Q4 2024 Axos Financial Inc Earnings Call

Hello and welcome to the Axos Financial Inc. 4th 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.

Operator: Coal & Webcast.

Operator: If anyone could require operator assistance, please press star zero on your telephone keypad. A question and intercession will follow the formal presentation. You may be placing the question cue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded.

Operator: If anyone should require operator assistance, please press star zero on your telephone keypad. Our 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.

You may be placed into question queue at any time by pressing star 1 on your telephone keypad. As a reminder, this conference is being recorded.

Operator: As a reminder, this conference is being recorded. It's now my pleasure to turn the conference over to Johnny Lai, Senior Vice President, Corporate Development and Investor Relations. Please go ahead, Johnny.

Johnny Lai: It's not my pleasure to turn the conference over to Johnny Lies, Senior Vice President, Corporate Development and Investor Relations. Please have a good afternoon, everyone. Thanks for joining us for Axos Financial Inc. Fourth quarter 2024 financial results conference call. On today's 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 in 12 months ended June 30, 2024, and we will be available to answer questions after the prepared remarks.

It's now my pleasure to turn the conference over to Johnny Lai, Senior Vice President, Corporate Development and Investor Relations. Please go ahead, Johnny.

Johnny Y. Lai: Thank you, Kevin. Good afternoon, everyone.

Johnny Y. Lai: Thank you, Kevin.

Johnny Y. Lai: Good afternoon, everyone. Thanks for joining us for Axos Financial Inc's fourth quarter 2024 financial results conference call.

Johnny Y. Lai: Thanks for joining us for Axos Financial Inc.'s fourth quarter 2024 financial results conference call. On today's 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 12 months ended June 30, 2024, and we will be available to answer 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 question.

Speaker Change: On today's call are the company's President and Chief Executive Officer Greg Garrabrants and Executive Vice President and Chief Financial Officer Derrick Walsh.

Speaker Change: Greg and Derrick will review and comment on the financial and operational results for the 3 and 12 months ended June 30, 2024 and we will be available to answer questions after the prepared remarks.

Johnny Y. Lai: Please refer to the Safe Harbor Statement found in today's earnings press release and in our investor presentation for additional detail. 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. 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 press release, we also issued an earnings supplement, an 8K, with additional financial schedules for this call. All of these documents can be found on the Axos Financial website.

Johnny Lai: Before I begin, I would like to remind listeners that prepared remarks made on this call may contain four lighting statements that are subject to risks and uncertainties, and that management may make additional four lighting statements in response to your questions. Please refer to the same harbor statement found in today's earnings press release and in our investor presentation for additional details.

Speaker Change: 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.

Speaker Change: Please refer to the Safe Harbor Statement found in today's earnings press release and in our investor presentation for additional details.

Johnny Lai: This call is being broadcast, and there will be an audio replay available in the Investor Relations section of the company's website located at accessfinancial.com for 30 days. Details for this call were provided on the conference call announcement and in today's earnings press release.

Speaker Change: 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.

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

Johnny Lai: Before handing the call over to Greg, I would like to remind listeners that, in addition to the earnings press release, we also issued an earnings supplement in a K with additional financial schedules for this call. All of these documents can be found on the Axos Financial website.

Speaker Change: Before handing the call over to Greg, I'd like to remind listeners that in addition to the earnings press release, we also issued an earnings supplement, an 8K, with additional financial schedules for this call.

Gregory Garrabrants: With that, I'd like to turn the call over to Greg.

Speaker Change: All of these documents can be found on the Axos Financial website.

Gregory Garrabrants: Thanks, Johnny.

Johnny Y. Lai: Thanks, Johnny. Good afternoon, everyone, and thank you for joining us.

Gregory Garrabrants: Good afternoon, everyone. Thank you for joining us. I'd like to welcome everyone to Axos Financial's conference call for the fourth quarter of fiscal 2024 ended June 30th, 2024. I thank you for your interest in Axos Financial. We delivered outstanding results in our fiscal fourth quarter of 2024, generating double-digit year-over-year growth in earnings per share, book value per share, and ending loan balances for a ninth consecutive quarter. We outperform the majority of our peers, primarily due to the successful execution of our strategic and operational initiatives. We grew deposits by approximately $256 million in length quarter, with growth coming primarily from non-transparent deposits.

Gregory Garrabrants: With that, I'd like to turn the call over to Greg. Thanks, Johnny. Good afternoon, everyone, and thank you for joining us.

Speaker Change: With that, I'd like to turn the call over to Greg. Thanks, Johnny. Good afternoon, everyone, and thank you for joining us. I'd like to welcome everyone to Axos Financial's conference call for the fourth quarter of fiscal 2024, ended June 30, 2024. I thank you for your interest in Axos Financial.

Gregory Garrabrants: I'd like to welcome everyone to Axos Financial's conference call for the fourth quarter of fiscal 2024, ended June 30, 2024. I thank you for your interest in Axos Financial. We delivered outstanding results in our fiscal fourth quarter of 2024, generating double-digit year-over-year growth in earnings per share, book value per share, and ending loan balances for a ninth consecutive quarter. We outperformed the majority of our peers, primarily due to the successful execution of our strategic and operational initiatives.

Gregory Garrabrants: We delivered outstanding results in our fiscal fourth quarter of 2024, generating double-digit year-over-year growth in earnings per share, book value per share, and ending loan balances for a ninth consecutive quarter. We outperformed the majority of our peers, primarily due to the successful execution of our strategic and operational initiatives.

Gregory Garrabrants: We grew deposits by approximately $256 million linked quarter, with growth coming primarily from non-interest-bearing deposits. Lending loan balances were up 2.7% linked quarter or 16.9% year over year to $19.2 billion. The diversity of our lending and deposit businesses allowed us to grow profitably in the three and twelve months ended June 30, 2024, as evidenced by our 18.8% and 21.6% return on average common shareholder activity, respectively. Our strong returns contributed to the 26% year-over-year growth in our tangible book value per share.

Gregory Garrabrants: We grew deposits by approximately $256 million last quarter, with growth coming primarily from non-interest bearing deposits.

Gregory Garrabrants: Ending loan balances were up 2.7% length quarter, or 16.9% year-over-year, to 19.2 billion. The diversity of our lending and deposit businesses allowed us to grow profitably in the three in 12 months ended June 30th, 2024, as evidenced by our 18.8% and 21.6% return on average common shareholder actively, respectively. Our strong returns contributed to the 26% year-over-year growth in our tangible book value per share.

Gregory Garrabrants: Ending loan balances were up 2.7% link order or 16.9% year-over-year to $19.2 billion.

Gregory Garrabrants: The diversity of our lending and deposit businesses allowed us to grow profitably in the 3-12 months ended June 30, 2024, as evidenced by our 18.8% and 21.6% return on average common shareholder activity respectively.

Gregory Garrabrants: Our strong returns contribute to the 26% year-over-year growth in our tangible book value per share.

Gregory Garrabrants: Other highlights include the following. Net interest margin was 4.65% for the quarter ended June 30th, 2024, up 46 basis points from 4.19% in the quarter ended June 30th, 2023, and down from 4.87% in the quarter ended March 31st, 2024. We carried higher excess liquidity with average interest-bearing deposits of approximately $2.7 billion in the fourth quarter of 2024 compared to $2.2 billion in the third quarter of 2024. The excess liquidity had a nine basis points drag on our Q4 2024 net interest margin.

Gregory Garrabrants: Other highlights include the following. Net interest margin was 4.65% for the quarter ended June 30th, 2024, up 46 basis points from 4.19% in the quarter ended June 30th, 2023, and down from 4.87% in the quarter ended March 31st, 2024. We carried higher access liquidity, with average interest bearing deposits in approximately 2.7 billion in the fourth quarter of 2024, compared to 2.2 billion in the third quarter of 2024. The access liquidity had a 9 basis points drag on our Q4, 2024 net interest margin. Net interest margin and Q3, 2024 benefited from a payoff of a loan we purchased from the FDIC.

Gregory Garrabrants: Other highlights include the following.

Gregory Garrabrants: Net interest margin was 4.65% for the quarter ended June 30, 2024, up 46 basis points from 4.19% in the quarter ended June 30, 2023, and down from 4.87% in the quarter ended March 31, 2024.

Gregory Garrabrants: We carried higher excess liquidity, with average interest-bearing deposits of approximately $2.7 billion in the fourth quarter of 2024, compared to $2.2 billion in the third quarter of 2024.

Gregory Garrabrants: Net interest margin in Q3 2024 benefited from a payoff of a loan we purchased from the FDIC. Our credit quality remained strong with net annualized charge-offs to average loans of five basis points in the three and 12 months ended June 30th, 2024. Total non-performing loans dropped by $9 million in the quarter, and non-performing loans and leases to loans fell by six basis points to 0.57%. Net income was approximately $105 million in the quarter ended June 30, 2024, up 20% from the corresponding period a year ago. Earnings per share for the three and 12 months ended June 30, 2024, were $1.80 and $7.66, respectively, representing year-over-year growth of 23% and 51%, respectively.

Gregory Garrabrants: The Axos liquidity had a 9 basis points drag on our Q4 2024 net interest margin. Net interest margin in Q3 2024 benefited from a payoff of a loan we purchased from the FDIC.

Gregory Garrabrants: Our credit quality remained strong, with net annualized charge off to average loans of 5 basis points in the three in 12 months ended June 30th, 2024. Total non-performing loans dropped by $9 million in the quarter, and non-performing loans in leases to loans fell by 6 basis points to 0.57%. David Income was approximately $105 million in the quarter ended June 30, 2024, up 20% from the corresponding period of year ago. Earnings per share for the three and twelve months at June 30, 2024 were $1.80 and $7.66, representing year-over-year growth of 23% and 51%, respectively. We were purchased 13.2 million of common stock in the fourth quarter-ended June 30, 2024, at an average share price of $48.

Speaker Change: Our credit quality remains strong, with net annualized charge-offs to average loans of five basis points in the three-and-twelve months ended June 30, 2024. Total non-performing loans dropped by $9 million in the quarter, and non-performing loans and leases to loans fell by six basis points to 0.57 percent.

Speaker Change: Net income was approximately $105 million in the quarter ended June 30, 2024, up 20% from the corresponding period a year ago. Earnings per share for the 3 and 12 months ended June 30, 2024, were $1.80 and $7.66, representing year-over-year growth of 23% and 51% respectively.

Gregory Garrabrants: We repurchased $13.2 million of common stock in the 4th quarter ended June 30, 2024, at an average share price of $48. For fiscal year 2024, we repurchased approximately $97 million of common stock at an average share price of $38.18 per share. We still have approximately $106 million remaining in our authorized share repurchase program. Total loan originations for investment were $2.5 billion for the three months ended June 30, 2024, up approximately 11% from the same period a year ago.

Speaker Change: We repurchased $13.2 million of common stock in the fourth quarter ended June 30, 2024 at an average share price of $48. For fiscal year 2024, we repurchased approximately $97 million of common stock at an average share price of $38.18 per share.

Gregory Garrabrants: For fiscal year 2024, we purchased approximately $97 million of common stock at an average share price of $38 and $18 cents per share. We still have approximately $106 million from Manning and our authorized share of purchase program. Total loan originations for investment were $2.5 billion for the three-month ended June 30, 2024, up approximately 11% from the same period of year ago. Strong originations were offset by higher repayments across the majority of real estate back lending categories. Ending balances for our multifamily term loans and commercial real estate specialty loans declined by approximately $122 million and $31 million, respectively, in the fourth quarter.

Speaker Change: We still have approximately $106 million dollars remaining in our Authorized Share Purchase Program.

