Q1 2025 Axos Financial Inc Earnings Call
Speaker Change: 2nd Bande, Joseph Zarappo, Nora Tidwell Eunice Harris, Howell Tony Kayla Marshall, Richard Griffith Richard Davis, R.B. Thomas, John John R. R. R. R. R. R. R. R. R. R. R. R. R.
[music]
[music]
And... ... ... ... ... ... ... ... ... ... ... ... ... ... ...
garrabrants, Gregory Garrabrants, Derrick Walsh
[music]
[music]
Thank you for clicking! Clent One
Speaker Change: Eleanor Alcovert, Breakdown
In the Investor Relations section of the company's website located at Axa as financial Dot Com for 30 days.
Additional details for this call were provided in the conference call announcement and in today's earnings press release.
Speaker Change: Before handing over the call to Greg I'd like to remind listeners that in addition to the earnings press release. We also issued an earnings supplement in 8-K with additional financial information for this call.
All of these documents can be found on an access financial dot com website.
With that I'd like to call turn the call over to Greg. Thanks, John Good afternoon, everyone and thank you for joining us I'd like to welcome everyone to access Financial's conference call for the first quarter of fiscal 2025 ended September 32024. Thank you for your interest in access financial.
Greg: We delivered outstanding results in our first fiscal quarter of 2025 generating double digit year over year growth in earnings per share and book value per share for the 10th consecutive quarter. We grew deposits by approximately $614 million linked quarter with growth primarily coming in interest bearing demand and savings deposits ending loan balances were up.
3% linked quarter, and 13, 7% year over year to $19 3 billion.
Average loan balances were up $269 million linked quarter as origination volumes in some of our C&I and single family mortgage warehouse lending businesses were offset by prepayments in our single family Jumbo mortgage multifamily and commercial real estate lending groups. We continue to generate high returns as evidenced by the 19, 1% return on average common equity.
In the three months ended September 32024, our strong returns contributed to the 28% year over year growth in our tangible book value per share.
Instead of $137 million contributed by a subset of the lender group concurrent with a $50 million equity injection from the sponsor, which access did not agree to nor participate in.
The terms of the restructuring transaction favorite the group of new money participating lenders over a set of non participating lenders. We placed this loan on non accrual. Despite receiving this September 30 payment given the information received about this restructuring and allocated a specific loan provision of approximately $10 million in the quarter ended September 32024.
Sure to account for a potential loss. We are currently evaluating the appropriate actions to take as we have been advised by counsel that the restructuring transaction may have violated the terms of the credit agreement.
With respect to the other allowing the $6 $4 million loan is backed entirely by accounts receivable that had been subject to a recent audit and samba that audit to be collectible. We're actively working with the borrower to pay down a portion of the loan provided additional collateral and bring along current.
Nonperforming assets in our multifamily and commercial mortgage loan book declined by $3 6 million linked quarter.
We increased deposits by $614 million in the first quarter of fiscal year, 2025 demand money market and savings accounts, representing 96% of total deposits at September 30 of 2020 for a group at 16, 3% annualized we are a diverse mix of funding across a variety of business verticals with consumer and small business.
Representing 60% of total deposits Treasury management, representing 20% commercial specialty representing 10 access fiduciary services, representing six and access security, which is their custody and clearing representing 4%.
Total noninterest bearing deposits were approximately $3 1 billion up $80 million quarter over quarter.
Total ending deposits that aaas, including those on and off <unk> balance sheet were approximately $41 million compared to the prior quarter.
Speaker Change: More recently, we added the technology in our life Science banking team in Silicon Valley, including a seasoned team that has decades of experience working together with our early stage growth companies and funds. We also added an experienced leader to build out our middle market lending group.
With over 20 years of experience in specialty lending in a few selected national deposit verticals. These selective team hires allow us to grow our geographic presence and further diversify our lending deposit and fee based franchises based on our existing robust set of products.
Speaker Change: The addition of key sales and operational team members at <unk>.
Have contributed to the acceleration of net new asset growth in our custody business our client centric approach along with our commitment not to compete with our advisor clients makes us highly desirable to alternatives such as swab.
