Axos Financial 10Q 2025 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, 2024


☐			TRANSITION REPORT 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, 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

__________________________________________________________________________________________

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: 57,092,434 shares of common stock, $0.01 par value per share, as of October 18, 2024.

Table of Contents

AXOS FINANCIAL, INC.

INDEX


			Page
PART I – FINANCIAL INFORMATION			1

ITEM 1. FINANCIAL STATEMENTS			1
Condensed Consolidated Balance Sheets (unaudited)			1
Condensed Consolidated Statements of Income (unaudited)			2
Condensed Consolidated Statements of Comprehensive Income (unaudited)			3
Condensed Consolidated Statements of Stockholders’ Equity (unaudited)			4
Condensed Consolidated Statements of Cash Flows (unaudited)			5
Notes to Condensed Consolidated Financial Statements (unaudited)			6
1. Summary of Significant Accounting Policies			6
2. Fair Value			8
3. Available-for-Sale Securities			12
4. Loans & Allowance for Credit Losses			14
5. Derivatives			19
6. Offsetting of Derivatives and Securities Financing Agreements			20
7. Stockholders’ Equity and Stock-Based Compensation			21
8. Earnings per Common Share			22
9. Commitments and Contingencies			23
10. Segment Reporting and Revenue Information			24
11. Borrowings, Subordinated Notes and Debentures			25
12. Other Assets			25

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			26
SELECTED FINANCIAL INFORMATION			29
RESULTS OF OPERATIONS			31
SEGMENT RESULTS			34
FINANCIAL CONDITION			35
LIQUIDITY			39

CAPITAL RESOURCES AND REQUIREMENTS			40


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			42

ITEM 4. CONTROLS AND PROCEDURES			45

PART II – OTHER INFORMATION			46

ITEM 1. LEGAL PROCEEDINGS			46

ITEM 1A. RISK FACTORS			46

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES			46

ITEM 3. DEFAULTS UPON SENIOR SECURITIES			46

ITEM 4. MINE SAFETY DISCLOSURES			46

ITEM 5. OTHER INFORMATION			46

ITEM 6. EXHIBITS			47

SIGNATURES			48

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PART I – FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

AXOS FINANCIAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(Dollars in thousands, except par value)	September 30, 2024		June 30, 2024
ASSETS
Cash and cash equivalents	$	2,570,506	$	1,979,979
Restricted cash	233,350		205,797
Total cash, cash equivalents and restricted cash	2,803,856		2,185,776
Trading securities	594		353
Available-for-sale securities	137,996		141,611
Stock of regulatory agencies	34,417		21,957
Loans held for sale, carried at fair value	14,566		16,482

Loans—net of allowance for credit losses of $263,854 as of September 30, 2024 and $260,542 as of June 30, 2024	19,280,609		19,231,385
Servicing rights, carried at fair value	27,335		28,924
Securities borrowed	84,326		67,212
Customer, broker-dealer and clearing receivables	262,774		240,028
Goodwill and other intangible assets—net	139,215		141,769
Other assets	783,396		779,837
TOTAL ASSETS	$	23,569,084	$	22,855,334

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest-bearing	$	3,055,605	$	2,975,631
Interest bearing	16,917,724		16,383,586
Total deposits	19,973,329		19,359,217
Advances from the Federal Home Loan Bank	90,000		90,000
Borrowings, subordinated notes and debentures	313,519		325,679
Securities loaned	95,883		74,177
Customer, broker-dealer and clearing payables	315,985		301,127
Accounts payable and other liabilities	374,640		414,538
Total liabilities	21,163,356		20,564,738
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS’ EQUITY:
Common stock—$0.01 par value; 150,000,000 shares authorized; 70,562,333 shares issued and 57,092,216 shares outstanding as of September 30, 2024; 70,221,632 shares issued and 56,894,565 shares outstanding as of June 30, 2024	706		702
Additional paid-in capital	520,795		510,232
Accumulated other comprehensive income (loss)—net of income tax	(765)		(2,466)
Retained earnings	2,297,957		2,185,617
Treasury stock, at cost; 13,470,117 shares as of September 30, 2024 and 13,327,067 shares as of June 30, 2024	(412,965)		(403,489)
Total stockholders’ equity	2,405,728		2,290,596
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	23,569,084	$	22,855,334

See accompanying notes to the condensed consolidated financial statements.

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AXOS FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended
	September 30,
(Dollars in thousands, except earnings per common share)		2024		2023
INTEREST AND DIVIDEND INCOME:
Loans, including fees		$	438,229	$	326,974
Securities borrowed and customer receivables		6,271		4,995
Investments and other		39,762		31,983
Total interest and dividend income		484,262		363,952
INTEREST EXPENSE:
Deposits		187,269		146,110
Advances from the Federal Home Loan Bank		529		529
Securities loaned		540		449
Other borrowings		3,876		5,709
Total interest expense		192,214		152,797
Net interest income		292,048		211,155
Provision for credit losses		14,000		7,000
Net interest income, after provision for credit losses		278,048		204,155
NON-INTEREST INCOME:
Broker-dealer fee income		11,060		12,477
Advisory fee income		7,945		8,219
Banking and service fees		8,613		8,350
Mortgage banking and servicing rights income		450		3,878
Prepayment penalty fee income		541		1,583

Total non-interest income		28,609		34,507
NON-INTEREST EXPENSE:
Salaries and related costs		74,293		55,811
Data and operational processing		18,985		16,084
Depreciation and amortization		7,450		5,878
Advertising and promotional		14,253		10,375
Professional services		9,895		9,811
Occupancy and equipment		4,318		3,846
FDIC and regulatory fees		5,956		4,449
Broker-dealer clearing charges		4,307		4,012
General and administrative expense		8,008		10,240
Total non-interest expense		147,465		120,506
INCOME BEFORE INCOME TAXES		159,192		118,156
INCOME TAXES		46,852		35,511
NET INCOME		$	112,340	$	82,645

Basic earnings per common share		$	1.97	$	1.40
Diluted earnings per common share		$	1.93	$	1.38

See accompanying notes to the condensed consolidated financial statements.

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AXOS FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended
	September 30,
(Dollars in thousands)		2024		2023
NET INCOME		$	112,340	$	82,645
Net unrealized gain (loss) from available-for-sale securities, net of income tax		1,319		222
Net unrealized gain (loss) on cash flow hedges, net of income tax		382		—
Other comprehensive income (loss)		1,701		222
COMPREHENSIVE INCOME		$	114,041	$	82,867

See accompanying notes to the condensed consolidated financial statements.

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AXOS FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)


			For the Three Months Ended September 30, 2024
	Common Stock					Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss), Net of Income Tax		Retained Earnings		Treasury Stock		Total
		Number of Shares
(Dollars in thousands)			Issued	Treasury	Outstanding											Amount
BALANCE—June 30, 2024			70,221,632	(13,327,067)	56,894,565	$	702	$	510,232	$	(2,466)	$	2,185,617	$	(403,489)		$	2,290,596
Net income			—	—	—	—		—		—		112,340		—			112,340
Other comprehensive income (loss)			—	—	—	—		—		1,701		—		—			1,701

Stock-based compensation activity			340,701	(143,050)	197,651	4		10,563		—		—		(9,476)			1,091
BALANCE—September 30, 2024			70,562,333	(13,470,117)	57,092,216	$	706	$	520,795	$	(765)	$	2,297,957	$	(412,965)		$	2,405,728


			For the Three Months Ended September 30, 2023
	Common Stock					Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss), Net of Income Tax		Retained Earnings		Treasury Stock		Total
		Number of Shares
(Dollars in thousands)			Issued	Treasury	Outstanding											Amount
BALANCE—June 30, 2023			69,465,446	(10,522,411)	58,943,035	$	695	$	479,878	$	(6,610)	$	1,735,609	$	(292,413)		$	1,917,159
Net income			—	—	—	—		—		—		82,645		—			82,645
Other comprehensive income (loss)			—	—	—	—		—		222		—		—			222
Purchase of treasury stock			—	(648,208)	(648,208)	—		—		—		—		(24,536)			(24,536)
Stock-based compensation activity			360,817	(151,668)	209,149	3		6,798		—		—		(6,083)			718
BALANCE—September 30, 2023			69,826,263	(11,322,287)	58,503,976	$	698	$	486,676	$	(6,388)	$	1,818,254	$	(323,032)		$	1,976,208

See accompanying notes to the condensed consolidated financial statements.

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

	Three Months Ended
	September 30,
(Dollars in thousands)	2024		2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	112,340	$	82,645
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	7,450		5,878
Other accretion and amortization	(37,358)		(3,101)
Stock-based compensation expense	10,239		6,802
Trading activity	(241)		118
Provision for credit losses	14,000		7,000
Deferred income taxes	464		3,526
Origination of loans held for sale	(69,570)		(50,607)
Unrealized and realized gains on loans held for sale	(2,881)		(1,796)
Proceeds from sale of loans held for sale	74,532		65,138
Change in the fair value of servicing rights	1,765		(3,448)

Gain on repurchase of subordinated notes	(604)		—








Net change in assets and liabilities which provide (use) cash:
Securities borrowed	(17,114)		37,915
Customer, broker-dealer and clearing receivables	(22,746)		88,651
Other Assets	4,243		(86,716)
Securities loaned	21,706		(43,386)
Customer, broker-dealer and clearing payables	14,858		(103,562)
Accounts payable and other liabilities	(40,295)		29,130



Net cash provided by operating activities	70,788		34,187
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities	(16,000)		(4,796)
Proceeds from sale and repayment of available-for-sale securities	21,564		718
Purchase of stock of regulatory agencies	(12,446)		—

Net change in loans held for investment	(48,333)		(444,421)
Proceeds from sale of loans originally classified as held for investment	27,800		—
Proceeds from sale of other real estate owned and repossessed assets	2,202		918


Purchase of loans and leases, net of discounts and premiums	—		(51,892)
Purchases of furniture, equipment, software and intangibles	(17,770)		(6,492)
Purchases of other investments	(2,558)		(910)
Distributions received from other investments	—		593



Net cash used in investing activities	(45,541)		(506,282)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits	614,112		442,633


Net (repayment) proceeds of other borrowings	—		85,700
Payments related to settlement of restricted stock units	(9,476)		(6,083)
Purchase of treasury stock	—		(18,472)
Repurchase of subordinated notes	(11,803)		—













Net cash provided by financing activities	592,833		503,778

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	618,080		31,683
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of year	$	2,185,776	$	2,382,086
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period	$	2,803,856	$	2,413,769
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid on interest-bearing liabilities	192,306		152,359
Income taxes paid	40,158		52,664
Transfers to other real estate and repossessed vehicles from loans held for investment	585		1,847
Transfers from loans held for investment to loans held for sale	28,140		2,783

Operating lease liabilities from obtaining right of use assets	212		—

See accompanying notes to the condensed consolidated financial statements.

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AXOS FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 2024 AND 2023

(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The condensed consolidated financial statements include the accounts of Axos Financial, Inc. and its wholly owned subsidiaries (“Axos” or the “Company”). Axos Bank (the “Bank”), its wholly owned subsidiaries, and the activities of two lending-related trust entities constitute the Banking Business Segment, and Axos Securities, LLC and its wholly owned subsidiaries constitute the Securities Business Segment. All significant intercompany balances and transactions have been eliminated in consolidation. The Notes to the Condensed Consolidated Financial Statements are an integral part of the Company’s financial statements. On December 7, 2023, the Company acquired from the Federal Deposit Insurance Corporation (“FDIC”) two loan portfolios with an aggregate unpaid principal balance of $1.3 billion at a 37% discount to par. For additional information on the “FDIC Loan Purchase,” see Note 2—“Acquisitions” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2024 (“2024 Form 10-K”) filed with the Securities and Exchange Commission (“SEC”).

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. Certain amounts reported in prior periods have been reclassified to conform with the current presentation. Results for the three months ended September 30, 2024 are not necessarily indicative of results that may be expected for any other interim period or for the year as a whole. Certain information and note disclosures normally included in the audited annual financial statements prepared in accordance with GAAP have been condensed or not repeated herein pursuant to the rules and regulations of the 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, 2024 included in the 2024 Form 10-K.

Significant Accounting Policies

For further information regarding the Company’s significant accounting policies, see Note 1—“Organizations and Summary of Significant Accounting Policies” in the 2024 Form 10-K. During the three months ended September 30, 2024, there were no significant updates to the Company’s significant accounting policies, other than as noted below and the adoption of the accounting standards noted herein.

Stock of Regulatory Agencies. The Bank is a member of the Federal Home Loan Bank (“FHLB”) system and the Federal Reserve System (the “Federal Reserve”). FHLB members are required to own a certain amount of FHLB stock based on the level of borrowings and other factors while Federal Reserve members are required to own a certain amount of Federal Reserve Bank stock based on the member’s equity capital and surplus. FHLB and Federal Reserve Bank stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Axos Securities, LLC is a member of the Depository Trust & Clearing Corporation (“DTCC”), a financial services company providing clearing and settlement services to the financial markets. Members are required to own a certain amount of DTCC stock based on the clearing levels and other factors. DTCC stock is valued based on information provided by the DTCC, classified as a restricted security, and periodically evaluated for impairment based on the ultimate recovery of carrying value.

Comprehensive Income. Comprehensive income consists of net income and other comprehensive income (“OCI”). OCI includes unrealized gains and losses on available-for-sale securities and gains and losses on derivatives in designated cash flow hedge accounting relationships.

Derivatives. Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as free standing derivatives. The Company enters into forward commitments for the future delivery of mortgage loans when interest rate locks are entered into, in order to economically hedge the change in interest rates resulting from its commitments to fund the loans. Changes in the fair values of these derivatives are included in “Mortgage banking income” on the Consolidated Statements of Income.

The Company makes markets in interest rate swap and cap derivatives to facilitate customer demand. The Company enters into offsetting derivative transactions to offset its interest rate risk associated with this customer transaction activity. The Company acquired as part of the FDIC Loan Purchase certain customer-facing interest rate derivatives and related market-facing derivatives which offset the Company’s interest rate risk. For additional information on these derivatives see Note 2—

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“Acquisitions” in the 2024 Form 10-K and Note 5— “Derivatives.” Changes in the fair values of these derivatives, and related fees, are included in “Banking and service fees” on the Consolidated Statements of Income.

Derivative assets and liabilities are not subject to any counterparty netting and are presented at fair value on a gross basis in “Other assets” and “Accounts payable and other liabilities”, respectively, in the Consolidated Balance Sheets and cash flows related to derivative assets and liabilities are presented in “Net change in assets and liabilities which provide (use) cash - Other Assets” and “Net change in assets and liabilities which provide (use) cash - Accounts payable and other liabilities,” respectively, in the Consolidated Statements of Cash Flows.

