UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT ~~UNDER~~PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the ~~Quarterly Period~~quarterly period ended December 31, ~~2020~~2021


☐			TRANSITION REPORT ~~UNDER~~PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-37709

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~~Suite 400, Las Vegas, NV 89148

(Address of principal executive offices) (zip code)

Registrant’s telephone number, including area code: (858) 649-2218


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value	AX	New York Stock Exchange
~~6.25% Subordinated Notes Due 2026~~	~~AXO~~	~~New York Stock Exchange~~

~~Securities registered pursuant to Section 12(g) of the Act:~~

~~None~~

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

The number of shares outstanding of the registrant’s common stock on the last practicable date: ~~59,077,145~~59,501,899 shares of common stock, $0.01 par value per share, as of January ~~22, 2021.~~20, 2022.

Table of Contents

AXOS FINANCIAL, INC.

INDEX


			Page
PART I – FINANCIAL INFORMATION			1

ITEM 1. FINANCIAL STATEMENTS			1
Condensed Consolidated Balance Sheets (unaudited) as of December 31,~~, 2020~~ 2021 and June 30, ~~2020~~2021			1
Condensed Consolidated Statements of Income (unaudited) for the three and six months ended December 31,, 2021 and 2020 ~~and 2019~~			2
Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three and six months ended December 31, 2021 ~~31,~~and 2020 ~~and 2019~~			3
Condensed Consolidated ~~Statement~~Statements of Stockholders’ Equity (unaudited) for the three and six months ended December 31, 2021 , and 2020 ~~and 2019~~			4
Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended December 31,, 2021 and 2020 ~~and 2019~~			6
Notes to Condensed Consolidated Financial Statements			78

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			3230
SELECTED FINANCIAL DATA			3734
RESULTS OF OPERATIONS			3936
FINANCIAL CONDITION			5247
LIQUIDITY			5651
OFF-BALANCE SHEET COMMITMENTS			5752
CAPITAL RESOURCES AND REQUIREMENTS			5952
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			6054

ITEM 3:3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS			6356

ITEM 4:4. CONTROLS AND PROCEDURES			6356

PART II – OTHER INFORMATION			6457

ITEM 1. LEGAL PROCEEDINGS			6457

ITEM 1A. RISK FACTORS			6457

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			6457

ITEM 3. DEFAULTS UPON SENIOR SECURITIES			6457

ITEM 4. MINE SAFETY DISCLOSURES			6457

ITEM 5. OTHER INFORMATION			6457

ITEM 6. EXHIBITS			6558

SIGNATURES			6659

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

AXOS FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(Dollars in thousands, except par and stated value)	(Dollars in thousands, except par and stated value)	December 31, 2020		June 30, 2020		(Dollars in thousands, except par and stated value)	December 31, 2021		June 30, 2021
ASSETS	ASSETS					ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	1,129,898	$	1,756,477	Cash and cash equivalents	$	858,732	$	715,624
Cash segregated for regulatory purposes	Cash segregated for regulatory purposes	313,297		194,042		Cash segregated for regulatory purposes	259,626		322,153

Total cash, cash equivalents, and cash segregated	Total cash, cash equivalents, and cash segregated	1,443,195		1,950,519		Total cash, cash equivalents, and cash segregated	1,118,358		1,037,777
Securities:	Securities:					Securities:
Trading	Trading	362		105		Trading	1,223		1,983
Available-for-sale	Available-for-sale	209,828		187,627		Available-for-sale	139,581		187,335

Stock of regulatory agencies	Stock of regulatory agencies	20,612		20,610		Stock of regulatory agencies	20,368		19,995
Loans held for sale, carried at fair value	Loans held for sale, carried at fair value	64,287		51,995		Loans held for sale, carried at fair value	27,428		29,768
Loans held for sale, lower of cost or fair value	Loans held for sale, lower of cost or fair value	13,769		44,565		Loans held for sale, lower of cost or fair value	11,446		12,294
Loans and leases—net of allowance for credit losses of $136.4 million as of December 31, 2020 and $75.8 million as of June 30, 2020		11,609,584		10,631,349
Loans—net of allowance for credit losses of $140.5 million as of December 31, 2021 and $133.0 million as of June 30, 2021						Loans—net of allowance for credit losses of $140.5 million as of December 31, 2021 and $133.0 million as of June 30, 2021	12,607,179		11,414,814

Mortgage servicing rights, carried at fair value	Mortgage servicing rights, carried at fair value	14,314		10,675		Mortgage servicing rights, carried at fair value	20,110		17,911
Other real estate owned and repossessed vehicles	Other real estate owned and repossessed vehicles	6,296		6,408		Other real estate owned and repossessed vehicles	251		6,782

Goodwill and other intangible assets—net	Goodwill and other intangible assets—net	120,644		125,389		Goodwill and other intangible assets—net	161,954		115,972
Securities borrowed	Securities borrowed	317,571		222,368		Securities borrowed	534,243		619,088
Customer, broker-dealer and clearing receivables	Customer, broker-dealer and clearing receivables	264,572		220,266		Customer, broker-dealer and clearing receivables	429,634		369,815
Other assets	Other assets	308,233		380,024		Other assets	476,172		432,031
TOTAL ASSETS	TOTAL ASSETS	$	14,393,267	$	13,851,900	TOTAL ASSETS	$	15,547,947	$	14,265,565

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:	Deposits:					Deposits:
Non-interest bearing	Non-interest bearing	$	2,201,932	$	1,936,661	Non-interest bearing	$	3,847,461	$	2,474,424
Interest bearing	Interest bearing	9,261,204		9,400,033		Interest bearing	8,421,711		8,341,373
Total deposits	Total deposits	11,463,136		11,336,694		Total deposits	12,269,172		10,815,797

Advances from the Federal Home Loan Bank	Advances from the Federal Home Loan Bank	182,500		242,500		Advances from the Federal Home Loan Bank	157,500		353,500
Borrowings, subordinated notes and debentures	Borrowings, subordinated notes and debentures	418,480		235,789		Borrowings, subordinated notes and debentures	260,435		221,358

Securities loaned	Securities loaned	362,170		255,945		Securities loaned	578,762		728,988
Customer, broker-dealer and clearing payables	Customer, broker-dealer and clearing payables	475,473		347,614		Customer, broker-dealer and clearing payables	528,796		535,425
Accounts payable and accrued liabilities and other liabilities	Accounts payable and accrued liabilities and other liabilities	204,026		202,512		Accounts payable and accrued liabilities and other liabilities	230,125		209,561
Total liabilities	Total liabilities	13,105,785		12,621,054		Total liabilities	14,024,790		12,864,629

STOCKHOLDERS’ EQUITY:	STOCKHOLDERS’ EQUITY:					STOCKHOLDERS’ EQUITY:
Preferred stock—$0.01 par value; 1,000,000 shares authorized:	Preferred stock—$0.01 par value; 1,000,000 shares authorized:					Preferred stock—$0.01 par value; 1,000,000 shares authorized:
Series A—$10,000 stated value and liquidation preference per share; 0 shares issued and outstanding as of December 31, 2020 and 515 shares issued and outstanding as of June 30, 2020		0		5,063

Common stock—$0.01 par value; 150,000,000 shares authorized; 67,668,664 shares issued and 59,072,822 shares outstanding as of December 31, 2020; 67,323,053 shares issued and 59,612,635 shares outstanding as of June 30, 2020		677		673

Common stock—$0.01 par value; 150,000,000 shares authorized; 68,376,837 shares issued and 59,498,575 shares outstanding as of December 31, 2021; 68,069,321 shares issued and 59,317,944 shares outstanding as of June 30, 2021						Common stock—$0.01 par value; 150,000,000 shares authorized; 68,376,837 shares issued and 59,498,575 shares outstanding as of December 31, 2021; 68,069,321 shares issued and 59,317,944 shares outstanding as of June 30, 2021	684		681
Additional paid-in capital	Additional paid-in capital	420,895		411,873		Additional paid-in capital	441,061		432,550
Accumulated other comprehensive income (loss)—net of tax	Accumulated other comprehensive income (loss)—net of tax	1,251		(937)		Accumulated other comprehensive income (loss)—net of tax	1,344		2,507
Retained earnings	Retained earnings	1,079,828		1,009,299		Retained earnings	1,308,725		1,187,728
Treasury stock, at cost; 8,595,842 shares as of December 31, 2020 and 7,710,418 shares as of June 30, 2020		(215,169)		(195,125)
Treasury stock, at cost; 8,878,262 shares as of December 31, 2021 and 8,751,377 shares as of June 30, 2021						Treasury stock, at cost; 8,878,262 shares as of December 31, 2021 and 8,751,377 shares as of June 30, 2021	(228,657)		(222,530)
Total stockholders’ equity	Total stockholders’ equity	1,287,482		1,230,846		Total stockholders’ equity	1,523,157		1,400,936
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	14,393,267	$	13,851,900	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	15,547,947	$	14,265,565

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

AXOS FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


		Three Months Ended				Six Months Ended					Three Months Ended				Six Months Ended
		December 31,				December 31,					December 31,				December 31,
(Dollars in thousands, except earnings per common share)	(Dollars in thousands, except earnings per common share)	2020		2019		2020		2019		(Dollars in thousands, except earnings per common share)	2021		2020		2021		2020
INTEREST AND DIVIDEND INCOME:	INTEREST AND DIVIDEND INCOME:									INTEREST AND DIVIDEND INCOME:
Loans and leases, including fees		$	147,085	$	136,602	$	288,509	$	270,489
Loans, including fees										Loans, including fees	$	149,469	$	147,085	$	298,645	$	288,509
Securities borrowed and customer receivables	Securities borrowed and customer receivables	4,666		3,865		9,743		9,207		Securities borrowed and customer receivables	5,366		4,666		12,217		9,743
Investments	Investments	3,628		6,821		7,016		13,937		Investments	2,241		3,628		4,524		7,016
Total interest and dividend income	Total interest and dividend income	155,379		147,288		305,268		293,633		Total interest and dividend income	157,076		155,379		315,386		305,268
INTEREST EXPENSE:	INTEREST EXPENSE:									INTEREST EXPENSE:
Deposits	Deposits	16,095		32,914		35,649		71,720		Deposits	7,805		16,095		15,517		35,649
Advances from the Federal Home Loan Bank	Advances from the Federal Home Loan Bank	1,326		4,495		2,698		6,259		Advances from the Federal Home Loan Bank	973		1,326		1,989		2,698
Securities loaned	Securities loaned	255		163		379		449		Securities loaned	218		255		469		379
Other borrowings	Other borrowings	3,611		1,296		5,123		3,482		Other borrowings	2,512		3,611		5,201		5,123
Total interest expense	Total interest expense	21,287		38,868		43,849		81,910		Total interest expense	11,508		21,287		23,176		43,849
Net interest income	Net interest income	134,092		108,420		261,419		211,723		Net interest income	145,568		134,092		292,210		261,419
Provision for credit losses	Provision for credit losses	8,000		4,500		19,800		7,200		Provision for credit losses	4,000		8,000		8,000		19,800
Net interest income, after provision for credit losses	Net interest income, after provision for credit losses	126,092		103,920		241,619		204,523		Net interest income, after provision for credit losses	141,568		126,092		284,210		241,619
NON-INTEREST INCOME:	NON-INTEREST INCOME:									NON-INTEREST INCOME:

Prepayment penalty fee income	Prepayment penalty fee income	1,579		2,006		2,947		3,418		Prepayment penalty fee income	3,294		1,579		6,280		2,947
Gain on sale – other	Gain on sale – other	156		1,924		490		5,746		Gain on sale – other	28		156		45		490
Mortgage banking income	Mortgage banking income	10,651		2,224		30,218		5,018		Mortgage banking income	4,612		10,651		9,865		30,218
Broker-dealer fee income	Broker-dealer fee income	6,287		5,555		11,989		11,211		Broker-dealer fee income	14,367		6,287		26,133		11,989
Banking and service fees	Banking and service fees	10,045		9,498		18,929		17,350		Banking and service fees	8,486		10,045		15,166		18,929
Total non-interest income	Total non-interest income	28,718		21,207		64,573		42,743		Total non-interest income	30,787		28,718		57,489		64,573
NON-INTEREST EXPENSE:	NON-INTEREST EXPENSE:									NON-INTEREST EXPENSE:
Salaries and related costs	Salaries and related costs	38,199		33,958		76,822		70,675		Salaries and related costs	39,979		38,199		80,716		76,822
Data processing	Data processing	9,673		7,410		17,601		15,221		Data processing	12,199		9,673		24,291		17,601
Depreciation and amortization	Depreciation and amortization	5,862		6,040		12,048		11,264		Depreciation and amortization	6,785		5,862		12,513		12,048
Advertising and promotional	Advertising and promotional	3,783		4,043		6,339		7,833		Advertising and promotional	3,402		3,783		6,774		6,339
Professional services	Professional services	5,629		3,112		11,628		4,701		Professional services	5,943		5,629		10,488		11,628
Occupancy and equipment	Occupancy and equipment	3,132		3,122		6,143		5,960		Occupancy and equipment	3,342		3,132		6,523		6,143
FDIC and regulatory fees	FDIC and regulatory fees	2,601		939		5,293		1,130		FDIC and regulatory fees	2,475		2,601		4,741		5,293
Broker-dealer clearing charges	Broker-dealer clearing charges	2,451		1,860		4,708		3,868		Broker-dealer clearing charges	3,678		2,451		7,683		4,708
General and administrative expense	General and administrative expense	4,967		6,481		11,261		11,780		General and administrative expense	8,216		4,967		16,721		11,261
Total non-interest expense	Total non-interest expense	76,297		66,965		151,843		132,432		Total non-interest expense	86,019		76,297		170,450		151,843
INCOME BEFORE INCOME TAXES	INCOME BEFORE INCOME TAXES	78,513		58,162		154,349		114,834		INCOME BEFORE INCOME TAXES	86,336		78,513		171,249		154,349
INCOME TAXES	INCOME TAXES	23,728		16,867		46,542		32,753		INCOME TAXES	25,549		23,728		50,252		46,542
NET INCOME	NET INCOME	$	54,785	$	41,295	$	107,807	$	82,081	NET INCOME	$	60,787	$	54,785	$	120,997	$	107,807
NET INCOME ATTRIBUTABLE TO COMMON STOCK	NET INCOME ATTRIBUTABLE TO COMMON STOCK	$	54,672	$	41,217	$	107,617	$	81,926	NET INCOME ATTRIBUTABLE TO COMMON STOCK	$	60,787	$	54,672	$	120,997	$	107,617
COMPREHENSIVE INCOME	COMPREHENSIVE INCOME	$	55,691	$	40,515	$	109,995	$	81,818	COMPREHENSIVE INCOME	$	60,131	$	55,691	$	119,834	$	109,995
Basic earnings per common share	Basic earnings per common share	$	0.93	$	0.67	$	1.82	$	1.34	Basic earnings per common share	$	1.02	$	0.93	$	2.04	$	1.82
Diluted earnings per common share	Diluted earnings per common share	$	0.91	$	0.67	$	1.79	$	1.32	Diluted earnings per common share	$	1.00	$	0.91	$	1.99	$	1.79

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

AXOS FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


		Three Months Ended				Six Months Ended					Three Months Ended				Six Months Ended
		December 31,				December 31,					December 31,				December 31,
(Dollars in thousands)	(Dollars in thousands)	2020		2019		2020		2019		(Dollars in thousands)	2021		2020		2021		2020
NET INCOME	NET INCOME	$	54,785	$	41,295	$	107,807	$	82,081	NET INCOME	$	60,787	$	54,785	$	120,997	$	107,807
Net unrealized gain (loss) from available-for-sale securities, net of tax expense (benefit) of $437 and $(327) for the three and $940 and $(110) for the six months ended December 31, 2020 and 2019, respectively.		906		(780)		2,188		(263)
Net unrealized gain (loss) from available-for-sale securities, net of tax expense (benefit) of $(274) and $437 for the three and $(488) and $940 for the six months ended December 31, 2021 and 2020, respectively.										Net unrealized gain (loss) from available-for-sale securities, net of tax expense (benefit) of $(274) and $437 for the three and $(488) and $940 for the six months ended December 31, 2021 and 2020, respectively.	(656)		906		(1,163)		2,188

Other comprehensive income (loss)	Other comprehensive income (loss)	906		(780)		2,188		(263)		Other comprehensive income (loss)	(656)		906		(1,163)		2,188
Comprehensive income	Comprehensive income	$	55,691	$	40,515	$	109,995	$	81,818	Comprehensive income	$	60,131	$	55,691	$	119,834	$	109,995

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

AXOS FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

For the Three Months Ended December 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—September 30, 2020 515 $ 5,063 67,622,935 (8,407,001) 59,215,934 $ 676 $ 416,285 $ 1,025,156 $ 345 $ (210,560) $ 1,236,965
Net income — — — — — — — 54,785 — — 54,785
Other comprehensive income (loss) — — — — — — — — 906 — 906
Cash dividends on preferred stock — — — — — — — (26) — — (26)
Preferred stock - Series A redemption (515) (5,063) — — — — — (87) — — (5,150)
Purchase of treasury stock — — — (171,348) (171,348) — — — — (4,015) (4,015)
Stock-based compensation expense
and restricted stock unit vesting — — 45,729 (17,493) 28,236 1 4,610 — — (594) 4,017
BALANCE—December 31, 2020 0 $ 0 67,668,664 (8,595,842) 59,072,822 $ 677 $ 420,895 $ 1,079,828 $ 1,251 $ (215,169) $ 1,287,482



	For the Three Months Ended December 31, 2021
	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—September 30, 2021	—	$	—	68,370,617	(8,875,984)	59,494,633	$	684	$	436,528	$	1,247,938	$	2,000	$	(228,529)	$	1,458,621
Net income	—	—		—	—	—	—		—		60,787		—		—		60,787
Other comprehensive income (loss)	—	—		—	—	—	—		—		—		(656)		—		(656)







Stock-based compensation expense and restricted stock unit vesting	—	—		6,220	(2,278)	3,942	—		4,533		—		—		(128)		4,405

BALANCE—December 31, 2021	—	$	—	68,376,837	(8,878,262)	59,498,575	$	684	$	441,061	$	1,308,725	$	1,344	$	(228,657)	$	1,523,157

For the Six Months Ended December 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, 2020 515 $ 5,063 67,323,053 (7,710,418) 59,612,635 $ 673 $ 411,873 $ 1,009,299 $ (937) $ (195,125) $ 1,230,846
Cumulative effect of change in accounting principle net of tax, adoption of ASU No. 2016-13 — — — — — — — (37,088) — — (37,088)
Net income — — — — — — — 107,807 — — 107,807
Other comprehensive income (loss) — — — — — — — — 2,188 — 2,188
Cash dividends on preferred stock — — — — — — — (103) — — (103)
Preferred stock - Series A redemption (515) (5,063) — — — — — (87) — — (5,150)
Purchase of treasury stock — — — (753,597) (753,597) — — — — (16,757) (16,757)
Stock-based compensation expense
and restricted stock unit vesting — — 345,611 (131,827) 213,784 4 9,022 — — (3,287) 5,739
BALANCE—December 31, 2020 0 $ 0 67,668,664 (8,595,842) 59,072,822 $ 677 $ 420,895 $ 1,079,828 $ 1,251 $ (215,169) $ 1,287,482


	For the Six Months Ended December 31, 2021
	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, 2021	—	$	—	68,069,321	(8,751,377)	59,317,944	$	681	$	432,550	$	1,187,728	$	2,507	$	(222,530)	$	1,400,936

Net income	—	—		—	—	—	—		—		120,997		—		—		120,997
Other comprehensive income (loss)	—	—		—	—	—	—		—		—		(1,163)		—		(1,163)







Stock-based compensation expense and restricted stock unit vesting	—	—		307,516	(126,885)	180,631	3		8,511		—		—		(6,127)		2,387

BALANCE—December 31, 2021	—	$	—	68,376,837	(8,878,262)	59,498,575	$	684	$	441,061	$	1,308,725	$	1,344	$	(228,657)	$	1,523,157

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

AXOS FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

(Unaudited)


		For the Three Months Ended December 31, 2019																												For the Three Months Ended December 31, 2020
		Preferred Stock			Common Stock					Additional Paid-in Capital				Retained Earnings		Accumulated Other Comprehensive Income (Loss), Net of Income Tax				Treasury Stock					Total					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																							Number of Shares
(Dollars in thousands)	(Dollars in thousands)	Shares	Amount		Issued	Treasury	Outstanding	Amount										(Dollars in thousands)	Shares									Amount					Issued						Treasury			Outstanding			Amount
BALANCE—September 30, 2019		515	$	5,063	66,837,037	(5,549,442)	61,287,595	$	668			$	394,904			$	866,879						$	533						$	(151,807)				$	1,116,240
BALANCE—September 30, 2020																											BALANCE—September 30, 2020		515					$	5,063			67,622,935			(8,407,001)			59,215,934			$	676		$			416,285			$	1,025,156			$	345			$	(210,560)			$	1,236,965
Net income	Net income	—	—		—	—	—	—				—				41,295						—					—					41,295			Net income		—			—			—			—			—			—				—				54,785				—				—		54,785
Other comprehensive income (loss)	Other comprehensive income (loss)	—	—		—	—	—	—		—				—		(780)				—					(780)			Other comprehensive income (loss)		—					—				—			—			—			—			—				—				906				—				906

Cash dividends on preferred stock	Cash dividends on preferred stock	—	—		—	—	—	—		—				(78)		—				—					(78)			Cash dividends on preferred stock		—					—				—			—			—			—			—				(26)				—				—				(26)

Preferred stock - Series A redemption																											Preferred stock - Series A redemption		(515)					(5,063)				—			—			—			—			—				(87)				—				—				(5,150)
Purchase of treasury stock																											Purchase of treasury stock		—					—				—			(171,348)			(171,348)			—			—				—				—				(4,015)				(4,015)

Stock-based compensation expense and restricted stock unit vesting	Stock-based compensation expense and restricted stock unit vesting	—	—		78,441	(27,650)	50,791	1		4,902				—		—				(828)					4,075			Stock-based compensation expense and restricted stock unit vesting		—					—				45,729			(17,493)			28,236			1			4,610				—				—				(594)				4,017

BALANCE—December 31, 2019		515	$	5,063	66,915,478	(5,577,092)	61,338,386	$	669	$	399,806			$	908,096	$	(247)			$	(152,635)				$	1,160,752
BALANCE—December 31, 2020																											BALANCE—December 31, 2020		—					$	—			67,668,664			(8,595,842)			59,072,822			$	677		$	420,895			$	1,079,828			$	1,251			$	(215,169)			$	1,287,482


		For the Six Months Ended December 31, 2019																					For the Six Months Ended December 31, 2020
		Preferred Stock			Common Stock					Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss), Net of Income Tax		Treasury Stock		Total					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																						Number of Shares
(Dollars in thousands)	(Dollars in thousands)	Shares	Amount		Issued	Treasury	Outstanding	Amount													(Dollars in thousands)		Shares		Amount		Issued		Treasury		Outstanding		Amount
BALANCE—June 30, 2019		515	$	5,063	66,563,922	(5,435,105)	61,128,817	$	666	$	389,945	$	826,170	$	16	$	(148,810)	$	1,073,050
BALANCE—June 30, 2020																				BALANCE—June 30, 2020		515		$	5,063	67,323,053		(7,710,418)		59,612,635		$	673	$	411,873	$	1,009,299	$	(937)	$	(195,125)	$	1,230,846
Cumulative effect of change in accounting principle net of tax, adoption of ASU No. 2016-13																				Cumulative effect of change in accounting principle net of tax, adoption of ASU No. 2016-13		—		—		—		—		—		—		—		(37,088)		—		—		(37,088)
Net income	Net income	—	—		—	—	—	—		—		82,081		—		—		82,081			Net income		—		—		—		—		—		—		—		107,807		—		—		107,807
Other comprehensive income (loss)	Other comprehensive income (loss)	—	—		—	—	—	—		—		—		(263)		—		(263)			Other comprehensive income (loss)		—		—		—		—		—		—		—		—		2,188		—		2,188

Cash dividends on preferred stock	Cash dividends on preferred stock	—	—		—	—	—	—		—		(155)		—		—		(155)			Cash dividends on preferred stock		—		—		—		—		—		—		—		(103)		—		—		(103)

Preferred stock - Series A redemption																				Preferred stock - Series A redemption		(515)		(5,063)		—		—		—		—		—		(87)		—		—		(5,150)
Purchase of treasury stock																				Purchase of treasury stock		—		—		—		(753,597)		(753,597)		—		—		—		—		(16,757)		(16,757)

Stock-based compensation expense and restricted stock unit vesting	Stock-based compensation expense and restricted stock unit vesting	—	—		351,556	(141,987)	209,569	3		9,861		—		—		(3,825)		6,039			Stock-based compensation expense and restricted stock unit vesting		—		—		345,611		(131,827)		213,784		4		9,022		—		—		(3,287)		5,739

BALANCE—December 31, 2019		515	$	5,063	66,915,478	(5,577,092)	61,338,386	$	669	$	399,806	$	908,096	$	(247)	$	(152,635)	$	1,160,752
BALANCE—December 31, 2020																				BALANCE—December 31, 2020		—		$	—	67,668,664		(8,595,842)		59,072,822		$	677	$	420,895	$	1,079,828	$	1,251	$	(215,169)	$	1,287,482

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

AXOS FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Six Months Ended					Six Months Ended
		December 31,					December 31,
(Dollars in thousands)	(Dollars in thousands)	2020		2019		(Dollars in thousands)	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	Net income	$	107,807	$	82,081	Net income	$	120,997	$	107,807
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
Accretion and amortization on securities, net	Accretion and amortization on securities, net	(13)		483		Accretion and amortization on securities, net	(211)		(13)
Net accretion of discounts on loans and leases	Net accretion of discounts on loans and leases	(2,684)		(606)		Net accretion of discounts on loans and leases	(3,239)		(2,684)
Amortization of borrowing costs	Amortization of borrowing costs	284		104		Amortization of borrowing costs	277		284

Amortization of operating lease right of use asset	Amortization of operating lease right of use asset	5,310		5,235		Amortization of operating lease right of use asset	4,947		5,310
Stock-based compensation expense	Stock-based compensation expense	9,026		9,864		Stock-based compensation expense	8,514		9,026

Trading activity						Trading activity	760		42

Provision for credit losses	Provision for credit losses	19,800		7,200		Provision for credit losses	8,000		19,800

Deferred income taxes	Deferred income taxes	(8,354)		(1,414)		Deferred income taxes	(1,468)		(8,354)
Origination of loans held for sale	Origination of loans held for sale	(931,065)		(994,004)		Origination of loans held for sale	(403,287)		(931,065)
Unrealized (gain) loss on loans held for sale	Unrealized (gain) loss on loans held for sale	104		23		Unrealized (gain) loss on loans held for sale	150		104
Gain on sales of loans held for sale	Gain on sales of loans held for sale	(30,708)		(10,764)		Gain on sales of loans held for sale	(9,910)		(30,708)
Proceeds from sale of loans held for sale	Proceeds from sale of loans held for sale	949,009		999,908		Proceeds from sale of loans held for sale	415,291		949,009
Amortization and change in fair value of mortgage servicing rights	Amortization and change in fair value of mortgage servicing rights	4,045		1,272		Amortization and change in fair value of mortgage servicing rights	1,087		4,045
(Gain) loss on sale of other real estate and foreclosed assets	(Gain) loss on sale of other real estate and foreclosed assets	(38)		(71)		(Gain) loss on sale of other real estate and foreclosed assets	(358)		(38)
Depreciation and amortization	Depreciation and amortization	12,048		11,264		Depreciation and amortization	12,513		12,048
Net changes in assets and liabilities which provide (use) cash:	Net changes in assets and liabilities which provide (use) cash:					Net changes in assets and liabilities which provide (use) cash:

Securities borrowed	Securities borrowed	(95,203)		(23,408)		Securities borrowed	84,845		(95,203)
Customer, broker-dealer and clearing receivables	Customer, broker-dealer and clearing receivables	(44,306)		(41,187)		Customer, broker-dealer and clearing receivables	(56,142)		(44,306)
Other assets	Other assets	60,576		29,481		Other assets	(109,751)		60,534

Securities loaned	Securities loaned	106,225		7,843		Securities loaned	(150,226)		106,225
Customer, broker-dealer and clearing payables	Customer, broker-dealer and clearing payables	127,859		67,065		Customer, broker-dealer and clearing payables	(6,629)		127,859
Accounts payable and other liabilities	Accounts payable and other liabilities	(5,305)		(21,715)		Accounts payable and other liabilities	7,067		(5,305)
Net cash provided by (used in) operating activities		284,417		128,654
Net cash provided (used) by operating activities						Net cash provided (used) by operating activities	(76,773)		284,417
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities	Purchases of investment securities	(57,725)		(139,490)		Purchases of investment securities	(12,286)		(57,725)

Proceeds from sales of securities						Proceeds from sales of securities	75,022		—
Proceeds from repayment of securities	Proceeds from repayment of securities	56,147		157,703		Proceeds from repayment of securities	58,601		56,147
Purchase of stock of regulatory agencies	Purchase of stock of regulatory agencies	(2)		(27,532)		Purchase of stock of regulatory agencies	(13,631)		(2)
Proceeds from redemption of stock of regulatory agencies	Proceeds from redemption of stock of regulatory agencies	0		27,532		Proceeds from redemption of stock of regulatory agencies	13,631		—
Origination of loans and leases held for investment		(2,530,229)		(2,766,687)
Proceeds from sale of loans and leases held for investment		15,711		14,587
Origination of loans held for investment						Origination of loans held for investment	(4,636,661)		(2,530,229)
Proceeds from sale of loans held for investment						Proceeds from sale of loans held for investment	36,943		15,711
Mortgage warehouse loans activity, net	Mortgage warehouse loans activity, net	(710,561)		(130,231)		Mortgage warehouse loans activity, net	18,511		(710,561)
Proceeds from sales of other real estate owned and repossessed assets	Proceeds from sales of other real estate owned and repossessed assets	584		412		Proceeds from sales of other real estate owned and repossessed assets	7,454		584

Acquisition of business activity, net of cash paid						Acquisition of business activity, net of cash paid	(54,761)		—
Purchases of loans and leases, net of discounts and premiums	Purchases of loans and leases, net of discounts and premiums	(1,471)		0		Purchases of loans and leases, net of discounts and premiums	(30,153)		(1,471)
Principal repayments on loans and leases		2,218,068		2,090,614
Principal repayments on loans						Principal repayments on loans	3,413,366		2,218,068
Purchases of furniture, equipment, software and intangibles	Purchases of furniture, equipment, software and intangibles	(5,815)		(6,064)		Purchases of furniture, equipment, software and intangibles	(8,730)		(5,815)
Net cash used in investing activities	Net cash used in investing activities	(1,015,293)		(779,156)		Net cash used in investing activities	(1,132,694)		(1,015,293)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits		126,442		1,131,166
Proceeds from the Federal Home Loan Bank term advances		0		60,000
Payments of the Federal Home Loan Bank term advances		(55,000)		(30,000)
Net (repayment) proceeds of Federal Home Loan Bank other advances		(5,000)		(231,000)
Net proceeds (repayments) of other borrowings		10,155		(106,800)

Tax payments related to settlement of restricted stock units		(3,287)		(3,825)
Redemption of preferred stock, Series A		(5,150)		0
Repurchase of treasury stock		(16,757)		0
Cash dividends paid on preferred stock		(103)		(232)
Payment of debt issuance costs		(2,748)		0
Proceeds from issuance of subordinated notes		175,000		0
Net cash provided by financing activities		223,552		819,309
NET CHANGE IN CASH AND CASH EQUIVALENTS		(507,324)		168,807
CASH AND CASH EQUIVALENTS—Beginning of year		$	1,950,519	$	857,368
CASH AND CASH EQUIVALENTS—End of period		$	1,443,195	$	1,026,175

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid on deposits and borrowed funds		$	41,194	$	81,728
Income taxes paid		$	50,574	$	27,671
Transfers to other real estate and repossessed vehicles		$	528	$	446
Transfers from loans and leases held for investment to loans held for sale		$	8,680	$	40,025
Transfers from loans held for sale to loans held for investment		$	27,739	$	0
Loans and leases held for investment sold, cash not received		$	0	$	28,742
Operating lease liabilities for obtaining right of use assets		$	0	$	79,746
Impact of adoption of ASU No. 2016-13 on retained earnings		$	37,088	$	0

Table of Contents

AXOS FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended
	December 31,
(Dollars in thousands)	2021		2020
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits	1,453,375		126,442

Payments of the Federal Home Loan Bank term advances	(10,000)		(55,000)
Net (repayment) proceeds of Federal Home Loan Bank other advances	(186,000)		(5,000)
Net proceeds (repayments) of other borrowings	38,800		10,155



Tax payments related to settlement of restricted stock units	(6,127)		(3,287)
Redemption of preferred stock, Series A	—		(5,150)
Repurchase of treasury stock	—		(16,757)
Cash dividends paid on preferred stock	—		(103)
Payment of debt issuance costs	—		(2,748)
Proceeds from issuance of subordinated notes	—		175,000
Net cash provided by financing activities	1,290,048		223,552
NET CHANGE IN CASH AND CASH EQUIVALENTS	80,581		(507,324)
CASH AND CASH EQUIVALENTS—Beginning of year	$	1,037,777	$	1,950,519
CASH AND CASH EQUIVALENTS—End of period	$	1,118,358	$	1,443,195



SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid on deposits and borrowed funds	$	23,429	$	41,194
Income taxes paid	57,763		50,574
Transfers to other real estate and repossessed vehicles	342		528
Transfers from loans held for investment to loans held for sale	36,943		8,680
Transfers from loans held for sale to loans held for investment	794		27,739

Operating lease liabilities for obtaining right of use assets	12,009		—
Impact of adoption of ASU No. 2016-13 on retained earnings	—		37,088

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

AXOS FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTH PERIODS ENDED DECEMBER 31, ~~2020~~2021 AND ~~2019~~2020

(Dollars in thousands, except per share and stated value amounts)

(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The condensed consolidated financial statements include the accounts of Axos Financial, Inc. (“Axos”) and its wholly owned subsidiaries, Axos Bank (the “Bank”) and Axos Nevada Holding, LLC (the “Axos Nevada Holding”) and collectively, the “Company”. Axos Nevada Holding wholly owns ~~its subsidiary Axos~~the companies constituting the 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.Business segment. All significant intercompany balances and transactions have been eliminated in consolidation.

The accompanying interim condensed consolidated financial statements, presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), are unaudited and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of financial condition and results of operations for the interim periods. All adjustments are of a normal and recurring nature. Results for the six months ended December 31, ~~2020~~2021 are not necessarily indicative of results that may be expected for any other interim period or for the year as a whole. Certain information and note disclosures normally included in the audited annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) with respect to interim financial reporting. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended June 30, ~~2020~~2021 included in our Annual Report on Form 10-K.

7Significant Accounting Policies

~~Table~~Our significant accounting policies are described in greater detail in Note 1 - “Summary of ~~Contents~~Significant Accounting Policies”

~~As a result of~~ contained in our Annual Report on Form 10-K filed with the ~~change from adopting Accounting Standard Update (“ASU”) 2016-13, “Measurement of Credit Losses on Financial Instruments”~~Securities and ~~all subsequent amendments that modified ASU 2016-13 (collectively, “ASC 326”) on July 1, 2020,~~Exchange Commission for the ~~Company updated categorization of the loan portfolio. For comparability purposes, certain reclassifications have been made to the presentation of loan categories as of~~fiscal year ended June 30, 2020 and as of and for the six months then ended December 31, 2019 to conform with current presentation adopted under ASC 326. The Company reclassified its loan categories to align with the segments adopted for the measurement of credit losses under ASC 326. The reclassification had no impact on the total loan balances or the allowance for credit losses - loans.

Loans and Leases - Carrying Amount
(Dollars in thousands) Single Family Real Estate Secured - Mortgage Single Family Real Estate Secured - Warehouse Single Family Real Estate Secured - Financing Multifamily Real Estate Secured - Mortgage and Financing Commercial Real Estate - Mortgage Commercial & Industrial Auto & RV - Secured Other Total
Balance July 1, 2020 Pre-ASC 326 Adoption $4,244,563 $474,318 $682,477 $2,303,216 $371,176 $2,094,322 $291,452 $241,918 $10,703,442
Commercial Real Estate - Mortgage to Multifamily and Commercial Mortgage — — — 371,176 (371,176) — — — —
Multifamily and Single Family Financing loans to Commercial Real Estate — — (679,054) (411,338) 1,090,392 — — — —
Real estate secured Commercial & Industrial to Commercial Real Estate — — — — 1,207,528 (1,207,528) — — —
Unsecured Consumer loans to Auto & Consumer — — — — — — 49,913 (49,913) —
Single Family Warehouse and Mortgage combined 477,741 (474,318) (3,423) — — — — — —
Other reclassifications — — — — — (1,474) — 1,474 —
Balance July 1, 2020 Post ASC 326 Adoption $4,722,304 $— $— $2,263,054 $2,297,920 $885,320 $341,365 $193,479 $10,703,442
Loan Category Post-ASC 326 Adoption
Single Family - Mortgage & Warehouse N/A N/A Multifamily and Commercial Mortgage Commercial Real Estate Commercial & Industrial - Non RE Auto & Consumer Other Total

2021.

~~Table of Contents~~

Allowance for Credit Losses
(Dollars in thousands) Single Family Real Estate Secured - Mortgage Single Family Real Estate Secured - Warehouse Single Family Real Estate Secured - Financing Multifamily Real Estate Secured - Mortgage and Financing Commercial Real Estate - Mortgage Commercial & Industrial Auto & RV - Secured Other Total
Balance July 1, 2020 Pre-ASC 326 Adoption $24,041 $1,860 $5,094 $6,318 $1,456 $22,863 $5,738 $8,437 $75,807
Reclassification 1,860 (1,860) (5,094) (1,600) 19,596 (12,909) 3,723 (3,716) —
Balance July 1, 2020 Post Reclassification $25,901 $— $— $4,718 $21,052 $9,954 $9,461 $4,721 $75,807
Loan Category Post-ASC 326 Adoption Single Family - Mortgage & Warehouse N/A N/A Multifamily and Commercial Mortgage Commercial Real Estate Commercial & Industrial - Non RE Auto & Consumer Other Total

~~Allowance for Credit Losses.~~ The allowance for credit losses (“ACL”) is a valuation account that offsets the amortized cost basis of loans and net investment in leases. Under ASC 326, amortized cost is the basis on which the ACL is determined. Amortized cost is principal outstanding, net of any purchase premiums and discounts and net of any deferred loan fees and costs.

