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Axos Financial (AX)

Participants
Johnny Lai Vice President-Corporate Development and Investor Relations
Greg Garrabrants President and Chief Executive Officer
Andy Micheletti Executive Vice President and Chief Financial Officer
Brad Berning Craig Hallum
Andrew Liesch Sandler O'Neill
Michael Perito KBW
Scott Valentin Compass Point Research
Edward Hemmelgarn Shaker Investment
Nick Duafala B. Riley FBR
Gary Tenner D.A. Davidson
Call transcript
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Operator

Greetings and welcome to Axos Financial, Inc.'s Fourth Quarter 2019 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference to Johnny Lai, Vice President-Corporate Development and IR. Thank you. Please begin.

Johnny Lai

you. thank Great, welcome and to Axos Inc.'s Financial, I' Year everyone XXXX Quarter Fiscal Call. Financial Fourth like to Results Conference today Micheletti. President company's Garrabrants; President are Executive Chief me and Andy Greg Vice and and Officer, Financial Officer, Executive With Chief the will and comment on Andy after available answer they results will and the ended months the and and questions three be the XX review prepared June and financial operational Greg for XX, remarks. XXXX, to

that and management I prepared may make begin, Before of that response would questions. forward-looking views in this that remind listeners to assumptions management statements performance. made like future call basis These remarks current and I statements contain are regarding to on and subject uncertainties, may statements events made forward-looking are forward-looking the of your to additional risks and on

call materially harbor This the or is as Therefore, days. results of call Relations in those today's provided today being company's release. be Reform for the Investor axosfinancial.com safe located on the website at a section conference Actual Details XXXX. to Private Act in Securities replay of available of of Litigation the in there statements call the risks announcement an result XX will audio webcast this the in from differ were and earnings press and uncertainties. forward-looking statements protection such claims forward-looking contained could expressed pertaining company implied

Garrabrants I opening time, to At this to the would like for over turn remarks. call Greg

Greg Garrabrants

fourth Financial, year-end your thank XX, Financial’s conference and for like interest I and quarter Thank Securities. our you, Axos Bank welcome for to you in Good everyone thank joining you for XXXX XXXX. to Axos Axos ended fiscal and I'd Axos everyone afternoon June Johnny. call us.

the ended return XX, earned $XXX.X announced bank’s year year record per to the XX $XXX.X the average the year-end earnings X.X% up equity X.X% share Fiscal XX.X% the efficiency compared for XXXX on income June ratio increased XXXX. fiscal June is was Axos’ $X.XX per million XXXX. XXXX XXXX over $X.XX million for fiscal net and of in Axos share diluted share fiscal for to diluted XX.XX%. fiscal ended per

related acquisition return non-GAAP expenses a excess XX.X% XX.X%. per on trading to share of loss and clearing related client related costs our FDIC nonrecurring to in equity expenses equating earnings in XXXX share $X.XX Excluding non-GAAP to and business, increased fiscal per

the when Earnings common Net income fourth for ended fourth compared $X.XX the stockholders $XX.X Axos’ June Axos’ million in share quarter $XX.X attributable $XX.X XXXX X.X% to million were million diluted XXXX. XX, XX, June quarter was the or earned up to ended for per share diluted June XXXX March the XXXX $X.XX ended per for and compared share XX, for quarter vast recognized related we majority of which in ended the quarter $X.XX to our tax XX XX, the quarter diluted cents linked XXXX June revenue. ended per

for leases annualized year XX.X%. quarter fiscal fourth highlights loans and quarter $XXX.X representing linked the XXXX fourth growth net the and the in increased Other by quarter, growth an of million rate X.X% include, and

and fourth XX, Net ended for XX, XX leases quarter compared loans or fiscal by XXXX. reached X.XX% XX.X% at year-over-year. June XXXX from assets of the XXXX, interest year quarter in the when was points For XX.X% margin growth with grew XX, June basis X.XX% Total up net billion XXXX. the billion $X.X million June ended June full up $XXX.X XXXX, XX, representing $XX.X