The Company applies hedge accounting to certain derivative instruments for interest rate risk management purposes. The Company uses such derivative instruments to hedge forecasted variable cash flows from floating-rate deposits. For designated cash flow hedges, changes in the fair value of the derivatives are initially recorded in OCI and subsequently recognized in earnings once the hedged item affects earnings. Derivative gains and losses reclassified to earnings are recognized in interest expense on the condensed Consolidated Statements of Income, consistent with the hedged floating-rate deposits.

Hedge accounting relationships, including the associated risk management objective and strategy, are formally documented at inception. Additionally, the effectiveness of hedge accounting relationships is monitored throughout the duration of the hedge period. Hedge accounting treatment is discontinued either when the derivative is terminated, when it is determined that a derivative is not expected to be, or has ceased to be, effective as a hedge or if the Company removes the cash flow hedge designation. If a hedge accounting relationship is terminated and the original hedged transaction remains probable to occur, the amount in accumulated other comprehensive income is recognized in earnings on a straight-line basis over the remaining term of the derivative. If the original hedged transaction no longer remains probable to occur, any amount in accumulated other comprehensive income is immediately recognized in income.

New Accounting Standards

Recently Adopted Accounting Standards

On July 1, 2024, the Company adopted Accounting Standards Update (“ASU”) 2023-02 which permits an election, if certain conditions are met, to account for tax equity investments using the proportional amortization method, which was previously limited to low-income housing tax credit (“LIHTC”) investments. As the Company’s tax equity investments solely comprise LIHTC investments accounted for under the proportional amortization method, there was no impact on its financial condition or results of operations upon adoption. For additional information on the Company’s LIHTC investments, see Note 12 – “Other Assets.”

Accounting Standards Issued But Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07 which requires disclosure of significant business segment expenses and a description of the composition of other segment expenses by business segment. The ASU also requires disclosure of the title and position of the chief operating decision maker and an explanation of how the chief operating decision maker uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources. This standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company does not expect any impact on its financial condition or results of operations upon adoption.

In December 2023, the FASB issued ASU 2023-09 which requires further granularity on the disclosure of income taxes, including:

•Certain prescribed line items in the income tax rate reconciliation presented both in dollar and percentage terms;

•Income taxes paid, income before income taxes and income taxes disaggregated by federal, state and foreign taxes; and

•Further disaggregation of income taxes paid by any individual jurisdiction equal to or exceeding five percent of total income taxes paid.

This standard is effective for fiscal years beginning after December 15, 2024. The Company does not expect any impact on its financial condition or results of operations upon adoption.

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2. FAIR VALUE

The following tables set forth the Company’s financial assets and liabilities measured at fair value on a recurring basis at September 30, 2024 and June 30, 2024. Assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement:


	September 30, 2024
(Dollars in thousands)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
ASSETS:
Trading securities		$	594	$	—	$	594
Available-for-sale securities:

Agency MBS		43,120		—		43,120
Non-Agency MBS		—		91,309		91,309
Municipal		3,567		—		3,567

Total—Available-for-sale securities:		$	46,687	$	91,309	$	137,996
Loans held for sale		$	14,566	$	—	$	14,566
Servicing rights		$	—	$	27,335	$	27,335
Other assets—Derivative instruments		$	66,172	$	—	$	66,172
LIABILITIES:
Accounts payable and other liabilities—Derivative instruments		$	63,225	$	—	$	63,225

	June 30, 2024
(Dollars in thousands)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
ASSETS:
Trading securities		$	353	$	—	$	353
Available-for-sale securities:

Agency MBS		27,259		—		27,259
Non-Agency MBS		—		110,928		110,928
Municipal		3,424		—		3,424

Total—Available-for-sale securities:		$	30,683	$	110,928	$	141,611
Loans held for sale		$	16,482	$	—	$	16,482
Servicing rights		$	—	$	28,924	$	28,924
Other assets—Derivative instruments		$	106,796	$	—	$	106,796
LIABILITIES:
Accounts payable and other liabilities—Derivative instruments		$	102,949	$	—	$	102,949

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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
	September 30, 2024
(Dollars in thousands)	Available-for-sale Securities: Non-Agency MBS		Servicing Rights1		Total
Opening Balance	$	110,928	$	28,924	$	139,852


Total gains or losses for the period:


Included in earnings—Mortgage banking and servicing rights income	—		(1,852)		(1,852)
Included in other comprehensive income	782		—		782
Purchases, retentions, issues, sales and settlements:
Purchases/Retentions	—		263		263


Settlements	(20,401)		—		(20,401)
Closing balance	$	91,309	$	27,335	$	118,644

Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	$	—	$	(1,852)	$	(1,852)

1 Earnings from servicing rights were attributable to: time and payoffs, representing a decrease in servicing rights value due to passage of time, including the impact from both regularly scheduled loan principal payments and loans that were paid down or paid off during the period of $0.2 million for the three months ended September 30, 2024 and a decrease in servicing rights value resulting from market-driven changes in interest rates of $1.6 million for the three months ended September 30, 2024. Additions to servicing rights were related to purchases and servicing rights retained upon sale of loans held for sale.


	For the Three Months Ended
	September 30, 2023
(Dollars in thousands)	Available-for-sale Securities: Non-Agency MBS		Servicing Rights1		Total
Opening Balance	$	205,005	$	25,443	$	230,448


Total gains or losses for the period:


Included in earnings—Mortgage banking and servicing rights income	—		1,858		1,858
Included in other comprehensive income	1,316		—		1,316
Purchases, retentions, issues, sales and settlements:
Purchases/Retentions	—		2,037		2,037


Settlements	(245)		—		(245)
Closing balance	$	206,076	$	29,338	$	235,414

Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period	$	—	$	1,858	$	1,858

1 Earnings from servicing rights were attributable to: time and payoffs, representing a decrease in servicing rights value due to passage of time, including the impact from both regularly scheduled loan principal payments and loans that were paid down or paid off during the period of $0.2 million for the three months ended September 30, 2023, and an increase in servicing rights value resulting from market-driven changes in interest rates of $2.1 million for the three months ended September 30, 2023. Additions to servicing rights were related to purchases and servicing rights retained upon sale of loans held for sale.

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The table below summarizes the quantitative information about Level 3 fair value measurements:

September 30, 2024

(Dollars in thousands)

Fair Value

Valuation Technique

Unobservable Input

Range (Weighted Average)1

Available-for-sale securities: Non-Agency MBS

91,309

Discounted Cash Flow

Projected Constant Prepayment Rate,

Projected Constant Default Rate,

Projected Loss Severity,

Discount Rate over SOFR Swaps,

Credit Enhancement

0.0 to 69.6% (34.5%)

0.0 to 5.5% (2.6%)

0.0 to 68.9% (32.6%)

2.5 to 4.9% (2.6%)

0.0 to 64.3% (26.1%)

Servicing Rights

27,335

Discounted Cash Flow

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

5.2 to 24.2% (10.9%)

2.4 to 11.1 (8.3)

9.5 to 11.2% (9.8%)

June 30, 2024

(Dollars in thousands)

Fair Value

Valuation Technique

Unobservable Input

Range (Weighted Average)1

Available-for-sale securities: Non-Agency MBS

110,928

Discounted Cash Flow

Projected Constant Prepayment Rate,

Projected Constant Default Rate,

Projected Loss Severity,

Discount Rate over SOFR Swaps,

Credit Enhancement

0.0 to 72.1% (38.0%)

0.0 to 13.7% (2.8%)

0.0 to 68.9% (32.9%)

2.5 to 4.9% (2.5%)

0.0 to 64.9% (22.8%)

Servicing Rights

28,924

Discounted Cash Flow

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

5.5 to 95.2% (11.8%)

0.4 to 14.9 (7.9)

9.5 to 11.2% (9.8%)

1 The weighted average for Available-for-sale securities: Non-agency MBS is based on the relative fair value of the securities and for Servicing Rights is based on the relative unpaid principal of the loans being serviced.

For non-agency mortgage-backed securities, 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. For servicing rights, significant increases in projected prepayment rates or discount rates in isolation would result in a significantly lower fair value measurement, while a significant increase in expected life in isolation would result in a significantly higher fair value measurement. Generally, a change in the projected prepayment rates is accompanied by a directionally opposite change in expected life.

The aggregate fair value of loans held for sale, carried at fair value, the contractual balance (including accrued interest), and the unrealized gain were:


(Dollars in thousands)	September 30, 2024		June 30, 2024
Aggregate fair value	$	14,566	$	16,482
Contractual balance	13,977		15,966
Unrealized gain	$	589	$	516

The total interest income and amount of gains and losses from changes in fair value included in earnings for loans held for sale were:


	September 30,
(Dollars in thousands)		2024		2023
Interest income		$	288	$	189
Change in fair value		17		(129)
Total		$	305	$	60

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Fair Value of Financial Instruments

Carrying amounts and estimated fair values of financial instruments at September 30, 2024 and June 30, 2024 were:


	September 30, 2024
			Fair Value
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
Financial assets:
Cash, cash equivalents and restricted cash	$	2,803,856	$	2,803,856	$	—	$	—	$	2,803,856
Trading securities	594		—		594		—		594
Available-for-sale securities	137,996		—		46,687		91,309		137,996
Stock of regulatory agencies	34,417		—		34,417		—		34,417
Loans held for sale, at fair value	14,566		—		14,566		—		14,566

Loans held for investment—net	19,280,609		—		—		19,563,846		19,563,846
Securities borrowed	84,326		—		—		83,501		83,501
Customer, broker-dealer and clearing receivables	262,774		—		—		261,163		261,163
Servicing rights	27,335		—		—		27,335		27,335
Other assets - derivative instruments	66,172		—		66,172		—		66,172
Financial liabilities:
Total deposits	19,973,329		—		19,743,134		—		19,743,134
Advances from the Federal Home Loan Bank	90,000		—		86,700		—		86,700
Borrowings, subordinated notes and debentures	313,519		—		285,114		—		285,114
Securities loaned	95,883		—		—		95,398		95,398
Customer, broker-dealer and clearing payables	315,985		—		—		315,985		315,985
Accounts payable and other liabilities - derivative instruments	63,225		—		63,225		—		63,225


	June 30, 2024
			Fair Value
(Dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
Financial assets:
Cash, cash equivalents and restricted cash	$	2,185,776	$	2,185,776	$	—	$	—	$	2,185,776
Trading securities	353		—		353		—		353
Available-for-sale securities	141,611		—		30,683		110,928		141,611
Stock of regulatory agencies	21,957		—		21,957		—		21,957
Loans held for sale, at fair value	16,482		—		16,482		—		16,482

Loans held for investment—net	19,231,385		—		—		19,209,442		19,209,442
Securities borrowed	67,212		—		—		71,480		71,480
Customer, broker-dealer and clearing receivables	240,028		—		—		249,317		249,317
Servicing rights	28,924		—		—		28,924		28,924
Other assets - derivative instruments	106,796		—		106,796		—		106,796
Financial liabilities:
Total deposits	19,359,217		—		19,217,281		—		19,217,281
Advances from the Federal Home Loan Bank	90,000		—		84,201		—		84,201
Borrowings, subordinated notes and debentures	325,679		—		302,487		—		302,487
Securities loaned	74,177		—		—		74,021		74,021
Customer, broker-dealer and clearing payables	301,127		—		—		301,127		301,127
Accounts payable and other liabilities - derivative instruments	102,949		—		102,949		—		102,949

The carrying amount represents the estimated fair value for cash, cash equivalents and restricted cash, stock of regulatory agencies, interest bearing deposits, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans or deposits that reprice frequently and fully. For fixed rate loans, deposits, borrowings or subordinated debt and for variable rate loans, deposits, borrowings or subordinated debt with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. A discussion of the methods of valuing trading securities, available-for-sale securities, loans held for sale and derivatives can be found in Note 3—“Fair Value” in the 2024 Form 10-K. The fair value of off-balance sheet items is not considered material.

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3. AVAILABLE-FOR-SALE SECURITIES

The amortized cost and fair value of available-for-sale securities were:


	September 30, 2024
(Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Mortgage-backed securities (MBS):
Agency1	$	44,702	$	359	$	(1,941)	$	43,120
Non-agency2	90,258		1,295		(244)		91,309
Total mortgage-backed securities	134,960		1,654		(2,185)		134,429


Municipal	3,822		—		(255)		3,567


Total available-for-sale securities	$	138,782	$	1,654	$	(2,440)	$	137,996



	June 30, 2024
(Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Mortgage-backed securities (MBS):
Agency1	$	29,835	$	83	$	(2,659)	$	27,259
Non-agency2	110,658		838		(568)		110,928
Total mortgage-backed securities	140,493		921		(3,227)		138,187


Municipal	3,788		—		(364)		3,424


Total available-for-sale securities	$	144,281	$	921	$	(3,591)	$	141,611

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

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

The Company evaluates available-for-sale securities in an unrealized loss position based on an analysis of a number of factors, including, but not limited to: (1) the credit characteristics of the securities, such as the forecasted cash flows, credit ratings, credit enhancement, and government agency or government sponsored enterprise backing, as applicable, and (2) whether the Company intends to sell or will be required to sell any of the securities before recovering the amortized cost basis. Based on its analysis, the Company determined the unrealized losses on available-for-sale securities are primarily driven by the increase in interest rates since the securities were purchased and, accordingly, no credit losses were recognized on available-for-sale securities in the three months ended September 30, 2024 and September 30, 2023. There was no amount in the allowance for credit losses for available-for-sale securities at September 30, 2024 and June 30, 2024.

The face amounts of available-for-sale securities pledged to secure borrowings were $0.8 million as of September 30, 2024 and June 30, 2024.

There were no sales of available-for-sale securities during the three months ended September 30, 2024 and September 30, 2023.

