid on such liabilities; (iv) net interest income; (v) interest rate spread; and (vi) net interest margin for the three months ended March 31, 2020 and 2019:
 For the Three Months Ended
 March 31,
 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
$10,628,840
 $175,065
 6.59% $9,418,632
 $157,181
 6.68%
Interest-earning deposits in other financial institutions913,996
 3,068
 1.34% 733,113
 3,689
 2.01%
Securities4
227,582
 2,570
 4.52% 224,410
 3,687
 6.57%
Securities borrowed and margin lending5
330,050
 3,818
 4.63% 250,052
 3,970
 6.35%
Stock of the regulatory agencies33,561
 542
 6.46% 41,012
 681
 6.64%
Total interest-earning assets12,134,029
 185,063
 6.10% 10,667,219
 169,208
 6.34%
Non-interest-earning assets387,725
     283,424
    
Total assets$12,521,754
     $10,950,643
 
  
Liabilities and Stockholders’ Equity:           
Interest-bearing demand and savings$4,628,867
 $15,882
 1.37% $3,664,220
 $14,128
 1.54%
Time deposits2,457,991
 15,372
 2.50% 2,736,040
 15,591
 2.28%
Securities loaned141,932
 115
 0.32% 346,225
 372
 0.43%
Advances from the FHLB929,151
 3,952
 1.70% 1,350,431
 8,366
 2.48%
Borrowings, subordinated notes and debentures68,552
 1,126
 6.57% 119,006
 1,582
 5.32%
Total interest-bearing liabilities8,226,493
 36,447
 1.77% 8,215,922
 40,039
 1.95%
Non-interest-bearing demand deposits2,619,102
     1,627,198
    
Other non-interest-bearing liabilities470,546
     92,208
    
Stockholders’ equity1,205,613
     1,015,315
    
Total liabilities and stockholders’ equity$12,521,754
     $10,950,643
    
Net interest income  $148,616
     $129,169
  
Interest rate spread6
    4.33%     4.39%
Net interest margin7
    4.90%     4.84%
1 
Average balances are obtained from daily data.
2 
Annualized.
3 
Loans and leases include loans held for sale, loan premiums and unearned fees.
4 
Interest 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 $27.8 million and $28.0 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 2020 and 2019 three-month periods, respectively.
5 
Margin lending is the significant component of the asset titled customer, broker-dealer and clearing receivables on the unaudited condensed consolidated balance sheets.
6 
Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.
7 
Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.





43


Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents information regarding (i) average balances; (ii) the total amount of interest income from interest-earning assets and the weighted average yields on such assets; (iii) the total amount of interest expense on interest-bearing liabilities and the weighted average rates paid on such liabilities; (iv) net interest income; (v) interest rate spread; and (vi) net interest margin for the nine months ended March 31, 2020 and 2019:
 For the Nine Months Ended
 March 31,
 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
$10,011,320
 $445,554
 5.93% $8,888,588
 $397,049
 5.96%
Interest-earning deposits in other financial institutions801,510
 10,541
 1.75% 584,422
 9,162
 2.09%
Securities4
212,529
 8,203
 5.15% 204,765
 10,165
 6.62%
Securities borrowed and margin lending5
383,540
 13,025
 4.53% 82,134
 3,970
 6.44%
Stock of the regulatory agencies28,795
 1,373
 6.36% 44,407
 2,898
 8.70%
Total interest-earning assets11,437,694
 478,696
 5.58% 9,804,316
 423,244
 5.76%
Non-interest-earning assets390,516
     226,464
    
Total assets$11,828,210
     $10,030,780
    
Liabilities and Stockholders’ Equity:           
Interest-bearing demand and savings$4,762,651
 $56,661
 1.59% $3,836,252
 $44,470
 1.55%
Time deposits2,493,812
 46,313
 2.48% 2,221,137
 39,915
 2.40%
Securities loaned278,475
 564
 0.27% 113,723
 372
 0.44%
Advances from the FHLB727,397
 10,211
 1.87% 1,541,731
 26,848
 2.32%
Borrowings, subordinated notes and debentures111,708
 4,608
 5.50% 77,217
 3,471
 5.99%
Total interest-bearing liabilities8,374,043
 118,357
 1.88% 7,790,060
 115,076
 1.97%
Non-interest-bearing demand deposits1,940,516
     1,175,141
    
Other non-interest-bearing liabilities358,417
     66,003
    
Stockholders’ equity1,155,234
     999,576
    
Total liabilities and stockholders’ equity$11,828,210
     $10,030,780
    
Net interest income  $360,339
     $308,168
  
Interest rate spread6
    3.70%     3.79%
Net interest margin7
    4.20%     4.19%
1 
Average balances are obtained from daily data.
2 
Annualized.
3 
Loans and leases include loans held for sale, loan premiums and unearned fees.
4 
Interest 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 $27.8 million and $28.0 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 2020 and 2019 nine-month periods, respectively.
5 
Margin lending is the significant component of the asset titled customer, broker-dealer and clearing receivables on the unaudited condensed consolidated balance sheets.
6 
Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.
7 
Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.

44


Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table sets forth the effects of changing rates and volumes on our net interest income. Information is provided with respect to (i) effects on interest income and interest expense attributable to changes in volume (changes in volume multiplied by prior rate); (ii) effects on interest income and interest expense attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) changes in rate/volume (change in rate multiplied by change in volume) for the three and nine months ended March 31, 2020 and 2019:

 For the Three Months Ended For the Nine Months Ended
 March 31, 2020 March 31, 2020
 2020 vs 2019 2020 vs 2019
 Increase (Decrease) Due to Increase (Decrease) Due to
(Dollars in thousands)Volume Rate 
Total
Increase
(Decrease)
 Volume Rate 
Total
Increase
(Decrease)
Increase / (decrease) in interest income:           
Loans and leases$20,023
 $(2,139) $17,884
 $50,493
 $(1,988) $48,505
Interest-earning deposits in other financial institutions781
 (1,402) (621) 3,032
 (1,653) 1,379
Securities51
 (1,168) (1,117) 372
 (2,334) (1,962)
Securities borrowed and margin lending1,082
 (1,234) (152) 10,556
 (1,501) 9,055
Stock of the regulatory agencies(121) (18) (139) (864) (661) (1,525)
 $21,816
 $(5,961) $15,855
 $63,589
 $(8,137) $55,452
Increase / (decrease) in interest expense:           
Interest-bearing demand and savings$3,430
 $(1,676) $1,754
 $11,014
 $1,177
 $12,191
Time deposits(1,656) 1,437
 (219) 5,031
 1,367
 6,398
Securities loaned(179) (78) (257) 339
 (147) 192
Advances from the FHLB(2,198) (2,216) (4,414) (12,169) (4,468) (16,637)
Borrowings, subordinated notes and debentures
(772) 316
 (456) 1,018
 119
 1,137
 $(1,375) $(2,217) $(3,592) $5,233
 $(1,952) $3,281

Provision for Loan and Lease Losses
The loan and lease loss provision was $28.5 million for the three months ended March 31, 2020 compared to $19.0 million for the three months ended March 31, 2019. The loan and lease loss provision was $35.7 million for the nine months ended March 31, 2020 compared to $24.6 million for the nine months ended March 31, 2019. The increases in the loan and lease loss provision for the three and nine months ended March 31, 2020, were primarily due to additional provision for Refund Advance loans consistent with increased originations in the loan product, and approximately $6.6 million of provision from changes in economic and business conditions resulting from the COVID-19 pandemic, including in the hospitality, retail, and oil & gas sectors. Provisions for loan and lease losses are charged to income to bring the allowance for loan and lease losses to a level deemed appropriate by management based on the factors discussed under “Financial Condition—Asset Quality and Allowance for Loan and Lease Losses.”