Speaker Change: Our highly profitable and diversified business positions us well to maintain above average growth and returns in a variety of economic political and competitive environments, while higher levels of prepayments or a short term headwind our asset based lending philosophy with conservative loan to values and prudent structures and diversified mix of lending and funding affords us more flexibility.
Most of our competitors.
Our excess capital liquidity and loan loss reserves provide more than sufficient cushion to weather an extended economic downturn if that were to occur we remain prudent with our capital reinvesting in our business systems and people and returning capital to our shareholders through opportunistic buybacks.
Now I'll turn the call over to Derek will provide additional details.
Thanks, Greg to begin I'd like to highlight that in addition to our press release and 8-K with supplemental schedules and our 10-Q were filed with the SEC today and are available online through Edgar or through our website at access financial Dot Com I.
Derek: I'll provide some brief comments on a few topics. Please refer to our press release and our SEC filings for additional details.
Derek: Our provision for credit losses was $14 million in the three months ended September 32024, compared to $7 million in the corresponding period a year ago.
Derek: To get a essentially a linear reduction.
It's just so that's so that's that piece of it I think we're where we are we're obviously as rates decline we have.
Derek: Lots of clients that are on you know that that obviously offset T M fees based on earnings credit.
If rates get low enough then that starts to flip and you'll actually start to charge those clients, we're not there yet.
Derek: <unk> banking volume has picked up some but it really is much more sensitive to the 10 year and so you saw a blip you started to see a pick up but then you saw it.
Long rates pop backs off to see where that goes I think the best chance we have to grow fee income is in the securities business and that's a volume play and we are sort of finally around the corner of where our attrition from some of the tamp clients that are just losing assets just in general.
Derek: <unk>.
We're kind of where I would say we're completely passed it but we are basically out running at now and I think that will continue so there's an opportunity there and it but it has to be it has to be a decent clip, but if you think about let's say 10 to 12 basis points on average on those net new asked.
So you can look at that as a way of thinking about we gave some growth rate numbers and you can look at that those will be increases but.
Unfortunately, one thing you have to keep in mind about the.
Derek: About that business is that all of that off balance sheet deposits.
Is sensitive to a declining rate so to the extent that those rates decline that is going to impact.
That income, which is G. I mean, Derek did I Miss anything just one thing from a forward looking thing Kyle is every December quarter, we have a some paper statement fees that we charge to customers and so that's usually in the ballpark between one eight and $2 million and so if you look back in our history.
Usually see a bump up in that area.
Derek: That's the second fiscal quarter. So just wanted to make sure you are aware of that.
Derek: Okay.
That's all.
Speaker Change: Helpful color, Thank you and nice quarter.
Thank you.
And the next question comes from the line of Andrew Liesch with Piper Sandler. Please proceed with your question.
Andrew Liesch: Hey, guys. Thanks.
Andrew Liesch: Thanks for taking the questions just a follow up on the broker dealer fees with the fed cutting 50 basis points and obviously you have the net new assets coming in.
Andrew Liesch: Are those going to be upsetting each other here as we look forward if we reached that point yet.
Derek: Yes.
That's not a horrible way to think about it and we also have we've also have we also rolled out.
A new fee schedule that actually are seeing certain types of activities that cost us a lot of money.
Derek: Paper statement fees, those kind of things that are attempting to sell.
Derek: <unk>.
Derek: Behaviors that allow us to cut our costs, so thats coming thats, some offset but I think I think that.
Derek: Let's say you have 50 75 basis points of offset but if you get a really.
If you have 150 basis points, that's going to that's going to hit that business.
<unk> got a really you got to right now the pipeline is is very good.
Derek: If we can if the attrition is lower than those net new assets can grow even faster.
We've tried to set internal targets around that but I think there are definitely stretch targets.
Got it alright very helpful.
Derek: And then on the margin commentary.
Derek: Okay.
So use the $4 25 to 435 range and then what.
Sorry, if I missed it what did you say the the benefit from the acquired loans is another 25% to 35 basis points of that right. So I thought it was 30%.
Speaker Change: The 30 to 35.
35, Okay got it so.
Derek: I guess that if you take out the $17 million of accelerated income here.
A little bit below where the margin would have come in I guess, what's driving at the high end I guess, what's driving the margin.
Down towards that level or is it just the asset repricing or is it some of the funding cost that you mentioned that you will see I think it's no I think we're feeling pretty good about the funding cost frankly, we're carrying a lot of excess deposits, we were able to reprice pretty well.