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


	September 30, 2024
	Available-for-sale securities in loss position for
	Less Than 12 Months				More Than 12 Months				Total
(Dollars in thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
MBS:
Agency	$	15,991	$	(8)	$	18,741	$	(1,933)	$	34,732	$	(1,941)
Non-agency	—		—		58,565		(244)		58,565		(244)
Total MBS	15,991		(8)		77,306		(2,177)		93,297		(2,185)


Municipal	—		—		3,567		(255)		3,567		(255)


Total available-for-sale securities	$	15,991	$	(8)	$	80,873	$	(2,432)	$	96,864	$	(2,440)

	June 30, 2024
	Available-for-sale securities in loss position for
	Less Than 12 Months				More Than 12 Months				Total
(Dollars in thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
MBS:
Agency	$	2,644	$	(31)	$	19,298	$	(2,628)	$	21,942	$	(2,659)
Non-agency	15		—		78,364		(568)		78,379		(568)
Total MBS	2,659		(31)		97,662		(3,196)		100,321		(3,227)


Municipal	—		—		3,424		(364)		3,424		(364)


Total available-for-sale securities	$	2,659	$	(31)	$	101,086	$	(3,560)	$	103,745	$	(3,591)

The following table sets forth the expected maturity distribution of our mortgage-backed securities, which is based on assumed prepayment rates, and the maturity distribution of our non-MBS, which is based on the contractual maturity:


	As of September 30, 2024
(Dollars in thousands)	Total Amount		Due Within One Year		Due after One but within Five Years		Due after Five but within Ten Years		Due After Ten Years
MBS:
Agency	$	44,702	$	10,367	$	25,954	$	6,323	$	2,058
Non-Agency	$	90,258	$	86,452	$	1,817	$	1,389	$	600
Total MBS	$	134,960	$	96,819	$	27,771	$	7,712	$	2,658

Municipal	$	3,822	$	—	$	—	$	—	$	3,822

Available-for-sale—Amortized cost	$	138,782	$	96,819	$	27,771	$	7,712	$	6,480
Available-for-sale—Fair value	$	137,996	$	96,543	$	27,421	$	7,735	$	6,297

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4. LOANS & ALLOWANCE FOR CREDIT LOSSES

The Company categorizes the loan portfolio into five segments: Single Family - Mortgage & Warehouse, Multifamily and Commercial Mortgage, Commercial Real Estate, Commercial & Industrial - Non Real Estate (“Non-RE”) and Auto & Consumer. For further detail of the segments of the Company’s loan portfolio, see Note 1—“Organizations and Summary of Significant Accounting Policies” in the 2024 Form 10-K.

The following table sets forth the composition of the loan portfolio:


(Dollars in thousands)	September 30, 2024		June 30, 2024
Single Family - Mortgage & Warehouse	$	4,151,583	$	4,178,832
Multifamily and Commercial Mortgage1	3,647,469		3,861,931
Commercial Real Estate1	6,256,265		6,088,622
Commercial & Industrial - Non-RE	5,354,752		5,241,766
Auto & Consumer	415,765		431,660

Total gross loans	19,825,834		19,802,811
Allowance for credit losses - loans	(263,854)		(260,542)
Unaccreted premiums (discounts) and loan fees	(281,371)		(310,884)
Total net loans	$	19,280,609	$	19,231,385

1 Includes purchased credit deteriorated (“PCD”) loans of $282.6 million and $284.0 million in Multifamily and Commercial Mortgage and $44.5 million and $44.5 million in Commercial Real Estate as of September 30, 2024 and June 30, 2024, respectively. For further detail on PCD loans, see Note 1—“Organizations and Summary of Significant Accounting Policies” in the 2024 Form 10-K.

Accrued interest receivable on loans held for investments totaled $120.1 million and $119.8 million as of September 30, 2024 and June 30, 2024, respectively.

At September 30, 2024 and June 30, 2024, the Company has pledged certain loans totaling $4,680.7 million and $4,942.8 million, respectively, to the FHLB and $8,194.2 million and $8,197.2 million, respectively, to the Federal Reserve Bank of San Francisco (“FRBSF”).

The following table presents loan-to-value (“LTV”) for the Company’s real estate loans outstanding as of September 30, 2024:


	Total Real Estate Loans		Single Family - Mortgage & Warehouse		Multifamily and Commercial Mortgage		Commercial Real Estate
Weighted-Average LTV	47.9	%	55.8	%	52.1	%	40.1	%
Median LTV	52.0	%	54.0	%	50.0	%	43.5	%

The Company’s effective weighted-average LTV was 50.9% for loans within its real estate portfolio originated during the three months ended September 30, 2024.

The following table presents the components of the provision for credit losses:


	September 30,
(Dollars in thousands)		2024		2023
Provision for credit losses - loans		$	11,500	$	5,750
Provision for credit losses - unfunded lending commitments		2,500		1,250
Total provision for credit losses		$	14,000	$	7,000

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The following tables summarize activity in the allowance for credit losses - loans by portfolio segment:



	For the Three Months Ended September 30, 2024
(Dollars in thousands)	Single Family-Mortgage & Warehouse		Multifamily and Commercial Mortgage		Commercial Real Estate		Commercial & Industrial - Non-RE		Auto & Consumer		Total
Balance at July 1, 2024	$	16,943	$	70,771	$	87,780	$	76,032	$	9,016	$	260,542

Provision (benefit) for credit losses - loans	464		(1,806)		7,252		3,555		2,035		11,500
Charge-offs	—		(3,357)		—		(3,032)		(2,849)		(9,238)
Recoveries	46		—		—		—		1,004		1,050
Balance at September 30, 2024	$	17,453	$	65,608	$	95,032	$	76,555	$	9,206	$	263,854



	For the Three Months Ended September 30, 2023
(Dollars in thousands)	Single Family-Mortgage & Warehouse		Multifamily and Commercial Mortgage		Commercial Real Estate		Commercial & Industrial - Non-RE		Auto & Consumer		Total
Balance at July 1, 2023	$	17,503	$	16,848	$	72,755	$	46,347	$	13,227	$	166,680

Provision (benefit) for credit losses - loans	(10)		(974)		(1,400)		8,245		(111)		5,750
Charge-offs	(80)		—		—		—		(2,281)		(2,361)
Recoveries	13		—		—		—		788		801
Balance at September 30, 2023	$	17,426	$	15,874	$	71,355	$	54,592	$	11,623	$	170,870

For the three months ended September 30, 2024, the allowance for credit losses for loans increased as a result of the provision for credit losses, partially offset by net charge-offs. The provision for credit losses was primarily due to the quantitative impact of macroeconomic variables in the allowance for credit losses model, primarily the U.S. unemployment rate, and increases in specific reserves, mainly in the commercial & industrial - non-RE portfolio.

Loan products within each portfolio contain varying collateral types which impact the estimate of the loss given default utilized in the calculation of the allowance. For further discussion of the model method of estimating expected lifetime credit losses, see Note 1—“Organizations and Summary of Significant Accounting Policies” in the 2024 Form 10-K. The following tables present a summary of the activity in the allowance for credit losses for off-balance sheet lending commitments:


	Three Months Ended September 30,
(Dollars in thousands)	2024		2023
Balance at July 1,	$	10,223	$	10,473
Provision for credit losses - unfunded lending commitments	2,500		1,250
Balance at September 30,	$	12,723	$	11,723

The increase in the allowance for off-balance sheet lending commitments for the three months ended September 30, 2024, was primarily driven by unfunded lending commitment growth, primarily in the commercial & industrial - non-RE portfolio.

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Credit Quality Disclosures. The following tables provide the composition of loans that are performing and nonaccrual by portfolio segment:


	September 30, 2024
(Dollars in thousands)	Single Family-Mortgage & Warehouse		Multifamily and Commercial Mortgage		Commercial Real Estate		Commercial & Industrial - Non-RE		Auto & Consumer		Total
Performing	$	4,092,504	$	3,616,032	$	6,215,663	$	5,311,156	$	413,781	$	19,649,136
Nonaccrual	59,079		31,437		40,602		43,596		1,984		176,698
Total	$	4,151,583	$	3,647,469	$	6,256,265	$	5,354,752	$	415,765	$	19,825,834
Nonaccrual loans to total loans											0.89		%


	June 30, 2024
(Dollars in thousands)	Single Family-Mortgage & Warehouse		Multifamily and Commercial Mortgage		Commercial Real Estate		Commercial & Industrial - Non-RE		Auto & Consumer		Total
Performing	$	4,133,121	$	3,826,877	$	6,062,520	$	5,237,746	$	429,188	$	19,689,452
Nonaccrual	45,711		35,054		26,102		4,020		2,472		113,359
Total	$	4,178,832	$	3,861,931	$	6,088,622	$	5,241,766	$	431,660	$	19,802,811
Nonaccrual loans to total loans											0.57		%

There were no nonaccrual loans without an allowance for credit losses as of September 30, 2024 and June 30, 2024. There was no interest income recognized on nonaccrual loans in the three months ended September 30, 2024 and 2023. Loans reaching 90 days past due are generally placed on nonaccrual status and risk rated as substandard or doubtful. Loans not yet reaching 90 days past due may be placed on nonaccrual status based on management’s assessment of the aging of contractual principal amounts due, among other factors.

Credit Quality Indicators. The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends. In addition to the borrower’s primary source of repayment, in its risk rating process the Company considers all available sources of repayment, including obligor guaranties and liquidations of pledged collateral, where individually or together such sources would fully repay the loan on a timely basis. The Company analyzes loans individually by classifying the loans based on credit risk. The Company uses the following internally-defined risk ratings.

Pass. Loans where repayment in full is expected through any of the borrower’s sources of repayment.

Special Mention. Loans where any credit risk is not considered significant yet require management’s attention given certain currently identified characteristics of the borrower, collateral securing the loan and the obligor’s net worth and paying capacity. If the identified credit risks are not adequately monitored or mitigated, the loan may weaken and the Company’s credit position with respect to the loan may deteriorate in the future.

Substandard. Loans where currently identified characteristics of the borrower, collateral securing the loan and the obligor’s net worth and paying capacity, taken together, could jeopardize the repayment of the debt. A loan not fully supported by at least one available source of repayment and involves a distinct possibility that the Company will sustain some loss in that loan if the weakness is not cured. A loan supported by a guaranty, collateral sufficient to incentivize a sale or refinance, or cash flow that is sufficient for timely repayment in full will not be classified as substandard even if the loan has a well-defined weakness in other sources of repayment.

Doubtful. Loans reflecting the same characteristics as those classified as substandard, but for which repayment in full in accordance with the contractual terms is currently considered highly unlikely.

The Company reviews and grades loans following a continuous review process, featuring coverage of all loan types and business lines at least quarterly. Continuous reviewing provides more effective risk monitoring because it immediately tests for potential impacts caused by changes in personnel, policy, products or underwriting standards.

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The following tables present the composition of loans by portfolio segment, fiscal year of origination and credit quality indicator, and the amount of year-to-date gross charge-offs.


	September 30, 2024
	Loans Held for Investment by Fiscal Year of Origination												Revolving Loans		Total
(Dollars in thousands)	2025		2024		2023		2022		2021		Prior
Single Family-Mortgage & Warehouse
Pass	$	123,052	$	434,335	$	550,071	$	1,171,584	$	476,230	$	912,453	$	345,288	$	4,013,013
Special Mention	—		31,000		—		7,374		5,394		34,621		—		78,389
Substandard	—		—		1,085		9,668		—		49,428		—		60,181
Doubtful	—		—		—		—		—		—		—		—
Total	123,052		465,335		551,156		1,188,626		481,624		996,502		345,288		4,151,583
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—
Multifamily and Commercial Mortgage
Pass	6,410		30,848		652,262		1,023,889		493,090		1,221,788		—		3,428,287
Special Mention	—		—		23,774		41,030		8,975		52,624		—		126,403
Substandard	—		—		9,166		7,435		29,396		46,782		—		92,779
Doubtful	—		—		—		—		—		—		—		—
Total	6,410		30,848		685,202		1,072,354		531,461		1,321,194		—		3,647,469
Year-to-date gross charge-offs	—		—		—		—		—		3,357		—		3,357
Commercial Real Estate
Pass	725,167		1,939,760		1,144,414		1,234,466		143,009		45,487		871,853		6,104,156
Special Mention	—		63,389		—		—		—		—		—		63,389
Substandard	—		—		14,608		43,700		11,650		14,852		3,910		88,720
Doubtful	—		—		—		—		—		—		—		—
Total	725,167		2,003,149		1,159,022		1,278,166		154,659		60,339		875,763		6,256,265
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—
Commercial & Industrial - Non-RE
Pass	201,920		923,047		465,232		151,653		42,580		31,291		3,299,654		5,115,377
Special Mention	—		13,500		386		678		3,893		—		4,284		22,741
Substandard	—		243		32,942		128,295		—		2,989		42,165		206,634
Doubtful	—		—		—		10,000		—		—		—		10,000
Total	201,920		936,790		498,560		290,626		46,473		34,280		3,346,103		5,354,752
Year-to-date gross charge-offs	—		—		—		—		1,032		—		2,000		3,032
Auto & Consumer
Pass	28,400		62,125		103,149		158,952		38,274		21,978		—		412,878
Special Mention	—		34		275		390		69		26		—		794
Substandard	—		9		567		1,108		234		175		—		2,093
Doubtful	—		—		—		—		—		—		—		—
Total	28,400		62,168		103,991		160,450		38,577		22,179		—		415,765
Year-to-date gross charge-offs	—		197		626		1,354		494		178		—		2,849
Total
Pass	1,084,949		3,390,115		2,915,128		3,740,544		1,193,183		2,232,997		4,516,795		19,073,711
Special Mention	—		107,923		24,435		49,472		18,331		87,271		4,284		291,716
Substandard	—		252		58,368		190,206		41,280		114,226		46,075		450,407
Doubtful	—		—		—		10,000		—		—		—		10,000
Total	$	1,084,949	$	3,498,290	$	2,997,931	$	3,990,222	$	1,252,794	$	2,434,494	$	4,567,154	$	19,825,834
As a % of total gross loans	5.5%		17.6%		15.1%		20.1%		6.3%		12.3%		23.1%		100.0%
Total year-to-date gross charge-offs	$	—	$	197	$	626	$	1,354	$	1,526	$	3,535	$	2,000	$	9,238

