Q3 2025 Axos Financial Inc Earnings Call
Greetings and welcome to the actual financial third quarter 2025 earnings call and webcast at this time, all participants listen only mode.
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Speaker Change: Now my pleasure to introduce your host John Ely, and senior Vice President Corporate development and Investor Relations. Please go ahead Johnny.
Kevin: Thank you Kevin.
Kevin: Good afternoon, everyone and thank you for joining us for today's third quarter 2025 financial results Conference call.
Kevin: Joining us today are the company's President and Chief Executive Officer, Greg Your branch and Executive Vice President and Chief Financial Officer, Jeff Walsh, Greg and Eric will review and comment on the financial and operating results for the three and nine months ended March 31, 2025, and we will be available to answer questions. After the prepared remarks.
Kevin: 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.
Kevin: If I may make additional forward looking statements in response to your questions.
Kevin: Please refer to the Safe Harbor statements found in today's earnings press release and in <unk>.
Kevin: Our investor presentation for additional detail.
Kevin: This call is being webcast and there will be an audio replay available in the Investor Relations section of the company's web site located at accessing local dot com for 30 days.
Kevin: For this call were provided on the conference call announcement and in today's earnings press release.
Kevin: Before I hand 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 and 8-K once again.
Kevin: Additional information.
Kevin: All of these documents can be found on outflows financial Dot com.
With that I'd like to turn the call over to Greg. Thank you Johnny and good afternoon, everyone and thank you for joining us I'd like to welcome everyone to access financial conference call for the third quarter of fiscal 2025 ended March 31 25. Thank you for your interest in access financial we delivered solid results this quarter generating over $700 million of net loan growth.
Greg: Linked quarter stable net interest margin and a 19% year over year increase in book value per share. We continue to generate high returns as evidenced by the 16% return on average common equity and a 1.8, our return on average assets and the three months ended March 31, 2025, we deploy some of our excess capital to repurchase.
Greg: Approximately $28 million of common stock in the quarter.
Greg: March 31 2025.
Greg: 517000 shares of common stock for $30 3 million in from April one to April 30 up after the quarter at.
Greg: Other highlights in the quarter include.
Greg: Net interest income was $275 million for the three months ended March 31 2025.
Greg: Five 3% from the $262 million in the prior year period net interest margin was 4.78% for the quarter ended March 31, 2025 down five basis points from the 4.83% in the quarter ended March 31, 2024, we continue to benefit from our best in class net interest margin with them.
Greg: Without the benefit of the accretion from loans purchased from the FDIC.
Greg: Total on balance sheet deposits increased five 4% year over year to $21 million are diverse and granular deposit base across consumer and commercial banking in our securities businesses continuing to support our organic loan growth. We managed our operating expenses well this quarter with total noninterest expense for the quarter ended March 31 2025.
Greg: Up by only <unk>, 6% from the prior quarter, excluding the seasonal increase in FICA expenses in legal accrual reversals noninterest expense increased slightly quarter over quarter.
Greg: Annualized charge offs to average loans were nine basis points from the three months ended March 31st compared to seven basis points from the corresponding period last year, excluding the auto loans covered by insurance net annualized charge offs to average loans were eight basis points in our fiscal third quarter of 2025, we remain well reserved relative to our low carnival.
Greg: Historically that credit losses, total nonaccrual loans declined by $66 5 million linked quarter, resulting in a non accrual loans to total loan ratio improving from 1% to 6% in the quarter ended December 31, 2024 to 89 basis points for the quarter ended March 31, 2025 net income was approximately 105.
Greg: $5 2 million in the quarter ended March 31, compared to $104 7 million in the December quarter diluted EPS was 1.81 cents for the quarter ended March 31, 2025 compared to $1 80 in the prior quarter.
Greg: Net growth in non purchased loans for investment of about 700 million for the month end at the quarter ended March 31st an increase of three 6% linked quarter or 14, 5% annualized.
Greg: Finance equipment leasing and lender finance had strong originations and net loan growth this quarter headwinds from high levels of repayment in the jumbo single family and multifamily mortgage business improved significantly with net declines of only $36 million in those two loan categories combined in this quarter compared with a $384 million decline.
Greg: In the December quarter, while the interest rate and competitive environment remains stable, we feel good about keeping our jumbo single family and multifamily loan balances flat to down $100 million per quarter for the prior $200 million to $400 million quarterly headwind, we experienced since the fed started raising rates.
Greg: All right.
Greg: Average loan yields for the three months ended March 31, 2025 was 799% down from $8 three 7% in the prior quarter average loan yields for non purchased loans was seven 6% and average yields for purchase loans were 14.32%, which includes the accretion of our purchase price discount.
Greg: The FDIC purchase loans continued to perform well and all loans in that portfolio remained current new loan interest rates were the following so far mortgages seven 5% multifamily seven 3% C&I seven 6% in Otto eight 5%.
