COMMITMENTS AND CONTINGENCIES

9 Months Ended

Mar. 31, 2023

Commitments and Contingencies Disclosure [Abstract]

Operating Leases. The Company leases office space under operating lease agreements scheduled to expire at various dates. The following table represents maturities of lease liabilities as of March 31, 2023 in the corresponding fiscal years:



(Dollars in thousands)
Remainder of fiscal year 2023	$	2,747
2024	11,119
2025	11,296
2026	10,967
2027	11,031
Thereafter	29,861
Total lease payments	77,021
Less: amount representing interest	(7,291)
Total lease liability	$	69,730

Credit-Related Financial Instruments. The Company is a party to credit-related financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are commitments to extend credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the unaudited condensed consolidated balance sheets.

The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance-sheet instruments.

At March 31, 2023, the Company had unfunded commitments of $57.5 million in fixed rate loans and $2,816.0 million in variable rate loans, totaling an aggregate principal balance of $2,873.5 million. At March 31, 2023, the Company’s fixed rate commitments to originate had a weighted-average rate of 8.09%. At March 31, 2023, the Company also had commitments to sell $8.5 million in fixed rate loans and no commitments to sell variable rate loans.

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

In the normal course of business, Axos Clearing’s customer activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose Axos Clearing to off-balance-sheet risk in the event the

customer or other broker is unable to fulfill its contracted obligations and Axos Clearing has to purchase or sell the financial instrument underlying the contract at a loss. Axos Clearing’s clearing agreements with broker-dealers for which it provides clearing services requires them to indemnify Axos Clearing if customers fail to satisfy their contractual obligation.

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

The United States District Court for the Southern District of California ordered the six above-referenced derivative actions pending before it to be consolidated and appointed lead counsel in the consolidated action. The matter has been stayed pending resolution of post-trial motions filed in a wrongful termination lawsuit upon which the derivative actions are based. The two derivative actions pending before the San Diego County Superior Court were dismissed without prejudice by court order entered on March 29, 2023, pursuant to a stipulation by the parties.

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 Union Bank. Such verdict has yet to be reduced to judgment. On November 28, 2022, the Company filed a post-trial motion requesting, among other relief, that the court set aside the verdict and direct a verdict for defendants. On March 29, 2023, the court held a hearing on such motions and while denying other relief sought by defendants, held that (1) a related settlement between the plaintiff and Epiq Systems, Inc. must be applied to reduce the verdict prior to prejudgment interest calculations, thereby reducing the net award for tortious interference from $15.8 million to $7.8 million; and (2) pre-judgment interest must be calculated from the mid-point between April 3, 2018, and the date of the judgment to the net tortious interference award. The court’s calculation methodology with respect to pre-judgment interest will save defendants approximately half of the statutory pre-judgement interest that would otherwise be due. The Company continues to believe that the evidence supports the defendants’ understanding of the facts and that meritorious defenses exist to substantially all claims made by Union Bank. In addition, the Company believes that there exist substantial grounds for appeal. The Company recorded a $16 million accrued expense in accounts payable and other liabilities on the condensed consolidated balance sheets and in general and administrative expense on the condensed consolidated statements of income as of and for the nine months ended March 31, 2023, respectively. Given the uncertainty of the appellate process, the potential for an appeal by the plaintiff, and other factors that are similarly unknown or currently unquantifiable, the Company has maintained its accrual at March 31, 2023.