45


Non-Interest Income
The following table sets forth information regarding our non-interest income for the periods shown:
 For the Three Months Ended For the Nine Months Ended
 March 31, March 31,
(Dollars in thousands)2020 2019 Inc (Dec) 2020 2019 Inc (Dec)
Total realized (loss) on securities$
 $
 $
 $
 $(133) $133
Unrealized loss on securities:           
Total impairment losses
 (1,666) 1,666
 
 (1,666) 1,666
Loss recognized in other comprehensive loss
 845
 (845) 
 845
 (845)
Total unrealized loss on securities
 (821) 821
 
 (821) 821
Prepayment penalty fee income1,406
 706
 700
 4,824
 4,077
 747
Gain on sale – other608
 535
 73
 6,354
 5,611
 743
Mortgage banking income2,955
 352
 2,603
 7,973
 2,959
 5,014
Broker-dealer fee income6,329
 5,036
 1,293
 17,540
 5,036
 12,504
Banking and service fees20,244
 20,290
 (46) 37,594
 42,804
 (5,210)
Total non-interest income$31,542
 $26,098
 $5,444
 $74,285
 $59,533
 $14,752
Non-interest income increased $5.4 million to $31.5 million for the three months ended March 31, 2020. The increase was the result of a $2.6 million increase in mortgage banking income and an increase of broker dealer fees of $1.3 million, a $0.8 million decrease in unrealized loss on securities, and a $0.7 million increase in prepayment penalty fee income. Non-interest income increased $14.8 million to $74.3 million for the nine months ended March 31, 2020. The increase was primarily the result of an increase in broker-dealer fees of $12.5 million, a $5.0 million increase in mortgage banking income, a $0.8 million decrease in unrealized loss on securities, an increase in prepayment penalty fee income of $0.7 million, and an increase of $0.7 million in gain on sale-other, due to a sale of lottery receivables, partially offset by a $5.2 million decrease in banking and service fees.
Our relationship with H&R Block began in fiscal 2016 and introduced seasonality into the banking and service fees category of non-interest income, with an increase during our second fiscal quarter and the peak income in this category typically occurring during our third fiscal quarter ended March 31. Therefore, banking and services fees for the three months ended March 31, 2020 are not indicative of results to be expected for other quarters during the fiscal year. Historically, the primary non-interest income generating H&R Block products and services that lead to the increased banking and service fees are Emerald Prepaid Mastercard® (“EPC”) and Refund Transfer (“RT”). RT revenue is earned primarily in the quarter ended March 31. For the three months ended March 31, 2020 compared to the three months ended March 31, 2019, EPC decreased $0.1 million to $2.9 million from $3.0 million and RT decreased $0.1 million to $10.2 million from $10.3 million, respectively. For the nine months ended March 31, 2020 and 2019, EPC decreased $0.1 million to $5.6 million from $5.7 million and RT decreased $0.1 million to $10.3 million from $10.4 million, respectively. See Part II, “Item 1A. Risk Factors” for further discussion of our Program Management Agreement with H&R Block.
Included in gain on sale – other are sales of correspondent loans that are collateralized by non-mortgage assets and sales of structured settlement annuity 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 heading of Factoring 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 maybe classified on our balance sheet as loans held for sale, lower of cost or fair value.

46


Non-Interest Expense
The following table sets forth information regarding our non-interest expense for the periods shown:
 For the Three Months Ended For the Nine Months Ended
 March 31, March 31,
(Dollars in thousands)2020 2019 Inc (Dec) 2020 2019 Inc (Dec)
Salaries and related costs$36,257
 $33,716
 $2,541
 $106,932
 $93,524
 $13,408
Data processing6,563
 7,144
 (581) 21,784
 16,792
 4,992
Advertising and promotional3,887
 3,635
 252
 11,720
 11,265
 455
Depreciation and amortization6,197
 4,765
 1,432
 17,461
 11,348
 6,113
Professional services3,231
 4,286
 (1,055) 7,932
 8,489
 (557)
Occupancy and equipment2,919
 2,584
 335
 8,879
 5,983
 2,896
FDIC and regulatory fees2,013
 2,133
 (120) 3,143
 6,587
 (3,444)
Broker-dealer clearing charges2,180
 1,095
 1,085
 6,048
 1,095
 4,953
General and administrative expense8,543
 22,457
 (13,914) 20,323
 30,587
 (10,264)
Total non-interest expenses$71,790
 $81,815
 $(10,025) $204,222
 $185,670
 $18,552
Non-interest expense, which is comprised primarily of compensation, data processing expenses, occupancy, advertising and promotional and other operating expenses, was $71.8 million for the three months ended March 31, 2020, down from $81.8 million for the three months ended March 31, 2019. Non-interest expense was $204.2 million for the nine months ended March 31, 2020, up from $185.7 million for the nine months ended March 31, 2019. The decrease for the three months ended March 31, 2020 was primarily due to a prior year non-recurring charge of $15.3 million in our Securities Business bad debt reserve for an uncollectible receivable. The increase for the nine months ended March 31, 2020 was primarily due to the acquisitions in our Securities Business segment.
Total salaries and related costs increased $2.5 million to $36.3 million for the three months ended March 31, 2020 compared to $33.7 million for the three months ended March 31, 2019 and total salaries and related costs increased $13.4 million to $106.9 million for the nine months ended March 31, 2020 compared to $93.5 million for the nine months ended March 31, 2019. The increase in compensation expense for the three and nine months ended March 31, 2020 was primarily due to the staffing additions from the aforementioned acquisitions and increased staffing levels to support growth in the Banking segment, specifically for deposits, lending, information technology infrastructure development, and compliance activities. Our staff increased to 1,047 from 1010, or 3.7% between March 31, 2020 and 2019.
Data processing expense decreased $0.6 million for the three months ended March 31, 2020 compared to three months ended March 31, 2019, primarily due to decreased costs associated with the Bank’s core processing system. Data processing expense increased $5.0 million for the nine months ended March 31, 2020 compared to the nine month period ended March 31, 2019, primarily due to the acquisitions in our Securities Business segment and enhancements to customer interfaces and the Bank’s core processing system.
Advertising and promotional expense increased $0.3 million and $0.5 million for the three and nine months ended March 31, 2020, compared to the three and nine months ended March 31, 2019, respectively. The increase for the three and nine months ended March 31, 2020 was primarily related to lead generation and deposit marketing.
Depreciation and amortization expense increased $1.4 million and $6.1 million for the three and nine months ended March 31, 2020, compared to the three and nine months ended March 31, 2019, respectively. The increases were primarily due to amortization of intangibles, depreciation on lending platform enhancements and infrastructure development, and additions from our Securities Business.
Professional services, which include accounting and legal fees decreased $1.1 million for the three months and $0.6 million for the nine months ended March 31, 2020, compared to the three and nine month periods last year, respectively. Professional services charges decreased due primarily to decreased legal and consulting fees for the three and nine months ended March 31, 2020, respectively.
Occupancy and equipment expense increased $0.3 million and $2.9 million for the three and nine months ended March 31, 2020 compared to the three and nine months ended March 31, 2019, in order to support increased production through increased office space for additional employees and due to the acquisitions in our Securities Business segment.

47


Our cost of FDIC and regulatory fees decreased $0.1 million and $3.4 million for the three and nine months ended March 31, 2020, compared to the three and nine month period last year, respectively. The decrease for the three months ended March 31, 2020 was due to a change in the FDIC assessment calculation. The decrease for the nine months ended March 31, 2020 was due to a small bank assessment credit received from the FDIC. As an FDIC-insured institution, the Bank is required to pay deposit insurance premiums to the FDIC.
Broker-dealer clearing charges increased $1.1 million and $5.0 million for the three and nine months ended March 31, 2020 compared to the three and nine months ended March 31, 2019. The increase was attributable full period costs compared to the 2019 periods, the Securities Business was acquired during the quarter ended March 31, 2019.
Other general and administrative costs decreased by $13.9 million and $10.3 million for the three and nine months ended March 31, 2020, compared to the three and nine month period ended March 31, 2019, respectively. The decreases were primarily due to a prior year non-recurring charge of $15.3 million in our Securities Business bad debt reserve for an impaired and uncollectible receivable.
Provision for Income Taxes
Our effective income tax rates (income tax provision divided by net income before income tax) for the three months ended March 31, 2020 and 2019 were 29.81% and 28.71%, respectively. Our effective income tax rates for the nine months ended March 31, 2020 and 2019 were 29.05% and 27.29%, respectively. The change in effective income tax rates between periods are primarily the result of changes in tax benefits from stock compensation.
SEGMENT RESULTS
The Company determines reportable segments based on the services offered, the significance of the services offered, the significance of those services to the Company’s financial condition and operating results and management’s regular review of the operating results of those services. The Company operates through two operating segments: Banking Business and Securities Business. In order to reconcile the two segments to the consolidated totals, the Company includes parent-only activities and intercompany eliminations. The following tables present the operating results of the segments:
 For the Three Months Ended March 31, 2020
(Dollars in thousands)Banking Business Securities Business Corporate/Eliminations Axos Consolidated
Net interest income$145,372
 $3,954
 $(710) $148,616
Provision for loan losses28,500
 