Derek: With the with the fed rate cut we sort of lost less than we thought there and we also have really good deposit growth from all the teams that we've hired and they are really starting to kick in very nicely. It really is more I mean part of the reason why loan growth is below where we wanted it to be us.
Turned down some some deals repricing of club deals other things and we.
We have just some folks coming in and repaying loans with little tighter spreads. So I think the reality is we're going to have to tighten up those spreads a little bit in order to win volume, which we're going to do and so that that makes a difference now that being said I mean, we obviously still have a lot of hybrid.
Loans that are still repricing every quarter. So there's a lot of movement there.
I think theres, a little conservatism in that because.
If you get if you have the margin up higher than that.
Derek: That loan growth doesn't come in you missed there.
Derek: So there's probably a little bit of conservatism in that but I think that really where we find the most uncertainty is in the loan growth side because as you get these we feel like we have a lot of great activity we.
We're seeing good activity were up this month, but we had we had a higher average.
Derek: Earnings assets amount at the end of the quarter, we had some paydowns we have the fund finance business.
Derek: We are reaching out to those clients to ask if theyre going to address their balance sheet and in December by calling capital, we're not getting a lot of yes is there, but that's always a possibility. So I think I think its that balance, but that's really those are really the factors. There's just there's a little bit of market pressure.
Speaker Change: Sure on on pricing.
We're seeing that that's a little elevated from let's say, where it was last year or even two quarters ago.
Got it.
Great. Thanks for taking the questions I'll step back.
Thank you thanks, Andrew.
And the next question comes from the line of Gary Tenner with D. A Davidson. Please proceed with your question.
Gary Tenner: Thanks, Good afternoon.
Wanted to ask I appreciate the additional color Greg on the increase in the Npls in the quarter I Wonder if you could comment on kind of the migration within the credit book beyond that just between special mentioned substandard is it just too early for lower rates to take much pressure off there and kind of how do you see them kind of migration.
Gary Tenner: Trend moving from here.
I actually feel really good about what we're what we're clearing theres, just but thats because I see what's going on in on an individual level.
Speaker Change: Some of these some of these things just take a while we have we got about 20 offers on one property that we've been holding for a while and kind of working with the bar on and that should execute by the end of the quarter and so we've got a couple of others that we've been patient Don because there has been.
Speaker Change: And final building permits sort of issues and money that borrowers or the funds that are subordinated to us has still been putting in and those sort of things are coming to an end.
So we actually we really see even.
Some of these things are choices. There is these three loans, we have buyers that want them, but we're looking at them and they're such a low loan to values. We expect that they will cure and they'll pay off because the individuals looking to do that so.
I don't really see I would say frankly on the commercial real estate side things look very good.
Speaker Change: There really is not.
Speaker Change: There's not anything that we look at it from a loss perspective, and say, we're really worried about it I mean, I think rates can put a little pressure on.
Speaker Change: Special mention and in multifamily but.
But we have guarantees on almost that entire book.
So strong personal warm body full recourse guarantees.
Folks that have a lot of properties and things like that so that looks pretty good.
Speaker Change: And I think look the C&I side is.
Is it is going to be more of a it's going to probably more of an average loan loss sort of thing. So if you look back I mean, I don't think we're going to be able to say in our multifamily book.
Had a couple of basis points of loss in history over.
Speaker Change: 15 years or something same thing with single family.
Speaker Change: Super low I think C&I will be a little more average not really the ones that we're doing on the <unk>.
The non.
Real estate lender finance stuff that should still be quite good but like the shared national credit.
We're taking more of an average level of risk rather than what we're taking with our our real very low loan to values structures and other and other assets, but I don't feel I feel like there is.
This is some of the subsidy dosing cradic and it's <unk>.
Clearing up or where we're getting good results on resolutions.
Great appreciate the color and just to go over to the expense side for a second Dirk you mentioned, an expectation of obviously some more pressure coming up in the December quarter can you remind us was there anything that kept expenses lower in the June quarter. They were kind of flat sequentially in the June quarter before this current quarter inquiries.
I'm, just trying to get a sense for.
Speaker Change: Sort of the Delta this quarter versus last quarter.