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	June 30, 2024
	Loans Held for Investment by Fiscal Year of Origination												Revolving Loans		Total
(Dollars in thousands)	2024		2023		2022		2021		2020		Prior
Single Family-Mortgage & Warehouse
Pass	$	491,822	$	590,060	$	1,200,230	$	487,132	$	291,047	$	720,049	$	256,778	$	4,037,118
Special Mention	31,000		—		24,489		665		6,591		26,873		—		89,618
Substandard	—		283		6,728		—		14,720		30,365		—		52,096
Doubtful	—		—		—		—		—		—		—		—
Total	522,822		590,343		1,231,447		487,797		312,358		777,287		256,778		4,178,832
Year-to-date gross charge-offs	—		—		—		—		—		172		—		172
Multifamily and Commercial Mortgage
Pass	36,058		700,163		994,004		595,299		510,341		811,184		—		3,647,049
Special Mention	—		29,325		46,194		17,478		9,011		10,277		—		112,285
Substandard	—		13,489		12,509		15,507		41,013		20,079		—		102,597
Doubtful	—		—		—		—		—		—		—		—
Total	36,058		742,977		1,052,707		628,284		560,365		841,540		—		3,861,931
Year-to-date gross charge-offs	—		—		—		—		640		—		—		640
Commercial Real Estate
Pass	1,952,001		1,419,399		1,456,643		221,061		7,741		53,000		866,686		5,976,531
Special Mention	—		—		27,452		—		—		—		—		27,452
Substandard	—		5,600		43,700		5,000		—		30,339		—		84,639
Doubtful	—		—		—		—		—		—		—		—
Total	1,952,001		1,424,999		1,527,795		226,061		7,741		83,339		866,686		6,088,622
Year-to-date gross charge-offs	—		—		—		—		—		—		—		—
Commercial & Industrial - Non-RE
Pass	991,497		458,454		238,397		44,923		10,422		12,867		3,295,425		5,051,985
Special Mention	—		1,613		731		1,818		—		—		5,349		9,511
Substandard	—		34,433		122,729		1,031		—		2,988		19,089		180,270
Doubtful	—		—		—		—		—		—		—		—
Total	991,497		494,500		361,857		47,772		10,422		15,855		3,319,863		5,241,766
Year-to-date gross charge-offs	—		—		—		—		—		84		—		84
Auto & Consumer
Pass	65,766		114,615		177,043		43,287		13,402		14,056		—		428,169
Special Mention	33		213		422		176		—		61		—		905
Substandard	142		547		1,264		410		114		109		—		2,586
Doubtful	—		—		—		—		—		—		—		—
Total	65,941		115,375		178,729		43,873		13,516		14,226		—		431,660
Year-to-date gross charge-offs	202		3,471		5,212		1,556		303		269		—		11,013
Total
Pass	3,537,144		3,282,691		4,066,317		1,391,702		832,953		1,611,156		4,418,889		19,140,852
Special Mention	31,033		31,151		99,288		20,137		15,602		37,211		5,349		239,771
Substandard	142		54,352		186,930		21,948		55,847		83,880		19,089		422,188
Doubtful	—		—		—		—		—		—		—		—
Total	$	3,568,319	$	3,368,194	$	4,352,535	$	1,433,787	$	904,402	$	1,732,247	$	4,443,327	$	19,802,811
As a % of total gross loans	18.0%		17.0%		22.0%		7.2%		4.6%		8.8%		22.4%		100.0%
Total year-to-date gross charge-offs	$	202	$	3,471	$	5,212	$	1,556	$	943	$	525	$	—	$	11,909

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The following tables provide the aging of loans by portfolio segment:


	September 30, 2024
(Dollars in thousands)	Current			30-59 Days			60-89 Days			90+ Days			Total
Single Family-Mortgage & Warehouse	$	4,059,299		$	20,107		$	13,715		$	58,462		$	4,151,583
Multifamily and Commercial Mortgage	3,572,637			29,631			9,648			35,553			3,647,469
Commercial Real Estate	6,179,503			7,610			5,000			64,152			6,256,265
Commercial & Industrial - Non-RE	5,348,357			6,395			—			—			5,354,752
Auto & Consumer	408,728			4,992			1,043			1,002			415,765


Total	$	19,568,524		$	68,735		$	29,406		$	159,169		$	19,825,834
As a % of total gross loans	98.70		%	0.35		%	0.15		%	0.80		%	100		%


	June 30, 2024
(Dollars in thousands)	Current			30-59 Days			60-89 Days			90+ Days			Total
Single Family-Mortgage & Warehouse	$	4,070,186		$	46,387		$	18,401		$	43,858		$	4,178,832
Multifamily and Commercial Mortgage	3,795,387			13,074			8,554			44,916			3,861,931
Commercial Real Estate	6,024,470			—			25,950			38,202			6,088,622
Commercial & Industrial - Non-RE	5,240,734			—			—			1,032			5,241,766
Auto & Consumer	424,555			4,644			996			1,465			431,660

Total	$	19,555,332		$	64,105		$	53,901		$	129,473		$	19,802,811
As a % of total gross loans	98.75		%	0.33		%	0.27		%	0.65		%	100		%

Loans reaching 90 or more days past due are generally placed on nonaccrual. As of September 30, 2024 and June 30, 2024, there were loans of $34.1 million and $20.2 million, respectively, over 90 days past due and still accruing interest as the Company expects to collect the principal and interest amounts due.

Single family mortgage loans in process of foreclosure were $23.0 million and $20.1 million as of September 30, 2024 and June 30, 2024, respectively.

Loan Modifications to Borrowers Experiencing Financial Difficulty. The Company may grant certain modifications of loans to borrowers experiencing financial difficulty, which effective following the adoption of ASU 2022-02, are reported as financial difficulty modifications (“FDMs”). The Company’s modification programs provide various modifications to borrowers experiencing financial difficulty which may include interest rate reductions, term extensions, payment delays and/or principal forgiveness. For the three months ended September 30, 2024 and 2023, there were no FDMs.

5. DERIVATIVES

For additional information on the Company’s derivative instruments, see Note 1—“Organizations and Summary of Significant Accounting Policies”, Note 3—“Fair Value” and Note 6—“Derivatives” in the 2024 Form 10-K and Note 2—“Fair Value”.

The following table presents the notional amounts and fair values of the Company’s derivative instruments. While the notional amounts give an indication of the volume of the Company’s derivatives activity, the notional amounts significantly exceed, in the Company’s view, the possible losses that could arise from such transactions. For most derivative contracts, the notional amount is not exchanged, rather it is a reference amount used to calculate payments. As of June 30, 2024, there were no derivatives designated in hedge accounting relationships.


	September 30, 2024						June 30, 2024
			Fair Value						Fair Value
(Dollars in thousands)	Notional Amount		Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets		Derivative Liabilities
Derivatives designated as hedging instruments
Interest rate contracts	$	400,000	$	401	$	—	$	—	$	—	$	—
Derivatives not designated as hedging instruments
Interest rate contracts	2,516,173		65,771		63,225		$	2,435,874	106,796		102,949
Total derivatives	$	2,916,173	$	66,172	$	63,225	$	2,435,874	$	106,796	$	102,949

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Derivatives designated as hedging instruments

The following table presents pre-tax gains/(losses) on derivative instruments used in cash flow hedge accounting relationships.


	For the Three Months Ended September 30,
(Dollars in thousands)	2024		2023
Amounts recorded in OCI	$	553	$	—
Amounts reclassified from AOCI to income	—		—
Total change in OCI for period	$	553	$	—

The Company did not experience any forecasted transactions that failed to occur during the three months ended September 30, 2024 or 2023. There are no amounts excluded from the assessment of hedge effectiveness.

At September 30, 2024, the Company expects that approximately $2.1 million of pre-tax net gain related to cash flow hedges recorded in accumulated other comprehensive income (“AOCI”) will be recognized in income over the next 12 months. The maximum length of time over which forecasted transactions are hedged is approximately three years.

Derivatives not designated as hedging instruments

The following table presents the pre-tax gains/(losses) related to the Company’s derivative instrument activity recognized in the Condensed Consolidated Statements of Income:


	For the Three Months Ended September 30,
(Dollars in thousands)		2024		2023
Banking and service fees		$	(1,372)	$	340
Mortgage banking and servicing rights income		(251)		277

6. OFFSETTING OF DERIVATIVES AND SECURITIES FINANCING AGREEMENTS

The Company enters into derivatives transactions as part of its mortgage banking activities, makes markets in interest rate swap and cap derivatives to facilitate customer demand, and enters into securities borrowed and securities loaned transactions to facilitate customer match-book activity, cover short positions and support customer securities lending. For additional information on offsetting see Note 7—“Offsetting of Derivatives and Securities Financing Agreements” in the 2024 Form 10-K.

The following tables present information about the offsetting of these instruments and related collateral amounts:


	September 30, 2024
(Dollars in thousands)	Gross Assets / Liabilities		Amounts Offset		Net Balance Sheet Amount		Amounts Not Offset1		Net Assets / Liabilities
Assets:
Securities borrowed	$	84,326	$	—	$	84,326	$	84,326	$	—
Other Assets — Derivative Assets	66,172		—		66,172		6,317		59,855
Liabilities:
Securities loaned	$	95,883	$	—	$	95,883	$	95,883	$	—
Accounts Payable and Other Liabilities — Derivative Liabilities	63,225		—		63,225		1,757		61,468

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	June 30, 2024
(Dollars in thousands)	Gross Assets / Liabilities		Amounts Offset		Net Balance Sheet Amount		Amounts Not Offset1		Net Assets / Liabilities
Assets:
Securities borrowed	$	67,212	$	—	$	67,212	$	67,212	$	—
Other Assets — Derivative Assets	106,796		—		106,796		18,524		88,272
Liabilities:
Securities loaned	$	74,177	$	—	$	74,177	$	74,177	$	—
Accounts Payable and Other Liabilities — Derivative Liabilities	102,949		—		102,949		414		102,535

1 Amounts not offset reflect cash collateral received on Derivative Assets of $5.2 million and $18.1 million as of September 30, 2024 and June 30, 2024, respectively, and cash collateral placed on Derivative Liabilities of $0.6 million as of September 30, 2024. There was no cash collateral placed on Derivative Liabilities as of June 30, 2024.

The securities loaned transactions represent equities with an overnight and open maturity classification as of both periods presented.

7. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

The Company has an equity incentive plan, the Amended and Restated 2014 Stock Incentive Plan (the “2014 Plan”), which provides for the granting of non-qualified and incentive stock options, restricted stock and restricted stock units, stock appreciation rights and other awards to employees, directors and consultants. The 2014 Plan is designed to encourage selected employees and directors to improve operations and increase profits, and to accept or continue employment or association with the Company through participation in the growth in the value of the Company’s common stock. The Company also has an employment agreement with its Chief Executive Officer that provides for an award of restricted stock units. For additional information regarding the Company’s stock-based compensation plans, see Note 16—“Stock-Based Compensation” in the 2024 Form 10-K.

At September 30, 2024, 1,279,635 shares of common stock were authorized for future awards under the 2014 Plan. As of September 30, 2024, the total compensation cost not yet recognized related to non-vested awards was $61.3 million, which is expected to be recognized over a weighted-average period of 1.6 years.

The following table presents the status and changes in RSUs:


	RSUs	Weighted-Average Grant-Date Fair Value
Non-vested balance at June 30, 2024	1,541,194	$	43.95
Granted	640,058	63.15
Vested	(340,701)	42.50
Forfeited	(20,981)	44.74
Non-vested balance at September 30, 2024	1,819,570	$	50.97

The total fair value of shares vested was $22.5 million and $14.8 million for the three months ended September 30, 2024 and September 30, 2023, respectively.

Common Stock Repurchases.

The following table presents common stock repurchases:


	For the Three Months Ended September 30,
(Dollars in thousands except per share data)		2024		2023
Total repurchase		$	—	$	24,535
Number of shares repurchased		—		648,208
Average price paid per share		$	—	$	37.85

As of September 30, 2024, there was $106.5 million of share repurchase authorization remaining. The share repurchase program will continue in effect until terminated by the Board of Directors of the Company. For additional information regarding the Company’s share repurchase program, see Note 15—“Stockholders' Equity” in the 2024 Form 10-K.

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Accumulated Other Comprehensive Income

Accumulated other comprehensive income includes the after-tax change in unrealized gains and losses on investment securities and cash flow hedging activities.


	For the Three Months Ended September 30, 2024
(Dollars in thousands)	Unrealized gain (loss) on available-for-sale securities		Cash flow hedges		Accumulated other comprehensive income
Balance at June 30, 2024	$	(2,466)	$	—	$	(2,466)
Other comprehensive income/(loss)	1,319		382		1,701
Balance at September 30, 2024	$	(1,147)	$	382	$	(765)


	For the Three Months Ended September 30, 2023
(Dollars in thousands)	Unrealized gain (loss) on available-for-sale securities		Cash flow hedges		Accumulated other comprehensive income
Balance at June 30, 2023	$	(6,610)	$	—	$	(6,610)
Other comprehensive income/(loss)	222		—		222
Balance at September 30, 2023	$	(6,388)	$	—	$	(6,388)

The following table presents the pre-tax and after-tax changes in the components of other comprehensive income.


	For the Three Months Ended September 30, 2024						For the Three Months Ended September 30, 2023
(Dollars in thousands)	Pre-tax		Tax effect		After-tax		Pre-tax		Tax effect		After-tax
Unrealized gain/(loss) on investment securities:
Net unrealized gains/(losses) arising during the period	$	1,884	$	(565)	$	1,319	$	334	$	(112)	$	222
Reclassification adjustment for realized (gains)/losses included in net income	—		—		—		—		—		—
Net change	$	1,884	$	(565)	$	1,319	$	334	$	(112)	$	222
Cash flow hedges:
Net unrealized gains/(losses) arising during the period	$	553	$	(171)	$	382	$	—	$	—	$	—
Reclassification adjustment for realized (gains)/losses included in net income	—		—		—		—		—		—
Net change	553		(171)		382		—		—		—
Total other comprehensive income	$	2,437	$	(736)	$	1,701	$	334	$	(112)	$	222

8. EARNINGS PER COMMON SHARE

The following table presents the calculation of basic and diluted earnings per common share (“EPS”):


	Three Months Ended
	September 30,
(Dollars in thousands, except per share data)		2024		2023
Earnings Per Common Share
Net income		$	112,340	$	82,645
Average common shares issued and outstanding		56,934,671		58,949,038
Earnings per common share		$	1.97	$	1.40
Diluted Earnings Per Common Share
Net income		$	112,340	$	82,645
Average common shares issued and outstanding		56,934,671		58,949,038
Dilutive effect of average unvested RSUs		1,233,797		859,284
Average dilutive common shares outstanding		58,168,468		59,808,322
Diluted earnings per common share		$	1.93	$	1.38
Weighted average antidilutive common stock equivalents (excluded from the computation of EPS)		—		5,348

For further information regarding the Company’s EPS calculation, see Note 17—“Earnings per Common Share” in the 2024 Form 10-K.

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9. COMMITMENTS AND CONTINGENCIES

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 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. The following table presents a summary of off-balance sheet commitments.


(dollars in thousands)	September 30, 2024
Commitments to fund loans	$	4,155,531
Commitments to sell loans	$	37,729
Commitments to contribute capital	$	4,514
Standby letters of credit	$	16,472

In addition, the Company has $38.1 million of commitments to contribute capital to LIHTC investments included in “Accounts Payable and Other Liabilities” on the Consolidated Balance Sheets. See Note 12—“Other Assets” for additional information on LIHTC investments.

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. Since many of the commitments may expire without being drawn upon, 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. For single family loans classified as held for sale, the Company matches unfunded commitments to originate loans with commitments to sell loans. The Company also has standby letters of credit commitments.