 
 28,500
Non-interest income25,259
 6,402
 (119) 31,542
Non-interest expense56,661
 11,137
 3,992
 71,790
Income before taxes$85,470
 $(781) $(4,821) $79,868

 For the Three Months Ended March 31, 2019
(Dollars in thousands)Banking Business Securities Business Corporate/Eliminations Axos Consolidated
Net interest income$127,072
 $2,951
 $(854) $129,169
Provision for loan losses19,000
 
 
 19,000
Non-interest income21,027
 5,071
 
 26,098
Non-interest expense52,224
 23,102
 6,489
 81,815
Income before taxes$76,875
 $(15,080) $(7,343) $54,452


48


        
 For the Nine Months Ended March 31, 2020
(Dollars in thousands)Banking Business Securities Business Corporate/Eliminations Axos Consolidated
Net interest income$350,184
 $13,137
 $(2,982) $360,339
Provision for loan losses35,700
 
 
 35,700
Non-interest income57,274
 19,087
 (2,076) 74,285
Non-interest expense160,547
 32,656
 11,019
 204,222
Income before taxes$211,211
 $(432) $(16,077) $194,702

        
 For the Nine Months Ended March 31, 2019
(Dollars in thousands)Banking Business Securities Business Corporate/Eliminations Axos Consolidated
Net interest income$307,564
 $2,951
 $(2,347) $308,168
Provision for loan losses24,550
 
 
 24,550
Non-interest income54,462
 5,071
 
 59,533
Non-interest expense142,291
 23,102
 20,277
 185,670
Income before taxes$195,185
 $(15,080) $(22,624) $157,481
Banking Business
For the three months ended March 31, 2020, our Banking Business segment had income before taxes of $85.5 million compared to net income of $76.9 million for the three months ended March 31, 2019. For the nine months ended March 31, 2020, we had net income of $211.2 million compared to net income of $195.2 million for the nine months ended March 31, 2019. For the three and nine months ended March 31, 2020, the increase in net income was primarily related to increased net interest income, primarily due to increased average earnings assets from net loan and lease portfolio growth.
We consider the ratios shown in the table below to be key indicators of the performance of our Banking Business segment:
 At or for the Three Months Ended At or for the Nine Months Ended
 March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019
Efficiency ratio33.21% 35.26% 39.40% 39.30%
Return on average assets2.03% 2.08% 1.80% 1.88%
Interest rate spread4.43% 4.46% 3.77% 3.83%
Net interest margin4.97% 4.94% 4.28% 4.24%
Our Banking segment’s net interest margin exceeds our consolidated net interest margin. Our consolidated net interest margin includes certain items that are not reflected in the calculation of our net interest margin within our Banking Business and reduce our consolidated net interest margin, such as the borrowing costs at our Parent Company and the yields and costs associated with certain items within interest-earning assets and interest-bearing liabilities in our Securities Business, including items related to securities financing operations that particularly decrease net interest margin.


49


Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents our Banking segment’s information regarding (i) average balances; (ii) the total amount of interest income from interest-earning assets and the weighted average yields on such assets; (iii) the total amount of interest expense on interest-bearing liabilities and the weighted average rates paid on such liabilities; (iv) net interest income; (v) interest rate spread; and (vi) net interest margin for the three months ended March 31, 2020 and 2019:
 For the Three Months Ended
 March 31,
 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
$10,572,444
 $174,497
 6.60% $9,418,116
 $157,171
 6.68%
Interest-earning deposits in other financial institutions826,965
 2,686
 1.30% 613,836
 3,684
 2.40%
Securities4
267,036
 2,891
 4.33% 218,194
 3,673
 6.73%
Stock of the regulatory agencies30,535
 540
 7.07% 39,311
 678
 6.90%
Total interest-earning assets11,696,980
 180,614
 6.18% 10,289,457
 165,206
 6.42%
Non-interest-earning assets164,867
     181,838
    
Total assets$11,861,847
     $10,471,295
    
Liabilities and Stockholders’ Equity:           
Interest-bearing demand and savings$4,645,978
 $15,918
 1.37% $3,688,840
 $14,177
 1.54%
Time deposits2,457,991
 15,372
 2.50% 2,736,040
 15,591
 2.28%
Advances from the FHLB929,162
 3,952
 1.70% 1,350,431
 8,366
 2.48%
Total interest-bearing liabilities8,033,131
 35,242
 1.75% 7,775,311
 38,134
 1.96%
Non-interest-bearing demand deposits2,632,027
     1,644,474
    
Other non-interest-bearing liabilities81,021
     67,969
    
Stockholders’ equity1,115,668
     983,541
    
Total liabilities and stockholders’ equity$11,861,847
     $10,471,295
    
Net interest income  $145,372
     $127,072
  
Interest rate spread5
    4.43%     4.46%
Net interest margin6
    4.97%     4.94%
1 
Average balances are obtained from daily data.
2 
Annualized.
3 
Loans and leases include loans held for sale, loan premiums and unearned fees.
4 
Interest 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 $27.8 million and $28.0 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 2020 and 2019 three-month periods, respectively.
5 
Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.
6 
Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.





50


Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table presents our Banking segment’s information regarding (i) average balances; (ii) the total amount of interest income from interest-earning assets and the weighted average yields on such assets; (iii) the total amount of interest expense on interest-bearing liabilities and the weighted average rates paid on such liabilities; (iv) net interest income; (v) interest rate spread; and (vi) net interest margin for the nine months ended March 31, 2020 and 2019:
 For the Nine Months Ended
 March 31,
 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
$9,992,436
 $444,986
 5.94% $8,888,331
 $397,039
 5.96%
Interest-earning deposits in other financial institutions679,702
 8,647
 1.70% 545,243
 9,157
 2.24%
Securities4
224,842
 8,524
 5.05% 202,723
 10,150
 6.68%
Stock of the regulatory agencies25,770
 1,367
 7.07% 43,848
 2,892
 8.79%
Total interest-earning assets10,922,750
 463,524
 5.66% 9,680,145
 419,238
 5.77%
Non-interest-earning assets189,562
 
 

 190,095
 
 

Total assets$11,112,312
 
 

 $9,870,240
 
 

Liabilities and Stockholders’ Equity:
 
 

 
 
 

Interest-bearing demand and savings$4,783,758
 $56,816
 1.58% $3,904,878
 $44,881
 1.53%
Time deposits2,493,812
 46,313
 2.48% 2,221,137
 39,915
 2.40%
Advances from the FHLB727,404
 10,211
 1.87% 1,541,731
 26,848
 2.32%
Borrowings, subordinated notes and debentures

 
 % 1,474
 30
 2.71%
Total interest-bearing liabilities8,004,974
 113,340
 1.89% 7,669,220
 111,674
 1.94%
Non-interest-bearing demand deposits1,951,809
 
 
 1,185,532
 
 

Other non-interest-bearing liabilities81,956
 
 
 53,394
 
 

Stockholders’ equity1,073,573
 
 
 962,094
 
 

Total liabilities and stockholders’ equity$11,112,312
 
 
 $9,870,240
 
 

Net interest income
 $350,184
 
 
 $307,564
 

Interest rate spread5

 
 3.77% 
 
 3.83%
Net interest margin6

 
 4.28% 
 
 4.24%
1 
Average balances are obtained from daily data.
2 
Annualized.
3 
Loans and leases include loans held for sale, loan premiums and unearned fees.
4 
Interest 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 $27.8 million and $28.0 million of Community Reinvestment Act loans which are taxed at a reduced rate for the 2020 and 2019 nine-month periods, respectively.
5 
Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.
6 
Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.