Speaker Change: Okay.
Speaker Change: In the June quarter, I think we have some lower some lower data processing.
Kind of looking back at the year end.
Salaries and benefits I think it was the other key factor in the in the June quarter.
Speaker Change: And it really then goes back a little bit to the to the March quarter March has the taxes the annual employment tax resets and so March jumps up and then June is usually flattish to maybe slightly up from March.
And obviously as we touched on we've been hiring a lot of teams kind of investing upfront for the future growth on both the loan and deposit side of the commercial business. So I.
Speaker Change: I think that's probably what you're referring to and as we as we look forward.
Speaker Change: We will have some continued bumps up and we're certainly taking some hard looks at.
At cost control around the salaries and benefits and different strategic ways that we can reduce or cost avoidance on areas there and in data processing.
Yes, I don't expect that we're going to have the level of expense growth in the December quarter that we had here.
Even though we have with <unk>.
Hired some.
Some teams. We've also obviously as you expand you get some folks who are doing great. Some folks that aren't and so we're just being cautious of that.
We've had a very nice.
Speaker Change: Run of growth and we do.
Just have to make sure we're focused on the expense side as well and so so we're doing that.
Thanks, just like this one last quick question.
Regarding your comment about the tightening of spreads in C&I is it is it predominantly the funds finance business that youre seeing that as folks have landed at other banks and maybe we're seeing some more competition or is it more widespread.
Speaker Change: The net.
Speaker Change: Interesting, it's not really I mean, the fund finance business mechanics. It always was a little lower and it came in lower and we're still seeing really good activity, there, maybe a tad bit but not that much it's really more in.
If you go and you have a standard club deal and you just see the club deal and that.
Speaker Change: The company is asking for a 25 basis point reduction across the grid.
Speaker Change: Yes.
The three banks consent immediately and you are sort of sitting there deciding well do you want to stay or go. So thats really the type of stuff that I think we are seeing and I think that that is much more I don't think its really particularly fund finance related which is still <unk> enough and we have I think we have really good competitive.
Vantage is theyre actually based on the team. The fact that we have the lender finance group there too which is very often can work with funds in unique ways that so I'm, not really saying and it's more it's more really in the clogged up stuff that they're just.
People I think that there is a lot of pressure across the banking industry on asset growth.
And folks don't want to lose deals and.
Speaker Change: Yes.
Speaker Change: Frankly, I frankly.
Prefer to hold pricing as most of you who follow us know and.
Sometimes feel like the only guy in the room that is thinking about it but.
Speaker Change: You know that.
Speaker Change: That's sort of more of what it is.
Great color. Thank you.
Speaker Change: And the next question comes from the line of David Feaster with Raymond James. Please proceed with your question.
Speaker Change: Hey, good afternoon everybody.
Hey, David how are you doing.
David: Doing great.
I wanted to touch on the deposit side.
Speaker Change: You guys have done.
David: You sort of repricing deposits, even ahead of cuts great to see the decline in deposit costs.
Curious have you gotten any pushback or seen any attrition as you've taking rates down and then just how do you think about betas this cycle and where do you see opportunity for deposit growth. Obviously, the securities business is a tremendous opportunity for low cost deposit growth, but just curious some of the verticals that you think that youre, mostly.
Excited about near term right, yes, the entire C&I is set of verticals across the lending businesses and the teams we've hired in the middle market space.
<unk> finance business and that technology and venture side, which really is going to be much more focused on deposits and lending and we're not doing venture lending. They they have they have typical ABL products cash flow stuff, but they don't have.
Any of the any sort of specialty products, but they have they're already bringing a lot of deposits and there's just a real sort of need there. So we're seeing that across the board and we're seeing really good growth on the business side, which was the plan to do that obviously requires some investments in in person.
David: Al what she all show up in the operating expense, but I think it's well worth it and the teams are doing a really good job.
Speaker Change: Did see some attrition.
Sumer side.
Not so much as to be particularly worried some added grew it still ended up growing for the quarter.
David: So it makes it makes the marketing a little less efficient. So you end up with a slightly higher cost per new account things like that but nothing that was particularly concerning in so.
David: <unk> said publicly that we intend to have essentially we intend to essentially offset on the way down our deposit costs with our.