Credit losses are charged off when the Company believes that collectability of at least some portion of outstanding principal is unlikely. These charge-offs are recorded as a reversal, thereby reducing, the allowance for credit losses. Recoveries on loans previously charged off are recorded as a provision to, thereby increasing, the allowance for credit losses. The allowance for credit losses is maintained at a level needed to absorb expected credit losses over the contractual life, considering the effects of prepayments, of the loan portfolio as of the reporting date. Determining the adequacy of the allowance is complex and requires judgment by Management about the effect of matters that are inherently uncertain. As such, a future assessment of current conditions may require material adjustments to the allowance.

The Company’s process for determining expected life-time credit losses entails a loan-level, model-based approach and requires consideration of a broad range of relevant information relating to historical loss experience, current economic conditions as well as reasonable and supportable forecasts.

A credit loss is estimated for all loans. Consequently, the Company stratifies the full loan population into segments sharing similar characteristics to perform the evaluation of the credit loss collectively.

The Company defines a segment as the level at which the Company develops a systematic methodology to determine the allowance for credit losses. Additionally, the Company can further stratify loans of similar type, risk attributes and methods for monitoring credit risk. The Company categorizes the loan portfolio into six segments: Single Family - Mortgage & Warehouse, Multifamily and Commercial Mortgage, Commercial Real Estate, Commercial & Industrial - Non Real Estate, Auto & Consumer and Other – refer to ~~Note 4 – “Loans & Allowance for Credit Losses”~~ ~~for further detail of the segments and classes within.~~

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

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

~~Qualitative criteria we consider includes, among other things, the following:~~

•~~Regulatory and Legal - matters that may impact the timeliness and/or amounts of repayments;~~

•~~Concentration - portfolio composition and loan concentration;~~

•~~Collateral Dependency - changes in collateral values;~~

•~~Lending/Underwriting Standards - current lending policies and the effects of any new policies;~~

•~~Nature and Volume - loan production volume and mix;~~

•~~Loan Trends - credit performance trends, including a borrower’s financial condition and credit rating.~~

~~Table of Contents~~

On a quarterly basis, Management convenes a Credit Review meeting in which current information and trends are collectively assessed to forecast future economic impact for purposes of assessing the adequacy of the ACL. The forecasted direction and magnitude of change with respect to future economic conditions is then assessed against the estimate in the model.

~~Accrued Interest.~~ Accrued interest receivable is excluded from amortized cost and is presented separately in “Other Assets” on the unaudited Condensed Consolidated Balance Sheets. Additionally, the Company does not estimate an allowance for credit losses on accrued interest receivable as the Company has a policy to charge off accrued interest deemed uncollectible in a timely manner. When a loan is placed on non-accrual status, which occurs when a borrower becomes delinquent by 90 days, interest previously accrued, but not collected, is reversed against current period interest income.

~~Individually Assessed Loans.~~ Credit loss is estimated for any individual loan on a collective basis, unless an individual loan’s credit characteristics has deteriorated below a range of the overall group, in which case the loan would then be individually assessed. Individually assessed loans are measured for credit loss based on present value of future expected cash flows, discounted at the loan’s effective interest rate or the fair value of the collateral, less estimated selling costs, if the loan is collateral-dependent.

~~Available-for-Sale Debt Securities.~~ Unrealized credit losses will be recognized through an allowance for credit losses instead of an adjustment to amortized cost basis, eliminating the other-than-temporary impairment concept. For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not, that it will be required to sell the security before recovery of its amortized cost basis. If either criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through earnings. For available-for-sale debt securities that do not meet the above conditions, the Company evaluates at the individual security level whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, Management considers the extent to which fair value is less than amortized cost and unfavorable conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recognized for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. All other changes in fair value of the security that have not been recognized through an allowance for credit losses are recognized in other comprehensive income. Changes in the allowance for credit losses, if any, are recognized as a provision for (or reversal of) credit losses. Losses are charged against the allowance when management believes an available-for-sale investment security is uncollectible or when either of the criteria regarding intent or requirement to sell is met.

~~Loan Commitments.~~ Loans commitments not unconditionally cancellable are subject to an estimate of credit loss under a current expected credit loss model. The Company’s process for determining the estimate of credit loss on loan commitments is the same as it is on loans. Refer to detail of Allowance on Credit Losses above.

New Accounting Standards

~~Accounting Standards Adopted During Fiscal 2021~~

~~Financial Instruments. Credit Losses. On~~No new accounting standards have yet been adopted for the fiscal year beginning July 1, 2020, the Company adopted ASC 326. The update replaces incurred loss models based on the probable recognition threshold with a current expected credit loss model to estimate all credit losses over the contractual life for financial instruments carried at amortized cost and certain off-balance sheet credit exposures, such as loan commitments. The new model requires consideration of a broader range of relevant information, such as historical loss experience, current economic conditions and reasonable and supportable forecasts. The change will generally result in earlier, accelerated loss recognition. For available-for-sale debt securities, unrealized credit losses will be recognized through an allowance for credit losses rather than as adjustment to amortized cost basis, eliminating the other-than-temporary impairment concept. No credit loss adjustment on available-for-sale debt securities resulted upon adoption of ASC 326.

The Company adopted this standard using the modified retrospective transition method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Prior period amounts are not retroactively adjusted. A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date.

2021.

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2. ACQUISITIONS

On August 2, 2021 the Company’s subsidiary, Axos Clearing, LLC, acquired certain assets and liabilities of E*TRADE Advisor Services (“EAS”), the registered investment advisor custody business of Morgan Stanley. This business was rebranded as Axos Advisor Services (“AAS”). AAS adds incremental fee income, a turnkey technology platform used by independent registered investment advisors for trading and custody services, and low cost deposits that can be used to generate fee income from other bank partners or to fund loan growth at Axos Bank. The initial purchase price of $54.6 million consisted entirely of cash consideration paid upon acquisition and working capital adjustments.

The Company incurred acquisition-related costs totaling $0.04 million for the six months ended December 31, 2021. There were no costs in the three months December 31, 2021. These costs are recognized in general and administrative expenses in the unaudited consolidated statements of income.

The acquisition is accounted for as a business combination under the acquisition method of accounting. Accordingly, tangible and intangible assets acquired (and liabilities assumed) are recorded at their estimated fair values as of the date of acquisition. The Company allocated the purchase price to the tangible and intangible assets acquired based on information available through December 31, 2021. The estimated fair values of the acquired assets and assumed liabilities are subject to refinement as additional information relative to closing date fair values becomes available. Any subsequent measurement period adjustments to the fair values of acquired assets and liabilities assumed, identifiable intangible assets, or other purchase accounting adjustments will result in adjustments to goodwill no later than within the first 12 months following the closing date of acquisition.

The preliminary allocation of the $54.6 million purchase price consists of $6.5 million of fair value of tangible assets acquired, $3.4 million of liabilities assumed, $27.1 million of identifiable intangible assets and $24.4 million of goodwill, all of which is expected to be deductible for tax purposes. In December 2021, the Company made a $0.2 million true-up payment based on working capital adjustments, which was recorded as an increase in the purchase price up to $54.8 million with no impact on goodwill or identifiable intangible assets. After the working capital true-up, the fair value of tangible assets acquired is $6.4 million and the fair value of liabilities acquired is $3.1 million. Identifiable intangible assets with a finite useful are amortized on a straight-line basis. Goodwill was calculated as the excess of consideration exchanged over the fair value of identifiable net assets acquired. The goodwill includes synergies expected to result from combining the acquired assets and liabilities with existing operations, coupling its custody platform with the Company existing product offerings and leveraging customer relationships through RIAs. The following table summarizes the fair value and useful life of each intangible asset acquired as of the acquisition date:


($ in thousands)	Fair Value		Useful Lives (Years)
Trade Name	$	290	0.16
Proprietary Technology	10,990		7
Customer Relationships	15,650		14
Non-Compete Agreements	130		1
	$	27,060

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

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3. FAIR VALUE

Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic 820, Fair Value Measurement, ~~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 December 31, ~~2020~~2021 and June 30, ~~2020.~~2021. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:


		December 31, 2020									December 31, 2021
(Dollars in thousands)	(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		(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:	ASSETS:									ASSETS:
Securities—Trading: Municipal	Securities—Trading: Municipal	$	0	$	362	$	0	$	362	Securities—Trading: Municipal	$	—	$	1,223	$	—	$	1,223
Securities—Available-for-Sale:	Securities—Available-for-Sale:									Securities—Available-for-Sale:
Agency Debt1	Agency Debt1	$	0	$	1,799	$	0	$	1,799	Agency Debt1	$	—	$	—	$	—	$	—
Agency RMBS1		0		16,975		0		16,975
Non-Agency RMBS2		0		0		17,135		17,135
Agency MBS1										Agency MBS1	—		29,231		—		29,231
Non-Agency MBS2										Non-Agency MBS2	—		—		58,752		58,752
Municipal	Municipal	0		3,514		0		3,514		Municipal	—		3,536		—		3,536
Asset-backed securities and structured notes	Asset-backed securities and structured notes	0		170,405		0		170,405		Asset-backed securities and structured notes	—		48,062		—		48,062
Total—Securities—Available-for-Sale	Total—Securities—Available-for-Sale	$	0	$	192,693	$	17,135	$	209,828	Total—Securities—Available-for-Sale	$	—	$	80,829	$	58,752	$	139,581
Loans Held for Sale	Loans Held for Sale	$	0	$	64,287	$	0	$	64,287	Loans Held for Sale	$	—	$	27,428	$	—	$	27,428
Mortgage servicing rights	Mortgage servicing rights	$	0	$	0	$	14,314	$	14,314	Mortgage servicing rights	$	—	$	—	$	20,110	$	20,110
Other assets—Derivative instruments	Other assets—Derivative instruments	$	0	$	0	$	10,263	$	10,263	Other assets—Derivative instruments	$	—	$	—	$	1,462	$	1,462
LIABILITIES:	LIABILITIES:									LIABILITIES:
Other liabilities—Derivative instruments	Other liabilities—Derivative instruments	$	0	$	0	$	2,284	$	2,284	Other liabilities—Derivative instruments	$	—	$	—	$	85	$	85

		June 30, 2020									June 30, 2021
(Dollars in thousands)	(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		(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:	ASSETS:									ASSETS:
Securities—Trading: Municipal	Securities—Trading: Municipal	$	0	$	105	$	0	$	105	Securities—Trading: Municipal	$	—	$	1,983	$	—	$	1,983
Securities—Available-for-Sale:	Securities—Available-for-Sale:									Securities—Available-for-Sale:
Agency Debt1	Agency Debt1	$	0	$	1,799	$	0	$	1,799	Agency Debt1	$	—	$	—	$	—	$	—
Agency RMBS1		0		16,826		0		16,826
Non-Agency RMBS2		0		0		18,332		18,332
Agency MBS1										Agency MBS1	—		23,913		—		23,913
Non-Agency MBS2										Non-Agency MBS2	—		—		67,615		67,615
Municipal	Municipal	0		10,400		0		10,400		Municipal	—		3,565		—		3,565
Asset-backed securities and structured notes	Asset-backed securities and structured notes	0		140,270		0		140,270		Asset-backed securities and structured notes	—		92,242		—		92,242
Total—Securities—Available-for-Sale	Total—Securities—Available-for-Sale	$	0	$	169,295	$	18,332	$	187,627	Total—Securities—Available-for-Sale	$	—	$	119,720	$	67,615	$	187,335
Loans Held for Sale	Loans Held for Sale	$	0	$	51,995	$	0	$	51,995	Loans Held for Sale	$	—	$	29,768	$	—	$	29,768
Mortgage servicing rights	Mortgage servicing rights	$	0	$	0	$	10,675	$	10,675	Mortgage servicing rights	$	—	$	—	$	17,911	$	17,911
Other assets—Derivative instruments	Other assets—Derivative instruments	$	0	$	0	$	9,131	$	9,131	Other assets—Derivative instruments	$	—	$	—	$	2,280	$	2,280
LIABILITIES:	LIABILITIES:									LIABILITIES:
Other liabilities—Derivative instruments	Other liabilities—Derivative instruments	$	0	$	0	$	1,715	$	1,715	Other liabilities—Derivative instruments	$	—	$	—	$	75	$	75

1Includes securities guaranteed by Ginnie Mae, a U.S. government agency, and the government sponsored enterprises Fannie Mae and Freddie Mac.

2Private sponsors of securities collateralized primarily by first-lien mortgage loans on commercial properties or by pools of 1-4 family residential first mortgages. Primarily super senior securities secured by Alt-A or pay-option ARM mortgages.

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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									For the Three Months Ended
		December 31, 2020									December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Securities – Available-for-Sale: Non-Agency RMBS		Mortgage Servicing Rights		Derivative Instruments, net		Total		(Dollars in thousands)		Securities – Available-for-Sale: Non-Agency MBS		Mortgage Servicing Rights		Derivative Instruments, net		Total
Opening balance	Opening balance	$	17,612	$	12,130	$	12,999	$	42,741	Opening balance		$	59,851	$	18,438	$	2,226	$	80,515

Included in earnings—Mortgage banking income	Included in earnings—Mortgage banking income	0		(2,250)		(5,020)		(7,270)		Included in earnings—Mortgage banking income		—		97		(849)		(752)
Included in other comprehensive income	Included in other comprehensive income	15		0		0		15		Included in other comprehensive income		(527)		—		—		(527)
Purchases, originations, issues, sales and settlements:
Purchases/originations		0		4,434		0		4,434
Purchases, retentions, issues, sales and settlements:										Purchases, retentions, issues, sales and settlements:
Purchases/Retentions										Purchases/Retentions		—		1,575		—		1,575

Settlements	Settlements	(492)		0		0		(492)		Settlements		(572)		—		—		(572)

Closing balance	Closing balance	$	17,135	$	14,314	$	7,979	$	39,428	Closing balance		$	58,752	$	20,110	$	1,377	$	80,239

Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	$	0	$	(2,250)	$	(5,020)	$	(7,270)	Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period		$	—	$	97	$	(849)	$	(752)

		For the Six Months Ended									For the Six Months Ended
		December 31, 2020									December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Securities – Available-for-Sale: Non-Agency RMBS		Mortgage Servicing Rights		Derivative Instruments, net		Total		(Dollars in thousands)		Securities – Available-for-Sale: Non-Agency RMBS		Mortgage Servicing Rights		Derivative Instruments, net		Total
Opening Balance	Opening Balance	$	18,332	$	10,675	$	7,416	$	36,423	Opening Balance		$	67,615	$	17,911	$	2,205	$	87,731

Total gains or losses for the period:										Total gains or losses for the period:

Included in earnings—Mortgage banking income	Included in earnings—Mortgage banking income	0		(4,045)		563		(3,482)		Included in earnings—Mortgage banking income		—		(1,087)		(828)		(1,915)
Included in other comprehensive income	Included in other comprehensive income	(307)		0		0		(307)		Included in other comprehensive income		(639)		—		—		(639)
Purchases, originations, issues, sales and settlements:
Purchases/originations		0		7,684		0		7,684
Purchases, retentions, issues, sales and settlements:										Purchases, retentions, issues, sales and settlements:
Purchases/Retentions										Purchases/Retentions		—		3,286		—		3,286

Settlements	Settlements	(890)		0		0		(890)		Settlements		(8,224)		—		—		(8,224)

Closing balance	Closing balance	$	17,135	$	14,314	$	7,979	$	39,428	Closing balance		$	58,752	$	20,110	$	1,377	$	80,239

Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	$	0	$	(4,045)	$	563	$	(3,482)	Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period		$	—	$	(1,087)	$	(828)	$	(1,915)

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		For the Three Months Ended										For the Three Months Ended
		December 31, 2019										December 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Securities – Available-for-Sale: Non-Agency RMBS		Mortgage Servicing Rights		Derivative Instruments, net		Total		(Dollars in thousands)		Securities – Available-for-Sale: Non-Agency MBS		Mortgage Servicing Rights		Derivative Instruments, net		Total

Opening balance	Opening balance	$	13,132	$	10,632	$	1,727	$	25,491	Opening balance		$	17,612	$	12,130	$	12,999	$	42,741

Included in earnings—Mortgage banking income	Included in earnings—Mortgage banking income	0		(589)		(710)		(1,299)		Included in earnings—Mortgage banking income		—		(2,250)		(5,020)		(7,270)
Included in other comprehensive income	Included in other comprehensive income	151		0		0		151		Included in other comprehensive income		15		—		—		15
Purchases, originations, issues, sales and settlements:
Purchases/originations		0		1,219		0		1,219
Purchases, retentions, issues, sales and settlements:										Purchases, retentions, issues, sales and settlements:
Purchases/Retentions										Purchases/Retentions		—		4,434		—		4,434

Settlements	Settlements	(496)		0		0		(496)		Settlements		(492)		—		—		(492)

Closing balance	Closing balance	$	12,787	$	11,262	$	1,017	$	25,066	Closing balance		$	17,135	$	14,314	$	7,979	$	39,428

Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	$	0	$	(589)	$	(710)	$	(1,299)	Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period		$	—	$	(2,250)	$	(5,020)	$	(7,270)

		For the Six Months Ended										For the Six Months Ended
		December 31, 2019									December 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Securities – Available-for-Sale: Non-Agency RMBS		Mortgage Servicing Rights		Derivative Instruments, net		Total		(Dollars in thousands)		Securities – Available-for-Sale: Non-Agency RMBS		Mortgage Servicing Rights		Derivative Instruments, net		Total

Opening Balance	Opening Balance	$	13,025	$	9,784	$	1,246	$	24,055	Opening Balance		$	18,332	$	10,675	$	7,416	$	36,423

Total gains or losses for the period:	Total gains or losses for the period:									Total gains or losses for the period:

Included in earnings—Mortgage banking income	Included in earnings—Mortgage banking income	0		(1,272)		(229)		(1,501)		Included in earnings—Mortgage banking income		—		(4,045)		563		(3,482)
Included in other comprehensive income	Included in other comprehensive income	840		0		0		840		Included in other comprehensive income		(307)		—		—		(307)
Purchases, originations, issues, sales and settlements:
Purchases/originations		0		2,750		0		2,750
Purchases, retentions, issues, sales and settlements:										Purchases, retentions, issues, sales and settlements:
Purchases/retentions										Purchases/retentions		—		7,684		—		7,684

Settlements	Settlements	(1,078)		0		0		(1,078)		Settlements		(890)		—		—		(890)

Closing balance	Closing balance	$	12,787	$	11,262	$	1,017	$	25,066	Closing balance		$	17,135	$	14,314	$	7,979	$	39,428

Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	$	0	$	(1,272)	$	(229)	$	(1,501)	Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period		$	—	$	(4,045)	$	563	$	(3,482)

The table below summarizes the quantitative information about level 3 fair value measurements as of the dates indicated:

December 31, ~~2020~~2021

(Dollars in thousands)

Fair Value

Valuation Technique

Unobservable Input

Range (Weighted Average)

Securities – Non-agency ~~RMBS~~MBS

~~17,135~~58,752

Discounted Cash Flow

Projected Constant Prepayment Rate,
Projected Constant Default Rate,
Projected Loss Severity,
Discount Rate over LIBOR

~~2.5~~0.0 to ~~24.6% (10.5%~~33.8% (2.2%)

~~1.5~~0.0 to ~~6.3% (1.7%~~8.8% (0.2%)

~~40.0~~0.0 to ~~100.0% (76.7%~~68.3% (8.9%)

~~2.8~~2.7 to ~~7.4% (4.4%~~6.6% (3.0%)

Mortgage Servicing Rights

~~14,314~~20,110

Discounted Cash Flow

Projected Constant Prepayment Rate,
Life (in years),
Discount Rate

~~6.7~~11.5 to ~~72.2% (12.3%~~60.8% (15.9%)

~~0.7~~1.1 to ~~7.4 (6.1)~~7.9 (6.2)

9.5 to ~~14.0% (9.7%~~11.2% (9.6%)

Derivative Instruments

~~7,979~~1,377

Sales Comparison Approach

Projected Sales Profit of Underlying Loans

~~0.2~~0.1 to ~~0.4% (0.3%~~0.9% (0.4%)

~~Table of Contents~~

June 30, ~~2020~~2021

(Dollars in thousands)

Fair Value

Valuation Technique

Unobservable Input

Range (Weighted Average)

Securities – Non-agency ~~RMBS~~MBS

~~18,332~~67,615

Discounted Cash Flow

Projected Constant Prepayment Rate,
Projected Constant Default Rate,
Projected Loss Severity,
Discount Rate over LIBOR

~~2.5~~0.0 to ~~47.9% (26.1%~~25.0% (2.7%)

~~0.5~~0.0 to ~~4.5% (2.0%~~5.6% (0.6%)

~~35.0~~0.0 to ~~68.4% (50.1%~~100.0% (19.4%)

~~2.9~~2.7 to ~~9.4% (5.0%~~7.2% (3.1%)

Mortgage Servicing Rights

~~10,675~~17,911

Discounted Cash Flow

Projected Constant Prepayment Rate,
Life (in years),
Discount Rate

~~4.7~~7.5 to ~~39.6% (11.4%~~37.4% (11.5%)

~~1.6~~1.7 to ~~7.7 (6.2)~~7.5 (6.4)

9.5 to ~~14.0% (9.8%~~13.0% (9.6%)

Derivative Instruments

~~7,416~~2,205

Sales Comparison Approach

Projected Sales Profit of Underlying Loans

~~(0.3)~~0.2 to ~~0.8% (0.2%~~0.5% (0.3%)

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The significant unobservable inputs used in the fair value measurement of the Company’s residential mortgage-backed securities are projected prepayment rates, probability of default, and projected loss severity in the event of default. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the projected loss severity and a directionally opposite change in the assumption used for projected prepayment rates.

The table below summarizes assets measured for impairment on a non-recurring basis:


		December 31, 2020									December 31, 2021
(Dollars in thousands)	(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		(Dollars in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance
Other real estate owned and foreclosed assets:	Other real estate owned and foreclosed assets:									Other real estate owned and foreclosed assets:
Single family real estate		$	0	$	0	$	6,114	$	6,114

Autos and RVs	Autos and RVs	0		0		182		182		Autos and RVs	$	—	$	—	$	251	$	251
Total	Total	$	0	$	0	$	6,296	$	6,296	Total	$	—	$	—	$	251	$	251

		June 30, 2020									June 30, 2021
(Dollars in thousands)	(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		(Dollars in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance
Other real estate owned and foreclosed assets:	Other real estate owned and foreclosed assets:									Other real estate owned and foreclosed assets:

Single family real estate	Single family real estate	$	0	$	0	$	6,114	$	6,114	Single family real estate	$	—	$	—	$	6,547	$	6,547

Autos and RVs	Autos and RVs	0		0		294		294		Autos and RVs	—		—		235		235
Total	Total	$	0	$	0	$	6,408	$	6,408	Total	$	—	$	—	$	6,782	$	6,782

Other real estate owned and foreclosed assets, which are measured at the lower of carrying value or fair value less costs to sell, had a net carrying amount of ~~$6,296~~$251 after charge-offs of $0$49 for the six months ended December 31, ~~2020.~~2021.

The Company has elected the fair value option for Agency loans held for sale. These loans are intended for sale and the Company believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on loans held for investment. None of these loans are 90 days or more past due nor on nonaccrual as of December 31, ~~2020~~2021 and June 30, ~~2020.~~2021.

As of December 31, ~~2020~~2021 and June 30, ~~2020,~~2021, the aggregate fair value of loans held for sale, carried at fair value, contractual balance (including accrued interest), and unrealized gain was as follows:

(Dollars in thousands) December 31, 2020 June 30, 2020
Aggregate fair value $ 64,287 $ 51,995
Contractual balance 62,093 49,700
Unrealized gain $ 2,194 $ 2,295

~~Table of Contents~~


(Dollars in thousands)	December 31, 2021		June 30, 2021
Aggregate fair value	$	27,428	$	29,768
Contractual balance	26,751		28,940
Unrealized gain	$	677	$	828

The total amount of gains and losses from changes in fair value included in earnings for the period indicated below for loans held for sale were:


		For the Three Months Ended				For the Six Months Ended					For the Three Months Ended				For the Six Months Ended
		December 31,				December 31,					December 31,				December 31,
(Dollars in thousands)	(Dollars in thousands)	2020		2019		2020		2019		(Dollars in thousands)	2021		2020		2021		2020
Interest income	Interest income	$	420	$	291	$	802	$	596	Interest income	$	194	$	420	$	394	$	802
Change in fair value	Change in fair value	(6,425)		(728)		459		(252)		Change in fair value	(1,021)		(6,425)		(978)		459
Total	Total	$	(6,005)	$	(437)	$	1,261	$	344	Total	$	(827)	$	(6,005)	$	(584)	$	1,261

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The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at the periods indicated:

December 31, ~~2020~~2021

(Dollars in thousands)

Fair Value

Valuation Technique(s)

Unobservable Input

Range (Weighted Average) 1

Other real estate owned and foreclosed assets:

~~Single family real estate~~

~~6,114~~

~~Sales comparison approach~~

~~Adjustment for differences between the comparable sales~~

~~0.1 to 0.1% (0.1%)~~

Autos and RVs

~~182~~251

Sales comparison approach

Adjustment for differences between the comparable sales

~~0.0~~(16.6) to ~~0.0% (0.0%~~(2.0)% ((8.4)%)

June 30, ~~2020~~2021

(Dollars in thousands)

Fair Value

Valuation Technique(s)

Unobservable Input

Range (Weighted Average) 1

Other real estate owned and foreclosed assets:

Single family real estate

~~6,114~~6,547

Sales comparison approach

Adjustment for differences between the comparable sales

~~18.7~~(1.5) to ~~18.7% (18.7%~~6.1% (2.0%)

Autos and RVs

~~294~~235

Sales comparison approach

Adjustment for differences between the comparable sales

~~(24.6)~~(2.1) to ~~44.2% (2.8%~~14.7% (2.1%)

1 For other real estate owned and foreclosed assets the ranges shown may vary positively or negatively based on the comparable sales reported in the current appraisal. In certain instances, the range can be significant due to small sample sizes and in some cases the property being valued having limited comparable sales with similar characteristics at the time the current appraisal is conducted.

1614

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Fair value of Financial Instruments

The carrying amounts and estimated fair values of financial instruments at December 31, ~~2020~~2021 and June 30, ~~2020~~2021 were as follows:


		December 31, 2020											December 31, 2021
				Fair Value											Fair Value
(Dollars in thousands)	(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value		(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
Financial assets:	Financial assets:											Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	1,443,195	$	1,443,195	$	0	$	0	$	1,443,195	Cash and cash equivalents	$	1,118,358	$	1,118,358	$	—	$	—	$	1,118,358
Securities — trading	Securities — trading	362		0		362		0		362		Securities — trading	1,223		—		1,223		—		1,223
Securities — available-for-sale	Securities — available-for-sale	209,828		0		192,693		17,135		209,828		Securities — available-for-sale	139,581		—		80,829		58,752		139,581

Loans held for sale, at fair value	Loans held for sale, at fair value	64,287		0		64,287		0		64,287		Loans held for sale, at fair value	27,428		—		27,428		—		27,428
Loans held for sale, at lower of cost or fair value	Loans held for sale, at lower of cost or fair value	13,769		0		0		13,815		13,815		Loans held for sale, at lower of cost or fair value	11,446		—		—		11,534		11,534
Loans and leases held for investment—net		11,609,584		0		0		12,151,576		12,151,576
Loans held for investment—net												Loans held for investment—net	12,607,179		—		—		12,870,528		12,870,528
Securities borrowed	Securities borrowed	317,571		0		0		317,666		317,666		Securities borrowed	534,243		—		—		524,466		524,466
Customer, broker-dealer and clearing receivables	Customer, broker-dealer and clearing receivables	264,572		0		0		264,678		264,678		Customer, broker-dealer and clearing receivables	429,634		—		—		432,427		432,427

Mortgage servicing rights	Mortgage servicing rights	14,314		0		0		14,314		14,314		Mortgage servicing rights	20,110		—		—		20,110		20,110
Financial liabilities:	Financial liabilities:											Financial liabilities:
Total deposits	Total deposits	11,463,136		0		11,103,293		0		11,103,293		Total deposits	12,269,172		—		11,650,460		—		11,650,460

Advances from the Federal Home Loan Bank	Advances from the Federal Home Loan Bank	182,500		0		192,082		0		192,082		Advances from the Federal Home Loan Bank	157,500		—		157,500		—		157,500
Borrowings, subordinated notes and debentures	Borrowings, subordinated notes and debentures	418,480		0		414,350		0		414,350		Borrowings, subordinated notes and debentures	260,435		—		254,096		—		254,096
Securities loaned	Securities loaned	362,170		0		0		363,365		363,365		Securities loaned	578,762		—		—		582,640		582,640
Customer, broker-dealer and clearing payables	Customer, broker-dealer and clearing payables	475,473		0		0		475,473		475,473		Customer, broker-dealer and clearing payables	528,796		—		—		534,712		534,712


		June 30, 2020											June 30, 2021
				Fair Value											Fair Value
(Dollars in thousands)	(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value		(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
Financial assets:	Financial assets:											Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	1,950,519	$	1,950,519	$	0	$	0	$	1,950,519	Cash and cash equivalents	$	1,037,777	$	1,037,777	$	—	$	—	$	1,037,777
Securities — trading	Securities — trading	105		0		105		0		105		Securities — trading	1,983		—		1,983		—		1,983
Securities — available-for-sale	Securities — available-for-sale	187,627		0		169,295		18,332		187,627		Securities — available-for-sale	187,335		—		119,720		67,615		187,335

Loans held for sale, at fair value	Loans held for sale, at fair value	51,995		0		51,995		0		51,995		Loans held for sale, at fair value	29,768		—		29,768		—		29,768
Loans held for sale, at lower of cost or fair value	Loans held for sale, at lower of cost or fair value	44,565		0		0		44,625		44,625		Loans held for sale, at lower of cost or fair value	12,294		—		—		12,336		12,336
Loans and leases held for investment—net		10,631,349		0		0		11,138,255		11,138,255
Loans held for investment—net												Loans held for investment—net	11,414,814		—		—		11,833,102		11,833,102
Securities borrowed	Securities borrowed	222,368		0		0		222,613		222,613		Securities borrowed	619,088		—		—		619,274		619,274
Customer, broker-dealer and clearing receivables	Customer, broker-dealer and clearing receivables	220,266		0		0		220,464		220,464		Customer, broker-dealer and clearing receivables	369,815		—		—		369,815		369,815

Mortgage servicing rights	Mortgage servicing rights	10,675		0		0		10,675		10,675		Mortgage servicing rights	17,911		—		—		17,911		17,911
Financial liabilities:	Financial liabilities:											Financial liabilities:
Total deposits	Total deposits	11,336,694		0		11,088,447		0		11,088,447		Total deposits	10,815,797		—		10,297,450		—		10,297,450

Advances from the Federal Home Loan Bank	Advances from the Federal Home Loan Bank	242,500		0		254,114		0		254,114		Advances from the Federal Home Loan Bank	353,500		—		353,500		—		353,500
Borrowings, subordinated notes and debentures	Borrowings, subordinated notes and debentures	235,789		0		234,445		0		234,445		Borrowings, subordinated notes and debentures	221,358		—		210,196		—		210,196
Securities loaned	Securities loaned	255,945		0		0		256,790		256,790		Securities loaned	728,988		—		—		731,467		731,467
Customer, broker-dealer and clearing payables	Customer, broker-dealer and clearing payables	347,614		0		0		347,614		347,614		Customer, broker-dealer and clearing payables	535,425		—		—		535,425		535,425

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The methods and assumptions, not previously presented, used to estimate fair value are described as follows: Carrying amount is the estimated fair value for cash and cash equivalents, interest bearing deposits, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans ~~and leases~~ or deposits that reprice frequently and fully. For fixed rate loans, ~~and leases,~~ deposits, borrowings or subordinated debt and for variable rate loans, ~~and leases,~~ deposits, borrowings or subordinated debt with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. A discussion of the methods of valuing trading securities, available for sale securities and loans held for sale can be found ~~earlier~~ in ~~this footnote.~~Note 3 – “Fair Value” ofour Form 10-K for the year ended June 30, 2021. The carrying amount of stock of regulatory agencies approximates the estimated fair value of this investment. The fair value of off-balance sheet items is not considered material.

3.4. SECURITIES

The amortized cost, carrying amount and fair value for the trading and available-for-sale securities at December 31, ~~2020~~2021 and June 30, ~~2020~~2021 were:


		December 31, 2020										December 31, 2021
		Trading		Available-for-sale									Trading	Available-for-sale
(Dollars in thousands)	(Dollars in thousands)	Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value					(Dollars in thousands)	Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Mortgage-backed securities (RMBS):
Mortgage-backed securities (MBS):															Mortgage-backed securities (MBS):
U.S. agencies1	U.S. agencies1	$	0	$	16,424	$	552	$	(1)	$	16,975				U.S. agencies1	$	—	$	29,376	$	214	$	(359)	$	29,231
Non-agency2	Non-agency2	0		17,289		821		(975)		17,135					Non-agency2	—		56,949		2,152		(349)		58,752
Total mortgage-backed securities	Total mortgage-backed securities	0		33,713		1,373		(976)		34,110					Total mortgage-backed securities	—		86,325		2,366		(708)		87,983
Non-RMBS:
U.S. agencies1		0		1,800		0		(1)		1,799
Non-MBS:															Non-MBS:

Municipal	Municipal	362		3,405		109		0		3,514					Municipal	1,223		3,467		69		—		3,536
Asset-backed securities and structured notes	Asset-backed securities and structured notes	0		168,215		2,190		0		170,405					Asset-backed securities and structured notes	—		46,933		1,129		—		48,062
Total Non-RMBS		362		173,420		2,299		(1)		175,718
Total Non-MBS															Total Non-MBS	1,223		50,400		1,198		—		51,598
Total debt securities	Total debt securities	$	362	$	207,133	$	3,672	$	(977)	$	209,828				Total debt securities	$	1,223	$	136,725	$	3,564	$	(708)	$	139,581

		June 30, 2020										June 30, 2021
		Trading		Available-for-sale									Trading	Available-for-sale
(Dollars in thousands)	(Dollars in thousands)	Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value					(Dollars in thousands)	Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Mortgage-backed securities (RMBS):
Mortgage-backed securities (MBS):															Mortgage-backed securities (MBS):
U.S. agencies1	U.S. agencies1	$	0	$	16,192	$	634	$	0	$	16,826				U.S. agencies1	$	—	$	23,639	$	420	$	(146)	$	23,913
Non-agency2	Non-agency2	0		18,180		1,024		(872)		18,332					Non-agency2	—		65,174		2,862		(421)		67,615
Total mortgage-backed securities	Total mortgage-backed securities	0		34,372		1,658		(872)		35,158					Total mortgage-backed securities	—		88,813		3,282		(567)		91,528
Non-RMBS:
U.S. agencies1		0		1,799		0		0		1,799
Non-MBS:															Non-MBS:

Municipal	Municipal	105		10,550		44		(194)		10,400					Municipal	1,983		3,466		99		—		3,565
Asset-backed securities and structured notes	Asset-backed securities and structured notes	0		141,338		1		(1,069)		140,270					Asset-backed securities and structured notes	—		90,549		1,693		—		92,242
Total Non-RMBS		105		153,687		45		(1,263)		152,469
Total Non-MBS															Total Non-MBS	1,983		94,015		1,792		—		95,807
Total debt securities	Total debt securities	$	105	$	188,059	$	1,703	$	(2,135)	$	187,627				Total debt securities	$	1,983	$	182,828	$	5,074	$	(567)	$	187,335

1Includes securities guaranteed by Ginnie Mae, a U.S. government agency, and the government sponsored enterprises Fannie Mae and Freddie Mac.

The Company’s non-agency ~~RMBS~~MBS available-for-sale portfolio with a total fair value of ~~$17,135~~$58,752 at December 31, ~~2020~~2021 consists of 1514 different issues of super senior securities.

The face amounts of debt securities available-for-sale that were pledged to secure borrowings at December 31, ~~2020~~2021 and June 30, ~~2020~~2021 were ~~$3.4~~$1.2 million and ~~$3.5~~$1.4 million, respectively.

1816

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The securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows:


		December 31, 2020												December 31, 2021
		Available-for-sale securities in loss position for													Available-for-sale securities in loss position for
		Less Than 12 Months				More Than 12 Months				Total						Less Than 12 Months			More Than 12 Months						Total
(Dollars in thousands)	(Dollars in thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses								(Dollars in thousands)		Fair Value			Gross Unrealized Losses			Fair Value			Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
RMBS:
MBS:																	MBS:
U.S. agencies	U.S. agencies	$	537	$	(1)	$	0	$	0	$	537	$	(1)							U.S. agencies		$	20,136		$	(351)		$	366		$	(8)		$	20,502	$	(359)
Non-agency	Non-agency	0		0		6,317		(975)		6,317		(975)								Non-agency		—			—			5,353			(349)			5,353		(349)
Total RMBS securities		537		(1)		6,317		(975)		6,854		(976)
Non-RMBS:
Total MBS																	Total MBS	20,136			(351)			5,719			(357)			25,855			(708)
Non-MBS:																	Non-MBS:
U.S. agencies	U.S. agencies	1,799		(1)		0		0		1,799		(1)								U.S. agencies		—			—			—			—			—		—

Total Non-RMBS		1,799		(1)		0		0		1,799		(1)
Total Non-MBS																	Total Non-MBS	—			—			—			—			—			—
Total debt securities	Total debt securities	$	2,336	$	(2)	$	6,317	$	(975)	$	8,653	$	(977)							Total debt securities		$	20,136		$	(351)		$	5,719		$	(357)		$	25,855	$	(708)

		June 30, 2020												June 30, 2021
		Available-for-sale securities in loss position for													Available-for-sale securities in loss position for
		Less Than 12 Months				More Than 12 Months				Total						Less Than 12 Months			More Than 12 Months						Total
(Dollars in thousands)	(Dollars in thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses								(Dollars in thousands)		Fair Value			Gross Unrealized Losses			Fair Value			Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
RMBS:
MBS:																	MBS:
U.S. agencies	U.S. agencies	$	85	$	0	$	0	$	0	$	85	$	0							U.S. agencies		$	10,001		$	(146)		$	—		$	—		$	10,001	$	(146)
Non-agency	Non-agency	0		0		6,978		(872)		6,978		(872)								Non-agency		—			—			6,018			(421)			6,018		(421)
Total RMBS securities		85		0		6,978		(872)		7,063		(872)
Non-RMBS:
Total MBS																	Total MBS	10,001			(146)			6,018			(421)			16,019			(567)
Non-MBS:																	Non-MBS:

Municipal debt	Municipal debt	0		0		2,002		(194)		2,002		(194)								Municipal debt		—			—			—			—			—		—
Asset-backed securities and structured notes	Asset-backed securities and structured notes	139,883		(1,069)		0		0		139,883		(1,069)								Asset-backed securities and structured notes		—			—			—			—			—		—
Total Non-RMBS		139,883		(1,069)		2,002		(194)		141,885		(1,263)
Total Non-MBS																	Total Non-MBS	—			—			—			—			—			—
Total debt securities	Total debt securities	$	139,968	$	(1,069)	$	8,980	$	(1,066)	$	148,948	$	(2,135)							Total debt securities		$	10,001		$	(146)		$	6,018		$	(421)		$	16,019	$	(567)

On December 31, ~~2020,~~2021, there were 8 securities ~~that were~~ in a continuous loss position for a period of more than 12 months, and 311 securities ~~that were~~ in a continuous loss position for a period of less than 12 months. At June 30, ~~2020,~~2021, there were 107 securities ~~that were~~ in a continuous loss position for a period of more than 12 months, and 47 securities ~~that were~~ in a continuous loss position for a period of less than 12 months.