51


Average Balances, Net Interest Income, Yields Earned and Rates Paid
The following table sets forth the effects of changing rates and volumes on our net interest income for our Banking segment. Information is provided with respect to (i) effects on interest income and interest expense attributable to changes in volume (changes in volume multiplied by prior rate); (ii) effects on interest income and interest expense attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) changes in rate/volume (change in rate multiplied by change in volume) for the three and nine months ended March 31, 2020 and 2019:

 For the Three Months Ended For the Nine Months Ended
 March 31, 2020 March 31, 2020
 2020 vs 2019 2020 vs 2019
 Increase (Decrease) Due to Increase (Decrease) Due to
(Dollars in thousands)Volume Rate  
Total
Increase
(Decrease)
 Volume Rate 
Total
Increase
(Decrease)
Increase / (decrease) in interest income:


  
 


 
Loans and leases$19,216

$(1,890)  $17,326
 $49,282

$(1,335) $47,947
Interest-earning deposits in other financial institutions1,025

(2,023)  (998) 1,975

(2,485) (510)
Securities708

(1,490)  (782) 1,029

(2,655) (1,626)
Stock of the regulatory agencies(155)
17
  (138) (1,034)
(491) (1,525)
 $20,794

$(5,386)  $15,408
 $51,252

$(6,966) $44,286
Increase / (decrease) in interest expense:


  
 


 
Interest-bearing demand and savings$3,421

$(1,680)  $1,741
 $10,422

$1,513
 $11,935
Time deposits(1,656)
1,437
  (219) 5,031

1,367
 6,398
Advances from the FHLB(2,198)
(2,216)  (4,414) (12,169)
(4,468) (16,637)
Borrowings, subordinated notes and debentures



  
 (15)
(15) (30)
 $(433)
$(2,459)  $(2,892) $3,269

$(1,603) $1,666
The Banking segment’s net interest income for the three and nine months ended March 31, 2020 totaled $145.4 million and $350.2 million, an increase of 14.4% and 13.9%, compared to net interest income of $127.1 million and $307.6 million for the three and nine months ended March 31, 2019, respectively. The growth of net interest income for both the three and nine months ended March 31, 2020 is primarily due to increased average earnings assets from net loan and lease portfolio growth and a reduced rate and level of advances from the FHLB, partially offset by volume increases in interest-bearing demand and savings deposits.
The Banking segment’s non-interest income increased $4.2 million from $21.0 million to $25.3 million and increased $2.8 million from $54.5 million to $57.3 million for the three and nine months ended March 31, 2020 compared to the three and nine months ended March 31, 2019, respectively. The $4.2 million increase in non-interest income for the three months ended March 31, 2020, was primarily the result of an increase of $2.6 million in mortgage banking income, a $0.8 million decrease in unrealized loss on securities, and $0.7 million in prepayment penalty fee income. The $2.8 million increase in non-interest income for the nine months ended March 31, 2020, was primarily the result of a $5.5 million increase in mortgage banking income, a $0.8 million decrease in unrealized loss on securities, a $0.7 million increase in prepayment fee income, and a $0.7 million increase in gain on sale-other, partially offset by $5.2 million decrease in banking and service fees, primarily due to reduced fee income from Axos Fiduciary Services.
The Banking segment’s non-interest expense increased $4.4 million and $18.3 million for the three and nine months ended March 31, 2020 compared to the three and nine months ended March 31, 2019, respectively. For the three months ended March 31, 2020 compared to the three months ended March 31, 2019, the $4.4 million increase of non-interest expense was primarily due to a $3.8 million increase of salaries and related expenses related to staffing increase to support the overall growth of the Bank, a $1.1 million increase of depreciation and amortization, a $1.3 million increase in other and general expense, partially offset by a $1.1 million decrease in data processing expense, a $0.6 million decrease in professional services. For the nine months ended March 31, 2020 compared to the nine months ended March 31, 2019, the $18.3 million increase was primarily due to a $11.0 million increase in salaries and related expenses related to staffing increases to support the overall growth of the Bank, a $4.6 million increase in depreciation and amortization, a $2.7 million increase in other and general expense, a $2.4 million increase in occupancy and equipment, and a $1.6 million increase in data processing expense, partially offset by a decrease of $3.8 million for FDIC and regulatory fees due to a regulatory credit.

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Securities Business
For the three months ended March 31, 2020, our Securities Business segment had a loss before taxes of $0.8 million compared to a loss before taxes of $15.1 million for the three months ended March 31, 2019. For the nine months ended March 31, 2020, our Securities Business segment had a loss before taxes of $0.4 million compared to a loss before taxes of $15.1 million for the nine months ended March 31, 2020. For the three and nine months ended March 31, 2019, the decrease in net loss was primarily due to a prior year non-recurring charge of $15.3 million in our Securities Business bad debt reserve in order to cover potential losses resulting from unauthorized securities trades at a correspondent customer. The Securities Business segment was created as a result of acquisitions during the three months ended March 31, 2019. Therefore, comparisons for the three month and nine months ended March 31 are limited in meaning since the Securities Business was only a part of the consolidated organization for two months of the three and nine month periods ended March 31, 2019.
The following table provides our Securities Business operating results:
 Three Months Ended Nine Months Ended
(Dollars in thousands)March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019
Net interest income$3,954
 $2,951
 $13,137
 $2,951
Non-interest income6,402
 5,071
 19,087
 5,071
Non-interest expense11,137
 23,102
 32,656
 23,102
Income (Loss) before income taxes$(781) $(15,080) $(432) $(15,080)
Net interest income for the three and nine months ended March 31, 2020, was $4.0 million and $13.1 million, compared to $3.0 million and $3.0 million for the three and nine months ended March 31, 2019. In the Securities Business, interest is earned through margin loan balances, securities borrowed, and cash deposit balances. Interest expense is incurred from cash borrowed through bank lines and securities lending.
The non-interest income during the three and nine months ended March 31, 2020, was $6.4 million and $19.1 million, compared to the three and nine months ended March 31, 2019 of $5.1 million and $5.1 million, respectively, and were primarily the result of clearing and custodial related fees.
Non-interest expenses were $11.1 million and $32.7 million during the three and nine months ended March 31, 2020 compared to $23.1 million and $23.1 million for the three and nine months ended March 31, 2019, respectively. For the three month period ended March 31, 2020, the non-interest expense was primarily a result of an increase of $1.3 million in salaries and related expense, an increase of $1.1 million broker-dealer clearing charges, $0.5 million in increased data processing, and a decrease of $14.9 million in other and general expense, primarily due to a $15.3 million bad debt expense related to a correspondent customer of our clearing broker-dealer. For the nine month period ended March 31, 2020, the non-interest expense was primarily a result of $14.1 million in salaries and related expense, $6.1 million in broker-dealer clearing charges, $4.2 million in data processing, $1.9 depreciation and amortization, $2.0 million professional services, and $3.0 million in general and other expense. For the nine months ended March 31, 2019, non-interest expense was primarily due to a $15.3 million bad debt expense related to a correspondent customer of our clearing broker-dealer.