Greg: And then deposit balances were 21.
Greg: 1 billion or up 1% linked quarter and up five 4% year over year demand money market and savings accounts represent 96% of total deposits at December 31, 2024, increasing by five 9% year over year, we have a diverse mix of funding across a variety of business verticals, what we consume.
Greg: And small business, representing 58% of total deposits commercial cash Treasury management, and institutional representing 23% commercial specialty representing nine <unk> fiduciary services, representing six access securities, which is our custody and clearing business combined representing 4% non interest bearing deposits.
Greg: Our approximately 3 billion at the end of the quarter roughly the same as the prior quarter client cash sorting deposit balances have been volatile increasing to over $1 2 billion. During the peak of the market sell off in March 2025, before ending the quarter around 900 million as advisors made tactical changes throughout the quarter in a turbulent market where folks.
Greg: On adding new assets from existing and new advisors to grow our assets under custody in cash balances. In addition to our access security deposits on our balance sheet, we had approximately $450 million of deposits off balance sheet partner banks.
Greg: Our consolidated net interest margin was $4 seven 8% for the quarter ended March 31, 2025 compared to 483% in the quarter ended December 31, 2024, even though we deployed some of our assets liquidity on organic loan growth. This quarter, we still have more deposits than we typically carry on our balance sheet.
Greg: Liquidity was a 13 basis point drag on our net interest margin in the quarter ended March 31, 2025 down from 18 basis points last quarter. Our net interest margin remains above the high end of our target with and without the benefit of the FDIC loan purchases largely because we've been able to offset the gradual decline in our <unk>.
Greg: Earnings asset yields with corresponding decreases in our funding cost total interest bearing demand and savings deposit costs were $3 five 9% for the quarter ended March 31, 2025 down to 36 basis points from the prior quarter, we're seeing strong growth in account balances from our access one consumer bundled deposit.
Greg: Product, which includes the checking and savings account grows it access to one another deposit businesses has allowed us to reduce our high cost consumer a high yield savings that wholesale funding, we continue to grow our lower cost deposits in our commercial cash Treasury management and specialty businesses. We're also making good progress cross selling deposit across selected lend.
Greg: Businesses, such as finance and multifamily lending.
Greg: Strong net new asset growth and normalizing in cash sorting will be a tailwind in our ability to grow lower cost deposit balances going forward.
Greg: We expect our consolidated net interest margin ex FDIC loan purchase accretion to stay at the high end of our 425 to 435 range. We have targeted over the past year. Despite increased competition from banks and nonbank driving new loan yields lower than many lending categories. We compete in we continue to win our share of new lending opportunities.
Greg: Our loan pipelines have improved meaningfully on our auto in multifamily lending businesses over the past few quarters as a result of strategic actions, we have taken better execution on expanding our distribution channels across certain commercial lending categories, including equipment leasing has contributed to improved loan growth and pipelines, we expect loan growth to come in somewhere between that.
Greg: High single digit and low teens range on an annual basis that we have targeted for the past several years, we may have more variance from quarter to quarter due to uncertainty regarding the pace and timing of payoffs and the potential impact of tariffs and interest rates on loan demand.
Greg: The credit quality of our loan book continues to be solid in our historical and current net charge offs remain low total nonperforming.
Greg: <unk> assets declined by $63 3 million linked quarter, representing 79 basis points of total assets compared to a 1.6% in the quarter ended December 31, the sequential decrease in non accrual loans was broad base declining by $26 million in our single family mortgage and warehouse businesses by $15 million in our <unk>.
Greg: <unk> commercial mortgage business and by $25 7 million in our commercial real estate lending business. We did not anticipate a material loss from loans currently classified as nonperforming and our single family multifamily or commercial real estate loan portfolios are commercial real estate specialty portfolio continues to perform very well and in line with our expectations.
Greg: <unk> non accrual loan balances in our C&I lending portfolio were roughly flat linked quarter at $71 2 million.
Greg: C&I loans classified as non accrual at March 31, 2025, but three totaling $12 2 million and continue to make contractual interest principal and curtailment payments.
Greg: We continue to monitor the credit trends across all loan portfolios and have not seen any broad based deterioration in any individual lending category. We don't have significant exposure to any specific industry that is expected to have an outsized negative impact from proposed are enacted tariffs.
Greg: Actually I was clear on which includes our correspondent clearing and custody businesses had a good quarter total deposits attack those clearing were $134 million at the end of the quarter roughly consistent with where they were at the prior quarter of the 1.34 billion of deposits from access clearing approximately.
Greg: 900 million was on our balance sheet and $450 million well that partner banks.
Greg: Client margin balances grew by two 9% up from $274 5 million at December 31 to $282 4 million at March 31, 2025, net new assets for our custody business were $289 million in the March quarter, extending the positive net asset momentum we had experienced in that.