At December 31, ~~2020,~~2021, 1 non-agency RMBS with a total carrying amount of ~~$2.7~~$2.6 million was determined to have cumulative credit losses of $0.8 million of which ~~NaN~~none was recognized in earnings during the three months ended December 31, 2020. For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates at the individual security level whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses, if any, are recorded as a provision for (or reversal of) credit losses. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale investment security is confirmed or when either of the criteria regarding intent or requirement to sell is met.2021.

During the ~~three months ended December 31, 2019, the company sold 0 available-for-sale securities. During the three~~six months ended December 31, 2020, the company sold 0no available-for-sale securities.

~~Table of Contents~~

During the six months ended December 31, 2021, the company sold no available-for-sale securities.

The Company had recorded unrealized gains and unrealized losses in accumulated other comprehensive loss as follows:


(Dollars in thousands)	(Dollars in thousands)	December 31, 2020		June 30, 2020		(Dollars in thousands)	December 31, 2021		June 30, 2021
Available-for-sale debt securities—net unrealized gains (losses)	Available-for-sale debt securities—net unrealized gains (losses)	$	2,695	$	(432)	Available-for-sale debt securities—net unrealized gains (losses)	$	2,856	$	4,507
Available-for-sale debt securities—non-credit related losses	Available-for-sale debt securities—non-credit related losses	(845)		(845)		Available-for-sale debt securities—non-credit related losses	(845)		(845)

Subtotal	Subtotal	1,850		(1,277)		Subtotal	2,011		3,662
Tax benefit (expense)	Tax benefit (expense)	(599)		340		Tax benefit (expense)	(667)		(1,155)
Net unrealized gain (loss) on investment securities in accumulated other comprehensive income (loss)	Net unrealized gain (loss) on investment securities in accumulated other comprehensive income (loss)	$	1,251	$	(937)	Net unrealized gain (loss) on investment securities in accumulated other comprehensive income (loss)	$	1,344	$	2,507

Table of Contents

5. LOANS & ALLOWANCE FOR CREDIT LOSSES

The following ~~table(s)~~table sets forth the composition of the loan portfolio as of the dates indicated:


(Dollars in thousands)	(Dollars in thousands)	December 31, 2020		June 30, 2020		(Dollars in thousands)	December 31, 2021		June 30, 2021
Single Family - Mortgage & Warehouse	Single Family - Mortgage & Warehouse	$	5,252,810	$	4,722,304	Single Family - Mortgage & Warehouse	$	4,281,646	$	4,359,472
Multifamily and Commercial Mortgage	Multifamily and Commercial Mortgage	2,363,024		2,263,054		Multifamily and Commercial Mortgage	2,483,932		2,470,454
Commercial Real Estate	Commercial Real Estate	2,720,922		2,297,920		Commercial Real Estate	3,857,367		3,180,453
Commercial & Industrial - Non-RE	Commercial & Industrial - Non-RE	933,081		885,320		Commercial & Industrial - Non-RE	1,631,811		1,123,869
Auto & Consumer	Auto & Consumer	327,340		341,365		Auto & Consumer	478,636		362,180
Other	Other	151,496		193,479		Other	22,282		58,316
Total gross loans and leases		11,748,673		10,703,442
Total gross loans						Total gross loans	12,755,674		11,554,744
Allowance for credit losses - loans	Allowance for credit losses - loans	(136,393)		(75,807)		Allowance for credit losses - loans	(140,489)		(132,958)
Unaccreted premiums (discounts) and loan and lease fees		(2,696)		3,714
Total net loans and leases		$	11,609,584	$	10,631,349
Unaccreted premiums (discounts) and loan fees						Unaccreted premiums (discounts) and loan fees	(8,006)		(6,972)
Total net loans						Total net loans	$	12,607,179	$	11,414,814

2018

Table of Contents

The following tables summarize activity in the allowance for credit losses - loans by portfolio classes for the periods indicated.


		For the Three Months Ended December 31, 2020															For the Three Months Ended December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Single Family-Mortgage & Warehouse		Multifamily and Commercial Mortgage		Commercial Real Estate		Commercial & Industrial - Non-RE		Auto & Consumer		Other		Total		(Dollars in thousands)	Single Family-Mortgage & Warehouse		Multifamily and Commercial Mortgage		Commercial Real Estate		Commercial & Industrial - Non-RE		Auto & Consumer		Other		Total
Balance at October 1, 2020		$	28,307	$	12,419	$	49,198	$	23,295	$	8,678	$	11,018	$	132,915
Balance at October 1, 2021																Balance at October 1, 2021	$	25,329	$	13,359	$	65,223	$	22,519	$	10,007	$	341	$	136,778

Provision for credit losses - loans		5,271		470		7,517		(1,546)		(214)		(3,498)		8,000
Provision (benefit) for credit losses - loans																Provision (benefit) for credit losses - loans	182		269		2,358		170		1,299		(278)		4,000

Charge-offs	Charge-offs	(870)		0		0		(2,620)		(1,220)		0		(4,710)		Charge-offs	—		—		—		—		(640)		—		(640)
Recoveries	Recoveries	19		0		0		0		169		0		188		Recoveries	69		—		—		27		255		—		351
Balance at December 31, 2020		$	32,727	$	12,889	$	56,715	$	19,129	$	7,413	$	7,520	$	136,393
Balance at December 31, 2021																Balance at December 31, 2021	$	25,580	$	13,628	$	67,581	$	22,716	$	10,921	$	63	$	140,489


		For the Three Months Ended December 31, 2019															For the Three Months Ended December 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Single Family-Mortgage & Warehouse		Multifamily and Commercial Mortgage		Commercial Real Estate		Commercial & Industrial - Non-RE		Auto & Consumer		Other		Total		(Dollars in thousands)	Single Family-Mortgage & Warehouse		Multifamily and Commercial Mortgage		Commercial Real Estate		Commercial & Industrial - Non-RE		Auto & Consumer		Other		Total
Balance at October 1, 2019		$	21,712	$	4,005	$	12,462	$	14,402	$	6,585	$	61	$	59,227
Balance at October 1, 2020																Balance at October 1, 2020	$	28,307	$	12,419	$	49,198	$	23,295	$	8,678	$	11,018	$	132,915
Provision for credit losses - loans	Provision for credit losses - loans	23		(78)		229		(2,276)		1,570		5,032		4,500		Provision for credit losses - loans	5,271		470		7,517		(1,546)		(214)		(3,498)		8,000
Charge-offs	Charge-offs	(145)		0		0		0		(1,109)		(4,132)		(5,386)		Charge-offs	(870)		—		—		(2,620)		(1,220)		—		(4,710)
Recoveries	Recoveries	71		119		0		0		122		861		1,173		Recoveries	19		—		—		—		169		—		188
Balance at December 31, 2019		$	21,661	$	4,046	$	12,691	$	12,126	$	7,168	$	1,822	$	59,514
Balance at December 31, 2020																Balance at December 31, 2020	$	32,727	$	12,889	$	56,715	$	19,129	$	7,413	$	7,520	$	136,393

For the Six Months Ended December 31, 2020
(Dollars in thousands) Single Family-Mortgage & Warehouse Multifamily and Commercial Mortgage Commercial Real Estate Commercial & Industrial - Non-RE Auto & Consumer Other Total
Balance at July 1, 2020 $ 25,901 $ 4,718 $ 21,052 $ 9,954 $ 9,461 $ 4,721 $ 75,807
Effect of Adoption of ASC 326
6,318 7,408 25,893 7,042 610 29 47,300
Provision for credit losses - loans 2,832 763 9,770 4,966 (1,301) 2,770 19,800
Charge-offs (2,359) 0 0 (2,833) (1,956) 0 (7,148)
Recoveries 35 0 0 0 599 0 634
Balance at December 31, 2020 $ 32,727 $ 12,889 $ 56,715 $ 19,129 $ 7,413 $ 7,520 $ 136,393


	For the Six Months Ended December 31, 2021
(Dollars in thousands)	Single Family-Mortgage & Warehouse		Multifamily and Commercial Mortgage		Commercial Real Estate		Commercial & Industrial - Non-RE		Auto & Consumer		Other		Total
Balance at July 1, 2021	$	26,604	$	13,146	$	57,928	$	28,460	$	6,519	$	301	$	132,958

Provision (benefit) for credit losses - loans	(1,169)		305		9,653		(5,476)		4,925		(238)		8,000

Charge-offs	—		—		—		(322)		(1,034)		—		(1,356)
Recoveries	145		177		—		54		511		—		887
Balance at December 31, 2021	$	25,580	$	13,628	$	67,581	$	22,716	$	10,921	$	63	$	140,489

For the Six Months Ended December 31, 2019
(Dollars in thousands) Single Family-Mortgage & Warehouse Multifamily and Commercial Mortgage Commercial Real Estate Commercial & Industrial - Non-RE Auto & Consumer Other Total
Balance at July 1, 2019 $ 22,290 $ 3,807 $ 14,632 $ 9,544 $ 6,339 $ 473 $ 57,085
Provision for credit losses - loans (656) 120 (1,941) 2,582 2,751 4,344 7,200
Charge-offs (151) 0 0 0 (2,130) (4,182) (6,463)
Recoveries 178 119 0 0 208 1,187 1,692
Balance at December 31, 2019 $ 21,661 $ 4,046 $ 12,691 $ 12,126 $ 7,168 $ 1,822 $ 59,514


	For the Six Months Ended December 31, 2020
(Dollars in thousands)	Single Family-Mortgage & Warehouse		Multifamily and Commercial Mortgage		Commercial Real Estate		Commercial & Industrial - Non-RE		Auto & Consumer		Other		Total
Balance at July 1, 2020	$	25,901	$	4,718	$	21,052	$	9,954	$	9,461	$	4,721	$	75,807
Effect of Adoption of ASC 326	6,318		7,408		25,893		7,042		610		29		47,300
Provision for credit losses - loans	2,832		763		9,770		4,966		(1,301)		2,770		19,800
Charge-offs	(2,359)		—		—		(2,833)		(1,956)		—		(7,148)
Recoveries	35		—		—		—		599		—		634
Balance at December 31, 2020	$	32,727	$	12,889	$	56,715	$	19,129	$	7,413	$	7,520	$	136,393

Credit Quality Disclosures. Nonaccrual loans consisted of the following as of the dates indicated:


		As of December 31, 2020								As of December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	With Allowance		With No Allowance		Total			(Dollars in thousands)	With Allowance		With No Allowance		Total
Single Family - Mortgage & Warehouse	Single Family - Mortgage & Warehouse	$	68,789	$	48,400	$	117,189		Single Family - Mortgage & Warehouse	$	54,613	$	67,713	$	122,326
Multifamily and Commercial Mortgage	Multifamily and Commercial Mortgage	25,487		6,643		32,130			Multifamily and Commercial Mortgage	2,158		5,530		7,688
Commercial Real Estate	Commercial Real Estate	16,631		0		16,631			Commercial Real Estate	—		15,244		15,244
Commercial & Industrial - Non-RE	Commercial & Industrial - Non-RE	2,960		0		2,960			Commercial & Industrial - Non-RE	—		—		—
Auto & Consumer	Auto & Consumer	238		116		354			Auto & Consumer	504		116		620

Other									Other	—		55		55
Total nonaccrual loans	Total nonaccrual loans	$	114,105	$	55,159	$	169,264		Total nonaccrual loans	$	57,275	$	88,658	$	145,933
Nonaccrual loans to total loans	Nonaccrual loans to total loans					1.44		%	Nonaccrual loans to total loans					1.14		%

No interest income was recognized on nonaccrual loans in either the three months ended December 31, 2021 or December 31, 2020. No interest income was recognized on nonaccrual loans in either the six months ended December 31, 2021 or December 31, 2020.

Table of Contents

Approximately ~~0.50%~~0.52% of our nonaccrual loans at December 31, ~~2020~~2021 were considered TDRs, compared to ~~0.34%~~0.55% at June 30, ~~2020.~~2021. Borrowers that make timely payments after TDRs are considered non-performing for at least six months. Generally, after six months of timely payments, those TDRs are reclassified from the nonaccrual loan category to the performing loan category and any previously deferred interest income is recognized. Approximately ~~69.23%~~83.82% of the Bank’s nonaccrual loans are single family first ~~mortgages, repaid and written down to 89.15% in aggregate, of the original loan value of the underlying properties.~~

~~Table of Contents~~

~~NaN interest income was recognized in the three and six months ended December 31, 2020 on nonaccrual loans.~~mortgages.

The following tables present the outstanding unpaid balance of loans that are performing and nonaccrual by portfolio class:


		December 31, 2020															December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Single Family-Mortgage & Warehouse		Multifamily and Commercial Mortgage		Commercial Real Estate		Commercial & Industrial - Non-RE		Auto & Consumer		Other		Total		(Dollars in thousands)	Single Family-Mortgage & Warehouse		Multifamily and Commercial Mortgage		Commercial Real Estate		Commercial & Industrial - Non-RE		Auto & Consumer		Other		Total
Performing	Performing	$	5,135,621	$	2,330,894	$	2,704,291	$	930,121	$	326,986	$	151,496	$	11,579,409	Performing	$	4,159,320	$	2,476,244	$	3,842,123	$	1,631,811	$	478,016	$	22,227	$	12,609,741
Nonaccrual	Nonaccrual	117,189		32,130		16,631		2,960		354		0		169,264		Nonaccrual	122,326		7,688		15,244		—		620		55		145,933
Total	Total	$	5,252,810	$	2,363,024	$	2,720,922	$	933,081	$	327,340	$	151,496	$	11,748,673	Total	$	4,281,646	$	2,483,932	$	3,857,367	$	1,631,811	$	478,636	$	22,282	$	12,755,674


		June 30, 2020															June 30, 2021
(Dollars in thousands)	(Dollars in thousands)	Single Family-Mortgage & Warehouse		Multifamily and Commercial Mortgage		Commercial Real Estate		Commercial & Industrial - Non-RE		Auto & Consumer		Other		Total		(Dollars in thousands)	Single Family-Mortgage & Warehouse		Multifamily and Commercial Mortgage		Commercial Real Estate		Commercial & Industrial - Non-RE		Auto & Consumer		Other		Total
Performing	Performing	$	4,638,274	$	2,259,629	$	2,297,920	$	885,107	$	341,092	$	193,479	$	10,615,501	Performing	$	4,253,764	$	2,450,026	$	3,164,614	$	1,120,927	$	361,902	$	58,316	$	11,409,549
Nonaccrual	Nonaccrual	84,030		3,425		0		213		273		0		87,941		Nonaccrual	105,708		20,428		15,839		2,942		278		—		145,195
Total	Total	$	4,722,304	$	2,263,054	$	2,297,920	$	885,320	$	341,365	$	193,479	$	10,703,442	Total	$	4,359,472	$	2,470,454	$	3,180,453	$	1,123,869	$	362,180	$	58,316	$	11,554,744

From time to time, the Company modifies loan terms temporarily for borrowers who are experiencing financial stress. These loans are performing and accruing and will generally return to the original loan terms after the modification term expires. The Company had 0no TDRs classified as performing loans at December 31, ~~2020~~2021 or June 30, 2020. Under guidelines set forth in the CARES Act, the Company had provided borrowers the ability to delay payments and not consider them to be TDRs. Starting at September 30, 2020, the Company no longer allowed delayed payments and no loans existed at September 30, 2020 or December 31, 2020 that were in a forbearance status.

2021.

2220

Table of Contents

Credit Quality Indicators

The amortized cost basis by fiscal year of origination and credit quality indicator of the Company’s loan and leases as of December 31, ~~2020~~2021 was as follows:


		Loans Held for Investment Origination Year																		Revolving Loans					Revolving Loans Converted to Loans HFI					Revolving Loans Converted to Term Loans				Total				Loans Held for Investment Origination Year																												Revolving Loans							Total
(Dollars in thousands)	(Dollars in thousands)	2021			2020			2019			2018			2017			Prior											(Dollars in thousands)	2022								2021					2020					2019					2018					Prior												Total
Single Family-Mortgage & Warehouse	Single Family-Mortgage & Warehouse																																				Single Family-Mortgage & Warehouse
Pass	Pass	$	539,284		$	952,830		$	660,507		$	575,594		$	444,502		$	710,004					$	1,165,124								$	0			$	0				$	5,047,845	Pass		$	754,227				$	760,351				$	539,496				$	398,601			$	358,708			$		717,525	$	566,340				$	4,095,248
Special Mention	Special Mention	285			12,131			8,781			15,512			8,170			10,857			19,755					0					0				75,491			Special Mention	11,550					79					8,265					4,020					1,927				6,425				29,273							61,539
Substandard	Substandard	0			5,203			24,645			26,206			12,960			60,460			0					0					0				129,474			Substandard	—					962					34,659					20,155					12,967				56,116				—							124,859
Doubtful	Doubtful	0			0			0			0			0			0			0					0					0				0			Doubtful	—					—					—					—					—				—				—							—
Total	Total	539,569			970,164			693,933			617,312			465,632			781,321			1,184,879					0					0				5,252,810			Total	765,777					761,392					582,420					422,776					373,602				780,066				595,613							4,281,646
Multifamily and Commercial Mortgage	Multifamily and Commercial Mortgage																																				Multifamily and Commercial Mortgage
Pass	Pass	280,288			596,962			466,586			341,318			217,464			385,722			0					0					0				2,288,340			Pass	286,209					621,487					509,415					308,530					254,009				417,533				—							2,397,183
Special Mention	Special Mention	0			36,222			2,075			1,338			1,431			631			0					0					0				41,697			Special Mention	—					—					—					17,162					—				2,745				—							19,907
Substandard	Substandard	0			24,499			2,165			4,479			0			1,844			0					0					0				32,987			Substandard	—					4,908					30,155					6,110					11,388				14,281				—							66,842
Doubtful	Doubtful	0			0			0			0			0			0			0					0					0				0			Doubtful	—					—					—					—					—				—				—							—
Total	Total	280,288			657,683			470,826			347,135			218,895			388,197			0					0					0				2,363,024			Total	286,209					626,395					539,570					331,802					265,397				434,559				—							2,483,932
Commercial Real Estate	Commercial Real Estate																																				Commercial Real Estate
Pass	Pass	576,922			1,065,384			491,215			169,036			45,701			63,750			181,521					0					0				2,593,529			Pass	1,310,547					1,050,924					585,116					450,236					68,748				—				272,844							3,738,415
Special Mention	Special Mention	0			24,842			12,161			0			11,221			0			2,271					0					0				50,495			Special Mention	—					2,500					10,818					15,487					15,000				—				—							43,805
Substandard	Substandard	0			15,250			45,017			16,631			0			0			0					0					0				76,898			Substandard	—					—					58,205					—					15,244				—				1,698							75,147
Doubtful	Doubtful	0			0			0			0			0			0			0					0					0				0			Doubtful	—					—					—					—					—				—				—							—
Total	Total	576,922			1,105,476			548,393			185,667			56,922			63,750			183,792					0					0				2,720,922			Total	1,310,547					1,053,424					654,139					465,723					98,992				—				274,542							3,857,367
Commercial & Industrial - Non-RE	Commercial & Industrial - Non-RE																																				Commercial & Industrial - Non-RE
Pass	Pass	39,640			112,479			19,423			34,711			14,560			68			599,386					0					104,716				924,983			Pass	118,720					52,137					82,180					14,289					15,965				817				1,312,491							1,596,599
Special Mention	Special Mention	0			0			0			0			92			0			0					0					0				92			Special Mention	—					—					—					224					907				—				20,654							21,785
Substandard	Substandard	2,824			865			3,360			957			0			0			0					0					0				8,006			Substandard	2,989					—					10,438					—					—				—				—							13,427
Doubtful	Doubtful	0			0			0			0			0			0			0					0					0				0			Doubtful	—					—					—					—					—				—				—							—
Total	Total	42,464			113,344			22,783			35,668			14,652			68			599,386					0					104,716				933,081			Total	121,709					52,137					92,618					14,513					16,872				817				1,333,145							1,631,811
Auto & Consumer	Auto & Consumer																																				Auto & Consumer
Pass	Pass	54,091			102,067			91,972			43,978			23,142			10,803			0					0					0				326,053			Pass	189,880					137,621					59,449					51,605					23,425				15,046				—							477,026
Special Mention	Special Mention	14			269			108			105			33			1			0					0					0				530			Special Mention	109					209					98					70					33				—				—							519
Substandard	Substandard	0			223			353			98			66			17			0					0					0				757			Substandard	117					244					276					354					67				33				—							1,091
Doubtful	Doubtful	0			0			0			0			0			0			0					0					0				0			Doubtful	—					—					—					—					—				—				—							—
Total	Total	54,105			102,559			92,433			44,181			23,241			10,821			0					0					0				327,340			Total	190,106					138,074					59,823					52,029					23,525				15,079				—							478,636
Other	Other																																				Other
Pass	Pass	0			140,023			0			1,886			874			1,426			0					0					0				144,209			Pass	1,719					10,644					7,037					—					1,538				1,289				—							22,227
Special Mention	Special Mention	0			0			0			0			0			0			0					0					0				0			Special Mention	—					—					—					—					—				—				—							—
Substandard	Substandard	0			7,287			0			0			0			0			0					0					0				7,287			Substandard	—					—					55					—					—				—				—							55
Doubtful	Doubtful	0			0			0			0			0			0			0					0					0				0			Doubtful	—					—					—					—					—				—				—							—
Total	Total	0			147,310			0			1,886			874			1,426			0					0					0				151,496			Total	1,719					10,644					7,092					—					1,538				1,289				—							22,282
Total	Total																																				Total
Pass	Pass	1,490,225			2,969,745			1,729,703			1,166,523			746,243			1,171,773			1,946,031					0					104,716				11,324,959			Pass	2,661,302					2,633,164					1,782,693					1,223,261					722,393				1,152,210				2,151,675							12,326,698
Special Mention	Special Mention	299			73,464			23,125			16,955			20,947			11,489			22,026					0					0				168,305			Special Mention	11,659					2,788					19,181					36,963					17,867				9,170				49,927							147,555
Substandard	Substandard	2,824			53,327			75,540			48,371			13,026			62,321			0					0					0				255,409			Substandard	3,106					6,114					133,788					26,619					39,666				70,430				1,698							281,421
Doubtful	Doubtful	0			0			0			0			0			0			0					0					0				0			Doubtful	—					—					—					—					—				—				—							—
Total	Total	$	1,493,348		$	3,096,536		$	1,828,368		$	1,231,849		$	780,216		$	1,245,583		$	1,968,057				$	0				$	104,716			$	11,748,673		Total	$	2,676,067				$	2,642,066				$	1,935,662				$	1,286,843				$	779,926			$	1,231,810			$	2,203,300						$	12,755,674
As a % of total gross loans and leases	As a % of total gross loans and leases	12.71		%	26.36		%	15.56		%	10.49		%	6.64		%	10.60		%	16.75		%			0		%			0.89		%		100.0		%	As a % of total gross loans and leases	20.99		%			20.71		%			15.17		%			10.09		%			6.11		%		9.66		%		17.27		%					100.0		%

The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses - loans. The Company also evaluates credit quality based on the aging status of its loans and leases. During the year, the Company holds certain short-term loans that do not have a fixed maturity date that are treated as delinquent if not paid in full 90 days after the origination date.

The Company ~~has taken~~took proactive measures to manage loans that became delinquent during the recent economic downturn as a result of the COVID-19 pandemic. ~~NaN~~As of December 31, 2021, no loans were on forbearance status for forbearance granted from any prior date. Any forbearance granted out of COVID-19 was for six months or less. Additionally, no forbearance or ~~deferrals were provided~~deferral of payment obligation was granted to any ~~borrowers~~borrower during during the three and six months ended December 31, ~~2020.~~2021.

Table of Contents

The following tables provide the outstanding unpaid balance of loans ~~and leases~~ that are past due 30 days or more by portfolio class as of the dates indicated:

~~Table of Contents~~


	December 31, 2021
(Dollars in thousands)	30-59 Days Past Due			60-89 Days Past Due			90+ Days Past Due			Total
Single Family-Mortgage & Warehouse	$	33,015		$	9,944		$	108,207		$	151,166
Multifamily and Commercial Mortgage	9,828			4,438			536			14,802
Commercial Real Estate	—			—			—			—
Commercial & Industrial - Non-RE	—			—			—			—
Auto & Consumer	4,387			1,158			645			6,190
Other	52			—			55			107
Total	$	47,282		$	15,540		$	109,443		$	172,265
As a % of total gross loans and leases	0.37		%	0.12		%	0.86		%	1.35		%

December 31, 2020
(Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due 90+ Days Past Due Total
Single Family-Mortgage & Warehouse $ 29,886 $ 31,537 $ 93,829 $ 155,252
Multifamily and Commercial Mortgage 4,112 2,909 25,578 32,599
Commercial Real Estate 24,648 0 0 24,648
Commercial & Industrial - Non-RE 0 0 2,960 2,960
Auto & Consumer 1,657 620 266 2,543
Other 0 0 0 0
Total $ 60,303 $ 35,066 $ 122,633 $ 218,002
As a % of total gross loans and leases 0.51 % 0.30 % 1.04 % 1.86 %


		June 30, 2020													June 30, 2021
(Dollars in thousands)	(Dollars in thousands)	30-59 Days Past Due			60-89 Days Past Due			90+ Days Past Due			Total			(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total
Single Family-Mortgage & Warehouse	Single Family-Mortgage & Warehouse	$	17,931		$	23,115		$	66,813		$	107,859		Single Family-Mortgage & Warehouse	$	24,150	$	46,552	$	69,169	$	139,871
Multifamily and Commercial Mortgage	Multifamily and Commercial Mortgage	7,744			5,287			0			13,031			Multifamily and Commercial Mortgage	7,991		1,816		12,122		21,929
Commercial Real Estate	Commercial Real Estate	0			0			0			0			Commercial Real Estate	36,786		—		—		36,786
Commercial & Industrial - Non-RE	Commercial & Industrial - Non-RE	0			0			0			0			Commercial & Industrial - Non-RE	—		—		2,960		2,960
Auto & Consumer	Auto & Consumer	973			166			326			1,465			Auto & Consumer	601		306		235		1,142
Other	Other	0			0			0			0			Other	—		—		—		—
Total	Total	$	26,648		$	28,568		$	67,139		$	122,355		Total	$	69,528	$	48,674	$	84,486	$	202,688
As a % of total gross loans and leases	As a % of total gross loans and leases	0.25		%	0.27		%	0.63		%	1.13		%	As a % of total gross loans and leases	0.60 %		0.42 %		0.73 %		1.75 %

Allowance for Credit Losses

The allowance for credit losses is the sum of the allowance for credit losses - loans and the unfunded loan commitment liabilities. Unfunded loan commitment liabilities is included in “Accounts payable, accrued liabilities and other liabilities” in the unaudited Condensed Consolidated Balance Sheets. Provisions for the unfunded loan commitments are included in “General and administrative expenses” in the unaudited Condensed Consolidated Statements of Income.

The following tables present a summary of the activity in the allowance for credit losses for the periods indicated:

Three Months Ended December 31, 2020
(Dollars in thousands) Allowance for Credit Losses - Loans Unfunded Loan Commitment Liabilities Total Allowance for Credit Losses
Balance at October 1, 2020 $ 132,915 $ 6,723 $ 139,638
Provision for Credit Losses 8,000 (1,000) 7,000
Charge-offs (4,710) 0 (4,710)
Recoveries 188 0 188
Balance at December 31, 2020 $ 136,393 $ 5,723 $ 142,116

Three Months Ended December 31, 2019
(Dollars in thousands) Allowance for Credit Losses - Loans Unfunded Loan Commitment Liabilities Total Allowance for Credit Losses
Balance at October 1, 2019 $ 59,227 $ 227 $ 59,454
Provision for Credit Losses 4,500 17 4,517
Charge-offs (5,386) 0 (5,386)
Recoveries 1,173 0 1,173
Balance at December 31, 2019 $ 59,514 $ 244 $ 59,758


		For the Six Months Ended December 31, 2020							Three Months Ended December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Allowance for Credit Losses - Loans		Unfunded Loan Commitment Liabilities		Total Allowance for Credit Losses		(Dollars in thousands)	Allowance for Credit Losses - Loans		Unfunded Loan Commitment Liabilities		Total Allowance for Credit Losses
Balance at July 1, 2020		$	75,807	$	323	$	76,130
Effect of Adoption of ASC 326		47,300		5,700		53,000
Balance at October 1, 2021								Balance at October 1, 2021	$	136,778	$	7,723	$	144,501

Provision for Credit Losses	Provision for Credit Losses	19,800		(300)		19,500		Provision for Credit Losses	4,000		1,000		5,000

Charge-offs	Charge-offs	(7,148)		0		(7,148)		Charge-offs	(640)		—		(640)
Recoveries	Recoveries	634		0		634		Recoveries	351		—		351
Balance at December 31, 2020		$	136,393	$	5,723	$	142,116
Balance at December 31, 2021								Balance at December 31, 2021	$	140,489	$	8,723	$	149,212


	Three Months Ended December 31, 2020
(Dollars in thousands)	Allowance for Credit Losses - Loans		Unfunded Loan Commitment Liabilities		Total Allowance for Credit Losses
Balance at October 1, 2020	$	132,915	$	6,723	$	139,638
Provision for Credit Losses	8,000		(1,000)		7,000

Charge-offs	(4,710)		—		(4,710)
Recoveries	188		—		188
Balance at December 31, 2020	$	136,393	$	5,723	$	142,116

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		For the Six Months Ended December 31, 2019							For the Six Months Ended December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Allowance for Credit Losses - Loans		Unfunded Loan Commitment Liabilities		Total Allowance for Credit Losses		(Dollars in thousands)	Allowance for Credit Losses - Loans		Unfunded Loan Commitment Liabilities		Total Allowance for Credit Losses
Balance at July 1, 2019		$	57,085	$	227	$	57,312
Balance at July 1, 2021								Balance at July 1, 2021	$	132,958	$	5,723	$	138,681

Provision for Credit Losses	Provision for Credit Losses	7,200		17		7,217		Provision for Credit Losses	8,000		3,000		11,000

Charge-offs	Charge-offs	(6,463)		0		(6,463)		Charge-offs	(1,356)		—		(1,356)
Recoveries	Recoveries	1,692		0		1,692		Recoveries	887		—		887
Balance at December 31, 2019		$	59,514	$	244	$	59,758
Balance at December 31, 2021								Balance at December 31, 2021	$	140,489	$	8,723	$	149,212


	For the Six Months Ended December 31, 2020
(Dollars in thousands)	Allowance for Credit Losses - Loans		Unfunded Loan Commitment Liabilities		Total Allowance for Credit Losses
Balance at July 1, 2020	$	75,807	$	323	$	76,130
Effect of Adoption of ASC 326	47,300		5,700		53,000
Provision for Credit Losses	19,800		(300)		19,500

Charge-offs	(7,148)		—		(7,148)
Recoveries	634		—		634
Balance at December 31, 2020	$	136,393	$	5,723	$	142,116

~~5. SUBORDINATED NOTES~~

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

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6. EQUITY AND STOCK-BASED COMPENSATION

Amended and Restated 2014 Stock Incentive Plan. ~~Common~~On October 21, 2021 the Company’s stockholders approved the Amended and Restated 2014 Stock ~~Repurchases.~~ ~~On March 17, 2016, the Board of Directors~~Incentive Plan, which reserved 1000000 additional shares for purposes of the Company (the “Board”), authorized a program to repurchase up to $100 million of common stock and extended the program by $100 million on August 2, 2019. The Company may repurchase shares on the open market or through privately negotiated transactions at times and prices considered appropriate, at the discretion of the Company, and subject to its assessment of alternative uses of capital, stock trading price, general market conditions and regulatory factors. The repurchase program does not obligate the Company to acquire any specific number of shares. The share repurchase program will continue in effect until terminated by the Board. With the March 17, 2016 authorization, the Company repurchased a total of $100 million or 3,567,051 common shares at an average price of $28.03 per share. With the August 2, 2019 authorization, the Company has repurchased a total of $47.2 million or 2,399,853 common shares at an average price of $19.68 per share and there remains $52.8 million under the plan. During the six months ended December 31, 2020, the Company repurchased a total of $16.8 million, or 753,597 common shares at an average price of $22.24 per share. The Company has $52.8 million remaining under the Board authorized stock repurchase program. The Company accounts for treasury stock using the cost method as a reduction of stockholders’Company’s equity ~~in the accompanying unaudited condensed consolidated financial statements.~~compensation.

~~Preferred Stock.~~ The Company redeemed for cash all 515 outstanding shares of Series A-6% Cumulative Nonparticipating Perpetual Preferred Stock on October 30, 2020, at the face value $10,000 liquidation price per share plus accrued dividends.

Restricted Stock Units. During the six months ended December 31, ~~2020~~2021 and ~~2019,~~2020, the Company granted ~~437,608~~302,677 and ~~380,765~~437,608 restricted stock unit awards (“RSUs”) to employees and directors, ~~respectively.~~and during the six months ended December 31, 2021 granted 478,353 RSU’s to the chief executive officer, which vest ratably on each of the four fiscal year ends after the issue date. All other RSUs granted during these quarters generally vest over ~~three~~3 years, one-third on each anniversary ~~date, except for any RSUs granted to the Company’s CEO, which vest one-fourth on each fiscal year end.~~date.

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The Company’s pre-tax income ~~before income taxes~~ and net income for the six months ended December 31, ~~2020~~2021 and ~~2019~~2020 include stock award expense of ~~$9,026~~$8.5 million and ~~$9,811,~~$9.0 million, with total income tax benefit of ~~$2,721~~$2.5 million and ~~$2,798,~~$2.7 million, respectively. The Company recognizes compensation expense based upon the grant-date fair value divided by the vesting and the service period between each vesting date. At December 31, ~~2020,~~2021, unrecognized compensation expense related to non-vested awards aggregated to ~~$30,083~~$30.4 million and is expected to be recognized in future periods as follows:


(Dollars in thousands)	(Dollars in thousands)	Stock Award Compensation Expense		(Dollars in thousands)	Stock Award Compensation Expense
For the fiscal year remainder:	For the fiscal year remainder:			For the fiscal year remainder:
2021		$	8,891
2022	2022	12,674		2022	$	8,595
2023	2023	6,760		2023	13,007
2024	2024	1,326		2024	7,501
2025	2025	331		2025	1,230
Thereafter		101
2026				2026	101

Total	Total	$	30,083	Total	$	30,434

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			Restricted Stock Units	Weighted-Average Grant-Date Fair Value
Non-vested balance at June 30, 2019		1,546,848	$	30.73
Granted		714,569	24.05
Vested		(693,660)	28.52
Canceled		(122,217)	29.10
Non-vested balance at June 30, 2020	Non-vested balance at June 30, 2020	1,445,540	$	28.62	Non-vested balance at June 30, 2020	1,445,540	$	28.62
Granted	Granted	437,608	24.78		Granted	617,833	32.12
Vested	Vested	(327,211)	28.88		Vested	(666,790)	29.23
Canceled		(100,757)	26.34
Non-vested balance at December 31, 2020		1,455,180	$	27.57
Forfeited					Forfeited	(176,113)	27.42
Non-vested balance at June 30, 2021					Non-vested balance at June 30, 2021	1,220,470	$	30.18
Granted					Granted	781,030	48.53
Vested					Vested	(307,516)	28.32
Forfeited					Forfeited	(90,111)	34.68
Non-vested balance at December 31, 2021					Non-vested balance at December 31, 2021	1,603,873	$	39.26

The total fair value of shares vested for the three and six months ended December 31, 2021 was $349 and $14,834. The total fair value of shares vested for the three and six months ended December 31, 2020 was $1,644 and $8,246. ~~The total fair value~~

Table of ~~shares vested for the three and six months ended December 31, 2019 was $2,349 and $9,531.~~Contents

7. EARNINGS PER COMMON SHARE

Earnings per common share (“EPS”) ~~are~~is presented under two formats: basic EPS and diluted EPS. Basic EPS is computed by dividing the net income attributable to common stock (net income after deducting dividends on preferred stock and preferred stock redemption charge) by the sum of the weighted-average number of common shares outstanding during the year and the unvested average of participating RSUs. Diluted EPS is computed by dividing the sum of net income attributable to common stock and dividends on diluted preferred stock by the sum of the weighted-average number of common shares outstanding during the year and the impact of dilutive potential common shares, such as nonparticipating RSUs, stock options and convertible preferred stock.

The unvested stock-based compensation awards issued under the Amended and Restated 2014 Stock Incentive Plan have no stockholder rights, meaning they are not entitled to dividends and are considered nonparticipating. The Company does not include these nonparticipating RSUs in the basic EPS calculation, but are included in the diluted EPS calculation using the treasury stock method.