In the normal course of business, Axos Clearing LLC’s (“Axos Clearing”) 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. A consolidated derivative action, In re BofI Holding, Inc., Case No. 15cv2722 GPC (KSC), is pending before the United States District Court for the Southern District of California (the “Derivative Action”). The complaint in the Derivative Action sets forth allegations made in a related employment action, Erhart v. BofI Holding Inc., No. 15cv2287 BAS (NLS) (S.D. Cal.) (the “Employment Action”) brought by a former employee of the Company and was stayed pending resolution of the Employment Action. On October 4, 2023, the court hearing the Employment Action entered a final amended judgment awarding damages and attorneys’ fees to the plaintiff. The defendant filed a Notice of Appeal from the Employment Action judgment and all orders merged therein, and the parties have filed opening and responsive briefs. On January 2, 2024, the Derivative Action plaintiff filed a Third Amended Complaint. On March 5, 2024, the court stayed the case until resolution of the appeal in the Employment Action. The Derivative Action defendants dispute, and intend to vigorously defend against, the allegations raised in the Third Amended Complaint. The Derivative Action plaintiff seeks damages on behalf of the Company with respect to the Employment Action and also seeks damages on behalf of the Company in connection with a now settled securities class action that was also based upon allegations made in the Employment Action and settled within available insurance coverage without attribution of wrongdoing to the Company, its management, or its directors.

In view of the inherent difficulty of predicting the final outcome of the Employment Action it is not possible to reasonably predict or estimate the eventual loss or range of loss, if any, related thereto.

On October 26, 2022, a jury verdict was reached in the case of MUFG Union Bank, N.A. v. Axos Bank, et al, awarding damages to MUFG Union Bank, N.A. Judgment on such verdict was initially entered on June 5, 2023, and a corrected judgment was entered on June 20, 2023. The Company filed a Notice of Appeal to the Supreme Court of the State of New York Appellate Division (the “Appellate Division”) on July 6, 2023, and the plaintiff filed a Notice of Cross-Appeal on July 20, 2023. The Appellate Division held oral arguments on the appeal and cross-appeal on March 5, 2024. On March 26, 2024, the Appellate Division entered an order vacating the finding of liability and award of $2.5 million in damages for plaintiff’s breach of contract claim as well as the associated prejudgment interest. In addition, the Appellate Division rejected plaintiff’s cross

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appeal. On July 18, 2024, the Appellate Division denied defendants’ motion for leave to appeal and plaintiff’s cross-motion for re-argument or leave to appeal the March 26, 2024 order. On August 19, 2024, the Company and the plaintiff each filed a motion for leave to appeal with the New York Court of Appeals. Oppositions to each motion were filed on September 3, 2024. The Company recorded a $16 million accrued expense in “Accounts payable and other liabilities” on the Consolidated Balance Sheets and in “General and administrative expense” on the Consolidated Statement of Income as of and for the fiscal year ended June 30, 2023, respectively. Given the uncertainty of the appellate process and other factors that are unknown or currently unquantifiable, the Company maintained its accrual at September 30, 2024.

10. SEGMENT REPORTING AND REVENUE INFORMATION

Segment Reporting. The operating segments reported below are the segments of the Company for which separate financial information is available and for which segment results are evaluated regularly by the Chief Executive Officer in deciding how to allocate resources and in assessing performance. The operating segments and segment results of the Company are determined based upon the management reporting system, which assigns balance sheet and income statement items to each of the business segments.

The Company evaluates performance and allocates resources based on pre-tax profit or loss from operations. Certain corporate administration costs have not been allocated to the reportable segments. The Company operates through two operating segments: Banking Business Segment and Securities Business Segment. Inter-segment transactions are eliminated in consolidation and primarily include non-interest income earned by the Securities Business Segment and non-interest expense incurred by the Banking Business Segment for cash sorting fees related to deposits sourced from Securities Business Segment customers, as well as interest expense paid by the Banking Business Segment to each of the wholly-owned subsidiaries of the Company and to the Company itself for their operating cash held on deposit with the Business Banking Segment. For more information on the Company’s operating segments, see Note 22—“Segment Reporting” in the 2024 Form 10-K.

In order to reconcile the two segments to the consolidated totals, the Company includes corporate activities and intercompany eliminations. The following tables present the operating results, goodwill, and assets of the segments:


















	For the Three Months Ended September 30, 2024
(Dollars in thousands)	Banking Business Segment		Securities Business Segment		Corporate/Eliminations		Axos Consolidated
Net interest income	$	288,492	$	7,267	$	(3,711)	$	292,048
Provision for credit losses	14,000		—		—		14,000
Non-interest income	8,590		29,902		(9,883)		28,609
Non-interest expense	118,315		28,091		1,059		147,465
Income before taxes	$	164,767	$	9,078	$	(14,653)	$	159,192

	For the Three Months Ended September 30, 2023
(Dollars in thousands)	Banking Business Segment		Securities Business Segment		Corporate/Eliminations		Axos Consolidated
Net interest income	$	209,219	$	5,542	$	(3,606)	$	211,155
Provision for credit losses	7,000		—		—		7,000
Non-interest income	12,557		34,555		(12,605)		34,507
Non-interest expense	100,786		27,523		(7,803)		120,506
Income before taxes	$	113,990	$	12,574	$	(8,408)	$	118,156

	As of September 30, 2024
(Dollars in thousands)	Banking Business Segment		Securities Business Segment		Corporate/Eliminations		Axos Consolidated
Goodwill	$	35,721	$	59,953	$	1,999	$	97,673
Total Assets	$	22,868,054	$	674,523	$	26,507	$	23,569,084

	As of June 30, 2024
(Dollars in thousands)	Banking Business Segment		Securities Business Segment		Corporate/Eliminations		Axos Consolidated
Goodwill	$	35,721	$	59,953	$	1,999	$	97,673
Total Assets	$	22,165,627	$	649,254	$	40,453	$	22,855,334

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Revenue Information. The following presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Accounting Standards Codification (“ASC”) 606 for the periods indicated. For additional information on the Company’s recognition of revenue and ASC 606, see Note 1—“Organizations and Summary of Significant Accounting Policies” in the 2024 Form 10-K.


	For the Three Months Ended
	September 30,
(Dollars in thousands)		2024		2023
Advisory fee income		$	7,945	$	8,219
Broker-dealer clearing fees		5,072		5,535
Deposit service fees		773		680
Card fees		923		682
Bankruptcy trustee and fiduciary service fees		1,289		1,394
Non-interest income (in-scope of ASC 606)		16,002		16,510
Non-interest income (out-of-scope of ASC 606)		12,607		17,997
Total non-interest income		$	28,609	$	34,507

11. BORROWINGS, SUBORDINATED NOTES AND DEBENTURES

Subordinated Notes. On July 15, 2024, the Company paid $2.6 million to repurchase $3.0 million par value of its 4.00% Fixed-to-Floating Rate Subordinated Notes due March 1, 2032 resulting in a pre-tax non-cash gain on extinguishment of $0.4 million, after accounting for unamortized issuance costs and accrued interest. On September 27, 2024, the Company paid $9.2 million to repurchase $9.5 million par value of its 4.875% Fixed-to-Floating Rate Subordinated Notes due October 1, 2030 resulting in a pre-tax non-cash gain on extinguishment of $0.2 million, after accounting for unamortized issuance costs and accrued interest. The non-cash gain is recorded in “General and administrative expense” in the Condensed Consolidated Statements of Income for the three months ended September 30, 2024. For additional information on borrowings, see Note 13—“Borrowings, Subordinated Notes and Debentures” in the 2024 Form 10-K.

12. OTHER ASSETS

Other Assets in the Consolidated Balance Sheets primarily comprises bank-owned life insurance, accrued interest receivable, derivatives, net deferred income tax assets, furniture, equipment and software, right-of-use lease assets, LIHTC investments and other receivables. For additional information on other assets, see Note 9—“Other Assets” in the 2024 Form 10-K. For additional information on accrued interest receivable, see Note 4—“Loans & Allowance for Credit Losses,” for additional information on derivatives, see Note 5—“Derivatives.”

LIHTC Investments. The Company recognized the following income and tax benefits for its LIHTC investments.


	For the Three Months Ended September 30,
(Dollars in thousands)	2024		2023
Tax credits recognized	$	1,420	$	850
Other tax benefits recognized	312		313
Amortization	(1,406)		(848)
Net benefit (expense) included in income tax expense	326		315


Other income (loss) included in banking and service fees	—		—
Net benefit (expense) included in the Consolidated Statements of Income	$	326	$	315

The Company recognized the following investments on its balance sheets.


(Dollars in thousands)	As of September 30, 2024		As of June 30, 2024
LIHTC investments	$	64,467	$	65,873
LIHTC unfunded commitments1	$	38,083	$	40,617

1LIHTC unfunded commitments are included in “Accounts Payable and Other Liabilities” on the Consolidated Balance Sheets.

For the three months ended September 30, 2024 and 2023, there have been no significant modifications or events that resulted in the change in the nature of the LIHTC investments or any changes in the relationship with the underlying project.

For the three months ended September 30, 2024 and 2023, there has been no impairment loss recognized from the forfeiture or ineligibility of income tax credits.

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

The following discussion provides information about the results of operations, financial condition, liquidity, off balance sheet items and capital resources of Axos Financial, Inc. and subsidiaries (collectively, “we”, “us” or the “Company”). This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of our operations. This discussion and analysis should be read in conjunction with our financial information in our 2024 Form 10-K, and the interim unaudited condensed consolidated financial statements and notes thereto contained in this report.

Some matters discussed in this report may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as such, may involve risks and uncertainties. These forward-looking statements can be identified by the use of terminology such as “estimate,” “project,” “anticipate,” “expect,” “intend,” “believe,” “will,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. These forward-looking statements relate to, among other things, the Company’s financial prospects and other projections of our performance and asset quality, our deposit balances and capital ratios, our ability to continue to grow profitably and increase our business, our ability to continue to diversify lending and deposit franchises, 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. Actual results and the timing of events could differ materially from those expressed or implied in such forward-looking statements as a result of risks and uncertainties, including without limitation our ability to successfully integrate acquisitions and realize the anticipated benefits of the transactions, changes in the interest rate environment, monetary policy, 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, our ability to attract and retain deposits and access other sources of liquidity, and the outcome and effects of litigation and other factors beyond our reasonable control. These and other risks and uncertainties are discussed under the heading “Item 1A. Risk Factors” herein and in our 2024 Form 10-K, which has been filed with the SEC, could cause actual results to differ materially from those expressed or implied in any forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this report. All forward-looking statements are qualified in their entirety by this cautionary statement, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All written and oral forward-looking statements made in connection with this report, which are attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing information.

General

Our Company is a diversified financial services company with approximately $23.6 billion in assets and approximately $37.4 billion of assets under custody and/or administration at Axos Clearing LLC (“Axos Clearing”). Axos Bank (the “Bank”) provides consumer and commercial banking products through its digital online and mobile banking platforms, low-cost distribution channels and affinity partners. Our Bank offers deposit and lending products to customers nationwide including consumer and business checking, savings and time deposit accounts and single family and multifamily residential mortgages, commercial real estate mortgages and loans, fund and lender finance loans, asset-based loans, auto loans and other consumer loans. Our Bank generates non-interest income from consumer and business products, including fees from loans originated for sale, deposit account service fees, prepayment fees, as well as technology and payment transaction processing fees. We offer securities products and services to independent registered investment advisors (“RIAs”) and introducing broker dealers (“IBDs”) through Axos Clearing and Axos Advisor Services (“AAS”) and direct-to-consumer securities trading and digital investment management products through Axos Invest, Inc. (“Axos Invest”). AAS and Axos Clearing generate interest and fee income by providing comprehensive securities custody services to RIAs and clearing, stock lending and margin lending services to IBDs, respectively. Axos Invest generates fee income from self-directed securities trading and margin lending and fee income from digital wealth management services to consumers. Axos Invest LLC is an IBD which supports direct trading. Our common stock is listed on the New York Stock Exchange under the ticker symbol “AX” and is a component of the Russell 2000® Index, the KBW Nasdaq Financial Technology Index, the S&P SmallCap 600® Index, and the Travillian Tech-Forward Bank Index.

Axos Financial, Inc. is supervised and regulated as a savings and loan holding company that has elected to be treated as a financial holding company by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and is required to file reports with, comply with the rules and regulations of, and is subject to examination by, the Federal Reserve.

Our Bank is a federal savings association, which has elected to operate as a covered savings association. The Bank is 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.

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As a depository institution with more than $10 billion in assets, our Bank and our affiliates are subject to direct supervision by the Consumer Financial Protection Bureau.

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

FDIC Loan Purchase

On December 7, 2023, the Company acquired from the FDIC two loan portfolios with an aggregate unpaid principal balance of $1.3 billion at a 37% discount to par. Given the level of discount at which the loans were purchased, the yield over the remaining life of the loans is expected to exceed that of the Company’s existing loan portfolio prior to the FDIC Loan Purchase. For additional information on the FDIC Loan Purchase, see Note 2—“Acquisitions” in the 2024 Form 10-K.

Segment Information

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

Banking Business Segment. The Banking Business Segment includes a broad range of banking services including online banking, concierge banking, and mortgage, vehicle and unsecured lending through online, low-cost distribution channels to serve the needs of consumers and small businesses nationally. In addition, the Banking Business Segment focuses on providing deposit products nationwide to industry verticals (e.g., Title and Escrow), treasury management products to a variety of businesses, and commercial & industrial and commercial real estate lending to clients. The Banking Business Segment includes a bankruptcy trustee and fiduciary service that provides specialized software and consulting services to Chapter 7 bankruptcy and non-Chapter 7 trustees and fiduciaries.

Securities Business Segment. The Securities Business Segment includes the clearing broker-dealer, registered investment advisor custody business, and introducing broker-dealer lines of businesses. These lines of business offer products independently to their own customers as well as to Banking Business Segment clients.

Critical Accounting Estimates

The following discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements and the notes thereto, which have been prepared in accordance with GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the unaudited condensed consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various factors and circumstances. We believe our estimates and assumptions are reasonable under the circumstances. However, actual results may differ significantly from these estimates and assumptions and could have a material effect on the carrying value of assets and liabilities, our results of operations and/or our cash flows.

Critical accounting estimates are those we consider most important to the portrayal of our financial condition and results of operations because they require our most difficult judgments, often as a result of the need to make estimates that are inherently uncertain. Our critical accounting estimates are described in detail in the 2024 Form 10-K in Note 1—“Organizations and Summary of Significant Accounting Policies” and Item 7—“Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates.”