Greg: Past several quarters. Despite a turbulent first few months of 2025, many of our legacy and new <unk> clients have increased their AUR the pipeline for new custody clients remains healthy and we expect continued organic net new asset growth in access advisory services pre.
Greg: Pretax income for the Securities business segment increased by 23, 6% year over year to $9 $1 million due primarily to better operating expense control.
Greg: From a product perspective, we continue to identify ways to generate incremental fee and partners I am partnering with third parties to offer additional services such as access to new asset classes and investment strategies, we are consolidating certain back office and servicing functions in our clearing and custody business to leverage the processes and systems, we have to more efficiently serve broker.
Greg: And advisory clients. Once completed we will have a more competitive and stable cost structure in order to expand the types of testing panel clients. We can serve profitably one important strategic initiative in the securities business that is the development of our access professional workstation, our proprietary client service platform that will replace the.
Greg: Current third party workstations used in our by our current clients and allow better integration of banking and lending to those clients. We leveraged low cost low code development to reduce the time cost and resources required to complete our access professional workstation Buildout. We're also actively using artificial intelligence in our software.
Greg: And across a wider set of workflows to enhance development of operating efficiency, which should result in better operating leverage over time.
Greg: Additionally, we're modernizing core components to the technology infrastructure for ourselves invest our direct to consumer securities trading and digital wealth management business. The primary objectives are to make the platform more flexible. So we can add new products and services faster and cheaper as well as improve the customer experience by eliminating friction caused by a reliance on.
Greg: Third party integrations, we see access invest as a channel for low cost consumer acquisition and cross sell to existing access clients as well as a white label offering to institutional clients, such as <unk> and IV days.
Derek: Now I'll turn the call over to Derek to share other further details.
Derek: Thanks, Greg a quick reminder, 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 to access financial Dot com.
Speaker Change: I'll provide some brief comments on a few topics. Please refer to our press release and our SEC filings for additional details.
Speaker Change: Noninterest expenses were approximately $146 million for the three months ended March 31, 2025 up by about $900000 from the three months ended December 31, 200 to 2024.
Speaker Change: Salaries and benefit expenses were $74 $6 million.
Up by zero point $6 million compared to the three months ended December 31, 2024 <unk>.
Speaker Change: Excluding the seasonal increases in FICA expenses in the March 31 quarter.
Speaker Change: Salaries and benefits expenses.
Down by 0.8 million on a linked quarter basis professor.
Speaker Change: Professional service expenses were $8 2 million compared to the $9 1 million in fiscal Q2 'twenty five.
Speaker Change: General and administrative expenses were down to $6 8 million for March 2025, compared to $9 3 million for December 2024.
Speaker Change: We had a payment of a legal judgment that was previously accrued and resulted in a reduction to general and administrative expenses by approximately $2 million in the quarter ended March 31 2025.
Speaker Change: We remain focused on managing our expenses and investments in a controlled manner in order to maintain and improve our operating efficiency ratio.
Speaker Change: Next our income tax rate was 29% for the three months ended March 31, 2025, compared to 28, 8% in the corresponding year ago period.
Speaker Change: We still expect our corporate tax rate to be approximately 29% to 30% with one caveat.
Speaker Change: The California budget proposal currently includes a provision that would change the taxation.
Speaker Change: Our financial institutions for tax years, beginning on or after January one 2025. The provision if passed would you require financial institutions to use a single sales factor for a portion of a multi state income to California.
Speaker Change: Financial institutions are currently required to use a three factor apportionment formula which includes our corporate property factor a payroll factor in addition to our sales factor.
Speaker Change: If the provision changing this tax apportionment from the three factor test or a single sales factor is enacted.
Speaker Change: The change would require the company to re measure its deferred tax assets.
Speaker Change: Management estimates access deferred tax asset will decrease by approximately 6 million to $7 million as a result of the change.
Speaker Change: The impact of the Remeasurement will be a noncash charge recognized through continuing operations in the period, whereas the laws enacted.
Speaker Change: If an asset management expects the effective tax rate for the fiscal year ended June 32026, and beyond would be reduced by approximately 3% or approximately $5 million per quarter compared to the current effective tax rate.
Speaker Change: I'll wrap up with our loan pipeline, which remains healthy with $2 1 billion of total loans in the pipeline as of April 25 2025.
Speaker Change: Listing of $576 million of single family residential jumbo mortgage $57 million of single family gain on sale mortgage.
Speaker Change: $346 million of multifamily and small balance commercial.
Speaker Change: $63 million of auto and consumer.
Speaker Change: And $1 1 billion of commercial loans as.
Speaker Change: As Greg noted, we believe that we won't be able to grow loan balances organically by high single digits to low teens year over year over the next 12 months, excluding the impact of the loan portfolio purchased from the FDIC or any other potential loan or asset acquisitions, our pipelines are up across several lending businesses and we expect.
Speaker Change: The headwinds, we faced from single family and multifamily mortgages to subside.