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The following table presents the calculation of basic and diluted EPS:


		Three Months Ended				Six Months Ended					Three Months Ended				Six Months Ended
		December 31,				December 31,					December 31,				December 31,
(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	2020		2019		2020		2019		(Dollars in thousands, except per share data)	2021		2020		2021		2020
Earnings Per Common Share	Earnings Per Common Share									Earnings Per Common Share
Net income	Net income	$	54,785	$	41,295	$	107,807	$	82,081	Net income	$	60,787	$	54,785	$	120,997	$	107,807
Preferred stock dividends	Preferred stock dividends	(26)		(78)		(103)		(155)		Preferred stock dividends	—		(26)		—		(103)
Preferred stock redemption charge	Preferred stock redemption charge	(87)		0		(87)		0		Preferred stock redemption charge	—		(87)		—		(87)
Net income attributable to common stockholders	Net income attributable to common stockholders	$	54,672	$	41,217	$	107,617	$	81,926	Net income attributable to common stockholders	$	60,787	$	54,672	$	120,997	$	107,617
Average common shares outstanding	Average common shares outstanding	59,049,697		61,315,590		59,278,672		61,281,127		Average common shares outstanding	59,496,489		59,049,697		59,443,667		59,278,672

Total qualifying shares	Total qualifying shares	59,049,697		61,315,590		59,278,672		61,281,127		Total qualifying shares	59,496,489		59,049,697		59,443,667		59,278,672
Earnings per common share	Earnings per common share	$	0.93	$	0.67	$	1.82	$	1.34	Earnings per common share	$	1.02	$	0.93	$	2.04	$	1.82
Diluted Earnings Per Common Share	Diluted Earnings Per Common Share									Diluted Earnings Per Common Share
Dilutive net income attributable to common stockholders		$	54,672	$	41,217	$	107,617	$	81,926
Net income attributable to common stockholders										Net income attributable to common stockholders	$	60,787	$	54,672	$	120,997	$	107,617
Average common shares issued and outstanding	Average common shares issued and outstanding	59,049,697		61,315,590		59,278,672		61,281,127		Average common shares issued and outstanding	59,496,489		59,049,697		59,443,667		59,278,672
Dilutive effect of average unvested RSUs	Dilutive effect of average unvested RSUs	991,026		623,398		917,844		619,506		Dilutive effect of average unvested RSUs	1,259,492		991,026		1,305,716		917,844
Total dilutive common shares outstanding	Total dilutive common shares outstanding	60,040,723		61,938,988		60,196,516		61,900,633		Total dilutive common shares outstanding	60,755,981		60,040,723		60,749,383		60,196,516
Diluted earnings per common share	Diluted earnings per common share	$	0.91	$	0.67	$	1.79	$	1.32	Diluted earnings per common share	$	1.00	$	0.91	$	1.99	$	1.79

8. COMMITMENTS AND CONTINGENCIES

COVID-19 Impact. The Company ishas closely ~~monitoring~~monitored the rapid developments of and uncertainties caused by the COVID-19 pandemic. In response to the changes in economic and business conditions as a result of the COVID-19 pandemic, the Company ~~has taken~~continues to take the ~~following~~necessary and appropriate actions to support customers, employees, partners and ~~shareholders:~~shareholders.

•~~Actively communicating with borrowers and partners~~The Company took proactive measures to ~~assess individual needs;~~

•~~Participating as a lender in~~manage loans that became delinquent during the ~~Paycheck Protection Program (PPP) and evaluating various components of the CARES Act applicability to the Company;~~

•~~Extending our participation to a second round of loans under the PPP~~recent economic downturn as a result of the ~~Consolidated Appropriations Act,~~COVID-19 pandemic. As of December 31, 2021, ~~signed into law~~no loans were on ~~December 27, 2020;~~forbearance status for a forbearance granted from any prior date. Any forbearance granted out of COVID-19 was for six months or less.

The Company will continue to monitor uncertainties caused by and developments of COVID-19.

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•~~Provided secure and efficient remote work options for our team members;~~

•~~Increasing provisions for credit losses as a result of a weakening economy and reduced business activities;~~

•~~Tightening underwriting standards;~~

•~~Reallocated personnel to increase resources for customer service and portfolio management; and~~

•~~Limiting business travel.~~

Under the guidelines set forth in the CARES Act, the Company had provided certain borrowers the ability to delay or make interest-only payments. Starting on September 30, 2020, the Company no longer allows delayed or interest-only payments.

Operating Leases. The Company leases office space under operating lease agreements scheduled to expire at various dates. The following table represents maturities of lease liabilities as of December 31, ~~2020~~2021 in the corresponding fiscal years:


(Dollars in thousands)	(Dollars in thousands)			(Dollars in thousands)
Remainder of 2021		$	4,905
2022		9,548
Remainder of 2022				Remainder of 2022	$	4,992
2023	2023	9,820		2023	10,595
2024	2024	9,422		2024	10,287
2025	2025	8,791		2025	10,119
2026				2026	9,791
Thereafter	Thereafter	41,968		Thereafter	38,821
Total lease payments	Total lease payments	84,454		Total lease payments	84,605
Less: present value discount		(10,483)
Less: amount representing interest				Less: amount representing interest	(9,197)
Total Lease Liability	Total Lease Liability	$	73,971	Total Lease Liability	$	75,408

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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 December 31, ~~2020,~~2021, the Company had commitments to originate ~~$75.0~~$137.8 million in fixed rate loans and ~~leases and $622.2~~$2,345.2 million in variable rate loans, totaling an aggregate outstanding principal balance of ~~$697.2~~$2,483.0 million. At December 31, ~~2020,~~2021, the Company’s fixed rate commitments to originate had a weighted-average rate of ~~2.76%~~4.38%. At December 31, ~~2020,~~2021, the Company also had commitments to sell ~~$124.7~~$50.0 million in fixed rate loans and ~~NaN~~none in variable rate loans, totaling an aggregate outstanding principal balance of ~~$124.7~~$50.0 million.

Commitments to extend credit are agreements to lend to a customer so long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for equity lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.

In the normal course of business, Axos Clearing’s customer activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose Axos Clearing to off-balance-sheet risk in the event the customer or other broker is unable to fulfill its contracted obligations and Axos Clearing has to purchase or sell the financial instrument underlying the contract at a loss. Axos Clearing’s clearing agreements with broker-dealers for which it provides clearing services requires them to indemnify Axos Clearing if customers fail to satisfy their contractual obligation.

Litigation. On October 15, 2015, the Company, its Chief Executive Officer and its then 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 then Chief Financial Officer were named defendants in a second putative class action lawsuit styled Hazan v. BofI Holding, Inc., et al, and also brought in the United States District Court for the Southern District of California (the “Hazan Case”). On February 1, 2016, the Golden Case and the Hazan Case were consolidated as In re BofI Holding, Inc. Securities Litigation, Case #: 3:15-cv-02324-GPC-KSC (the “Class Action”), and the Houston Municipal Employees Pension System was appointed lead plaintiff. The plaintiffs allege that the Company and other named defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by failing to disclose wrongful conduct that was alleged in a complaint filed in connection with a wrongful termination of employment lawsuit filed on October 13, 2015 (the “Employment Matter”) and that as a result the Company’s statements regarding its internal controls, as well as portions of its financial statements, were false and misleading. On March 21, 2018, the Court entered a final order dismissing the Class Action with prejudice. Subsequently, the plaintiff appealed, the Court overturned the dismissal and the Company is preparing a petition for a rehearing.

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On April 3, 2017, the Company, its Chief Executive Officer and its then Chief Financial Officer were named defendants in a putative class action lawsuit styled Mandalevy v. BofI Holding, Inc., et al, and brought in United States District Court for the Southern District of California (the “Mandalevy Case”). The Mandalevy Case seeks monetary damages and other relief on behalf of a putative class that has not been certified by the Court. The complaint in the Mandalevy Case (the “Mandalevy Complaint”) alleges a class period that differs from that alleged in the First Class Action, and that the Company and other named defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by failing to disclose wrongful conduct that was alleged in a March 2017 media article. The Mandalevy Case has not been consolidated into the First Class Action. On December 7, 2018, the Court entered a final order granting the defendants’ motion and dismissing the Mandalevy Case with prejudice. Subsequently, the plaintiff filed a notice of appeal and the Court took the matter under advisement. On November 3, 2020, the Court issued a ruling affirming in part and reversing in part the District Court's Order dismissing the Class Action Second Amended Complaint. The defendants filed a petition for rehearing en banc on November 17, 2020, which petition was denied on December 16, 2020. The defendants filed a motion to dismiss the remanded complaint on February 19, 2021.

The Company and the other named defendants dispute the allegations of wrongdoing advanced by the plaintiffs in the Class Action, the Mandalevy Case, and in the Employment Matter, as well as those plaintiffs’ statement of the underlying factual circumstances, and are vigorously defending each case.

In addition to the First Class Action and the Mandalevy Case, 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,

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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 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. Subsequently, the plaintiff filed a notice of appeal and opening brief and the Company filed its answering brief. Oral argument was held September 2, 2020 and the Court took the matter under advisement.

The 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.

~~9. RELATED PARTY TRANSACTIONS~~

In the ordinary course of business, the Company has granted related party loans collateralized by real property to certain executive officers, directors and their affiliates. There were 3 new related party loans for approximate amount of $2.3 million funded under the provisions of the employee loan program and 1 refinance of an existing loan for approximately $1.4 million during the six months ended December 31, 2020, and 1 new related party loan in the amount of $0.6 million and 1 loan refinance of an existing loan of $1.2 million during the six months ended December 31, 2019.

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~~10.~~9. SEGMENT REPORTING

There are no material inter-segment sales or transfers. The accounting policies used by each reportable segment are the same as those discussed in Note 1 - “Organizations and Summary of Significant Accounting Policies” in our Annual Report on Form 10-K for the year ended June 30, ~~2020.~~2021. All costs, except certain corporate administration costs and income taxes, have been allocated to the reportable segments. Therefore, combined amounts agree to the unaudited condensed consolidated ~~totals.In~~totals. 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 December 31, 2020									For the Three Months Ended December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Banking Business		Securities Business		Corporate/Eliminations		Axos Consolidated		(Dollars in thousands)	Banking Business		Securities Business		Corporate/Eliminations		Axos Consolidated
Net interest income	Net interest income	$	132,166	$	4,260	$	(2,334)	$	134,092	Net interest income	$	142,259	$	4,506	$	(1,197)	$	145,568
Provision for credit losses	Provision for credit losses	8,000		0		0		8,000		Provision for credit losses	4,000		—		—		4,000
Non-interest income	Non-interest income	22,295		6,572		(149)		28,718		Non-interest income	16,295		16,454		(1,962)		30,787
Non-interest expense	Non-interest expense	62,474		11,312		2,511		76,297		Non-interest expense	62,449		21,654		1,916		86,019
Income before taxes	Income before taxes	$	83,987	$	(480)	$	(4,994)	$	78,513	Income before taxes	$	92,105	$	(694)	$	(5,075)	$	86,336


		For the Three Months Ended December 31, 2019									For the Three Months Ended December 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Banking Business		Securities Business		Corporate/Eliminations		Axos Consolidated		(Dollars in thousands)	Banking Business		Securities Business		Corporate/Eliminations		Axos Consolidated
Net interest income	Net interest income	$	105,340	$	4,037	$	(957)	$	108,420	Net interest income	$	132,166	$	4,260	$	(2,334)	$	134,092
Provision for credit losses	Provision for credit losses	4,500		0		0		4,500		Provision for credit losses	8,000		—		—		8,000
Non-interest income	Non-interest income	16,225		6,284		(1,302)		21,207		Non-interest income	22,295		6,572		(149)		28,718
Non-interest expense	Non-interest expense	53,253		10,455		3,257		66,965		Non-interest expense	62,474		11,312		2,511		76,297
Income before taxes	Income before taxes	$	63,812	$	(134)	$	(5,516)	$	58,162	Income before taxes	$	83,987	$	(480)	$	(4,994)	$	78,513


		Six Months Ended December 31, 2020									Six Months Ended December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Banking Business		Securities Business		Corporate/Eliminations		Axos Consolidated		(Dollars in thousands)	Banking Business		Securities Business		Corporate/Eliminations		Axos Consolidated
Net interest income	Net interest income	$	255,174	$	9,154	$	(2,909)	$	261,419	Net interest income	$	284,500	$	10,682	$	(2,972)	$	292,210
Provision for credit losses	Provision for credit losses	19,800		0		0		19,800		Provision for credit losses	8,000		—		—		8,000
Non-interest income	Non-interest income	52,507		12,356		(290)		64,573		Non-interest income	31,123		29,560		(3,194)		57,489
Non-interest expense	Non-interest expense	123,691		22,664		5,488		151,843		Non-interest expense	125,174		40,927		4,349		170,450
Income before taxes	Income before taxes	$	164,190	$	(1,154)	$	(8,687)	$	154,349	Income before taxes	$	182,449	$	(685)	$	(10,515)	$	171,249


		Six Months Ended December 31, 2019									Six Months Ended December 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Banking Business		Securities Business		Corporate/Eliminations		Axos Consolidated		(Dollars in thousands)	Banking Business		Securities Business		Corporate/Eliminations		Axos Consolidated
Net interest income	Net interest income	$	204,812	$	9,183	$	(2,272)	$	211,723	Net interest income	$	255,174	$	9,154	$	(2,909)	$	261,419
Provision for credit losses	Provision for credit losses	7,200		0		0		7,200		Provision for credit losses	19,800		—		—		19,800
Non-interest income	Non-interest income	32,015		12,685		(1,957)		42,743		Non-interest income	52,507		12,356		(290)		64,573
Non-interest expense	Non-interest expense	103,886		21,519		7,027		132,432		Non-interest expense	123,691		22,664		5,488		151,843
Income before taxes	Income before taxes	$	125,741	$	349	$	(11,256)	$	114,834	Income before taxes	$	164,190	$	(1,154)	$	(8,687)	$	154,349

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		As of December 31, 2020									As of December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Banking Business		Securities Business		Corporate/Eliminations		Axos Consolidated		(Dollars in thousands)	Banking Business		Securities Business		Corporate/Eliminations		Axos Consolidated
Goodwill	Goodwill	$	35,721	$	35,501	$	0	$	71,222	Goodwill	$	35,721	$	59,953	$	—	$	95,674
Total Assets	Total Assets	$	13,301,164	$	1,001,249	$	90,854	$	14,393,267	Total Assets	$	14,047,081	$	1,439,415	$	61,451	$	15,547,947


		As of June 30, 2020									As of June 30, 2021
(Dollars in thousands)	(Dollars in thousands)	Banking Business		Securities Business		Corporate/Eliminations		Axos Consolidated		(Dollars in thousands)	Banking Business		Securities Business		Corporate/Eliminations		Axos Consolidated
Goodwill	Goodwill	$	35,721	$	35,501	$	0	$	71,222	Goodwill	$	35,721	$	35,501	$	—	$	71,222
Total Assets	Total Assets	$	13,018,814	$	737,419	$	95,667	$	13,851,900	Total Assets	$	12,745,029	$	1,450,512	$	70,024	$	14,265,565

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion provides information about the results of operations, financial condition, liquidity, off balance sheet items and capital resources of Axos Financial, Inc. and subsidiaries ~~(the~~(collectively, “we”, “us” or the “Company”). This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of our operations. This discussion and analysis should be read in conjunction with our financial information in our Annual Report on Form 10-K for the year ended June 30, ~~2020,~~2021, and the interim unaudited condensed consolidated financial statements and notes thereto contained in this report.

Some matters discussed in this report may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as such, may involve risks and uncertainties. These forward-looking statements can be identified by the use of terminology such as “estimate,” “project,” “anticipate,” “expect,” “intend,” “believe,” “will,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. These forward-looking statements relate to, among other things, the effects on our business of the current novel coronavirus pandemic (“COVID-19”), the Company’s financial prospects and other projections of its performance and asset quality, our ability to continue to grow profitably and increase its business, our ability to continue to diversify lending and deposit franchises, and the anticipated timing and financial performance of other offerings, initiatives, and acquisitions, expectations of the environment in which we operate and projections of future performance. Forward-looking statements are inherently unreliable and actual results may vary. Factors that could cause actual results to differ from these forward-looking statements include uncertainties surrounding the severity, duration, and effects of the COVID-19 pandemic, our ability to successfully integrate acquisitions and realize the anticipated benefits of the transactions, changes in the interest rate environment, inflation, government regulation, general economic conditions, changes in the competitive marketplace, conditions in the real estate markets in which we operate, risks associated with credit quality, the outcome and effects of pending class action litigation filed against the Company and other risk factors discussed under the heading “Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q for the quarter ended December 31, ~~2020~~2021 and in our Annual Report on Form 10-K for the year ended June 30, ~~2020,~~2021, which has been filed with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All written and oral forward-looking statements made in connection with this report, which are attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing information.

General

Our Company, the holding company for Axos Bank (the “Bank”), is a diversified financial services company with approximately ~~$14.4~~$15.5 billion in assets that provides consumer and business banking products through its online, low-cost distribution channels and affinity partners. Our Bank has deposit and loan ~~and lease~~ customers nationwide including consumer and business checking, savings and time deposit accounts and financing for single family and multifamily residential properties, small-to-medium size businesses in target sectors, and automobiles. Our Bank generates fee income from consumer and business products including fees from loans originated for sale and transaction fees earned from processing payment activity. Our ~~wholly-owned subsidiaries,~~securities products and services are offered through Axos Clearing LLC (“Axos Clearing”) and its business division Axos Advisor Services (“AAS”), formerly E*TRADE Advisor Services, and Axos Invest, Inc. (“Axos Invest”), which generate interest and fee income by providing comprehensive securities clearing and custody services to introducing broker-dealers and registered investment advisor correspondents and digital investment advisory services to retail investors, respectively. Axos Financial, Inc.’s common stock is listed on the New York Stock Exchange and is a component of the Russell 2000® Index, ~~and~~the KBW Nasdaq Financial Technology Index, the S&P SmallCap 600® Index, the KBW Nasdaq Financial Technology Index, and the Travillian Tech-Forward Bank Index.

Our Bank is a federal savings bank wholly-owned by our Company and regulated by the Office of the Comptroller of the Currency (“OCC”), and the Federal Deposit Insurance Corporation (“FDIC”) as its deposit insurer. The Bank must file reports with the OCC and the FDIC concerning its activities and financial condition. As a depository institution with more than $10 billion in assets, our Bank and our affiliates are subject to direct supervision by the Consumer Financial Protection ~~Bureau (“CFPB”).~~Bureau.

Axos Clearing is a broker-dealer registered with the SEC and the Financial Industry Regulatory Authority, Inc. (“FINRA”). Axos Invest is a Registered Investment Advisor under the Investment Advisers Act of 1940, that is registered with the SEC, and Axos Invest LLC is an introducing broker-dealer that is registered with the SEC and FINRA.

We distribute our deposit products through a wide range of retail distribution channels, and our deposits consist of demand, savings and time deposits accounts. We distribute our loan products through our retail, correspondent and wholesale channels, and the loans we retain are primarily first mortgages secured by single family real property and by multifamily real property as well as commercial & industrial loans to businesses. Our mortgage-backed securities consist of mortgage pass-through securities issued by government-sponsored entities and non-agency collateralized mortgage obligations and asset-backed mortgage-backed securities issued by private sponsors. We believe our flexibility to adjust our asset generation channels has been a competitive advantage

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~~allowing us to avoid markets and products where credit fundamentals are poor or risks and rewards are not sufficient to support our required return on equity.~~

Segment Information

The Company determines reportable segments based on what separate financial information is available and what segment results are evaluated regularly by the Chief Executive Officer in deciding how to allocate resources and in assessing performance. We operate through two segments: Banking Business and Securities Business.

Banking Business. The Banking Business includes a broad range of banking services including online banking, concierge banking, ~~prepaid card services,~~ and mortgage, vehicle and unsecured lending through online and telephonic distribution channels to serve the needs of consumer and small businesses nationally. Our deposit products consist of demand, savings, money market and time deposit accounts. In addition, the Banking Business focuses on providing deposit products nationwide to industry verticals (e.g., Title and Escrow), cash management products to a variety of businesses, and commercial & industrial and commercial real estate lending to clients. The Banking Business also includes a bankruptcy trustee and fiduciary service that provides specialized software and consulting services to Chapter 7 bankruptcy and non-Chapter 7 trustees and fiduciaries.

We distribute our loan products through our retail, correspondent and wholesale channels, and the loans we retain are primarily first mortgages secured by single family real property and by multifamily real property as well as commercial & industrial loans to businesses. Our investment securities consist of agency and non-agency mortgage-backed securities, municipal securities and other non-agency debt securities. We believe our flexibility to adjust our asset generation channels has been a competitive advantage allowing us to avoid markets and products where credit fundamentals are poor or risks and rewards are not sufficient to support our required return on equity.

Securities Business. The Securities Business ~~consists~~includes the Clearing Broker-Dealer, Registered Investment Advisor custody business, Registered Investment Advisor, and Introducing Broker-Dealer lines of ~~two sets~~businesses. These lines of business offer products independently to their own customers as well as to Banking Business clients. The products offered by the lines of business in the Securities Business primarily generate net interest income and ~~services, securities services provided to third-party securities firms and investment management provided to consumers.~~non-banking service fee income.

Securities services includes fully disclosed clearing services through Axos Clearing to FINRA- and SEC-registered member firms for trade execution and clearance as well as ~~back office~~back-office services such as record keeping, trade and performance reporting, accounting, general back-office support, securities and margin lending, reorganization assistance and custody of securities. We provide financing to our brokerage customers for their securities trading activities through margin loans that are collateralized by securities, cash, or other acceptable collateral. Securities lending activities include borrowing and lending securities with other broker-dealers. These activities involve borrowing securities to cover short sales and to complete transactions in which clients have failed to deliver securities by the required settlement date, and lending securities to other broker dealers for similar purposes.

~~Investment management~~Through the RIA custody business, we provide a proprietary, turnkey technology platform for custody services for our RIA customers. This platform provides fee income and service that complement our securities business products, while also generating low cost core deposits.

Axos Invest includes our digital wealth management business, which provides our retail customers with self-directed trading and investment management services through a comprehensive and flexible technology platform.

Segment results are compiled based upon the management reporting system, which assigns balance sheet and income statement items to each of the business segments. The process is designed around the organizational and management structure and, accordingly, the results derived are not necessarily comparable with similar information published by other financial institutions or in accordance with generally accepted accounting principles.

The Company evaluates performance and allocates resources based on profit or loss from operations. There are no material inter-segment sales or transfers. Certain corporate administration costs and income taxes have not been allocated to the reportable segments. Therefore, in order to reconcile the two segments to the unaudited condensed consolidated totals, we include parent-only activities and intercompany eliminations.

COVID-19 Impact

~~We are~~The Company has closely ~~monitoring~~monitored the rapid developments of and uncertainties caused by the COVID-19 pandemic. In response to the changes in economic and business conditions as a result of the COVID-19 pandemic, ~~we have taken~~ the ~~following~~Company continues to take the necessary and appropriate actions to support customers, employees, partners and ~~shareholders:~~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;~~

•~~Extending our participation to a second round of loans under the PPP as a result of the Consolidated Appropriations Act, 2021 signed into law on December 27, 2020~~

•~~Provided secure and efficient remote work options for our team members;~~

•~~Increasing provisions for credit losses as a result of a weakening economy and reduced business activities;~~

•~~Tightening underwriting standards;~~

•~~Reallocated personnel to increase resources for customer service and portfolio management; and~~

•~~Limiting business travel.~~

Under the guidelines set forth in the CARES Act, for our borrowers who are one or less payments past due on April 1, 2020, we may delay payments for an agreed upon timeframe, depending on each individual borrower’s characteristics. The Company ~~has taken~~took proactive measures to manage loans that became delinquent during the ~~recent~~ economic downturn as a result of the COVID-19 pandemic. As of December 31, 2021, no loans were on forbearance status for a forbearance granted from any prior date. Any forbearance granted out of COVID-19 was for six months or less.

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~~COVID-19 pandemic. As~~The Company will continue to monitor uncertainties caused by and developments of December 31, 2020, the Company provided no forbearance nor deferrals of payment obligations on any single family, multifamily and commercial mortgage loans, warehouse loans and commercial real estate loans. Deferrals totaling $0.9 million of auto and consumers loans were granted during the six months ended December 31, 2020. No forbearance or deferrals were provided to any borrowers during the three months ended December 31, 2020.COVID-19.

Mergers and Acquisitions

From time to time we undertake acquisitions or similar transactions consistent with our Company’s operating and growth strategies. ~~There were no transactions during~~On August 2, 2021 Axos Clearing, LLC, acquired certain assets and liabilities of E*TRADE Advisor Services (“EAS”), the ~~six months ended~~registered investment advisor custody business of Morgan Stanley. This business was rebranded as Axos Advisors Services (“AAS”). AAS adds incremental fee income, a turnkey technology platform used by independent registered investment advisors for trading and custody services, and low-cost deposits that can be used to generate fee income from other bank partners or to fund loan growth at Axos Bank. The purchase price of $54.8 million consisted entirely of cash consideration paid upon acquisition and working capital adjustments.

Critical Accounting Policies

The following discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements and the notes thereto, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited condensed consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the unaudited condensed consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various factors and circumstances. We believe that our estimates and assumptions are reasonable under the circumstances. However, actual results may differ significantly from these estimates and assumptions that could have a material effect on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods.

~~Except as discussed below, there have been no changes to our~~Our significant accounting policies and practices asare described in greater detail in Note 1 ~~to our June 30, 2020 audited consolidated financial statements~~- “Summary of Significant Accounting Policies” and under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended June 30, ~~2020.~~

~~Allowance for Credit Losses.~~ On July 1, 2020, we adopted ASC 326. The allowance for credit losses is maintained at a level needed to absorb expected credit losses over the contractual life, considering the effects of prepayments, of the loan portfolio as of the reporting date. Determining the adequacy of the allowance is complex and requires judgment by our management team about the effect of matters that are inherently uncertain. As such, a future assessment of current conditions may require material adjustments to the allowance.2021.

Our process for determining expected life-time credit losses entails a loan-level, model-based approach and requires consideration of a broad range of relevant information relating to historical loss experience, current economic conditions and reasonable and supportable forecasts.

~~A credit loss is estimated for all loans. Consequently, we stratify the full loan population into segments sharing similar characteristics to perform the evaluation of the credit loss collectively.~~

We define a segment as the level at which we develop a systematic methodology to determine the allowance for credit losses. Additionally, we can further stratify loans of similar type, risk attributes and methods for monitoring credit risk. We categorize the loan portfolio into six segments: Single Family - Mortgage & Warehouse, Multifamily and Commercial Mortgage, Commercial Real Estate, Commercial & Industrial - Non Real Estate, Auto & Consumer and Other – refer to ~~Note 4 – “Loans & Allowance for Credit Losses”~~ ~~for further detail of the segments and classes within.~~

~~Qualitative criteria we consider includes, among other things, the following:~~

•~~Regulatory and Legal - matters that may impact the timeliness and/or amounts of repayments;~~

•~~Concentration - portfolio composition and loan concentration;~~

•~~Collateral Dependency - changes in collateral values;~~

•~~Lending/Underwriting Standards - current lending policies and the effects of any new policies;~~

•~~Nature and Volume - loan production volume and mix;~~

•~~Loan Trends - credit performance trends, including a borrower’s financial condition and credit rating.~~

~~Table of Contents~~

On a quarterly basis, our management team convenes a Credit Review meeting in which current information and trends are collectively assessed to forecast future economic impact for purposes of assessing the adequacy of the ACL. The forecasted direction and magnitude of change with respect to future economic conditions is then assessed against the estimate in the model.

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

USE OF NON-GAAP FINANCIAL MEASURES

In addition to the results presented in accordance with GAAP, this report includes the non-GAAP financial measures ~~such as~~ adjusted earnings, adjusted earnings per common share, and tangible book value per common share. Non-GAAP financial measures have inherent limitations, may not be comparable to similarly titled measures used by other companies and are not audited. Readers should be aware of these limitations and should be cautious as to their reliance on such measures. Although we believe the non-GAAP financial measures disclosed in this report enhance investors’ understanding of our business and performance, these non-GAAP measures should not be considered in isolation, or as a substitute for GAAP basis financial measures.

We define “adjusted earnings”, a non-GAAP financial measure, as net income without the after-tax impact of non-recurring acquisition-related costs (including amortization of intangible assets related to acquisitions), and other costs (unusual or non-recurring charges). Adjusted earnings per diluted common share (“adjusted EPS”), a non-GAAP financial measure, is calculated by dividing non-GAAP adjusted earnings by the average number of diluted common shares outstanding during the period. We believe the non-GAAP measures of adjusted earnings and adjusted EPS provide useful information about the ~~Bank’s~~Company’s operating performance. We believe excluding the non-recurring acquisition related costs, and other costs (unusual or non-recurring charges) provides investors with an alternative understanding of Axos’ business without these non-recurring costs.

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Below is a reconciliation of net income, the nearest compatible GAAP measure, to adjusted earnings and adjusted EPS (Non-GAAP) for the periods shown:


		Three Months Ended					Six Months Ended						Three Months Ended				Six Months Ended
		December 31,					December 31,						December 31,				December 31,
(Dollars in thousands, except per share amounts)	(Dollars in thousands, except per share amounts)	2020			2019		2020			2019		(Dollars in thousands, except per share amounts)	2021		2020		2021		2020
Net income	Net income	$	54,785		$	41,295	$	107,807		$	82,081	Net income	$	60,787	$	54,785	$	120,997	$	107,807
Acquisition-related costs	Acquisition-related costs	2,552			2,330		5,154			3,977		Acquisition-related costs	3,026		2,552		5,872		5,154

Income taxes		(771)			(676)		(1,554)			(1,134)
Tax effects of adjustments												Tax effects of adjustments	(896)		(771)		(1,723)		(1,554)
Adjusted earnings (Non-GAAP)	Adjusted earnings (Non-GAAP)	$	56,566		$	42,949	$	111,407		$	84,924	Adjusted earnings (Non-GAAP)	$	62,917	$	56,566	$	125,146	$	111,407
Growth in adjusted earnings		31.7		%			31.2		%

Adjusted EPS (Non-GAAP)	Adjusted EPS (Non-GAAP)	$	0.94		$	0.69	$	1.85		$	1.37	Adjusted EPS (Non-GAAP)	$	1.04	$	0.94	$	2.06	$	1.85

We define “tangible book value”, a non-GAAP financial measure, as book value adjusted for goodwill and other intangible assets. Tangible book value is calculated using common stockholders’ equity minus mortgage servicing rights, goodwill and other intangible assets. Tangible book value per common share, a non-GAAP financial measure, is calculated by dividing tangible book value by the common shares outstanding at the end of the period. We believe tangible book value per common share is useful in evaluating the Company’s capital strength, financial condition, and ability to manage potential losses.

~~Table of Contents~~

Below is a reconciliation of total stockholders’ equity, the nearest compatible GAAP measure, to tangible book value (Non-GAAP) as of the dates indicated:


		December 31,		December 31,
(Dollars in thousands)	(Dollars in thousands)	2020	2019		(Dollars in thousands)	2021		2020
Total stockholders’ equity		1,287,482	1,160,752
Less: preferred stock		—	5,063

Common stockholders’ equity	Common stockholders’ equity	1,287,482	1,155,689		Common stockholders’ equity	$	1,523,157	$	1,287,482
Less: mortgage servicing rights, carried at fair value	Less: mortgage servicing rights, carried at fair value	14,314	11,262		Less: mortgage servicing rights, carried at fair value	20,110		14,314
Less: goodwill and other intangible assets	Less: goodwill and other intangible assets	120,644	130,534		Less: goodwill and other intangible assets	161,954		120,644
Tangible common stockholders’ equity (Non-GAAP)	Tangible common stockholders’ equity (Non-GAAP)	1,152,524	1,013,893		Tangible common stockholders’ equity (Non-GAAP)	$	1,341,093	$	1,152,524
Common shares outstanding at end of period	Common shares outstanding at end of period	59,072,822	61,338,386		Common shares outstanding at end of period	59,498,575		59,072,822
Tangible book value per common share (Non-GAAP)	Tangible book value per common share (Non-GAAP)	19.51	16.53		Tangible book value per common share (Non-GAAP)	$	22.54	$	19.51

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SELECTED FINANCIAL DATA

The following tables set forth certain selected financial data concerning the periods indicated:

AXOS FINANCIAL, INC. AND SUBSIDIARIES

SELECTED CONSOLIDATED FINANCIAL INFORMATION


(Dollars in thousands)	(Dollars in thousands)	December 31, 2020		June 30, 2020			December 31, 2019			(Dollars in thousands)	December 31, 2021			June 30, 2021			December 31, 2020
Selected Balance Sheet Data:	Selected Balance Sheet Data:									Selected Balance Sheet Data:
Total assets	Total assets	14,393,267		$	13,851,900		$	12,269,288		Total assets	$	15,547,947		$	14,265,565		$	14,393,267
Loans and leases—net of allowance for credit losses		11,609,584		10,631,349			10,141,397
Loans—net of allowance for credit losses										Loans—net of allowance for credit losses	12,607,179			11,414,814			11,609,584
Loans held for sale, carried at fair value	Loans held for sale, carried at fair value	64,287		51,995			36,092			Loans held for sale, carried at fair value	27,428			29,768			64,287
Loans held for sale, lower of cost or fair value	Loans held for sale, lower of cost or fair value	13,769		44,565			3,430			Loans held for sale, lower of cost or fair value	11,446			12,294			13,769
Allowance for credit losses - loans	Allowance for credit losses - loans	136,393		75,807			59,514			Allowance for credit losses - loans	140,489			132,958			136,393
Securities—trading	Securities—trading	362		105			1,740			Securities—trading	1,223			1,983			362
Securities—available-for-sale	Securities—available-for-sale	209,828		187,627			208,026			Securities—available-for-sale	139,581			187,335			209,828

Securities borrowed	Securities borrowed	317,571		222,368			168,114			Securities borrowed	534,243			619,088			317,571
Customer, broker-dealer and clearing receivables	Customer, broker-dealer and clearing receivables	264,572		220,266			244,379			Customer, broker-dealer and clearing receivables	429,634			369,815			264,572
Total deposits	Total deposits	11,463,136		11,336,694			10,114,340			Total deposits	12,269,172			10,815,797			11,463,136

Advances from the FHLB	Advances from the FHLB	182,500		242,500			257,500			Advances from the FHLB	157,500			353,500			182,500
Borrowings, subordinated notes and debentures	Borrowings, subordinated notes and debentures	418,480		235,789			62,233			Borrowings, subordinated notes and debentures	260,435			221,358			418,480
Securities loaned	Securities loaned	362,170		255,945			206,199			Securities loaned	578,762			728,988			362,170
Customer, broker-dealer and clearing payables	Customer, broker-dealer and clearing payables	475,473		347,614			305,669			Customer, broker-dealer and clearing payables	528,796			535,425			475,473
Total stockholders’ equity	Total stockholders’ equity	1,287,482		1,230,846			1,160,752			Total stockholders’ equity	1,523,157			1,400,936			1,287,482

Capital Ratios:	Capital Ratios:									Capital Ratios:
Equity to assets at end of period	Equity to assets at end of period	8.95	%	8.89		%	9.46		%	Equity to assets at end of period	9.80		%	9.82		%	8.95		%
Axos Financial, Inc.:	Axos Financial, Inc.:									Axos Financial, Inc.:
Tier 1 leverage (core) capital to adjusted average assets	Tier 1 leverage (core) capital to adjusted average assets	8.68	%	8.97		%	8.88		%	Tier 1 leverage (core) capital to adjusted average assets	9.42		%	8.82		%	8.68		%
Common equity tier 1 capital (to risk-weighted assets)	Common equity tier 1 capital (to risk-weighted assets)	10.85	%	11.22		%	11.29		%	Common equity tier 1 capital (to risk-weighted assets)	10.08		%	11.36		%	10.85		%
Tier 1 capital (to risk-weighted assets)	Tier 1 capital (to risk-weighted assets)	10.85	%	11.27		%	11.35		%	Tier 1 capital (to risk-weighted assets)	10.08		%	11.36		%	10.85		%
Total capital (to risk-weighted assets)	Total capital (to risk-weighted assets)	13.88	%	12.64		%	12.65		%	Total capital (to risk-weighted assets)	12.16		%	13.78		%	13.88		%
Axos Bank:	Axos Bank:									Axos Bank:
Tier 1 leverage (core) capital to adjusted average assets	Tier 1 leverage (core) capital to adjusted average assets	9.08	%	9.25		%	9.16		%	Tier 1 leverage (core) capital to adjusted average assets	10.13		%	9.45		%	9.08		%
Common equity tier 1 capital (to risk-weighted assets)	Common equity tier 1 capital (to risk-weighted assets)	11.45	%	11.79		%	11.55		%	Common equity tier 1 capital (to risk-weighted assets)	10.91		%	12.28		%	11.45		%
Tier 1 capital (to risk-weighted assets)	Tier 1 capital (to risk-weighted assets)	11.45	%	11.79		%	11.55		%	Tier 1 capital (to risk-weighted assets)	10.91		%	12.28		%	11.45		%
Total capital (to risk-weighted assets)	Total capital (to risk-weighted assets)	12.44	%	12.62		%	12.25		%	Total capital (to risk-weighted assets)	11.73		%	13.21		%	12.44		%
Axos Clearing, LLC:	Axos Clearing, LLC:									Axos Clearing, LLC:
Net capital	Net capital	34,417		34,022			31,917			Net capital	$	39,453		$	35,950		34,417
Excess capital	Excess capital	28,941		29,450			27,056			Excess capital	$	32,171		$	27,904		28,941
Net capital as a percentage of aggregate debit items	Net capital as a percentage of aggregate debit items	12.57	%	14.88		%	13.13		%	Net capital as a percentage of aggregate debit items	10.84		%	8.94		%	12.57		%
Net capital in excess of 5% aggregate debit items	Net capital in excess of 5% aggregate debit items	20,726		22,593			19,765			Net capital in excess of 5% aggregate debit items	$	21,249		$	15,836		20,726

3734

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AXOS FINANCIAL, INC. AND SUBSIDIARIES

