Q4 2022 Axos Financial Inc Earnings Call
Speaker 1: You are currently on hold for today's exo financial in fiscal quarter- fourth quarter 2022 conference call. Please remain on the line while we gather additional participants. We appreciate your patience. Please remain on the line. Your conference will begin momentarily, Thank you.
Speaker 1: The the.
Speaker 2: You are currently on hold for today's access financial Inc fiscal quarter- fiscal fourth quarter 2022 conference call. Please remain on the line while we gather additional participants.
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Speaker 4: Please stand by. Good day, Ladies and gentlemen, and welcome to your AXO's financial Inc. fourth fiscal fourth quarter 2022 conference call. All lines have been placed in a listen-only mode and the floor will be open for your questions and comments following the presentation. As a reminder, today's call is being recordedif you should require assistance throughout the conference, please press star zero.
Speaker 5: At the time. It is my pleasure to turn the floor over to your host, johny ly. Corporate development and IR sir, before is yours.
Speaker 6: Thanks Linda. Good afternoon everyone, and thanks for your interest and access. Joining us today for access financial's fourth quarter 2020 financial results conference call are the company's President and ief Executive Officer curren, Derek brantsexecutive office Executive Vice President and Chief Financial Officer, Derek qu, and Executive Vice President of finance, Andy micletti. Greg, Derek and y will review and comment on the financial and operational results for the three and 12 month, June thirtieth, twentthousand and 22, and we will be available to answer your questions after the prepared remarks. Before I begin, I would like to remind listeners that prepared remarks made on this call may contain forward-looking statements that are subject to risks and uncertainties, and that management may make additional forward-looking statements in response to your questions. These forward-looking statements are made on the basis of current views and assumptions of management regarding future events and performance.
Speaker 6: Actual results could differ materially from those expressed or implied in such forward-looking statements. As a result of risks and uncertainties therefore, the company claims the safe harbor protection pertaining to forward-looking statements contained in the private security Litigation Reform Act of 1995. this call is beinge webcast and there will be an audio replay available in the Investor Relations section of the company's website located at access financial com for 30 days.
Speaker 6: Details for this call were provided on the conference call announcement and in today's earnings press release.
Speaker 6: We also issued and earning supplement in conjunction with this call. All of these documents can be found on the access financial website. With that, I would like to turn the call over for to GRE. Thank you, johny. Good afternoon everyone to thank you for joining us. I'd like to welcome everyone to acxo financial conference call for the fourth quarter of fiscal year 2022 ended June thirtieth 2022. I thank you for your interest in acxo financial and acxo bankwe had another excellent quarter with double digit growth in loan originations for a fourth consecutive quarter. Our strong results were broad based, with net interest margins exceeding the high end of our target and double digit net interest income growth on the sequential and year over year basiswe grew deposits by 10% link quarter and almost 29% year over year, led by strong growth and deposits from acxo securities. We reported net income of fifty seven point y- nine point zero zero zero two million for seven thousand for the three and welve months ended June thir 2022, representing year over year growth of 7% and 12% respectively. Our book cality per share was $27 in 48 cent per share at June thir thousand and 22 of sixteen point 3% from June 32 and 21. the highlights this quarter include the following: ending net loans for investment balances were fourteen point onean billion of 8% linked quarter or 30% annualized, excluding single family mortgage warehouse. Ending loan balance increased by 9%. linkth quarter net interest margin was 4% for the fourth quarter of 19 basis points from four point ER 2% in the quarter ended March 30 first 2022 and have 2, 29 basis points from three pointtwenty 9% the quarter ended June 30 thousand and 21. net interest margin for the banking business unit was 4% compared to four point to 1% in the quarter ended March 30 first 2022 and four point 1, six percent in the quar ended je thir thousand and 21, and contrast to most of our peers, we have successfully maintained a strong interest margin and generated LO growth for the high end of our annual target through the fiscal year thousand and 22.