Speaker Change: Due to elevated levels of uncertainty regarding interest rates the economy and the shape of the yield curve, we may see more volatility in our net loan growth over the next few quarters.
Johnny: With that I will turn the call back to Johnny.
Speaker Change: Thanks, Derrick Kevin we're ready to take questions.
Speaker Change: Certainly, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad one moment, please while we poll for questions.
Speaker Change: First question is coming from Kyle Peterson from Needham and company. Your line is now live.
Speaker Change: Great.
Kyle Peterson: Good afternoon, Thanks for taking my questions and nice results.
Kyle Peterson: Wanted to start off a little bit on you know loan growth and kind of what you guys are seeing obviously, there's been a lot more volatility and uncertainty I guess are there any areas either that you guys are being a little more cautious in or on.
Kyle Peterson: On the flip side are there areas you guys are seeing competitors.
Kyle Peterson: It maybe be a little more cautious or shy of where you guys think might be opportunities to go and take care.
Kyle Peterson: Yeah I think.
Kyle Peterson: The logistics I think there are certain C&I segments that.
Kyle Peterson: In anticipation.
Kyle Peterson: As a V.
Kyle Peterson: The administration change or the potential administration change that we've been cautious about for a while.
Kyle Peterson: So we've been.
Kyle Peterson: You have been shying away from logistical sort of deals obviously, we got caught up in that one thats still paying but is on non accrual.
Kyle Peterson: So we generally have shied away from those as far as adding a lot of exposure in that sector and theres been a few others that.
Kyle Peterson: We've had views about from an economic perspective, but those are either segments within C&I or specific companies that have unique exposure.
Kyle Peterson: As far as.
Kyle Peterson: Yeah.
Kyle Peterson: It's a little early to tell but I do think that.
Kyle Peterson: I do think that we were seeing more spread compression and we've been able to push back against that a little bit as a result of volatility and I think that's partially related to the fact that in certain instances you know some of the takeouts for some of our lines or what.
Kyle Peterson: Not the revolving lines, our securitization and so to the extent you get any difference in that market that can flow through so I think thats positive there, but in general the pipelines are pretty good I would say the biggest impact we'll have is just.
Kyle Peterson: With respect to you know whether we can hit.
Kyle Peterson: And 11%.
Kyle Peterson: Percent sort of.
Kyle Peterson: Loan growth in the year of 15 is this really going to be more related to prepays and we had some periods. During COVID-19 that we were very cautious on any kind of project financing and construction stuff and so that means we sort of have a little gap, where some of those loans kind of pay off and you know we may have a little girl.
Kyle Peterson: <unk>, there, but I feel pretty good about where loan growth is I mean, if you look at the single family pipeline. That's a lot higher it doesn't mean every quarter, it's going to be perfect, but we've been really.
Kyle Peterson: Writing against a pretty nasty tailwind of single family and multifamily and that tailwind is over so we may have.
Kyle Peterson: Areas like got it.
Kyle Peterson: Commercial specialty real estate that might have high payoff quarters, just because of timing, but I don't think that's going to be something that will occur every quarter.
Kyle Peterson: And so I feel okay about loan growth actually.
Kyle Peterson: Okay.
Kyle Peterson: That's that's very helpful. And then maybe just a follow up more of a housekeeping item, but noticed the fee income jumped up quite a bit this quarter I guess.
Kyle Peterson: You just clarify whether there was anything like whether it's seasonal or one time or what we saw in the March quarter or is it good run rate to use moving forward.
Kyle Peterson: Yes, there were some we had some mortgage banking impacts in the prior quarter. So that was why are the prior quarter was somewhat depressed this quarter is a little bit more representative of.
Kyle Peterson: Where we're at we had added boldly in the in the December quarter. So thats part of it we did have a blip up in auto insurance recoveries, which come through that line item and then there were some additional loan fees that that came through unrelated.
Kyle Peterson: Two origination so.
Kyle Peterson: Nothing necessarily of a.
Kyle Peterson: Significant one time that were in there this quarter.
Kyle Peterson: One one item actually start is just to remember that there is a.
Kyle Peterson: Fair value Mark on our DTC stock that we have to hold for the clearing company that was 750 K that was only happens once a year and so that gave us a little bump up.
Kyle Peterson: But that was only 750 K.
Okay I appreciate all the color nice quarter. Thanks, guys.
Kyle Peterson: Thank you.
Kyle Peterson: Thank you next question is coming from Andrew Liesch from Piper Sandler Your line is now live.
Andrew Liesch: Hey, guys good afternoon.
Speaker Change: Sure Greg.
Kyle Peterson: Greg.
Kyle Peterson: Highlighted some good investment opportunities.
Kyle Peterson: So maybe streamline bugs the company I'm just curious like what is the cadence of some of these investments.
Kyle Peterson: Is it do you have enough revenue to keep that efficiency ratio at this 48% level or do you think you might step up here in the near term.
