Q3 2024 Axos Financial Inc Earnings Call

Operator: Hello, and welcome to the Axos Financial Inc. 3rd Quarter 2024 Earnings Call-In Webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into the question queue at any time by pressing star 1 on your telephone keypad. As a reminder, this conference is being recorded. Now, it is my pleasure to turn the call over to Johnny Lai, Senior Vice President, Corporate Development and Investor Relations. Please go ahead, Johnny.

Hello, and welcome to the actual financial Inc. Third quarter 2024 earnings call and webcast. If anyone should require operator assistance. Please press star zero on your telephone keypad.

A question and answer session will follow the formal presentation.

You may be placed into the question queue at any time by pressing star one on your telephone keypad.

As a reminder, this conference is being recorded.

It's now my pleasure to turn the call over to Johnny Lai as senior Vice President Corporate development Investor Relations. Please go ahead Johnny.

Johnny Lai: Thanks, Kevin. Good afternoon, everyone, and thanks for your interest in Axos. Joining us today for Axos Financial Inc.'s third quarter 2024 financial results conference call are the company's President and Chief Executive Officer, Greg Garrabrants, and Executive Vice President and Chief Financial Officer, Derrick Walsh. Greg and Derrick will review and comment on the financial and operational results for the three and nine months ended March 31st, 2024, and we will be available to answer questions after the prepared remarks.

Thanks, Kevin and good afternoon, everyone and thanks for your interest in joining us today for Ya access Financial Inc. Third quarter 2024 financial results Conference call are the company's President and Chief Executive Officer, Greg Gear, a branch and accepted executive Vice President and Chief Financial Officer, Karen Walsh.

Gregory Garrabrants: Greg in New York will review and comment on our financial and operational results for the three and nine months ended March 31, 2024, and we will be available to answer questions. After the prepared remarks.

Johnny Lai: 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. Please refer to the Safe Harbor Statement included in today's earnings press release and in our investor presentation for additional details. This call is being webcast, and there will be an audio replay available in the investor relations section of the company's website, located at AxosFinancial.com, for 30 days.

Gregory Garrabrants: Before I begin I would like to remind listeners that prepared remarks made on this call may contain forward looking statements and are subject to risks and uncertainties and that management may make additional forward looking statements in response to your questions.

Gregory Garrabrants: Please refer to the Safe Harbor statement found in today's earnings press release and in our Investor presentation.

Gregory Garrabrants: For additional detail.

Gregory Garrabrants: This call is being webcast and there'll be an audio replay available in the Investor Relations section of the company's web site located at access financial Dot Com for 30 days each.

Johnny Lai: Details for this call were provided in the conference call announcement and in today's earnings press release. Before handing the call over to Greg, I'd like to remind listeners that, in addition to the earnings pressure relief and 10Q, we also issued an earnings supplement for this call. All of these documents can be found on the Axos Financial website.

Gregory Garrabrants: Details for this call were provided on the conference call announcement and in today's earnings press release.

Speaker Change: Before handing the call over to Greg I'd like to remind listeners that in addition to the earnings press release and 10-Q. We also issued an earnings supplement for this call.

Speaker Change: All of these documents can be found on the actual financial website.

Johnny Lai: With that said, I would like to turn the call over to Greg.

Speaker Change: With that I would like to turn the call over to Greg.

Gregory Garrabrants: Thank you, Johnny. Good afternoon, everyone, and thank you for joining us.

Greg: Thank you Johnny and good afternoon, everyone and thank you for joining us I'd like to welcome everyone to access financials conference call for the third quarter of fiscal 2024 ended March 31, 2024 I. Thank you for your interest in access financial.

Gregory Garrabrants: I'd like to welcome everyone to Axos Financial's conference call for the third quarter of fiscal 2024, ended March 31st, 2024. I thank you for your interest in Axos Financial. We delivered outstanding results, generating double-digit year-over-year growth in earnings per share, book value per share, and ending loan balances for a seventh consecutive quarter. Balanced organic loan and deposit growth, coupled with further net interest margin expansion, resulted in double-digit net interest income growth year-over-year in the linked quarter annualized.

Greg: We delivered outstanding results generating double digit year over year growth in earnings per share book value per share ending loan balances for our seventh consecutive quarter balanced organic loan and deposit growth coupled with further net interest margin expansion resulted in double digit net interest income growth year over year and linked quarter annualized we grew.

Gregory Garrabrants: We grew deposits by approximately $900 million in the linked quarter, outpacing our ending net loan growth by approximately $430 million. However, strong loan originations were partially offset by higher than expected payoffs. We reported net income of $111 million and diluted earnings per share of $1.91 for the three months ended March 31, 2024, representing year-over-year growth of 38.7% and 45%, respectively. Our tangible book value per share was $35.46 at March 31, 2024, up 27% from March 31, 2023. Other highlights this quarter include the following.

Greg: Deposits by approximately $900 million linked quarter outpacing our ending net loan growth by approximately $430 million strong loan originations were partially offset by higher.

Greg: Got.

Greg: We reported net income of $111 million and diluted earnings per share of $1 91 for the three months ended March 31, 2024, representing year over year growth of 38, 7% and 45% respectively. Our tangible book value per share was $35 46 at March 30.

Greg: <unk> 2024 up 27% from March 31, 2023.

Gregory Garrabrants: Ending loans for investment, net of allowance for credit losses were $18.7 billion, up 2.6% linked quarter, or 10.4% annualized. Growth was broad-based, with growth in non-real estate lender finance, single-family warehouse and fund finance, offsetting lower origination volumes and single-family jumbo mortgages, higher payoffs in commercial specialty real estate, multifamily, Net interest margin was 4.87% for the first quarter, ended March 31, 2024, up 32 basis points from 4.55% in the quarter ended December 31, 2023, and up 45 basis points from 4.42% in the quarter ended March 31, 2023.

Greg: Other highlights this quarter include the following.

Greg: Ending loans for investment net of allowance for credit losses were $18 7 billion up two 6% linked quarter or 10, 4% annualized growth was broad based with growth in non real estate lender finance single family Warehouse and fund finance offsetting lower origination volumes in single family Jumbo mortgages.

Greg: Higher payoffs in commercial specialty real estate multifamily and deliberate run offs in our auto book.

Greg: Net interest margin was 487% for the first quarter ended March 31, 2024 up 32 basis points from 455% in the quarter ended December 31, 2023, and up 45 basis points from 442% in the quarter ended March 31, 2023, one alone.

Gregory Garrabrants: One loan acquired from the FDIC was paid off this quarter, boosting our net interest margin by approximately three basis points. Excluding the one-time gain associated with the FDIC loan purchase last quarter, non-interest income was up 4.5% from Q2 to Q3 due to higher mortgage banking income and prepayment.

Greg: <unk> acquired from the FDIC paid off this quarter boosting our net interest margin by approximately three basis points.

Greg: Excluding the one time gain associated with the FDIC loan purchase last quarter noninterest income was up four 5% from Q2 to Q3 due to higher mortgage banking income and prepayment fees are.

Gregory Garrabrants: Our credit quality remains strong, with net annualized charge-offs to average loans of seven basis points for the three months ended March 31, 2024. The seven basis points of net charge-offs this quarter include four basis points of net charge-offs from auto loans covered by insurance policies, with proceeds from those policies accounted for as C&A. We continue to generate strong returns with a 20.71% average return on equity and a 1.98% return on average assets for the three months ended March 31st, 2024.

Greg: Our credit quality remains strong with net annualized charge offs to average loans of seven basis points in the three months ended March 31, 2024 to seven basis points of net charge offs. This quarter includes four basis points of net charge offs from auto loans covered by insurance policies with proceeds from those policies accounted for as fee income.

Greg: We continue to generate strong returns with a 27, 1% average return on equity and a $1 98 return on average assets in the three months ended March 31 2024.

Gregory Garrabrants: We had balanced loan originations in our commercial and industrial non-real estate lending, including asset-based lending, non-real estate lender finance, and fund finance balances. However, ending balances for our small, balanced commercial real estate and commercial real estate specialty lending businesses declined by approximately $19 million and $180 million, respectively, in the third quarter. We continue to reduce our consumer and auto loan balances, given our preference for originating and retaining loans with lower duration, floating rates, and a risk-adjusted return in the current environment.