Speaker 7: We continue to make Ty improvement. Our funding with noton interest pararing deposits increas by approximately 900 illion for March 30- first 2020. not interest aring deposits represent of approximately 30- 6% of our total deposits of 30 2020- two significant improvement for approxim twoythreetwo percent and the qutres pond periity year ago. The cityy TH of noton paring deposits position of well rising rate vironment. The deposits for X secureeityities are clear custod business withwas three point five mbillion as 6- 30 2020- two by approxim six hundred million from March 30 first two and 20: two our efficiency ratio for the third three month cent June 30 thousand two 2- 54% compared fifty one point 3- 2%. In the third quarter of 2020: two the efficiency ratio for the banking business SEG was 41% for the fourth quarter of two thousand 20 2- first three point 9- 8% in the third quarter 2020 two oper expectenses for the bank for fourth quarter included in theele million doll charge primarly for a one resolution of a contract C, excluding elevenmillion our charge, our ban efficiency ratio for the fourth quarter would have been 30 point 6%. The Ed earning year were Ninety six cent six point 7% from inety cent the year quarter continue. We continue to generated strong returns while maintainten access capitalal. We generated return on acquity of 14 point 1- 4% of the fourth quarter and return on assets of one point 4%. Capital levels remain strong year one verage of point 6, 5% of the bank and nine pointtwo nine per of the hold company above our R? qus. Our redit ality remain strong with net N ized charge off to aage loans two basis ints two and two basis ints. In fourth quarter of is 2- 20. we added six million. Our LO loss provision this arter quar. Our loan growth total loans for reded loss was a hundred forty eight point six million June thir of 2020. two representcenting fourty nine times are nizized charge offs and one point one point 4% of total ending Los. Our total LO origination for the fourth arter June 30 2020- two were three point two bmillion, up approximately forty 1% from two point three billion in the year period. Loan origination for vest ment were approxim three pointytwo million, increase of 55% from the corresponding quarter Ty year ago. two 4, twent 20 two 20 two 20, two originations were flls fifty seven point six million of single family agency Al production, 545 million of Sing family umble portlio production. forty eight point six million of multiiffamily production, two hundred 30 point six million of ercial state production, five point six million auto securee consu loan production and two point one million of C N? I loan production. sulting in the net increased and and C N? I LO balances of seven hundred 30, seven illion. We generated three point four million mortgage banking income compared five point seven million in the quarter mar 30 first 2020 two and two point nine millionin thecourtresponding arter. Last year the single family agency origination deincreased by approximately fifty seven point six quarter to fifty seven point six million resulted interest W decllis financing activity while margin were down due normal iz single family mortgage G on sal across industthree. Our valueuation generated a five thousand. Our ain this quarter, the threeing a reaping increase mortg rates and of thousand and 20. we icipate lower mortg banking G on Al in the cedable future part offset by valuation G as rising interest rates for ur reduced to M from mortgage financing. Our ipeline of single family agency ortgages was 30, three million as eight one 2020, two and loan balances in jumbo Sing family mortgage business increed by hundred fifty eight million. The three point seven million the strong quarter net loan growth had in the pass three years. We generated 45 million of LO production of the four quarter of two and 20, two benefiting for dis loccase in the jumbo asset mortgage securee ization markets. Prepayments in umble single family business were down where where they were three hundred nineinety point four million in the three month cent 6, 30 thousand 20, two down forfrom 4, 55 point six million prepayments in the prior quarter, while rising interest rates in econom 30 remain W for our umbo Re five purch trans actions. We are better position and most of our deposit ven? offficion operation in the ll tract cord of execution. Our umbo single family ortgage fiveipeline was approximately fourar sevenventy five million as 8, one and 20, two based on five line. In our ex? patation for continueed declline three payments. We interesticipate mod growth in single family loan balances. The next quarars C end end quarter loan origination were two point one million reflecting strong growth acrossst cross asset back ending constructionion. Ending our strong relation. I llars struct TR cord of execution sulted tyy exexpion loan ction that balanceses the M remain strong. coross loan X, J gr FE the LO of approximately 900 sevenventyty million. As of 8, one and 20 2, we have posit amend apacross multiable C I ending ticales remain costit the will be able to ST strong growth in our that an maintain cred and loan's auto ending a good quarter with ING loan balances increasing by 30, nine million or eight point 7% quarter. We are getting good risk to returns in our auto ending business cusing on PRI bor hourers ong X of use to IC in direct an are auto loan fivei line approximately hundred five 20, nine million at August first 2020 strong under line rossit bility and our banking business was part offset by illion growth investments that the bank in our secureeities business. Our ban efficiency ratio was 30, 7% and thir twent percent of the 3, twel TH and 6, 30 thousand 20 2, as noted earlier, not interest expenses. arter included a time charge: nine point five mion for the resolution of contractional cill and cruual for related not five Al jur of 1, five thousand. The 11 million charge was incl other general trated pect for the fourth quarter. The intraction CLA line the nine point five mone. Our payment with BAs deit de cation obloligation related two acquisition. The set ment ll ion five ING resolved in laim the be made under that provision. Representation one surs purch of acquisition of deposit limit of 6, five thousand but pro clection of those pro ES under that deposic remain .thir the 1, five thousand legal RO madeing conaction loyment itig in initiated 20, 15 by a four LO. We have the series of offperation offficiencyes acst business that result cost savinging as go, excluding the ele million creaseed contraction legical charges. The efficiency ration on our banking business UN it with have forty point five meight percent and 30, nine point 9, 4% in the 3, twel month June 30 two two 20, two respectively. Cess secureeities included our secureeities clearing custodity, trating and matag four fullylio businesses generated point million of pre tax income, excluding nine cash ization exexpens. In the fourth AR of 2020: two improvement loss of one point one million AP prior quarter. Our secureeities business are ING to benefit from rising ratests, part offset by declliines and custod clearing fees. resul declli the over stock market activity. Additionally, we continue to cur cremental expenses related the TH initition of tratinging construct rates for theb in our secureeities businesses, new access clear court system. We believe these invest ments proprily SI ANS the future growth in cost saving able generr from the C