Kyle Peterson: Where.
Patrick: We're going to really work extremely hard Patrick.
Kyle Peterson: And to keep it where it is.
Kyle Peterson: I don't really think it's acceptable for it to go up.
I think it's the responsibility of me and my team.
Kyle Peterson: To take advantage of all this amazing technology and operating efficiencies that we've been developing to ensure that.
Kyle Peterson: Then where we are definitely keeping cost under control so.
Kyle Peterson: We're targeting next year is that.
Kyle Peterson: Personnel expenses will go up no more than 30% of the combination of net interest and noninterest income.
Kyle Peterson: I think we can do that.
Kyle Peterson: We wanted to make sure we're getting operating leverage in the business.
Kyle Peterson: A lot of AI.
Kyle Peterson: AI improvements that can be made from an efficiency perspective.
Kyle Peterson: There is even in a company such as ours, there's always an opportunity for people to step it up and do more and so I'm looking forward to cracking the whip.
Kyle Peterson: On on our organization to make all of us, including myself Ron faster so.
Kyle Peterson: So yeah. So I think it's I think it's going to be.
Kyle Peterson: A very very cost efficient year going forward and my team is smiling about how exciting alright that make that happen.
Kyle Peterson: Got it alright.
Kyle Peterson: Very helpful. And then just looking at net interest income going into the quarter. It looked like a lot of the loan growth may have come on later in the quarter.
Kyle Peterson: So maybe that may have been why NII was down sequentially, but if youre looking into the fourth quarter.
Kyle Peterson: Maybe a little bit more margin compression of that continues but as we see NII step up from here.
Speaker Change: Yeah, Yeah, Yeah, So Asia it was.
Speaker Change: To your point from a point in time basis loan growth of $700 million. It was closer to $100 million on an average day.
Speaker Change: During the quarter. So we expect that average this next quarter to go up and that will in turn increase the net interest income impact, but thats why there was a kind of a somewhat weak net interest income.
Speaker Change: Performance there as well.
Speaker Change: We look forward it should return to return to an increasing value.
Speaker Change: Got it do you think the margin could step up your there's just too much yield pressure, where it can be hard to replicate.
Speaker Change: So I asked the team to go and look at the difference between what was the net spread compression versus what was just lagging adjustments from interest rate declines and it was about a three basis point net spread compression.
Speaker Change: So.
Speaker Change: You know it's.
Speaker Change: I would say that on average the loans are coming in probably at a lower spread than in the past, but we also still have.
Speaker Change: That said, we have a lot, but we still have hybrids adjusting that will certainly happen going forward. There is still a decent number of hybrid loans that have to adjust and things like that.
Speaker Change: So I.
Speaker Change: I feel pretty good about where margin is looking forward I mean could it be a little bit.
Speaker Change: Little bit down, but if we also use up some of the excess liquidity. That's also going to move into the other way too, but I think that three basis points is an interesting number because that if you have a flat rate environment that was sort of take that that's enough. That's the number or is that.
Speaker Change: It takes out the lagging decline just trying to index in floating rate loans.
Speaker Change: Got it.
Speaker Change: That's helpful guys. Thanks for taking the questions I will step back.
Speaker Change: Thank you.
Speaker Change: As a reminder, that star one to be placed in the question queue. Our next question is coming from Gary Tenner from D. A Davidson your line is now live.
Gary Tenner: Hi, Thanks, good afternoon everybody.
Gary Tenner: I wanted to ask about the sequential quarter improvement in special mentioned substandard loans could you talk to kind of where those where that kind of improved credit.
Gary Tenner: The rating.
Gary Tenner: It was driven by an.
Gary Tenner: The color on there are no MBS were down quite a bit but kind of looking deeper.
Gary Tenner: We'll have some additional color.
Gary Tenner: Yeah.
Gary Tenner: And in a number of cases some of the loans.
Gary Tenner: Were you know.
Gary Tenner: That were placed on sub standard had payoffs that were coming that just happened to come at the end of the quarter or there was a loan being sold or refinanced that happened to hit at the end so.
Gary Tenner: I think I.
Gary Tenner: They did a lot of cases like even if you look at the.
Gary Tenner: The two large C&I loans that are on non accrual they are both still paying.
Gary Tenner: They both.
Gary Tenner: Still arguably have strong borrowing bases.
Gary Tenner: So I think you are.
Gary Tenner: We're always cautious about this stuff and we try to be conservative about how we look at it but in a lot of cases, there really isn't a lot of loss content there and so.
Gary Tenner: Frankly, a lot of those loans just paid off or and then we did sell some of them too at par at par yeah. So we sold them at par so.
Gary Tenner: And yes, par plus accrued so we got our interest and whatnot. So yes. It was it was it was a good good quarter for that.
Gary Tenner: I mean, I think the reality of our real estate loans, mostly with extremely small exceptions.