Speaker Change: Total loan originations for investment were $2.5 billion for the three months ended June 30, 2024, up approximately 11% from the same period a year ago. Strong originations were offset by higher repayments across the majority of real estate-backed lending categories.

Gregory Garrabrants: Strong originations were offset by higher repayments across the majority of real estate-backed lending categories. Ending balances for our multifamily term loans and commercial real estate specialty loans declined by approximately $122 million and $31 million, respectively, in the fourth quarter. We continue to reduce our auto consumer and select real estate-backed loans to tactically manage our interest rate and credit risk.

Speaker Change: Ending balances for our multifamily term loans and commercial real estate specialty loans declined by approximately $122 million and $31 million, respectively, in the fourth quarter. We continue to reduce our auto consumer and select real estate-backed loans to tactically manage our interest rate and credit risk.

Gregory Garrabrants: We continue to reduce our auto-consumer and select real estate-backed loans to tactically manage our interest rate and credit risk. Average loan yields for the three-month ended June 30, 2024 were 8.55%, down 10 basis points from 8.65% of their prior quarter and up 104 basis points from the corresponding period of year ago. Average loan yields for non-purchase loans were 8.11%, and average yields for purchase loans were 16.59%, which includes the increase in of our purchase price discount. The procurement of an FDIC acquired loan increased the Q3 2020 for average loan yield by 8 basis points, excluding one-time items in the fiscal third quarter of 2024. Organic non-purchase loan yields declined by four basis points, reflecting a focus on loan verticals that come with compensating non-interest bearing deposits.

Gregory Garrabrants: Average loan yields for the three months ended June 30, 2024, were 8.55%, down 10 basis points from 8.65% in the prior quarter, and up 104 basis points from the corresponding period a year ago. Average loan yields for non-purchase loans were 8.11%, and average yields for purchase loans were 16.59%, which includes the accretion of our purchase price discount. The prepayment of an FDIC-acquired loan increased the Q3 2024 average loan yield by 8 basis points. Excluding one-time items in the fiscal third quarter of 2024, organic, non-purchase loan yields declined by 4 basis points, reflecting a focus on loan verticals that come with compensating non-interest-bearing deposits.

Speaker Change: Average loan yields for the three months ended June 30, 2024 were 8.55%, down 10 basis points from 8.65% in the prior quarter, and up 104 basis points from the corresponding period a year ago.

Speaker Change: Average loan yields for non-purchase loans were 8.11%, and average yields for purchase loans were 16.59%, which includes the accretion of our purchase price discount.

Speaker Change: The prepayment of an FDIC-acquired loan increased the Q3 2024 average loan yield by 8 basis points.

Speaker Change: Excluding one-time items in the fiscal third quarter of 2024, organic, non-purchased loan yields declined by four basis points, reflecting a focus on loan verticals that come with compensating non-interest bearing deposits.

Gregory Garrabrants: New loan interest rates were the following: single-family mortgages, 8.1%; multi-family, 8.5%; C&I, 9%; and auto, 10.4%. Our commercial real estate loans continue to perform well. As we've discussed previously, the structure, duration, and exit strategies for our commercial specialty real estate loans are significantly different from traditional CRB term loans than most other banks originate and hold. The low loan to value and senior structure we have in place for an overwhelming majority of our commercial specialty real estate loans provide the significant downside protection and the event of deterioration in the borrowers' ability or willingness to repay the valuation of underlying properties or construction project delays.

Gregory Garrabrants: New loan interest rates were the following: single-family mortgages, 8.1%, multifamily, 8.5%, CNI, 9%, and auto, 10.4%. Our commercial real estate loans continue to perform well. As we've discussed previously, the structure, duration, and exit strategies for our commercial specialty real estate loans are significantly different from traditional CRE term loans that most other banks originate and hold. 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 deterioration in the borrower's ability or willingness to repay the value of underlying properties or construction project Our CRESL loans are floating rate with contractual maturities generally between two and three years compared to fixed rate loans with contractual maturities of seven or longer for most commercial real estate loans.

Speaker Change: New loan interest rates were the following, single family mortgages 8.1%, multi-family 8.5%, CNI 9%, and auto 10.4%.

Speaker Change: Our commercial real estate loans continue to perform well. As we've discussed previously, the structure, duration, and exit strategies for our commercial specialty real estate loans are significantly different from traditional CRE term loans that most other banks originate and hold.

Speaker Change: The low loan devalue 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 deterioration of the borrower's ability or willingness to repay, devaluation of underlying properties, or construction project delays.

Gregory Garrabrants: Our crystal loans are floating rate with contractual maturities generally between two and three years, compared to fixed rate loans with contractual maturities of seven or longer for most commercial real estate loans. Of the 5.1 billion of commercial specialty real estate loans outstanding at June 30, 2024, multi-family was the largest segment, representing 37%, while hotel retail represented 21%. On a consolidated basis, the weighted average loan to value of our crystal portfolio was 40%. Our retail and office segment of our commercial specialty loan book is well secured with weighted average loan to value of 46% and 35% respect.

Speaker Change: Our CRESL 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 for most commercial real estate loans.

Gregory Garrabrants: Of the 5.1 billion of commercial specialty real estate loans outstanding at June 30, 2024, multifamily was the largest segment, representing 37%, while hotel and retail represented 21%. On a consolidated basis, the weighted average loan to value of our CRESL portfolio was 40%. Our retail and office segment of our commercial specialty loan book is well secured with weighted average loan to values of 46% and 35% respectively. We have very little office exposure in our commercial real estate specialty loan portfolio with ending balances equal to $302 million or 6% of the total Crestle portfolio. Of these loans secured by Office Properties, 54% 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 from fund partners and mezzanines.

Speaker Change: Of the $5.1 billion of commercial specialty real estate loans outstanding at June 30, 2024, multifamily was the largest segment, representing 37 percent, while hotel and retail represent 21 percent.

Speaker Change: On a consolidated basis, the weighted average loan-to-value of our Crestle portfolio is 40%. Our retail and office segment of our commercial specialty loan book is well-secured, with weighted average loan-to-value of 46% and 35% respectively.

Gregory Garrabrants: We have a very little office exposure in our commercial real estate specialty loan portfolio, with ending balances equal to $300,000,000 or a 6% of the total crystal portfolio. Of these loans secured by office properties, 54% are A-nodes or no-down-node structures, all a significant subordination, with some having recourse to funds or cross collateralization with other asset types from fund partners and messaging lenders. Not performing loans in our commercial specialty real estate portfolio remain unchanged and approximately $26 million, representing 50 basis points of our total book outstanding. These are two loans, a condo building in New York for $15 million and a student housing building in Berkeley for $11 million, which make up the entire non-performing commercial real estate loan portfolio.

Speaker Change: We have very little office exposure in our commercial real estate specialty loan portfolio with ending balances equal to $302 million or 6% of the total Crestle portfolio.

Speaker Change: Of these loans secured by Office Properties, 54% 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 from fund partners and mezzanine lenders.

Gregory Garrabrants: Non-performing loans in our commercial specialty real estate portfolio remain unchanged at approximately $26 million, representing 50 basis points of our total book outstanding. These are two loans, a condo building in New York for $15 million and a student housing building in Berkeley for $11 million, which make up the entire non-performing commercial real estate loan portfolio. We do not anticipate incurring a material loss on either of these loans.

Speaker Change: Non-performing loans in our commercial specialty real estate portfolio remain unchanged at approximately $26 million, representing 50 basis points of our total book outstanding.

Speaker Change: These are two loans, a condo building in New York for $15 million and a student housing building in Berkeley for $11 million, which make up the entire non-performing commercial real estate loan portfolio. We do not anticipate incurring a material loss on either of these loans.

Gregory Garrabrants: We did not anticipate incurring a material loss on either of these loans. Not performing loans in our multi-family mortgage portfolio were approximately $35 million, and there is one loan on this, the living property of $25 million, that has been reserved for more than a year. The rest of the multi-family term loans are for properties located in California and across the U.S. with recourse in personal guarantees. The average loan value of our non-performing multi-family mortgage is approximately 57%. We do not expect to incur a material loss at any other multi-family loans currently categorized as non-performing.

Gregory Garrabrants: Non-performing loans in our multifamily mortgage portfolio were approximately $35 million at June 30, 2024, down $3.5 million when quartered. Of the $35 million, there is one loan on an assisted living property of $25 million that has been reserved for more than a year. The rest of the multifamily term loans are for properties located in California and across the U.S. with recourse and personal guarantees.

Speaker Change: Non-performing loans in our multifamily mortgage portfolio were approximately $35 million at June 30, 2024, down $3.5 million when quartered. Of the $35 million, there is one loan on the assisted living property of $25 million that has been reserved for more than a year. The rest of the multifamily term loans are for properties located in California and across the U.S. with recourse and personal guarantees.

Gregory Garrabrants: The average loan to value of our non-performing multifamily mortgages is approximately 57%. We do not expect to incur a material loss on any other multifamily loans currently categorized as non-performing. We closed the purchase of two loan portfolios with a UPB of $1.25 billion from the FDIC in December 2023. The ending balance was decreased by $12 million since March 31, 2024. We do not have any prepayments resulting in discount accretion this quarter on the loans we purchased from the FDIC. All loans purchased from the FDIC are current. Non-performing single-family mortgage loans decreased from 51 million at March 31, 2024 to 46 million at June 30, 2024.

Speaker Change: The average loan-to-value of our non-performing multifamily mortgages is approximately 57 percent. We do not expect to incur material loss at any other multifamily loans currently categorized as non-performing.

Gregory Garrabrants: We closed the purchase of two loan portfolios with a UPP of $1.25 billion from the FDIC in December 2023. Ending balance was decreased by $12 million since March 31, 2024. We did not have any prepayments resulting in discount accretion in this quarter in the loans we purchased from the FDIC. All loans purchased from the FDIC are current. Not performing single-family mortgage loans decreased by from $51 million at March 31, 2024, to $46 million at June 30, 2024. The weighted average loan value of our non-performing single-family mortgage portfolio was 55% as of June 30, 2024. Given that home values continue to increase in the majority of markets where properties are located, we do not foresee much loss content, if any, in our delinquent single-family mortgages.

Speaker Change: We close the purchase of two loan portfolios with a UPB of $1.25 billion from the FDIC in December 2023. Ending balance was decreased by $12 million since March 31, 2024. We do not have any prepayments resulting in discount accretion this quarter in the loans we purchased from the FDIC.

Speaker Change: All loans purchased from the FDIC are current.

Speaker Change: Non-performing single-family mortgage loans decreased from $51 million on March 31, 2024 to $46 million on June 30, 2024.

Gregory Garrabrants: The weighted average loan-to-value of our non-performing single-family mortgage portfolio was 55 percent as of June 30, 2024. Given that home values continue to increase in the majority of markets where properties are located, we do not foresee much loss content, if any, in our delinquent single-family mortgages. We increased deposits by $256 million in the fourth quarter and by $2.2 billion in fiscal 2024. Demand, money market, and savings accounts, representing 95% of total deposits at June 31, 2024, grew at 16.5% annualized.

Speaker Change: The Weighted Average Loan Devalue of our non-performing single-family mortgage portfolio was 55% as of June 30, 2024. Given that home values continue to increase in the majority of markets where properties are located, we do not foresee much loss content, if any, in our delinquent single-family mortgages.

Gregory Garrabrants: We increased deposits by $256 million in the fourth quarter and by $2.2 billion in fiscal 2024. Demand, money, markets, and savings accounts representing 95% of total deposits that June 31, 2024, grew at 16.5% annualized. We have a diverse mix of funding across a variety of business verticals with consumers and small business representing 62% of total deposits, commercial cash, treasury management, and institutional representing 18%, commercial specialty representing 10, exospecies, services representing 6%, and exospecurities, which is our custody and clearing business representing 4%. Total non-interest bearing deposits were approximately $3 billion, up to $20 million quarter over quarter.