income deposit customer service pected Re deposits by nine mpoint 5% quarter. thirteen point nine million with proad rates growth across iness commercial secureety deposits ING saving counts represent ntwenty twopercent of total deposits ofsix thirtythousand thousand and 20, two consu deposits representing 30, 4% of our total deposits ofsix 30- 2020 two deproic of consum direct acting saving in market accoun Ed average to M saving and deposit cost were two 20, nine basis in of the three TH UN 30 2020- 2, compareded 14 basis ints the three mon March 30 first 2020- two we continue to make thatty progress. coross selling depos product to our end customers not interest pararing deposits increased by nine of million quarter over quarter of five million. Total pointli deposits from our custod clearing business was approximately three point five million: six 30, two thousand 20, two as advised. Increased their cash holdings, centage client assets and reaction to elevated stock market activity. We kept 2, five thousand of the three point five million on AC ban balance sheet. The ptionality LO these low to no cost deposits to fund our ban loan growth. earing C income from part bans is a significant posit vage other ban our continue growth in our N interest aring deposits. Mental in our mbility to fund our stronger loan growth whilelow maintaining interest. margion abo our AR? R the passed thir quarars our deverse lend deposit business and mod secureeity portfolio itionions well for a rising rate vironment. Our secureeities approximately Sixty four million ending balanceses less from 2% of total assets. As six 30, two thousand 20, two about of our secureeities floing rate and the verage? uration of our secureeities portfolio two point four years. Our single family umbo mortgage multiiffamily loan courportfolios with three point seven and two point one million of loan inciable standing as UN 30 thousand and 20, two representcent approximately 20, six and fiftyteen percent of our total loans out standing lower that a were prior rates cycles, with the exception of a small courtortfolio PRI jumbo mortges we no 30 year 6? R jumbo single family multi family loans balance sheet. The? We average tourration of the jumbo single family mortges multiiffamily mortgag balance. She were approximately two point three and 3, eight years respectively. No rates loans originated. Our single family jumbo ulti family CN? I loans were five point 1%, four point 7, 5% and five point 1, 6% respectively. In the three month Ed six 30, 2020 two 8, nine basis ints, fifty eight basis ints and forty two basis ints respectively. From the prior quarter we have reates rates: a newly originated 5, one jumbo single family multi family loans in the itional oun in July and remained solll C? N I loans the the biggest conri or overall loan TH over Ed over yearsars. The quarter ended jun 30 thousand and 20, two C? N I loans increased by zero point seven seven hundred million quarter to six point eight million representing mill half of our loans out standending the excession of our hundred 14 point seven million of the qument finance portfolio. All of our other C N I loans able rate as June 30 2020, two approximately sevenventty 9% of our AR able rates C N? I loans were above their floars and all the rate increased oun on twent 7, eighty 6% above their floars with other origitional sevenventtwenty five basis point increase. nineinty 5% C N I loans be above LO the mand for our ercial alty ATE C N? I loans remain strong as reflected in the 900 seventwentty mion of C N? I loans. seventty illion of C N? I loans in our fivei line eight 1, two thousand 20. we believe our down C remain assets sent with four rates reing fectedively on ment jardity C? Ni loans rate increase and with a gress repricing of newly originated single family multi family mortgages and continue to those low ER Leve payment of lower yielding Sing multi family mortgages. Our asset ills will continu increase forurther more. The approximately point nine million of deposits of part banks with generrate higher FE for actaccess as R? Rs while we expected deposit B to rise as competition for deposits increased in the half of coun two y two beyond, particularly for UE deposits. Our deposit eight will be the meanill lower that a one prior tight ING cycles UE to gr? Ar vers D our tech? aable custo cent deposits servicing mode one the case ut enefits of bank access oning eight thirillion having actaccess to low cost deposits that we use to fund our loan growth. The Tor cash deposit balances held by are advised cints flexu.ated the twent Sixty 8% of assets under custodity in quarter end six 30, two thousand 20, two advisedor LD more cash in reaction to elevated Leve of market volllat vity. The additional six hundred sevenventy million of no POS deposits represent different twent the 9% average cash balance held by advised clits. The 6% typically pect boo our net interest margin by approximatelythousand wel basis pointints in this quarter. Our net interest marg in the fourth arterof two thousand twent two also benefit from not recurring interest income from y loans were prevest C or non per fouring that were ID off full rece? ll interest principable both loans including to F interest. The two loans com B asadded approximately three point five million of net interest income boost our net interest margin by approxim nine Ed points. Excluding thethese two ion ite', S our net interest margin would have been four point two the three month anded une 30, two thousand 20 2, six BAs pointints year over year. lookinging four LO our net interest margin for the fifically year end une 30 thousand 20, three were remain ove our loan TER arget of three point 8, four the biggest factors impacting net interest margion will be half F our LO four Fu growth and where our access and vest access advised rate deposit balances are reled to the June 30, two thousand 2, 20 ves stated previous ly. Our expectation of that net loans will grow in their teen in fiscal two thousand twent three net loans by ly one million dollars in this quarter representing N ized TH of over 30- 2%. As we continue to TH loans that that rate or R above our teen based case targetate the, the incremental cost of fund loangrowth will be on the higher end of ex pectcions respect two vised deposits. We have a healthty five line of new vised trans ition. Their custody asse us however, REL to SI of our existing two y two point four million of asse under cusdy at the end this quarter. That biggest our of incrementallolow cost deposits will come from our existing a clients. The amount cash held by R a a in our cli accounts comonly dis cried cash ororting FX ates BAs on visors K AP Ti with conchange quickly for exam. We closed the advisedor reactquisition last August . vised clients held record low of four point 8% of assets managage cash 4: two this quarter. The cash percent Mat ately creaseed to a Le point 9% by the end of the quarter as the Fed gress ary tied significantly reduced vises RIS dollars. Our based line some of of the percentage of cash held by advised clits will normal ized of seven per asse under custody and FIS thousand and 20: three clients come more K? ver continueed to hold prior cash balance that our ll year net interest margin be high in our based line targetts. However, clients reu their cash percentage we to Reed those low cost deposits with related ly higher cost deposits that our year net interest margin would be reduced. Ending on the percent age of cash courort.