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Selected information concerning the Securities segment follows as of and for the three months ended:
(Dollars in thousands)March 31, 2020 June 30, 2019
Compensation as a % of net revenue36.8% 35.0%
FDIC insured program balances (end of period)$413,441
 $341,576
Customer margin balances (end of period)$158,993
 $189,193
Customer funds on deposit, including short credits (end of period)$182,455
 $206,469
 
  
Clearing:
  
Total tickets1,046,572
 595,962
Correspondents (end of period)60
 62
 
  
Securities lending:
  
Interest-earning assets – stock borrowed (end of period)$53,816
 $203,192
Interest-bearing liabilities – stock loaned (end of period)$76,587
 $198,356

FINANCIAL CONDITION
Balance Sheet Analysis
Total assets increased $939.7 million, or 8.4%, to $12,159.9 million, as of March 31, 2020, up from $11,220.2 million at June 30, 2019. The increase in total assets was due to an increase of $990.8 million in net loans and leases held for investment. Total liabilities increased $828.3 million, primarily from growth in deposits of $584.2 million and liabilities and an increase of $312.0 million in advances from the FHLB, partially offset by a $121.8 million decrease in securities loaned.
Loans and Leases
Net loans and leases held for investment increased 10.6% to $10,372.9 million at March 31, 2020 from $9,382.1 million at June 30, 2019. The increase in the loan and lease portfolio was primarily due to loan and lease originations of $5,493.3 million, partially offset by loan and lease repayments and other adjustments of $4,502.5 million during the nine months ended March 31, 2020. We experienced growth in our Commercial & Industrial portfolio during the nine months ended March 31, 2020 as a result of increased demand for our products and expansion of related product offerings.
The following table sets forth the composition of the loan and lease portfolio as of the dates indicated:
 March 31, 2020 June 30, 2019
(Dollars in thousands)Amount Percent Amount Percent
Single family real estate secured:       
Mortgage$4,139,163
 39.6% $4,281,080
 45.3%
Warehouse380,146
 3.6% 301,999
 3.2%
Financing1
663,367
 6.3% 518,560
 5.5%
Multifamily secured - mortgage and financing2,197,889
 21.0% 1,948,513
 20.6%
Commercial real estate secured - mortgage
409,844
 3.9% 326,154
 3.4%
Auto and RV secured311,740
 3.0% 290,894
 3.0%
Commercial & Industrial2,214,292
 21.2% 1,662,629
 17.6%
Other136,863
 1.3% 119,481
 1.3%
Total gross loans and leases10,453,304
 100.0% 9,449,310
 100.0%
Allowance for loan and lease losses(87,097)   (57,085)  
Unaccreted discounts and loan and lease fees6,714
   (10,101)  
Total net loans and leases$10,372,921
   $9,382,124
  
1Single family real estate secured: Financing consists of commercial specialty and lender finance loans secured by single family real estate.

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The Bank originates some 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 delinquency statistics, grading and classification of interest only loans would be reported to management and the Board of Directors. As of March 31, 2020, the Company had $1,233.8 million of interest only mortgage loans. Through March 31, 2020, the net amount of deferred interest on interest only loans was not material to our financial position or operating results.
Asset Quality and Allowance for Loan and Lease Losses
Non-performing Assets
Non-performing loans and leases are comprised of loans and leases past due 90 days or more on nonaccrual status and other nonaccrual loans and leases. Non-performing assets include non-performing loans and leases plus other real estate owned and repossessed vehicles. At March 31, 2020, our non-performing loans and leases totaled $57.9 million, or 0.55% of total gross loans and leases and our non-performing loans and leases and foreclosed assets or “non-performing assets” totaled $65.2 million, or 0.54% of total assets.
Non-performing assets consisted of the following as of the dates indicated:
(Dollars in thousands)March 31, 2020 June 30, 2019 Inc (Dec)
Non-performing assets:     
Non-accrual loans and leases:     
Single family real estate secured:     
Mortgage$54,106
 $46,005
 $8,101
Multifamily secured - mortgage and financing1,176
 2,108
 (932)
Commercial real estate secured - mortgage
1,909
 
 1,909
Total non-performing loans secured by real estate57,191
 48,113
 9,078
Auto and RV secured339
 115
 224
Other406
 216
 190
Total non-performing loans and leases57,936
 48,444
 9,492
Foreclosed real estate7,010
 7,449
 (439)
Repossessed—Auto and RV297
 36
 261
Total non-performing assets$65,243
 $55,929
 $9,314
Total non-performing loans and leases as a percentage of total loans and leases0.55% 0.51% 0.04%
Total non-performing assets as a percentage of total assets0.54% 0.50% 0.04%
Total non-performing assets increased from $55.9 million at June 30, 2019 to $65.2 million at March 31, 2020. As a percentage of total assets, non-performing assets increased from 0.50% at June 30, 2019 to 0.54% at March 31, 2020. The non-performing assets increase of approximately $9.3 million, was primarily the result of increases in non-performing single family real estate secured mortgage loans as a result of increases in delinquencies from loans that became 90+ days past due during the quarter ended March 31, 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. There were no performing troubled debt restructurings at March 31, 2020 and June 30, 2019.
Allowance for Loan and Lease Losses
We are committed to maintaining the allowance for loan and lease losses at a level that is considered to be commensurate with estimated and known risks in the portfolio. Although the adequacy of the allowance is reviewed quarterly, management performs an ongoing assessment of the risks inherent in the portfolio. While we believe that the allowance for loan and lease losses is adequate at March 31, 2020, future additions to the allowance will be subject to continuing evaluation of estimated and known, as well as inherent risks in the loan and lease portfolio.

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The assessment of the adequacy of our allowance for loan and lease losses is based upon a range of quantitative and qualitative factors, including levels and trends of past due and nonaccrual loans and leases, change in volume and mix of loans and leases, collateral values and charge-off history.
The Company provide general loan loss reserves for our auto and RV loans based upon the borrower credit score at the time of origination and loss experience to date. The allowance for loan loss for the auto and RV loan portfolio at March 31, 2020 was determined by classifying each outstanding loan according to the semi-annually refreshed FICO score and providing loss rates. We had $311.4 million of auto and RV loan balances subject to general reserves as follows: FICO greater than or equal to 770: $135.0 million; 715 – 769: $116.3 million; 700 – 714: $32.5 million; 660 – 699: $25.1 million and less than 660: $2.6 million.
General loan loss reserves for mortgage loans are based upon the size and class of the mortgage loan and the loan-to-value ratio (“LTV”) at date of origination. The allowance for each class is determined by dividing the outstanding unpaid balance for each loan by the loan-to-value and applying quantitative and qualitative loss rates. The LTV groupings for each significant mortgage class are as follows:
The Company had $4,085.1 million of single family mortgage portfolio loan balances subject to general reserves as follows: LTV less than or equal to 60%: $2,479.6 million; 61% – 70%: $1,366.8 million; 71% – 80%: $237.9 million; greater than 80%: $0.9 million.
The Company had $2,196.7 million of multifamily mortgage portfolio loan balances subject to general reserves as follows: LTV less than or equal to 55%: $1,183.1 million; 56% – 65%: $636.8 million; 66% – 75%: $366.9 million; 76% – 80%: $6.1 million and greater than 80%: $3.8 million.
The Company had $407.9 million of commercial real estate loan balances subject to general reserves as follows: LTV less than or equal to 50%: $198.3 million; 51% – 60%: $90.1 million; 61% – 70%: $105.6 million; and 71% – 80%: $14.0 million.
The commercial secured portfolio consists of business loans well-collateralized by residential real estate. The other portfolio consists of receivables factoring for businesses and consumers. We allocate the allowance for loan loss for these asset types based on qualitative factors which consider the value of the collateral and the financial position of the issuer of the receivables.
The weighted average LTV percentage, of current balances divided by the original appraisal, for our entire real estate loan portfolio was 56% at March 31, 2020. We believe that this percentage is lower and more conservative than most banks, which results in lower average mortgage loan charge-offs when compared to many other comparable banks.
While we anticipate that such level of charge-offs will continue into the future, given the uncertainties surrounding the improvement of the U.S. economy, we may experience an increase in the relative amount of charge-offs and we may be required to increase our loan and lease loss provisions in the future to provide a larger loss allowance for one or more of our loan and lease types.
The following table summarizes impaired loans and leases as of:
(Dollars in thousands)March 31, 2020 June 30, 2019
Non-performing loans and leases—90+ days past due plus other non-accrual loans and leases$57,617
 $47,821
Troubled debt restructuring loans—non-accrual319
 623
Total impaired loans and leases$57,936
 $48,444


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The following table reflects management’s allocation of the allowance for loan and lease losses by loan and lease category and the ratio of each loan and lease category to total loans and leases as of the dates indicated:
 March 31, 2020 June 30, 2019
(Dollars in thousands)
Amount
of
Allowance
 
