Axos Financial Inc

3. FAIR VALUE

The following tables set forth the Company’s financial assets and liabilities measured at fair value on a recurring basis at March 31, 2024 and June 30, 2023. Assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement:

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:

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 $0.4 million and $0.9 million for the three and nine months ended March 31, 2024 and an increase in servicing rights value resulting from market-driven changes in interest rates of $0.2 million for the three months ended March 31, 2024 and an increase of $1.1 million for the nine months ended March 31, 2024. Additions to servicing rights were related to purchases and servicing rights retained upon sale of loans held for sale.

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 and $0.7 million for the three and nine months ended March 31, 2023, respectively, and a decrease in servicing rights value resulting from market-driven changes in interest rates of $0.1 million for the three months ended March 31, 2023 and an increase of $0.3 million for the nine months ended March 31, 2023. Additions to servicing rights were retained upon sale of loans held for sale.

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

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:

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

The table below summarizes assets measured at fair value on a non-recurring basis:

Other real estate owned and foreclosed assets, which are measured at the lower of carrying value or fair value less costs to sell, had a net carrying amount of $2.9 million at March 31, 2024, after write-downs of $1.7 million, and a net carrying amount of $8.1 million at June 30, 2023, after write-downs of $1.7 million.

The following table presents quantitative information about Level 3 fair value measurements for other real estate owned measured at fair value on a non-recurring basis:

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

Fair Value of Financial Instruments

Carrying amounts and estimated fair values of financial instruments at March 31, 2024 and June 30, 2023 were:

The carrying amount represents the estimated fair value for cash and 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”of the 2023 Form 10-K. The fair value of off-balance sheet items is not significant.