With our reduction in interest income from our floating rate loans and so I think I think we definitely did that for this period and then we just continue to test ourselves throughout.
David: That and I think we're in a much better shape than we ever have been given the diversity and given all the work that's done on the commercial side.
David: Frankly, they're so busy in new account opening that we're hiring a lot of service people on the commercial side and stuff like that so that momentum is there.
There and I think it really feels like it's continuing.
That's great and then maybe just touching on some of these new verticals you were talking about.
Speaker Change: Where are we at in the build out I mean have we started to see the contribution I know middle market is a pretty new hire but life science and tech like you talked about I mean, I think we did entertainment management.
<unk> floor plan, just kind of curious where we are in the build out a few of those lines and how you think about the then contributing to growth going forward.
David: Right.
David: <unk> side.
It's extremely new I think we're going to win.
Bob drop out a press release I think probably this week that has just the names of the folks and their experience and their I think they are an extremely impressive group.
There was actually quite fun to go up there and meet all of their connections because.
It was need to have lunch with all of these.
Venture capital.
Legend, frankly that I have never gotten a chance to meet before that these guys are.
And a really interesting spot they're in.
And their brand and their opening deposit accounts.
Two in venture lending, but theres a lot of lending that can be done just on the existing products that we have but that's really no. I mean, those guys have sort of landed in taking their training and started opening some accounts.
The middle market side kind of the same way.
The individually hired a San Diego based wasn't EVP at a larger bank and brand.
David: That business for them.
We're consolidating some existing folks under ham is bringing some people. So that that's also quite new and really not a lot there.
Entertainment side.
That is onboarding a lot of accounts.
David: I think they'll there.
David: On balance sheet.
They are still below $100 million, but I think they'll crossover that those accounts tend to be a little smaller but.
That's that's those are zero cost deposits.
Continuing to happen, there's a decent pipeline there.
David: Frankly, the software is okay. We're doing a lot there on that software, we're making a very significant investment that's going to be quite something when it gets done the software and it's going to be really awesome for us as well because that whole idea of that in RIAA can manage the entire accounting bill.
Payments and.
Of their clients is something that the <unk> are excited about too. So we're excited to put that into our platform that faces.
David: <unk>.
The marine side, we're getting we're getting traction on the Floorplan side, which is really what we wanted to focus there. So we are doing new floor plan lines and we're continuing to sign new manufacturers.
The retail side, we're trying to make it a gain on sale business we've got some.
David: Got some new.
Banks that are interested in buying the 20 year paper.
We do have a little bit of a fundamental disconnect with.
With respect to how we think about interest rate risk and when we want to put on the balance sheet and that we have a we have a bucket for it for some of the 'twenty year stuff, but but.
Really looking to try to make that more of a gain on sale business.
And so we've got some traction there as well.
So but yes.
The floor plan side, where we're definitely making progress and we want to expand that floorplan side to some other lending categories as well, we like that business, we think it can be.
David: Good national niche.
Speaker Change: Okay and then just last one for me you touched on the White label rollout with the Securities business.
Just kind of selectively when would you expect a broader rollout how has feedback been broadly.
And then like what do you think are some of the implications of that do you think that helps accelerate client acquisition is it opened up some cross selling opportunities within the securities business.
I'm just kind of curious.
David: No.
Absolutely does yes, we're starting to absolutely get that.
That where those advisers are acting as salespeople for access business deposits.
Both business deposits and consumer deposits and so we are seeing that and it is helping deposit growth and it's helping in a lot of.
David: Different different ways and we're we're also needing to continue to evolve what we're doing up our service game.
As we as we make sure that we're serving these clients in the.
That they are used to being service, which is happening.
David: And I think I'm very excited about it because I think that we are seeing a lot of traction of new advisers come on they are hungry for banking products.
And and they're interested in and working.
David: With US now what we have done previously is.
As we've tried to essentially offer sort of more zero interest style accounts on the checking side and make them more payment facilitation accounts, we're still going to do that but we're rolling out we're calling and access one product, which is if somebody has an active checking account essentially they can get a high yield companion account and.
We took that out for feedback and getting a lot of incredible feedback from that so.
So we're continuing to refine the product, but actually I think it's a great channel and I think it's.