Speaker 8: Our credit quality remains healthy, chargs off the total loans remained low and our asset based level T V lending basase extremely comfortitable about our credit outlook. Even an ver economic AR notonperforming assets- of total assets, where 60 based pointints for the this quarter, a increase from 87 basis ints for the quarter mar 30 first 2020. of nonperforming loans, 6% ofour single family first mortgages were toricallyately very loan reized losses. Of our non perform single family mortgages, at the end of this quarter approximately 84% had estimated current loan value ratio low: 70 and approximately inety 0%. Our below 80% of our best estimments of current LO valuethe property of our of our largest non performing single family mortgages was sold in the fourth quarter of 2020. two and we are paid back a hundred per of our princi and interest inincluding our fult interest. Given the LO loan values of our asset loans. We remain confident that we cur minimal credit losses, even of our asseset valued to declli our loan loss provismissions. This quarter was six million, which by 1, zero million from the last quarter and up four point seven million year over year. The increase and loan loss trition primarily of fle a record quar of LO origination for investments and changes in loan cour fully X with C and auto counting for a greated percentage of our total loans. Our total allowans for loan losses for a hundred forty eight point six million UN thirtythousand thousand and 22, approximately 1% of our total loans in approximately fourty nine times our total and ized offs in the three month June thirtythousand and and 22. our loan pipeline remained solid with aapproxim one point nine million of solidated to loans in our pipeline August first and thousand 22, consisting 30, three million of single family agency gain on sale mortgages four seventtwentty five million of single family jumble mortgages. two hundred 70, three million of multi family of small balance commercial ill state loans. 9, sevenventy million of C and I proressal loans and a hundred nine million of auto and consu security loans with healthy demand loans across mulple loan categoration. We are confident IE the midteenens loan growth AR we establisheded at our invest day for fiscal 2020 three we are making good progress with the integration of the access advisory services business which the R a custody business we acquired from mortg standing a year ago. Overall profitability for access securities in this quarter improved from the prior quarter primarily due to an increase in proker deal C income. We see eting ful opportunities to grow assets under custody FE income todeposit balanceses advisory services by adding new clients and rolling out new proproduct and services. We propportist added a cason TE members ouradvisory sales team take advantage of. advis was looking the most sum all custody business. We signed five deals quarter that increase our sets under custod by approximately $2 million. one fully on boarded our pipeline of cusdy clients healthy growingand market volatility pro V opportunities for a IM clients centr mortan, ization such as hours. Our capital rationations remained strong, with year one verage to adjusted asset leverage nine point 2, 9% of the holding company and ten point six 5% access bank. We have access to approximately two million of federal one bank borrowing and one point nine million and access of the hundred seven teen million we had outstanding at the end of the fourth quarter for their, we had two point eight billion acquidity available at the coun do assecess the end of quarter. Our capital priorities remain unchanged, with a focus on using our capital supparter organic loan growth, invest existing and emerging businesses and deploy access capital for opportunist by acts increated. Our securities business had a solid quarter with higher client todeposit balances and lower custod clearing FE due to an overall decllient equ 20 marke. Broker dealer FE income increased to hundred 5% of the fourth quarter compared the corres ponding periodated last year. ueto the addition of fee income from the access advisory services acquisition, excluding one time Mer ly expenses and non C pro of num ization cost. Access clearing generated 2, one million of preta income for the arter jun thirthousand and thousand and 22. access clearing ended the fourth arter of two thousand and twent two approximately thir two million of assets under custody administration, including 22 million of assets under custody and one million of assets underhundred administration in the claring business. Total R ID B relation Shi increased from two hundred fiftyy four March 30 first 2020 to two hundred 60: three at the end of this quarter. Revenue from clearing activity was relativetoly flat, with an increase in stock borrow balances being offset by decline ending marg balanes. The increase in K dealer fee income- 3, four million, primarily driven by multiple rate Hi resulting and F? D we, FE we C income growing from two point nine million, the six point 6, nine we continue to make good progress in our goinging for line. The operations infor tructure, access clearing and advisory services with have automated certain mannual process ES and eliminated