Greg: We had balanced loan originations in our commercial and industrial non real estate lending, including asset based lending Dod real estate lender Finance and fund finance balances ending balances for our small balance commercial real estate and commercial real estate specialty lending businesses declined by approximately $19 million and $180 million respectively.

Greg: In the third quarter, we continued to reduce our consumer and auto loan balances given our preference for originating and retaining allows with lower duration floating rates and a better just a risk adjusted return on the current environment.

Gregory Garrabrants: Average loan yield for the three months ended March 31, 2024, was 8.65%, up 47 basis points from 8.18% in the prior quarter and up 158 basis points from the corresponding period a year ago. Average loan yields for non-purchase loans were 8.19%, and average yields for purchase loans were 17.05%, which includes the accretion of our purchase price discount. New loan interest rates were the following: single-family mortgages, 8.7%, multifamily, 8.3%, CNI, 9.2%, and auto, 10.2%.

Greg: Average loan yield for the three months ended March 31, 2024 was $8 six 5% up 47 basis points from eight 8% in the prior quarter and up 158 basis points from the corresponding period a year ago.

Greg: Average loan yields for non purchased loans were $8, one 9% and average yields for purchase loans were 17, 5%, which includes the accretion of our purchase price discount.

Greg: New loan interest rates were the following single family mortgages, eight 7% multifamily eight 3% C&I nine 2% in auto 10, 2%.

Gregory Garrabrants: Our commercial real estate loans continue to perform well. It's worthwhile to point out that the structure, duration, and exit strategies for our commercial specialty real estate loans are significantly different from traditional CRE term loans from most other banks originating in Hollywood. The low loan-to-value and senior structure we have in place for an overwhelming majority of our commercial specialty real estate loans provides us with significant downside protection in the event of a significant deterioration in the borrower's ability or willingness to repay, the valuation of the underlying properties, or any construction. Our commercial real estate loans are floating rate with contractual maturities generally between 2 and 3 years compared to fixed rate loans with contractual maturities of 7 or longer years for most commercial real estate loans.

Greg: Our commercial real estate loans continue to perform well.

Greg: Worthwhile to point out that the structure duration of the exit strategies for our commercial specialty real estate loans are significantly different from traditional CRE term loans with most other banks originating home.

Greg: Low loan to value and senior structure, we have in place for an overwhelming majority of our commercial specialty real estate loans provides us with significant downside protection in the event of a significant deterioration in the borrower's ability or willingness to repay the valuation of the underlying properties or any construction delays are commercial real estate loans are floating rate with contractual maturities Jen.

Greg: <unk> between two and three years compared to fixed rate loans have contractual maturities of seven or longer years for most commercial real estate loans.

Gregory Garrabrants: Of the $5.2 billion of commercial specialty real estate loans outstanding on March 31, 2024, multifamily was the largest segment, representing 38% of total commercial real estate loans, while hotel, office, and retail represented 28% and 4%, respectively. On a consolidated basis, the weighted average bond-to-value ratio of our commercial real estate portfolio is 40%. Our retail and office segments of our commercial real estate book are well-secured with weightage average LTVs of 46% and 36%, respectively. However, total commercial real estate loans secured by office properties declined by $8 million last quarter to $410 million.

Greg: Of the $5 2 billion of commercial specialty real estate loans outstanding at March 31, 2024 multifamily was the largest segment representing 38% of total commercial real estate loans, while hotel office and retail represented 28% and 4% respectively on a consolidated basis, the weighted average loan to value ratio of our commercial.

Greg: Estate portfolio is 40%, our retail and office segments of our commercial real estate book are well secured with weighted average ltvs of 46% and 36% respectively.

Greg: Total commercial real estate loans secured by office properties declined by $8 million linked quarter to $410 million of the $410 million in commercial real estate loans secured by office properties at the end of the quarter, 67%, our a notes or node on node structures all of significant subordination with some having recourse to funds or cross collateralization with other asset types of fund.

Gregory Garrabrants: Of the $410 million commercial real estate loans secured by office properties at the end of the quarter, 67% are A-notes or note-on-note structures, all with significant subordination, with some having recourse to funds or cross-collateralization with other asset types, fund partners, and business partners. These loans have an average loan devalue of 37%, excluding any recourse or cross collateral. Not performing loans in our commercial specialty real estate portfolio were approximately $26 million at March 31, 2024, identical to the 12-31-2023 ending balance, representing less than four basis points of our total commercial real estate loans outstanding.

Greg: Gartner is a mezzanine lenders these loans have an average loan to value of 37%, excluding any recourse or cross collateralization nonpareil.

Greg: Nonperforming loans in our commercial specialty real estate portfolio of approximately $26 million at March 31, 2024 identical to the 12, 31, 2023, ending balance representing less than four basis points of our total commercial real estate loans outstanding.

Gregory Garrabrants: There are two loans, one condo building in New York for $15 million and the student housing building in Berkeley for $11 million, which make up the non-performing loan totals for commercial specialty real estate. We did not anticipate incurring a material loss on either of these loans.

Greg: Two loans, one condo building in New York for $15 billion in the student housing building and Berkley for $11 million, which make up the nonperforming loan totals for commercial specialty real estate, we do not anticipate occurring incurring a material loss on either of these loans.

Gregory Garrabrants: Non-performing loans in our multi-family and commercial mortgage portfolio were approximately $38 million at March 31, 2024, roughly consistent with the December balance. Of the $38 million, there is one loan on an assisted living property for $25 million that has been reserved for more than a year. There is an interest in the property that could result in a sale, which would produce minimal or no additional loss. The rest of the multifamily term loans are for lower-balanced properties located in California with recourse and personal guarantees. The average loan to value of our non-performing multifamily and commercial mortgages is approximately 60%. We do not expect to incur a material loss in any of the other multifamily loans categorized as multifamily.

Greg: Nonperforming loans in our multifamily and commercial mortgage portfolio were approximately $38 million at March 31, 2024, roughly consistent with the December balance.

Greg: Of the $38 million there was one loan on assisted living property for $25 million that has been reserved for more than a year. There is interest in their property that could result in a sale, which would produce minimal or no additional loss. The rest of the multifamily term loans, our first lower balanced properties located in California, with recourse and personal guarantees the average loan to value of our <unk>.

Greg: Nonperforming multifamily and commercial mortgages approximately 60%, we did not expect to incur a material loss in any of the other multifamily loans categorized as non performing.

Gregory Garrabrants: We closed the purchase of two loan portfolios with a UPB of $1.25 billion from the FDIC in December of 2023. Ending balances were roughly flat, declining by approximately $10 million from the December quarter end to the March quarter end. All loans purchased from the FDIC are current.

Greg: We closed the purchase of two loan portfolios with a <unk> of one 5 billion from the FDIC in December of 2023, ending balances were roughly flat declining by approximately $10 million from the December quarter and to the March quarter at all loans purchased from the FDIC or current.

Gregory Garrabrants: Non-performing single-family mortgage loans decreased from $54 million at December 31st, 2023 to $51 million at March 31st, 2023. The weighted average loan-to-value of our non-performing single-family mortgage portfolio was 55% at March 31st, 2024. Given that home values continue to increase in the majority of markets where these properties were located, we did not foresee much loss content, if any, in our delinquent single-family mortgage portfolio. We increased deposits by $900 million, or 20% annualized, in the third quarter.

Greg: Nonperforming single family mortgage loans decreased from $54 million at December 31, 2023 to <unk> $51 million at March 31.

Greg: The weighted average loan to value of our nonperforming single family mortgage portfolio was 55% at March 31, 2024, given that home values continue to increase and the majority of markets where these properties are located we did not foresee much loss content. There if any on our delinquent single family mortgages.

Greg: We increased deposits by $900 million or 20% annualized in the third quarter checking and savings accounts, representing 80% of total deposits at March 31, 2024 grew even faster at 25% annualized our deposits remained well diversified from a business perspective, with consumer and small business loans.

Gregory Garrabrants: Checking and savings accounts, representing 80% of total deposits in March 31, 2024, grew even faster at 25% annualized. Our deposits remain well-diversified from a business perspective with consumers and small businesses. Fifty-nine percent of total deposits were commercial, cash, treasury, management, and institutional representing 24 percent, commercial specialty representing 7 percent, Axos Fiduciary Services representing 6 percent, and Axos Securities, which is our custody and clearing business, representing 4 percent. Total non-interest-bearing deposits were approximately $2.8 billion, relatively flat quarter to quarter.