Gary Tenner: If the borrower has something going on the real estate is still worth so much more than what we've learnt on it that someone wants it right and so we're not really in the business of doing that although sometimes I feel like we shouldn't be when I look at how much money people make on <unk>.
Gary Tenner: Stuff, where we sell to them but.
Gary Tenner: But in any event, that's kind of what we did there so.
Gary Tenner: Okay and then another.
Gary Tenner: Question I guess also around credit in terms of the ACL.
Speaker Change: Build this quarter just based on what's in your.
Speaker Change: Supplemental deck it looks like you lowered the reserve specific to the multifamily and commercial mortgage.
Speaker Change: By call it 30 basis points that increase the C&I.
Speaker Change: Reserve by a pretty similar amount. So can you talk about the moving parts there and the thoughts around those two categories.
Speaker Change: Yes I'll.
Speaker Change: Sorry, with C&I loan growth was primarily in C&I and so that was obviously a major factor in that category.
Speaker Change: The other results were really coming from the quantitative model, where date, which incorporates the economic factor. So what were some of the key economic factors. When you look at what was happening in kind of late February and into into March was a lot of tariff fears and drive.
Speaker Change: Even more negative outlooks on the economic factors that when we run that through the model what portfolio gets kind of hit a bit harder was the C&I portfolio and so that's what drove some of those that and combined with the growth or what drove some of those increases in that portfolio and then the real estate.
Speaker Change: Folio.
Speaker Change: <unk> is continuing to perform and then the eight some of the <unk> indexes housing price index is we're continuing to remain positive or turn positive compared to where they were in the prior quarters and so that's what drove some of the benefits there.
Speaker Change: These models are hooked up to Moody's stuff. So if Moody's gets in a mood then thats going to move the model around so.
Speaker Change: I'm sure we've got a lot of that to look forward to in the June quarter.
Speaker Change: Probably.
Speaker Change: Thank you. Our next question today is coming from Kelly Motta from K B W. Your line is now live.
Kelly Motta: Hey, good afternoon. Thanks for the question.
Speaker Change: Starting now on tap.
Kelly Motta: Capital.
Kelly Motta: Sure.
Speaker Change: About the buyback here this quarter and continued into April wondering, especially given your outlook for what felt pretty strong growth how you're viewing.
Kelly Motta: Continuing the buyback here.
Kelly Motta: Hi, Kelly.
Kelly Motta: Yeah look I think I think we do have excess capital.
Kelly Motta: Obviously, you know we look at we look at where loan growth is I think this is a nice opportunity to.
Kelly Motta: You know where our stock is right now it would be looking at buybacks, obviously, we put our money where our mouth is this quarter and we'll probably keep on looking at that.
Kelly Motta: We don't get opportunities like this all the time and so we think it's a good opportunity and we still think we can do right now.
Kelly Motta: Good solid loan growth, we think our capital ratios are good we're not really seeing.
Kelly Motta: Anything that we feel good about where non performers are and those kind of things. So.
Things feel feel okay to be doing a little buyback in <unk>.
Kelly Motta: Not really.
Kelly Motta: We don't we don't ever go get too crazy or do something Thats too.
Speaker Change: Dropped right, we kind of were in there in the market and and you know making incremental buybacks. What's your helpful. I mean, we did it was what it was like almost a little bit more than 1% of the stock or about 1% right now.
Kelly Motta: Like that for.
Kelly Motta: For the quarter and including this month so.
Kelly Motta: You know, it's a nice opportunity if we see.
Kelly Motta: M&A type stuff floating around and maybe we won't do as much but yeah. I think it's a it's a really nice opportunity for us right now the IRR pencils.
Kelly Motta: Really really well when we look at our internal forecast and stuff like that about where we think we're going to be so.
Speaker Change: Got it and on the M&A, Brian can you remind us what kinds of businesses.
Kelly Motta: Top.
Kelly Motta: Top of mind.
Kelly Motta: It is the asset.
Kelly Motta: Yeah.
Kelly Motta: We'd love to we'd love to buy.
Kelly Motta: Wealth and custody stuff, but there's not a lot out there and it tends to trade at multiples that are.
Speaker Change: So hi.
Speaker Change: That then it makes it a little difficult. So we do look at stuff like that.
Speaker Change: And then obviously, we pay attention to what's going on in banking, but our model is somewhat unique. So we're not the natural owner of off of there are a lot of banks, particularly if theyre heavy branch space, but there are.
Speaker Change: Specialty type of banks that we might look at it different times, if they really made a lot of sense and then we look at spec fin companies, if they're the type of company.
Speaker Change: Companies that would have.
Speaker Change: Bank.
Speaker Change: Like credits and would be a.
Speaker Change: Benefits from our platform.
Speaker Change: From the operational synergies, we can bring in the <unk>.
Speaker Change: The Tac and that kind of stuff so.