reund reconciliations and other internal work. Lo, as discussed, our invest day may access clearing transitioning to a moder based plat form that dates our operating cost, increase the xability our new products utures quickly, cost effect ively and allow less servved tax that we are not able to service today. This multi year transions startar last quarter and the incremental cost to was development implementation. Our in the run rate today rollout curren several ages when we do not expect being 4, one time expenses associated with any one specific Stage. The consistency and our growth margins and proofitability and a estimate to the diververs efficiency of our model. On the solid execution by teen. We have a LO track record of managing three change in competition interest rates, partner and business actx while increase our earnings valuety per share. Our strong loan growth and interest margins support continueed net income growth and TH in our broker dealer fee will help offset decllients in mortgage bank gain on sell revenuewhile the UN and vironment per term challenges. We will continue to invest initatves such as our universal digal bank two point retail CoR tring commercial real time payments. A moder core access claring the make us more comt from a cost product tech nology, scal prospective. Our strong profitability, access capital abilityto be numberim positions of well, take advantage of market locations. We remain focus on generatedating strong organic growth that will translated to access returns for our reholdars over time. Now turn the call ical, provide additional de tail our financial resul. Thank dire first one to revided invvess that addition to our acress and eight C se ple mental cheduuales and our quarterly 30 was also the F C C today one line through or our BS access financial comp revised Re com. Several offx we and pplements for additional details. The begin D like to aduate all of the members of the access center another after year receie record EAR of two hundred forty point seven million dollars, delied earning per Re. thirthree dollars and 30, seven centts or fiscal year ended June 30 2020: two compared to hundred fiftyteen forty seven thirion dollars. thirthree dollars and fifthirty six cent or fiscal year: June 30 thousand and 20: one fiscal two 22, 22. return on equity: fifteen point six 1% and our changean val increase: two 20, $1 and 30, six cent that 2, 20 $4 in forthirtyy five cent. Our bank efficiionscy ratio continuue to top of forty one point 6, 1%. The fiscal year ended June 30. twotwentthousand and 22 shoulding to our quarterly fourments Co areaas a M detail.
Speaker 9: Starting with our loan loss provision, which was $6 million for the quarter ended June thirtie twent thousand and 22, compared to $4.5 million for the quarter ended March. thirtity-first twent thousand and 22, and one pointy 2- $5 million for the quarter ended June thirtieth twentthousand and 21. the increase in the provision for the three months ended June thirtie twent thousand and 22 was primarily due to strong loan growth, specifically in our commercial real estate and CI lending portfolios.
Speaker 9: It is worth noting that on July first 2022, we reached the two -year anniversary of our adoption of ceccl, as well as our election to implement the five -year ceccl transition option for calculating regulatory capital ratios. This guidance allowed an entity to add to capital 100% of the capital impact from the day one ceccl transition adjustment and two 25% of subsequent increases to the allowance for credit losses. Through June thirtye 2, y and twenty- 2, the cumulative amount will now be phased out of our regulatory capital over the next three years. Based on our June 30, twentthousand and twenty two balance sheet, we expect this transition to be modestly dilutive or less than 10 basis points. two our capital ratios and fiscal 2- twenty-three.
Speaker 9: Lastly, I'd like to touch on our noninterest expenses. For the quarter ended June thirtieth two y andtwenty-two noninterest expenses were $104.8 million of $18 million from the length quarter ended March. thirtye first two y and 22, and up 22 point nine million dollars for the quarter ended June thirtieth two y and 21, excluding the $11 million contractual and legal charges. Noninterest expenses were $93.8 million for the quarter ended June thire twent y 22, up $7 million on the length quarter. Data processing and professional services were the primary drivers of a sequential increase in our noninterest expenses.
Speaker 9: That processing for the quarter ended June thirtyeth, twent thousand and 22 was $13.6 million, an increase of $1.3 million from the $12.3 million for the three months ended March thirty-first and a $7 thousand increase from the $12.9 million for the quarter ended June 30. twotwentthousand and twenty-one.
Speaker 9: The increases are a reflection of the growth of our business, as well as our ongoing investment in systems, in personnel, professional services. For the quarter ended June thirtie twotwentthousand and 22 was $7.6 million, an increase of $3.3 million from the $4.3 million for the three months ended March two thousand and 22, and a $2.7 million increase from the $4.9 million from the quarter ended June thirtieth 2021.