Greg: 59% of total deposits commercial cash Treasury management of institutional representing 24% commercial specialty representing 7% access fiduciary services, representing 6% and access securities, which is our custody and clearing business, representing 4% total noninterest bearing deposits were approximately $2.

Greg: 8 billion relatively flat quarter to quarter, our balance sheet remains slightly asset sensitive given the shorter duration variable nature of our loans and the granularity and diversity of our consumer commercial and securities deposits at March 31, 2020 for approximately 66% of our loans are floating 27% of our hybrid arms and seven.

Gregory Garrabrants: Our balance sheet remains slightly asset-sensitive given the shorter duration, variable nature of our loans and the granularity and diversity of our consumer, commercial, and securities deposits. At March 31, 2024, approximately 66% of our loans were floating, 27% were hybrid arms, and 7% were fixed. Term deposits were only 5% of our total deposits at quarter end, providing us flexibility to decrease interest costs if and when rates decline.

Greg: Percent were fixed.

Greg: Term deposits were only 5% of our total deposits at quarter end, providing us flexibility to decrease interest cost if and when rates declined for.

Gregory Garrabrants: For the quarter ended March 31st, 2024, our consolidated net interest margin was 4.87%, while our banking business net interest margin was 4.92%. Our consolidated and banking business NIMS remain above our guidance of 4.25 to 4.35%, despite holding excess liquidity due to strong deposit growth. We indicated last quarter that the FDIC loan purchase would boost our net interest margin by 35 to 45 days for the next several years. In addition to the amortization of our purchase discounts in the Acquired Loan Portfolio, we recognize accelerated purchase discount accretion on one loan that paid off this quarter. The timing and amount of loan payoffs are unpredictable.

Greg: For the quarter ended March 31, 2024, our consolidated net interest margin was 487%, while our banking business net interest margin was 492% are consolidated and banking business in Ams remain above our guidance of $4 25 to $4 three 5%, despite holding excess liquidity due to strong deposit growth.

Greg: As we indicated last quarter that the FDIC loan purchase with boost our net interest margin by 35% to 45 basis points for the next several years. In addition to the amortization of our purchase discounts on the acquired loan portfolio, we recognized accelerated purchase discount accretion on one loan that paid off this quarter, the timing and amount of loan payoffs or.

Greg: Unpredictable, we break out the average balances in our loan yields for the purchase of purchase loans in our 10-Q for readers to separate the impact of the loan purchase on net interest margins.

Gregory Garrabrants: We break out the average balances and loan yields for the purchase and non-purchase loans in our 10-Q for readers to separate the impact of the loan purchase on that interest margin. Total ending deposit balances at Axos Advisory Services, including those on and off Axos's balance sheet, declined by $32 million in the quarter, reflecting advisors investing excess cash into risk assets and higher-yielding cash alternatives. The rate of decline has decelerated, and we believe that the pace of cash sorting at Axos Advisory Service has stabilized at or near the bottom, representing 3.6% of assets under custody at March 31st, 2024, compared to the historic range of 6 to 7%.

Greg: Total ending deposit balances at access advisory services, including those on and off access as balance sheet declined by $32 million in the quarter, reflecting advisers investing excess cash into risk assets and higher yielding cash alternatives. The rate of decline has decelerated and we believe that the pace of cash sorting at <unk>.

Greg: Pfizer's services stabilized at or near the bottom representing three 6% of assets under custody at March 31, 2024, compared to the historic range of 6% to 7%.

Gregory Garrabrants: We are focused on adding new assets from existing and new advisors to grow our assets under custody and cash balance. In addition to our Axos Securities deposits on our balance sheet, we had approximately $550 million of deposits off the balance sheets of partner banks and another $700 million of deposits held at other banks by software clients in our Zenith Accounting and Business Management Protocol. Non-interest expenses increased $11.3 million in the last quarter driven by a seasonal increase in payroll expenses, higher FDIC insurance expenses, and an increase in headcount.

Greg: We are focused on adding new assets from existing and new advisors to grow our assets under custody in cash balances. In addition to our access securities deposits on our balance sheet, we had approximately $550 million of deposits off balance sheet, our partner banks and another $700 million of deposits held at other banks by software clients Zenith accounting and business management vertical.

Greg: Noninterest expenses increased $11 $3 million linked quarter, driven by a seasonal increase in payroll expenses higher FDIC insurance expenses and an increase in head count we have successfully on boarded several new leaders and teams and our commercial deposits commercial lending and our XO Securities businesses. We believe these additions will help us.

Gregory Garrabrants: We have successfully onboarded several new leaders and teams in our commercial deposits, commercial lending, and our Axos Securities business. We believe these additions will help us grow and diversify our business from an operations capacity and product perspective. While we continue to evaluate adding talented individuals to our team, we expect the pace of hiring to slow significantly from the pace we've experienced so far year-to-date.

Greg: Grow and diversify our business from an operations capacity and product perspective, while we continue to evaluate adding talented individuals to our team. We expect the pace of hiring to slow significantly from the pace, we have experienced so far year to date.

Gregory Garrabrants: Our focused investments in front and back-end systems, product features and service offerings, and other enterprise software and systems will further optimize our processes and capabilities. We started the initial transition of our small business banking platform to our universal digital bank with the goal of migrating all existing small business deposit customers to UDB in the next few quarters. This platform transition will leverage the investment we have made in UDB and make our small business banking offering more modern and user-friendly. We started piloting our white label banking with selected numbers of RIAs and introducing broker-dealers.

Greg: Our focused investments in front end back end systems product features and service offerings and other enterprise software and systems will further optimize our processes and capabilities. We started the initial transition of our small business banking platform to our Universal digital bank with a goal of migrating all existing small business deposit customers to EVP and the next.

Greg: Few quarters. This platform transition will leverage the investment we have made the UDP and make our small business banking offer a more modern and user friendly we started piloting our white label banking was selected numbers of Ria's and introducing broker dealers. While the initial version does not have all the capabilities and access consumer deposit customer has today.

Gregory Garrabrants: While the initial version does not have all the capabilities of an Axos consumer deposit customer has today, we believe the ability to provide a turnkey banking solution to the hundreds of thousands of affluent clients of our custody and clearance business will provide another potential low-cost acquisition channel for deposits and loans. Axos Clearing, which includes our Correspondent Clearing and RIA Custody business, continues to make steady progress. Total deposits at Axos Clearing were $1.3 billion at March 31, 2024, down only slightly from $1.4 billion at December 2023.

Greg: We believe the ability to provide a turnkey banking solution to the hundreds of thousands of affluent clients of our custody and clearing business will provide another potential low cost acquisition channel for deposits and loans.

Gregory Garrabrants: Of the $1.3 billion of deposits from Axos Clearing, approximately $762 million were on our balance sheet, and $533 million were held at partner. The decline in off-balance sheet deposits is the primary reason for the sequential decline in non-interest income for Axos Securities.

Greg: Access clearing which includes our correspondent clearing and custody business continues to make steady progress total deposits with access clearing were $1 3 billion at March 31, 2024 down only slightly from $1 4 billion at December 2023 of the $1 3 billion of deposits from actuals clearing approximately $762 million on.

Greg: Our balance sheet and $533 million of how their partner banks the decline in off balance sheet deposits is the primary reason for the sequential decline in noninterest income Frac So securities.

Gregory Garrabrants: Total assets under custody were $35 billion on March 31st, 2024, up from $34.4 billion on December 31st, 2023. The pipeline for new custody clients remains healthy, comprised of 237 advisory firms with approximately $24 billion of combined assets. We are prioritizing various front and back-end upgrades to our technology platforms for Axos advisory services. We believe the addition of new features and functionalities will improve our operating efficiency, scalability, and potentially expand the type of advisors we're able to serve. This is a multi-year initiative that will be implemented in stages, with a majority of the cost being offset by ongoing efficiency initiatives and additional revenue.

Greg: Total assets under custody were 35 billion at March 31, 2024 up from 34.4 billion at December 31 2023.

Greg: Pipeline for new custody clients remains healthy comprised of 237 advisory firms with approximately 24 billion of combined assets under custody.