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USE OF NON-GAAP FINANCIAL MEASURES

In addition to the results presented in accordance with GAAP, this report includes the non-GAAP financial measures adjusted earnings, adjusted earnings per common share (“Adjusted EPS”), 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. As noted below with respect to each measure, we believe the non-GAAP financial measures disclosed in this report enhance investors’ understanding of our business and performance, and our management uses these non-GAAP measures when it internally evaluates the performance of our business and makes operating decisions. However, 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 items, (including amortization of intangible assets related to acquisitions) and other costs (unusual or non-recurring charges). Adjusted EPS, a non-GAAP financial measure, is calculated by dividing non-GAAP adjusted earnings by the average number of diluted common shares outstanding during the period. We believe the non-GAAP measures of adjusted earnings and adjusted EPS provide useful information about the Company’s operating performance. We believe excluding the non-recurring acquisition-related costs, and other costs provides investors with an alternative understanding of our core business.

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


	Three Months Ended September 30,
(Dollars in thousands, except per share data)		2024		2023
Net income		$	112,340	$	82,645


Acquisition-related costs		2,554		2,790

Income tax effect		(752)		(839)
Adjusted earnings (Non-GAAP)		$	114,142	$	84,596

Average dilutive common shares outstanding		58,168,468		59,808,322

Diluted EPS		$	1.93	$	1.38


Acquisition-related costs		0.04		0.05

Income tax effect		(0.01)		(0.02)
Adjusted EPS (Non-GAAP)		$	1.96	$	1.41

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

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


(Dollars in thousands, except per share data)	September 30, 2024		June 30, 2024		September 30, 2023
Common stockholders’ equity	$	2,405,728	$	2,290,596	$	1,976,208
Less: servicing rights, carried at fair value	27,335		28,924		29,338
Less: goodwill and intangible assets—net	139,215		141,769		149,572
Tangible common stockholders’ equity (Non-GAAP)	$	2,239,178	$	2,119,903	$	1,797,298

Common shares outstanding at end of period	57,092,216		56,894,565		58,503,976

Book value per common share	42.14		40.26		33.78
Less: servicing rights, carried at fair value per common share	0.48		0.51		0.50
Less: goodwill and other intangible assets—net per common share	2.44		2.49		2.56
Tangible book value per common share (Non-GAAP)	$	39.22	$	37.26	$	30.72

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SELECTED FINANCIAL INFORMATION

AXOS FINANCIAL, INC.

SELECTED CONSOLIDATED FINANCIAL INFORMATION


(Dollars in thousands, except per share data)	September 30, 2024			June 30, 2024			September 30, 2023
Selected Balance Sheet Data:
Total assets	$	23,569,084		$	22,855,334		$	20,825,206
Loans—net of allowance for credit losses	19,280,609			19,231,385			16,955,041
Loans held for sale, carried at fair value	14,566			16,482			8,014

Allowance for credit losses	263,854			260,542			170,870
Trading securities	594			353			640
Available-for-sale securities	137,996			141,611			236,726

Securities borrowed	84,326			67,212			96,424
Customer, broker-dealer and clearing receivables	262,774			240,028			285,423
Total deposits	19,973,329			19,359,217			17,565,741

Advances from the Federal Home Loan Bank	90,000			90,000			90,000
Borrowings, subordinated notes and debentures	313,519			325,679			447,733
Securities loaned	95,883			74,177			116,446
Customer, broker-dealer and clearing payables	315,985			301,127			341,915
Total stockholders’ equity	$	2,405,728		$	2,290,596		$	1,976,208

Common shares outstanding at end of period	57,092,216			56,894,565			58,503,976
Common shares issued at end of period	70,562,333			70,221,632			69,826,263

Per Common Share Data:
Book value per common share	$	42.14		$	40.26		$	33.78
Tangible book value per common share (Non-GAAP)1	$	39.22		$	37.26		$	30.72

Capital Ratios:
Equity to assets at end of period	10.21		%	10.02		%	9.49		%
Axos Financial, Inc.:
Tier 1 leverage (to adjusted average assets)	9.78		%	9.43		%	9.27		%
Common equity tier 1 capital (to risk-weighted assets)	12.44		%	12.01		%	11.11		%
Tier 1 capital (to risk-weighted assets)	12.44		%	12.01		%	11.11		%
Total capital (to risk-weighted assets)	15.29		%	14.84		%	14.06		%
Axos Bank:
Tier 1 leverage (to adjusted average assets)	9.82		%	9.74		%	9.99		%
Common equity tier 1 capital (to risk-weighted assets)	12.87		%	12.74		%	11.69		%
Tier 1 capital (to risk-weighted assets)	12.87		%	12.74		%	11.69		%
Total capital (to risk-weighted assets)	14.06		%	13.81		%	12.65		%
Axos Clearing LLC:
Net capital	$	85,292		$	101,462		$	101,391
Excess capital	$	80,081		$	96,654		$	96,211
Net capital as a percentage of aggregate debit items	32.73		%	42.21		%	39.14		%
Net capital in excess of 5% aggregate debit items	$	72,264		$	89,442		$	88,440

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AXOS FINANCIAL, INC.

SELECTED CONSOLIDATED FINANCIAL INFORMATION


(Dollars in thousands, except per share data)	September 30, 2024			September 30, 2023
Selected Income Statement Data:
Interest and dividend income	$	484,262		$	363,952
Interest expense	192,214			152,797
Net interest income	292,048			211,155
Provision for credit losses	14,000			7,000
Net interest income, after provision for credit losses	278,048			204,155
Non-interest income	28,609			34,507
Non-interest expense	147,465			120,506
Income before income taxes	159,192			118,156
Income taxes	46,852			35,511
Net income	$	112,340		$	82,645

Weighted average number of common shares outstanding:
Basic	56,934,671			58,949,038
Diluted	58,168,468			59,808,322

Per Common Share Data:
Net income:
Basic	$	1.97		$	1.40
Diluted	$	1.93		$	1.38
Adjusted earnings per common share (Non-GAAP)1	$	1.96		$	1.41





Performance Ratios and Other Data:
Growth in loans held for investment, net	$	49,224		$	498,313

Loan originations for sale	$	69,570		$	52,858

Return on average assets	1.92		%	1.64		%
Return on average common stockholders’ equity	19.12		%	16.91		%
Interest rate spread2	4.13		%	3.37		%
Net interest margin3	5.17		%	4.36		%
Net interest margin3 – Banking Business Segment	5.21		%	4.46		%
Efficiency ratio4	45.99		%	49.05		%
Efficiency ratio4 – Banking Business Segment	39.83		%	45.44		%

Asset Quality Ratios:
Net annualized charge-offs to average loans	0.17		%	0.04		%
Nonaccrual loans to total loans	0.89		%	0.62		%
Non-performing assets to total assets	0.75		%	0.56		%
Allowance for credit losses - loans to total loans held for investment5	1.35		%	1.00		%
Allowance for credit losses - loans to nonaccrual loans	149.32		%	159.80		%

1 See “Use of Non-GAAP Financial Measures.”

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

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

4 Efficiency ratio represents non-interest expense as a percentage of the aggregate of net interest income and non-interest income.

5 The increase in the ratio of the allowance for credit losses - loans to total loans held for investment at September 30, 2024 was primarily attributable to the allowance for credit losses related to the PCD loans acquired in the FDIC Loan Purchase. See Note 2— “Acquisitions” in the 2024 Form 10-K for additional information.

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RESULTS OF OPERATIONS

Comparison of the Three Months Ended September 30, 2024 and 2023

For the three months ended September 30, 2024, we had net income of $112.3 million, or $1.93 per diluted share, compared to net income of $82.6 million, or $1.38 per diluted share, for the three months ended September 30, 2023.

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

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




	For the Three Months Ended,
	September 30, 2024						September 30, 2023
(Dollars in thousands)	Average Balance1		Interest Income/ Expense		Average Yields Earned/Rates Paid2		Average Balance1		Interest Income/ Expense		Average Yields Earned/Rates Paid2
Assets:
Loans3, 4	$	19,447,016	$	438,229	9.01	%	$	16,651,933	$	326,974	7.85	%
Non-purchased loans	18,469,398		382,459		8.28	%	16,651,933		326,974		7.85	%
Purchased loans5	977,618		55,770		22.82	%	—		—		—	%
Interest-earning deposits in other financial institutions	2,680,503		37,425		5.58	%	2,093,366		28,510		5.45	%
Mortgage-backed and other securities4	142,776		1,960		5.49	%	233,148		3,137		5.38	%
Securities borrowed and margin lending6	313,102		6,271		8.01	%	364,938		4,995		5.47	%
Stock of the regulatory agencies	19,012		377		7.93	%	17,250		336		7.81	%
Total interest-earning assets	22,602,409		484,262		8.57	%	19,360,635		363,952		7.52	%
Non-interest-earning assets	797,127						736,962
Total assets	$	23,399,536					$	20,097,597
Liabilities and Stockholders’ Equity:
Interest-bearing demand and savings	$	15,915,785	$	177,815	4.47	%	$	12,847,997	$	134,359	4.18	%
Time deposits	871,876		9,454		4.34	%	1,173,682		11,751		4.01	%
Securities loaned	97,215		540		2.23	%	188,705		449		0.95	%
Advances from the FHLB	90,000		529		2.35	%	90,000		529		2.35	%
Borrowings, subordinated notes and debentures	323,697		3,876		4.79	%	419,925		5,709		5.44	%
Total interest-bearing liabilities	17,298,573		192,214		4.44	%	14,720,309		152,797		4.15	%
Non-interest-bearing demand deposits	2,971,090						2,749,567
Other non-interest-bearing liabilities	779,561						673,359
Stockholders’ equity	2,350,312						1,954,362
Total liabilities and stockholders’ equity	$	23,399,536					$	20,097,597
Net interest income			$	292,048					$	211,155
Interest rate spread7					4.13	%					3.37	%
Net interest margin8					5.17	%					4.36	%

1.Average balances are obtained from daily data.

2.Annualized.

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

4.Interest income includes reductions for amortization of loan and investment securities premiums and earnings from accretion of discounts and loan fees.

5.Purchased loans include loans, loan discounts and unearned fees related to the FDIC Loan Purchase.

6.Margin lending is the significant component of the asset titled customer, broker-dealer and clearing receivables on the unaudited Condensed Consolidated Balance Sheets.

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

8.Net 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); and (ii) effects on interest income and interest expense attributable to changes in rate (changes in rate multiplied by prior volume). The change in interest due to both volume and rate has been allocated proportionally to each based on the relative changes attributable to volume and changes attributable to rate.


	For the Three Months Ended
	September 30,
	2024 vs 2023
	Increase (Decrease) Due to
(Dollars in thousands)		Volume		Rate		Total Increase (Decrease)
Increase (decrease) in interest income:
Loans		$	59,167	$	52,088	$	111,255
Non-purchased loans		3,397		52,088		55,485
Purchased loans1		55,770		—		55,770
Interest-earning deposits in other financial institutions		8,216		699		8,915
Mortgage-backed and other securities		(1,240)		63		(1,177)
Securities borrowed and margin lending		(785)		2,061		1,276
Stock of the regulatory agencies		36		5		41
Total increase (decrease) in interest income		$	65,394	$	54,916	$	120,310
Increase (decrease) in interest expense:
Interest-bearing demand and savings		$	33,672	$	9,784	$	43,456
Time deposits		(3,207)		910		(2,297)
Securities loaned		(294)		385		91
Advances from the FHLB		—		—		—
Borrowings, subordinated notes and debentures		(1,205)		(628)		(1,833)
Total increase (decrease) in interest expense		$	28,966	$	10,451	$	39,417

1 Purchased loans include loans, loan discounts and unearned fees related to the FDIC Loan Purchase.

Net Interest Income

For the three months ended September 30, 2024, net interest income totaled $292.0 million, an increase of $80.9 million, or 38.3%, compared to net interest income of $211.2 million for the three months ended September 30, 2023. For the three months ended September 30, 2024, net interest margin increased by 81 basis points compared to the net interest margin of 4.36% for the three months ended September 30, 2023.

For the three months ended September 30, 2024, total interest and dividend income increased 33.1% from the three months ended September 30, 2023, primarily due to a $111.3 million increase in interest income from loans, attributable to a $2.8 billion increase in average balances and a 116 basis point increase in rates earned, as well as higher discount accretion.

For the three months ended September 30, 2024, total interest expense increased 25.8% from the three months ended September 30, 2023, primarily due to a $43.5 million increase in interest expense from demand and savings deposits, attributable to a $3.1 billion increase in average balances and a 29 basis point increase in rates paid.

Provision for Credit Losses

The provision for credit losses was $14.0 million for the three months ended September 30, 2024, compared to $7.0 million for the three months ended September 30, 2023. The provision for credit losses consists of provisions for both funded loans and for unfunded lending commitments. The provision for credit losses for funded loans was $11.5 million for the three months ended September 30, 2024, and was primarily due to the quantitative impact of macroeconomic variables in the allowance for credit losses model, primarily the U.S. unemployment rate, and increases in specific reserves, mainly in the commercial & industrial - non-RE portfolio. The provision for credit losses for unfunded lending commitments of $2.5 million for the three months ended September 30, 2024, was primarily driven by unfunded lending commitment growth, primarily in the commercial & industrial - non-RE portfolio. Provisions for credit losses are charged to income to bring the allowance for

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credit losses for loans and unfunded lending commitments to a level deemed appropriate by management based on the factors discussed under the heading “Financial Condition—Asset Quality and Allowance for Credit Losses - Loans.”

Non-Interest Income

The following table sets forth information regarding our non-interest income:


	For the Three Months Ended
	September 30,
(Dollars in thousands)		2024		2023		Inc (Dec)
Broker-dealer fee income		$	11,060	$	12,477	$	(1,417)
Advisory fee income		7,945		8,219		(274)
Banking and service fees		8,613		8,350		263
Mortgage banking and servicing rights income		450		3,878		(3,428)
Prepayment penalty fee income		541		1,583		(1,042)

Total non-interest income		$	28,609	$	34,507	$	(5,898)

For the three months ended September 30, 2024, non-interest income decreased by $5.9 million, or 17.1%, primarily due to decreases of:

•$3.4 million in mortgage banking and servicing rights income, primarily attributable to the absence of a $1.9 million fair value gain in the prior year quarter and a decrease in the fair value of servicing rights in the current quarter on lower interest rates;

•$1.4 million in broker-dealer fee income, primarily attributable to lower balances on cash sorting balances at non-affiliated banks; and

• $1.0 million in prepayment penalty fee income.

Non-Interest Expense

The following table sets forth information regarding our non-interest expense:


	For the Three Months Ended
	September 30,
(Dollars in thousands)		2024		2023		Inc (Dec)
Salaries and related costs		$	74,293	$	55,811	$	18,482
Data and operational processing		18,985		16,084		2,901
Depreciation and amortization		7,450		5,878		1,572
Advertising and promotional		14,253		10,375		3,878
Professional services		9,895		9,811		84
Occupancy and equipment		4,318		3,846		472
FDIC and regulatory fees		5,956		4,449		1,507
Broker-dealer clearing charges		4,307		4,012		295
General and administrative expense		8,008		10,240		(2,232)
Total non-interest expense		$	147,465	$	120,506	$	26,959

For the three months ended September 30, 2024, non-interest expense increased $27.0 million, or 22.4%, primarily due to increases of:

•$18.5 million in salaries and related costs primarily due to increased headcount and salaries, as the Bank continues to expand its commercial lending and deposit businesses and compliance and risk personnel; and

•$3.9 million in advertising and promotional expenses primarily due to deposit marketing.