Speaker Change: We increased deposits by $256 million in the fourth quarter.

Speaker Change: and by $2.2 billion in fiscal 2024.

Speaker Change: Demand, money market, and savings accounts representing 95% of total deposits of June 31st, 2024 grew at 16.5% annualized. We have a diverse mix of funding across a variety of business verticals, with consumer and small business representing 62% of total deposits.

Gregory Garrabrants: We have a diverse mix of funding across a variety of business verticals, with consumer and small business representing 62% of total deposits, commercial, cash, treasury, management, and institutional representing 18%, commercial specialty representing 10%, Axos Fiduciary Services representing 6%, and Axos Securities, which is our custody and clearing business, representing 4%. Total non-interest bearing deposits were approximately $3 billion, up $220 million quarter over quarter.

Speaker Change: Commercial, Cash, Treasury, Management, and Institutional representing 18%, Commercial Specialty representing 10%, Axos Fiduciary Services representing 6%, and Axos Securities, which is our custody and clearing business, representing 4%. Total non-interest bearing deposits were approximately $3 billion, up $225 million quarter over quarter. Our balance sheet remains relatively neutral from an interest rate risk perspective, given the shorter duration, variable rate nature of our loans, and the granularity and diversity of our consumer, commercial, and securities deposits. As of June 30, 2024, approximately 69% of our loans were floating, 25% were hybrid arms, and 6% were fixed.

Gregory Garrabrants: Our balance sheet remains relatively neutral from an interest rate risk perspective, given that shorter duration variable rate nature of our loans, and the granularity and diversity of our consumer, commercial, and securities deposits. As of June 30, 2024, approximately 69% of our loans were floating, 25% were hybrid ARMs, and 6% were fixed. Termed deposits were only 4.8% of total deposits a quarter, and providing us flexibility to adjust interest cost if and when rates decline. For the quarter-end of June 30, 2024, our consolidated net interest margin was 4.65%, while our banking business net interest margin was 4.68%.

Gregory Garrabrants: Our balance sheet remains relatively neutral from an interest rate risk perspective, given the shorter duration variable rate nature of our loans and the granularity and diversity of our consumer, commercial, and securities deposits. As of June 30, 2024, approximately 69% of our loans were floating, 25% were hybrid arms, and 6% were fixed. Term deposits were only 4.8% of total deposits at quarter end, providing us with flexibility to adjust interest costs if and when rates decline.

Speaker Change: Term deposits were only 4.8% of total deposits a quarter and providing us flexibility to adjust interest costs if and when rates decline.

Gregory Garrabrants: For the quarter ended June 30, 2024, our consolidated net interest margin was 4.65%, while our banking business net interest margin was 4.68%. Our consolidated banking business NIM remains above our guidance of 4.25% to 4.35% despite holding Axos liquidity due to strong deposit growth and elevated levels of loan repayment. When we announced the FDIC loan purchase in December 2023, our expectation was that the transaction would boost our net interest margin by 35 to 45 basis points.

Speaker Change: For the quarter ended June 30, 2024, our consolidated net interest margin was 4.65%, while our banking business net interest margin was 4.68%.

Gregory Garrabrants: Our consolidated banking business name remains above our guidance of 4.25% to 4.35%, despite holding Axos liquidity due to strong deposit growth and elevated levels of loan repayments. When we announce the FJC loan purchase in December 2023, our expectation was that the transaction would boost our net interest margin by 35 to 45 basis points. When caveat was that any loan repayments would accelerate the recognition of the purchase discount, boosting our net interest income and net interest margin in the period that the repayments occurred and reducing both in future periods. Given the pre-payments in this portfolio, we now expect our net interest margin benefit to be 30 to 40 basis points for fiscal year 2025.

Speaker Change: Our consolidated banking business NIM remains above our guidance of 4.25% to 4.35% despite holding excess liquidity due to strong deposit growth and elevated levels of loan repayments.

Speaker Change: When we announced the FDIC loan purchase in December 2023, our expectation was that the transaction would boost our net interest margin by 35 to 45 basis points.

Gregory Garrabrants: One caveat was that any loan prepayments would accelerate the recognition of the purchase discount, boosting our net interest income and net interest margin in the period that the prepayments occurred and reducing both in future periods. Given the prepayments in this portfolio, we now expect our net interest margin benefit to be 30 to 40 basis points for fiscal year 2025. We break out the average balances and loan yields for the purchased and non-purchased loans in our supplement schedules provided as an exhibit to the press release for readers to separate the impact of the loan purchase on net interest margin.

Speaker Change: One caveat was that any loan prepayments would accelerate the recognition of the purchase discount.

Speaker Change: Boosting our net interest income and net interest margin in the period that the prepayments occurred and reducing both in future periods. Given the prepayments in this portfolio, we now expect our net interest margin benefit to be 30 to 40 basis points for fiscal year 2025.

Gregory Garrabrants: We break out the average balances and loan yields for the purchase and non-purchase loans in our supplement schedules provided as an exhibit to the press release for readers to separate the impacted loan purchase on net interest margin. Total ending deposit balances at AES, including those on and off Axos's balance sheet, were relatively flat compared to prior quarter. The rate of decline has tripped, and we believe that the pace of cash sorting at AES has stabilized at or near the bottom, representing 3.3 percent of assets under custody at June 30, 2024, compared to the historical range of 6 to 7 percent.

Speaker Change: We break out the average balances and loan yields for the purchased and non-purchased loans in our supplement schedules provided as an exhibit to the press release for readers to separate the impact of the loan purchase on that interest margin.

Gregory Garrabrants: Total ending deposit balances at AAS, including those on and off Axos's balance sheet, were relatively flat compared to the prior quarter. The rate of decline has troughed, and we believe that the pace of cash sorting at AAS has stabilized at or near the bottom, representing 3.3% of assets under custody at June 30, 2024, compared to the historical range of 6% to 7%. We are focused on adding net new assets from existing and new advisors to grower assets under custody and cash balances.

Speaker Change: Total ending deposit balances at AES, including those on and off Axos' balance sheet, were relatively flat compared to prior quarter.

Speaker Change: The rate of decline has troughed, and we believe that the pace of cash sorting at AAS has stabilized at or near the bottom, representing 3.3% of assets under custody at June 30, 2024, compared to the historical range of 6-7%.

Gregory Garrabrants: We are focused on adding net new assets from existing and new advisors to grow our assets under the custody and cash balances. In addition to our Axos security deposits on our balance sheet, we had approximately $550 million deposits off balance sheet that partner banks. Non-interest expense increased $7 million link quarter driven by increased salary and benefits, professional service expenses, advertising and promotional expenses, and higher FDIC fees. We continue to selectively add talented leaders and team members across various business and functional units to support our existing and future growth initiatives, particularly in treasury management sales products and operations where we saw nice growth in non-interest bearing deposits.

Gregory Garrabrants: In addition to our Axos securities deposits on our balance sheet, we had approximately $550 million of deposits off balance sheets at partner banks. Non-interest expense increased $7 million in the last quarter driven by increased salary and benefits, professional service expenses, advertising and promotional expenses, and higher FDIC fees. We continue to selectively add talented leaders and team members across various business and functional units to support our existing and future growth initiatives, particularly in treasury management, sales, products, and operations, where we saw nice growth in non-interest-bearing deposits. Some of the elevated professional service expenses pertaining to consulting and legal fees were for specific projects and are not expected to reoccur.

Speaker Change: We are focused on adding net new assets from existing and new advisors to grow our assets under the custody and cash balances.

Speaker Change: In addition to our Axos Securities deposits on our balance sheet, we had approximately $550 million of deposits off balance sheets at partner banks.

Speaker Change: Non-interest expense increased $7 million linked quarter, driven by increased salary and benefits, professional service expenses, advertising and promotional expenses, and higher FDIC fees. We continue to selectively add talented leaders and team members across various business and functional units to support our existing and future growth initiatives, particularly in treasury management, sales, products, and operations, where we saw nice growth in non-interest-bearing deposits.

Gregory Garrabrants: Some of the elevated professional service expenses pertaining to consulting and legal fees were for specific projects and are not expected to re-occur. We expect the growth in marketing and promotional expenses to moderate given our elevated level of access liquidity. Our ongoing investments in front and back end systems, product features and service offerings, and other enterprise offering systems will further optimize our processes and capabilities.

Speaker Change: Some of the elevated professional service expenses pertaining to consulting and legal fees were for specific projects and are not expected to reoccur. We expect the growth in marketing and promotional expenses to moderate given our elevated level of excess liquidity.

Gregory Garrabrants: We expect the growth in marketing and promotional expenses to moderate given our elevated level of excess liquidity. Our ongoing 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 migrated all existing small business deposit customers to our universal digital bank in June.

Speaker Change: Our ongoing 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 migrated all existing small business deposit customers to our Universal Digital Bank in June .

Gregory Garrabrants: We migrated all existing small business deposit customers to our universal digital bank in June. This platform transition provides a better user interface and more self-service capabilities to small business deposit customers that we're not available in the prior platform. We continue to add enhancements in UDB to leverage data we have on existing and prospective customer clients in order to further drive cross-cell banking, lending, and security services. Feedback on our white label RIA banking and introduce from introducing broker dealers has been encouraging. We will refine the platform based on our feedback to ensure that we have the features and ease of use that will drive adoption and usage once we roll this out to all existing and new custody and clearing clients.

Gregory Garrabrants: This platform transition provides a better user interface and more self-service capabilities to small business deposit customers that were not available in the prior platform. We continue to add enhancements in UDB to leverage data we have on existing and prospective customers in order to further drive cross-sell banking, lending, and security services. Feedback on our white-label RIA banking from introducing broker-dealers has been encouraging. We will refine the platform based on our feedback to ensure that we have the features and ease of use that will drive adoption and usage once we roll this out to all existing and new custody and clearing clients.

Speaker Change: This platform transition provides a better user interface and more self-service capabilities to small business deposit customers that were not available in the prior platform.

Speaker Change: We continue to add enhancements in UDB to leverage data we have on existing and prospective customer clients in order to further drive cross-sell of banking, lending, and security services.

Speaker Change: Feedback on our white label RIA banking and from introducing broker-dealers has been encouraging. We will refine the platform based on our feedback to ensure that we have the features and ease of use that will drive adoption and usage once we roll this out to all existing and new custody and clearing clients.

Gregory Garrabrants: Axos Clearing, which includes our corresponding clearing and RIA custody business, continues to make steady progress. So little deposits of Axos Clearing were $1.3 billion as of June 30, 2024, roughly flat from where they were at March 31, 2024. Of the $1.3 billion of deposits from Axos, clearing approximately $750 million was on our balance sheet and $550 million held at partner banks. Net new assets from the custody business increased by approximately $256 million in the fourth quarter. We had positive net new asset growth in our custody business in every month since March 2024. Total assets under custody were $35.7 billion at June 30, 2024, up slightly from $35 billion at the end of the March quarter.

Gregory Garrabrants: Axos Clearing, which includes our correspondent clearing and our custody business, continues to make steady progress. Total deposits at Axos Clearing were $1.3 billion as of June 30, 2024, roughly flat from where they were at March 31, 2024. Of the $1.3 billion of deposits from Axos Clearing, approximately $750 million was on our balance sheet and $550 million held at partner banks.

Speaker Change: Axos Clearing, which includes our Correspondent Clearing and R.A. Custody business, continues to make steady progress.

Speaker Change: Total deposits at Axos Clearing were $1.3 billion as of June 30, 2024, roughly flat from where they were at March 31, 2024. Of the $1.3 billion of deposits from Axos Clearing, approximately $750 million was on our balance sheet and $550 million held at partner banks.