Greg: We are prioritizing various front end back end upgrades to our technology platforms for access Advisory services. We believe the addition of new features and functionalities will improve our operating efficiency scalability and potentially expand the type of advisors. We're able to service. This is a multi year initiatives that will be implemented in stages with a majority.

Greg: Any of the costs being offset by ongoing efficiency initiatives and additional revenue.

Gregory Garrabrants: We continue to outperform a majority of our peers from a loan, deposit, and earnings growth perspective, including margin and profitability. We remain well-positioned to maintain our outperformance given our strong liquidity and excess capital, a de minimis unrealized loss in our small investment securities portfolio, a multi-year boost in earnings and margin from our FDIC loan purchase, and solid organic growth prospects given the diverse nature of our banking securities portfolio. Our asset-based lending philosophy, with conservative lender values and prudent structures, makes us confident that we'll be able to manage our credit through the cycle.

Greg: We continue to outperform a majority of our peers from a loan deposit an earnings growth perspective, including margin and profitability, we remain well positioned to maintain our outperformance given our strong liquidity and excess capital are de Minimis unrealized loss in our small investment securities portfolio of multiyear boost in earnings and margin from our FDIC.

Greg: Loan purchase and solid organic growth prospects given the diverse nature of our bank loan securities business, our asset based lending philosophy with conservative loan to values and prudent structures makes us confident that we will be able to manage our credit through the cycle. While many uncertainties exist with respect to the economy inflation interest rates and geopolitics.

Gregory Garrabrants: While many uncertainties exist with respect to the economy, inflation, interest rates, and geopolitics, we are focused on managing our risk and investing in our future. We have a proven track record of capitalizing on market dislocations, as we've already demonstrated with our FDIC loan purchase and stock buyback. We're confident the investments we are making in business systems, processes, and people will generate attractive future returns for our shareholders. Now, I'll turn the call over to Derrick, who will provide additional details on our

Greg: We are focused on managing our risks and investing in our future. We have a proven track record of capitalizing on market dislocations as we've already demonstrated with our FDIC loan purchase stock buybacks. We're confident the investments we are making in business systems processes and people will generate attractive future returns for our shareholders now I'll turn the call over to Derek who will provide additional.

Derek: <unk> details on our financial results.

Derek: Thanks, Greg.

Derrick K. Walsh: To begin, I'd like to highlight that, in addition to our press release, an 8K with supplemental schedules and our 10Q were filed with the SEC today and are available online through EDGAR or through our website at axosfinancial.com. I will make some brief comments on a few topics.

Derek: To begin I'd like to highlight that in addition to our press release and 8-K with supplemental schedules and our 10-Q filed with the SEC today and are available online through Edgar or through our website at access financial Dot com.

Derek: I will provide some brief comments on a few topics. Please refer to our press release and our SEC filings for additional details.

Derrick K. Walsh: Please refer to our press release and our SEC filings for additional details. Following a strong start to the first nine months of our fiscal year, our loan growth outlook is consistent with what we have guided to in recent quarters. We believe that we will be able to grow loan balances organically by high single digits to low teens year over year for the next few quarters, excluding the impact of the FDIC loan purchase or any other potential loan or asset acquisition.

Derek: Following a strong start to the first nine months of our fiscal year, our loan growth outlook is consistent with what we have guided to in recent quarters.

Derek: We believe that we will be able to grow loan balances organically by high single digits to low teens year over year for the next few quarters, excluding the impact of the FDIC loan purchase or any other potential loan or asset acquisitions.

Derrick K. Walsh: Our ending loan balances will continue to be impacted by the pace and timing of payoffs in any given quarter. Demand for our ABL Lender Finance and Capital Call Lines and Select C&I Lending Categories remains solid, although higher interest rates continue to put downward pressure on our origination volumes in jumbo single-family mortgage, multifamily, small-balance commercial real estate, auto, and personal unsecured lending.

Derek: Our ending loan balances will continue to be impacted by the pace and timing of payoffs in any given quarter.

Derek: Demand in our ABL lender finance and capital call lines, and select C&I lending categories remained solid.

Derek: Higher interest rates continued to put downward pressure on our origination volumes in jumbo single family mortgage multifamily small balanced commercial real estate.

Derek: And personal unsecured lending.

Derrick K. Walsh: Our loan pipeline remains solid at $1.7 billion as of April 26, 2024, consisting of $226 million of SFR jumbo mortgages and $53 million of SFR gain on sale mortgage. $17 million of multifamily and small balance commercial, $23 million of auto and consumer, and $1.4 billion of sea and island. Our provision for credit losses was $6 million in the three months ended March 31, 2024, compared to $5.5 million in the corresponding period a year ago.

Derek: Our loan pipeline remains solid at $1 7 billion as of April 26, 2024.

Derek: Consisting of $226 million of FSFR jumbo mortgage.

Derek: <unk> $53 million.

Derek: So far our gain on sale mortgage $17 million of multifamily and small balance commercial.

Derek: $3 million.

Derek: Auto and consumer and $1 $4 billion of C&I lending.

Derek: Our provision for credit losses were $6 million in the three months ended March 31, 2024, compared to $5 $5 million in the corresponding period a year ago.

Derek: Our allowance for credit losses to total loans held for investment was 136% compared to 1.0% to 1% at March 31 2023.

Derek: We remain well reserved relative to our historical and current credit loss rates.

Derrick K. Walsh: Our allowance of credit losses to total loans held for investment was 1.36% compared to 1.01% at March 31, 2023; we remain well-reserved relative to our historical and current credit loss rate. Lastly, our income tax rate was 28.8% for the third quarter ended March 31, 2024, slightly below the lower end of our guided range of 29-30%. Our tax rate in the third quarter benefited from the recognition of certain tax credits. We expect our annual tax rate to remain in the 29-30% range for the remainder of fiscal 2024. With that, I'll turn the call back over to Johnny.

Derek: Lastly, our income tax rate was 28, 8% in the third quarter ended March 31, 2024 slightly below the lower end of our guided range of 29% to 30%.

Derek: Our tax rate in the third quarter benefited from the recognition of certain tax credits.

Derek: We expect our annual tax rate to remain in the 29% to 30% range for the remainder of calendar 2024.

Derek: With that I'll turn the call back over to Johnny.

Johnny Lai: Thanks, Eric. Kevin, we're ready to take questions.

Johnny: Thank you Eric.

Johnny: Kevin we are ready to take questions.

Operator: Thank you, and I'll be conducting your question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Kevin: Thank you, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad.

Eric Spector: You may press star 2 if you'd like to remove your question from me. One moment, please, while we poll for questions. Our first question is coming from Eric Spector from Raymond James. Your line is now live.

Kevin: <unk> tone will indicate your line is in the question queue.

Kevin: Press Star two if you'd like to remove your question from the Q1 moment please pull for questions.

Derek: First question is coming from Eric Specter from Raymond James Your line is now live.

Eric Spector: Hey, this is Eric on the line for David Feaster. Thanks for taking the questions. I just wanted to touch on the... Hey, how's it going? I just want to touch on the hiring front to start, like you've been active recruiting and adding talent. I'm just curious about the pipeline and appetite for additional hires and where you're focused on adding talent. I'm just curious how the pipelines are trending, too, for the treasury management and capital call teams you've recently added.

Eric Specter: Hey, this is Eric on the line for David Thanks for taking the questions.

Eric Specter: Just wanted to touch on that.

Eric Specter: Hey, How's it going I'm just wanted to touch on the on the hiring front.

Eric Specter: To start <unk> been active recruiting.

Eric Specter: I'm just curious what's the pipeline and appetite for additional hires and where you are focused on adding talent just curious how the pipelines are trending too for the Treasury management and capital calls you've recently added.

Gregory Garrabrants: The Capital Call team, we're not doing a lot of additional hiring there. There may be additional analysts and those sorts of positions.

Eric Specter: The capital call team.

Speaker Change: Doing a lot of additional hiring there there may be additional analysts and those sorts of positions, but right now we've got a great team. They are doing a great job and so things are pretty stable. There on the deposit side. We are in the process of recruiting more talent I would say that it's less.

Gregory Garrabrants: But right now, we've got a great team. They're doing a great job, and so things are pretty stable there. On the deposit side, we are in the process of recruiting more talent. I would say that it's less... from just a number of people than we've had historically. So, you know, we're continuing to look for deposit talent, and it's in the next several quarters relative to what they were.