SELECTED CONSOLIDATED FINANCIAL INFORMATION


		At or for the Three Months Ended						At or for the Six Months Ended							At or for the Three Months Ended						At or for the Six Months Ended
		December 31,						December 31,							December 31,						December 31,
(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	2020			2019			2020			2019			(Dollars in thousands, except per share data)	2021			2020			2021			2020
Selected Income Statement Data:	Selected Income Statement Data:													Selected Income Statement Data:
Interest and dividend income	Interest and dividend income	$	155,379		$	147,288		$	305,268		$	293,633		Interest and dividend income	$	157,076		$	155,379		$	315,386		$	305,268
Interest expense	Interest expense	21,287			38,868			43,849			81,910			Interest expense	11,508			21,287			23,176			43,849
Net interest income	Net interest income	134,092			108,420			261,419			211,723			Net interest income	145,568			134,092			292,210			261,419
Provision for credit losses	Provision for credit losses	8,000			4,500			19,800			7,200			Provision for credit losses	4,000			8,000			8,000			19,800
Net interest income after provision for credit losses	Net interest income after provision for credit losses	126,092			103,920			241,619			204,523			Net interest income after provision for credit losses	141,568			126,092			284,210			241,619
Non-interest income	Non-interest income	28,718			21,207			64,573			42,743			Non-interest income	30,787			28,718			57,489			64,573
Non-interest expense	Non-interest expense	76,297			66,965			151,843			132,432			Non-interest expense	86,019			76,297			170,450			151,843
Income before income tax expense	Income before income tax expense	78,513			58,162			154,349			114,834			Income before income tax expense	86,336			78,513			171,249			154,349
Income tax expense	Income tax expense	23,728			16,867			46,542			32,753			Income tax expense	25,549			23,728			50,252			46,542
Net income	Net income	$	54,785		$	41,295		$	107,807		$	82,081		Net income	$	60,787		$	54,785		$	120,997		$	107,807
Net income attributable to common stock	Net income attributable to common stock	$	54,672		$	41,217		$	107,617		$	81,926		Net income attributable to common stock	$	60,787		$	54,672		$	120,997		$	107,617

Per Common Share Data:	Per Common Share Data:													Per Common Share Data:
Net income:	Net income:													Net income:
Basic	Basic	$	0.93		$	0.67		$	1.82		$	1.34		Basic	$	1.02		$	0.93		$	2.04		$	1.82
Diluted	Diluted	$	0.91		$	0.67		$	1.79		$	1.32		Diluted	$	1.00		$	0.91		$	1.99		$	1.79
Adjusted earnings (Non-GAAP)	Adjusted earnings (Non-GAAP)	$	0.94		$	0.69		$	1.85		$	1.37		Adjusted earnings (Non-GAAP)	$	1.04		$	0.94		$	2.06		$	1.85
Book value	Book value	$	21.79		$	18.84		$	21.79		$	18.84		Book value	$	25.60		$	21.79		$	25.60		$	21.79
Tangible book value (Non-GAAP)	Tangible book value (Non-GAAP)	$	19.51		$	16.53		$	19.51		$	16.53		Tangible book value (Non-GAAP)	$	22.54		$	19.51		$	22.54		$	19.51

Weighted average number of common shares outstanding:	Weighted average number of common shares outstanding:													Weighted average number of common shares outstanding:
Basic	Basic	59,049,697			61,315,590			59,278,672			61,281,127			Basic	59,496,489			59,049,697			59,443,667			59,278,672
Diluted	Diluted	60,040,723			61,938,988			60,196,516			61,900,633			Diluted	60,755,981			60,040,723			60,749,383			60,196,516
Common shares outstanding at end of period	Common shares outstanding at end of period	59,072,822			61,338,386			59,072,822			61,338,386			Common shares outstanding at end of period	59,498,575			59,072,822			59,498,575			59,072,822
Common shares issued at end of period	Common shares issued at end of period	67,668,664			66,915,478			67,668,664			66,915,478			Common shares issued at end of period	68,376,837			67,668,664			68,376,837			67,668,664

Performance Ratios and Other Data:	Performance Ratios and Other Data:													Performance Ratios and Other Data:
Loan and lease originations for investment		$	1,909,978		$	1,435,152		$	3,240,790		$	2,896,918
Loan originations for investment														Loan originations for investment	$	2,525,871		$	1,909,978		$	4,618,150		$	3,240,790
Loan originations for sale	Loan originations for sale	$	490,261		$	666,192		$	931,065		$	994,004		Loan originations for sale	$	193,320		$	490,261		$	403,287		$	931,065

Return on average assets	Return on average assets	1.57		%	1.42		%	1.56		%	1.43		%	Return on average assets	1.63		%	1.57		%	1.65		%	1.56		%
Return on average common stockholders’ equity	Return on average common stockholders’ equity	17.30		%	14.35		%	17.21		%	14.57		%	Return on average common stockholders’ equity	16.29		%	17.30		%	16.51		%	17.21		%
Interest rate spread1	Interest rate spread1	3.71		%	3.37		%	3.67		%	3.35		%	Interest rate spread1	3.90		%	3.71		%	3.97		%	3.67		%
Net interest margin2	Net interest margin2	3.94		%	3.87		%	3.89		%	3.81		%	Net interest margin2	4.10		%	3.94		%	4.16		%	3.89		%
Net interest margin2 – Banking Business Segment only		4.11		%	3.94		%	4.01		%	3.89		%
Net interest margin2 – Banking Business Segment														Net interest margin2 – Banking Business Segment	4.30		%	4.11		%	4.39		%	4.01		%
Efficiency ratio3	Efficiency ratio3	46.86		%	51.66		%	46.58		%	52.04		%	Efficiency ratio3	48.78		%	46.86		%	48.74		%	46.58		%
Efficiency ratio3 – Banking Business Segment only		40.45		%	43.81		%	40.20		%	43.87		%
Efficiency ratio3 – Banking Business Segment														Efficiency ratio3 – Banking Business Segment	39.39		%	40.45		%	39.66		%	40.20		%

Asset Quality Ratios:	Asset Quality Ratios:													Asset Quality Ratios:
Net annualized charge-offs to average loans and leases		0.16		%	0.17		%	0.12		%	0.10		%
Net annualized charge-offs to average loans														Net annualized charge-offs to average loans	0.01		%	0.16		%	0.01		%	0.12		%
Non-performing loans to total loans	Non-performing loans to total loans	1.44		%	0.52		%	1.44		%	0.52		%	Non-performing loans to total loans	1.14		%	1.44		%	1.14		%	1.44		%
Non-performing assets to total assets	Non-performing assets to total assets	1.22		%	0.49		%	1.22		%	0.49		%	Non-performing assets to total assets	0.94		%	1.22		%	0.94		%	1.22		%
Allowance for credit losses - loans to total loans held for investment at end of period	Allowance for credit losses - loans to total loans held for investment at end of period	1.16		%	0.58		%	1.16		%	0.58		%	Allowance for credit losses - loans to total loans held for investment at end of period	1.10		%	1.16		%	1.10		%	1.16		%
Allowance for credit losses - loans to non-performing loans	Allowance for credit losses - loans to non-performing loans	80.58		%	112.85		%	80.58		%	112.85		%	Allowance for credit losses - loans to non-performing loans	96.27		%	80.58		%	96.27		%	80.58		%

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.

3835

Table of Contents

RESULTS OF OPERATIONS

Comparison of the Three and Six Months Ended December 31, ~~2020~~2021 and ~~2019~~2020

For the three months ended December 31, ~~2020,~~2021, we had net income of ~~$54.8~~$60.8 million compared to net income of ~~$41.3~~$54.8 million for the three months ended December 31, ~~2019.~~2020. Net income attributable to common stockholders was $60.8 million or $1.00 per diluted share for the three months ended December 31, 2021 compared to net income attributable to common shareholders of $54.7 million, or $0.91 per diluted share for the three months ended December 31, ~~2020 compared to net income attributable to common shareholders of $41.2 million, or $0.67 per diluted share for the three months ended December 31, 2019.~~2020. For the six months ended December 31, ~~2020,~~2021, we had net income of ~~$107.8~~$121.0 million compared to net income of ~~$82.1~~$107.8 million for the six months ended December 31, ~~2019.~~2020. Net income attributable to common stockholders was $121.0 million, or $1.99 per diluted share for the six months ended December 31, 2021 compared to net income attributable to common shareholders of $107.6 million, or $1.79 per diluted share for the six months ended December 31, ~~2020 compared to net income attributable to common shareholders of $81.9 million, or $1.32 per diluted share for the six months ended December 31, 2019.~~

~~Other key comparisons between our operating results for the three and six months ended December 31, 2020 and 2019 are as follows:~~

•Net interest income increased $25.7 million and our net interest margin increased 7 basis points in the three months ended December 31, 2020 compared to the three months ended December 31, 2019, and increased $49.7 million and our net interest margin increased 8 basis points in the six months ended December 31, 2020, compared to the six months ended December 31, 2019. The increases were primarily due to an increase in average earning assets and a reduction in the rates paid on interest-bearing demand and savings deposits due to decreases in prevailing deposit rates across the industry.

•Non-interest income increased $7.5 million and $21.8 million for the three and six months ended December 31, 2020 compared to the three and six months ended December 31, 2019. The increase in non-interest income for the three months ended December 31, 2020 was primarily the result of an increase in mortgage banking of $8.4 million, partially offset by a decrease of $1.8 million in gain on sale – other. The increase in non-interest income for the six months ended December 31, 2020 was primarily the result of an increase in mortgage banking of $25.2 million and an increase of $1.6 million in banking service fees and other income, partially offset by a decrease of $5.3 million in gain on sale – other.

•Non-interest expense increased $9.3 million and $19.4 million for the three and six months ended December 31, 2020 compared to the three and six months ended December 31, 2019. The change for the three months ended December 31, 2020 was primarily driven by a $4.2 million increase in salary and payroll costs due to growth in Bank staffing, an increase of $2.5 million in professional services, an increase of $2.3 million in data processing expense, and a $1.7 million increase in FDIC and regulatory fees, partially offset by a decrease of $1.5 million of other general and administrative expenses. The change for the six months ended December 31, 2020 was primarily driven by increases of $6.9 million in professional services, $6.1 million in salary and payroll costs due to growth in Bank staffing, $4.2 million in FDIC and regulatory fees, and $2.4 million in data processing, partially offset by a decrease of $1.5 million to advertising and promotional costs and a decrease of $0.5 million of other general and administrative expenses.2020.

Adjusted earnings and adjusted EPS, non-GAAP measures, which exclude non-recurring costs related to mergers and acquisitions (including amortization of intangible assets related to acquisitions), increased ~~31.7%~~11.2% to $62.9 million and 10.6% to $1.04, respectively, for the quarter ended December 31, 2021 compared to $56.6 million and ~~36.2% to~~ $0.94, respectively, for the quarter ended December 31, ~~2020 compared to $42.9 million and $0.69, respectively, for the quarter ended December 31, 2019.~~2020. Adjusted earnings and adjusted EPS increased ~~31.2%~~12.3% to $125.1 million and 11.4% to $2.06, respectively, for the six months ended December 31, 2021 compared to $111.4 million and ~~35.0% to~~ $1.85, respectively, for the six months ended December 31, ~~2020 compared to $84.9 million and $1.37, respectively, for the six months ended December 31, 2019.~~2020.

Net Interest Income

Net interest income for the three and six months ended December 31, ~~2020~~2021 totaled ~~$134.1~~$145.6 million and ~~$261.4~~$292.2 million, an increase of ~~23.7%~~8.6% and ~~23.5%~~11.8%, compared to net interest income of ~~$108.4~~$134.1 million and ~~$211.7~~$261.4 million for the three and six months ended December 31, ~~2019.~~2020, respectively. The ~~growth of net interest income~~increase for ~~both~~ the three and six months ~~ended December 31, 2020 is~~were primarily due to increased average earnings assets from net loan ~~and lease~~ portfolio growth and reduced rates paid on interest-bearing demand and savings deposits and time deposits, partially offset by reduced yields on interest earning assets. During the three and six months ended December 31, 2021, average non-interest bearing deposits increased $1,695.0 million and $1,460.0 million, respectively, primarily from the deposits acquired through the acquisition of AAS.

Total interest and dividend income during the three and six months ended December 31, ~~2020~~2021 increased ~~5.5%~~1.1% to $157.1 million and 3.3% to $315.4 million, compared to $155.4 million and ~~4.0% to~~ $305.3 ~~million, respectively, compared to $147.3 million and $293.6~~ million during the three and six months ended December 31, ~~2019.~~2020, respectively. The ~~increases~~increase in interest and dividend income for the three and six months ended December 31, ~~2020~~2021 was primarily attributable to the ~~continued~~ growth in average earning assets from loan originations and ~~lease originations,~~securities borrowed and margin lending, partially offset by reduced yields on loans and ~~leases~~securities borrowed and ~~interest-earning deposits.~~margin lending. The average balance of ~~interest-earning~~ loans and ~~leases~~securities borrowed increased ~~16.1%~~by 6.2% and ~~14.6%~~41.1%, respectively, for the three months ended December 31, 2021 compared to the three months ended December 31, 2020. The average balance of loans and securities borrowed increased by 6.9% and 62.9%, respectively, for the six months ended December 31, ~~2020~~2021 compared to the ~~three and~~ six months ended December 31, ~~2019.~~

~~Table of Contents~~

2020.

Total interest expense was ~~$21.3~~$11.5 million for the three months ended December 31, ~~2020,~~2021, a decrease of ~~$17.6~~$9.8 million or ~~45.2%~~45.9% as compared with the three months ended December 31, ~~2019.~~2020. Total interest expense was ~~$43.8~~$23.2 million for the six months ended December 31, ~~2020,~~2021, a decrease of ~~$38.1~~$20.7 million or ~~46.5%~~47.1% as compared with the six months ended December 31, ~~2019.~~2020. The decrease in the average cost of funds rate for the three months ended December 31, ~~2020~~2021 compared to ~~2019~~2020 was primarily due to ~~111~~19 basis point ~~and 121 basis point decreases in the three and six month average rates paid~~decrease on interest-bearing demand and savings deposits due to decreases in prevailing deposit rates across the ~~industry.~~industry and a 66 basis point decrease in the three month average rates paid on time deposits, due to higher rate time deposits maturing. The decrease in the average cost of funds rate for the six months ended December 31, 2021 compared to 2020 was primarily due to a 24 basis point decrease on interest-bearing demand and savings deposits due to decreases in prevailing deposit rates ~~was partially offset by growth~~across the industry and a 75 basis point decrease in ~~interest-bearing liabilities for~~the six month average rates paid on time deposits, due to higher rate time deposits maturing. During the three and six months ended December 31, ~~2020 compared to 2019.~~2021, average non-interest bearing deposits increased $1,695.0 million and $1,460.0 million, respectively, primarily from the deposits acquired through the acquisition of AAS.

Net interest margin, defined as annualized net interest income divided by average earning assets, increased 716 basis points to 4.10% for the three months ended December 31, 2021 from 3.94% for the three months ended December 31, 2020, ~~from 3.87%~~and increased 27 basis points to 4.16% for the ~~three~~six months ended December 31, ~~2019, and increased 8 basis points to~~2021 from 3.89% for the six months ended December 31, ~~2020 from 3.81% for~~2020. During the three and six months ended December 31, ~~2019.~~2021, the primary contributors to the 16 and 27 basis point increases, respectively, was the increase in non-interest bearing deposits increased $1,695.0 million and $1,460.0 million, respectively, primarily from the deposits acquired through the acquisition of AAS and decreased rates on interest-bearing deposits.

4036

Table of Contents

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 December 31, 2020 and 2019:~~margin:


		For the Three Months Ended													For the Three Months Ended
		December 31,													December 31,
		2020						2019							2021						2020
(Dollars in thousands)	(Dollars in thousands)	Average Balance1		Interest Income/ Expense		Average Yields Earned/Rates Paid2		Average Balance1		Interest Income/ Expense		Average Yields Earned/Rates Paid2		(Dollars in thousands)	Average Balance1		Interest Income/ Expense		Average Yields Earned/Rates Paid2		Average Balance1		Interest Income/ Expense		Average Yields Earned/Rates Paid2
Assets:	Assets:													Assets:
Loans and leases3, 4		$	11,409,942	$	147,085	5.16	%	$	9,827,007	$	136,602	5.56	%
Loans3, 4														Loans3, 4	$	12,116,565	$	149,469	4.93	%	$	11,409,942	$	147,085	5.16	%
Interest-earning deposits in other financial institutions	Interest-earning deposits in other financial institutions	1,495,760		493		0.13	%	755,275		3,240		1.72	%	Interest-earning deposits in other financial institutions	1,247,675		642		0.21	%	1,495,760		493		0.13	%
Securities4		202,363		2,917		5.77	%	202,266		3,051		6.03	%
Mortgage-backed and other investment securities4														Mortgage-backed and other investment securities4	139,711		1,338		3.83	%	202,363		2,917		5.77	%
Securities borrowed and margin lending5	Securities borrowed and margin lending5	486,692		4,666		3.83	%	400,771		3,865		3.86	%	Securities borrowed and margin lending5	686,920		5,366		3.12	%	486,692		4,666		3.83	%
Stock of the regulatory agencies	Stock of the regulatory agencies	20,611		218		4.23	%	32,601		530		6.50	%	Stock of the regulatory agencies	20,519		261		5.11	%	20,611		218		4.23	%
Total interest-earning assets	Total interest-earning assets	13,615,368		155,379		4.56	%	11,217,920		147,288		5.25	%	Total interest-earning assets	14,211,390		157,076		4.42	%	13,615,368		155,379		4.56	%
Non-interest-earning assets	Non-interest-earning assets	363,373						382,178						Non-interest-earning assets	676,030						363,373
Total assets	Total assets	$	13,978,741					$	11,600,098					Total assets	$	14,887,420					$	13,978,741
Liabilities and Stockholders’ Equity:	Liabilities and Stockholders’ Equity:													Liabilities and Stockholders’ Equity:
Interest-bearing demand and savings	Interest-bearing demand and savings	$	7,215,813	$	8,131	0.45	%	$	4,473,537	$	17,418	1.56	%	Interest-bearing demand and savings	$	6,587,348	$	4,299	0.26	%	$	7,215,813	$	8,131	0.45	%
Time deposits	Time deposits	1,860,058		7,964		1.71	%	2,537,155		15,496		2.44	%	Time deposits	1,333,848		3,506		1.05	%	1,860,058		7,964		1.71	%
Securities loaned	Securities loaned	305,900		255		0.33	%	212,412		163		0.31	%	Securities loaned	439,035		218		0.20	%	305,900		255		0.33	%

Advances from the FHLB	Advances from the FHLB	234,649		1,326		2.26	%	948,464		4,495		1.90	%	Advances from the FHLB	272,033		973		1.43	%	234,649		1,326		2.26	%
Borrowings, subordinated notes and debentures	Borrowings, subordinated notes and debentures	429,833		3,611		3.36	%	84,576		1,296		6.13	%	Borrowings, subordinated notes and debentures	262,781		2,512		3.82	%	429,833		3,611		3.36	%
Total interest-bearing liabilities	Total interest-bearing liabilities	10,046,253		21,287		0.85	%	8,256,144		38,868		1.88	%	Total interest-bearing liabilities	8,895,045		11,508		0.52	%	10,046,253		21,287		0.85	%
Non-interest-bearing demand deposits	Non-interest-bearing demand deposits	2,039,064						1,756,495						Non-interest-bearing demand deposits	3,734,029						2,039,064
Other non-interest-bearing liabilities	Other non-interest-bearing liabilities	624,220						438,551						Other non-interest-bearing liabilities	765,946						624,220
Stockholders’ equity	Stockholders’ equity	1,269,204						1,148,908						Stockholders’ equity	1,492,400						1,269,204
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	13,978,741					$	11,600,098					Total liabilities and stockholders’ equity	$	14,887,420					$	13,978,741
Net interest income	Net interest income			$	134,092					$	108,420			Net interest income			$	145,568					$	134,092
Interest rate spread6	Interest rate spread6					3.71	%					3.37	%	Interest rate spread6					3.90	%					3.71	%
Net interest margin7	Net interest margin7					3.94	%					3.87	%	Net interest margin7					4.10	%					3.94	%

1Average balances are obtained from daily data.

2Annualized.

3Loans ~~and leases~~ include loans held for sale, loan premiums and unearned fees.

4Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees. Loan fee income is not significant Loans ~~and leases~~ include average balances of ~~$27.3~~$26.5 million and ~~$28.6~~$27.3 million of Community Reinvestment Act loans which are taxed at a reduced rate for the ~~2020~~2021 and ~~2019~~2020 three-month periods, respectively.

5Margin lending is the significant component of the asset titled customer, broker-dealer and clearing receivables on the unaudited condensed consolidated balance sheets.

6Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.

7Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.

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Average Balances, Net Interest Income, Yields Earned and Rates Paid

The following table presents information regarding (i) average balances; (ii) the total amount of interest income from interest-earning assets and the weighted average yields on such assets; (iii) the total amount of interest expense on interest-bearing liabilities and the weighted average rates paid on such liabilities; (iv) net interest income; (v) interest rate spread; and (vi) net interest ~~margin for the six months ended December 31, 2020 and 2019:~~margin:


		For the Six Months Ended													For the Six Months Ended
		December 31,													December 31,
		2020						2019							2021						2020
(Dollars in thousands)	(Dollars in thousands)	Average Balance1		Interest Income/ Expense		Average Yields Earned/Rates Paid2		Average Balance1		Interest Income/ Expense		Average Yields Earned/Rates Paid2		(Dollars in thousands)	Average Balance1		Interest Income/ Expense		Average Yields Earned/Rates Paid2		Average Balance1		Interest Income/ Expense		Average Yields Earned/Rates Paid2
Assets:	Assets:													Assets:
Loans and leases3, 4		$	11,125,812	$	288,509	5.19	%	$	9,706,230	$	270,489	5.57	%
Loans3, 4														Loans3, 4	$	11,889,439	$	298,645	5.02	%	$	11,125,812	$	288,509	5.19	%
Interest-earning deposits in other financial institutions	Interest-earning deposits in other financial institutions	1,601,170		1,000		0.12	%	745,878		7,473		2.00	%	Interest-earning deposits in other financial institutions	1,205,409		1,233		0.20	%	1,601,170		1,000		0.12	%
Securities4		196,270		5,594		5.70	%	205,662		5,633		5.48	%
Mortgage-backed and other investment securities4														Mortgage-backed and other investment securities4	148,000		2,759		3.73	%	196,270		5,594		5.70	%
Securities borrowed and margin lending5	Securities borrowed and margin lending5	488,129		9,743		3.99	%	421,943		9,207		4.36	%	Securities borrowed and margin lending5	795,231		12,217		3.07	%	488,129		9,743		3.99	%
Stock of the regulatory agencies	Stock of the regulatory agencies	20,610		422		4.10	%	26,439		831		6.29	%	Stock of the regulatory agencies	20,607		532		5.17	%	20,610		422		4.10	%
Total interest-earning assets	Total interest-earning assets	13,431,991		305,268		4.55	%	11,106,152		293,633		5.29	%	Total interest-earning assets	14,058,686		315,386		4.49	%	13,431,991		305,268		4.55	%
Non-interest-earning assets	Non-interest-earning assets	363,165						368,121						Non-interest-earning assets	587,794						363,165
Total assets	Total assets	$	13,795,156					$	11,474,273					Total assets	$	14,646,480					$	13,795,156
Liabilities and Stockholders’ Equity:	Liabilities and Stockholders’ Equity:													Liabilities and Stockholders’ Equity:
Interest-bearing demand and savings	Interest-bearing demand and savings	$	7,134,068	$	17,222	0.48	%	$	4,829,469	$	40,779	1.69	%	Interest-bearing demand and savings	$	6,568,907	$	7,866	0.24	%	$	7,134,068	$	17,222	0.48	%
Time deposits	Time deposits	1,959,299		18,427		1.88	%	2,511,527		30,941		2.46	%	Time deposits	1,348,454		7,651		1.13	%	1,959,299		18,427		1.88	%
Securities loaned	Securities loaned	304,251		379		0.25	%	326,161		449		0.28	%	Securities loaned	549,538		469		0.17	%	304,251		379		0.25	%

Advances from the FHLB	Advances from the FHLB	238,574		2,698		2.26	%	627,617		6,259		1.99	%	Advances from the FHLB	283,717		1,989		1.40	%	238,574		2,698		2.26	%
Borrowings, subordinated notes and debentures	Borrowings, subordinated notes and debentures	343,198		5,123		2.99	%	132,077		3,482		5.27	%	Borrowings, subordinated notes and debentures	249,170		5,201		4.17	%	343,198		5,123		2.99	%
Total interest-bearing liabilities	Total interest-bearing liabilities	9,979,390		43,849		0.88	%	8,426,851		81,910		1.94	%	Total interest-bearing liabilities	8,999,786		23,176		0.52	%	9,979,390		43,849		0.88	%
Non-interest-bearing demand deposits	Non-interest-bearing demand deposits	1,971,139						1,604,911						Non-interest-bearing demand deposits	3,431,150						1,971,139
Other non-interest-bearing liabilities	Other non-interest-bearing liabilities	593,835						313,235						Other non-interest-bearing liabilities	749,781						593,835
Stockholders’ equity	Stockholders’ equity	1,250,792						1,129,276						Stockholders’ equity	1,465,763						1,250,792
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	13,795,156					$	11,474,273					Total liabilities and stockholders’ equity	$	14,646,480					$	13,795,156
Net interest income	Net interest income			$	261,419					$	211,723			Net interest income			$	292,210					$	261,419
Interest rate spread6	Interest rate spread6					3.67	%					3.35	%	Interest rate spread6					3.97	%					3.67	%
Net interest margin7	Net interest margin7					3.89	%					3.81	%	Net interest margin7					4.16	%					3.89	%

1Average balances are obtained from daily data.

2Annualized.

3Loans ~~and leases~~ include loans held for sale, loan premiums and unearned fees.

4Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees. Loan fee income is not significant. Loans ~~and leases~~ include average balances of ~~$27.4~~$26.6 million and ~~$28.8~~$27.4 million of Community Reinvestment Act loans which are taxed at a reduced rate for the ~~2020~~2021 and ~~2019~~2020 six-month periods, respectively.

5Margin lending is the significant component of the asset titled customer, broker-dealer and clearing receivables on the unaudited condensed consolidated balance sheets.

6Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.

7Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.

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Average Balances, Net Interest Income, Yields Earned and Rates Paid

The following table sets forth the effects of changing rates and volumes on our net interest income. Information is provided with respect to (i) effects on interest income and interest expense attributable to changes in volume (changes in volume multiplied by prior rate); (ii) effects on interest income and interest expense attributable to changes in rate (changes in rate multiplied by prior volume)~~; and (iii) changes in rate/volume (change in rate multiplied by~~. The change in ~~volume) for the three~~interest due to both volume and ~~six months ended December 31, 2020 and 2019:~~rate has been allocated proportionally to both, based on their relative absolute values.:


		For the Three Months Ended				For the Six Months Ended						For the Three Months Ended						For the Six Months Ended
		December 31,				December 31,						December 31,						December 31,
		2020 vs 2019				2020 vs 2019						2021 vs 2020						2021 vs 2020
		Increase (Decrease) Due to				Increase (Decrease) Due to						Increase (Decrease) Due to						Increase (Decrease) Due to
(Dollars in thousands)	(Dollars in thousands)	Volume		Rate		Total Increase (Decrease)		Volume		Rate			Total Increase (Decrease)		(Dollars in thousands)	Volume		Rate		Total Increase (Decrease)		Volume		Rate		Total Increase (Decrease)
Increase / (decrease) in interest income:	Increase / (decrease) in interest income:														Increase / (decrease) in interest income:
Loans and leases		$	20,833	$	(10,350)	$	10,483	$	37,439	$	(19,419)		$	18,020
Loans															Loans	$	9,016	$	(6,632)	$	2,384	$	19,665	$	(9,529)	$	10,136

Interest-earning deposits in other financial institutions	Interest-earning deposits in other financial institutions	1,676		(4,423)		(2,747)		4,148		(10,621)			(6,473)		Interest-earning deposits in other financial institutions	(96)		245		149		(283)		516		233
Securities		1		(135)		(134)		(261)		222			(39)
Mortgage-backed and other investment securities															Mortgage-backed and other investment securities	(758)		(822)		(1,580)		(1,179)		(1,657)		(2,836)
Securities borrowed and margin lending	Securities borrowed and margin lending	831		(30)		801		1,361		(825)			536		Securities borrowed and margin lending	1,674		(974)		700		5,097		(2,623)		2,474
Stock of the regulatory agencies	Stock of the regulatory agencies	(160)		(152)		(312)		(158)		(251)			(409)		Stock of the regulatory agencies	(1)		45		44		—		111		111
		$	23,181	$	(15,090)	$	8,091	$	42,529	$	(30,894)		$	11,635		$	9,835	$	(8,138)	$	1,697	$	23,300	$	(13,182)	$	10,118
Increase / (decrease) in interest expense:	Increase / (decrease) in interest expense:														Increase / (decrease) in interest expense:
Interest-bearing demand and savings	Interest-bearing demand and savings	$	7,192	$	(16,479)	$	(9,287)	$	13,950	$	(37,507)		$	(23,557)	Interest-bearing demand and savings	$	(655)	$	(3,177)	$	(3,832)	$	(1,313)	$	(8,043)	$	(9,356)
Time deposits	Time deposits	(3,551)		(3,981)		(7,532)		(6,039)		(6,475)			(12,514)		Time deposits	(1,886)		(2,572)		(4,458)		(4,727)		(6,049)		(10,776)
Securities loaned	Securities loaned	80		12		92		(27)		(43)			(70)		Securities loaned	85		(122)		(37)		239		(149)		90

Advances from the FHLB	Advances from the FHLB	(3,896)		727		(3,169)		(4,623)		1,062			(3,561)		Advances from the FHLB	188		(541)		(353)		446		(1,155)		(709)
Borrowings, subordinated notes and debentures	Borrowings, subordinated notes and debentures	3,139		(824)		2,315		3,662		(2,021)			1,641		Borrowings, subordinated notes and debentures	(1,544)		445		(1,099)		(1,628)		1,706		78
		$	2,964	$	(20,545)	$	(17,581)	$	6,923	$	(44,984)		$	(38,061)		$	(3,812)	$	(5,967)	$	(9,779)	$	(6,983)	$	(13,690)	$	(20,673)

Provision for Credit Losses

The provision for credit losses was $4.0 million for the three months ended December 31, 2021 compared to $8.0 million for the three months ended December 31, ~~2020 compared to $4.5 million for the three months ended December 31, 2019.~~2020. The provision for credit losses was $8.0 million for the six months ended December 31, 2021 compared to $19.8 million for the six months ended December 31, ~~2020 compared to $7.2 million for the six months ended December 31, 2019.~~2020. The ~~increase~~decreases in the provision for the three ~~months ended December 31, 2020 compared to the provision for the three months ended December 31, 2019 was mainly attributable to loan growth, changes in loan mix~~ and a change in the provision for credit losses methodology from the incurred loss model to a current expected credit loss model as described under “Critical Accounting Policies.” The increase in the provision for the six months ended December 31, 2021 were due to favorable changes in economic and business conditions resulting from reduced levels of disruptions from the COVID-19 pandemic between December 31, 2020 ~~compared to the provision~~and December 31, 2021, partially offset by loan growth and changes in loan mix. The Provisions for credit losses for the three and six months ended December 31, ~~2019 was~~2021 were primarily comprised of provisions in commercial real estate and consumer and auto due to ~~taking net additional reserves~~growth in these segments of ~~$3.1 million on seasonal tax product loans that continue to have delays in collection due to IRS processing delays,~~the loan growth, changes in loan mix and a change in the provision for credit losses methodology from the incurred loss model to a current expected credit loss model as described under “Critical Accounting Policies.”portfolio. Provisions for credit losses are charged to income to bring the allowance for credit losses - loans to a level deemed appropriate by management based on the factors discussed under “Financial Condition—Asset Quality and Allowance for Credit Losses - Loans.” ~~On July 1, 2020, the Company adopted ASC 326, adding approximately $53.0 million to the allowance for credit losses. The increase was primarily related to two factors:~~

•~~The difference between loss emergence periods previously utilized, as compared to estimating lifetime credit losses as required by ASC 326.~~

•The lifetime impact of COVID-19 on the Company’s loan and lease portfolio, or more specifically the impact on macroeconomic factors across the loan and lease portfolio, with the largest impacts shown in hospitality and retail real estate loans.

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Non-Interest Income

The following table sets forth information regarding our non-interest income for the periods shown:


		For the Three Months Ended						For the Six Months Ended							For the Three Months Ended						For the Six Months Ended
		December 31,						December 31,							December 31,						December 31,
(Dollars in thousands)	(Dollars in thousands)	2020		2019		Inc (Dec)		2020		2019		Inc (Dec)		(Dollars in thousands)	2021		2020		Inc (Dec)		2021		2020		Inc (Dec)

Prepayment penalty fee income	Prepayment penalty fee income	1,579		2,006		(427)		2,947		3,418		(471)		Prepayment penalty fee income	$	3,294	$	1,579	$	1,715	$	6,280	$	2,947	$	3,333
Gain on sale – other	Gain on sale – other	156		1,924		(1,768)		490		5,746		(5,256)		Gain on sale – other	28		156		(128)		45		490		(445)
Mortgage banking income	Mortgage banking income	10,651		2,224		8,427		30,218		5,018		25,200		Mortgage banking income	4,612		10,651		(6,039)		9,865		30,218		(20,353)
Broker-dealer fee income	Broker-dealer fee income	6,287		5,555		732		11,989		11,211		778		Broker-dealer fee income	14,367		6,287		8,080		26,133		11,989		14,144
Banking and service fees	Banking and service fees	10,045		9,498		547		18,929		17,350		1,579		Banking and service fees	8,486		10,045		(1,559)		15,166		18,929		(3,763)
Total non-interest income	Total non-interest income	$	28,718	$	21,207	$	7,511	$	64,573	$	42,743	$	21,830	Total non-interest income	$	30,787	$	28,718	$	2,069	$	57,489	$	64,573	$	(7,084)

Non-interest income increased ~~$7.5~~$2.1 million to ~~$28.7~~$30.8 million for the three months ended December 31, ~~2020~~2021 compared to the three months ended December 31, ~~2019.~~2020. The increase was primarily the result of an $8.1 million increase in broker-dealer fee income driven by custody and mutual fund fees earned by the newly acquired AAS division and an increase of ~~$8.4~~$1.7 million in prepayment penalty fee income, partially offset by a decrease of $6.0 million mortgage banking ~~$0.7 million in broker dealer fees~~income and ~~$0.5~~a decrease of $1.6 million in banking and service fees, ~~partially offset by a decrease of $1.8 million in gain on sale-other, as certain sales of~~from Emerald ~~Advance loans to~~Prepaid Mastercard® and Refund Transfer products associated with H&R Block inthat did not recur for the three months ended December 31, ~~2019 did not recur in the three months ended December 31, 2020, due to contract termination and a $0.4 million decrease in prepayment penalty fee income.~~2021. Non-interest income ~~increased $21.8~~decreased $7.1 million to ~~$64.6~~$57.5 million for the six months ended December 31, ~~2020~~2021 compared to the six months ended December 31, ~~2019.~~2020. The ~~increase~~change was primarily the result of ~~an increase of $25.2~~a $20.4 million decrease in mortgage banking income and a ~~$1.6~~$3.8 million ~~increase~~decrease in banking and service fees, ~~partially offset by a decrease of $5.3 million in gain on sale-other, as certain sales of lottery receivables~~from Emerald Prepaid Mastercard® and ~~Emerald Advance loans to~~Refund Transfer products associated with H&R Block ~~in the six months ended December 31, 2019~~that did not recur in the six months ended December 31, ~~2020.~~

~~Included~~2021, partially offset by a $14.1 million increase in ~~gain on sale – other are sales of unsecured~~broker-dealer fee income driven by custody and ~~secured consumer~~mutual fund fees earned by the newly acquired AAS division and business loans originated through introductions from our third-party partner relationships and sales of structured settlement annuity and state lottery receivables. We engage in the wholesale and retail purchase of state lottery prize and structured settlement annuity payments. These payments are high credit quality deferred payment receivables having a state lottery commission or investment grade (top two tiers) insurance company payor. The Bank originates contracts for the retail purchase of such payments and classifies these under the category of ~~Other~~ in the loan portfolio. Factoring yields are typically higher than mortgage loan rates. Typically, the gain received upon sale of these payment streams is greater than the gain received from an equivalent amount of mortgage loan sales. Since 2013, pools of structured settlement receivables have been originated for sale depending upon management’s assessment of interest rate risk, liquidity, and offers containing favorable terms and are classified on our balance sheet as loans held for sale. Increased sales on favorable terms during the three and six months ended December 31, 2019 resulted in an increase of $3.3 million in ~~gain on sale from structured settlement annuity and state lottery receivables. Such sales did not recur to the same degree for the three and six months ended December 31, 2020.~~prepayment penalty fee income.