ago. of the with fourth Block and was quarter Block associated short a term XXXX X.XX% in net basis H&R lending liquidity comparable balances point from average period X in up interest Excluding X.X% margin products the H&R excess year

ended at a basis June Block XX yields XX, interest of points of points a the basis XXXX. was up X.XX%, increased net H&R X.XX% only Loan loans. shift C&I quarter resulting Bank quarter yielding from for higher Our XXXX year-over-year the X margin without X.XX% mix fourth in

roughly was steady year year margin at ended the with XX, fiscal net year X.XX% and in in consolidated fiscal bank remaining fiscal the XXXX our interest XXXX June For the XXXX. line fiscal net margin with prior only X.XX% interest year

in for income clearing Non-interest for the income. fee boosted prepayment fees from deposit fourth the quarter quarter was interesting the related compared in increased X% fiscal fiscal to and com penalty to year revenue from and by Growth fourth year XX.X% XXXX. in non million $XX million $XX of XX XXXX. on by equity XX.XX% securities higher the Return fiscal XXXX by was

a on expenses equity and XXXX. client related FDIC related for was to Excluding business, excess in non-recurring our acquisition loss clearing fiscal XX.X% expenses trading insurance our related and return non-GAAP year

securities As on our to efficient from businesses. more business related return fee capital grow believe lending commercial are they we'll and equity. income than commercial able and further our our banking, We consumer improve be we

of efficiency acquisition Our year-over-year additions of correspondent the client. for increase in ratio a and and efficiency reserve the where the primary year ratio and the fourth was the quarter fiscal potential clearing XX% the XXXX, COR Clearing to WiseBanyan fiscal the related our for full for XXXX XX.XX% drivers of sequential and losses

our a for $XX.X million XX, the XXXX XXXX approximately $X QX segment XX.XX% corresponding million year for from comparable XXXX were XXXX. The operating the clearing recorded year quarter the QX client, $XX.X the to of XX.XX% period expenses ratio Excluding was ended reserve of banking in million down efficiency compared ago. to related third the to of by June

operates of fiduciary year-over-year fee ratio efficiency a and income that of banking were source solid increase deposits. services The the other primary provides investments ratio cost which the of in low efficiency our banking business higher businesses new than in technology, a branding, inclusion drivers and at our Axos initiatives

have banking merger Excluding non-GAAP related efficiency fiscal the for XXXX would costs, in business segment. been XX.X

Clearing has we Axos included client. segment first full an and and merger quarter securities fiscal The related provision costs, trading the quarter fourth from losses an June excluding was that quarter XX.X% advisory efficiency clearing Our XXXX acquisition the year contribution amortization XXXX ratio to the our of ended global for related businesses. business for expenses related XX,

the efficiency business automation bring improvement a we of Although into improve over in introduce we the areas. process clearing intermediate and variety our framework of term the as will them

fee-oriented we a on capital the higher clearing return the the existing no on consume income and additional business, potential given balances fee capital. grow deposits primarily can as run significantly or has business business a focused bank sheet the and to business that off-balance with As the replace suite be placed is

on vision will long-term As and securities a to of returns is quarter's be business platform quality us and custody to segments customer management the platform their the our are near-term call, long-term making earnings we new securities Clearing digital additive Axos and critical constrain the potential. existing in relative profitability for our and Owning base wealth and and investments clearing Invest, we in Axos management businesses with digital realize discussed last will our consumer banking growth. to wealth

Our year bank loans. in only credit had charge-offs ended points with XX fiscal nonperforming of of losses and quality of loans was points of basis we strong. quarter, in remains XX% loans the XX XX basis The or Of the points net in third points total the refund originated XXXX. from XXXX XX advance quarter basis to net the charge-offs attributable fourth basis of

loan loss coverage allowance XXX% nonperforming of Our for represents our loans.