Speaker Change: But from a just a number of people than we've had historically so we're continuing to look for deposit talent.

Speaker Change: And that's it.

Speaker Change: It can be difficult to find sometimes we have a particular.

Speaker Change: Type of person we're looking for.

Speaker Change: With a particular business Max so, but there are folks that are out there and there is a pipeline I would expect though that the.

Speaker Change: The increases that <unk> seen in personnel expense will be moderating a bit.

Eric Specter: In the next several quarters relative to what they were.

Eric Specter: As far as from an increase perspective.

Eric Spector: Okay, I think we talked about maybe that running in line with loan growth. Is that a good way to think about it? Yeah, I think that's not a bad one.

Speaker Change: Okay. I think we had talked about maybe that running in line with loan growth is that is that it.

Speaker Change: A good way to think about it.

Eric Specter: Yes.

Gregory Garrabrants: Yeah. Thank you. And then just curious, I mean, on capital and capital priorities, capital ratios remain strong, and continue to create capital at an elevated pace, just even with the expanded authorization. How do you expect to be active in buybacks here going forward, or do you expect to kind of focus on organic growth and take a more opportunistic approach like you did last year when shares were discounted? I'm just curious, kind of more broadly, how you think about capital. Yeah,

Eric Specter: Yes.

Eric Specter: Okay.

Speaker Change: That's helpful.

Eric Specter: And then just curious I mean, maybe on capital and capital priority capital ratios remained strong continue to accrete capital is elevated pace just given the expanded authorization.

Eric Specter: How do you expect to be active in buybacks here going forward or do you expect kind of to focus on organic growth and take a more opportunistic approach like you did last year.

Eric Specter: With discounted just curious kind of more broadly how you think about capital.

Gregory Garrabrants: Yeah, well, I think our stock price is still quite low relative to the earnings that we're producing. But we also regularly look at acquisition opportunities, and I still think we have reasonable prospects for loan growth. So we did a very little bit of buyback. I mean, a very little bit this quarter, just based on some anomalies in the share price that occurred as a result of different exogenous events. But we're ready to be active in the market there and balance all three of those priorities.

Speaker Change: Yeah, well I think our stock price is still quite low relative to the earnings that we're producing.

Speaker Change: But we also regularly look at acquisition opportunities and I still think we have reasonable prospects for loan growth. So we did a very little bit of buyback I mean, a very little bit this quarter just based on some anomalies in the share price that occurred as a result of different exogenous events, but.

Speaker Change: We're ready to be active in the market there and balance all three of those priorities and it just depends really on.

Gregory Garrabrants: And it just depends really on what we see. There may be loan purchases or loan pools out for acquisition. Certain banks are getting out of certain business lines, and those are opportunities we look at. So it's really difficult to say with respect to how that'll work itself out.

Speaker Change: What we see.

Speaker Change: There may be loan purchases or loan pools out for acquisition certain banks are getting out of certain business lines. Those are opportunities. We look at so it's really difficult to say with respect to how that will work itself out.

Eric Spector: Yeah, great. Thanks. Thanks for answering the questions. I'll step back. Thank you. Thank you. Next question is coming from Andrew Liesch from Piper Sandler. Your line is now live.

Speaker Change: Yeah, great. Thanks, Thanks for answering the questions I'll step back. Thank you. Thank you.

Speaker Change: Thank you next question is coming from Andrew Liesch from Piper Sandler Your line is now live.

Andrew Brian Liesch: Hey, thanks for taking the questions here. Hi, just to stick it on M&A... I guess it sounds like you're looking at maybe some certain business plans that maybe banks might be getting out of or loan pools, anything specific, anything if you look at your franchise and your product suite that you might want to add that you don't currently offer?

Andrew Brian Liesch: Hi, Thanks for taking my questions here.

Andrew Brian Liesch: Just sticking on on M&A.

Speaker Change: <unk>.

Andrew Brian Liesch: Well I guess it sounds like Youre looking at maybe some certain business plans that maybe banks might be getting out of our loan pools anything specific anything if you look at your franchise in your products that you might want to add that you don't currently offer.

Gregory Garrabrants: You know, we're always looking for a variety of different opportunities, and that includes going across the securities businesses in the banking business. You know, I think that this is the type of market that you often see banks start to pare back on businesses or people. And so, you know, there have been some different opportunities that have arisen, whether it was in the insurance premium finance business on the life side, things like that.

Andrew Brian Liesch: We have we're always looking for a variety of different opportunities and that includes going across the securities businesses in the banking business.

Andrew Brian Liesch: Yeah.

Andrew Brian Liesch: I think that this is the type of market that you often see banks start to pare back.

Andrew Brian Liesch: Businesses are people and so yes, there has been some different opportunities that arose whether it was in the insurance premium finance business on the life side things like that so there is different areas that we like and we just remain opportunistic and.

Gregory Garrabrants: So, you know, there are different areas that we like, and we just remain opportunistic, and I just want to make sure we have the capital to do that. So our capital ratios are very strong and give us the opportunity to look at those types of options that arise in these companies.

Andrew Brian Liesch: Just wanted to make sure we have the capital to do that so our capital ratios are very strong and give us the opportunity to look at those those types of options that arise in these kind of markets.

Andrew Brian Liesch: Okay.

Andrew Brian Liesch: Got it. All right, that's, that's helpful there. And then on the margin, obviously, you're coming in well above the guide. I mean, is there any reason to think that it's gonna trend back below here now that you have the full quarter effect of the accretion from those loan pools? Granted, there was a little bit of a one-timer in there, but it's a good level to build up. It is interesting.

Speaker Change: Got it alright.

Speaker Change: Helpful. There.

Andrew Brian Liesch: And then.

Andrew Brian Liesch: Margin, obviously youre coming in well above the guide I mean is there any reason to think that it's going to.

Andrew Brian Liesch: Trend back below here now that you have the full quarter effect of the.

Andrew Brian Liesch: Increasing from those loan pools granted there was a little bit of one timer in there, but right now.

Andrew Brian Liesch: Okay.

Andrew Brian Liesch: It is it is interesting I think that that commercial specialty real estate side, I think there's a bit of margin compression. There. So I think if we want to grow that.

Gregory Garrabrants: I think that on the commercial specialty real estate side, there's a bit of margin compression there. So I think if we want to grow that or maintain balances, that probably some of the newer loans are going to come on a little, maybe a little more with a reduction in spread from what they've come on before. But I don't think there's a feasible way for us to get back to that guide range.

Andrew Brian Liesch: Or maintain balances that probably some of the newer loans are going to come on a little.

Andrew Brian Liesch: Maybe a little more.

Andrew Brian Liesch: With a reduction in spread from what they've come on before but I don't think theres, a feasible way for us to get back to that guide range I think that guide range just has to be adjusted for the differential that we discussed with respect to the Cigna.

Gregory Garrabrants: I think that guide range just has to be adjusted for the differential that we discussed with respect to the signature purchase, and that just has to be added onto it for now. And over time, I mean, it'll be an extended period of time, years, but that signature benefit will gradually decline as a percentage of the overall volume. But right now, the pool is performing extraordinarily well. There are no delinquencies in the pool.

Andrew Brian Liesch: Signature purchase and that just has to be added onto it for now.

Andrew Brian Liesch: And over time, I mean, it'll be an extended period of time years, but that that signature benefit will gradually decline as a percentage of the overall volume, but right now the the pool is performing extraordinarily well theres no delinquencies in the pool that obviously has a long to rated pool. So its.

Andrew Brian Liesch: It obviously is a long-duration pool, so the behavior on payoffs is generally consistent with what we thought. So the guide range obviously needs to be updated for that increment. And then I think there might be a little margin pressure if we want to grow Crestle, but overall, I think we're going to be able to continue our loan growth at the kind of organic margins that we have. And then we always have the benefit of some of the hybrid loans running off, and even if it's only $600 or $700 million or something, which is $691 million in the next six months. So that's not nothing either, and that obviously helps with respect to increasing loan yields. That's really helpful. Thanks for taking the questions here. I'll step back.

Andrew Brian Liesch: The behavior on payoffs is generally consistent with what we thought so the guide range needs to obviously be updated for that increment.

Andrew Brian Liesch: And then I think yes, there might be a little margin pressure, if we want to grow crystal, but overall I think.