Speaker 9: The primary drivers of the increases were legal expenses for matters Greg's discussed earlier. As we look ahead into our fiscal 2023, we expect to maintain our banking efficiency ratio between 41% and 42%, based on our continued growth in our headcount. Merit-based increases in compensation for existing staff at or above our historical range of 5% to 7%, and a higher level of spending on marketing to generate growth in our consumer and commercial banking businesses. With that, I'll turn the call back over to johny.
Speaker 6: Thanks SIC meena, we are ready to take questions. Thank you. If you'd like to ask a question, Please signal by pressing star one on your telephone Ke pad. If you're using a speaker phone, Please make sure your mute function is turned off to allow your signal to reach our equipment again. Press Star one to ask a question. To ll go right into our first add question from David fester with Raymond James. Please go ahead.
Speaker 10: Hi good afternoon everybody.
Speaker 11: I maybe just touching on growth. What growth was phenomenal, it was extremely diversified, but maybe been just touching about the pipelines and how they're shaping up of view. Is anything notable, any notable changes that the competition and then just serious on the demand you're see today and mean you talking your prepared remarks about, of proving new wrong yields? Have you seen any change in customer appetitepe or folks may be getting some sticker shock and if So, maybe what segment? Are you seeseen that that are more price any Elastic or price alactic than others?
Speaker 8: Yes that's a great question, I think where So? So the multipart questions. I'll try to get them all correct me if if I don't hit one So pipelines are still very good. We do not expect the kind of growth in the next three where the next- you know next- quarter that we had in this quarter. We that growth to still be very healthy. You know there is that there's still a lot of activity but there's also those probab reduced activity in the market but there's also reduced competition and that reduced competit is coming for many securitization, market pull back from general spread increases in a variety of other financial tightening conditions that are reducing competition, particularly in the non bank sector. So that's very helpful and that's very meaningful in the single family business. So, even though single family volumes have gone way down, our pipelines is still been good, despite us being pretty aggressive on the price side, because the operrations that were're competing with us in many cases are literally blowing up than shutting down the next day or they're having other issues, and so that that's very helpful. On the multiamily side, some of the duration oriented products, we've been a little bit more aggressive early on pricing up those products and there has then to cines in in demand for those products, somewhat market based, but I think more on that sticker shock terminology that you've used. However, what we've done is we've moved to some more veryariable rate pricing on certain nowassets. We've also hired and individual who can do derivatives for us and so as the yield curve inverds- we haven't yet seen whether this is going to come out- become under fruition. But for folks that are willing the lock in rates and willing to keep those rates for a period of time when you have a continually inverted yield curve, we could offer better deal to them and give them some duration and the same time swap those loans entirely to flowing. So you know, I think, I think maybe if I were to summarize it I would say that that's financial tightening conditions have increased credit spread, reduced non bank competitions specifically, and then allowed us to be a little more aggressive with rate increases and maintain volumes. So, although this quarter was a bit of an aberration, we feel pretty good about loan growth next year.
Speaker 9: That's great that' and that makes a lot of sense maybe turn to the deposit discussion on the the securities business. Sounds like a large majority of that might be from increased cash held client accounts. But curious maybe, how much you attribute to client growth and it sounds like there's a good backlog of Bua I that are looking at vert over, hired some new sales folks. Maybe just curious, you know the potential deposit growth that you could see from new clients coming over and how you think about the deposit growth out of that business, exclusive of some of those cash balance dynamics that you talked about.
Speaker 8: Right So we have, I think we have, you know, something like a billion dollar or target grows you know for for assets under custody there or something like that. You know that that translates it's not you know, and that obviously you apply those cash percentages. We think we can beat that. We're primarily engaging with smaller R as, although we do have conversations with much larger R as now. So I think that where we are is where you know we're looking right now and bring on lots of smaller R as and then those as often grow. But we do have frankly, some very large as in the pipeline and they're often converting only a portion of what they're doing now. So we're still kind of getting our sea legs a little that we've really expanded the sales team. The pipelines have grown dramatically, but the time frames associated with these, these conversions, are often extended. So they are. These are what the great part is is a super sticky business. The hard part is it takes a while to get it. So I think that we are going to see these dramatic pipeline these. We are seeing good pipeline increases. How much that translates immediately, particularly into the next year, is a little on certain, you know, I think. I think that it will be. It will be something meaningful, but it will. It's not going to fix or sort of. I don't think that we could say that if we get a cash sorting back to a normal level, that growth is going to pull us entirely out of it, although would be helpful.
Speaker 12: Yes okay. And then just maybe curious how you think about maintaining the off-balance sheet deposits in the contribution to fee income this quarter there. Just when would you consider bring some of those back on at what point is if the arbitrage opportunity stilled too greatade there? And then just curious whether you started to see any inflection in the bankruptcy ures, the business at all and the deposit growth from that.