Speaker Change: I mean, we looked at different we looked at our premium finance business and our bank was selling we lost the bid on it we looked at a kind of a.
Speaker Change: Leasing business that was a.
Speaker Change: That was a vendor leasing business.
Speaker Change: Also loss that did on price, we thought we had a good price but.
Speaker Change: You know there is.
Speaker Change: Some people like to overpay for things I do not.
Speaker Change: So.
Speaker Change: But we keep on looking at it and I think when we do something we do it in a way that has enough margin of safety on it so.
Speaker Change: Got it that's helpful.
Speaker Change: Last question from me.
Speaker Change: Yours, Greg It sounds like your you still feel good about growth even with.
Speaker Change: There's been noise and uncertainty about peretz I'm wondering if you could size your exposure directly or indirectly to construction and what implications rising input costs that have gone out and maybe crackle and other like construction.
Speaker Change: Elements of the portfolio.
Speaker Change: Just help frame that for me that'd be helpful.
Speaker Change: I mean, the types of projects that we I think the answer is.
Speaker Change: Not much and the reason, it's not much isn't because the input factors may not go up but we generally require that a substantial portion of the trades are bought out and that usually has a very high proportion manage it varies.
Speaker Change: Turning on the strength of the sponsor and our.
Speaker Change: Junior lender, but then you also have soft guard insurance.
Speaker Change: That bonds those those those those subs so with respect to that.
Speaker Change: You don't you don't want to leave in a general.
Speaker Change: General instance, the idea that you're going to have a project. It could have a budget that blows out for whatever reason and so.
Speaker Change: Theoretically tariffs might be a reason, but there's plenty of things that happened in construction.
Speaker Change: Nothing to do with tariffs that blow out budgets and so that's the thing you've got to get good at and you should make sure you don't do it I mean, I think where it's harder is frankly, which we don't have a lot of is when you have you know.
Speaker Change: A smaller mom and pop builder.
Speaker Change: And.
Speaker Change: <unk>.
Speaker Change: $5 million multifamily project or something and so having institutional level gcs with very strong balance sheets that are able to.
Speaker Change: <unk> get all the subs bought out and then buy insurance for the hubs and whatever that is.
Speaker Change: Not much different.
Speaker Change: Kind of lending that really doesn't have anything to do with crystal. So it's a very different.
Speaker Change: Kind of risk that we bear with respect to that because of how we structure our deals.
Speaker Change: Thanks, Greg I appreciate all the color I'll step back.
Speaker Change: Yes. Thank you.
Speaker Change: Thank you as a reminder, that star one to be placed in the question queue. Our next question is coming from Edward Hemmelgarn from Shaker investments. Your line is now live.
Edward Hemmelgarn: Great. Thanks, Greg a couple of questions. One is you seem to be.
Edward Hemmelgarn: A higher level of conservatism both in your allowance for loan losses, but also your I think your equity.
Edward Hemmelgarn: I'd like to see the share repurchase that was good but you're you're.
Edward Hemmelgarn: Equity as a percentage of the.
Edward Hemmelgarn: Asset base was higher than I've ever seen it are.
Speaker Change: Are you trying to.
Speaker Change: Being conservative or are you anticipating groups.
Speaker Change: Talk to us.
Speaker Change: And I am a conservative guy.
Speaker Change: As we've discussed many times.
Speaker Change: No look I think I think there's a couple of things going on.
Speaker Change: One is that if you looked at our balance sheet. When you first became enamored with us.
Speaker Change: We were much more of a 50% risk weighted shop.
Speaker Change: And so that.
It's changed over time right. So you sort of you get if you have a much higher percentage of 50% of risk weighted assets that you've got that that leverage and that risk weighted ratio tends to have a bigger disparity.
Speaker Change: And that as we've added fund finance and C&I and all these different categories and we've kind of shied away.
Speaker Change: There's no single family's not shied away from it just become a smaller portion of the portfolio that ratio has sort of kind of moved together and so that's an element that you are seeing that's not all of it though I mean I think there is a recognition that you know.
Speaker Change: No.
Speaker Change: We obviously want to continue to make sure that we have a very strong balance sheet. So that is a.
Speaker Change: A piece of that as well so generally in comparison with a longer period ago, we are targeting a higher.
Speaker Change: Equity ratio, but I feel like we're good where we are and.
Speaker Change: As I said credit performance looks looks to be you know continue to be.
Speaker Change: Solid so.
Speaker Change: I think we are able to buy back stock and we had good growth as curious so.
Speaker Change: Thanks.
Speaker Change: We're doing an appropriate job of balancing.
Speaker Change: Taking appropriate risks and making sure that were really protecting the institution.
Speaker Change: Well, yeah, I'm just looking at the.
Speaker Change: <unk>.
Looked at the loan balances.
Speaker Change: You seem to be getting better.
Speaker Change: Okay.