Andrew Brian Liesch: We're going to be able to continue our loan growth at the kind of organic margins that we have and then we always have the benefit of some of the hybrid loans running off and even if it's only I think in the next six months it was six or $700 million.

Andrew Brian Liesch: On thing.

Andrew Brian Liesch: Which is $691 million in the next six months, so that is not nothing either and that obviously helps with respect to increasing loan yields.

Speaker Change: Got it.

Speaker Change: That's really helpful. Thanks for taking the questions here I'll step back.

Speaker Change: Thank you Andrew.

Speaker Change: Thank you as a reminder, that star one to be placed in the question queue. Our next question is coming from Kelly Motta from <unk>. Your line is that life.

Kelly Mota: Thank you. As a reminder, that's star number one to be placed in the question queue. Our next question is coming from Kelly Mota from KBW. Your line is now live.

Kelly Mota: Hi, thanks so much for the question. I thought maybe I would kick it off on the deposit side. Growth was quite strong, and the actual incremental increase in deposit costs wasn't that large. Just wondering if you could provide additional color and commentary around the business lines, driving that where you're seeing the greatest opportunities, and I appreciate the color on loan pipelines and growth there, and with a 100% or so loan-to-deposit ratio, how we should be thinking about the incremental funding of that and the parts of the business that that's coming from.

Kelly Motta: Hi, Thanks, so much for the question.

Kelly Motta: Hey, Kevin maybe you could kick it off on on the deposit side growth was quite strong in the actual incremental increase in deposit costs.

Kelly Motta: Actually it wasn't that large just wondering if you could provide additional color and commentary around the business lines, driving that where youre seeing the greatest opportunities and.

Speaker Change: I appreciate the color on loan pipelines and growth there, but I'm just wondering.

Kevin: 100 per cent or so loan to deposit ratio, how we should be thinking about the incremental funding of that and.

Kevin: Parts of the business that's coming from.

Gregory Garrabrants: Sure, I think that some of the commercial lines of business are doing a good job on the cross-sell side, and we're continuing to gain traction there, which I think helps offset the deposit cost. The CapColl business is running at a good loan-to-deposit ratio, and the regular CNI business is doing a good job on the cross-sell side. We're having small levels of growth in a variety of different segments, small business on the consumer side. So it really is more a little bit of everything with a balance towards that commercial side continuing to add lower-cost deposits there.

Speaker Change: Sure I think that the.

Kelly Motta: Some of the commercial lines of business are doing a good job on the cross sell side and we're continuing to gain traction there, which I think helps offset the deposit cost the cap call business running at a good loan to deposit ratio the regular C&I business doing a good job on the cross sell side.

Kelly Motta: We're having small levels of growth in a variety of different segments.

Kelly Motta: Small business.

Kelly Motta: On the consumer side. So it really is more a little bit of everything with.

Kelly Motta: With a balanced towards the commercial side continuing to add.

Kelly Motta: Lower cost deposits. There. So yes, we had we had an overshoot gas.

Gregory Garrabrants: So we had an overshoot, I guess, if you were looking at the increase in deposits versus loans. I think we expected loan growth to be a little higher than it was, but we ended up having some unexpected payoffs, which reduced it a little bit below where we expected it to be. But that just gives us the opportunity to be able to grow a little bit more this quarter.

Kelly Motta: Gas if you were looking at the increase in deposits versus loans I think we expected loan growth to be a little high.

Kelly Motta: Higher than it was but ended up having some unexpected payoffs, which are which reduced it a little bit below where we expected it to be but that just gives us.

Kelly Motta: The opportunity to what.

Kelly Motta: To be able to grow a little bit more this quarter.

Kelly Mota: Got it. That's super helpful. And then just trying to put some things together with the margin. I know on a core basis, X the accretable, you're talking 425 to 435. And I know there was about three basis points of accelerated accretion in there on that one payoff that you were discussing. Just wondering, do you have the total amount of accretable yields that was the contribution to margin this quarter? to round out the conversation.

Speaker Change: Got it that's super helpful and then.

Speaker Change: Just just trying to put some things together with the margin I know on a core basis X. The accretable, you're talking $4 25 to $4 35, and I know there was about three basis points of accelerated accretion in there on that one payoff that you were discussing just wondering do you have the total amount.

Kelly Motta: Out of Accretable yield that was the contribution to margin this quarter just to round out the conversation.

Derrick K. Walsh: Derrick, do you want to take this?

Kelly Motta: Derek do you want to take that.

Derrick K. Walsh: Yeah, I think what you're asking for may be in the rate volume table, in the Q, Kelly. So we break out the purchased loans in that rate volume table. So you can see the average balance for the three months ended March was around $979 million, contributing $41.7 million for the quarter for a yield of $17.05 on those, specifically the FDIC purchased loans.

Derek: Yes, I think what youre asking for maybe in the rate volume table in the Q Kelly. So we break out the purchase loans in that rate volume table. So you can see the average balance for the three months ended March was around 979 million contributing $41 7 million for the.

Derek: Order for yield of 17.5 of.

Kelly Motta: Specifically the FDIC purchase loans was that your question.

Derrick K. Walsh: Um, well, that's, that's not 100% the accretion, right? Like, I'm getting from the cash flow statement that it's putting together, you know. Gotcha, gotcha. The accretion, the accretion was about half of that 41 million, yeah. Okay.

Speaker Change: Well, that's that's not.

Speaker Change: That $41 million in 100% the accretion right like I'm getting from the cash flow statement that putting together.

Speaker Change: Gotcha Gotcha.

Speaker Change: Accretion the accretion was about half of that 41.

Speaker Change: Okay.

Kelly Mota: I think over time, and obviously a long time because if you're looking at 20 million in accretion and you're looking over the number of years, we broke that up, so you'll eventually be able to model out that. Because over time, that balance will obviously decline as a percentage of the total loans, right? As loans grow and as those loans pay off, but it's a long time when you run those out, given the relatively long duration of those loans. Got it. That's helpful. And then I know in your prepared commentary you gave the mortgage loans, https://www.larryweaver.com loans, and any other sort of... with their takes on the fee income.

Speaker Change: Alright, Yeah, and I think over I think over time, and obviously a long time, because if you are looking at $20 million of accretion youre looking over a number of years, we broke that up so you'll eventually be able to model out that that Janet because over time that balance will obviously decline as a percentage of the two.

Speaker Change: Total loans right as loans grow and as those loans pay off but.

Speaker Change: It's a long time, when you run that out given the relatively long duration of those loans.

Speaker Change: Got it that's that's helpful and.

Speaker Change: And then I know in your prepared commentary you gave the mortgage loans.

Speaker Change:

Kelly Motta: Pipeline for sale it looks like mortgage banking income was up a bit quarter over quarter. Just wondering how we should be thinking about gain on sale of.

Kelly Motta: Loans and any other sort of.

Kelly Motta: Theyre takes with that fee income here.

Gregory Garrabrants: Yeah, I think I'd probably say that flattish from this quarter is the right sort of way to think about that. I don't expect that it'll grow significantly. There's a chance it might grow a bit, but I think flat is a reasonable and most likely solution.

Speaker Change: Yes, I think I'd, probably say that flattish from this quarter is the right is the right sort of way to think about that I don't expect that it will it will grow significantly and there's a chance it might grow a bit but I think flat is a reasonable and most likely assumption.

Kelly Mota: Got it. Thanks so much for the call tonight. I'll step back.

Speaker Change: Got it thanks, so much for the color I'll step back thank you.

Edward Paul Hemmelgarn: Thank you. The next question is coming from Edward Hemmelgarn from Shaker Investments. Your line is now live.

Speaker Change: Thank you next question is coming from Edward Hemmelgarn from Shaker investments. Your line is now live.

Edward Paul Hemmelgarn: Hey, Mr. Hemmelgarn. How are you? Good. One thing I've always noticed about how low your deposit fees are that you're charging your customers. Does that help you at all? I mean, or is that something that really customers find important?

Edward Paul Hemmelgarn: Yeah, Hi, good morning.

Edward Paul Hemmelgarn: Oh God.

Edward Paul Hemmelgarn: Alright.

Edward Paul Hemmelgarn: Good.

Edward Paul Hemmelgarn: One <unk>.