4440

Table of Contents

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 Six Months Ended							For the Three Months Ended						For the Six Months Ended
		December 31,						December 31,							December 31,						December 31,
(Dollars in thousands)	(Dollars in thousands)	2020		2019		Inc (Dec)		2020		2019		Inc (Dec)		(Dollars in thousands)	2021		2020		Inc (Dec)		2021		2020		Inc (Dec)
Salaries and related costs	Salaries and related costs	$	38,199	$	33,958	$	4,241	$	76,822	$	70,675	$	6,147	Salaries and related costs	$	39,979	$	38,199	$	1,780	$	80,716	$	76,822	$	3,894
Data processing	Data processing	9,673		7,410		2,263		17,601		15,221		2,380		Data processing	12,199		9,673		2,526		24,291		17,601		6,690
Advertising and promotional	Advertising and promotional	3,783		4,043		(260)		6,339		7,833		(1,494)		Advertising and promotional	3,402		3,783		(381)		6,774		6,339		435
Depreciation and amortization	Depreciation and amortization	5,862		6,040		(178)		12,048		11,264		784		Depreciation and amortization	6,785		5,862		923		12,513		12,048		465
Professional services	Professional services	5,629		3,112		2,517		11,628		4,701		6,927		Professional services	5,943		5,629		314		10,488		11,628		(1,140)
Occupancy and equipment	Occupancy and equipment	3,132		3,122		10		6,143		5,960		183		Occupancy and equipment	3,342		3,132		210		6,523		6,143		380
FDIC and regulatory fees	FDIC and regulatory fees	2,601		939		1,662		5,293		1,130		4,163		FDIC and regulatory fees	2,475		2,601		(126)		4,741		5,293		(552)

Broker-dealer clearing charges	Broker-dealer clearing charges	2,451		1,860		591		4,708		3,868		840		Broker-dealer clearing charges	3,678		2,451		1,227		7,683		4,708		2,975
General and administrative expense	General and administrative expense	4,967		6,481		(1,514)		11,261		11,780		(519)		General and administrative expense	8,216		4,967		3,249		16,721		11,261		5,460
Total non-interest expenses	Total non-interest expenses	$	76,297	$	66,965	$	9,332	$	151,843	$	132,432	$	19,411	Total non-interest expenses	$	86,019	$	76,297	$	9,722	$	170,450	$	151,843	$	18,607

Non-interest expense, which is comprised of compensation, data processing, depreciation and amortization, advertising and promotional, professional services, occupancy and equipment, FDIC and regulator fees, broker-dealer clearing charges and other operating expenses, was $86.0 million for the three months ended December 31, 2021, compared to $76.3 million for the three months ended December 31, ~~2020, compared to $67.0~~2020. Non-interest expense was $170.5 million for the ~~three~~six months ended December 31, ~~2019. Non-interest expense was~~2021, up from $151.8 million for the six months ended December 31, ~~2020, up from $132.4 million for the six months ended December 31, 2019.~~2020. The increases for the three and six months ended December 31, ~~2020~~2021 were ~~primarily~~generally due to tothe addition of AAS and the expansion of the ~~Bank~~Company specifically in areas related to lending and deposits.

Total salaries and related costs increased ~~$4.2~~$1.8 million to $40.0 million for the three months ended December 31, 2021 compared to $38.2 million for the three months ended December 31, 2020 ~~compared~~and increased $3.9 million to ~~$34.0~~$80.7 million for the ~~three~~six months ended December 31, ~~2019 and costs increased $6.1 million~~2021 compared to $76.8 million for the six months ended December 31, ~~2020 compared to $70.7 million for the six months ended December 31, 2019.~~2020. The increases in compensation expense for the three and six months ended December 31, ~~2020~~2021 were primarily due to increased staffing levels as a result of the ~~staffing additions to support growth in deposit and lending activities.~~AAS acquisition. Our staff increased to 1,280 from 1,157, ~~from 1,031,~~ or ~~12.2%~~10.6% between December 31, ~~2020~~2021 and ~~2019.~~2020.

Data processing expense increased ~~$2.3~~$2.5 million for the three months ended December 31, ~~2020~~2021 compared to three months ended December 31, ~~2019,~~2020, and increased ~~$2.4~~$6.7 million for the six months ended December 31, ~~2020~~2021 compared to the six month period ended December 31, ~~2019,~~2020, primarily due to enhancements to customer interfaces and the ~~Bank’s~~Company’s core processing ~~system.~~systems.

Advertising and promotional expense decreased ~~$0.3~~$0.4 million and ~~$1.5~~increased $0.4 million for the three and six months ended December 31, ~~2020,~~2021, compared to the three and six months ended December 31, ~~2019,~~2020, respectively. ~~The decreases for~~Fluctuations are mainly the ~~three~~result of changes in lead generation and ~~six months ended December 31, 2020 were primarily related to reduced~~ deposit ~~marketing.~~marketing costs.

Depreciation and amortization expense ~~decreased $0.2~~increased $0.9 million and ~~increased $0.8~~$0.5 million for the three and six months ended December 31, ~~2020,~~2021, compared to the three and six months ended December 31, ~~2019,~~2020, respectively. The ~~decrease~~increases for the three ~~months ended December 31, 2020 was primarily due to reduced depreciation of computer hardware~~ and ~~furniture and fixtures. The increase for the~~ six months ended December 31, ~~2020 was~~2021 were primarily due to amortization of intangibles as a result of the AAS acquisition and depreciation on lending platform enhancements and infrastructure development.

Professional services expense increased ~~$2.5~~$0.3 million and ~~$6.9~~decreased $1.1 million for the three and six months ended December 31, ~~2020,~~2021, compared to the three and six months ended December 31, ~~2019,~~2020, respectively. Professional services charges increased due primarily to increased legal ~~and consulting fees.~~expense during the three months ended December 31, 2021. The decreased for the six months ended December 31, 2021, was primarily the result of lower legal expense, compared to the six months ended December 31, 2020.

Occupancy and equipment expense ~~was flat and~~ increased by $0.2 million and $0.4 million for the three and six months ended December 31, ~~2020~~2021 compared to the three and six months ended December 31, ~~2019,~~2020, respectively. The changes for the three and six months ended December 31, ~~2020~~2021 are primarily ~~related~~due to annual cost increases in our office space lease agreements and the ~~timing~~addition of ~~new property leases.~~an assumed office space lease for our AAS employees.

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Our cost of FDIC and regulatory fees ~~increased $1.7~~decreased $0.1 million and ~~$4.2~~$0.6 million for the three and six months ended December 31, ~~2020,~~2021, compared to the three and six month period last year, respectively. The ~~increases~~decreases were due to ~~a small bank~~favorable fluctuations in the Bank’s assessment ~~credit received from the FDIC during the three and six months ended December 31, 2019, which did not recur in 2020.~~rate. As an FDIC-insured institution, the Bank is required to pay deposit insurance premiums to the FDIC.

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Broker-dealer clearing charges increased ~~$0.6~~$1.2 million and ~~$0.8~~$3.0 million for the three and six months ended December 31, ~~2020~~2021 compared to the three and six months ended December 31, ~~2019.~~2020, respectively. The increases were attributable to the acquisition of AAS and increased clearing charges due to higher activity induring the ~~Securities Business.~~three and six months ended December 31, 2021.

Other general and administrative costs ~~decreased~~increased by ~~$1.5~~$3.2 million and ~~$0.5~~$5.5 million for the three and six months ended December 31, ~~2020,~~2021, compared to the three and six ~~month period~~months ended December 31, ~~2019,~~2020, respectively. The ~~decreases were~~increase in the three months ended December 31, 2021 as compared to the three months ended December 31, 2020 was primarily ~~related~~due to a $1.0 million provision to allowance for credit losses of unfunded commitments, compared to a $1.0 million reduction in the ~~reserve~~2020 period, increased loan processing costs, and increased travel costs. The increase in the six months ended December 31, 2021 as compared to December 31, 2020 was primarily due to a $3.0 million provision to allowance for credit losses of unfunded commitments, increased loan ~~commitments.~~processing costs and increased travel costs.

Provision for Income Taxes

Our effective income tax rates (income tax provision divided by net income before income tax) for the three months ended December 31, 2021 and 2020 were 29.59% and ~~2019 were~~ 30.22% ~~and 29.00%~~, respectively. Our effective income tax rates for the six months ended December 31, 2021 and 2020 were 29.34% and ~~2019 were~~ 30.15% ~~and 28.52%~~, respectively. The change in effective income tax rates between periods are primarily the result of changes in tax benefits from stock compensation.

SEGMENT RESULTS

Our Company determines reportable segments based on what separate financial information is available and what segment results are evaluated regularly by the Chief Executive Officer in deciding how to allocate resources and in assessing performance. The Company operates through two operating segments: Banking Business and Securities Business. In order to reconcile the two segments to the unaudited condensed consolidated totals, the Company includes parent-only activities and intercompany eliminations. The following tables present the operating results of the segments:


		For the Three Months Ended December 31, 2020									For the Three Months Ended December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Banking Business		Securities Business		Corporate/Eliminations		Axos Consolidated		(Dollars in thousands)	Banking Business		Securities Business		Corporate/Eliminations		Axos Consolidated
Net interest income	Net interest income	$	132,166	$	4,260	$	(2,334)	$	134,092	Net interest income	$	142,259	$	4,506	$	(1,197)	$	145,568
Provision for credit losses	Provision for credit losses	8,000		—		—		8,000		Provision for credit losses	4,000		—		—		4,000
Non-interest income	Non-interest income	22,295		6,572		(149)		28,718		Non-interest income	16,295		16,454		(1,962)		30,787
Non-interest expense	Non-interest expense	62,474		11,312		2,511		76,297		Non-interest expense	62,449		21,654		1,916		86,019
Income before taxes	Income before taxes	$	83,987	$	(480)	$	(4,994)	$	78,513	Income before taxes	$	92,105	$	(694)	$	(5,075)	$	86,336

For the Three Months Ended December 31, 2019
(Dollars in thousands) Banking Business Securities Business Corporate/Eliminations Axos Consolidated
Net interest income $ 105,340 $ 4,037 $ (957) $ 108,420
Provision for credit losses 4,500 — — 4,500
Non-interest income 16,225 6,284 (1,302) 21,207
Non-interest expense 53,253 10,455 3,257 66,965
Income before taxes $ 63,812 $ (134) $ (5,516) $ 58,162


		For the Six Months Ended December 31, 2020									For the Three Months Ended December 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Banking Business		Securities Business		Corporate/Eliminations		Axos Consolidated		(Dollars in thousands)	Banking Business		Securities Business		Corporate/Eliminations		Axos Consolidated
Net interest income	Net interest income	$	255,174	$	9,154	$	(2,909)	$	261,419	Net interest income	$	132,166	$	4,260	$	(2,334)	$	134,092
Provision for credit losses	Provision for credit losses	19,800		—		—		19,800		Provision for credit losses	8,000		—		—		8,000
Non-interest income	Non-interest income	52,507		12,356		(290)		64,573		Non-interest income	22,295		6,572		(149)		28,718
Non-interest expense	Non-interest expense	123,691		22,664		5,488		151,843		Non-interest expense	62,474		11,312		2,511		76,297
Income before taxes	Income before taxes	$	164,190	$	(1,154)	$	(8,687)	$	154,349	Income before taxes	$	83,987	$	(480)	$	(4,994)	$	78,513

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		For the Six Months Ended December 31, 2019									For the Six Months Ended December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Banking Business		Securities Business		Corporate/Eliminations		Axos Consolidated		(Dollars in thousands)	Banking Business		Securities Business		Corporate/Eliminations		Axos Consolidated
Net interest income	Net interest income	$	204,812	$	9,183	$	(2,272)	$	211,723	Net interest income	$	284,500	$	10,682	$	(2,972)	$	292,210
Provision for credit losses	Provision for credit losses	7,200		—		—		7,200		Provision for credit losses	8,000		—		—		8,000
Non-interest income	Non-interest income	32,015		12,685		(1,957)		42,743		Non-interest income	31,123		29,560		(3,194)		57,489
Non-interest expense	Non-interest expense	103,886		21,519		7,027		132,432		Non-interest expense	125,174		40,927		4,349		170,450
Income before taxes	Income before taxes	$	125,741	$	349	$	(11,256)	$	114,834	Income before taxes	$	182,449	$	(685)	$	(10,515)	$	171,249



	For the Six Months Ended December 31, 2020
(Dollars in thousands)	Banking Business		Securities Business		Corporate/Eliminations		Axos Consolidated
Net interest income	$	255,174	$	9,154	$	(2,909)	$	261,419
Provision for credit losses	19,800		—		—		19,800
Non-interest income	52,507		12,356		(290)		64,573
Non-interest expense	123,691		22,664		5,488		151,843
Income before taxes	$	164,190	$	(1,154)	$	(8,687)	$	154,349

Banking Business

For the three months ended December 31, ~~2020,~~2021, our Banking Business segment had income before taxes of ~~$84.0~~$92.1 million compared to income before taxes of ~~$63.8~~$84.0 million for the three months ended December 31, ~~2019.~~2020. For the six months ended December 31, ~~2020,~~2021, we had income before taxes of ~~$164.2~~$182.4 million compared to income before taxes of ~~$125.7~~$164.2 million for the six months ended December 31, ~~2019.~~2020. For the three and six months ended December 31, 2020, the increase in income before taxes was ~~the result of~~mainly due to an increase in ~~average earning assets and~~net interest income primarily from a ~~reduction~~decline in ~~the~~ rates ~~paid on~~of interest-bearing demand and savings deposits and ~~an increase~~time deposits and a decrease in ~~non-interest income due to increased~~provision for credit losses, partially offset by a decrease in mortgage banking, ~~income.~~compared to the three and six months ended December 31, 2020.

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 Six Months Ended					At or for the Three Months Ended				At or for the Six Months Ended
		December 31, 2020		December 31, 2019		December 31, 2020		December 31, 2019			December 31, 2021		December 31, 2020		December 31, 2021		December 31, 2020
Efficiency ratio	Efficiency ratio	40.45	%	43.81	%	40.20	%	43.87	%	Efficiency ratio	39.39	%	40.45	%	39.66	%	40.20	%
Return on average assets	Return on average assets	1.80	%	1.66	%	1.79	%	1.67	%	Return on average assets	1.92	%	1.80	%	1.92	%	1.79	%
Interest rate spread	Interest rate spread	3.93	%	3.47	%	3.82	%	3.42	%	Interest rate spread	4.14	%	3.93	%	4.23	%	3.82	%
Net interest margin	Net interest margin	4.11	%	3.94	%	4.01	%	3.89	%	Net interest margin	4.30	%	4.11	%	4.39	%	4.01	%

Our Banking Business segment’s net interest margin exceeds our consolidated net interest margin. Our consolidated net interest margin includes certain items that are not reflected in the calculation of our net interest margin within our Banking Business and reduce our consolidated net interest margin, such as the borrowing costs at our 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~~typically decrease net interest margin.

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Average Balances, Net Interest Income, Yields Earned and Rates Paid

The following table presents our Banking Business segment’s information regarding (i) average balances; (ii) the total amount of interest income from interest-earning assets and the weighted average yields on such assets; (iii) the total amount of interest expense on interest-bearing liabilities and the weighted average rates paid on such liabilities; (iv) net interest income; (v) interest rate spread; and (vi) net interest ~~margin for the three months ended December 31, 2020 and 2019:~~margin:


		For the Three Months Ended													For the Three Months Ended
		December 31,													December 31,
		2020						2019							2021						2020
(Dollars in thousands)	(Dollars in thousands)	Average Balance1		Interest Income/ Expense		Average Yields Earned/Rates Paid2		Average Balance1		Interest Income/ Expense		Average Yields Earned/Rates Paid2		(Dollars in thousands)	Average Balance1		Interest Income/ Expense		Average Yields Earned/Rates Paid2		Average Balance1		Interest Income/ Expense		Average Yields Earned/Rates Paid2
Assets:	Assets:													Assets:
Loans and leases3, 4		$	11,364,115	$	146,327	5.15	%	$	9,825,725	$	136,602	5.56	%
Loans3, 4														Loans3, 4	$	12,076,831	$	148,960	4.93	%	$	11,364,115	$	146,327	5.15	%
Interest-earning deposits in other financial institutions	Interest-earning deposits in other financial institutions	1,239,160		324		0.10	%	629,407		2,634		1.67	%	Interest-earning deposits in other financial institutions	963,533		376		0.16	%	1,239,160		324		0.10 %
Securities4		232,518		3,072		5.28	%	199,716		3,052		6.11	%
Mortgage-backed and other investment securities4														Mortgage-backed and other investment securities4	163,417		1,458		3.57	%	232,518		3,072		5.28	%
Stock of the regulatory agencies	Stock of the regulatory agencies	17,250		216		5.01	%	29,577		528		7.14	%	Stock of the regulatory agencies	17,402		260		5.98	%	17,250		216		5.01	%
Total interest-earning assets	Total interest-earning assets	12,853,043		149,939		4.67	%	10,684,425		142,816		5.35	%	Total interest-earning assets	13,221,183		151,054		4.57	%	12,853,043		149,939		4.67	%
Non-interest-earning assets	Non-interest-earning assets	159,802						211,833						Non-interest-earning assets	301,502						159,802
Total assets	Total assets	$	13,012,845					$	10,896,258					Total assets	$	13,522,685					$	13,012,845
Liabilities and Stockholders’ Equity:	Liabilities and Stockholders’ Equity:													Liabilities and Stockholders’ Equity:
Interest-bearing demand and savings	Interest-bearing demand and savings	$	7,391,544	$	8,354	0.45	%	$	4,498,675	$	17,485	1.55	%	Interest-bearing demand and savings	$	6,619,803	$	4,316	0.26	%	$	7,391,544	$	8,354	0.45	%
Time deposits	Time deposits	1,860,058		7,964		1.71	%	2,537,155		15,496		2.44	%	Time deposits	1,333,848		3,506		1.05	%	1,860,058		7,964		1.71	%

Advances from the FHLB	Advances from the FHLB	234,649		1,326		2.26	%	948,475		4,495		1.90	%	Advances from the FHLB	272,033		973		1.43	%	234,649		1,326		2.26 %

Borrowings, subordinated notes and debentures														Borrowings, subordinated notes and debentures	261		—		—	%	147,354		130		0.35 %
Total interest-bearing liabilities	Total interest-bearing liabilities	9,633,605		17,774		0.74	%	7,984,305		37,476		1.88	%	Total interest-bearing liabilities	8,225,945		8,795		0.43	%	9,633,605		17,774		0.74	%
Non-interest-bearing demand deposits	Non-interest-bearing demand deposits	2,057,615						1,766,740						Non-interest-bearing demand deposits	3,784,965						2,057,615
Other non-interest-bearing liabilities	Other non-interest-bearing liabilities	126,001						78,492						Other non-interest-bearing liabilities	131,229						126,001
Stockholders’ equity	Stockholders’ equity	1,195,624						1,066,721						Stockholders’ equity	1,380,546						1,195,624
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	13,012,845					$	10,896,258					Total liabilities and stockholders’ equity	$	13,522,685					$	13,012,845
Net interest income	Net interest income			$	132,165					$	105,340			Net interest income			$	142,259					$	132,165
Interest rate spread5	Interest rate spread5					3.93	%					3.47	%	Interest rate spread5					4.14	%					3.93	%
Net interest margin6	Net interest margin6					4.11	%					3.94	%	Net interest margin6					4.30	%					4.11	%

1Average balances are obtained from daily data.

2Annualized.

3Loans ~~and leases~~ include loans held for sale, loan premiums and unearned fees.

4Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees. Loan fee income is not significant. Loans ~~and leases~~ include average balances of ~~$27.3~~$26.5 million and ~~$28.0~~$27.3 million of Community Reinvestment Act loans which are taxed at a reduced rate for the ~~2020~~2021 and ~~2019~~2020 three-month periods, respectively.

5Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.

6Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.

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Average Balances, Net Interest Income, Yields Earned and Rates Paid

The following table presents our Banking Business segment’s information regarding (i) average balances; (ii) the total amount of interest income from interest-earning assets and the weighted average yields on such assets; (iii) the total amount of interest expense on interest-bearing liabilities and the weighted average rates paid on such liabilities; (iv) net interest income; (v) interest rate spread; and (vi) net interest ~~margin for the six months ended December 31, 2020 and 2019:~~margin:


		For the Six Months Ended													For the Six Months Ended
		December 31,													December 31,
		2020						2019							2021						2020
(Dollars in thousands)	(Dollars in thousands)	Average Balance1		Interest Income/ Expense		Average Yields Earned/Rates Paid2		Average Balance1		Interest Income/ Expense		Average Yields Earned/Rates Paid2		(Dollars in thousands)	Average Balance1		Interest Income/ Expense		Average Yields Earned/Rates Paid2		Average Balance1		Interest Income/ Expense		Average Yields Earned/Rates Paid2
Assets:	Assets:													Assets:
Loans and leases3, 4		$	11,077,492	$	287,005	5.18	%	$	9,705,585	$	270,489	5.57	%
Loans3, 4														Loans3, 4	$	11,849,452	$	297,803	5.03	%	$	11,077,492	$	287,005	5.18	%
Interest-earning deposits in other financial institutions	Interest-earning deposits in other financial institutions	1,390,747		716		0.10	%	606,871		5,961		1.96	%	Interest-earning deposits in other financial institutions	921,695		713		0.15	%	1,390,747		716		0.10 %
Securities4		229,799		5,928		5.16	%	203,975		5,633		5.52	%
Mortgage-backed and other investment securities4														Mortgage-backed and other investment securities4	171,981		3,004		3.49	%	229,799		5,928		5.16	%
Stock of the regulatory agencies	Stock of the regulatory agencies	17,250		419		4.86	%	23,414		827		7.06	%	Stock of the regulatory agencies	17,613		530		6.02	%	17,250		419		4.86	%
Total interest-earning assets	Total interest-earning assets	12,715,288		294,068		4.63	%	10,539,845		282,910		5.37	%	Total interest-earning assets	12,960,741		302,050		4.66	%	12,715,288		294,068		4.63	%
Non-interest-earning assets	Non-interest-earning assets	156,007						201,775						Non-interest-earning assets	294,156						156,007
Total assets	Total assets	$	12,871,295					$	10,741,620					Total assets	$	13,254,897					$	12,871,295
Liabilities and Stockholders’ Equity:	Liabilities and Stockholders’ Equity:													Liabilities and Stockholders’ Equity:
Interest-bearing demand and savings	Interest-bearing demand and savings	$	7,245,289	$	17,509	0.48	%	$	4,851,899	$	40,898	1.69	%	Interest-bearing demand and savings	$	6,617,301	$	7,910	0.24	%	$	7,245,289	$	17,509	0.48	%
Time deposits	Time deposits	1,959,299		18,427		1.88	%	2,511,527		30,941		2.46	%	Time deposits	1,348,454		7,651		1.13	%	1,959,299		18,427		1.88	%

Advances from the FHLB	Advances from the FHLB	238,574		2,698		2.26	%	627,622		6,259		1.99	%	Advances from the FHLB	283,717		1,989		1.40	%	238,574		2,698		2.26	%
Borrowings, subordinated notes and debentures	Borrowings, subordinated notes and debentures	149,653		262		0.35	%	—		—		—	%	Borrowings, subordinated notes and debentures	152		—		—	%	149,653		262		0.35	%
Total interest-bearing liabilities	Total interest-bearing liabilities	9,592,815		38,896		0.81	%	7,991,048		78,098		1.95	%	Total interest-bearing liabilities	8,249,624		17,550		0.43	%	9,592,815		38,896		0.81	%
Non-interest-bearing demand deposits	Non-interest-bearing demand deposits	1,988,235						1,615,396						Non-interest-bearing demand deposits	3,511,837						1,988,235
Other non-interest-bearing liabilities	Other non-interest-bearing liabilities	130,736						82,420						Other non-interest-bearing liabilities	141,222						130,736
Stockholders’ equity	Stockholders’ equity	1,159,509						1,052,756						Stockholders’ equity	1,352,214						1,159,509
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	12,871,295					$	10,741,620					Total liabilities and stockholders’ equity	$	13,254,897					$	12,871,295
Net interest income	Net interest income			$	255,172					$	204,812			Net interest income			$	284,500					$	255,172
Interest rate spread5	Interest rate spread5					3.82	%					3.42	%	Interest rate spread5					4.23	%					3.82	%
Net interest margin6	Net interest margin6					4.01	%					3.89	%	Net interest margin6					4.39	%					4.01	%

1Average balances are obtained from daily data.

2Annualized.

3Loans ~~and leases~~ include loans held for sale, loan premiums and unearned fees.

4Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees. Loan fee income is not significant. Loans ~~and leases~~ include average balances of ~~$27.4~~$26.6 million and ~~$28.1~~$27.4 million of Community Reinvestment Act loans which are taxed at a reduced rate for the ~~2020~~2021 and ~~2019~~2020 six-month periods, respectively.

5Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on interest-bearing liabilities.

6Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.

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Average Balances, Net Interest Income, Yields Earned and Rates Paid

The following table sets forth the effects of changing rates and volumes on our net interest income for our Banking Business 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~~. The change in ~~volume) for the three~~interest due to both volume and ~~six months ended December 31, 2020 and 2019:~~rate has been allocated proportionally to both, based on their relative absolute values.:


		For the Three Months Ended						For the Six Months Ended					For the Three Months Ended								For the Six Months Ended
		December 31,						December 31,					December 31,								December 31,
		2020 vs 2019						2020 vs 2019					2021 vs 2020								2021 vs 2020
		Increase (Decrease) Due to						Increase (Decrease) Due to					Increase (Decrease) Due to								Increase (Decrease) Due to
(Dollars in thousands)	(Dollars in thousands)	Volume		Rate		Total Increase (Decrease)			Volume		Rate			Total Increase (Decrease)		(Dollars in thousands)	Volume		Rate			Total Increase (Decrease)		Volume		Rate		Total Increase (Decrease)
Increase / (decrease) in interest income:	Increase / (decrease) in interest income:															Increase / (decrease) in interest income:
Loans and leases		$	20,856	$	(11,131)	$	9,725		$	37,072	$	(20,556)		$	16,516
Loans																Loans	$	9,002	$	(6,369)		$	2,633	$	19,367	$	(8,569)	$	10,798

Interest-earning deposits in other financial institutions	Interest-earning deposits in other financial institutions	2,290		(4,600)		(2,310)			4,588		(9,833)			(5,245)		Interest-earning deposits in other financial institutions	(87)		139			52		(282)		279		(3)
Mortgage-backed and other investment securities	Mortgage-backed and other investment securities	14		6		20			165		130			295		Mortgage-backed and other investment securities	(772)		(842)			(1,614)		(1,279)		(1,645)		(2,924)
Stock of the regulatory agencies, at cost	Stock of the regulatory agencies, at cost	(188)		(124)		(312)			(191)		(217)			(408)		Stock of the regulatory agencies, at cost	2		42			44		9		102		111
		$	22,972	$	(15,849)	$	7,123		$	41,634	$	(30,476)		$	11,158		$	8,145	$	(7,030)		$	1,115	$	17,815	$	(9,833)	$	7,982
Increase / (decrease) in interest expense:	Increase / (decrease) in interest expense:															Increase / (decrease) in interest expense:
Interest-bearing demand and savings	Interest-bearing demand and savings	$	9,802	$	(18,933)	$	(9,131)		$	16,350	$	(39,739)		$	(23,389)	Interest-bearing demand and savings	$	(800)	$	(3,238)		$	(4,038)	$	(1,418)	$	(8,181)	$	(9,599)
Time deposits	Time deposits	(3,465)		(4,067)		(7,532)			(5,919)		(6,595)			(12,514)		Time deposits	(1,886)		(2,572)			(4,458)		(4,727)		(6,049)		(10,776)

Advances from the FHLB	Advances from the FHLB	(3,097)		(72)		(3,169)			(3,463)		(98)			(3,561)		Advances from the FHLB	188		(541)			(353)		446		(1,155)		(709)
Borrowings, subordinated notes and debentures	Borrowings, subordinated notes and debentures	130		—		130			262		—			262		Borrowings, subordinated notes and debentures	(65)		(65)			(130)		(131)		(131)		(262)
		$	3,370	$	(23,072)	$	(19,702)		$	7,230	$	(46,432)		$	(39,202)		$	(2,563)	$	(6,416)		$	(8,979)	$	(5,830)	$	(15,516)	$	(21,346)

The Banking Business segment’s net interest income for the three and six months ended December 31, ~~2020~~2021 totaled ~~$132.2~~$142.3 million and ~~$255.2~~$284.5 million, an increase of ~~25.5%~~7.6% and ~~24.6%~~an increase of 11.5%, compared to net interest income of ~~$105.3~~$132.2 million and ~~$204.8~~$255.2 million for the three and six months ended December 31, ~~2019,~~2020, respectively. The ~~growth of net interest income~~increase for ~~both~~ the three and six months ended December 31, ~~2020 is~~2021 was primarily due to ~~an increase in average earning assets and a~~the reduction in the rates paid on interest-bearing demand and savings deposits, and increased interest income due to ~~decreases~~growth in ~~prevailing deposit rates across~~ the ~~industry.~~loan portfolio, partially offset by reduced yields on interest earning assets.

The Banking Business segment’s non-interest income ~~increased $6.1 million from $16.2~~decreased $6.0 million to ~~$22.3~~$16.3 million and ~~increased $20.5 million from $32.0~~decreased $21.4 million to ~~$52.5~~$31.1 million for the three and six months ended December 31, ~~2020~~2021 compared to the three and six months ended December 31, ~~2019,~~2020, respectively. The ~~$6.1 million increase in non-interest income for the three months ended December 31, 2020,~~net decrease was ~~primarily~~mainly the result of ~~an increase of $7.9 million in~~decreased mortgage banking income ~~partially offset by a decrease of $1.8 million in gain on sale-other, as certain sales of lottery receivables in the three months ended December 31, 2019~~and decreased banking and service fees from Emerald Prepaid Mastercard® and Refund Transfer products associated with H&R Block that did not recur ~~in the three months ended December 31, 2020. The $20.5 million increase in non-interest income~~ for the six months ended December 31, ~~2020, was primarily the result of a $24.7 million increase in mortgage banking income, $1.5 million increase in banking and service fees,~~2021, partially offset by ~~a decrease of $5.3 million~~increases in ~~gain on sale-other, as certain sales of lottery receivables in the six months ended December 31, 2019 did not recur in the six months ended December 31, 2020.~~

~~The Banking segment’s non-interest expense increased $9.2 million and $19.8 million~~prepayment penalty fee income for the three and six months ended December 31, ~~2020~~2021, as compared to the three and six months ended December 31, ~~2019, respectively.~~2020.

The Banking Business segment’s non-interest expense was flat for the three months ended December 31, 2021 and increased $1.5 million for the six months ended December 31, 2021 compared to the three and six months ended December 31, 2020. For the three months ended December 31, ~~2020~~2021 compared to the three months ended December 31, ~~2019, the $9.2 million increase of~~2020, non-interest expense was ~~primarily~~flat due to a ~~$5.9~~$3.4 million increase in other general and administrative expenses, partially offset by a $3.3 million decrease of salaries and related expenses related to an increase in staffing to support the overall growth of the Bank, a $2.4 million increase in data processing expense, an increase of $1.7 million in FDIC and regulatory fees due to a small bank assessment credit received from the FDIC during the three months ended December 31, 2019 that did not recur in 2020, and a $1.6 million increase in professional services, partially offset by a $1.4 million decrease in other and general expense and a $0.7 million decrease in advertising and promotional expense.expenses. For the six months ended December 31, ~~2020~~2021 compared to the six months ended December 31, ~~2019,~~2020, the ~~$19.8~~$1.5 million increase was primarily due to a ~~$9.1~~$5.2 million increase in ~~salaries~~other general and ~~related~~administrative expenses, ~~related to an increase in staffing to support the overall growth of the Bank,~~ a ~~$5.7 million increase in professional services, an increase of $4.1 million in FDIC and regulatory fees due to a small bank~~

~~Table of Contents~~

~~assessment credit received during the six months ended December 31, 2019 that did not recur in 2020, and a $2.5~~$4.8 million increase in data processing expense, and a ~~$0.7~~$2.9 million increase in ~~depreciation~~advertising and ~~amortization,~~promotional expense, partially offset by a $6.4 million decrease of ~~$2.5~~salaries and related expenses, a $2.1 million decrease in ~~advertising~~professional fees, a $1.3 million decrease in Depreciation and ~~promotional expense.~~amortization, a $0.7 million decrease in Occupancy and equipment, and a $0.5 million decrease in regulatory fees.

Securities Business

For the three months ended December 31, ~~2020,~~2021, our Securities Business segment had a loss before taxes of ~~$0.5~~$0.7 million compared to a loss before taxes of ~~$0.1~~$0.5 million for the three months ended December 31, ~~2019.~~2020. For the six months ended

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December 31, ~~2020,~~2021, our Securities Business segment had a loss before taxes of ~~$1.2~~$0.7 million compared to ~~income~~a loss before taxes of ~~$0.3~~$1.2 million for the six months ended December 31, 2020.

Net interest income for the three months ended December 31, ~~2020,~~2021, increased ~~$0.3~~$0.2 million to ~~$4.3~~$4.5 million compared to ~~$4.0 million for~~ the three months ended December 31, ~~2019.~~2020. Net interest income for the six months ended December 31, ~~2020 at $9.2~~2021 increased $1.5 million ~~was flat~~to $10.7 million compared to ~~$9.2 million for~~ the six months ended December 31, ~~2019.~~2020. The ~~$0.3 million increase for the three months ended December 31, 2020 was~~increases were primarily a result of ~~growth~~increase in ~~earning assets, partially offset by decreases in prevailing market rates. The negligible change for~~ the ~~six months ended December 31, 2020 was due to decreases in prevailing market rates, offset by growth in earning assets~~average interest-earning balance of securities borrowed and ~~decreased borrowing costs.~~margin lending. In the Securities Business, interest is earned through margin loan balances, securities borrowed, and cash deposit balances. Interest expense is incurred from cash borrowed through bank lines and securities lending.

~~The non-interest~~Non-interest income during the three months ended December 31, ~~2020, was $6.6~~2021, increased $9.9 million to $16.5 million compared to ~~$6.3 million for~~ the three months ended December 31, ~~2019.~~2020. The increases were primarily $8.0 million attributable to the addition of AAS custody and mutual funds fees, an increase ~~was primarily the result~~ of a$1.2 million in fees earned on FDIC insured bank deposits, an increase of $0.3 million in correspondent fees, and an increase ~~to $6.4~~of $0.2 million of ~~broker-dealer fee income primarily due to increased volumes in trading~~clearing and ~~securities lending, partially offset by decreases in the prevailing deposit rates.~~custodial related fees. Non-interest income during the six months ended December 31, ~~2020 was $12.4~~2021 increased $17.2 million to $29.6 million compared to ~~$12.7 million for~~ the six months ended December 31, ~~2019.~~2020. The ~~decrease was~~increases were primarily $13.3 million attributable to the ~~result~~addition of ~~a $0.4~~AAS custody and mutual funds fees, an increase of $2.1 million ~~decrease to $12.2~~in fees earned on FDIC insured bank deposits, an increase of $0.9 million in correspondent fees, an increase of $0.6 million of ~~broker-dealer fee income primarily due to decreases in the prevailing deposit rates, partially offset by increased volumes in trading~~clearing and ~~securities lending.~~

~~Non-interest expense was $11.3~~custodial related fees, and an increase of $0.2 million ~~and $22.7 million during the three and six months ended December 31, 2020 compared to $10.5 million and $21.5 million for the three and six months ended December 31, 2019, respectively.~~of clearing technology services.

Non-interest expense increased ~~$0.9~~$10.3 million to $21.7 million for the three months ended December 31, ~~2020, primarily~~2021 from the ~~result of a $1.1~~$11.3 million ~~increase in professional services and a $0.6 million increase in broker-dealer clearing charges, partially offset by a decrease of $0.6 million decrease in salaries and related expenses. For~~for the three months ended December 31, ~~2020, non-interest expense~~2020. The increase was primarily ~~made up of $4.1 million in salaries and related expenses~~ related to staffing, $2.5 million in broker-dealer clearing charges, $1.3 million in data processing, $1.4 million in professional services and $1.0 million in other and general expense. For the three months ended December 31, 2019, non-interest expense was primarily made upan increase of $4.7 million in salaries and related expenses related to staffing ~~$1.9~~and the acquisition of AAS, an increase of $1.5 million in data processing, an increase of $1.3 million depreciation and amortization expense, and an increase of $1.2 million in broker-dealer clearing ~~charges, $1.4 million in data processing, $0.3 million in professional services and $1.1 million in other and general expense.~~

charges. Non-interest expense increased ~~$1.1~~$18.3 million to $40.9 million for the six months ended December 31, ~~2020, primarily the result of a $1.0~~2021, from $22.7 million increase in professional services and a $0.8 million increase in broker-dealer clearing charges, partially offset by a $0.2 million decrease in salaries and related expenses and a $0.3 million decrease in other general and administrative expenses. Forfor the six months ended December 31, ~~2020, non-interest expense~~2020. The increase was primarily ~~made up~~related to an increase of $9.1 million in salaries and related expenses related to staffing ~~$4.7~~and the acquisition of AAS, an increase of $3.0 million in broker-dealer clearing charges, ~~$2.7~~an increase of $1.8 million in data processing, ~~$2.3~~an increase of $1.7 million ~~in professional services, $1.8 million in other and general expense and $1.3 million in~~ depreciation and amortization expense. For the six months ended December 31, 2019, non-interest expense was primarily made up of $9.3 million in salaries and related expenses related to staffing, $3.9 million in broker-dealer clearing charges, $2.8 million in data processing, $1.3 million in professional services, $2.1 million in other and general expense, and ~~$1.2~~an increase of $1.1 million ~~in depreciation~~occupancy and ~~amortization~~equipment expense.

~~Table~~ The increases were primarily the result of ~~Contents~~

the addition of AAS.

Selected information concerning the Securities segment follows as of and for the three months ended:


		December 31,							December 31,
(Dollars in thousands)	(Dollars in thousands)	2020			2019			(Dollars in thousands)	2021			2020
Compensation as a % of net revenue	Compensation as a % of net revenue	33.2		%	37.9		%	Compensation as a % of net revenue	39.9		%	33.2		%
FDIC insured program balances (end of period)	FDIC insured program balances (end of period)	$	772,801		$	357,629		FDIC insured program balances (end of period)	$	2,216,939		$	772,801
Customer margin balances (end of period)	Customer margin balances (end of period)	$	231,189		$	226,231		Customer margin balances (end of period)	$	328,607		$	231,189
Customer funds on deposit, including short credits (end of period)	Customer funds on deposit, including short credits (end of period)	$	313,297		$	96,237		Customer funds on deposit, including short credits (end of period)	$	259,626		$	313,297

Clearing:	Clearing:							Clearing:
Total tickets	Total tickets	1,314,534			744,365			Total tickets	2,113,270			1,314,534
Correspondents (end of period)	Correspondents (end of period)	63			63			Correspondents (end of period)	68			63

Securities lending:	Securities lending:							Securities lending:
Interest-earning assets – stock borrowed (end of period)	Interest-earning assets – stock borrowed (end of period)	$	317,571		$	168,114		Interest-earning assets – stock borrowed (end of period)	$	534,243		$	317,571
Interest-bearing liabilities – stock loaned (end of period)	Interest-bearing liabilities – stock loaned (end of period)	$	362,170		$	206,199		Interest-bearing liabilities – stock loaned (end of period)	$	578,762		$	362,170

FINANCIAL CONDITION

Balance Sheet Analysis

Total assets increased ~~$541.4~~$1,282.4 million, or ~~3.9%~~9.0%, to ~~$14.4~~$15.5 billion, as of December 31, ~~2020,~~2021, up from ~~$13.9~~$14.3 billion at June 30, ~~2020.~~2021. The increase in total assets was mainly due to an increase of ~~$978.2~~$1,192.4 million in net loans ~~and leases~~ held for investment, ~~and~~ an increase of ~~$95.2~~$80.6 million ~~in securities borrowed, partially offset by a decrease~~ in cash and cash equivalents, ~~of $507.3 million. Total liabilities increased $484.7 million, primarily from increased borrowings of $182.7 million,~~and an increase of $59.8 million in customer, broker-dealer and clearing payables, ~~of $127.9 million, growth in deposits of $126.4 million, and an increase of $106.2 million in securities loaned,~~ partially offset by a decrease of ~~$60.0~~$84.8 million in securities borrowed. Total liabilities increased $1,160.2 million, primarily due to growth in deposits of $1,453.4 million, partially offset by a decrease of $196.0 million in advances from the ~~FHLB.~~FHLB and a decrease of $150.2 million in securities loaned.