It's kind of it's exciting and as we as we board. These these <unk> who have we have direct relationships with rather than through tamps, we really have an opportunity that's much better than going through the tamps.
Okay. That's helpful. Thanks, everybody.
David: Thank you.
And the next question comes from the line of Kelly Motta with K BW. Please proceed with your question.
Hey, good afternoon. Thanks for the question.
I think I'll circle back to the margin I appreciate it.
Outlook it doesn't sound like it.
David: Seems much right.
Your market was about 20 basis points higher ex that.
David: Accelerated.
And you had.
Just wondering I know you had talked about right.
Brian coming in for loan yields just wondering with the payoffs and Paydowns you saw this quarter if there was any.
Maybe access.
Loan fees were interest recoveries in there that.
Contributed to that margin core margin comp this quarter that when you said the.
I'm thinking about it as we're modeling ahead.
Hey, Kelly no there wasn't any one time things like that any interest recapture or anything like that I think as Greg highlighted earlier.
Or maybe be slightly conservative in what were what were forecasting but also given the management between the growth in the in the forward looking rate aspect that.
We are weighing those two to try to drive some additional growth as we look forward. Yes, we may make I mean, there may be some I think that maybe there are deals that I'm, making some pricing concessions on to keep.
So and that just in the book, where the competition is trying to let that particularly on these club deals or try and take them away and the clubs conceding ni and were going to concede to in order to ensure we have loan growth. So that that is a pressure now you have to remember offsetting that theres still a lot.
Loans that are we had a decent part of the book that's still five year fixed rate and those are continuing to roll off and particularly I guess it depends on how far you're looking forward.
The single family there is a lot of repricing thats in 2000 and towards the end of 'twenty five 'twenty six I mean billions of dollars of it so that that also.
We will have a positive impact is it just depends on when so.
Speaker Change: Awesome I really appreciate that that color.
Speaker Change: You know you guys have been.
Opportunistic with loan portfolio purchases.
Obviously, the FDIC deal that you did before.
Looking at your Y 90, and it looks like the commercial real estate exposure ticked up above 300% a two part question. One wondering if that's a re class or if there was some sort of.
Mix shift that that contributed to that and two is that impact.
How you're thinking about commercial real estate exposure ahead in your <unk>.
But heightened willingness for both the originated and acquired growth in CRE.
No I don't I don't think the.
Speaker Change:
Have to circle back with you on exactly the wine IMC aspects, but I know we went through and.
Speaker Change: Classified a lot of loans non depository financial institutions on the reports.
Or rather than.
The underlying collateral just based on the structure of the loans so that might have been one factor of what youre seeing when we amended some of those reports a while back.
But now there hasnt been any.
Dramatic shift and I think you can see that in the.
Speaker Change: Press release, and the supplement specific way to supplement.
Speaker Change: That we provide with regards to that <unk> balance, it's really been a slightly range bound over the last 12 months as the as we have been facing some repayment headwinds in the in the Cresswell book balance.
But the direct answer to your question as well.
We'd like to grow and with loans that we.
Meet our credit criteria and commercial real estate, we're not limited by a concentration limit that sort of floating around in the abstract there we have concentration limits, but we're not hitting them in fact.
We are having difficulties in maintaining the current concentration and quiet frankly, not that that's the goal but it just.
We'd like to grow I think.
So that's it's not really that there is not.
It's really that is just there is frankly theres theres fewer deals.
Speaker Change: In commercial real estate and what's also happening to us is that we're starting to see.
Speaker Change: <unk>.
Speaker Change: What is making.
Significant differences in some projects, we're starting to see bridge lenders start reaching back sooner than some of the construction side and taking out earlier at very low rates some of those loans and so that that's happening and those are usually in.
In partnership with.
Private debt fund in there and so sometimes we're seeing that but no. We're still interested in and growing our commercial real estate book. The book is doing extremely well.
Having just watching everything and all the noise around stuff.
It's looking quite good.
And so we're we're still interested in growing it but we're doing our best to do that.
Speaker Change: Got it that's helpful. Maybe last one for me if I could slip it in.
Appreciate the color on the MTA migration and what caused that it sounds like one.
One of the more impactful ones was a club deal we're.
The leader on that.
Speaker Change: Made some concessions that you wouldn't have.