Speaker Change: Yeah.
Current payment.
Speaker Change: Payments and so forth.
Speaker Change: As opposed to award.
Speaker Change: Surprised by that.
Speaker Change: For the quarter and the other thing is though yes.
Speaker Change: I would say on our loan loss, what I sat in a loan loss provision that is you have to remember is that with the salt. What happens is there is external inputs for us that are that are not there are marginally related to anything western flank to due to our loan portfolio. So if we have sort of Moody's says the probability of recession is.
Speaker Change: Greater that's going to increase our loan loss now whether or not that ultimately ends up meaning anything for us.
Speaker Change: I can have my doubts but that's.
Speaker Change: It's a model based part of.
Speaker Change: The one the one other thing is that certainly comes into effect a little bit a portion what's happened in the last three months or what have you right from quarter to quarter, but the whole idea of seasonal as it is a lifetime of the loan so that youre going youre projecting forward multiple different waves.
Speaker Change: Economic ups and downs right, so you're not trying to necessarily move the allowance massive way based on well.
Speaker Change: Non accruals were up this quarter, but theyre down next quarter you'd have loan losses going kind of spiking up and down across the industry. If you were solely using manager one input right cigarette exploring theres a lot of different inputs that come into play.
Speaker Change: To help inform the allowance and the provision each quarter look.
Speaker Change: That being said we are we are you know.
Speaker Change: I think we've done I think it's a good thing that we can be as profitable as we are and continue to increase and make our loan loss balance.
Speaker Change: Where it where it is I think that that's a positive.
Speaker Change: I think I think so I think I've talked.
Speaker Change: <unk> talked to a lot of pretty smart people.
Over the last couple of months about where they see things going and I think someone commonality as everyone agrees that theres just more volatility right there so more and more potential for volatility at a higher.
Speaker Change: Distribution of potential outcomes. So.
Speaker Change: I think thats reasonable that the model predicts that.
Speaker Change: Okay. That's fine I mean I also appreciate the conservatism.
The other thing is just about your spending I've noticed has really gone up for you.
Speaker Change: Data processing and so forth I mean, you briefly talked about that you saw some some real opportunities there.
Speaker Change: Can you talk about that a little bit more.
Speaker Change: Some examples of.
Speaker Change: Your.
Speaker Change: Unity is to really deploy.
Speaker Change: Oh boy.
Speaker Change: Yeah. So we just we just really we just released and we're getting ready to do a transition for our clearing clients away from.
Speaker Change: Couple of old workstations that are quite common in the industry, but I've been around for a long time and are sort of universally hated and we're replacing them with our own workstation.
Speaker Change: We used a low code platform to do that and.
Speaker Change: I believe took I think about maybe 50% 60% of the resources in about half the time to get that product out so.
Speaker Change: Yes, we do think that there is a lot of really interesting.
Speaker Change: Interesting.
Speaker Change: Hi opportunities happening in the software development lifecycle, and we've seen some stuff that's quite extraordinary.
Speaker Change: The ability to lift and shift all code that is.
Speaker Change: In a in basic or in some sort of all the language and be able to re factor at much more quickly or to be able to extract and document that code, which would normally require somebody who is very skilled at reading the code and documenting and in all of those.
Speaker Change: Things the documentation of code for example is becoming much.
Speaker Change: More.
Speaker Change: To be done by artificial intelligence the ability to pay.
Speaker Change: Take a.
Speaker Change: A plain language.
Speaker Change: Business requirements document and bring it into a set of stories and a set of.
Speaker Change: Of.
Speaker Change: <unk> of documents that can be utilized by developers too.
Speaker Change: To to code is a lot greater too. So there is there's a lot of that.
Speaker Change: We are using.
Speaker Change: Software that they can take a document that has unstructured data and appraisal or whatnot and let's say you had to pull 100 fields out of it.
Speaker Change: I can pull those fields out.
Speaker Change: And put them into structured data right. So those are just some examples I can give you a lot of them I mean, we're really working hard on this we have an AI task force I think we have to hold ourselves accountable for.
Speaker Change: Actually seeing that in the results, which to me means that you have for each dollar you earn.
Speaker Change: Don't spend as much on.
Speaker Change: People on technology, right and Thats the way I think you have to be able to eat AI and I think it's possible.
Speaker Change: It's not always easy at every step of the way, but theres a lot of there's a lot of opportunity I mean, there really is.
Speaker Change: We have a good strategy there.
Speaker Change: We're not fully at the agenda.
Speaker Change:
Speaker Change: You know sort of level, yet, but we'll have to keep on pushing for that.
Speaker Change: Okay, great. Thanks, good quarter. Thank you thanks Ed.
Speaker Change: Thank you we've reached end of our question and answer session I like to turn the floor back over for any further or closing comments.
Speaker Change: Thank you everyone and we'll talk to you next quarter I appreciate your interest.
Speaker Change: Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.