Speaker 13: You know we are seeing some. We do expect that to get a little better. There's, if you go to these bankruptcy truste conference- they've been sitting there and every conference over the last number of years is that it's just around the corner right, and given that they have a countercyclical business, know that' suppose there's a certain morbidity to it, but but they, but they do. We do expect that they do see some precursors to the filings. It's really hard to estimate But I do expect that there would be, you know, some benefit there associated with, you know, an economic downturn to the extent it becomes obviously severe enough to to drive that sort of activity. And then you had another part of your question on the balance sheet. I think a couple of things, a cple of things, to remembers that there are certain limitations with respect to certain components of that cash, not all of it. That makes it less beneficial from a regulatory capital perspective to have it on balance sheet and some respects prohibits that. So you have limitations on certain types of cash and the percentage you can keep it in aaffilate, So that likely would remain there. There's an ability to kind of potentially move that around the different types of accounts. That removes that, that prohibition, but that requires some operational work. So I think that that level, you know, probably will fluctuate more with the average level and I still think there's some arbitrage there right now. It's A. it's an interesting question, if we continue to have such strong loan growth numbers, whether we end up having the sacrifice, a little fee andincome on that side for lower cost deposits, So that that you know that's a real, that's a trade off there and we just have to. We just look at it, you know, as as we go.
Speaker 14: That makes sense. Thanks everybody.
Speaker 15: Thank you.
Speaker 5: Next week. Go to the line of Gary tenor with DA Davidson. Please go ahead.
Speaker 16: Thanks afternoon.
Speaker 17: And to just follow up on on that securities deposit related questionand.
Speaker 18: I was curious: is there separate from what you just noted Greg, in terms of some of the kind of regulatory prohibitions that you know?
Speaker 18: Some use? Is there a need to maintain some little third-party banks just to kind of have those thingsanks to go back to over time in terms of totally Turning to spig it off or do risk losing the ability to out over time? Yes, the six short answer is yes. Yes, the sort of answer is yes, and the and the other factor is the FDIC insurance. So for any customers who have multiple, then not too many of these, but some of that more than five thousand of deposits with us, we want to make sure part of the part of the key benefit of this program is providing FDIC insurance. So we have a stable of banks of over 20 partners and a pipeline that we are building to, then constantly maintaining, to increase our optionality there and where we can find best rate harbor chargge with those partners.
Speaker 19: That extse and then sure caught the numbers correctly. Is it three and a half billion that are the securities deposit balances at other banks, or including the two and a half? I think you said that's on your best. Well, that the entire cash sorting balance, So two and a two and a half to change, was on balance sheet at access ban.
Speaker 20: Shows that billing that's off. I mean, is that kind of a?
Speaker 21: More level that you would have at other banks or is there room to move? Some of that still, without causing aroundam around, is going to burary in that kind of 800 to or so million dollar range. That give or take one million or 2, and that will be the general kind of where we the at least kind of low point. I would say we could certainly, as we have different opportunities, send more off balance sheet, especially in a higher rate environment, but that that's likely where we're going to be.
Speaker 22: Okay thanks and then in terms of just overall balance sheet management as you think of kind of cash equivalents and you know AFS portfolio know you're right around 10% of total assets right now as we think about modeling.
Speaker 20: You know the parts of the kind of earning asset. Next, over time, is that temper?
Speaker 20: Of to asse' kind of the ballperth that you would. You would kind of look to maintain.
Speaker 23: I'm sorry. What was the question I Re saying? It was that Re saying that which was a 10% refer to specifically? Well, the cash equivalents and the available for sale portfolio, right around.
Speaker 20: 10% of there's. There's a couple of different, both. Both a lot of the cash is tied to kind of regulatory type requirements. So the clearing business: we have requirements to hold cash against customer, certain customer accounts, and then on the bank we have a liquidity balance that we like to maintain there. I think the cash arguably up slightly at quarter end and part of that is just balancing out the loan growth. That as far as some, there are a number of opportunities, some of which came through, some of which did in that quarter end, and so we want to make sure that we have the cash on hand to fund those. So I think it's, I would expect it to be slightly below 10% as we look ahead.
Speaker 16: Thanks and less question from me. On the expense side. derk, I appreciate the kind of theguy gave on the fices ratio at the bank segment. As you think it maybe of just.
Speaker 24: broider consolidated expense levels using the kind of core.
Speaker 24: You know, to 30 run rate of what Ninety?
Speaker 24: 93 million. You know what kind of growth rate would you expect overall consolidated basis off that number?
Speaker 1: So they gave the range on the bank side on the. I don't expect the delta between our bank side and our access financial efficiency ratio to be dramatically different than what it has been historically.
Speaker 1: Alright, Thank you.
Speaker 25: Our next question or comment comes from the line of Andrew L with Piper Sandler. Please go ahead.
Speaker 26: Okay everyone thinks taking the questionions here, just following up on on the expense run rate question, here it looks like they were just the two look the compliance or the contractual claim and the legal claim. So expenses around about six million or so 92, I mean, is that the run rate we should be using? Are you? Are you looking at it? Or add an efficiency ratio target for the consolidated companyies that just mentioned? Or is this 92 million dollars a good run rate with some growth expenses addedted on there?