Edward Paul Hemmelgarn: I'm always notice about how low your deposit fees are a bit you know.

Edward Paul Hemmelgarn: Charging your customers does that help you at all or is it.

Edward Paul Hemmelgarn: Something that is really our customers find important.

Gregory Garrabrants: Yeah, I think so. It's a good question.

Speaker Change: Yes, I think it's a good question I think that.

Speaker Change: Our customers we've generally.

Speaker Change: Focused on.

Gregory Garrabrants: I think that our customers we've generally focused on. We've never been much of an overdraft or NSF player, just with respect to our customer base. Our customer base generally tends to be a little sort of higher end, so they don't generally have those sorts of fees charged to them. I think on the one side, it's reduced sort of regulatory style risk. I think over time, our goal, and it is, I have to admit, you've been with us a long time, a longer-term goal is to really try to bring that robo-advisor and others into a much more integrated way of providing customers' values.

Speaker Change: Telling customers that we do provide them lower fees, we've never been much of an overdraft or.

Speaker Change: SaaS player just with respect to our customer base, our customer base generally tend to be a little.

Speaker Change: Sort of more to that more to the higher end. So they don't generally have those those sorts of fees charged to them I think on one side, it's reduced sort of regulatory style of risk I think over time, our goal and it is I have to admit you've been with us for a long time a long.

Speaker Change: Term goal is to really try to bring that robo advisor and others into a much more integrated.

Speaker Change: Way of providing customers value. So I think a lot of the traditional types of deposit fees that make up a lot of traditional bank.

Speaker Change: Fee income on the on that deposit side really arent that conducive to growing deposits at the.

Speaker Change: At the pace that we'd like to grow them and so I think it is important to consumers when they're looking at their checking account or their small business accounts, whether or not they're charged a lot of wire fees or things like that and I think so a lot of our small business customers are attracted to that so I think it's our job and it's not an easy one.

Gregory Garrabrants: So I think it's our job, and it's not an easy one, to add value-added services there and to find ways of seeing if we can get fee income out of those value-added services. They're just a little bit different, I think, than a lot of the types of fees that other banks do.

Speaker Change: Add value added services, there and to find ways of seeing if we can get fee income out of those value added services I'm, just a little bit different I think than a lot of that types of fees that other banks charge.

Edward Paul Hemmelgarn: Good. Then moving on to loans. I mean, I was surprised by the loan repayment rate, I guess, but... perhaps given the high rates that are, you know, borrowers are now facing. Do you expect that's going to be something that more turnover that you'll be seeing more and more of?

Speaker Change: Good.

Speaker Change: Then moving onto the loans I mean I was surprised by.

Speaker Change: The loan repayment.

Speaker Change: I guess, but.

Speaker Change: Perhaps given the high rates that are.

Speaker Change: Customers.

Speaker Change: Borrowers are now facing do you expect that's going to be something that more turnover that you'll be seeing more and more of I mean, there's just over this time period will reach a minority until they're stable.

Gregory Garrabrants: over this time period, but we're Yeah, I think it depends on the loan category. I think with a commercial specialty real estate side, by the very nature of those loans, they do come to endpoints where they generally get permanent refinancing. I think that if you look back more broadly, what we tried to do, which was very successful, was to keep our loan book very short in a low-rate environment in order to not take interest rate risk or have marks on our portfolio. Obviously, that was very successful.

Speaker Change: I think it depends on the on the loan category I think with our commercial specialty real estate side by the very nature of those loans they do come debt.

Speaker Change: Endpoints, where they generally.

Speaker Change: Get permanent refinancing.

Speaker Change: Think that if you look back more broadly what we tried to do which was very successful.

Speaker Change: Wanted to keep our loan book very short in a low rate environment in order to not take interest rate risk or have marks on our portfolio and obviously that's been a very successful I think the downside of that is you do have a bit of a treadmill, particularly in certain areas, which is why I think on the <unk>.

Edward Paul Hemmelgarn: I think the downside of that is you do have a bit of a treadmill, particularly in certain areas, which is why I think on the commercial specialty real estate side, we may end up lowering spreads a bit because we want to get the safest deals. I think some of the volume there is because there are fewer lenders, but there are also fewer projects and fewer loans that are just in the market generally. I feel comfortable with the diversity of our loan origination platform such that I believe we can still continue to grow loans at that $500,000, $600,000 plus level per quarter, but that composition will move a little bit from quarter to quarter.

Speaker Change: Specialty real estate side, we may end up lowering spreads a bit.

Speaker Change: Because they want to.

Speaker Change: Work on that to get the safest deals and I think some of the volume there obviously there are fewer lenders, but there's also fewer.

Speaker Change: Projects and fewer loans that are just in the market generally so.

Speaker Change: Look I think I feel comfortable with.

Speaker Change: The diversity of our loan origination platform such that I believe we can still continue to grow loans.

Speaker Change: At that 500, 600 or plus level per quarter.

Speaker Change: But that composition.

Speaker Change: Will will move a little bit quarter to quarter, and I think it will be more challenging than it otherwise was let's say last year, just given the nature of the markets.

Edward Paul Hemmelgarn: Are you seeing any areas that are really giving you more opportunities now for loan growth? Yeah, I mean, I think our CNI verticals are broadly performing well. And I think commercial specialty real estate, you know, is having good origination quarters. I just think if you look at the payoffs there, they're quite strong. I think the positive side of that is that we're continuing to turn that book, you know, getting new credit evaluations at, you know, new rates, higher cap rates, and all those things. I think that speaks very well to the performance of the book.

Speaker Change: Are you seeing any any areas that are really giving you more opportunities now for loan growth.

Speaker Change: Yes, I mean, I think our C&I verticals broadly are performing well and I think commercial specialty real estate is.

Speaker Change: As having good origination quarters I, just think if you look at the payoffs.

Speaker Change: They're there they're quite strong I think the positive side of that is that we're continuing to turn that book.

Speaker Change: Getting new credit evaluations at.

Speaker Change: New.

Speaker Change: At higher cap rates and all of those things I think it speaks very well to the performance of the book. So I don't really see anything other than I think other than single family, which is just much more difficult because just the volume of transactions, so relatively low and the credit standards are relatively loose.

Gregory Garrabrants: So I don't really see anything other than, I think, other than single-family, which is just much more difficult because the volume of transactions is just so relatively low and the credit standards are relatively loose. So we're selling a lot of those loans through our conduit. And then in the auto industry, we're just, I think there's opportunity there. I just would like that market to settle out a little bit with respect to where auto prices go before we do a lot more there.

Speaker Change: So we're selling a lot of those loans through our conduit and then in auto. We're just I think there is opportunity there I just would like that market to settle out a little bit.

Speaker Change: With respect to where auto prices go.

Speaker Change: We do a lot more there so.

Edward Paul Hemmelgarn: Okay, great. Great. Thanks. And I, for one, do appreciate your asset liability duration. Thank you.

Speaker Change: Okay, great. Thanks.

Speaker Change: For one I do appreciate your asset liability duration.

Speaker Change: Thank you.

Speaker Change: Right.

Speaker Change: Right.

Gary Peter Tenner: Thank you. The next question is coming from Jerry Tenner from D.A. Davidson. Your line is now live.

Speaker Change: Thank you next question is coming from Jerry tender from D. A Davidson your line is that life.

Gary Peter Tenner: Hey, thanks. Good afternoon.

Jerry Tender: Hey, Thanks, good afternoon.

Jerry Tender: Just follow up first maybe on that line with regard to Russell.

Gary Peter Tenner: If I could just follow up first maybe on that line with regard to Crestle. Greg, as you're talking about opportunities that are, albeit, you know, potentially at some tighter spreads, I'm wondering if within the markets that you traffic in Crestle, which I think are primarily larger metro areas, is there a particular geography that you're seeing more opportunities than others?

Jerry Tender: Greg as you were talking about there being opportunities that are albeit potentially got some tighter spreads I'm wondering if within the markets that you traffic in.

Jerry Tender: In cross sell which I think is primarily larger metro areas.

Jerry Tender: Is there a particular geography that you are seeing more opportunity than others right now in that space.

Gregory Garrabrants: You know, I think that there's been a general shift because a lot of those loans are with our partners, and I think our partners have de-emphasized certain markets and increased their activity in other markets. So I think that would be somewhat reflective of population movement and those sort of things. So, more Miami and Nashville and less New York, that kind of thing. But that doesn't mean New York still doesn't have opportunities.