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Loans

Net loans ~~and leases~~ held for investment increased ~~9.2%~~10.4% to ~~$11.6~~$12.6 billion atas of December 31, ~~2020~~2021 from ~~$10.6~~$11.4 billion at June 30, ~~2020.~~2021. The increase in the loan ~~and lease~~ portfolio was primarily due to loan ~~and lease~~ originations of ~~$2.5 billion and mortgage warehouse loan originations of $0.7~~$4.6 billion, partially offset by loan ~~and lease~~ repayments and other adjustments of ~~$2.2 billion and an adjustment of approximately $47.3 million to the allowance for credit losses - loans resulting from the adoption of ASC 326 during the six months ended December 31, 2020.~~$3.4 billion.

The following table sets forth the composition of the loan ~~and lease~~ portfolio as of the dates indicated:


		December 31, 2020				June 30, 2020					December 31, 2021				June 30, 2021
(Dollars in thousands)	(Dollars in thousands)	Amount		Percent		Amount		Percent		(Dollars in thousands)	Amount		Percent		Amount		Percent
Single Family - Mortgage & Warehouse	Single Family - Mortgage & Warehouse	$	5,252,810	44.7	%	$	4,722,304	44.1	%	Single Family - Mortgage & Warehouse	$	4,281,646	33.5	%	$	4,359,472	37.8	%
Multifamily and Commercial Mortgage	Multifamily and Commercial Mortgage	2,363,024		20.1	%	2,263,054		21.1	%	Multifamily and Commercial Mortgage	2,483,932		19.5	%	2,470,454		21.4	%
Commercial Real Estate	Commercial Real Estate	2,720,922		23.2	%	2,297,920		21.5	%	Commercial Real Estate	3,857,367		30.2	%	3,180,453		27.5	%
Commercial & Industrial - Non-RE	Commercial & Industrial - Non-RE	933,081		7.9	%	885,320		8.3	%	Commercial & Industrial - Non-RE	1,631,811		12.8	%	1,123,869		9.7	%
Auto & Consumer	Auto & Consumer	327,340		2.8	%	341,365		3.1	%	Auto & Consumer	478,636		3.8	%	362,180		3.1	%
Other	Other	151,496		1.3	%	193,479		1.8	%	Other	22,282		0.2	%	58,316		0.5	%
Total gross loans and leases		11,748,673		100.0	%	10,703,442		100.0	%
Allowance for loan and lease losses		(136,393)				(75,807)
Unaccreted discounts and loan and lease fees		(2,696)				3,714
Total net loans and leases		$	11,609,584			$	10,631,349
Total gross loans										Total gross loans	12,755,674		100.0	%	11,554,744		100.0	%
Allowance for credit losses - loans										Allowance for credit losses - loans	(140,489)				(132,958)
Unaccreted discounts and loan fees										Unaccreted discounts and loan fees	(8,006)				(6,972)
Total net loans										Total net loans	$	12,607,179			$	11,414,814

~~Table of Contents~~

payment, not the interest only payment. The Bank monitors and performs reviews of interest only loans. Adverse trends reflected in the Company’s delinquency statistics, grading and classification of interest only loans would be reported to management and the Board of Directors. As of December 31, ~~2020,~~2021, the Company had ~~$1.3~~$1.1 billion of interest only mortgage loans.

Asset Quality and Allowance for Loan and Lease Losses

Non-performing Assets

Non-performing loans are comprised of loans past due 90 days or more on nonaccrual status and other nonaccrual loans. Non-performing assets include non-performing loans plus other real estate owned and repossessed vehicles. At December 31, ~~2020,~~2021, our non-performing loans totaled ~~$169.3~~$145.9 million, or ~~1.44%~~1.14% of total gross loans and our non-performing loans and foreclosed assets or “non-performing assets” totaled ~~$175.6~~$146.2 million, or ~~1.22%~~0.94% of total assets.

Non-performing assets consisted of the following as of the dates indicated:


(Dollars in thousands)	(Dollars in thousands)	December 31, 2020			June 30, 2020			Inc (Dec)			(Dollars in thousands)	December 31, 2021			June 30, 2021			Inc (Dec)
Non-performing assets:	Non-performing assets:										Non-performing assets:
Non-accrual loans and leases:	Non-accrual loans and leases:										Non-accrual loans and leases:
Single Family - Mortgage & Warehouse	Single Family - Mortgage & Warehouse	$	117,189		$	84,030		33,159			Single Family - Mortgage & Warehouse	$	122,326		$	105,708		$	16,618
Multifamily and Commercial Mortgage	Multifamily and Commercial Mortgage	32,130			3,425			28,705			Multifamily and Commercial Mortgage	7,688			20,428			(12,740)
Commercial Real Estate	Commercial Real Estate	16,631			—			16,631			Commercial Real Estate	15,244			15,839			(595)
Commercial & Industrial - Non-RE	Commercial & Industrial - Non-RE	2,960			213			2,747			Commercial & Industrial - Non-RE	—			2,942			(2,942)
Auto & Consumer	Auto & Consumer	354			273			81			Auto & Consumer	620			278			342
Other	Other	—			—			—			Other	55			—			55
Total non-performing loans	Total non-performing loans	169,264			87,941			81,323			Total non-performing loans	145,933			145,195			738
Foreclosed real estate	Foreclosed real estate	6,114			6,114			—			Foreclosed real estate	—			6,547			(6,547)
Repossessed—Auto and RV	Repossessed—Auto and RV	182			294			(112)			Repossessed—Auto and RV	251			235			16
Total non-performing assets	Total non-performing assets	$	175,560		$	94,349		$	81,211		Total non-performing assets	$	146,184		$	151,977		$	(5,793)
Total non-performing loans as a percentage of total loans	Total non-performing loans as a percentage of total loans	1.44		%	0.82		%	0.62		%	Total non-performing loans as a percentage of total loans	1.14		%	1.26		%	(0.12)		%
Total non-performing assets as a percentage of total assets	Total non-performing assets as a percentage of total assets	1.22		%	0.68		%	0.54		%	Total non-performing assets as a percentage of total assets	0.94		%	1.07		%	(0.13)		%

Table of Contents

Total non-performing assets ~~increased~~decreased from ~~$94.3~~$152.0 million at June 30, ~~2020~~2021 to ~~$175.6~~$146.2 million at December 31, ~~2020.~~2021. The ~~increase~~decrease in non-performing assets of approximately ~~$81.2~~$5.8 million, was primarily attributable to ~~single family,~~resolutions of multifamily and commercial mortgage loans, and foreclosed real ~~estate loans.~~estate. Non-performing ~~single family mortgages~~single-family loans increased ~~$33.2 million to $117.2 million between June 30, 2020 and December 31, 2020 primarily as a result of loans coming off forbearance temporarily granted due to COVID-19.~~by $16.6 million. The Company ended forbearance for all single family mortgage borrowers during the quarter ended September 30, 2020. The ~~weighted average~~weighted-average LTV of the non-performing single family mortgage loans was ~~58.8% at~~56.5% as of December 31, 2020. Non-performing multifamily mortgage loans increased $28.7 million to $32.1 million as a result of decline on a macroeconomic level. The weighted average LTV of the non-performing multifamily mortgage loans was 53.7% at December 31, 2020. The weighted average LTV of the non-performing commercial real estate loans was 47.0% at December 31, 20202021.

The Bank had no performing troubled debt restructurings atas of December 31, ~~2020~~2021 and June 30, ~~2020.~~2021. A troubled debt restructuring is a concession made to a borrower experiencing financial difficulties, typically permanent or temporary modifications of principal and interest payments or an extension of maturity dates. When a loan is delinquent and classified as a troubled debt restructuring, no interest is accrued until the borrower demonstrates over time (typically six months) that it can make payments. When a loan is considered a troubled debt restructuring and is on nonaccrual, it is considered non-performing and included in the table above.

~~Table of Contents~~

Allowance for Credit Losses - Loans

On July 1, 2020, the Company adopted ASC 326. The update replaces the historical incurred loss model to a current expected loss model, resulting, generally, in earlier recognition of loss. Refer to Note 1 - Summary of Significant Accounting Policies ~~within this~~in our Annual Report on Form ~~10-Q~~10-K for the ~~Quarterly Period~~fiscal year ended ~~December 31, 2020~~June 30, 2021 for ~~further~~greater detail on the accounting adoption along with detail of the processes and approaches involved in determining the allowance for credit losses under the new guidance.

The following table reflects management’s allocation of the allowance for credit losses - loans by loan category and the ratio of each loan category to total loans as of the dates indicated:


		December 31, 2020				June 30, 2020					December 31, 2021				June 30, 2021
(Dollars in thousands)	(Dollars in thousands)	Amount of Allowance		Allocation as a % of Allowance		Amount of Allowance		Allocation as a % of Allowance		(Dollars in thousands)	Amount of Allowance		Allocation as a % of Allowance		Amount of Allowance		Allocation as a % of Allowance
Single Family Real Estate	Single Family Real Estate	$	32,727	24.0	%	$	25,901	34.2	%	Single Family Real Estate	$	25,580	18.2	%	$	26,604	20.0	%
Multifamily Real Estate	Multifamily Real Estate	12,889		9.4	%	4,718		6.2	%	Multifamily Real Estate	13,628		9.7	%	13,146		9.9	%
Commercial Real Estate	Commercial Real Estate	56,715		41.7	%	21,052		27.8	%	Commercial Real Estate	67,581		48.0	%	57,928		43.6	%
Commercial and Industrial - Non-RE	Commercial and Industrial - Non-RE	19,129		14.0	%	9,954		13.1	%	Commercial and Industrial - Non-RE	22,716		16.2	%	28,460		21.4	%
Consumer and Auto	Consumer and Auto	7,413		5.4	%	9,461		12.5	%	Consumer and Auto	10,921		7.8	%	6,519		4.9	%
Other	Other	7,520		5.5	%	4,721		6.2	%	Other	63		0.1	%	301		0.2	%
Total	Total	$	136,393	100.0	%	$	75,807	100.0	%	Total	$	140,489	100.0	%	$	132,958	100.0	%

The provision for credit losses was $4.0 million and $8.0 million for the three months ended December 31, 2021 and 2020, respectively. The provision for credit losses was $8.0 million and ~~$4.5 million for the three months ended December 31, 2020 and 2019, respectively. The provision for credit losses was~~ $19.8 ~~million and $7.2~~ million for the six months ended December 31, ~~2020~~2021 and ~~2019,~~2020, respectively. The ~~increase~~decrease in the provision for credit losses for ~~the~~ three and six months ended December 31, ~~2020,~~2021, were ~~primarily~~ due to favorable changes in economic and business conditions resulting from reduced levels of disruptions from the COVID-19 pandemic between December 31, 2020 and December 31, 2021, partially offset by loan growth ~~updates on a macroeconomic level relating to COVID-19~~ and ~~a change~~changes in ~~the provision for the credit loss methodology from the incurred loss model to a current expected credit loss model as described under “Critical Accounting Policies”.~~loan mix. We believe that the lower average LTV in the Bank’s mortgage loan portfolio will continue to result in future lower average mortgage loan charge-offs when compared to many other comparable banks. The resolution of the Bank’s existing other real estate owned and non-performing loans should not have a significant adverse impact on our operating results.

Investment Securities

Total investment securities were ~~$210.2~~$140.8 million as of December 31, ~~2020,~~2021, compared with ~~$187.7~~$189.3 million at June 30, ~~2020.~~2021. During the six months ended December 31, ~~2020,~~2021, we purchased securities for ~~$57.7~~$12.3 million and received principal repayments of approximately ~~$56.1~~$58.6 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 ~~$126.4 million,~~$1.5 billion, or ~~1.1%~~13.4%, to ~~$11.5~~$12.3 billion at December 31, ~~2020,~~2021, from ~~$11.3~~$10.8 billion at June 30, ~~2020.~~2021. Non-interest bearing deposits increased ~~$265.3 million,~~$1.4 billion, or ~~13.7%~~55.5%, to ~~$2.2~~$3.8 billion at December 31, ~~2020,~~2021, from ~~$1.9 billion at~~ June 30, ~~2020. Total interest-bearing~~2021, primarily due to deposits provided by the AAS acquisition. Time deposits decreased ~~$138.8 million and total time deposits decreased by $435.2~~$226.4 million as higher costing time deposits ~~matured.~~were run off.

The following table sets forth the composition of the deposit portfolio as of the dates indicated:


		December 31, 2020				June 30, 2020					December 31, 2021				June 30, 2021
(Dollars in thousands)	(Dollars in thousands)	Amount		Rate1		Amount		Rate1		(Dollars in thousands)	Amount		Rate1		Amount		Rate1
Non-interest bearing	Non-interest bearing	$	2,201,932	—	%	$	1,936,661	—	%	Non-interest bearing	$	3,847,461	—	%	$	2,474,424	—	%
Interest-bearing:
Interest bearing:										Interest bearing:
Demand	Demand	4,022,562		0.24	%	3,456,127		0.37	%	Demand	3,620,686		0.16	%	3,369,845		0.15	%
Savings	Savings	3,427,123		0.38	%	3,697,188		0.78	%	Savings	3,514,610		0.23	%	3,458,687		0.21	%
Total interest-bearing demand and savings	Total interest-bearing demand and savings	7,449,685		0.31	%	7,153,315		0.58	%	Total interest-bearing demand and savings	7,135,296		0.20	%	6,828,532		0.18	%
Time deposits:	Time deposits:									Time deposits:
$250 and under2	$250 and under2	1,240,713		1.73	%	1,584,034		2.12	%	$250 and under2	877,488		1.26	%	1,070,139		1.30	%
Greater than $250	Greater than $250	570,806		1.36	%	662,684		1.39	%	Greater than $250	408,927		0.45	%	442,702		1.03	%
Total time deposits	Total time deposits	1,811,519		1.61	%	2,246,718		1.91	%	Total time deposits	1,286,415		1.01	%	1,512,841		1.22	%
Total interest bearing2	Total interest bearing2	9,261,204		0.56	%	9,400,033		0.90	%	Total interest bearing2	8,421,711		0.32	%	8,341,373		0.37	%
Total deposits	Total deposits	$	11,463,136	0.45	%	$	11,336,694	0.75	%	Total deposits	$	12,269,172	0.22	%	$	10,815,797	0.29	%

1 Based on weighted-average stated interest rates at end of period.

2 The total ~~interest-bearing~~interest bearing includes brokered deposits of ~~$1,297.4~~$415.3 million and ~~$1,318.0~~$621.4 million as of December 31, ~~2020~~2021 and June 30, ~~2020,~~2021, respectively, of which ~~$419.6~~$350.0 million and ~~$603.6~~$380.0 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:

December 31, 2020 June 30, 2020 December 31, 2019
Non-interest bearing, prepaid and other 30,068 3,361,965 4,372,046
Checking and savings accounts 314,145 310,463 303,033
Time deposits 15,797 18,450 22,154
Total number of deposit accounts 360,010 3,690,878 4,697,233

Our non-interest bearing, prepaid and other accounts contained two omnibus accounts that when condensed for regulatory reporting purposes result in 27,108 accounts at June 30, 2020 and 21,104 accounts as of December 31, 2019. The two omnibus accounts represented $351.9 million and $282.5 million at June 30, 2020 and December 31, 2019, respectively. The decrease in the number of accounts is the result of the termination of our third-party prepaid card relationships, such as H&R Block, due to the reduction of our interchange fees effective July 1, 2020 as a result of the Durbin Amendment. See the Regulation of Banking Business in our Form 10-K for the year ended June 30, 200 for additional information.


	December 31, 2021	June 30, 2021	December 31, 2020
Non-interest bearing, prepaid and other	39,698	36,726	30,068
Checking and savings accounts	342,127	336,068	314,145
Time deposits	10,234	12,815	15,797
Total number of deposit accounts	392,059	385,609	360,010

Borrowings

The following table sets forth the composition of our borrowings and the interest rates at the dates indicated:

December 31, 2020 June 30, 2020 December 31, 2019
(Dollars in thousands) Balance Weighted Average Rate Balance Weighted Average Rate Balance Weighted Average Rate
FHLB Advances $182,500 2.21 % $242,500 2.22 % $257,500 2.28 %
Borrowings, subordinated notes and debentures 418,480 3.45 % 235,789 5.18 % 62,233 6.30 %
Total borrowings $600,980 3.07 % $478,289 3.68 % $319,733 3.06 %
Weighted average cost of borrowings during the quarter 2.97 % 1.26 % 2.24 %
Borrowings as a percent of total assets 4.18 % 3.45 % 2.60 %

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	December 31, 2021				June 30, 2021				December 31, 2020
(Dollars in thousands)	Balance		Weighted Average Rate		Balance		Weighted Average Rate		Balance		Weighted Average Rate

FHLB Advances	$157,500		2.29	%	$353,500		1.18	%	$182,500		2.21	%
Borrowings, subordinated notes and debentures	260,435		4.37	%	221,358		4.68 %		418,480		3.45	%
Total borrowings	$417,935		3.59	%	$574,858		0.73	%	$600,980		3.07	%

Weighted average cost of borrowings during the quarter	2.64	%			2.93	%			2.97	%
Borrowings as a percent of total assets	2.69	%			4.03	%			4.18	%

At December 31, ~~2020,~~2021, total borrowings amounted to ~~$601.0~~$417.9 million, ~~up $122.7~~down $156.9 million, or ~~25.7%~~27.3%, from June 30, ~~2020~~2021 and ~~up $281.2~~down $183.0 million or ~~88.0%~~30.5% from December 31, ~~2019.~~2020. Borrowings as a percent of total assets were ~~4.18%~~2.69%, ~~3.45%~~4.03% and ~~2.60%~~4.18% at December 31, ~~2020,~~2021, June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Weighted average cost of borrowings during the quarter were ~~2.97%~~2.64%, ~~1.26%~~2.93% and ~~2.24%~~2.97% for the quarters ended December 31, ~~2020,~~2021, June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

~~In September 2020, the Company completed the sale~~

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

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 ~~$56.6~~$122.2 million to ~~$1,287.5~~$1,523.2 million at December 31, ~~2020~~2021 compared to ~~$1,230.8~~$1,400.9 million at June 30, ~~2020.~~2021. The increase was the result of our net income for the six months ended December 31, ~~2020~~2021 of ~~$107.8~~$121.0 million, stock compensation expense of ~~$5.7~~$2.4 million, partially offset by a ~~$2.2~~$1.2 million ~~increase~~decrease in other comprehensive income, net of tax, partially offset by $0.1 million for dividends declared on preferred stock, $5.2 million for the redemption of the series-A preferred stock, $16.8 million for common stock repurchases, and an opening day adjustment of $37.1 million for the change to ASC 326 - refer to ~~Note 1 - Summary of Significant Accounting Policies~~ ~~for further detail of the adoption.~~tax.

During the three and six months ended December 31, ~~2020,~~2021, the Company ~~repurchased a total of $16.8 million, or 753,597~~did not repurchase any common ~~shares at an average price of $22.24 per share.~~stock shares. The Company has $52.8 million remaining under the Board authorized stock repurchase program.

~~We redeemed in full the 515 outstanding shares of Series A-6% Cumulative Nonparticipating Perpetual Preferred Stock on October 20, 2020 at $10,000 per plus accrued dividends.~~

LIQUIDITY

Cash flow information is as follows:


		For the Six Months Ended					For the Six Months Ended
		December 31,					December 31,
(Dollars in thousands)	(Dollars in thousands)	2020		2019		(Dollars in thousands)	2021		2020
Operating Activities	Operating Activities	$	284,417	$	128,654	Operating Activities	$	(76,773)	$	284,417
Investing Activities	Investing Activities	$	(1,015,293)	$	(779,156)	Investing Activities	$	(1,132,694)	$	(1,015,293)
Financing Activities	Financing Activities	$	223,552	$	819,309	Financing Activities	$	1,290,048	$	223,552

During the six months ended December 31, ~~2020,~~2021, we had net cash ~~inflows~~outflows from operating activities of ~~$284.4~~$76.8 million compared to inflows of ~~$128.7~~$284.4 million for the six months ended December 31, ~~2019,~~2020, primarily due to net income for each period. Net operating cash inflows and outflows fluctuate primarily due to the timing of the following: originations of loans held for sale, proceeds from loan sales, securities borrowed and loaned, and customer, broker-dealer and clearing receivables and ~~payables.~~payables, and changes in other assets and payables were the primary drivers.

Net cash outflows from investing activities totaled $1,132.7 million for the six months ended December 31, 2021, while outflows totaled $1,015.3 million for the six months ended December 31, ~~2020, while outflows totaled $779.2 million for the six months ended December 31, 2019.~~2020. The increase in outflows was primarily due to increased ~~net~~ originations of ~~mortgage warehouse~~ loans partially offset by increased repayments on loans ~~compared to~~and the ~~six months ended December 31, 2019.~~$54.8 million acquisition of AAS.

Net cash inflows from financing activities totaled $1,290.0 million for the six months ended December 31, 2021, compared to net cash outflows from financing activities of $223.6 million for the six months ended December 31, ~~2020, compared to~~2020. The primary driver behind the increase in net cash inflows ~~from financing activities~~was increased deposits provided in part, by the acquisition of ~~$819.3 million~~AAS for the six months ended December 31, ~~2019. The change was primarily due to reduced deposit growth partially offset by the net proceeds of $175.0 million of subordinated notes in the six months ended December 31, 2020.~~

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2021.

During the six months ended December 31, ~~2020,~~2021, the Bank could borrow up to 40.0% of its total assets from the FHLB. Borrowings are collateralized by the pledge of certain mortgage loans and investment securities to the FHLB. At December 31, ~~2020,~~2021, the Company had ~~$2,470.7~~$1,939.2 million available immediately and ~~$2,499.7~~$3,449.5 million available with additional collateral. At December 31, ~~2020,~~2021, we also had two unsecured federal funds purchase lines with two different banks totaling $175.0 million, under which no borrowings were outstanding.

The Bank has the ability to borrow short-term from the Federal Reserve Bank of San Francisco Discount Window. At December 31, ~~2020,~~2021, the Bank did not have any borrowings outstanding and the amount available from this source was ~~$1,835.0~~$2,433.9 million. The credit line is collateralized by consumer loans and mortgage-backed securities. Additionally, the Bank can borrow through the Paycheck Protection Program Liquidity Facility (“PPPLF”). Advances under the PPPLF are collateralized by pledged Small Business Administration Paycheck Protection Program Loans. Advances under the PPPLF were $131.2 million at December 31, 2020, had interest rates of 0.35% and mature at the earlier of PPP borrower forgiveness or June 2022.

Axos Clearing has a total of ~~$230~~$170.0 million in uncommitted secured lines of credit ~~available~~ for borrowing as needed. As of December 31, ~~2020,~~2021, there was ~~$30.2~~$75.0 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 December 31, ~~2020, there was $22.2 million~~2021, no borrowings were outstanding. This credit facility bears interest at rates based on the Federal Funds rate and are due upon demand.

We believe our liquidity sources to be stable and adequate for our anticipated needs and contingencies for the next 12 months and beyond. We believe we have the ability to increase our level of deposits and borrowings to address our liquidity needs for the foreseeable future.

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OFF-BALANCE SHEET COMMITMENTS

At December 31, ~~2020,~~2021, we had commitments to originate loans with an aggregate outstanding principal balance of ~~$697.2~~$2,483.0 million, and commitments to sell loans with an aggregate outstanding principal balance of ~~$124.7~~$50.0 million. We have no commitments to purchase loans, ~~leases,~~ investment securities or any other unused lines of credit.

~~Litigation~~.On October 15, 2015, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a putative class action lawsuit styled Golden v. BofI Holding, Inc., et al, and brought in United States District Court for the Southern District of California (the “Golden Case”). On November 3, 2015, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a second putative class action lawsuit styled Hazan v. BofI Holding, Inc., et al, and also brought in the United States District Court for the Southern District of California (the “Hazan Case”). On February 1, 2016, the Golden Case and the Hazan Case were consolidated as In re BofI Holding, Inc. Securities Litigation, Case #: 3:15-cv-02324-GPC-KSC (the “Class Action”), and the Houston Municipal Employees Pension System was appointed lead plaintiff. The plaintiffs allege that the Company and other named defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by failing to disclose wrongful conduct that was alleged in a complaint filed in connection with a wrongful termination of employment lawsuit filed on October 13, 2015 (the “Employment Matter”) and that as a result the Company’s statements regarding its internal controls, as well as portions of its financial statements, were false and misleading. On March 21, 2018, the Court entered a final order dismissing the Class Action with prejudice. Subsequently, the plaintiff appealed, the Court overturned the dismissal and the Company is preparing a petition for a rehearing.

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On April 3, 2017, the Company, its Chief Executive Officer and its Chief Financial Officer were named defendants in a putative class action lawsuit styled Mandalevy v. BofI Holding, Inc., et al, and brought in United States District Court for the Southern District of California (the “Mandalevy Case”). The Mandalevy Case seeks monetary damages and other relief on behalf of a putative class that has not been certified by the Court. The complaint in the Mandalevy Case (the “Mandalevy Complaint”) alleges a class period that differs from that alleged in the First Class Action, and that the Company and other named defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by failing to disclose wrongful conduct that was alleged in a March 2017 media article. The Mandalevy Case has not been consolidated into the First Class Action. On December 7, 2018, the Court entered a final order granting the defendants’ motion and dismissing the Mandalevy Case with prejudice. Subsequently, the plaintiff filed a notice of appeal and the Court took the matter under advisement. On November 3, 2020, the Court issued a ruling affirming in part and reversing in part the District Court's Order dismissing the Class Action Second Amended Complaint.

In addition to the First Class Action and the Mandalevy Case, two separate shareholder derivative actions were filed in December, 2015, purportedly on behalf of the Company. The first derivative action, ~~Calcaterra v. Garrabrants, et al, was filed in the United States District Court for the Southern District of California on December 3, 2015. The second derivative action,~~ ~~Dow v. Micheletti, et al, was filed in the San Diego County Superior Court on December 16, 2015. A third derivative action,~~ ~~DeYoung v. Garrabrants, et al, was filed in the United States District Court for the Southern District of California on January 22, 2016, a fourth derivative action,~~ ~~Yong v. Garrabrants, et al, was filed in the United States District Court for the Southern District of California on January 29, 2016, a fifth derivative action,~~ ~~Laborers Pension Trust Fund of Northern Nevada v. Allrich et al, was filed in the United States District Court for the Southern District of California on February 2, 2016, and a sixth derivative action,~~ ~~Garner v. Garrabrants, et al~~, was filed in the San Diego County Superior Court on August 10, 2017. Each of these six derivative actions names the Company as a nominal defendant, and certain of its officers and directors as defendants. Each complaint sets forth allegations of breaches of fiduciary duties, gross mismanagement, abuse of control, and unjust enrichment against the defendant officers and directors. The plaintiffs in these derivative actions seek damages in unspecified amounts on the Company’s behalf from the officer and director defendants, certain corporate governance actions, and an award of their costs and attorney’s fees.

The United States District Court for the Southern District of California ordered the four above-referenced derivative actions pending before it to be consolidated and appointed lead counsel in the consolidated action. On June 7, 2018, the Court entered an order granting defendant’s motion for judgment on the pleadings, but giving the plaintiffs limited leave to amend by June 28, 2018. The plaintiffs failed to file an amended complaint, and instead plaintiffs filed on June 28, 2018 a motion to stay the case pending resolution of the securities class action and Employment Matter. On August 10, 2018, defendants filed an opposition to plaintiffs’ motion. On September 11, 2018, the plaintiffs filed a second amended complaint. On October 16, 2018, defendants filed a motion to dismiss the second amended complaint. On October 16, 2018, defendants filed a motion to dismiss the second amended complaint. The Court dismissed the second amended complaint with prejudice on May 23, 2019. Subsequently, the plaintiff filed a notice of appeal and opening brief and the Company filed its answering brief. Oral argument was held September 2, 2020 and the Court took the matter under advisement.

~~The two derivative actions pending before the San Diego County Superior Court have been consolidated and have been stayed by agreement of the parties.~~

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~~CAPITAL RESOURCES AND REQUIREMENTS~~Securities Business

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 andFor the ~~OCC has similar requirements for our Bank. The following tables present regulatory capital information for our Company and Bank. Information presented for~~three months ended December 31, ~~2020, reflects~~2021, our Securities Business segment had a loss before taxes of $0.7 million compared to a loss before taxes of $0.5 million for 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. Atthree months ended December 31, ~~2020, our Company and Bank met all~~2020. For 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 December 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.

The Company and Bank elected the CECL 5-year transition guidance for calculating regulatory capital ratios and the December 31, 2020 ratios include this election. This guidance allows an entity to add back to capital 100% of the capital impact from the day one CECL transition adjustment and 25% of subsequent increases to the allowance for credit losses through June 30, 2023. This cumulative amount will then be phased out of regulatory capital over the next three years.

~~The Company’s and Bank’s estimated capital amounts, capital ratios and capital requirements under Basel III were as follows:~~

Axos Financial, Inc. Axos Bank “Well
Capitalized”
Ratio Minimum Capital
Ratio
(Dollars in millions) December 31, 2020 June 30,
2020 December 31, 2020 June 30,
2020
Regulatory Capital:
Tier 1 $ 1,192 $ 1,106 $ 1,164 $ 1,080
Common equity tier 1 $ 1,192 $ 1,101 $ 1,164 $ 1,080
Total capital (to risk-weighted assets) $ 1,525 $ 1,241 $ 1,264 $ 1,156
Assets:
Average adjusted $ 13,733 $ 12,333 $ 12,823 $ 11,680
Total risk-weighted $ 10,985 $ 9,817 $ 10,163 $ 9,160
Regulatory Capital Ratios:
Tier 1 leverage (core) capital to adjusted average assets 8.68 % 8.97 % 9.08 % 9.25 % 5.00 % 4.00 %
Common equity tier 1 capital (to risk-weighted assets) 10.85 % 11.22 % 11.45 % 11.79 % 6.50 % 4.50 %
Tier 1 capital (to risk-weighted assets) 10.85 % 11.27 % 11.45 % 11.79 % 8.00 % 6.00 %
Total capital (to risk-weighted assets) 13.88 % 12.64 % 12.44 % 12.62 % 10.00 % 8.00 %

Basel III implemented a requirement for all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively composed of common equity tier 1 capital, and it applies to each of the three risk-based capital ratios but not the leverage ratio. At December 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.six months ended

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December 31, 2021, our Securities Business segment had a loss before taxes of $0.7 million compared to a loss before taxes of $1.2 million for the six months ended December 31, 2020.

Net interest income for the three months ended December 31, 2021, increased $0.2 million to $4.5 million compared to the three months ended December 31, 2020. Net interest income for the six months ended December 31, 2021 increased $1.5 million to $10.7 million compared to the six months ended December 31, 2020. The increases were primarily a result of increase in the average interest-earning balance of securities borrowed and margin lending. In the Securities Business, interest is earned through margin loan balances, securities borrowed, and cash deposit balances. Interest expense is incurred from cash borrowed through bank lines and securities lending.

Non-interest income during the three months ended December 31, 2021, increased $9.9 million to $16.5 million compared to the three months ended December 31, 2020. The increases were primarily $8.0 million attributable to the addition of AAS custody and mutual funds fees, an increase of $1.2 million in fees earned on FDIC insured bank deposits, an increase of $0.3 million in correspondent fees, and an increase of $0.2 million of clearing and custodial related fees. Non-interest income during the six months ended December 31, 2021 increased $17.2 million to $29.6 million compared to the six months ended December 31, 2020. The increases were primarily $13.3 million attributable to the addition of AAS custody and mutual funds fees, an increase of $2.1 million in fees earned on FDIC insured bank deposits, an increase of $0.9 million in correspondent fees, an increase of $0.6 million of clearing and custodial related fees, and an increase of $0.2 million of clearing technology services.

Non-interest expense increased $10.3 million to $21.7 million for the three months ended December 31, 2021 from the $11.3 million for the three months ended December 31, 2020. The increase was primarily related to an increase of $4.7 million in salaries and related expenses related to staffing and the acquisition of AAS, an increase of $1.5 million in data processing, an increase of $1.3 million depreciation and amortization expense, and an increase of $1.2 million in broker-dealer clearing charges. Non-interest expense increased $18.3 million to $40.9 million for the six months ended December 31, 2021, from $22.7 million for the six months ended December 31, 2020. The increase was primarily related to an increase of $9.1 million in salaries and related expenses related to staffing and the acquisition of AAS, an increase of $3.0 million in broker-dealer clearing charges, an increase of $1.8 million in data processing, an increase of $1.7 million depreciation and amortization expense, and an increase of $1.1 million occupancy and equipment expense. The increases were primarily the result of the addition of AAS.

Selected information concerning the Securities segment follows as of and for the three months ended:


	December 31,
(Dollars in thousands)	2021			2020
Compensation as a % of net revenue	39.9		%	33.2		%
FDIC insured program balances (end of period)	$	2,216,939		$	772,801
Customer margin balances (end of period)	$	328,607		$	231,189
Customer funds on deposit, including short credits (end of period)	$	259,626		$	313,297

Clearing:
Total tickets	2,113,270			1,314,534
Correspondents (end of period)	68			63

Securities lending:
Interest-earning assets – stock borrowed (end of period)	$	534,243		$	317,571
Interest-bearing liabilities – stock loaned (end of period)	$	578,762		$	362,170

FINANCIAL CONDITION

Balance Sheet Analysis

Total assets increased $1,282.4 million, or 9.0%, to $15.5 billion, as of December 31, 2021, up from $14.3 billion at June 30, 2021. The increase in total assets was mainly due to an increase of $1,192.4 million in net loans held for investment, an increase of $80.6 million in cash and cash equivalents, and an increase of $59.8 million in customer, broker-dealer and clearing payables, partially offset by a decrease of $84.8 million in securities borrowed. Total liabilities increased $1,160.2 million, primarily due to growth in deposits of $1,453.4 million, partially offset by a decrease of $196.0 million in advances from the FHLB and a decrease of $150.2 million in securities loaned.

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Loans

Net loans held for investment increased 10.4% to $12.6 billion as of December 31, 2021 from $11.4 billion at June 30, 2021. The increase in the loan portfolio was primarily due to loan originations of $4.6 billion, partially offset by loan repayments and other adjustments of $3.4 billion.

The following table sets forth the composition of the loan portfolio as of the dates indicated:


	December 31, 2021				June 30, 2021
(Dollars in thousands)	Amount		Percent		Amount		Percent
Single Family - Mortgage & Warehouse	$	4,281,646	33.5	%	$	4,359,472	37.8	%
Multifamily and Commercial Mortgage	2,483,932		19.5	%	2,470,454		21.4	%
Commercial Real Estate	3,857,367		30.2	%	3,180,453		27.5	%
Commercial & Industrial - Non-RE	1,631,811		12.8	%	1,123,869		9.7	%
Auto & Consumer	478,636		3.8	%	362,180		3.1	%
Other	22,282		0.2	%	58,316		0.5	%
Total gross loans	12,755,674		100.0	%	11,554,744		100.0	%
Allowance for credit losses - loans	(140,489)				(132,958)
Unaccreted discounts and loan fees	(8,006)				(6,972)
Total net loans	$	12,607,179			$	11,414,814

The Bank originates some single family interest only loans with terms that include repayments that are less than the repayments for fully amortizing loans. The Bank’s lending guidelines for interest only loans are adjusted for the increased credit risk associated with these loans by requiring borrowers with such loans to borrow at LTVs that are lower than standard amortizing ARM loans and by calculating debt to income ratios for qualifying borrowers based upon a fully amortizing payment, not the interest only payment. The Bank monitors and performs reviews of interest only loans. Adverse trends reflected in the Company’s delinquency statistics, grading and classification of interest only loans would be reported to management and the Board of Directors. As of December 31, 2021, the Company had $1.1 billion of interest only mortgage loans.

Asset Quality and Allowance for Loan and Lease Losses

Non-performing Assets

Non-performing loans are comprised of loans past due 90 days or more on nonaccrual status and other nonaccrual loans. Non-performing assets include non-performing loans plus other real estate owned and repossessed vehicles. At December 31, 2021, our non-performing loans totaled $145.9 million, or 1.14% of total gross loans and our non-performing loans and foreclosed assets or “non-performing assets” totaled $146.2 million, or 0.94% of total assets.

Non-performing assets consisted of the following as of the dates indicated:


(Dollars in thousands)	December 31, 2021			June 30, 2021			Inc (Dec)
Non-performing assets:
Non-accrual loans and leases:
Single Family - Mortgage & Warehouse	$	122,326		$	105,708		$	16,618
Multifamily and Commercial Mortgage	7,688			20,428			(12,740)
Commercial Real Estate	15,244			15,839			(595)
Commercial & Industrial - Non-RE	—			2,942			(2,942)
Auto & Consumer	620			278			342
Other	55			—			55
Total non-performing loans	145,933			145,195			738
Foreclosed real estate	—			6,547			(6,547)
Repossessed—Auto and RV	251			235			16
Total non-performing assets	$	146,184		$	151,977		$	(5,793)
Total non-performing loans as a percentage of total loans	1.14		%	1.26		%	(0.12)		%
Total non-performing assets as a percentage of total assets	0.94		%	1.07		%	(0.13)		%

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Total non-performing assets decreased from $152.0 million at June 30, 2021 to $146.2 million at December 31, 2021. The decrease in non-performing assets of approximately $5.8 million, was primarily attributable to resolutions of multifamily and commercial mortgage loans, and foreclosed real estate. Non-performing single-family loans increased by $16.6 million. The Company ended forbearance for all single family mortgage borrowers during the quarter ended September 30, 2020. The weighted-average LTV of the non-performing single family mortgage loans was 56.5% as of December 31, 2021.