I'm wondering if you could provide a size of your.
Your your snacks or kind of larger deals.
Speaker Change: Yes.
That wasn't a club deal that was yes. This wasn't I'm in no way I would think of a club deal as you got four banks five actually this is this was a very large syndicated shared national credit.
Speaker Change: And yes, so we.
As far as.
I don't know if it did we pull a shared national credit number or just.
Does that include club stuff, because the club stuff's kind of it's different.
Does that snacks, yeah. So okay. So so cash flow base next total is $1 billion, but.
This is very idiosyncratic.
Speaker Change: And yes, it's not I wouldn't.
The rest of the snacks.
We do enterprise value calculations off them, they're obviously graded by others.
Speaker Change: And there and Theyre doing well.
Well in the great. The grading is as strong.
And the vast majority of that book so.
Speaker Change: Got it I appreciate the color I'll step back thank you.
Speaker Change: Thank you.
And the next question comes from the line of Edward Hemmelgarn with Shaker investments. Please proceed with your question.
Edward Hemmelgarn: Yeah. Thanks, Craig.
A couple of questions.
I'll begin with the loan pricing.
Edward Hemmelgarn: What.
Edward Hemmelgarn: Also participation what percentage of your loans are participation loans are shared loans as opposed to loans you.
Edward Hemmelgarn: Or solely originated.
Speaker Change: It depends very much on the group, but I'd have to go through each group to go through that in and so.
In cross sell almost all of those loans have.
<unk> participants, but thats not generally what.
We're talking about in that instance, right and so and so there is so many different variations. So the cross sell loans almost always have a junior counterparty, whether its a mezz or some other investment with them from a fund or whatnot, almost all of them, but not all of them but.
Edward Hemmelgarn: 90% or something.
And then in a lot of cases, we've actually we actually have hired some syndication folks in our syndicating our own deals so a lot of cases.
In the future. This is a smaller part of the book now where we're acting as agent.
Speaker Change: And we're getting the deposits and then we're syndicating deals out to clubs and then we're so often.
The company is that we want a bank which are.
You know more established companies the hold sizes, sometimes on the on the cash flow side.
Speaker Change: And that being.
Clubbed up with others, but it just there's just a variety of different ways that can happen.
So it really just depends on the business on that.
Let's say, it's straight regular multifamily, it's almost all direct and there may be we may bring in if the borrower wants more levers we may bring in them as a partner.
But most of the time, it's just that's just direct without them as partner so.
Is it depends on the business.
Speaker Change: Do you feel your.
Underwriting is stronger where you are the one that is originating loans or.
Or is there any well, yes, well look I, yes, I do I do think that there are concessions that are given up in the market.
On certain documentation issues that we find difficult to push back on.
Frankly, I mean, one of the this issue that we're having with this loan is fundamentally a documentation issue in the sense that what we believe the documentation I don't want to get too much into it because it will probably end up litigating it but the documentation I think it's clear enough, but there is other opportunities to make it more clear in the.
Speaker Change: Industry.
Sometimes that movement is a little bit more difficult so.
And then look I, just think I think the reality of that.
Everybody has had a panic attack over.
Overtime over commercial real estate and the reality of how we do the commercial real estate with our loan to values in our fund partners.
Speaker Change: Fundamentally.
Different structure its an incredibly good structure required requires.
Speaker Change: A lot of equity and it has a lot of incentives to make sure that.
You continually gain investments from from those clients that it doesn't have the volatility that an individual company can have so I just think I think in general when Youre doing C&I lending I mean, some of it might be some of those idiosyncrasies, but some of it is also when you are lending to an individual company and that there is.
Speaker Change: Different things that can go wrong.
Speaker Change: C&I lending, but not in this case.
They're I think they're a very very large logistics company and what pricing for their product has deteriorated. It has come back some but it's deteriorated and that is a specific risk.
Speaker Change: And you know.
Speaker Change: And that's that's just going to be fundamentally different than you're at 40% LTV on an apartment REIT and you say hey, if the apartment if people don't like the apartment as much we can cut the rents by half and still make it work right. So it's just it is a different I think it just has to be reflected that.
Speaker Change: Look I think we're still going to do very well on all those wells I, just think having sort of a kind of perfect record that we've had essentially perfect record on <unk>.