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Provision for Income Taxes

Income tax expense was $46.9 million for the three months ended September 30, 2024, compared to $35.5 million for three months ended September 30, 2023. Our effective income tax rates for the three months ended September 30, 2024 and 2023 were 29.43% and 30.05%, respectively.

SEGMENT RESULTS

Our Company determines reportable segments based on the services offered, the significance of the services offered, the significance of those services to our Company’s financial condition and operating results and management’s regular review of the operating results of those services. Our Company operates through two operating segments: the Banking Business Segment and the Securities Business Segment. In order to reconcile the two segments to the consolidated totals, our Company includes corporate activities and intercompany eliminations. Inter-segment transactions are eliminated in consolidation and primarily include non-interest income earned by the Securities Business Segment and non-interest expense incurred by the Banking Business Segment for cash sorting fees related to deposits sourced from Securities Business Segment customers, as well as interest expense paid by the Banking Business Segment to each of the wholly-owned subsidiaries of our Company and to our Company itself for their operating cash held on deposit with the Banking Business Segment.

The following tables present the operating results of the segments:


















	For the Three Months Ended September 30, 2024
(Dollars in thousands)	Banking Business		Securities Business		Corporate/Eliminations		Axos Consolidated
Net interest income	$	288,492	$	7,267	$	(3,711)	$	292,048
Provision for credit losses	14,000		—		—		14,000
Non-interest income	8,590		29,902		(9,883)		28,609
Non-interest expense	118,315		28,091		1,059		147,465
Income before income taxes	$	164,767	$	9,078	$	(14,653)	$	159,192

	For the Three Months Ended September 30, 2023
(Dollars in thousands)	Banking Business		Securities Business		Corporate/Eliminations		Axos Consolidated
Net interest income	$	209,219	$	5,542	$	(3,606)	$	211,155
Provision for credit losses	7,000		—		—		7,000
Non-interest income	12,557		34,555		(12,605)		34,507
Non-interest expense	100,786		27,523		(7,803)		120,506
Income before income taxes	$	113,990	$	12,574	$	(8,408)	$	118,156

Banking Business Segment

For the three months ended September 30, 2024, our Banking Business Segment had income before income taxes of $164.8 million, compared to income before taxes of $114.0 million for the three months ended September 30, 2023.

For the three months ended September 30, 2024, the Banking Business Segment’s net interest income increased $79.3 million or 37.9% compared to net interest income for the three months ended September 30, 2023, respectively. The increase in net interest income was primarily due to higher interest income from loans, primarily attributable to higher average balances and rates earned, as well as higher discount accretion, partially offset by higher balances and rates paid on interest-bearing deposit balances.

For the three months ended September 30, 2024, the Banking Business Segment’s non-interest income decreased $4.0 million, or 31.6%, compared to non-interest income for the three months ended September 30, 2023. The decrease in non-interest income for the three months ended September 30, 2024 was primarily due to lower mortgage banking and servicing rights income and lower prepayment penalty fee income.

For the three months ended September 30, 2024, the Banking Business Segment’s non-interest expense increased $17.5 million, or 17.4%, compared to non-interest expense for the three months ended September 30, 2023. The increase in non-interest expense for the three months ended September 30, 2024 was primarily due to higher salaries and related costs, data and operational processing expenses and higher advertising and promotional expenses.

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We consider the ratios shown in the table below to be key indicators of the performance of our Banking Business Segment:


	For the Three Months Ended September 30,
		2024		2023
Efficiency ratio		39.83	%	45.44	%
Return on average assets		2.17	%	1.65	%
Interest rate spread		4.16	%	3.46	%
Net interest margin		5.21	%	4.46	%

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 Segment and reduce our consolidated net interest margin, such as the borrowing costs at our Company and the yields and costs associated with certain items within interest-earning assets and interest-bearing liabilities in our Securities Business Segment, including items related to securities financing operations.

Securities Business Segment

For the three months ended September 30, 2024, our Securities Business Segment had income before income taxes of $9.1 million, compared to income before income taxes of $12.6 million for the three months ended September 30, 2023.

For the three months ended September 30, 2024, net interest income increased $1.7 million or 31.1%, compared to net interest income for the three months ended September 30, 2023. The increase was primarily driven by lower balances of borrowings in the current quarter.

For the three months ended September 30, 2024, non-interest income decreased $4.7 million, or 13.5%, compared to non-interest income for the three months ended September 30, 2023. The decrease was primarily driven by lower broker-dealer fee income.

For the three months ended September 30, 2024, non-interest expense increased $0.6 million or 2.1%, compared to non-interest expense for the three months ended September 30, 2023. The increase was primarily driven by higher salaries and related costs.

The following table provides selected information for Axos Clearing:


(Dollars in thousands)	September 30, 2024		June 30, 2024

FDIC insured deposit program balances at banks	$	1,254,896	$	1,289,105
Margin balances	$	220,524	$	219,848
Cash reserves for the benefit of customers	$	129,346	$	113,676





Securities lending:
Interest-earning assets – securities borrowed	$	84,326	$	67,212
Interest-bearing liabilities – securities loaned	$	95,883	$	74,177

FINANCIAL CONDITION

Balance Sheet Analysis

Our total assets increased $0.7 billion, or 3.1%, to $23.6 billion at September 30, 2024, from $22.9 billion at June 30, 2024, primarily attributable to higher cash and cash equivalents. Our total liabilities increased $0.6 billion, or 2.9%, to $21.2 billion at September 30, 2024 from $20.6 billion at June 30, 2024, primarily attributable to higher deposit balances.

Loans and Allowance for Credit Losses - Loans

The following table sets forth the composition of the loan portfolio:

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	September 30, 2024				June 30, 2024
(Dollars in thousands)	Amount		Percent		Amount		Percent
Single Family - Mortgage & Warehouse	$	4,151,583	20.9	%	$	4,178,832	21.1	%
Multifamily and Commercial Mortgage1	3,647,469		18.4	%	3,861,931		19.5	%
Commercial Real Estate1	6,256,265		31.6	%	6,088,622		30.7	%
Commercial & Industrial - Non-RE	5,354,752		27.0	%	5,241,766		26.5	%
Auto & Consumer	415,765		2.1	%	431,660		2.2	%


Total gross loans	19,825,834		100.0	%	19,802,811		100.0	%
Allowance for credit losses - loans	(263,854)				(260,542)
Unaccreted discounts and loan fees	(281,371)				(310,884)
Total net loans	$	19,280,609			$	19,231,385

1 Includes PCD loans of $282.6 million and $284.0 million in Multifamily and Commercial Mortgage and $44.5 million and $44.5 million in Commercial Real Estate as of September 30, 2024 and June 30, 2024, respectively. For further detail on PCD loans, see Note 1—“Summary of Significant Accounting Policies” in the 2024 Form 10-K.

The increase in Multifamily and Commercial Mortgage loans and the related impact on the allowance for credit losses and unaccreted discounts and loan fees, was primarily driven by the FDIC Loan Purchase. For further information on the FDIC Loan Purchase, see Note 2—“Acquisitions” in the 2024 Form 10-K.

Management establishes an allowance for credit losses based upon its evaluation of the expected lifetime credit losses related to the amortized cost basis of loans on the balance sheet. The net charge-off rate for the three months ended September 30, 2024 was 0.17%, compared to 0.04% for the September 30, 2023. The increase in the net charge-off rate from the three months ended September 30, 2023, to the three months ended September 30, 2024, was primarily driven by charge-offs on one commercial mortgage loan and two commercial & industrial – non-RE loans. The amount charged off for each loan had been specifically reserved in full in the allowance for credit losses in prior periods. The commercial mortgage loan was issued in fiscal year 2020 and has been classified as substandard since September 2021. The two commercial & industrial – non-RE loans were issued in fiscal year 2021 and 2022, had been classified as substandard since April 2023 and February 2024, respectively. For additional information regarding the Company’s allowance for credit losses, see Note 4—“Loans & Allowance for Credit Losses” in the accompanying interim condensed consolidated financial statements. For a discussion of the provision for credit losses for the three months ended September 30, 2024, see Item 2—“Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations.” We believe that the lower average LTV in the loan portfolio will continue to result in future lower average mortgage loan charge-offs when compared to many other comparable banks.

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Asset Quality

Non-performing Assets. Loans reaching 90 days past due are generally placed on nonaccrual status. Loans not yet reaching 90 days past due may be placed on nonaccrual status based on management’s assessment of the aging of contractual principal amounts due, among other factors. For an aging analysis of the Company’s loans held for investment as of September 30, 2024 and June 30, 2024, see Note 4—“Loans & Allowance for Credit Losses” in the accompanying interim condensed consolidated financial statements. Non-performing assets include nonaccrual loans plus other real estate owned and repossessed vehicles.

Non-performing assets consisted of the following:


(Dollars in thousands)	September 30, 2024			June 30, 2024			Inc (Dec)
Non-performing assets:
Nonaccrual loans:
Single Family - Mortgage & Warehouse	$	59,079		$	45,711		$	13,368
Multifamily and Commercial Mortgage	31,437			35,054			(3,617)
Commercial Real Estate	40,602			26,102			14,500
Commercial & Industrial - Non-RE	43,596			4,020			39,576
Auto & Consumer	1,984			2,472			(488)


Total nonaccrual loans	$	176,698		$	113,359		$	63,339
Foreclosed real estate	75			1,840			(1,765)
Repossessed vehicles—Autos	637			610			27
Total non-performing assets	$	177,410		$	115,809		$	61,601
Total nonaccrual loans as a percentage of total loans	0.89		%	0.57		%	0.32		%
Total non-performing assets as a percentage of total assets	0.75		%	0.51		%	0.24		%

Our non-performing assets increased to $177.4 million at September 30, 2024 from $115.8 million at June 30, 2024. The increase in non-performing assets during the three months ended September 30, 2024 was primarily the result of an increase in nonaccrual loans of $63.3 million partially offset by a decrease in other real estate owned and repossessed vehicles of $1.7 million. Non-performing assets as a percentage of total assets increased to 0.75% at September 30, 2024 from 0.51% at June 30, 2024.

Available-for-Sale Securities

Total available-for-sale securities were $138.0 million as of September 30, 2024, compared with $141.6 million at June 30, 2024. During the three months ended September 30, 2024, we purchased $16.0 million of securities and received principal repayments of $21.6 million. The remainder of the change for the available-for-sale portfolio is attributable to changes in the fair value of the securities.

Deposits

Deposits increased by $0.6 billion, or 3.2%, to $20.0 billion at September 30, 2024, from $19.4 billion at June 30, 2024. As of September 30, 2024 compared with June 30, 2024, interest-bearing demand and savings increased $671.5 million and non-interest-bearing deposits increased by $80.0 million, while time deposits decreased $137.3 million.

The following table sets forth the composition of the deposit portfolio:


	September 30, 2024				June 30, 2024
(Dollars in thousands)	Amount		Rate1		Amount		Rate1
Non-interest-bearing	$	3,055,605	—	%	$	2,975,631	—	%




Interest-bearing demand and savings	$	16,116,959	4.23	%	$	15,445,490	4.23	%



Time deposits	$	800,765	4.26	%	$	938,096	4.51	%
Total interest bearing	$	16,917,724	4.24	%	$	16,383,586	4.24	%
Total deposits2	$	19,973,329	3.59	%	$	19,359,217	3.59	%

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

2 Total deposits includes brokered deposits of $1,440.7 million and $1,611.6 million as of September 30, 2024 and June 30, 2024, respectively, which include brokered time deposits of $275.0 million and $400.0 million as of September 30, 2024 and June 30, 2024, respectively.

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


	September 30, 2024	June 30, 2024	September 30, 2023
Non-interest-bearing	49,086	55,772	46,647
Interest-bearing checking and savings accounts	527,058	495,070	447,288
Time deposits	4,379	4,696	5,976
Total number of deposit accounts	580,523	555,538	499,911

Total Bank deposits that exceeded the FDIC insurance limit of $250,000 or were not collateralized at September 30, 2024 and June 30, 2024 were $2.3 billion and $2.1 billion, respectively. The maturities of time deposits that exceeded the FDIC insurance limit were as follows:


(Dollars in thousands)	September 30, 2024
3 months or less	$	202,160
3 months to 6 months	147,472
6 months to 12 months	11,049
Over 12 months	3,535
Total	$	364,216

Borrowings

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


	September 30, 2024					June 30, 2024					September 30, 2023
(Dollars in thousands)	Balance			Weighted Average Rate		Balance			Weighted Average Rate		Balance			Weighted Average Rate

FHLB Advances	$	90,000		2.32	%	$	90,000		2.32	%	$	90,000		2.32	%
Borrowings, subordinated notes and debentures	313,519			4.56	%	325,679			4.57	%	447,733			5.27	%
Total borrowings	$	403,519		4.06	%	$	415,679		4.08	%	$	537,733		4.78	%

Weighted average cost of borrowings during the quarter	4.26		%			4.61		%			4.89		%
Borrowings as a percent of total assets	1.71		%			1.82		%			2.58		%

We regularly use advances from the FHLB to manage our interest rate risk and, to a lesser extent, manage our liquidity position. Generally, FHLB advances with terms between three and ten years have been used to fund the origination of loans and to provide us with interest rate risk protection should rates rise. On July 15, 2024, the Company paid $2.6 million to repurchase $3.0 million par value of its 4.00% Fixed-to-Floating Rate Subordinated Notes due March 1, 2032. On September 27, 2024, the Company paid $9.2 million to repurchase $9.5 million par value of its 4.875% Fixed-to-Floating Rate Subordinated Notes due October 1, 2030. For additional information see Note 11—“Borrowings, Subordinated Notes and Debentures” in the accompanying interim condensed consolidated financial statements.

Stockholders’ Equity

Stockholders’ equity increased $115.1 million to $2,405.7 million at September 30, 2024, compared to $2,290.6 million at June 30, 2024. The increase was primarily the result of net income for the three months ended September 30, 2024 of $112.3 million.