Gregory Garrabrants: Net new assets in the custody business increased by approximately $256 million in the fourth quarter. We had positive net new asset growth in our custody business for every month since March 2024. Total assets under custody were $35.7 billion at June 30, 2024, up slightly from $35 billion at the end of the March quarter.

Speaker Change: Net new assets in the custody business increased by approximately $256 million in the fourth quarter.

Speaker Change: We had positive net new asset growth in our custody business every month since March 2024. Total assets under custody were $35.7 billion at June 30, 2024, up slightly from $35 billion at the end of the March quarter.

Gregory Garrabrants: The sales team continues to make solid progress onboarding assets from new advisory firms, offsetting the decline in some of Axos Advisory Services' historical turnkey asset management clients. The pipeline for new custody clients remains healthy, and we expect continued AUM growth in Axos Advisory Services. From an operational perspective, we have identified dozens of straight-through processing and system implementation improvements that we are starting to implement.

Gregory Garrabrants: The sales team continues to make solid progress onboarding assets from new advisory firms, offsetting the decline in some of Axos Advisory Services, historical turnkey asset management clients. The pipeline for new custody clients remains healthy, and we expect continued AUM growth in Axos advisory services. From an operational perspective, we have identified dozens of straight-through processing and system implementation improvements that we are starting to implement. We believe that staying new asset growth, a normalization in cash balances and operational productivity initiatives will drive positive operating leverage in our clearing and custody business in the medium to long-term.

Speaker Change: The sales team continues to make solid progress on boarding assets from new advisory firms, offsetting the decline in some of Axos Advisory Services' historical turnkey asset management clients.

Speaker Change: The pipeline for new custody clients remains healthy, and we expect continued AUM growth in Axos Advisory Services.

Speaker Change: From an operational perspective, we have identified dozens of straight-through processing and system implementation improvements that we are starting to implement. We believe that sustaining new asset growth, a normalization in cash balances, and operational productivity initiatives will drive positive operating leverage in our clearing and custody business in the medium to long term.

Gregory Garrabrants: We believe that sustaining new asset growth, a normalization in cash balances, and operational productivity initiatives will drive positive operating leverage in our clearing and custody business over the medium to long term. I'm pleased with how we performed in fiscal 2024 from a growth, risk management, and capital allocation perspective. We are well-positioned to maintain that interest margin and returns above our long-term target in fiscal 2025. Our asset-based lending philosophy with conservative loan-to-values and prudent structures, coupled with our strong capital and liquidity, put us in a favorable position.

Gregory Garrabrants: I'm pleased with how we performed fiscal 2024 from a growth, risk management, and capital allocation perspective. We're well positioned to maintain that interest margin and returns above our long-term target in fiscal 2025. Our asset-based lending philosophy, with conservative loan devalues and proven structures, coupled with our strong capital and liquidity, put us in a favorable position. As we continue to evaluate various organic and inorganic growth initiatives, we will remain opportunistic with respect to capital deployment. I firmly believe that our printed investment in the businesses, systems and processes, and people that we've made will generate attractive future returns for our shareholders.

Speaker Change: I'm pleased with how we performed in Fiscal 2024 from a growth, risk management, and capital allocation perspective.

Speaker Change: We are well positioned to maintain that interest margin and returns above our long-term target in fiscal 2025. Our asset-based lending philosophy with conservative loan-to-values and prudent structures, coupled with our strong capital and liquidity, put us in a favorable position.

Gregory Garrabrants: As we continue to evaluate various organic and inorganic growth initiatives, we will remain opportunistic with respect to capital deployment. I firmly believe that our prudent investment in the businesses, systems, processes, and people that we've made will generate attractive future returns for our shareholders. Now, I'll turn the call over to Derrick, who will provide additional details on our financial results.

Speaker Change: As we continue to evaluate various organic and inorganic growth initiatives, we will remain opportunistic with respect to capital deployment.

Speaker Change: I firmly believe that our prudent investment in the businesses, systems, and processes and people that we've made will generate attractive future returns for our shareholders. Now I'll turn the call over to Derrick who will provide additional details on our financial results.

Derrick Walsh: Now I'll turn the call over to Derek, who will provide additional details on our financial results.

Derrick Walsh: Thanks, Greg.

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

Derrick Walsh: To begin, I would like to highlight an addition to our press release in 8K with supplemental schedules, which was filed with the SEC today and is available online through Edgar or through our website at axosfinancial.com. I will provide some brief comments on a few topics.

Derrick K. Walsh: Thanks Greg. To begin, I'd like to highlight that in addition to our press release, an 8K with supplemental schedules was filed with the SEC today and are available online through EDGAR or through our website at axosfinancial.com.

Derrick Walsh: Please refer to our press release and our SEC filings for additional details. 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 teams year over year for the next few quarters, excluding the impact of the loan portfolio purchase from the FDIC or any other potential loan or asset acquisitions. Our ending loan balances will continue to be impacted by the pace and timing of payoffs in any given quarter. Demand in our AVL, lender finance, and capital call lines and select CNI lending categories remain solid, where we continue to manage our credit and interest rate risk in jumbo single-family mortgage, multi-family, crystal, and small balance commercial real estate, auto, and personal unsecured lending businesses.

Derrick K. Walsh: Please refer to our press release and our SEC filings for additional details. 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 loan portfolio purchase from the FDIC or any other potential loan or asset acquisition. However, our ending loan balances will continue to be impacted by the pace and timing of payoffs in any given quarter.

Derrick K. Walsh: 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: Our loan growth outlook is consistent with what we have guided to in recent quarters.

Derrick K. Walsh: 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 loan portfolio purchase from the FDIC 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.

Derrick K. Walsh: Demand in our ABL, lender finance, and capital call lines and select C&I lending categories remains solid while we continue to manage our credit and interest rate risk in jumbo single-family mortgage, multi-family, Cressel, and small balanced commercial real estate, auto, and personal unsecured lending businesses. Our loan pipeline remains solid at $1.9 billion as of July 26, 2024, consisting of $270 million of single-family residential jumbo mortgages. $58 million of gain-on-sale mortgage, $26 million of multifamily and small balance commercial. $26 million in auto and consumer and $1.5 billion across the broader commercial category.

Derrick K. Walsh: Demand in our ABL, Lender Finance, and Capital Call Lines and Select C&I Lending Categories remains solid.

Derrick K. Walsh: where we continue to manage our credit and interest rate risk in jumbo single-family mortgage, multifamily, Cressel, and small balance commercial real estate, auto, and personal unsecured lending businesses.

Derrick Walsh: Our loan pipeline remains solid at $1.9 billion as of July 26, 2024, consisting of $270 million of single-family residential jumbo mortgage, $58 million of gain on sale mortgage, $26 million of multi-family and small balance commercial, $26 million of auto and consumer, and $1.5 billion across the broader commercial categories. Our provision for credit losses was $6 million in the three months ended June 30, 2024, matching our provision for credit losses in the corresponding period one year ago. Our allowance of credit losses to total loans held for investment was 1.34 percent compared to 1.00 percent at June 30, 2024.

Derrick K. Walsh: Our loan pipeline remains solid at $1.9 billion as of July 26, 2024, consisting of $270 million of single-family residential jumbo mortgage, $58 million of gain-on-sale mortgage.

Derrick K. Walsh: $26 million dollars of multifamily and small balance commercial.

Derrick K. Walsh: $26 million of auto and consumer, and $1.5 billion across the broader commercial categories.

Derrick K. Walsh: Our provision for credit losses was $6 million in the three months ended June 30, 2024, matching our provision for credit losses in the corresponding period one year ago. Our allowance for credit losses to total loans held for investment was 1.34 percent compared to 1.00 percent at June 30, 2024. We remain well-reserved relative to our low historical and current credit loss rate. Non-interest income was approximately $31 million for the three months ended June 30, 2024, down marginally from the $32.7 million in the corresponding period a year ago.

Derrick K. Walsh: Our provision for credit losses was $6 million in the three months ended June 30, 2024, matching our provision for credit losses in the corresponding period one year ago.

Derrick K. Walsh: Our allowance of credit losses to total loans held for investment was 1.34% compared to 1.00% at June 30, 2024.

Derrick Walsh: We remain well-reserved relative to our low historical and current credit loss rates. Non-interested income was approximately $31 million for the three months ended June 30, 2024, down marginally from the $32.7 million in the corresponding period a year ago. Higher mortgage banking and service rights income and higher advisory fees from our custody business were offset by lower broker dealer fee income and free payment penalty fees. Based on our loan growth and our return outlook, we expect to build additional access capital. Our priorities for access capital remain organic loan growth and investments in new businesses and operational and technology initiatives.

Derrick K. Walsh: We remain well-reserved relative to our low historical and current credit loss rates.

Derrick K. Walsh: Non-interest income was approximately $31 million for three months ended June 30, 2024, down marginally from the $32.7 million in the corresponding period a year ago.

Derrick K. Walsh: Higher mortgage banking and service rights income and higher advisory fees from our custody business were offset by lower broker-dealer fee income and prepayment penalty fees. Based on our loan growth and our return outlook, we expect to build additional excess capital. Our priorities for excess capital remain organic loan growth and investments in new businesses and operational and technology initiatives. We will continue to evaluate opportunistic stock buybacks and creative asset or business acquisitions. With that, I'll turn the call back over to Johnny.

Derrick K. Walsh: Higher mortgage banking and service rights income and higher advisory fees from our custody business were offset by lower broker-dealer fee income and prepayment penalty fees.

Derrick K. Walsh: Based on our loan growth and our return outlook, we expect to build additional excess capital. Our priorities for excess capital remain organic loan growth and investments in new businesses and operational and technology initiatives.

Derrick Walsh: We will continue to evaluate opportunistic stock buybacks and a creed of asset or business acquisitions.

Derrick K. Walsh: We will continue to evaluate opportunistic stock buybacks and accretive asset or business acquisitions.

Derrick Walsh: With that, I'll turn the call back over to David Chiaverini, Andrew Liesch, Edward Hemmelgarn, Johnny Lai, David Feaster, and Kelly Motta on the deposit side and touch on some of the deposit initiatives and where you're seeing success.

Johnny Y. Lai: Thanks, Derrick. We are ready to take questions.

Derrick K. Walsh: With that, I'll turn the call back over to Johnny.

Operator: Thank you. We will now be conducting a question and answer session. If you would 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. You may press star 2 if you would like to remove your question from the queue. One moment, please, while we poll for questions. Our first question is coming from David Pfister from Raymond James. Your line is now live.

Johnny Y. Lai: Thanks, Derrick. We are ready to take questions.

Johnny Y. Lai: Thank you. We will now be conducting a question and answer session. If you would 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. You may press star 2 if you would like to remove your question from the queue.

Johnny Y. Lai: One moment please while we poll for questions.

Speaker Change: Our first question is coming from David Feaster from Raymond James, your line is now live.

David John Chiaverini: Hey, good afternoon, everybody. Hey, David.

Gregory Garrabrants: I wanted to start on the deposit side and touch on some of the deposit initiatives and where you're seeing success. You talked about some new hires within treasury management. I'm curious, how do you think about deposit growth and some of the other initiatives that you're working on, such as the securities business and deposits from there and then business and entertainment management, just other things you guys are working on.

Speaker Change: Hey, good afternoon everybody. Hey, David.

David Feaster: I wanted to start on the deposit side and touch on some of the deposit initiatives.

Derrick Walsh: You talked about some new hires within Treasury Management, curious kind of, how do you think about deposit growth and some of the other initiatives that you're working on such as the securities business and deposits from there and then business and entertainment management, just other things you guys are working on. Yes, sure. So we have been investing fairly significantly in Treasury Management teams. We're trying to do it in a way that allows us to integrate those teams, so not making hires that are 30 or 40 team hires a quarter like some of the banks that have done as they're repositioning and basically taking advantage of some of the opportunities for some of the movement that's happening in the banking business right now.