Speaker Change: Commercial over a decade and a half our commercial real estate and single family real estate as far as losses I don't know look I'm not convinced this is going to go that way either but it's.
It's just something to watch and the risks are different.
Speaker Change: Okay.
Speaker Change: Talk a little bit more of a pricing.
Do you get that question a number of times.
I was looking back as recently as.
The June quarter of 2021 of you were in the pricing range net interest margin range.
Would you have always talked about was three 8% to 4%.
Speaker Change: Thats it.
Speaker Change: It's clearly in the last several years.
Expanded a lot even ignoring the purchase the FDIC purchase loans.
Is that are you still comfortable with the three eight to four and Thats the kind of.
Gradually you'll be moving back down towards that and doing more volume.
Johnny Johnny I always loves to stand bags that interest margin thing that that was always funny to me because I guess I'm wondering how how high can it get before he keeps on wanted to say, it's still 380 to four and now is smiling at me, but look I think I think there has been some fundamental structural changes in the business.
And so and so there have been one of them is that we've spent a lot more money and built a very good commercial deposit franchise and that is growing and that's lower cost deposits. So we're spending more on opex and.
Speaker Change: We're managing through that and it appears to be working and hopefully it will continue to work and we see it working we see volumes in all sorts of Treasury management indicators getting better. So that so that is helpful. Right. So when you have that and you continue to have even the last several quarters the growth in that those have been very.
Good it gives you pricing power on the consumer side that you might not otherwise have had right. So all of that yes, that's really good.
We also have quite a diversity of lending businesses as well now a big part of the whole margin benefit.
Speaker Change: Benefit was that we got the interest rate risk right in a way that I think most of our competitors didn't right. So we just we emptied the bond portfolio right. We we got.
Speaker Change: Not super short on everything even on multifamily we started originating two to three year deals rather than five.
Several years before rate increase has happened. So we were in a much better position that way and so now I also think that now the way we funded the growth. We also are going to be able to manage it down because of what we manage the deposit rates down right. Because we have the benefit of having the strong business deposit.
Speaker Change: So I think.
That'll be helpful. Now look I do think that while it is.
A threat to the quite beautifully elevated level that is that there is market pricing.
Speaker Change: Happening, where I think that there is a I think there's just in general I think that banks are hungry for loans that I think they are pricing those laws and I also think that there is a little bit of commercial real estate, maybe there is pressure on concentrations and things like that folks are moving it's a different era.
Speaker Change: He is.
So those are all those are all some of the some of the movements there but look I.
I think that I think that we have given a new range right that $4 25 to $4 35, and I think for the foreseeable future as far as we can see that that's without the benefit of the FDIC side. So I think that's a better range.
And I actually don't think that's I.
I think thats I think thats, a pretty reasonable range I don't I don't think it is easily achievable, but I don't think it's that much of a stretch either I think it does require us to manage down deposit costs.
Speaker Change: At a way that I think we clearly Canada, we did this last quarter or so.
Speaker Change: But you've got.
Quite a little bit of room between where you are currently at ignoring the FDIC loans.
Okay, So maybe theres a little sandbagging in it but I mean look that's all.
Part of it is a tough part of this balance right. I mean, there is there are loans that are coming in which have lower spreads and so that will pushed out on that right and so.
Speaker Change: Then if we want to retain some of the multifamily that's running off is it re prices some of those are lower spreads as well right. So there's those.
Speaker Change: Kind of things.
Speaker Change: That are happening. So there's just a lot of moving pieces I think it's better to be more conservative with it so that you have.
Speaker Change: You have.
I think I'd estimate.
Speaker Change: More achievable.
Speaker Change: Okay alright. Thanks.
Thank you.
There are no further questions at this time I'll turn the floor back over to Johnny Lai for any closing remarks.
Speaker Change: Great. Thanks for everyones interest have a nice afternoon, we'll talk to you next quarter.
Speaker Change: And ladies and gentlemen that does conclude today's teleconference. We thank you for your participation you may disconnect your lines at this time.
Speaker Change: Hum.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Hum.
Speaker Change: Hum.
Speaker Change: [music].
Speaker Change:
Speaker Change: Mhm.
Speaker Change: Hum.
Speaker Change: Hum.
Speaker Change: [music].