the the to XX.X% in rate ended Our quarter effective XXXX, June comparable compared quarter XX in year tax XX.X% a ago. was

from quarter rate of the in tax rate fourth tax reduction Our and cuts federal benefited XXXX. job the the under act

year strong fiscal for XXXX rate XX% our growth single-family commercial balances loan our by real tax loan was by quarter our to Our expect loans, X, specialty multi-families, fiscal commercial range fourth pay-offs generated the robust lending and year financing, be in tax the ending XX% increased began we estate, Despite XX.X% July which C&I elevated quarter, of million lender originations GAAP mortgage year in XX.X% $XXX.X for real and the XX.X% $XXX.X on XXXX representing warehouse. rate We loan growth in in respectively. to XXXX. and million led XXXX annualized in estate fourth in fiscal jumbo

quarter year-over-year. approximately gross in $X.XX originated fourth of We the X% billion up loans

in year-over-year XX.X% XX.X% the billion billion XXXX. to you quarter when X.X X, originated Our and seasonal quarter March investment of originations loans the linked for $X.XX advance refund increased exclude ended

for million on sale of production, XXX June of single-family gain multifamily production agency C&I million production, jumbo production of of million XXX ended real loan Our C&I loan eligible quarter portfolio million auto and of in net production. production, other XX and portfolio consumer of single-family unsecured fourth resulting $XXX million consisted XXX XX, XXXX XXX the million of commercial estate growth and

ratio was of ratios ratio small real The XX, average was was XX% fourth XX.X% debt date origination was value an loans fiscal loan-to-value was the XXXX XXX X.X. entire devalue of with quarter The family weighted of of over FICO with auto originated use loan XX.X% was average For At average The with real estate these of ratio appraisals value production and the originations, June debt single the loan-to-value originated average balances. average of XXX. average the to to family of agency X.XX. was coverage average service loan The FICO amortized FICO was loan-to-value the average loans value of the XXX single production an and production loan eligible XX.X%. to jumbo XX.X%. coverage the service multifamily ratio portfolio balance estate current the the commercial loans

XX%, single-family and our XX% loan and and to loan-to-value XX X% X% ratios and June X% XX% between between ratios XXXX, than of greater ratio mortgages XX%, XX%, have ratios a less XX%. As than have have value below loan-to-value of XX% have between XX% loan-to-value XX% XX%,

track loan record points mortgage originated. lifetime loans lending We with performance of of X basis originated in jumbo have credit that single-family strong in established well credit a with losses portfolio single-family

this resulting our the holiday jumbo for quarter XXXX. the million the rates the improvement March elevated, business XXX Originations in jumbo Prepayment modestly mortgage from loan buyers from ended XX, recovery home net mortgage in dropping and production. up lending in sequential loan remain worth and Improved the our seasonality XXX quarter sentiment March in primary balances XX% were among rebounded high XX, XXXX. ending tailwinds million single-family to

our low-mid loan to digit single in range single-family mortgage the jumbo continue We portfolio grow in will XXXX. believe fiscal that

to the multifamily and between loans multifamily time June balances is appraised representing or our loan-to-value on are XX%. between XX% XX% XX% $X.X billion of total multifamily at only multifamily portfolio loan-to-value our XX% book. by above LTV, average loan The ratio loans million increased of for and loans approximately X% Approximately of our no Ending XX ratio loan-to-value XX% a XX% approximately origination. are value under based And annualized are XX% X.XX% have at XXXX XX%. $XX XX% loan of weighted our to

than loan we've less lifetime originated originated basis The points XX loans. the portfolio originated of years X losses in loans are multifamily our multifamily over

broad with specialty based in quarter Our originations lending strong our business groups. strength C&I lending finance equipment finance, commercial in and had another lender

well-structured markets focus projects continue We specialty high lines to on real borrowers, lender financial, and to well-secured, and businesses. our loans and attractive estate commercial quality credit asset financing worthy based