Allocation
as a % of
Allowance
 
Amount
of
Allowance
 
Allocation
as a % of
Allowance
Single family real estate secured:       
Mortgage$21,001
 24.1% $21,295
 37.4%
Warehouse1,429
 1.6% 996
 1.7%
Financing4,457
 5.1% 5,331
 9.3%
Multifamily secured - mortgage and financing5,975
 6.9% 4,097
 7.2%
Commercial real estate secured - mortgage
1,545
 1.8% 1,044
 1.8%
Auto and RV secured6,015
 6.9% 4,818
 8.4%
Commercial & Industrial23,039
 26.5% 17,514
 30.7%
Other23,636
 27.1% 1,990
 3.5%
Total$87,097
 100.0% $57,085
 100.0%
The loan and lease loss provision was $28.5 million and $19.0 million for the three months ended March 31, 2020 and 2019, respectively. The loan and lease loss provision was $35.7 million and $24.6 million for the nine months ended March 31, 2020 and 2019, respectively. The increase in the loan and lease loss provision for the three and nine months ended March 31, 2020, were primarily due to additional provision for Refund Advance loans consistent with increased originations in the loan product and approximately $6.6 million of provision from the changes in economic and business conditions resulting from the COVID-19 pandemic, including in the hospitality, retail and oil & gas sectors. We believe that the lower average LTV in the mortgage loan portfolio will continue to result in future lower average mortgage loan charge-offs when compared to many other comparable banks. Our general loan and lease loss reserves are based upon historical losses and expected future trends. Given the uncertainty in economic and business conditions caused by the Covid-19 pandemic, the resolution of our existing other real estate owned and non-performing loans impact on operating results cannot be determined at this point in time, but in management’s best estimate, additional amounts have been provisioned for potential losses.
Investment Securities
Total investment securities were $192.3 million as of March 31, 2020, compared with $227.5 million at June 30, 2019. During the nine months ended March 31, 2020, we purchased securities for $244.5 million, and received principal repayments of approximately $276.8 million in our available-for-sale portfolio. The remainder of the change for the available-for-sale portfolio is attributable to accretion and other activities.

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Deposits
Deposits increased a net $584.2 million, or 6.5%, to $9,567.3 million at March 31, 2020, from $8,983.2 million at June 30, 2019. Non-interest bearing deposits increased $886.7 million, or 61.5% , to $2,328.7 million at March 31, 2020, from $1,441.9 million at June 30, 2019. The primary driver for the increase for the March 2020 period are due to increased deposits from the Bank’s bankruptcy trustee and fiduciary services channel.
The following table sets forth the composition of the deposit portfolio as of the dates indicated:
 March 31, 2020 June 30, 2019
(Dollars in thousands)Amount 
Rate1
 Amount 
Rate1
Non-interest bearing$2,328,660
 % $1,441,930
 %
Interest-bearing:       
Demand2,243,481
 0.83% 2,709,014
 2.06%
Savings2,363,118
 1.10% 2,466,214
 1.48%
Total interest-bearing demand and savings4,606,599
 0.97% 5,175,228
 1.78%
Time deposits:       
$250 and under2
1,956,127
 2.17% 1,866,811
 2.47%
Greater than $250675,952
 1.84% 499,204
 2.27%
Total time deposits2,632,079
 2.08% 2,366,015
 2.43%
Total interest bearing2
7,238,678
 1.37% 7,541,243
 1.99%
Total deposits$9,567,338
 1.04% $8,983,173
 1.67%
1 Based on weighted-average stated interest rates at end of period.
2 The total interest-bearing includes brokered deposits of $1,313.6 million and $1,124.0 million as of March 31, 2020 and June 30, 2019, respectively, of which $871.7 million and $796.7 million, respectively, are time deposits classified as $250 and under.

The following table sets forth the number of deposit accounts by type as of the date indicated:
 March 31, 2020 June 30, 2019 March 31, 2019
Non-interest bearing, prepaid and other3,842,799
 3,743,334 2,996,075
Checking and savings accounts302,998
 311,067 315,671
Time deposits20,485
 23,447 24,655
Total number of deposit accounts4,166,282
 4,077,848 3,336,401
Our non-interest bearing, prepaid and other accounts contain two omnibus accounts that when condensed for regulatory reporting purposes result in 22,881 accounts as of March 31, 2020.

Borrowings
The following table sets forth the composition of our borrowings and the interest rates at the dates indicated:
  March 31, 2020 June 30, 2019 March 31, 2019
(Dollars in thousands) Balance Weighted Average Rate Balance Weighted Average Rate Balance Weighted Average Rate
FHLB Advances $770,500 0.90% $458,500
 2.39% $443,500
 2.39%
Borrowings, subordinated notes and debentures 76,285
 5.44% 168,929
 3.84% 214,477
 6.20%
Total borrowings $846,785
 1.31% $627,429
 2.78% $657,977
 2.86%
             
Weighted average cost of borrowings during the quarter 2.04%   2.91%   2.08%  
Borrowings as a percent of total assets 7.0%   5.6%   6.1%  
At March 31, 2020, total borrowings amounted to $846.8 million, up $219.4 million, or 35.0%, from June 30, 2019 and up $188.8 million or 28.7% from March 31, 2019. Total borrowings represented 7.0% of total assets and had a weighted-average

58


cost of 2.04% at March 31, 2020, compared with 5.6% of total assets at a weighted-average cost of 2.91% at June 30, 2019 and 6.1% of total assets at a weighted-average cost of 2.08% at March 31, 2019.
We regularly use advances from the FHLB to manage our interest rate risk and, to a lesser extent, manage our liquidity position. Generally, FHLB advances with terms between three and ten years have been used to fund the purchase of single family and multifamily mortgages and to provide us with interest rate risk protection should rates rise.
Stockholders’ Equity
Stockholders’ equity increased $111.4 million to $1,184.5 million at March 31, 2020 compared to $1,073.1 million at June 30, 2019. The increase was the result of our net income for the nine months ended March 31, 2020 of $138.1 million, vesting and issuance of RSUs of $12.1 million, partially offset by $35.8 million in stock repurchases and by $0.2 million of dividends declared on preferred stock. During the nine months ended March 31, 2020, the Company repurchased a total of $35.8 million, or 1,815,783 common shares at an average price of $19.74 per share. The Company has $72.5 million remaining under the Board authorized stock repurchase program.

LIQUIDITY
Cash flow information is as follows:
 For the Nine Months Ended
 March 31,
(Dollars in thousands)2020 2019
Operating Activities$221,962
 $126,611
Investing Activities$(987,634) $(663,826)
Financing Activities$762,503
 $677,704
During the nine months ended March 31, 2020, we had net cash inflows from operating activities of $222.0 million compared to inflows of $126.6 million for the nine months ended March 31, 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 $987.6 million for the nine months ended March 31, 2020, while outflows totaled $663.8 million for the same period in fiscal year 2019. The increase was primarily due to a decrease in repayments of loans and leases in the fiscal 2020 period compared to the same period in the prior year.
Our net cash provided by financing activities totaled $762.5 million for the nine months ended March 31, 2020, and $677.7 million for the nine months ended March 31, 2019. Net cash provided by financing activities increased primarily due to an increase in FHLB advances for the nine months ended March 31, 2020.
During the nine months ended March 31, 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 March 31, 2020, the Company had $2,566.5 million available immediately and $789.1 million available with additional collateral. At March 31, 2020, we also had two unsecured federal funds purchase lines with two different banks totaling $35.0 million, under which no borrowings were outstanding.
The Bank has the ability to borrow short-term from the Federal Reserve Bank of San Francisco Discount Window. At March 31, 2020, the Bank did not have any borrowings outstanding and the amount available from this source was $1,446.2 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 March 31, 2020, there was $14.0 million outstanding. These credit facilities bear interest at rates based on the Federal Funds rate and are due upon demand.
Axos Clearing has a $50.0 million committed unsecured line of credit available for limited purpose borrowing. As of March 31, 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. We believe we have the ability to increase our level of deposits and borrowings to address our liquidity needs for the foreseeable future.