Speaker Change: and where you're...

Speaker Change: You're seeing success. You talked about some new hires within treasury management.

Speaker Change: I'm curious, how do you think about deposit growth and some of the other initiatives that you're working on such as the securities business and deposits from there and then business and entertainment management, just other things you guys are working on.

Gregory Garrabrants: Yes, sure. So we have been investing fairly significantly in treasury management teams. We're trying to do it in a way that allows us to integrate those teams, so not making hires that are, you know, 30 or 40 team hires a quarter like some of the banks that have done as they're repositioning and basically taking advantage of some of the opportunities for some of the movement that's happening in the banking business right now.

Speaker Change: Yes, sure. So, we have been investing fairly significantly in treasury management teams. We're trying to do it in a way that allows us to integrate those teams so not...

Speaker Change: making hires that are, you know, 30 or 40.

Speaker Change: team hires a quarter like some of the banks that have done.

Speaker Change: as they're repositioning and basically taking advantage of some of the opportunities for some of the movement that's happening in the banking business right now. But, you know, we've been adding...

Derrick Walsh: But we've been adding three- and four-person teams that are deposit-focused, very operating deposit-focused. Also, as our loan portfolio continues to evolve into more CNI-related loan categories, including fund finance, those loans are generating higher levels of operating deposits as well. So we've had to add teams that are focused on Treasury Management product and delivery and those sorts of folks. So that's what's going on there.

Gregory Garrabrants: But, you know, we've been adding three and four person teams that are deposit focused, very operating deposit focused. Also, as our loan portfolio continues to evolve into more CNI-related loan categories, including fund finance, those loans are generating higher levels of operating deposits as well. So, we've had to add teams that are focused on treasury management products and delivery and those sorts of folks. So, that's what's going on there. I'll stop if there's anything you want to follow up on there.

Speaker Change: three- and four-person teams.

Speaker Change: that are deposit-focused, very operating deposit-focused.

Speaker Change: also as our loan portfolio.

Speaker Change: continues to evolve into more CNI-related loan categories, including fund finance.

Speaker Change: Those loans are generating

Speaker Change: higher levels of operating deposits as well, so we've had to add

Speaker Change: teams that are focused on treasury management product and delivery and those sorts of folks. So that's what's going on there. I'll stop if there's anything you want to follow up on there.

Derrick Walsh: I'll stop if there's anything you want to follow up on there.

Gregory Garrabrants: No, that's helpful. And, you know, you saw a lot of growth on the consumer direct side. I'm curious how pricing's trending. Just, I guess, broadly, you're on the funding side, you know. Hearing some others talk about potential improvements or at least stabilization in funding costs, especially at the top end and maybe starting to reprice some deposits lower, just kind of wanted to get a sense of how funding costs are trending from your perspective.

Derrick Walsh: No, that's helpful. You saw a lot of growth on the consumer direct side.

Speaker Change: No, that's helpful. And, you know, you saw a lot of growth on the consumer direct side. I'm curious how pricing is trending. Just, I guess, broadly, you know, you're on the funding side, you know.

Gregory Garrabrants: Yeah, we see that too. We definitely think they're trending down a bit. We've been able to cut our rates a little bit, and we're definitely not seeing as much pressure. So there may be a variety of factors as to why, but I do agree with that general statement that you had.

Derrick Walsh: I'm curious how pricing is trending. I guess broadly, you're on the funding side. Here and some others talk about potential improvements or at least stabilization and funding costs, especially at the top end and maybe start to reprise some deposits lower. Just wanted to get a sense of how funding costs are trending from your perspective. We see that too. We definitely think they're trending down a bit. We've been able to cut our rates a little bit, and we're definitely not seeing as much pressure. So there may be a variety of factors as to why I would agree with that general statement that you had.

Speaker Change: Here and some others talk about potential improvements or at least stabilization in funding costs, especially at the top end and maybe start to reprice some deposits lower. Just kind of wanted to get a sense of how funding costs are trending from your perspective.

Speaker Change: Yeah, we see that too. We definitely think they're trending down a bit. We've been able to cut our rates a little bit, and we're definitely not seeing as much pressure. So there may be a variety of factors as to why, but I do agree with that general statement that you had.

Derrick Walsh: OK, OK, great.

Derrick Walsh: And just kind of maybe a bit high level, you know, you're very for looking and constantly leveraging technology in some pretty neat ways. I guess first, what's the early feedback on the UDB rollout, and then, you know, AI is obviously kind of a buzzword these days and a huge focus. Here's what are some opportunities that you guys may have with that, whether leverage across your existing footprint or maybe ways that you can deploy that. And the new verticals that may be have been less attractive historic. Right, right.

Gregory Garrabrants: Okay, great. And maybe a bit on the high level, you know, you're very forward looking and constantly leveraging technology in some pretty neat ways. I guess, first, what's the early feedback on the UDB rollout? And then, you know, AI is obviously kind of a buzzword these days and a huge focus. Curious, what are some opportunities that you guys may have with that, whether to leverage across your existing footprint or maybe ways that you can deploy that into new verticals that maybe have been less attractive historically? Right, right. So

Speaker Change: Okay.

Speaker Change: Okay, great. And just kind of maybe a bit high-level, you know, you're very forward-looking and constantly leveraging technology in some pretty neat ways.

Speaker Change: First, what's the early feedback on the UDB rollout and then, you know, AI is obviously kind of a buzzword these days and a huge focus.

Speaker Change: I'm curious, what are some opportunities that you guys may have with that, whether leverage across your existing footprint or maybe ways that you can deploy that into new verticals that maybe have been less attractive historically?

Gregory Garrabrants: Right, right. So we've had two specific rollouts. One was the conversion of our small business clients onto UDB, and that's gone very well. They're really enjoying the platform. We're getting some cross-sell on the consumer side now that those platforms are together, and we're seeing good account growth there. That's just, that's always been a steady, you know, well, good cost of funds, relatively small accounts, but quite a lot of diversity. So that's gone well. On the white label rollout, we did that with a selected group of RIA firms. They generally have liked what they've seen. For example, there's a OneTouch Sblock product in there.

Derrick Walsh: So we had two specific rollouts. One was the conversion of our small business clients onto UDB, and that's gone very well. They're really enjoying the platform. We're getting some cross-cell on the consumer side now that those platforms are together, and we're seeing good account growth there. That's always been a steady, well, good cost of funds, relatively small accounts, but quite a lot of diversity. So that's gone well.

Speaker Change: Right, right. So we've had two specific rollouts. One was the conversion of our small business clients.

Speaker Change: on to UDB. And that's gone very well. They're really enjoying the platform. We're getting some cross-sell on the consumer side now that those platforms are together and we're seeing good account growth there. That's always been a steady.

Speaker Change: You know, well, good cost of funds, relatively small accounts, but quite a lot of diversity. So that's gone well. On the white label rollout, we've done that with a selected group of the RIA firms.

Derrick Walsh: On the white label rollout, we've done that with a selected group of the RIA firms. They generally have liked what they've seen. There's a one-touch S-block product in there. There's also a variety of complexity with respect to where we are in the spectrum of getting access to those clients. In some cases, we have a client that's a firm. That's a tamp that has other firms which are clients of our clients, which then have end clients. So we're making this not only about banking products, but more about cash management, and then about facilitating transactional capabilities and ease of operations.

Speaker Change: They generally have liked what they've seen.

Gregory Garrabrants: There is also a variety of complexity with respect to where we are in the spectrum of getting access to those clients. In some cases, we have a client that's a firm, that's a TAMP that has other firms, which are clients of our clients, which then have end clients, right? So we're making this not only about banking products but more about cash management and then about facilitating transactional capabilities and ease of operations. And so there's a lot of positive feedback and a lot of excitement, and I'd say sign-ups are going pretty well, but it's still early to say if that's going to result in a material amount of deposits, although I think certainly it's helping ease operational burdens over time from a document delivery perspective and, essentially, the ability to have people be able to deposit checks and those kind of things.

Speaker Change: There's a one-touch S-block product in there. There's also a variety of complexity.

Speaker Change: with respect to where we are in the spectrum of getting access to those clients. In some cases, we have a client that's a firm, that's a TAMP, that has other firms.

Speaker Change: which are clients of our clients, which then have...

Speaker Change: and clients, right? So we're making this not only about...

Speaker Change: Banking Products, but more about cash management and then...

Speaker Change: about facilitating transactional capabilities and ease of operations. And so there's a lot of positive feedback and a lot of excitement.

Derrick Walsh: There's a lot of positive feedback and a lot of excitement, and I'd say signups are going pretty well, but it's still early to say if that's going to result in a material amount of deposits. Although I think certainly it's helping ease operational burdens over time from a document delivery perspective, and essentially a bench, eventually the ability to have people be able to deposit checks and those kind of things. So there's a lot of change management there, but I am optimistic about where that will go.

Speaker Change: And I'd say sign-ups are going pretty well, but it's still early to say if that's going to result in a material amount of deposits, although I think certainly it's helping ease operational burdens over time from a document delivery perspective and essentially, you know, eventually the ability to have people be able to deposit checks and those kind of things. So there's a lot of change management there, but I am optimistic about where that will go.

Gregory Garrabrants: So there's a lot of change management there, but I am optimistic about where that will go. And then on your question around the AI side of things, there's a number of, that's a fairly complex question because, obviously, there's a lot of different areas where we're currently utilizing some form of AI or working to use it. There are areas where it's been very impactful, such as our utilization of chatbot functionality to divert calls from our call center. That functionality is diverting around 80% of calls right now and resolving those calls satisfactorily.

Derrick Walsh: And then on your question around the AI side of things, there's a number of, if that's a fairly complex question, because obviously there's a lot of different areas that we're currently utilizing some form of AI or working to use it. There's areas where it's been very impactful, such as our utilization of chatbot functionality to divert calls from our call center. That functionality is diverting around 80% of calls right now and resolving those calls satisfactorily. That is the utilization of a vendor that has incorporated artificial intelligence into those answers. So you have a set of vendors that are utilizing artificial intelligence, and where utilizing those vendors and those vendors are points solutions to particular types of issues that the institution has or opportunities the institution has co-pilot from Microsoft, utilized across all of our development.

Speaker Change: And then on your question around the AI side of things, there's a number of, that's a fairly complex question because obviously there's a lot of different...

Speaker Change: areas that that we're currently utilizing.

Speaker Change: some form of A.I. or...

Speaker Change: working to use it. There's areas where it's been very impactful, such as

Speaker Change: our utilization of chatbot functionality to divert calls from our call center.

Speaker Change: That functionality is diverting around 80% of calls right now and resolving those calls satisfactorily. That is the utilization of a vendor that has incorporated artificial intelligence into those answers. So you have a set of...

Gregory Garrabrants: That is the utilization of a vendor that has incorporated artificial intelligence into those answers. So you have a set of vendors that are utilizing artificial intelligence, and we're utilizing those vendors, and those vendors are point solutions to particular types of issues that the institution has or opportunities the institution has. Co-pilot from Microsoft utilized across all of our development is also another area. We're seeing other AI tools that are being utilized to speed development.

Speaker Change: vendors that are utilizing artificial intelligence, and we're utilizing those vendors, and those vendors are point solutions to particular types of issues that the institution has or opportunities the institution has.

Speaker Change: co-pilot from Microsoft utilized across all of our development is also another area. We're seeing other AI tools

Derrick Walsh: It's also another area. We're seeing other AI tools that are being utilized to speed development, so that that's another area we think there's a lot of opportunity on the software side.