Speaker 27: yesthe expectation is that there will be growth and that's why we're giving kindofthat 41% to 42% range of the efficiency ratio, because certainly will have some variability from quarter-to quter depending on things we do are, for example, we do the merit increases for staff at the end of September , So there will be increases expected in our fiscal Q2 and that secetember quarter compared to the September quarter. I Act, point again back to 41% to 42% of the bank efficiency ratio and flying using that for your various models. And I also think that as rates rise the investment in deposit personnel and systems and work on the deposit side becomes more valuable. That obviously shows up in in expenses but it's very valuable from a, from a margin protection expansion, respective. And so we', Re we're adding a number of people, more salespeople, on the deposit side, we're adding some teams with respect to some particular verticals in the deposit side in this growing that. So that's where some of that guidance comes from.
Speaker 28: Got it thatful and I'm sorry I missed it. Do you say what the M's R right up was if there was one in the quarter?
Speaker 29: I wanted to have one a half milliona.
Speaker 30: Okay So then if I take that out of the mortgage ranking, still a little under $2 million of gan until revenue for the quarter from the mortgage. That is that correct.
Speaker 9: Correct.
Speaker 31: All right that some you co on other questions. They'll step back things, guys.
Speaker 15: Thank you and we take our final question for the line of Michael perico with KBW. Please go ahead.
Speaker 32: Guys good afternoonthanks. Just a couple quick clarification questions just first. On the: I heard correctly that the two million of assets under custody that I think you guys are are youither brought out at the end of the quarter of bring on next quarter from from new clients. I heard that correctly. It's still, I think, a prior analysts that you you might have talked about kind of like a two and a half million dollar annual revenue run rate for every billion of a C. is that still generally a decent ballpark to think of? As you guys add assets under custody in terms of flow to the broker dealer fee income once's the full kind of impact that that's realized.
Speaker 33: yesi think that's. I think that's not a bad number and but that number on an avoided cost basis would be more because of higher rates. So that really that.
Speaker 34: That would be better from a standpoint, depending upon the cash balances that come with those with those assets. I think one of the issues that sometimes these opportunities all come in different sorts of packages. So some of them, let's say, will come and they'll have heavy use of mutual funds, and their cash balances though, are lower if they're much more aggressive managers. And then others- whether these sort fected cash and investment than others- will come with heavier cash balances, but they may be more ETF based, So you'll have differences there. I don't think that I think that's a good number though, to use it. I think that's conservative though, relative to the average cash that comes in and the avoided cost associated with the lower cost deposits that you don't have to raise when you, when you're growing loans.
Speaker 30: Kind crredit helpful, and then just just wesley. Obviously they're fairly kind of volatile and dynamic macro environment right here. Just cur ious, how do you guys, how do you thinking about there's good commercial realestate, multifamily growth in the quarter? You know any views on how kind of changes in cap rates could could impact L T VS in the portfolio and just any context or or additional thoughts you guys are, you know, kind of looking at or contemplating internally around credit on those books. You know, with just given everything that's going on in the macro currently.
Speaker 7: Yes I mean we we are very thoughtful with respect to making sure that we account for though significant stress on cap rates and we we look at those and although frankly you haven't seen those translated the market transactionally we're pricing as if we are and remember the vast majority of what we do is working with funds. So the loan-to-value ratios are much much lower than the average financial institution with respect to those matters and so I think that there's a lot of.
Speaker 35: Risk capital and front of us, both from a lending and an equity perspective. But we do, you know, we do look at that and I think it's important and I do think what you've seen is more conservativeism from from banks and non banks partks of, because securitization markets, other things. So I think it's it's actually a pretty interesting time to let now and there's that there's good opportunities and we basically have a some pretty strong nishes and we we really focus on those. We have very strong partnerships and we know where we're going with those and so I think there's there's a real execution benefit for our partners to work with us and that's kind of played out pretty well. But look, I think it is a time to really be sitting back and looking and saying obviously, particularly with respect to multifamily, where cap rates then, and assuming that they absolutely need to go up. The only thing about multifamily that's sort of important to note, and obviously the question of how long this continue, is that the level of ren increases in the market that have that believeo, these investments have been shockingly high. So frankly, they'have been running around, you know, complaining about how it's impossible for any of these investors to make money at the cap rates that they are buying multifamily at and but I'm lending at this rates that this L T V, So fine. And frankly, they've all get to come back to me and say see, I told you so I did get those 25% rate increases that I said I do, and I add all these units for these eight U elements and all these other things and look at, have great things are and the reality is they're kind of right right now. But I still think we have to be cautious about that because that cannot continue in that way.
Speaker 1: Now that makes sense. All my other questions have been answered. Thank you guys, for thanks.
Speaker 5: This concludes our question-and answer session. We return to johny live for closing remarks.
Speaker 6: Thanks for every for joining us. If you have any follow-ups, please contact May and we will talk to you next quarter.
Speaker 5: Just concludes our teleconference. We thank you for your participation, that you may disconnect your lines at this time. Have a great day.
Speaker 36: I I.
Speaker 36: I.