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OFF-BALANCE SHEET COMMITMENTS
At March 31, 2020, we had commitments to originate loans with an aggregate outstanding principal balance of $836.1 million, and commitments to sell loans with an aggregate outstanding principal balance of $166.1 million. We have no commitments to purchase loans, leases, investment securities or any other unused lines of credit.
In the normal course of business, Axos Clearing’s customer activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose Axos Clearing to off-balance-sheet risk in the event the customer or other broker is unable to fulfill its contracted obligations and Axos Clearing has to purchase or sell the financial instrument underlying the contract at a loss. Axos Clearing’s clearing agreements with broker-dealers for which it provides clearing services requires them to indemnify Axos Clearing if customers fail to satisfy their contractual obligation.
Litigation. On October 15, 2015, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a putative class action lawsuit styled Golden v. BofI Holding, Inc., et al, and brought in United States District Court for the Southern District of California (the “Golden Case”). On November 3, 2015, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a second putative class action lawsuit styled Hazan v. BofI Holding, Inc., et al, and also brought in the United States District Court for the Southern District of California (the “Hazan Case”). On February 1, 2016, the Golden Case and the Hazan Case were consolidated as In re BofI Holding, Inc. Securities Litigation, Case #: 3:15-cv-02324-GPC-KSC (the “Class Action”), and the Houston Municipal Employees Pension System was appointed lead plaintiff. The plaintiffs allege that the Company and other named defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by failing to disclose wrongful conduct that was alleged in a complaint filed in connection with a wrongful termination of employment lawsuit filed on October 13, 2015 (the “Employment Matter”) and that as a result the Company’s statements regarding its internal controls, as well as portions of its financial statements, were false and misleading. On March 21, 2018, the Court entered a final order dismissing the Class Action with prejudice. Subsequently, the plaintiff filed a notice of appeal and opening brief and the Company has filed its answering brief and argument in the appeal from dismissal was held.
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 and the Company filed its answering brief, on May 8, 2019. Oral arguments are scheduled via video for May 7, 2020.
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

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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. The Court dismissed the second amended complaint with prejudice on May 23, 2019. On June 20, 2019, the plaintiff filed a notice of appeal to the United States Court of Appeals for the Ninth Circuit and subsequently opening and answering briefs were filed.
The two derivative actions pending before the San Diego County Superior Court have been consolidated and have been stayed by agreement of the parties.
In view of the inherent difficulty of predicting the outcome of each legal action, particularly since claimants seek substantial or indeterminate damages, it is not possible to reasonably predict or estimate the eventual loss or range of loss, if any, related to each legal action.
CONTRACTUAL OBLIGATIONS
The Company enters into contractual obligations in the normal course of business primarily as a source of funds for its asset growth and to meet required capital needs. Our time deposits due within one year of March 31, 2020 totaled $38.8 million. We believe the large percentage of time deposits that mature within one year reflects customers’ hesitancy to invest their funds long term. If these maturing deposits do not remain with us, we may be required to seek other sources of funds, including other time deposits and borrowings. Depending on market conditions, we may be required to pay higher rates on deposits and borrowings than we currently pay on time deposits maturing within one year. However, based on past experience we believe a significant portion of our time deposits will remain with us. We believe we have the ability to attract and retain deposits by adjusting interest rates offered.
The following table presents certain of our contractual obligations as of the period indicated:
 As of March 31, 2020
   
Payments Due by Period1
(Dollars in thousands)Total Less Than One Year One To Three Years Three To Five Years More Than Five Years
Long-term debt obligations2
$891,346
 $632,950
 $90,789
 $40,972
 $126,635
Time deposits2
2,641,847
 38,930
 1,759,481
 323,856
 519,580
Operating lease obligations3
90,823
 8,854
 28,967
 17,122
 35,880
Total$3,624,016
 $680,734
 $1,879,237
 $381,950
 $682,095
1 
Our contractual obligations include long-term debt, time deposits and operating leases as shown. We had no finance leases or material commitments for capital expenditures at March 31, 2020.
2 
Amounts include principal and interest due to recipient.
3 
Payments are for leases of real property.
CAPITAL RESOURCES AND REQUIREMENTS
Our Company and Bank are subject to regulatory capital adequacy requirements promulgated by federal bank regulatory agencies. Failure by our Company or Bank to meet minimum capital requirements could result in certain mandatory and discretionary actions by regulators that could have a material adverse effect on our unaudited condensed consolidated financial statements. The Federal Reserve establishes capital requirements for our Company and the OCC has similar requirements for our Bank. The following tables present regulatory capital information for our Company and Bank. Information presented for March 31, 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 March 31, 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 March 31, 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.

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The Consolidated and Bank’s estimated capital amounts, capital ratios and capital requirements under Basel III were as follows:
 Axos Financial, Inc. Axos Bank 
“Well 
Capitalized”
Ratio
 
Minimum Capital
Ratio
(Dollars in millions)March 31, 2020 June 30,
2019
 March 31, 2020 June 30,
2019
 
Regulatory Capital:           
Tier 1$1,059
 $938
 $1,028
 $932
    
Common equity tier 1$1,054
 $933
 $1,028
 $932
    
Total capital (to risk-weighted assets)$1,205
 $1,054
 $1,115
 $990
    
            
Assets:           
Average adjusted$12,390
 $10,717
 $11,785
 $10,124
    
Total risk-weighted$9,299
 $8,162
 $8,849
 $7,680
    
            
Regulatory Capital Ratios:           
Tier 1 leverage (core) capital to adjusted average assets8.55% 8.75% 8.72% 9.21% 5.00% 4.00%
Common equity tier 1 capital (to risk-weighted assets)11.34% 11.43% 11.62% 12.14% 6.50% 4.50%
Tier 1 capital (to risk-weighted assets)11.39% 11.49% 11.62% 12.14% 8.00% 6.00%
Total capital (to risk-weighted assets)12.96% 12.91% 12.60% 12.89% 10.00% 8.00%
Basel III implemented a requirement for all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively composed of common equity tier 1 capital, and it applies to each of the three risk-based capital ratios but not the leverage ratio. At March 31, 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.
At March 31, 2020, the net capital position of Axos Clearing was as follows:
(Dollars in thousands)Axos Clearing
Net capital$33,863
Less: required net capital3,522
Excess Capital$30,341
  
Net capital as a percentage of aggregate debit items19.23%
Net capital in excess of 5% aggregate debit items$25,057
Axos Clearing as a clearing broker, is subject to SEC Customer Protection Rule (Rule 15c3-3 of the Exchange Act) which requires segregation of funds in a special reserve account for the benefit of customers. At March 31, 2020, the Company had a deposit requirement of $164.3 million and maintained a deposit of $172.9 million. On April 1, 2020, the company made a withdrawal of $6.4 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

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a separate reserve requirement for Proprietary Accounts of Brokers (PAB). At March 31, 2020, the Company had a deposit requirement of $5.1 million and maintained a deposit of $9.6 million. On April 1, 2020, the Company made a withdrawal in the amount of $4.0 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 March 31, 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
 March 31, 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$659,255
 $
 $
 $
 $659,255
Securities1
213,897
 779
 4,523
 10,277
 229,476
Stock of the regulatory agencies20,804
 
 
 
 20,804
Loans and leases—net of allowance for loan loss5,658,302
 1,223,983
 3,479,095
 (42,564) 10,318,816
Loans held for sale40,265
 
 
 
 40,265
Total interest-earning assets6,592,523
 1,224,762
 3,483,618
 (32,287) 11,268,616
Non-interest earning assets
 
 
 
 275,228
Total assets$6,592,523
 $1,224,762
 $3,483,618
 $(32,287) $11,543,844
Interest-bearing liabilities:         
Interest-bearing deposits$1,452,091
 $4,307,864
 $1,148,822
 $350,262
 $7,259,039
Advances from the FHLB538,000
 65,000
 107,500
 60,000
 770,500
Borrowings, subordinated notes and debentures37,284
 
 
 40,985
 78,269
Total interest-bearing liabilities2,027,375
 4,372,864
 1,256,322
 451,247
 8,107,808
Other non-interest-bearing liabilities
 
 
 
 2,339,980
Stockholders’ equity
 
 
 