Speaker Change: that are being utilized to speed development.

Gregory Garrabrants: So that's another area we think there's a lot of opportunity on the software side. There are obviously some opportunities for Gen AI and marketing. And then we have an AI task force that is not only looking for opportunities and spending time working on the broader strategy, but also making sure that when one group is having success in a particular use case for AI, we are bringing that across the board. I guess the final thing I'd say is that we're doing a lot of work on the underlying data layer in preparation for more robust use of artificial intelligence.

Speaker Change: So that's another area we think there's a lot of opportunity on the software side. There's obviously some opportunities for Gen AI in marketing. And then we have an AI task force.

Derrick Walsh: There's obviously some opportunities for gen AI and marketing. And then we have an AI task force that is not only looking for opportunities and spending time working on the broader strategy, but then also making sure that when one group is having success in the particular, in a particular use case for AI, that we are bringing that across the board. I guess the final thing I'd say there is that we're doing a lot of work on the underlying data layer in preparation for more robust use of artificial intelligence. So obviously, making sure that you've got your data digitized, organized in the right way, and accessible across the board over time is very important.

Speaker Change: that is not only looking for opportunities and spending time.

Speaker Change: working on the broader strategy, but then also...

Speaker Change: making sure that when one group is having success in a particular...

Speaker Change: in a particular use case for AI that we are bringing that across the board.

Speaker Change: I guess the final thing I'd say there is that we're doing a lot of work on the underlying data layer and preparation.

Speaker Change: for more robust use of artificial intelligence.

Gregory Garrabrants: So obviously, making sure that you've got your data digitized, organized in the right way, and accessible across the board over time is very important. And so we're spending a lot of time on interoperability of our data to make sure that we have strong data governance, data warehouses, things like that, so that AI tools, as they develop, can continue to be laid on top of that data infrastructure.

Speaker Change: So obviously making sure that you've got your data digitized, organized in the right way, and accessible across the board over time is very important.

Derrick Walsh: And so we're spending a lot of time on interoperability of our data to make sure that we have strong data governance, data warehouses, things like that. And then AI tools, as they develop, can continue to be laid on top of that data infrastructure.

Speaker Change: And so we're spending a lot of time on interoperability.

Speaker Change: of our data to make sure that we have strong data governance, data warehouses, things like that, that then AI tools as they develop can continue to be laid on top of that data infrastructure.

Derrick Walsh: All right, that's great color.

David John Chiaverini: Alright, that's a great caller. Thank you.

Speaker Change: Alright, that's great color. Thank you

Gary Tenner: The next question is coming from Gary Tenner from D.A. David Cinderlite. Is that a lie? Thank you very much.

Speaker Change: [inaudible]

Speaker Change: Thank you. Next question is coming from Gary Tenner from D.A. David Cinderline. Is that live?

Operator: Good afternoon. Hey, I wouldn't.

Gary Tenner: Hey, I wouldn't ask about the work with dealer or fee income line down a bit, this quarter, down year of years. It's sort of the bottoming out of the cash balances. I think you were reference to 3.3% relative to AUC in the quarter. Is that reference to that? Yeah, we kind of rate paid or anything like that. No, we think that's sort of at the relative low point. It certainly is from a historic perspective. It's obviously always possible that it goes down, but it is a stabilized quarter over quarter. There were some one-time items that sort of hit; that was the broker dealer fees this quarter.

Gary Peter Tenner: Thanks, there for now.

Gary Peter Tenner: Hey, I wanted to ask about...

Gary Peter Tenner: The Broker Dealer Fee Income Line, down a bit this quarter, down year over year. Is that sort of the bottoming out of the cash balances? I think you referenced the 3.3% relative to AUC in the quarter. Is that reference to that or are we getting kind of rate paid or anything like that?

Operator: https://www.larryweaver.com

Gregory Garrabrants: No, we think that we think that's sort of, you know, at the relative low point. It certainly is from an historic perspective. It's obviously always possible that it goes down, but it is stabilized quarter over quarter. There were some one-time items that sort of hit those broker dealer fees this quarter. Some other fees were about a million and a half, something like that, or is it a little bit lower? A little shy of a million.

Speaker Change: No, we think that's, we think that's, uh, sort of...

Speaker Change: You know at the relative low point. It certainly is from an historic perspective it's obviously always possible that it goes down, but It is it's stabilized

Speaker Change: quarter over quarter. There were some one-time items that sort of hit those broker-dealer fees this quarter.

Gary Tenner: So that has a million IDR fees. Some other fees was about a million and a half, something like that, or a little shy of a million. So there were some one-time items that kind of came through the broker-dealer side.

Speaker Change: It's about a million. Yes, maybe our fees. Some other fees, was it about a million and a half, something like that? Or is it a little bit lower? A little shy of a million. A little shy of a million. So there were some one-time items that kind of came through.

Gregory Garrabrants: So there were some one time items that kind of came through the broker dealer side. But as I've talked about before, I think it's interesting when you look at how, let's just take the AAS side, how much new assets they've brought in, which is close to like $5 billion, but they haven't grown as much because that business is really cycling through and changing from a TAMP-oriented business to a more direct business with underlying RIAs, not because we don't like TAMP's clients, some of them are just losing assets, and so we do expect that to stabilize and continue to grow.

Gary Tenner: But as I've talked about before, I think it's interesting when you look at how this is take the AS side, how much in new assets they've brought in, which is close to like 5 billion, but they haven't grown as much because that business is really cycling through and changing from a tampering business to a more direct business with underlying IAAs. And not because we don't like tamps as clients. Some of them are just losing assets. And so that we do expect that to stabilize and continue to grow. We are getting efficiencies out of our operations there, but we're also investing a lot in the technology and product.

Speaker Change: the broker-dealer side.

Speaker Change: But, you know, as I've talked about before, I think it's interesting when you look at how, let's just take the AAS side, how much new assets they've brought in, which is...

Speaker Change: It's close to like $5 billion, but they haven't grown as much because...

Speaker Change: That business is really cycling through and changing from a TAMP-oriented business to a more direct.

Speaker Change: business with underlying RIAs, not because we don't like TAMS's clients, some of them are just losing.

Speaker Change: assets and so you know that we do expect that to stabilize and continue to grow.

Gregory Garrabrants: We are getting efficiencies out of our operations there, but we're also investing a lot in the technology and product. We really do see a lot of opportunities there, but there's just a lot of tech and product investment going on right now in both the clearing and the custody side there. I don't expect it to be a massive grower from a fee-income perspective, but I do think if we could get what would make it a much better grower is if we could get the...

Speaker Change: We are getting efficiencies out of our operations there, but we're also investing a lot in the technology and product.

Gary Tenner: We really do see a lot of opportunities there, but there's just a lot of tech and product investment going on right now in both the clearing and the custody side there. So I don't expect it to be a massive grower from a fee income perspective, but I do think if we could get, what wouldn't make it much better growers if we can get the tampsized stabilized because we are bringing in a lot of assets. The sales team is doing a very good job. It seems like they're running in place a little bit, although we did have some growth over the last two quarters, but just not what we'd want it to be.

Speaker Change: We really do see a lot of opportunities there, but there's just a lot of tech and product investment going on right now in both the clearing and the custody side there.

Speaker Change: Yeah, I don't I don't expect it to be a massive grower from a fee income perspective but I do think if we could get that what would make it much much better growers if we can get the

Gregory Garrabrants: The TAMP side is stabilized because we are bringing in a lot of assets. The sales team is doing a very good job. It's just that it seems like they're running in place a little bit, although we did have some growth over the last two quarters, but just not what we'd want it to be.

Speaker Change: The TAMP side stabilized because we are bringing in a lot of assets. The sales team is doing a very good job It's just that they're that it seems like they're running in place a little bit Although we did have some growth over the last two quarters, but just not Not what we'd want it to be

Gary Tenner: Thanks, Greg. I appreciate that.

Gregory Garrabrants: Thanks, Greg. I appreciate that.

Gary Tenner: The follow-up really on the other question around the cash sorting fees is really some of the industry come to recently. We are Wells, Bamble Morgan Stanley, talking about their intent to increase swoopy kind of interest rates.

Gregory Garrabrants: The follow-up really... Any other questions around cash sorting? Really, some of the industry commentary recently, you know, Wells, Bama, Morgan Stanley, talking about their intent to increase sweeping high interest rates, so can you talk about, you know, kind of the competitive dynamics or central regulatory. Axos from the fee side, as well as any cash balances over in Axos Investments. You know, we're not really seeing a lot of that right now.

Gregory Garrabrants: Thanks, Greg. I appreciate that. The follow-up, really, on the broker-dealer question around the cash sorting fees is really some of the industry commentary recently. You know, Wells, BAML, Morgan Stanley , you know, talking about their intent to increase sweeping high interest rates. So, can you talk about...

Derrick Walsh: So can you talk about the competitive dynamics or the central regulatory impact, and how that would impact access from the fee side, as well as any cash balances over an access investment? We're not really seeing a lot of that right now. We obviously have a pretty open platform, so folks are obviously having the ability to move the monies around, and so that's trading cash. It's at a low level, and that's...

Speaker Change: the competitive dynamics or potential regulatory impact, if there could be any, and how that would impact.

Speaker Change: Axos from the fee side, as well as any cash balances over in Axos Invest.

Gregory Garrabrants: I mean, we obviously have a pretty open platform, so folks obviously have the ability to move the money around. And so they, you know, that's that's trading cash. It's at a low level. And, you know, that's really where that is right now, so we don't, I don't think we have any plans to do anything particular with it.

Speaker Change: Yeah, we're not really seeing a lot of that right now. I mean, we obviously have a pretty open platform, so folks obviously have the ability to move the monies around. And so they, you know, that's trading cash. It's at a low level.

Operator: That's really where that is right now, so we're not, I don't think we have any plans to do anything particular with it. Okay, thank you. Thank you. As a reminder, that star 1 to be placed in the question queue.

Speaker Change: You know, that's...

Speaker Change: That's really where that is right now, so we're not, I don't think we have any plans to do anything particular with it.

Speaker Change: Okay, thank you.

Operator: Thank you. As a reminder, that's star number one to be placed in the question queue. Our next question is coming from Andrew Liesch from Paper Sandler. Your line is now live.

Andrew Liesch: Our next question is coming from Andrew Liesch from PaperSanley; your line is out live. Hey guys, how's it going? Just a question on the margin here. If you kind of go up, first of all, your plans to keep that excess liquidity, and then if we go, if not, it like resets nine bapes, nine bits higher. So do you think the margin kind of turns down from there? It sounds like you're getting a little more; that yields are coming down a little bit. Well, yeah, I think that's true, but I also think that what we are seeing is that some of the rotation into a fun finance, for example, is a product that's grown from a growth perspective.

Speaker Change: Thank you. As a reminder, that's star 1 to be placed in the question queue.

Speaker Change: Our next question is coming from Andrew Liesch from Paper Sandler. Your line is now live.

Andrew Brian Liesch: Hey guys, how's it going? Um, just a question on the margin here, um... If you kind of go, well, first of all, your plans to keep that excess liquidity. And then if we go, if not, and it resets nine BAPEs, nine BAPEs higher. So do you think the market kind of turns down from here? It sounds like you're getting a little more that yields are coming down a little bit.

Andrew Brian Liesch: Hey guys, how's it going? Just a question on the margin here.

Andrew Brian Liesch: If you kind of go, well, first of all, your plan to keep that excess liquidity, and then if we go, if not, and it like resets nine dips higher or so, do you think the margin kind of turns down from there? It sounds like you're getting a little more, that yields are coming down a little bit.