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LIQUIDITY

Cash flow information is as follows:


	For the Three Months Ended
	September 30,
(Dollars in thousands)	2024		2023
Operating Activities	$	70,788	$	34,187
Investing Activities	$	(45,541)	$	(506,282)
Financing Activities	$	592,833	$	503,778

During the three months ended September 30, 2024, we had net cash inflows from operating activities of $70.8 million compared to inflows of $34.2 million for the three months ended September 30, 2023. Net operating cash inflows and outflows fluctuate primarily due to the timing of the following: originations of loans held for sale, proceeds from loan sales, securities borrowed and loaned, and customer, broker-dealer and clearing receivables and payables and changes in other assets and payables.

Net cash outflows from investing activities totaled $45.5 million for the three months ended September 30, 2024, while outflows totaled $506.3 million for the three months ended September 30, 2023. The decrease in outflows was primarily due to a decrease in net loan growth in the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

Net cash inflows from financing activities totaled $592.8 million for the three months ended September 30, 2024, compared to net cash inflows from financing activities of $503.8 million for the three months ended September 30, 2023. The increase in net cash inflows from financing is primarily driven by growth in deposits during the three months ended September 30, 2024.

As of September 30, 2024, the Bank could borrow up to 35% of its total assets from the FHLB. Borrowings are collateralized by pledging certain mortgage loans and available-for-sale securities to the FHLB. At September 30, 2024, the Company had $3,075.7 million available immediately and $4,284.2 million available with additional collateral and the Company had $4,680.7 million of loans and $0.8 million of securities pledged to the FHLB. At September 30, 2024, we had $250.0 million in unsecured federal funds lines of credit with five major banks under which there were no borrowings outstanding.

The Bank has the ability to borrow short-term from the FRBSF Discount Window. At September 30, 2024, the Bank did not have any borrowings outstanding and the amount available from this source was $6,879.4 million. Borrowings are collateralized by pledging commercial loans and consumer loans. At September 30, 2024, we had $8,194.2 million of loans pledged to the FRBSF.

Axos Clearing has a $150 million third-party secured line of credit available for borrowing, as needed. As of September 30, 2024, there was no amount outstanding on this credit facility. This credit facility bears interest at rates based on the Federal Funds rate and is due upon demand.

Axos Clearing has a $110 million third-party unsecured line of credit available for limited purpose borrowing. As of September 30, 2024, there was no amount outstanding on this credit facility. This credit facility bears interest at rates based on the Federal Funds rate and is due upon demand.

We view our liquidity sources to be stable and adequate for our anticipated needs and contingencies for both the short- and long-term. Due to the diversified sources of our deposits, while maintaining approximately 90% of our total Bank deposits in insured or collateralized accounts as of September 30, 2024, we believe we have the ability to increase our level of deposits, and have available other potential sources of funding, to address our liquidity needs for the foreseeable future.

For additional information on certain contractual and other obligations, see Note 9—“Commitments and Contingencies” in the accompanying interim condensed consolidated financial statements and Note 12—“Other Assets,” and refer to Note 11—“Deposits,” Note 12—“Advances from the Federal Home Loan Bank” and Note 13—“Borrowings, Subordinated Notes and Debentures” in the 2024 Form 10-K.

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CAPITAL RESOURCES AND REQUIREMENTS

The Company and Bank are subject to regulatory capital adequacy requirements promulgated by federal bank regulatory agencies. Failure by the 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 Consolidated Financial Statements. The Federal Reserve establishes capital requirements for the Company and the OCC has similar requirements for our Bank. The following tables present regulatory capital information for the Company and Bank. Information presented for September 30, 2024 reflects the Basel III capital requirements for both the Company and Bank. Under these capital requirements and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company and Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The 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 the Company and Bank to maintain certain minimum capital amounts and ratios. Federal bank regulators require the Company and Bank to maintain minimum ratios of tier 1 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,” the Company and Bank must maintain minimum leverage, common equity tier 1 risk-based, tier 1 risk-based and total risk-based capital ratios of at least 5.0%, 6.5%, 8.0% and 10.0%, respectively. At September 30, 2024, the Company and Bank met all the capital adequacy requirements to which they were subject and were “well capitalized” under the regulatory framework for prompt corrective action. Management believes that no conditions or events have occurred since September 30, 2024 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 the Company’s and Bank’s further growth and to maintain their “well capitalized” status.

The Company and Bank both elected the five-year current expected credit losses (“CECL”) transition guidance for calculating regulatory capital and ratios. The amounts in the following table reflect this election. This guidance allowed an entity to add back to regulatory capital 100% of the impact of the day-one CECL transition adjustment and 25% of subsequent increases to the allowance for credit losses through June 30, 2022. In fiscal year 2025, this cumulative amount is phased out of regulatory capital at 75% and the cumulative amount will be 100% phased out of regulatory capital beginning in fiscal year 2026.

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The Company’s and Bank’s capital ratios and requirements were as follows:


	Axos Financial, Inc.						Axos Bank						“Well Capitalized” Ratio	Minimum Capital Ratio
(Dollars in thousands)	September 30, 2024			June 30, 2024			September 30, 2024			June 30, 2024
Regulatory Capital:
Tier 1	$	2,275,903		$	2,167,781		$	2,229,483		$	2,181,426
Common equity tier 1	$	2,275,903		$	2,167,781		$	2,229,483		$	2,181,426
Total capital	$	2,796,837		$	2,678,489		$	2,435,646		$	2,365,061

Assets:
Average adjusted	$	23,267,418		$	22,979,871		$	22,711,795		$	22,391,541
Total risk-weighted	$	18,292,253		$	18,049,571		$	17,322,677		$	17,128,880

Regulatory Capital Ratios:
Tier 1 leverage (to adjusted average assets)	9.78		%	9.43		%	9.82		%	9.74		%	5.00%	4.00%
Common equity tier 1 capital (to risk-weighted assets)	12.44		%	12.01		%	12.87		%	12.74		%	6.50%	4.50%
Tier 1 capital (to risk-weighted assets)	12.44		%	12.01		%	12.87		%	12.74		%	8.00%	6.00%
Total capital (to risk-weighted assets)	15.29		%	14.84		%	14.06		%	13.81		%	10.00%	8.00%

Basel III requires all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively composed of common equity tier 1 capital, and it applies to each of the three risk-based capital ratios but not the leverage ratio. At September 30, 2024 and June 30, 2024, our Company and Bank were 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 position of Axos Clearing was as follows:


(Dollars in thousands)	September 30, 2024			June 30, 2024
Net capital	$	85,292		$	101,462
Excess Capital	$	80,081		$	96,654

Net capital as a percentage of aggregate debit items	32.73		%	42.21		%
Net capital in excess of 5% aggregate debit items	$	72,264		$	89,442

Axos Clearing, as a clearing broker, is subject to the SEC Customer Protection Rule (Rule 15c3-3 of the Exchange Act) which requires segregation of funds in a special reserve account for the exclusive benefit of customers (“Customer Reserve Bank Account”) and proprietary accounts of brokers (“PAB Reserve Account”). As of September 30, 2024, Axos Clearing was in compliance with its Customer Reserve Bank Account and PAB Reserve Account deposit requirements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For further discussion of the Company’s market risk, see Item 7A—“Quantitative and Qualitative Disclosures About Market Risk” in the 2024 Form 10-K.

We measure interest rate sensitivity as the difference between amounts of interest-earning assets and interest-bearing liabilities that mature or contractually re-price within a given period of time. The difference, or the interest rate sensitivity gap, provides an indication of the extent to which an institution’s interest rate spread will be affected by changes in interest rates. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities and negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets.

Absent any subsequent asset and liability actions by management, 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. Similarly, absent any subsequent asset and liability actions by management, 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.

Banking Business Segment

Beginning September 30, 2024, the Company made certain refinements to its interest rate sensitivity analyses for the Banking Business Segment by moving the simulation framework to an industry leading cash flow engine. The change was implemented to enhance the process and better reflect the behavior of its interest rate-sensitive assets and liabilities and provide improved granularity on key inputs and outputs used by the Company, including, but not limited to, prepayment and deposit beta assumptions. The modeled outputs as of September 30, 2024, when compared to those generated by applying the prior period methodology to the current period, do not result in significant changes to the previously disclosed interest rate sensitivities as of June 30, 2024. The reduced risk in the downward interest rate scenarios is primarily due to a change in deposit betas, which are now better aligned with the Company’s expectations.

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The following table sets forth the amounts of interest earning assets and interest bearing liabilities that were outstanding at September 30, 2024 and the portions of each financial instrument that are expected to mature or reset interest rates in each future period:


	Term to Repricing, Repayment, or Maturity at
	September 30, 2024
(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	$	2,640,934		$	—		$	—		$	—		$	2,640,934
Available-for-sale securities1	96,336			4,656			25,317			11,687			137,996
Stock of the FHLB, at cost	29,716			—			—			—			29,716
Loans2	12,880,026			1,986,582			4,252,362			161,639			19,280,609
Loans held for sale	14,566			—			—			—			14,566
Total interest-earning assets	15,661,578			1,991,238			4,277,679			173,326			22,103,821
Non-interest-earning assets	—			—			—			—			764,233
Total assets	$	15,661,578		$	1,991,238		$	4,277,679		$	173,326		$	22,868,054
Interest-bearing liabilities:
Interest-bearing deposits3	$	16,916,516		$	65,182		$	22,354		$	—		$	17,004,052

Advances from the FHLB	30,000			—			60,000			—			90,000

Total interest-bearing liabilities	16,946,516			65,182			82,354			—			17,094,052
Other non-interest-bearing liabilities	—			—			—			—			3,421,038
Stockholders’ equity	—			—			—			—			2,352,964
Total liabilities and equity	$	16,946,516		$	65,182		$	82,354		$	—		$	22,868,054
Net interest rate sensitivity gap	$	(1,284,938)		$	1,926,056		$	4,195,325		$	173,326		$	5,009,769
Cumulative gap	$	(1,284,938)		$	641,118		$	4,836,443		$	5,009,769		$	5,009,769
Net interest rate sensitivity gap—as a % of total interest earning assets	(5.81)		%	8.71		%	18.98		%	0.78		%	22.66		%
Cumulative gap—as % of total cumulative interest earning assets	(5.81)		%	2.90		%	21.88		%	22.66		%	22.66		%

1 Comprised of U.S. government securities, mortgage-backed securities and other securities. The table reflects contractual repricing dates.

2 Loans includes loan premiums, discounts and unearned fees. The table reflects either contractual repricing dates or expected maturities.

3 The table assumes that the principal balances for demand deposits and savings accounts will reprice in the first year.

The above table provides an approximation of the projected re-pricing of assets and liabilities at September 30, 2024 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 primarily based on modeled cash flows. For the non-maturity deposit liabilities, we use decay rates and rate adjustments based upon our historical experience and the implied forward rate curve, respectively. Actual repayments of these instruments could vary substantially if future experience differs from our historical 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 Company assumes no growth in the balance sheet other than for retained earnings:


	As of September 30, 2024
	First 12 Months		Next 12 Months
(Dollars in thousands)	Percentage Change from Base		Percentage Change from Base
Up 200 basis points	3.8	%	11.2	%
Up 100 basis points	1.8	%	5.3	%

Down 100 basis points	(1.1)	%	(3.9)	%
Down 200 basis points	(0.7)	%	(4.8)	%

We attempt to measure the effect market interest rate changes will have on the net present value of assets and liabilities, which is defined as market value of equity. We analyze the MVE sensitivity to an immediate parallel and sustained shift in interest rates derived from the underlying interest rate curves.

The following table indicates the sensitivity of MVE to the interest rate movement described above:


	As of September 30, 2024
(Dollars in thousands)	Percentage Change from Base

Up 200 basis points	(1.7)	%
Up 100 basis points	(0.3)	%

Down 100 basis points	(0.6)	%
Down 200 basis points	(1.0)	%

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 changes in loan and deposit interest rates and changes in our asset and liability mix.

Securities Business Segment

Our Securities Business Segment 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 Segment 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. The majority 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.

As of September 30, 2024, Axos Clearing held municipal obligations classified as trading securities and had maturities greater than 10 years.

Our Securities Business Segment is engaged in various brokerage and trading activities that expose us to credit risk arising from potential non-performance from counterparties, customers or issuers of securities. This risk is managed by setting and monitoring position limits for each counterparty, conducting periodic credit reviews of counterparties, reviewing concentrations of securities and conducting business through central clearing organizations.

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

ITEM 4.CONTROLS AND PROCEDURES

The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation, our Chief Executive Officer along with our Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In addition, there were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2024 (as defined in Exchange Act Rule 13a-15(f)) that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

Management, including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods is 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 9—“Commitments and Contingencies” in the accompanying interim condensed consolidated financial statements is incorporated herein by reference.

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

ITEM 1A.RISK FACTORS

We face a variety of risks that are inherent in our business and our industry. These risks are described in more detail under Item 1A—“Risk Factors” in the 2024 Form 10-K. We encourage you to read these factors in their entirety. Moreover, other factors may also exist that we cannot anticipate or that we currently do not consider to be significant based on information that is currently available.

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

The table below sets forth our market repurchases of Axos common stock and the Axos common stock retained in connection with net settlement of restricted stock awards during the quarter ended September 30, 2024.


(Dollars in thousands, except per share data)	Number of Shares Purchased	Average Price Paid Per Shares		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar value of Shares that May Yet be Purchased Under the Plans or Programs
Stock Repurchases1
Quarter Ended September 30, 2024
July 1, 2024 to July 31, 2024	—	$	—	—	$	106,521
August 1, 2024 to August 31, 2024	—	—		—	106,521
September 1, 2024 to September 30, 2024	—	—		—	106,521
For the Three Months Ended September 30, 2024	—	$	—	—	$	106,521

Stock Retained in Net Settlement2
July 1, 2024 to July 31, 2024	133
August 1, 2024 to August 31, 2024	57,439
September 1, 2024 to September 30, 2024	85,478
For the Three Months Ended September 30, 2024	143,050

1 On April 27, 2023, the Company announced a program to repurchase up to $100 million of its common stock and on February 12, 2024, the Company announced a program to repurchase up to $100 million of its common stock. The February 12, 2024 share repurchase authorization is in addition to the existing share repurchase plan announced on April 27, 2023. Both of the share repurchase programs will continue in effect until terminated by the Board of Directors of the Company.

2 The Amended and Restated 2014 Stock Incentive Plan permits net settlement of stock issuances related to equity awards for purposes of payment of a grantee’s minimum income tax obligation. Stock Retained in Net Settlement was purchased at the vesting price of the associated restricted stock unit.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

During the three months ended September 30, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

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ITEM 6.EXHIBITS


Exhibit Number	Description	Incorporated By Reference to






10.1	Amended and Restated Employment Agreement, between Axos Bank and Andrew J. Micheletti	Filed herewith.

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.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:

October 30, 2024

By:

/s/ Gregory Garrabrants

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

Dated:

October 30, 2024

By:

/s/ Derrick K. Walsh

Derrick K. Walsh
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

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