The Bank had no performing troubled debt restructurings as of December 31, 2021 and June 30, 2021. A troubled debt restructuring is a concession made to a borrower experiencing financial difficulties, typically permanent or temporary modifications of principal and interest payments or an extension of maturity dates. When a loan is delinquent and classified as a troubled debt restructuring, no interest is accrued until the borrower demonstrates over time (typically six months) that it can make payments. When a loan is considered a troubled debt restructuring and is on nonaccrual, it is considered non-performing and included in the table above.

Allowance for Credit Losses - Loans

On July 1, 2020, the Company adopted ASC 326. The update replaces the historical incurred loss model to a current expected loss model, resulting, generally, in earlier recognition of loss. Refer to Note 1 - Summary of Significant Accounting Policies in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021 for greater detail on the accounting adoption along with detail of the processes and approaches involved in determining the allowance for credit losses under the new guidance.

The following table reflects management’s allocation of the allowance for credit losses - loans by loan category and the ratio of each loan category to total loans as of the dates indicated:


	December 31, 2021				June 30, 2021
(Dollars in thousands)	Amount of Allowance		Allocation as a % of Allowance		Amount of Allowance		Allocation as a % of Allowance
Single Family Real Estate	$	25,580	18.2	%	$	26,604	20.0	%
Multifamily Real Estate	13,628		9.7	%	13,146		9.9	%
Commercial Real Estate	67,581		48.0	%	57,928		43.6	%
Commercial and Industrial - Non-RE	22,716		16.2	%	28,460		21.4	%
Consumer and Auto	10,921		7.8	%	6,519		4.9	%
Other	63		0.1	%	301		0.2	%
Total	$	140,489	100.0	%	$	132,958	100.0	%

Investment Securities

Total investment securities were $140.8 million as of December 31, 2021, compared with $189.3 million at June 30, 2021. During the six months ended December 31, 2021, we purchased securities for $12.3 million and received principal repayments of approximately $58.6 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 $1.5 billion, or 13.4%, to $12.3 billion at December 31, 2021, from $10.8 billion at June 30, 2021. Non-interest bearing deposits increased $1.4 billion, or 55.5%, to $3.8 billion at December 31, 2021, from June 30, 2021, primarily due to deposits provided by the AAS acquisition. Time deposits decreased $226.4 million as higher costing time deposits were run off.

The following table sets forth the composition of the deposit portfolio as of the dates indicated:


	December 31, 2021				June 30, 2021
(Dollars in thousands)	Amount		Rate1		Amount		Rate1
Non-interest bearing	$	3,847,461	—	%	$	2,474,424	—	%
Interest bearing:
Demand	3,620,686		0.16	%	3,369,845		0.15	%
Savings	3,514,610		0.23	%	3,458,687		0.21	%
Total interest-bearing demand and savings	7,135,296		0.20	%	6,828,532		0.18	%
Time deposits:
$250 and under2	877,488		1.26	%	1,070,139		1.30	%
Greater than $250	408,927		0.45	%	442,702		1.03	%
Total time deposits	1,286,415		1.01	%	1,512,841		1.22	%
Total interest bearing2	8,421,711		0.32	%	8,341,373		0.37	%
Total deposits	$	12,269,172	0.22	%	$	10,815,797	0.29	%

1 Based on weighted-average stated interest rates at end of period.

2The total interest bearing includes brokered deposits of $415.3 million and $621.4 million as of December 31, 2021 and June 30, 2021, respectively, of which $350.0 million and $380.0 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:


	December 31, 2021	June 30, 2021	December 31, 2020
Non-interest bearing, prepaid and other	39,698	36,726	30,068
Checking and savings accounts	342,127	336,068	314,145
Time deposits	10,234	12,815	15,797
Total number of deposit accounts	392,059	385,609	360,010

Borrowings

The following table sets forth the composition of our borrowings and the interest rates at the dates indicated:


	December 31, 2021				June 30, 2021				December 31, 2020
(Dollars in thousands)	Balance		Weighted Average Rate		Balance		Weighted Average Rate		Balance		Weighted Average Rate

FHLB Advances	$157,500		2.29	%	$353,500		1.18	%	$182,500		2.21	%
Borrowings, subordinated notes and debentures	260,435		4.37	%	221,358		4.68 %		418,480		3.45	%
Total borrowings	$417,935		3.59	%	$574,858		0.73	%	$600,980		3.07	%

Weighted average cost of borrowings during the quarter	2.64	%			2.93	%			2.97	%
Borrowings as a percent of total assets	2.69	%			4.03	%			4.18	%

At December 31, 2021, total borrowings amounted to $417.9 million, down $156.9 million, or 27.3%, from June 30, 2021 and down $183.0 million or 30.5% from December 31, 2020. Borrowings as a percent of total assets were 2.69%, 4.03% and 4.18% at December 31, 2021, June 30, 2021 and December 31, 2020, respectively. Weighted average cost of borrowings during the quarter were 2.64%, 2.93% and 2.97% for the quarters ended December 31, 2021, June 30, 2021 and December 31, 2020, respectively.

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Stockholders’ Equity

Stockholders’ equity increased $122.2 million to $1,523.2 million at December 31, 2021 compared to $1,400.9 million at June 30, 2021. The increase was the result of our net income for the six months ended December 31, 2021 of $121.0 million, stock compensation expense of $2.4 million, partially offset by a $1.2 million decrease in other comprehensive income, net of tax.

During the three and six months ended December 31, 2021, the Company did not repurchase any common stock shares. The Company has $52.8 million remaining under the Board authorized stock repurchase program.

LIQUIDITY

Cash flow information is as follows:


	For the Six Months Ended
	December 31,
(Dollars in thousands)	2021		2020
Operating Activities	$	(76,773)	$	284,417
Investing Activities	$	(1,132,694)	$	(1,015,293)
Financing Activities	$	1,290,048	$	223,552

During the six months ended December 31, 2021, we had net cash outflows from operating activities of $76.8 million compared to inflows of $284.4 million for the six months ended December 31, 2020, primarily due to net income for each period. Net operating cash inflows and outflows fluctuate primarily due to the timing of the following: originations of loans held for sale, proceeds from loan sales, securities borrowed and loaned, and customer, broker-dealer and clearing receivables and payables, and changes in other assets and payables were the primary drivers.

Net cash outflows from investing activities totaled $1,132.7 million for the six months ended December 31, 2021, while outflows totaled $1,015.3 million for the six months ended December 31, 2020. The increase in outflows was primarily due to increased originations of loans partially offset by increased repayments on loans and the $54.8 million acquisition of AAS.

During the six months ended December 31, 2021, the Bank could borrow up to 40.0% of its total assets from the FHLB. Borrowings are collateralized by the pledge of certain mortgage loans and investment securities to the FHLB. At December 31, 2021, the Company had $1,939.2 million available immediately and $3,449.5 million available with additional collateral. At December 31, 2021, we also had two unsecured federal funds purchase lines with two different banks totaling $175.0 million, under which no borrowings were outstanding.

The Bank has the ability to borrow short-term from the Federal Reserve Bank of San Francisco Discount Window. At December 31, 2021, the Bank did not have any borrowings outstanding and the amount available from this source was $2,433.9 million. The credit line is collateralized by consumer loans and mortgage-backed securities.

Axos Clearing has a total of $170.0 million in uncommitted secured lines of credit for borrowing as needed. As of December 31, 2021, there was $75.0 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 December 31, 2021, no borrowings were outstanding. This credit facility bears interest at rates based on the Federal Funds rate and are due upon demand.

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OFF-BALANCE SHEET COMMITMENTS

At December 31, 2021, we had commitments to originate loans with an aggregate outstanding principal balance of $2,483.0 million, and commitments to sell loans with an aggregate outstanding principal balance of $50.0 million. We have no commitments to purchase loans, investment securities or any other unused lines of credit.

~~Securities Business~~

Pursuant to the net capital requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Axos Clearing, is subject to the SEC Uniform Net Capital (Rule 15c3-1 of the Exchange Act). Under this rule, the Company has elected to operate under the alternate method and is required to maintain minimum net capital of $250,000 or 2% of aggregate debit balances arising from client transactions, as defined. Under the alternate method, the Company may not repay subordinated debt, pay cash distributions, or make any unsecured advances or loans to its parent or employees if such payment would result in net capital of less than 5% of aggregate debit balances or less than 120% of its minimum dollar requirement.

~~The net capital positions of Axos Clearing were as follows:~~

(Dollars in thousands) December 31, 2020 June 30, 2020
Net capital $ 34,417 $ 34,022
Excess Capital $ 28,941 $ 29,450
Net capital as a percentage of aggregate debit items 12.57 % 14.88 %
Net capital in excess of 5% aggregate debit items $ 20,726 $ 22,593

Axos Clearing as a clearing broker, is subject to SEC Customer Protection Rule (Rule 15c3-3 of the Exchange Act) which requires segregation of funds in a special reserve account for the benefit of customers. At December 31, 2020, the Company had a deposit requirement of $239.3 million and maintained a deposit of $277.9 million. On January 5, 2021, the company made a withdrawal of $35.1 million.

Certain broker-dealers have chosen to maintain brokerage customer accounts at Axos Clearing. To allow these broker-dealers to classify their assets held by the Company as allowable assets in their computation of net capital, the Company computes a separate reserve requirement for Proprietary Accounts of Brokers (PAB). At December 31, 2020, the Company had a deposit requirement of $44.1 million and maintained a deposit of $35.4 million. On January 5, 2021, the Company made a deposit in the amount of $9.2 million.

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

We measure interest rate sensitivity as the difference between amounts of interest-earning assets and interest-bearing liabilities that mature or contractually re-price within a given period of time. The difference, or the interest rate sensitivity gap, provides an indication of the extent to which an institution’s interest rate spread will be affected by changes in interest rates. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities and negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. In a rising interest rate environment, an institution with a positive gap would be in a better position than an institution with a negative gap to invest in higher yielding assets or to have its asset yields adjusted upward, which would cause the yield on its assets to increase at a faster pace than the cost of its interest-bearing liabilities. During a period of falling interest rates, however, an institution with a positive gap would tend to have its assets reprice at a faster rate than one with a negative gap, which would tend to reduce the growth in its net interest income.

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~~Banking Business~~

The following table sets forth the amounts of interest earning assets and interest bearing liabilities that were outstanding at December 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
December 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 $ 1,110,306 $ — $ — $ — $ 1,110,306
Securities1
217,215 1,539 9,289 10,261 238,304
Stock of the regulatory agencies 17,250 — — — 17,250
Loans and leases—net of allowance for credit loss 7,128,762 1,434,246 3,101,261 36,263 11,700,532
Loans held for sale 78,056 — — — 78,056
Total interest-earning assets 8,551,589 1,435,785 3,110,550 46,524 13,144,448
Non-interest earning assets — — — — 156,716
Total assets $ 8,551,589 $ 1,435,785 $ 3,110,550 $ 46,524 $ 13,301,164
Interest-bearing liabilities:
Interest-bearing deposits $ 6,953,237 $ 1,812,506 $ 633,434 $ 40,385 $ 9,439,562
Advances from the FHLB 15,000 10,000 97,500 60,000 182,500
Borrowings, subordinated notes and debentures 229,465 — — 14,000 243,465
Total interest-bearing liabilities 7,197,702 1,822,506 730,934 114,385 9,865,527
Other non-interest-bearing liabilities — — — — 2,231,480
Stockholders’ equity — — — — 1,204,157
Total liabilities and equity $ 7,197,702 $ 1,822,506 $ 730,934 $ 114,385 $ 13,301,164
Net interest rate sensitivity gap $ 1,353,887 $ (386,721) $ 2,379,616 $ (67,861) $ 3,278,921
Cumulative gap $ 1,353,887 $ 967,166 $ 3,346,782 $ 3,278,921 $ 3,278,921
Net interest rate sensitivity gap—as a % of total interest earning assets 10.30 % (2.94) % 18.10 % (0.52) % 24.95 %
Cumulative gap—as % of total interest earning assets 10.30 % 7.36 % 25.46 % 24.95 % 24.95 %

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 December 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 December 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 $ 558,304 10.2 % $ 509,509 7.8 %
Base $ 506,591 — % $ 472,526 — %
Down 100 basis points $ 505,061 (0.3) % $ 474,617 0.4 %

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 December 31, 2020
(Dollars in thousands) Net
Present Value Percentage Change from Base Net
Present
Value as a
Percentage
of Assets
Up 300 basis points $ 1,506,763 6.8 % 11.2 %
Up 200 basis points $ 1,502,689 6.6 % 11.0 %
Up 100 basis points $ 1,454,314 3.1 % 10.6 %
Base $ 1,410,291 — % 10.2 %
Down 100 basis points $ 1,271,148 (9.9) % 9.1 %

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

For the three months ended December 31, 2021, our Securities Business segment had a loss before taxes of $0.7 million compared to a loss before taxes of $0.5 million for the three months ended December 31, 2020. For the six months ended

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December 31, 2021, our Securities Business segment had a loss before taxes of $0.7 million compared to a loss before taxes of $1.2 million for the six months ended December 31, 2020.

Selected information concerning the Securities segment follows as of and for the three months ended:


	December 31,
(Dollars in thousands)	2021			2020
Compensation as a % of net revenue	39.9		%	33.2		%
FDIC insured program balances (end of period)	$	2,216,939		$	772,801
Customer margin balances (end of period)	$	328,607		$	231,189
Customer funds on deposit, including short credits (end of period)	$	259,626		$	313,297

Clearing:
Total tickets	2,113,270			1,314,534
Correspondents (end of period)	68			63

Securities lending:
Interest-earning assets – stock borrowed (end of period)	$	534,243		$	317,571
Interest-bearing liabilities – stock loaned (end of period)	$	578,762		$	362,170

FINANCIAL CONDITION

Balance Sheet Analysis

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Loans

The following table sets forth the composition of the loan portfolio as of the dates indicated:


	December 31, 2021				June 30, 2021
(Dollars in thousands)	Amount		Percent		Amount		Percent
Single Family - Mortgage & Warehouse	$	4,281,646	33.5	%	$	4,359,472	37.8	%
Multifamily and Commercial Mortgage	2,483,932		19.5	%	2,470,454		21.4	%
Commercial Real Estate	3,857,367		30.2	%	3,180,453		27.5	%
Commercial & Industrial - Non-RE	1,631,811		12.8	%	1,123,869		9.7	%
Auto & Consumer	478,636		3.8	%	362,180		3.1	%
Other	22,282		0.2	%	58,316		0.5	%
Total gross loans	12,755,674		100.0	%	11,554,744		100.0	%
Allowance for credit losses - loans	(140,489)				(132,958)
Unaccreted discounts and loan fees	(8,006)				(6,972)
Total net loans	$	12,607,179			$	11,414,814

Asset Quality and Allowance for Loan and Lease Losses

Non-performing Assets

Non-performing loans are comprised of loans past due 90 days or more on nonaccrual status and other nonaccrual loans. Non-performing assets include non-performing loans plus other real estate owned and repossessed vehicles. At December 31, 2021, our non-performing loans totaled $145.9 million, or 1.14% of total gross loans and our non-performing loans and foreclosed assets or “non-performing assets” totaled $146.2 million, or 0.94% of total assets.

Non-performing assets consisted of the following as of the dates indicated:


(Dollars in thousands)	December 31, 2021			June 30, 2021			Inc (Dec)
Non-performing assets:
Non-accrual loans and leases:
Single Family - Mortgage & Warehouse	$	122,326		$	105,708		$	16,618
Multifamily and Commercial Mortgage	7,688			20,428			(12,740)
Commercial Real Estate	15,244			15,839			(595)
Commercial & Industrial - Non-RE	—			2,942			(2,942)
Auto & Consumer	620			278			342
Other	55			—			55
Total non-performing loans	145,933			145,195			738
Foreclosed real estate	—			6,547			(6,547)
Repossessed—Auto and RV	251			235			16
Total non-performing assets	$	146,184		$	151,977		$	(5,793)
Total non-performing loans as a percentage of total loans	1.14		%	1.26		%	(0.12)		%
Total non-performing assets as a percentage of total assets	0.94		%	1.07		%	(0.13)		%

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Allowance for Credit Losses - Loans

On July 1, 2020, the Company adopted ASC 326. The update replaces the historical incurred loss model to a current expected loss model, resulting, generally, in earlier recognition of loss. Refer to Note 1 - Summary of Significant Accounting Policies in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021 for greater detail on the accounting adoption along with detail of the processes and approaches involved in determining the allowance for credit losses under the new guidance.

The following table reflects management’s allocation of the allowance for credit losses - loans by loan category and the ratio of each loan category to total loans as of the dates indicated:


	December 31, 2021				June 30, 2021
(Dollars in thousands)	Amount of Allowance		Allocation as a % of Allowance		Amount of Allowance		Allocation as a % of Allowance
Single Family Real Estate	$	25,580	18.2	%	$	26,604	20.0	%
Multifamily Real Estate	13,628		9.7	%	13,146		9.9	%
Commercial Real Estate	67,581		48.0	%	57,928		43.6	%
Commercial and Industrial - Non-RE	22,716		16.2	%	28,460		21.4	%
Consumer and Auto	10,921		7.8	%	6,519		4.9	%
Other	63		0.1	%	301		0.2	%
Total	$	140,489	100.0	%	$	132,958	100.0	%

Investment Securities

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Deposits

The following table sets forth the composition of the deposit portfolio as of the dates indicated:


	December 31, 2021				June 30, 2021
(Dollars in thousands)	Amount		Rate1		Amount		Rate1
Non-interest bearing	$	3,847,461	—	%	$	2,474,424	—	%
Interest bearing:
Demand	3,620,686		0.16	%	3,369,845		0.15	%
Savings	3,514,610		0.23	%	3,458,687		0.21	%
Total interest-bearing demand and savings	7,135,296		0.20	%	6,828,532		0.18	%
Time deposits:
$250 and under2	877,488		1.26	%	1,070,139		1.30	%
Greater than $250	408,927		0.45	%	442,702		1.03	%
Total time deposits	1,286,415		1.01	%	1,512,841		1.22	%
Total interest bearing2	8,421,711		0.32	%	8,341,373		0.37	%
Total deposits	$	12,269,172	0.22	%	$	10,815,797	0.29	%

1 Based on weighted-average stated interest rates at end of period.

The following table sets forth the number of deposit accounts by type as of the date indicated:


	December 31, 2021	June 30, 2021	December 31, 2020
Non-interest bearing, prepaid and other	39,698	36,726	30,068
Checking and savings accounts	342,127	336,068	314,145
Time deposits	10,234	12,815	15,797
Total number of deposit accounts	392,059	385,609	360,010

Borrowings

The following table sets forth the composition of our borrowings and the interest rates at the dates indicated:


	December 31, 2021				June 30, 2021				December 31, 2020
(Dollars in thousands)	Balance		Weighted Average Rate		Balance		Weighted Average Rate		Balance		Weighted Average Rate

FHLB Advances	$157,500		2.29	%	$353,500		1.18	%	$182,500		2.21	%
Borrowings, subordinated notes and debentures	260,435		4.37	%	221,358		4.68 %		418,480		3.45	%
Total borrowings	$417,935		3.59	%	$574,858		0.73	%	$600,980		3.07	%

Weighted average cost of borrowings during the quarter	2.64	%			2.93	%			2.97	%
Borrowings as a percent of total assets	2.69	%			4.03	%			4.18	%

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Stockholders’ Equity

LIQUIDITY

Cash flow information is as follows:


	For the Six Months Ended
	December 31,
(Dollars in thousands)	2021		2020
Operating Activities	$	(76,773)	$	284,417
Investing Activities	$	(1,132,694)	$	(1,015,293)
Financing Activities	$	1,290,048	$	223,552

Net cash outflows from investing activities totaled $1,132.7 million for the six months ended December 31, 2021, while outflows totaled $1,015.3 million for the six months ended December 31, 2020. The increase in outflows was primarily due to increased originations of loans partially offset by increased repayments on loans and the $54.8 million acquisition of AAS.

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OFF-BALANCE SHEET COMMITMENTS

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 December 31, 2021, reflects the Basel III capital requirements that became effective January 1, 2015 for both our Company and Bank. Under these capital requirements and the regulatory framework for prompt corrective action, our Company and Bank must meet specific capital guidelines that involve quantitative measures of our Company and Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Our Company’s and Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors.

Quantitative measures established by regulation require our Company and Bank to maintain certain minimum capital amounts and ratios. Federal bank regulators require our Company and Bank maintain minimum ratios of core capital to adjusted average assets of 4.0%, common equity tier 1 capital to risk-weighted assets of 4.5%, tier 1 capital to risk-weighted assets of 6.0% and total risk-based capital to risk-weighted assets of 8.0%. To be “well capitalized,” our Company and Bank must maintain minimum leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios of at least 5.0%, 6.5%, 8.0% and 10.0%, respectively. At December 31, 2021, our Company and Bank met all the capital adequacy requirements to which they were subject and were “well capitalized” under the regulatory framework for prompt corrective action. Management believes that no conditions or events have occurred since December 31, 2021 that would materially adversely change the Company’s and Bank’s capital classifications. From time to time, we may need to raise additional capital to support our Company’s and Bank’s further growth and to maintain their “well capitalized” status.

The Company and Bank elected the CECL 5-year transition guidance for calculating regulatory capital ratios and the December 31, 2021 ratios include this election. This guidance allows an entity to add back to capital 100% of the capital impact from the day one CECL transition adjustment and 25% of subsequent increases to the allowance for credit losses through June 30, 2023. This cumulative amount will then be phased out of regulatory capital over the next three years.

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The Company’s and Bank’s estimated capital amounts, capital ratios and capital requirements under Basel III were as follows:


	Axos Financial, Inc.						Axos Bank						“Well Capitalized” Ratio		Minimum Capital Ratio
(Dollars in millions)	December 31, 2021			June 30, 2021			December 31, 2021			June 30, 2021
Regulatory Capital:
Tier 1	$	1,390		$	1,309		$	1,366		$	1,263
Common equity tier 1	$	1,390		$	1,309		$	1,366		$	1,263
Total capital (to risk-weighted assets)	$	1,676		$	1,588		$	1,469		$	1,358

Assets:
Average adjusted	$	14,755		$	14,851		$	13,491		$	13,360
Total risk-weighted	$	13,781		$	11,523		$	12,523		$	10,283

Regulatory Capital Ratios:
Tier 1 leverage (core) capital to adjusted average assets	9.42		%	8.82		%	10.13		%	9.45		%	5.00	%	4.00	%
Common equity tier 1 capital (to risk-weighted assets)	10.08		%	11.36		%	10.91		%	12.28		%	6.50	%	4.50	%
Tier 1 capital (to risk-weighted assets)	10.08		%	11.36		%	10.91		%	12.28		%	8.00	%	6.00	%
Total capital (to risk-weighted assets)	12.16		%	13.78		%	11.73		%	13.21		%	10.00	%	8.00	%

Basel III implemented a requirement for all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively composed of common equity tier 1 capital, and it applies to each of the three risk-based capital ratios but not the leverage ratio. At December 31, 2021, our Company and Bank are in compliance with the capital conservation buffer requirement, which sets the common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratio minimums to 7.0%, 8.5% and 10.5%, respectively.

Securities Business

Pursuant to the net capital requirements of the Exchange Act, Axos Clearing, is subject to the SEC Uniform Net Capital (Rule 15c3-1 of the Exchange Act). Under this rule, the Company has elected to operate under the alternate method and is required to maintain minimum net capital of $250,000 or 2% of aggregate debit balances arising from client transactions, as defined. Under the alternate method, the Company may not repay subordinated debt, pay cash distributions, or make any unsecured advances or loans to its parent or employees if such payment would result in net capital of less than 5% of aggregate debit balances or less than 120% of its minimum dollar requirement.

The net capital positions of Axos Clearing were as follows:


(Dollars in thousands)	December 31, 2021			June 30, 2021
Net capital	$	39,453		$	35,950
Excess Capital	$	32,171		$	27,904

Net capital as a percentage of aggregate debit items	10.84		%	8.94		%
Net capital in excess of 5% aggregate debit items	$	21,249		$	15,836

Axos Clearing as a clearing broker, is subject to SEC Customer Protection Rule (Rule 15c3-3 of the Exchange Act) which requires segregation of funds in a special reserve account for the benefit of customers. At December 31, 2021, the Company had a deposit requirement of $224.1 million and maintained a deposit of $213.1 million. On January 3, 2022, the company made a deposit of $11.0 million.

Certain broker-dealers have chosen to maintain brokerage customer accounts at Axos Clearing. To allow these broker-dealers to classify their assets held by the Company as allowable assets in their computation of net capital, the Company computes a separate reserve requirement for Proprietary Accounts of Brokers (PAB). At December 31, 2021, the Company had a deposit requirement of $44.0 million and maintained a deposit of $46.5 million. On January 3, 2022, the Company made a withdrawal in the amount of $2.5 million.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Banking Business

The following table sets forth the amounts of interest earning assets and interest bearing liabilities that were outstanding at December 31, 2021 and the portions of each financial instrument that are expected to mature or reset interest rates in each future period:


	Term to Repricing, Repayment, or Maturity at
	December 31, 2021
(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	$	821,648		$	—		$	—		$	—		$	821,648
Securities1	130,742			1,909			13,642			17,964			164,257
Stock of the FHLB, at cost	17,250			—			—			—			17,250
Loans—net of allowance for credit loss	8,301,727			1,547,387			2,785,738			73,714			12,708,566
Loans held for sale	38,874			—			—			—			38,874
Total interest-earning assets	9,310,241			1,549,296			2,799,380			91,678			13,750,595
Non-interest earning assets	—			—			—			—			296,486
Total assets	$	9,310,241		$	1,549,296		$	2,799,380		$	91,678		$	14,047,081
Interest-bearing liabilities:
Interest-bearing deposits	$	6,513,865		$	1,476,260		$	467,701		$	(1,536)		$	8,456,290

Advances from the FHLB	40,000			17,500			40,000			60,000			157,500

Total interest-bearing liabilities	6,553,865			1,493,760			507,701			58,464			8,613,790
Other non-interest-bearing liabilities	—			—			—			—			4,037,553
Stockholders’ equity	—			—			—			—			1,395,738
Total liabilities and equity	$	6,553,865		$	1,493,760		$	507,701		$	58,464		$	14,047,081
Net interest rate sensitivity gap	$	2,756,376		$	55,536		$	2,291,679		$	33,214		$	5,136,805
Cumulative gap	$	2,756,376		$	2,811,912		$	5,103,591		$	5,136,805		$	5,136,805
Net interest rate sensitivity gap—as a % of total interest earning assets	20.05		%	0.40		%	16.67		%	0.24		%	37.36		%
Cumulative gap—as % of total interest earning assets	20.05		%	20.45		%	37.12		%	37.36		%	37.36		%

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 December 31, 2021 on the basis of contractual maturities, adjusted for anticipated prepayments of principal and scheduled rate adjustments. The loan and securities prepayment rates reflected herein are based on historical experience. For the non-maturity deposit liabilities, we use decay rates and rate adjustments based upon our historical experience. Actual repayments of these instruments could vary substantially if future experience differs from our historic experience.

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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.


	As of December 31, 2021
	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	$	602,020	8.8	%	$	594,198	9.1	%
Base	$	553,393	—	%	$	544,390	—	%
Down 100 basis points	$	543,760	(1.7)	%	$	527,446	(3.1)	%

The following table indicates the sensitivity of market value of equity to the interest rate movement described above:


	As of December 31, 2021
(Dollars in thousands)	Net Present Value		Percentage Change from Base		Net Present Value as a Percentage of Assets
Up 300 basis points	$	1,527,926	(0.8)	%	11.0	%
Up 200 basis points	$	1,588,960	3.2	%	11.3	%
Up 100 basis points	$	1,585,104	2.9	%	11.2	%
Base	$	1,540,147	—	%	10.8	%
Down 100 basis points	$	1,339,206	(13.0)	%	9.3	%

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 December 31, 2020, Axos Clearing held municipal obligations, these positions were classified as trading securities and had maturities greater than 10 years.~~

Our Securities Business is engaged in various brokerage and trading activities that expose us to credit risk arising from potential non-performance from counterparties, customers or issuers of securities. This risk is managed by setting and

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monitoring position limits for each counterparty, conducting periodic credit reviews of counterparties, reviewing concentrations of securities and conducting business through central clearing organizations.

Collateral underlying margin loans to customers and correspondents and with respect to securities lending activities is marked to market daily and additional collateral is required as necessary.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

~~For quantitative and qualitative disclosures regarding market risks in our portfolio, see,~~See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk.”

ITEM 4.CONTROLS AND PROCEDURES

The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation, our Chief Executive Officer along with our Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Beginning July 1, 2020, the Company adopted ASC 326. As a result, the Company made changes to and incorporated new policies, processes and controls over the estimation of the allowance for credit losses. These changes were not undertaken in response to any identified deficiency in the Company’s internal control over financial reporting. There have been no other changes in the Company’s internal control.

Management, including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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PART II—OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

The information set forth in Note 8 – “Commitments And Contingencies” to the Unaudited Condensed Consolidated Financial Statements is incorporated herein by reference.

In addition, from time to time we may be a party to other claims or litigation that arise in the ordinary course of business, such as claims to enforce liens, claims involving the origination and servicing of loans, and other issues related to the business of the Bank. None of such matters are expected to have a material adverse effect on the Company’s financial condition, results of operations or business.

ITEM 1A.RISK FACTORS

We face a variety of risks that are inherent in our business and our industry. These risks are described in more detail under Part 1, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, ~~2020.~~2021. We encourage you to read these factors in their entirety. Moreover, other factors may also exist that we cannot anticipate or that we currently do not consider to be significant based on information that is currently available.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The table below sets forth our market repurchases of Axos common stock and the Axos common shares retained in connection with net settlement of restricted stock awards during the quarter ended December 31, ~~2020.~~2021.

(Dollars in thousands, except per share data) Number
of Shares
Purchased Average Price
Paid Per Shares Total Number of
Shares
Purchased as Part of Publicly Announced
Plans or Programs Approximate Dollar value of
Shares that May
Yet be Purchased
Under the Plans
or Programs
Stock Repurchases1
Quarter Ended December 31, 2020
October 1, 2020 to October 31, 2020 171,348 $ 23.43 171,348 $ 52,764
November 1, 2020 to November 30, 2020 — $ — — $ —
December 1, 2020 to December 31, 2020 — $ — — $ —
For the Three Months Ended December 31, 2020 171,348 $ 23.43 171,348 $ 52,764
Stock Retained in Net Settlement2
October 1, 2020 to October 31, 2020 1,294
November 1, 2020 to November 30, 2020 325
December 1, 2020 to December 31, 2020 15,874
For the Three Months Ended December 31, 2020 17,493


(Dollars in thousands, except per share data)	Number of Shares Purchased	Average Price Paid Per Shares		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar value of Shares that May Yet be Purchased Under the Plans or Programs
Stock Repurchases1
Quarter Ended December 31, 2021
October 1, 2021 to October 31, 2021	—	$	—	—	$	—
November 1, 2021 to November 30, 2021	—	$	—	—	$	—
December 1, 2021 to December 31, 2021	—	$	—	—	$	—
For the Three Months Ended December 31, 2021	—	$	—	—	$	52,764

Stock Retained in Net Settlement2
October 1, 2021 to October 31, 2021	866
November 1, 2021 to November 30, 2021	556
December 1, 2021 to December 31, 2021	856
For the Three Months Ended December 31, 2021	2,278

1 On March 17, 2016, the Board of Directors of the Company authorized a program to repurchase up to $100 million of common stock and extended the program by an additional $100 million on August 2, 2019. The share repurchase program will continue in effect until terminated by the Board of Directors of the Company. ~~Purchases were made in open-market transactions.~~

2 ~~In October 2019, the stockholders~~Consists of ~~the Company approved~~shares withheld from settlement of equity awards under the amended and restated ~~the~~ 2014 Stock Incentive Plan ~~which among other changes permitted net settlement of stock issuances~~ related to ~~equity awards for purposes of payment of a grantee’s minimum income~~ tax ~~obligation. Stock Retained in Net Settlement was at the vesting price of the~~obligations associated ~~restricted stock unit~~with settlement.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

~~None.~~Not applicable.

~~ITEM 5. OTHER INFORMATION~~

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On January 25, 2021, the Company filed a Certificate of Elimination with the Secretary of the State of Delaware eliminating from the Certificate of Incorporation all matters set forth in the Certificate of Designations with respect to its Series A - 6% Cumulative Nonparticipating Perpetual Preferred Stock Convertible through January 2009 (the “Series A Preferred Stock”). No shares of the Series A Preferred Stock were outstanding at the time of the filing of the Certificate of Elimination and all outstanding shares of the Series A Preferred Stock were redeemed on October 30, 2020. The Certificate of Elimination was effective on filing and related to the Series A Preferred Stock is attached as Exhibit 3.1.8 to this Quarterly Report on Form 10-Q.ITEM 5. OTHER INFORMATION

None.

ITEM 6.EXHIBITS


Exhibit Number	Description	Incorporated By Reference to

~~3.1.8~~10.1	~~Certificate of Elimination relating to the Series A - 6% Cumulative Nonparticipating Perpetual Preferred~~Amended and Restated 2014 Stock ~~Convertible through January 2009, filed with the Delaware Secretary of State on January 25, 2021.~~Incentive Plan	Filed herewith.

~~4.1~~	~~Indenture, dated as of March 3, 2016, between Axos Financial, Inc. and U.S. Bank National Association, as trustee~~	~~Exhibit 4.1 to the Current Report on 8-K filed on September 18, 2020.~~

~~4.2~~	Second Supplemental Indenture, dated as of September 18, 2020, between Axos Financial, Inc. and U.S. Bank National Association, as trustee	~~Exhibit 4.2 to the Current Report on 8-K filed on September 18, 2020.~~

~~4.3~~	~~Form of Global Note to represent the 4.875% Fixed-to-Floating Rate Subordinated Notes due 2030 of Axos Financial, Inc.~~	~~Exhibit 4.3 to the Current Report on 8-K filed on September 18, 2020.~~

31.1	Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith.

31.2	Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith.

32.1	Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith.

32.2	Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith.

~~101.SCH~~	~~XBRL Taxonomy Extension Schema Document~~	~~Filed herewith.~~

~~101.CAL~~	~~XBRL Taxonomy Calculation Linkbase Document~~	~~Filed herewith.~~

~~101.LAB~~	~~XBRL Taxonomy Label Linkbase Document~~	~~Filed herewith.~~

~~101.PRE~~	~~XBRL Taxonomy Presentation Linkbase Document~~	~~Filed herewith.~~

~~101.DEF~~	~~XBRL Taxonomy Definition Document~~	~~Filed herewith.~~

101.INS	Inline XBRL Instance Document	The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

101.SCH	Inline XBRL Taxonomy Extension Schema Document	Filed herewith.

101.CAL	Inline XBRL Taxonomy Calculation Linkbase Document	Filed herewith.

101.LAB	Inline XBRL Taxonomy Label Linkbase Document	Filed herewith.

101.PRE	Inline XBRL Taxonomy Presentation Linkbase Document	Filed herewith.

101.DEF	Inline XBRL Taxonomy Definition Document	Filed herewith.

104	Cover Page Interactive Data File	Formatted as Inline XBRL and contained in Exhibit 101

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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Axos Financial, Inc.

Dated:

January ~~28, 2021~~27, 2022

By:

/s/ Gregory Garrabrants

Gregory Garrabrants
President and Chief Executive Officer
(Principal Executive Officer)

Dated:

January ~~28, 2021~~27, 2022

By:

/s/ ~~Andrew J. Micheletti~~Derrick K. Walsh

~~Andrew J. Micheletti~~Derrick K. Walsh
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

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Loans and Leases - Carrying Amount
(Dollars in thousands)	Single Family Real Estate Secured - Mortgage	Single Family Real Estate Secured - Warehouse	Single Family Real Estate Secured - Financing	Multifamily Real Estate Secured - Mortgage and Financing	Commercial Real Estate - Mortgage	Commercial & Industrial	Auto & RV - Secured	Other	Total
Balance July 1, 2020 Pre-ASC 326 Adoption	$4,244,563	$474,318	$682,477	$2,303,216	$371,176	$2,094,322	$291,452	$241,918	$10,703,442
Commercial Real Estate - Mortgage to Multifamily and Commercial Mortgage	—	—	—	371,176	(371,176)	—	—	—	—
Multifamily and Single Family Financing loans to Commercial Real Estate	—	—	(679,054)	(411,338)	1,090,392	—	—	—	—
Real estate secured Commercial & Industrial to Commercial Real Estate	—	—	—	—	1,207,528	(1,207,528)	—	—	—
Unsecured Consumer loans to Auto & Consumer	—	—	—	—	—	—	49,913	(49,913)	—
Single Family Warehouse and Mortgage combined	477,741	(474,318)	(3,423)	—	—	—	—	—	—
Other reclassifications	—	—	—	—	—	(1,474)	—	1,474	—
Balance July 1, 2020 Post ASC 326 Adoption	$4,722,304	$—	$—	$2,263,054	$2,297,920	$885,320	$341,365	$193,479	$10,703,442
Loan Category Post-ASC 326 Adoption	Single Family - Mortgage & Warehouse	N/A	N/A	Multifamily and Commercial Mortgage	Commercial Real Estate	Commercial & Industrial - Non RE	Auto & Consumer	Other	Total


	Three Months Ended December 31, 2019
(Dollars in thousands)	Allowance for Credit Losses - Loans		Unfunded Loan Commitment Liabilities		Total Allowance for Credit Losses
Balance at October 1, 2019	$	59,227	$	227	$	59,454
Provision for Credit Losses	4,500		17		4,517

Charge-offs	(5,386)		0		(5,386)
Recoveries	1,173		0		1,173
Balance at December 31, 2019	$	59,514	$	244	$	59,758