 1,096,056
Total liabilities and equity$2,027,375
 $4,372,864
 $1,256,322
 $451,247
 $11,543,844
Net interest rate sensitivity gap$4,565,148
 $(3,148,102) $2,227,296
 $(483,534) $3,160,808
Cumulative gap$4,565,148
 $1,417,046
 $3,644,342
 $3,160,808
 $3,160,808
Net interest rate sensitivity gap—as a % of total interest earning assets40.51% (27.94)% 19.77% (4.29)% 28.05%
Cumulative gap—as % of total interest earning assets40.51% 12.58 % 32.34% 28.05 % 28.05%
1 
Comprised of agency and non-agency mortgage-backed securities, municipal securities and other non-agency debt securities, which are classified as available-for-sale.
The above table provides an approximation of the projected re-pricing of assets and liabilities at March 31, 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 March 31, 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$450,252
 7.6 % $428,391
 8.6%
Base$418,419
  % $394,480
 %
Down 200 basis points$415,756
 (0.6)% $405,702
 2.8%
We attempt to measure the effect market interest rate changes will have on the net present value of assets and liabilities, which is defined as market value of equity. We analyze the market value of equity sensitivity to an immediate parallel and sustained shift in interest rates derived from the current treasury and LIBOR yield curves. For rising interest rate scenarios, the base market interest rate forecast was increased by 100, 200 and 300 basis points. For falling interest rate scenarios, we used a 100 basis point decrease due to limitations inherent in the current rate environment.
The following table indicates the sensitivity of market value of equity to the interest rate movement described above:
 As of March 31, 2020
(Dollars in thousands)
Net
Present Value
 Percentage Change from Base 
Net
Present
Value as a
Percentage
of Assets
Up 300 basis points$1,412,896
 8.7 % 12.1%
Up 200 basis points$1,393,482
 7.2 % 11.8%
Up 100 basis points$1,341,370
 3.2 % 11.2%
Base$1,300,108
  % 10.8%
Down 100 basis points$1,209,947
 (6.9)% 9.9%
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 March 31, 2020, Axos Clearing held municipal obligations, these positions were classified as trading securities and had maturities greater than 10 years.

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Our Securities Business is engaged in various brokerage and trading activities that expose us to credit risk arising from potential non-performance from counterparties, customers or issuers of securities. This risk is managed by setting and monitoring position limits for each counterparty, conducting periodic credit reviews of counterparties, reviewing concentrations of securities and conducting business through central clearing organizations.
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.
On January 28, 2019, the Company completed its acquisition of Axos Clearing. The Company has integrated the internal controls over financial reporting of Axos Clearing with the rest of the Company. There were no other changes in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
Management, including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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PART II—OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS
The information set forth in Note 10 – “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, 2019. 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. The following supplements the risk factors in our Annual Report on Form 10-K referenced above:
The outbreak of the recent coronavirus ("COVID-19") could adversely affect our business activities, financial condition and results of operations.
The spread of the COVID-19 coronavirus and the resulting imposition of government “stay-at-home” orders and the closure of non-essential business activities in various states and localities in response to the pandemic is causing significant disruptions in the U.S. and global economy. There continue to be broad concerns related to the potential effects of the COVID-19 outbreak. If the response to COVID-19 has an adverse effect on (i) the ability of our borrowers to satisfy their obligations to us, (ii) the demand for our loans or our other products and services, (iii) customer deposits, (iv) other aspects of our business operations, (v) financial markets, real estate markets, or economic growth, or (vi) the credit risk of our commercial, residential, and unsecured loan portfolios, this could, depending on the duration and severity, materially and adversely affect our liquidity and financial condition and the results of operations could be materially and adversely affected.
Additionally, the COVID-19 pandemic has significantly affected the financial markets and has resulted in a number of Federal Reserve actions causing market interest rates to decline significantly. Such changes and expected loan modifications may affect our net interest margin, which could negatively impact our net interest income. The Company’s non-interest income could also decline and credit-related losses could increase for an uncertain period given the decline in economic activity occurring due to the COVID-19 and the actions by the Federal Reserve with respect to interest rates.
The ultimate economic impacts to the Company of the COVID-19 pandemic are uncertain and difficult to predict and could adversely impact our business, financial condition and results of operations. Further, a significant decrease in results of future operations may place a strain on the Bank's capital reserve ratios.
Recent changes to our size and structure could subject us to increased costs.
The current term of the Program Management Agreement with H&R Block ends on June 30, 2022, and may be terminated early by H&R Block in the event that Axos no longer qualifies as exempt from the provisions of the Dodd-Frank Act known as the “Durbin Amendment”. Such provisions limit the level of interchange fees that may be charged by institutions with greater than $10 billion in total assets, beginning July 1st of the following year in which the institution exceeds such size. Because the Company’s total assets exceeded $10 billion on December 31, 2019, the Durbin Amendment applies to us starting in July 2020.  However, we have the right to avoid early termination of the Program Management Agreement by compensating H&R Block for the loss of its actual interchange income. We estimate that such compensation could total approximately $25 million pre-tax annually, approximately $18.0 million after tax or $0.28 per diluted common share, although the actual amount would vary based upon the number and type of interchange transactions generated by the Emerald Card Program.
Since an amendment to the Program Management Agreement establishing compensation by the Bank to H&R Block was not executed by February 28, 2020, H&R Block has the unilateral right to terminate the Program Agreement. We have not agreed to the terms of such an amendment with H&R Block and while we intend to seek additional dialogue with H&R Block as to a suitable amendment, there can be no assurances that a mutually agreeable amendment will be reached.

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ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The table below sets forth our market repurchases of Axos common stock and the Axos common shares retained in connection with net settlement of restricted stock awards during the quarter ended March 31, 2020. On August 2, 2019, the Company’s Board of Directors approved a stock repurchase program authorizing the repurchase of up to $100 million of the Company’s stock. The new share repurchase authorization is in addition to the previous share repurchase program approved by the Company’s Board of Directorson March 17, 2016, authorizing the repurchase of up to $100 million of the Company’s stock. The Company may repurchase shares of common stock 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 stock repurchase programs do not obligate the Company to acquire any specific number of shares and will continue in effect until terminated by the Board of Directors of the Company. Shares of common stock repurchased under these programs will be held as treasury shares. During the quarter ended March 31, 2020, there were 1,815,783 shares purchased under the programs with $72.5 million remaining under the Board authorized stock repurchase program.
(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 Repurchases       
Quarter Ended March 31, 2020       
January 1, 2020 to January 31, 2020
 $
 
 $108,380
February 1, 2020 to February 29, 2020205,183
 $26.29
 205,183
 $102,985
March 1, 2020 to March 31, 20201,610,600
 $18.90
 1,610,600
 $72,541
For the Three Months Ended March 31, 20201,815,783
 $19.74
 1,815,783
 $72,541
        
Stock Retained in Net Settlement       
January 1, 2020 to January 31, 20206,790
      
February 1, 2020 to February 29, 20202,585
      
March 1, 2020 to March 31, 202029,375
      
For the Three Months Ended March 31, 202038,750
      

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES
None.

ITEM 4.    MINE SAFETY DISCLOSURES
None.

ITEM 5.    OTHER INFORMATION
None.

ITEM 6.EXHIBITS

Exhibit
Number
Description Incorporated By Reference to
    
3.1Amended and Restated Bylaws of Axos Financial, Inc. as amended and restated through February 27, 2020 
    
31.1Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 
    
31.2Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 
    
32.1Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 
    
32.2Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 
    
101.SCHXBRL Taxonomy Extension Schema Document Filed herewith.
    
101.CALXBRL Taxonomy Calculation Linkbase Document Filed herewith.
    
101.LABXBRL Taxonomy Label Linkbase Document Filed herewith.
    
101.PREXBRL Taxonomy Presentation Linkbase Document Filed herewith.
    
101.DEFXBRL Taxonomy Definition Document Filed herewith.
    
101.INSXBRL 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:April 29, 2020 By:     /s/ Gregory Garrabrants
     
Gregory Garrabrants
President and Chief Executive Officer
(Principal Executive Officer)
      
Dated:April 29, 2020 By:     /s/ Andrew J. Micheletti
     
Andrew J. Micheletti
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
      

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