Gregory Garrabrants: Well, yeah, I think that's true, but I also think that... What we are seeing is some of the rotation into fund finance, for example, as a product that's growing from a growth perspective that does have lower yields than, let's say, commercial specialty real estate. But, conversely, it generates nice offsetting, non-interest-bearing deposit balances.

Speaker Change: Well, yeah, I think that's true, but I also think that...

Speaker Change: What we are seeing is that some of the rotation into...

Speaker Change: Fund Finance, for example, is a product that's, from a growth perspective, that does have lower yields than, let's say, commercial specialty real estate. You know, conversely, it generates nice, offsetting, non-interest-bearing deposit balances. And so that, you saw that a little bit this quarter. We had

Andrew Liesch: That does have lower yields than, let's say, commercial specialty real estate. Conversely, it generates nice offsetting, non-interest bearing deposit balances, and so that you saw that a little bit this quarter. We had much better non-interest bearing growth, but there was a little compression on the loan yield side, so I do think that that's a good example of one dynamic you're seeing. But in general, I would say that spreads are tighter than they've been previously, just in general. Why that is, maybe it's fewer deals, it's more competition, but I do think spreads have declined a bit, so that is something we have to keep in mind as we're looking at what we're doing.

Gregory Garrabrants: And so you saw that a little bit this quarter, we had much better non-interest-bearing growth, but there was a little compression on the low-yield side. So I do think that that's one dynamic you're seeing. But in general, I would say that spreads are tighter than they've been previously, just in general. Why that is, maybe it's fewer deals, it's more competition, but I do think spreads have declined a bit. That is something we have to keep in mind as we look at what we're doing.

Speaker Change: much better non-interest bearing growth, but there was a little compression on the low-yield side. So I do think that that's one dynamic you're seeing. But in general, I would say that spreads are tighter than they've been.

Speaker Change: previously, just in general. Why that is, maybe it's fewer deals, it's more competition, but I do think spreads have have declined a bit, so.

Andrew Liesch: Obviously, part of what we're trying to do is continue to expand our treasure management vertical, so we get more non-interest bearing deposits. But I do think it's a little bit tougher to get yield that has been, let's say, in the last calendar year. Got it. That's helpful.

Gregory Garrabrants: Obviously, part of what we're trying to do is... continue to expand our treasury management verticals so we get more non-interest-bearing deposits. But I do think it's a little bit tougher to get yield than it has been, let's say, in the last calendar year.

Speaker Change: That is something we have to keep in mind as we're looking at what we're doing. Obviously, part of what we're trying to do is...

Speaker Change: is continuing to expand our treasury management verticals so we get more non-interest bearing deposits.

Speaker Change: But I do think it's a little bit tougher to get yield than it has been, let's say, in the last calendar year.

Gregory Garrabrants: Got it. That's helpful. Um, and then on the consumer direct deposit side, it seems like there might be some complexity out of the FDIC about whether these consumer direct deposit channels can still count as core, and maybe they might have to count as brokered. Does that impact your strategy going forward?

Andrew Liesch: And then on the consumer direct deposit side, it seems like there might be some complexity out of the FGIC about whether these consumer direct deposit channels can still count as core; maybe they might be, they might have to count as broker. Does that impact your strategy going forward? No, not the way we do it. I mean, those are direct consumer relationships with respect for us, and they're not sourced in the manner that would implicate that from our perspective. Gotcha.

Speaker Change: got it that's helpful um and then on the consumer direct deposit side it seems like there might be some complexity out of the FDIC about whether these consumer direct deposit channels can still

Speaker Change: as core, maybe they might have to count as brokered.

Gregory Garrabrants: No, not the way we do it. I mean, those are direct consumer relationships with respect to, for us, and they're not sourced in the manner that would, would implicate that from our perspective.

Speaker Change: No, not the way we do it. I mean, those are direct consumer relationships with respect to, for us, and they're not sourced in the manner that would.

Speaker Change: would implicate that from our perspective.

Andrew Brian Liesch: Gotcha. And then just one more for me.

Andrew Liesch: And then just one other one for me. It's just, again, this last quarter there was a short report on some of the commercial real estate you guys originate. I guess there have been any sort of regulatory reach-outs to you guys, and if there is, or even if there hasn't been, I mean, would you assist them in any investigation on that they might have on, maybe in your stock risk in general? You're talking about that one that we responded to, that thing. Right, right. There's like, another one over the years, but really just kind of that one.

Speaker Change: Gotcha.

Gregory Garrabrants: Again, this last quarter, there was a short report on some of the commercial real estate you guys originate. I guess, has there been any sort of regulatory reach out to you guys? There is, or even if there hasn't been, I mean, would you assist them in any investigation on that they might have on, maybe on your stock risk in general?

Speaker Change: And then just one other one from me, again this last quarter there was a short report on some of the commercial real estate you guys originate.

Speaker Change: I guess, has there been any sort of regulatory reach out to you guys?

Speaker Change: or even if there hasn't been, would you assist them in any investigation that they might have

Gregory Garrabrants: You mean that one that we responded to, that thing? Yes, right. There have been other ones over the years, but really just kind of that one. Yeah, yeah. I wouldn't want to comment on any assistance we provide with respect to things like that. I mean, I know that there's...

Speaker Change: You're talking about that one that we responded to? Right, right. There's been other ones over the years, but really just kind of that one. Yeah, yeah. I wouldn't want to comment on any...

Gregory Garrabrants: Yeah, I wouldn't want to comment on any... I wouldn't want to comment on any assistance we provide with respect to things like that. I know that there's obviously been, you know, the Andrew Left situation as in the news, and you know I'm sure that obviously it's a fairly, you know, people make up, as you saw from our response, there's a lot of inaccuracies in there, and then they're also trading. You know, on high volumes the same day before you can even get a response out, so hopefully looking at those things is something that ends up happening. But I can't comment on anything with respect to that, any communications in that regard.

Speaker Change: I wouldn't want to comment on any assistance we provide with respect to things like that. I mean, I know that there's obviously been, you know, the Andrew Left situation is in the news.

Speaker Change: You know, I'm sure that obviously it's a fairly

Gregory Garrabrants: As you saw from our response, there's a lot of inaccuracies in there, and then they're also trading at high volumes the same day before you can even get a response out. So hopefully, looking at those things is something that ends up happening, but I can't comment on that, on anything with respect to that, or on any communications in that regard.

Speaker Change: You know, people make up, as you saw from our response.

Speaker Change: There's a lot of inaccuracies in there, and then they're also trading at high volumes the same day before you can even get a response out. So hopefully looking at those things is something that ends up happening, but I can't comment on.

Andrew Brian Liesch: Got it. Makes sense. All right. Thanks. I will step back.

Speaker Change: on anything with respect to that, any communications in that regard.

Andrew Liesch: I will step back.

Speaker Change: Got it. Makes sense. All right. Thanks. I will step back.

Kelly Motta: Next question coming from Kelly Motta, from KBW, you know, is that right? Hi, thanks for the question. I appreciate the color, the revised color on the accretable contribution to margin. I believe in the past, you said that the core margin, excluding that, would be in the 425 to 435 range.

Operator: Thank you. The next question is coming from Kelly Motta from KBW. Your line is now live.

Speaker Change: Thank you. Next question coming from Kelly Motta from KBW. Your line is now live.

Kelly Ann Motta: Hi. Thanks for the question.

Kelly Ann Motta: Hi, thanks for the question.

Kelly Ann Motta: I appreciate the color, the revised color on the accretable

Kelly Ann Motta: contribution to margin. I believe in the past you said that the core margin excluding that would be in the 425 to 435 range. I'm wondering

Gregory Garrabrants: I appreciate the revised color on the accretable contribution to margin. I believe in the past you said that the core margin, excluding that, would be in the 425 to 435 range. I'm wondering if you have any color kind of putting together some of the comments you had, if there's any update on how you're thinking about the core margin range on a go-forward basis, as well as how we should be thinking about the incremental impact of rate cuts here.

Kelly Motta: I'm wondering if you have any color kind of putting together some of the comments you had, if there's any updates on how you're thinking about the core margin range on a go forward basis, as well as how we should be thinking about the incremental impacts of rate cuts here. Yeah, I think that's still good guidance. Roughly, maybe it'll be, you know, I think it was, say, 431-ish this quarter or something like that. I think that's not bad. Guidance going forward.

Speaker Change: If you have any color kind of putting together some of the comments you had, if there's any updates for you, how you're thinking about the core margin range on a go-forward basis, as well as how we should be thinking about the incremental impact of rate cuts here.

Gregory Garrabrants: Yeah, I think that that's still good guidance, roughly. Maybe it'll be, you know, and I think it was, say, 431-ish this quarter or something like that. I think that's not bad guidance going forward. We think that, obviously, we do have some tailwinds with respect to some hybrid loans that are repricing, but I also think there's some potential headwinds with respect to maybe some yield compression and some rotation in the balance sheet max to some products that are, you know, more lower yielding with higher deposit balances. So that's going to all have to work itself out, but I think I don't think that's bad guidance.

Speaker Change: Yeah, I think that that's still good guidance, roughly. Maybe it'll be...

Speaker Change: You know, I think it was, I'll say, 431-ish, this...

Kelly Motta: We think that obviously we do have some tailwinds with respect to some hybrid loans that are repricing, but I also think there's some potential headwinds with respect to maybe some yield compression and some rotation in the balance sheet max to some products that are, you know, more lower yielding with higher deposit balances. So that's going to all have to work itself out, but I think I don't think that's bad guidance. Okay, that's helpful.

Speaker Change: quarter or something like that. I think that's not bad.

Speaker Change: Guidance going forward.

Speaker Change: We think that, obviously we do have some tailwinds with respect to some hybrid loans that are repricing, but I also think there's some potential headwinds with respect to...

Speaker Change: maybe some yield compression and some rotation.

Speaker Change: in the balance sheet max to some products that are, you know, more lower yielding with higher deposit balances. So that's going to all have to work itself out, but I don't think that's bad guidance.

Gregory Garrabrants: Okay, that's helpful, and I know you have a fairly significant Floating Rate Loan Portfolio. Can you remind us any swaps you have against that as well as when rates are cut, how we should be thinking about the repricing on the funding side of things?

Kelly Motta: And I know you have a fairly significant floating rate loan portfolio. Can you remind us of any slots you have against that, as well as when rates are cut, how we should be thinking about the repricing on the funding side of things? Yes. So, you know, what we're contemplating is that we have commercial deposits that are tied to Fed funds, and then we also have the ability to cut rates on our consumer portfolio, which is, as we stated on the prepared remarks, not term oriented. So, I think the question will be, you know, how those rate cuts are absorbed, and, you know, can we, can we are we faster, slower than loan repricing, and I think that's going to be the question.

Speaker Change: Okay, that's helpful and I know you have a fairly significant

Speaker Change: and the floating rate loan portfolio. Can you remind us any swaps you have against that as well as when rates are cut, how we should be thinking about the repricing on the funding side of things?

Gregory Garrabrants: Yes. So, um... What we're contemplating is that we have commercial deposits that are tied to Fed funds, and then we also have the ability to cut rates on our consumer portfolio, which is, as we stated in the prepared remarks, not term-oriented. So I think the question will be how those rate cuts are absorbed, and are we faster or slower than loan repricing? I think that's going to be the question, and I think we feel pretty good about our ability to do that. We positioned ourselves that way.

Speaker Change: Yes.

Speaker Change: So, um...

Speaker Change: You know we're what we're contemplating is that we have commercial deposits that are tied

Speaker Change: to FedFunds.

Speaker Change: And then we also have the ability to cut rates on our consumer portfolio, which is as we stated on the prepared remarks.