Greg: Yes, I think that there has been a general shift because a lot of.

Greg: A lot of those loans are with our partners and I think our partners have deemphasize certain markets and increased their activity and other market. So I think that would be somewhat reflective of kind of population movement and those sort of things. So.

Greg: More Miami Nashville, with less New York, right that kind of thing, but that doesn't mean, New York still doesn't have opportunities. If I was going to just baseline that I think youre seeing a little bit of movement, there and youre seeing that the funds that we work with kind of changed some of what they're doing as well <unk>.

Gregory Garrabrants: If I was going to just baseline it, I think you're seeing a little bit of movement there, and you're seeing the funds that we work with kind of change some of what they're doing as well, sometimes to be a little less concentrated, particularly in New York. So I think that's where I would just have it. I think generally, that's right.

Greg: <unk> to be a little less concentrated particularly in New York So.

Greg: That's where I would just have it yes, I think generally that's what I'm, saying.

Gary Peter Tenner: Got it. Thanks. And then on the fee side... You know, if I look at the line items over the last, you know, four or five quarters, you know, broker-dealer and advisory, there's been some movement of broker-dealers a little bit lower, advisory's been a little bit higher, but, you know, on a combined basis, you know, we're kind of triangulating around $20, $21 million per quarter. With the amount of investment you've made in the securities business, I'm just wondering, maybe roadblock isn't the right word, but what are you running up against that maybe is not allowing for some more accelerated growth in that business? Yeah.

Speaker Change: Got it thanks, and then on the fee side.

Greg: If I look at the line items over the last four or five quarters, your broker dealer and advisory.

Greg: Then some movement broker dealers, a little bit lower advisory has been a little bit higher but.

Greg: We're kind of triangulating around 2000 $21 million per quarter with the amount of investment you've made.

Greg: In the Securities business I'm, just wondering maybe roadblock isn't there isn't the right word, but what are you running up against that maybe is not allowing for some more accelerated growth.

Greg: In that business.

Gregory Garrabrants: Yeah, that's a great question. I agree with that assessment. Really, what it is is if you look underneath the asset growth, what you see is we're starting a lot of new firms, getting a lot of new assets, and the existing firms that we have in the AAS business, particularly are losing assets. So a lot of them are TAMPs, and a lot of what happens with TAMPs is the advisors underlying that TAMP structure either outgrow the TAMP structure, or they decide So we were looking at this, and it was quite significant.

Speaker Change: That's a great question and I agree with that assessment.

Speaker Change: Really what it is is if you look underneath the.

Speaker Change: <unk>.

Speaker Change: The asset growth what you see is we're boarding a lot of new firms are.

Speaker Change: Getting a lot of new assets in the existing firms.

Speaker Change: That we have in the Aaas business, particularly are losing assets. So.

Speaker Change: A lot of them are tamps and a lot of what happens with camps as the advisers underlying that tab structure, either outgrow the tab structure or are they decided to break off and do other things or they're being bought so.

Speaker Change: We were looking at this and it was it was quite significant there was above 20% of those tamp assets had run off and we would replace them in more and generally grew net new assets, but that was a big hole to deal with right. So if you had flat existing customers. There you would have.

Gary Peter Tenner: There was above 20% of those TAMP assets had run out, and we had replaced them with more and generally grown net new assets, but that was a big hole to deal with, right? So if you had flat existing customers there, you would have had really good growth, but we didn't. And so I do think that, in general, that is a disappointing outcome. But I think the positive associated with it is that at some point, I believe there'll be burnout there.

Speaker Change: <unk> had really good growth, but we didn't and so I do think that in general.

Speaker Change: That is a.

Speaker Change: Disappointing outcome I think it was a positive associated with it is that at some point I believe there'll be burnt out there I don't know when exactly that is.

Gary Peter Tenner: I don't know when exactly that is, but I think the other element is that as that happens, the base of clients that we're getting is much more diverse, much more stable, and they're growing. So I think that that does have a natural movement that will allow it to stabilize.

Speaker Change: And then I think the other element is that as that happens the base of clients that we're getting are much more diverse much more stable and they're growing so I think that that does have a natural.

Speaker Change: Movement that will allow it to save up to stabilize but that being said I.

Gregory Garrabrants: With that being said, I would say that that's an area of our performance that definitely should be improved. We just launched the white label product and test, and so that's still very early stage. I think there's a lot of opportunity there, from the CrossSell side, but also from the ability to streamline the processes. Right now, the process that exists, with respect to the paperwork and just the manual nature of working with the broker-dealers, is very costly and time-consuming.

Speaker Change: Still think.

Speaker Change: Sure.

Speaker Change: It's not I would say that thats, an area of our performance that definitely should be improved.

Speaker Change: Yes, we just launched the white label product in test.

Speaker Change: So that's still very early stages, I think theres a lot of opportunity there not only from.

Speaker Change: From the cross sell side, but also from the ability to streamline the processes right.

Speaker Change: Right now the process that exists and partner with respect to the paper work and just the manual nature of working with the broker dealers is very costly and time consuming and so a lot of the work we've been doing with respect to the platform that should allow for cross sell also.

Gregory Garrabrants: So a lot of the work we've been doing with respect to the platform that should allow for CrossSell will also allow for improved operating efficiency, you know, very good longevity. But, on the AAS side, it really is the attrition of the current customers that's causing us to fall below where I would hope we were.

Speaker Change: So allow for improved operating efficiencies so.

Speaker Change: Yeah look I think I think that that business when it's built should have.

Speaker Change: Very good longevity.

Speaker Change: But.

Speaker Change: But on the Aaas side. It really is the attrition of the current customers thats, causing us to.

Speaker Change: To fall below where I would hopefully were.

Gary Peter Tenner: Well, I appreciate your thoughts on that. It sounds like from what you're saying as well, Gregory, that there's not necessarily a great line of sight into stabilization there in terms of the churn. Is that fair? Yeah, I think that I think that I think that it will be

Speaker Change: Well I appreciate the thoughts on that it sounds like from what Youre, saying is we all agree that theres not necessarily.

Speaker Change: Great.

Speaker Change: Line of sight into stabilization there in terms of the churn is that fair, yes, I think that I think that I think that we'll be able to outgrow.

Gregory Garrabrants: Yeah, I think that I think that we'll be able to outgrow any churn. But what I really want to be able to do is come out and say, you know, I'm feeling great about growing the assets by 25% next year.

Speaker Change: Any churn, but what I really want to be able to do is come out and say I'm feeling great about growing the assets, 25% next year and I am not saying that because I'm not certain about the churn stabilization and I think I think there's also something else going on here too with respect to a lot of.

Speaker Change: Those just the nature of the investment styles and some of those friends have at a higher rate environment.

Gregory Garrabrants: And I'm not saying that because I'm not certain about the churn stabilization. And I think there's also something else going on here too with respect to a lot of them, just the nature of the investment styles that some of those firms have in a higher rate environment. Our shop isn't as well positioned maybe from a bond perspective as it should be because those clients had sort of a different mix of what they were focused on.

Speaker Change: Our shop business is well positioned maybe from a bond perspective.

Speaker Change: As it should be because of those clients had sort of a different mix of what they were focused on and I think that that's still playing through that's not true with a newer advisors, we're bringing on but I think that's the reaction that some of those broker dealers have with some of those tab. So I think that will play itself.

Gregory Garrabrants: And I think that that's still playing through. That's not true with the newer advisors we're bringing on, but I think that's the reaction that some of those broker dealers have with some of those tamps. So I think that'll play itself out over time, but I don't think it's done yet. I think it's got a little bit to run.

Speaker Change: Through over time, but I'm not I don't I don't think it's done yet I think it's.

Speaker Change: I think it's got a little bit to run.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

Operator: Thank you. We've reached the end of our question and answer session. I'd like to turn the call back over to management for any further or closing comments.

Speaker Change: Thank you we reached end of our question and answer session I'd like to turn the floor back over to management for any further or closing comments.

Gregory Garrabrants: Thank you everyone for your time, and we'll talk to you next quarter.

Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Speaker Change: Alright. Thank you everyone for your time, and we'll talk to you next quarter.

Speaker Change: Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we take you for your participation today.