Speaker Change: not term-oriented. So I think the question will be, you know, how

Speaker Change: Those rate cuts are absorbed and You know, can we can we are we faster slower than loan repricing and I think that's going to be The question and I think we

Kelly Motta: And I think we feel pretty good about our ability to do that. We positioned ourselves that way, but what we have not done in general is a go-out and do a lot of, you know, sort of floating the fixed swapping of our loan book. And part of the reason why is that, you know, we have pretty decent movement in our loan book. And so, unless you're doing that on the bar, we're signing the bars, interested then, you're sort of... You know, you're just taking some gambles on how good you are at estimating the forward curve, and so what we do is we have a good naturally matched off book right now, and we think we will be able to go through that.

Gregory Garrabrants: But what we have not done in general is go out and do a lot of, you know, sort of floating the fixed swapping of our loan book. And part of the reason why is that, you know, we have a pretty decent movement in our loan book. And so unless you're doing that on the borrower, you're just taking some gambles on how good you are at estimating the forward curve. And so what we do is we have a good naturally matched off book right now, and, you know, we think we will be able to go through that.

Speaker Change: We feel pretty good about our ability to do that. We positioned ourselves that way. But what we have not done in general is...

Speaker Change: Go out and do a lot of...

Speaker Change: You know sort of floating the fixed swapping of our loan book and part of the reason why is that you know we have pretty decent movement in our loan book and so unless you're doing that on the borrower side and the borrower is interested then you're sort of

Speaker Change: You know, you're just taking some gambles on how good you are at estimating the forward curve and so what we do is we have a good naturally matched off book right now and

Gregory Garrabrants: I think one of the good things is that we do have, obviously, our lower cost funds through all the different channels we discussed. We also have a higher cost consumer deposit base that, also, we expect will be able to be repriced in a lower short-term rate environment.

Kelly Motta: I think one of the good things is that we do have, obviously, we have our lower cost funds through all the different channels we discussed. We also have a higher cost consumer deposit base that also, we expect we'll be able to be reprised in a lower short-term rate environment so.

Speaker Change: You know, we think we will be able to go through that. I think one of the good things is that we do have, obviously we have our lower cost funds.

Speaker Change: Through all the different channels we discussed, we also have a higher cost consumer deposit base that also we expect will be able to be repriced in a lower short-term rate environment.

Kelly Motta: Got it, that's really helpful, and I appreciate the commentary around capital. You know your ratios are strong; you do have a pretty strong long growth outlook. Just given the run in the stock price here, can you remind us any of like guide posts in terms of valuation or earn back that you guys look to when you know thinking about engaging in the buy back at the price. We look at it as an NPV on earnings, and so we look at that and we look at it as a relative value with respect to what's out there from an acquisition perspective and what's out there from a loan growth perspective and other operational investments, and you know, try to balance that out. So yeah, obviously the stock price's up, but earnings are up.

Kelly Ann Motta: Got it, that's really helpful. And I appreciate the commentary around capital, your ratios are strong, you do have a pretty strong loan growth outlook. Just given the run in the stock price here, can you remind us any of the like guideposts in terms of valuation or earnback that you guys look to when, you know, thinking about engaging in the buyback at this price?

Speaker Change: Got it. That's really helpful.

Speaker Change: I appreciate the commentary around capital, you know, your ratios are strong, you do have a...

Speaker Change: Pretty strong loan growth outlook. Just given the run in the stock price here, can you remind us any of, like, guideposts?

Speaker Change: In terms of valuation or earn back that you guys look to when.

Gregory Garrabrants: We look at it as an NPV on earnings. And so we look at that, and we look at it as a relative value with respect to what's out there from an acquisition perspective and what's out there from a loan growth perspective and other operational investments and, you know, try to balance that out. So, yeah, obviously, the stock price is up, but earnings are up. You know, so it just really is a decision that we make and we utilize, we take our earnings forecasts, and we can apply NPVs to them and look at whether capital is best allocated to loan growth or other strategic investments or buybacks.

Speaker Change: and, you know, thinking about engaging in the Bible.

Speaker Change: back at the Sprite.

Speaker Change: We look at it as...

Speaker Change: as an NPV on earnings.

Speaker Change: And so we look at that and we look at it as a relative value with respect to what's out there from an acquisition perspective.

Speaker Change: What's out there from a loan growth perspective and and other operational investments and you know try to balance that out so Yeah, obviously the stock price is up, but earnings are up

Kelly Motta: You know, so it just really is a decision that we make, and we utilize, we take our out, we take, we take our earnings forecasts, and you know we can apply NPVs to them and look at whether capital is best allocated to long growth or other strategic investments or buybacks. Got it. Appreciate it.

Speaker Change: You know, so, it just really is...

Speaker Change: A decision that we make and we utilize, we take our earnings forecasts and we can apply NPVs to them and look at whether capital is best allocated to loan growth or other strategic investments or buybacks.

Kelly Ann Motta: We appreciate it. Thank you so much.

Operator: Thank you so much.

Speaker Change: Got it. Appreciate it. Thank you so much.

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

Kevin Gordon: The next question is coming from Everett, Kevin Gordon from Shakeler Investments. Your line is not live. Yeah great. I'll just one or a couple of questions dealing with long growth. I think you mentioned in last quarter's call that you've got a fairly significant amount of repayments early on. In this quarter of loans, and that was I'm assuming that was one of the reasons what caused the excess liquidity said what happened. We did have, I think we had some loan repayments that we did not expect, and they did come a little bit earlier. We also had maybe a little bit better deposit growth than we expected to, so the combination of those two, you know, led to access liquidity relative to our expectations.

Speaker Change: Thank you.

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

Edward Paul Hemmelgarn: Yeah, Greg. Just one or a couple of questions dealing with loan growth. I mean, I think you mentioned in last quarter's call that you got a fairly significant amount of repayments early on in this quarter of loans, and that was, and I'm assuming that was one of the reasons that caused the excess liquidity. Is that what happened?

Edward Paul Hemmelgarn: Yeah, hi, Greg. Just one or a couple of questions dealing with loan growth. I mean, I think you mentioned in last quarter's call that you got a fairly significant amount of

Gregory Garrabrants: repayments early on in this quarter of loans.

Speaker Change: and that was...

Gregory Garrabrants: We did have, I think we had some loan repayments that we did not expect, and they did come a little bit earlier. We also had maybe a little bit better deposit growth than we expected, so the combination of those two led to excess liquidity relative to our expectations.

Speaker Change: Access Liquidity.

Speaker Change: That's it.

Speaker Change: We did have, I think we had some loan repayments that we did not expect, and they did come a little bit earlier. We also had maybe a little bit better deposit growth than we expected to, so the combination of those two, you know, led to excess liquidity relative to our expectations.

Edward Paul Hemmelgarn: Okay, what's the loan, you know, climate like right now? I mean, in terms of demand?

Kevin Gordon: Okay.

Gregory Garrabrants: What's the loan you know climate like right now in terms of demand? You know I think it's I'd say it's relatively mediocre in comparison to where it was let's say last year. So I think we still have a lot of diversity in our book, and so we still have a good pipeline, so we're still expecting long growth. But I think it's that I spread the definitely tightened and and loan growth is just a little bit more difficult. I think there's fewer projects. There's fewer investments going on, and I think maybe some of the other banks have kind of emerged from whatever issues they were dealing with.

Speaker Change: Okay, well, what's the loan, you know, climate like right now? I mean in terms of...

Gregory Garrabrants: You know, I think it's, uh, I'd say it's relatively mediocre in comparison to, um, where it was, let's say, last year. So, and I think we still have a lot of diversity in our book, and so we still have good pipelines, so we're still expecting loan growth. But I think it's that spreads have definitely tightened, and loan growth is... is just a little bit more difficult. I think there are fewer projects, there's fewer investments going on, and I think maybe some of the other banks have kind of emerged from whatever issues they were dealing with. And so, but you know, look, we still expect to have good loan growth. Derrick talked about those targets; hopefully, we can beat those by some, but it is a little bit more difficult.

Speaker Change: You know, I think it's, uh, I'd say it's relatively mediocre in comparison to, um,

Speaker Change: to where it was, let's say, last year. So, and I think we still, we have a lot of diversity in our book, and so we still have good pipelines, so we're still expecting loan growth.

Speaker Change: But I think it's...

Speaker Change: that spreads have definitely tightened, and loan growth is just a little bit more difficult. I think there's fewer projects, there's fewer investments going on, and I think maybe some of the other banks have kind of emerged from that.

Gregory Garrabrants: We still expect to have good loan growth. Derek talked about those targets; hopefully, we can beat those by some, but it is a little bit more difficult. We're also seeing, you know, the book continues to have repayments, which is always good, but in some cases there are strategically, we're strategically allowing that to happen. If you look for example the multi-family portfolio but mostly those loans adjust, they're mostly all paying off and their and you know competitors are you know refinancing those at six in six handles for five year durations. That's not that interesting to me.

Speaker Change: whatever issues they were dealing with and so but you know we look we still expect to have

Speaker Change: Good Alone Growth, Derrick talked about those targets, hopefully we can beat those.

Gregory Garrabrants: And we're also seeing, you know, the book continues to have repayments, which is always good, but in some cases, they're strategically, we're strategically allowing that to happen. If you look, for example, at the multifamily portfolio, where mostly those loans adjust, they're mostly all paying off, and they're, and you know, competitors are, you know, refinancing those at six, in six handles for five-year You know, I still want to see, there's other things I want to see before I start taking, you know, six and six and a half percent five-year duration risk.

Speaker Change: by some, but it is a little bit more difficult. And we're also seeing, you know, the book...

Derrick K. Walsh: It continues to have repayments, which is always good, but in some cases they're strategically

Speaker Change: We're strategically allowing that to happen. If you look, for example, at the multifamily portfolio, where mostly those loans adjust, they're mostly all paying off.

Speaker Change: and competitors are refinancing those in six handles for five-year durations. That's not that interesting to me.

Gregory Garrabrants: You know I still want to see. There's other things I want to see before I start taking, you know, six and six and a half percent, five year duration risks. I think some of this is just letting some of it as our own risk management perspective on what we're interested in doing right now both from a credit and risk perspective and rate perspective. I think we're still going to have a good growth. I think this quarter is shaping up to be pretty decent on a long growth side, but you know obviously we have to see if it's easy to have repayments come in and move those numbers around a bit too.

Speaker Change: You know, I still want to see, there's other things I want to see before I start taking, you know, six and six-and-a-half percent five-year duration risks. So, you know, I think some of this is just...

Gregory Garrabrants: So, you know, I think some of this is just, you know, letting it slip, some of it is our own risk management perspective on what we're interested in doing right now, both from a credit and risk perspective and a rate perspective, but look, I think we're still going to have good growth. I think this quarter is shaping up to be pretty decent on the loan growth side, but you know, obviously, we have to see. It's easy to have prepayments come in and move those numbers around a bit, too.

Speaker Change: Some of it is our own risk management perspective on what we're interested in doing right now, both from a credit and risk and rate perspective.

Speaker Change: I think we're still going to have good growth. I think this quarter is shaping up to be pretty decent on the loan growth side. But obviously we have to see. It's easy to have prepayments come in and move those numbers around a bit too.

Edward Paul Hemmelgarn: Okay, thanks. Good quarter.

Kevin Gordon: Okay, thanks. Good quarter. Thank you.

Speaker Change: Okay, thanks. Good quarter. Thank you.

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

Operator: We reach out to our question and session.

Gregory Garrabrants: I'd like to turn the floor back over to management. Pretty further closing comments. Thank you, everybody, for interest.

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

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

Gregory Garrabrants: I won't talk to you next time.

Operator: Thank you.

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

Speaker Change: Thank you everybody for your interest and we'll talk to you next time. Thank you.

Operator: That does conclude today's teleconference webcast.

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