Our offices and Los in fiscal experienced York relationships, added XXXX. and commercial lending in products produce deposits loans terms to of continue teams good growth in bankers in and we incremental and expertise. New The our will grow Angeles have pipelines commercial

categories demand jumbo mortgages, lending XXX million pipeline, reflected single-family C&I million property remains million of income our Loan of XXX single-family and XXX consolidated loans, mortgages, strong of loan billion our consists agency of in which loans. X.X across million number of a XXX of as

commercial real from and transition lending C&I estate portfolio to single-family away our continue and We lending lending. to

they for deposits, unsecured consumer or opportunities in optimize and prudent meet our estate Demand distribution. solid the criteria. an competitive annual maintain business, loan commercial the and real the costs our originations small our auto, disciplined for cycle across landscape we remains the as the anticipate of exceed auto identify basis and lending low-teens, and we overall believe underwriting, given strong in credit adjusted that C&I growth expand We shape risk marketing our of lending which On as return target is curve. yield loans new we groups even

the savings commercial deposit XX% Switching increased deposits. X of deposits gross balances expected various XX, Checking with and CDs run-off consumer in across up replace accounted total at XX.X% of categories. deposit funding and March for nationwide cost and or lower XXXX as with approximately XX% XX, to XXXX, billion year-over-year commercial June total we from

variety of a funding and some offset is consumer business verticals base deposit diversified which pressure. product Our helps the competitive across of

consumer X% MWA At to of related checking loans in deposits June cost deposits in grow of our and X% deposits Bank of a acquisitions IRAs, approximately business XX% savings and for challenging market ability curve accounts, balances to the XX, and accounts. bankruptcy money deposit competitive and prepaid have yield XX% landscape our and The our XXXX deposits. were been addition from X% accounts, growth nationwide and funds instrumental and the optimize our offset the

COR wealth banking with the digital management which been label expand dealers a will their businesses and RIAs, retail two provide us well. servicing, WiseBanyan be The private services and progressing can or independent Clearing integration have our Axos which rebranded securities underlying solid Invest, to and broker we of Clearing acquisitions clients. from foundation are and wealth The Axos

In market research a based advisory securities process and that diligence industry and potential our and internal several for demographic Axos. the these structural, of provide in saw trends businesses, opportunities servicing we other

and and smaller by less TV RIAs and fee transition securities and national compression driven has attention from partly consolidation the the clearing brokers four active industry by firms, managers Schwab. and First, to investment fee-based less receiving models big in for and resulted from commission mid-size passive purging and

Service small from what technology perspective to and have declined and pricing between widen. large get gap continue product RIAs RIAs these the levels for a and

As service firms one a few more clearing efficient of better and opportunities focused model. share and on RIAs, see we small and IBDs to the through market take serving focused independent

worth their The is high and independent. practice advisors of that provide services ability to XXXXs lose lending dynamic Fargo for large more such advisors This by of their by over to advisors leave wirehouse, become advisors. Morgan autonomy Wells the and leaving and downside independent driven wirehouse to Lynch, net economics better Merrill as continue banking Second, their is Stanley the clients. to going

advisory, We opportunity consumer with have RIAs, provide have experience planning more adding the new in individual are services advisory large acquisition see internal banking A a and and than place. with nearing principals clients Axos ever lending business retirement with capabilities to baby trend of two comprehensive these is and smaller Advisor one and leveraging tremendous a boomers of of set we development. succession or practices third advisors macro and independent to reputation through we majority our that own no

transactions firms few IBDs While small sell they involving large management want and billion greater, with or have their or existing competitors practice. are $X very on focused transition options to under assets if of RIAs

building Through and a Axos to to and Bank Axos are services IBDs lending them manage RIAs monetize Securities, comprehensive independent their help platform securities and we and practice. banking deliver to

opportunities management provides natural offering. like wealth of product brokerage expand digitization retail its is bank to the Lastly, a consumer that and Axos evolution for digital

This of we deliver consumers online of services protection lives. in will via transition UDB financial channels Just services streams of that as consumer migrate planning, work their everyday and banking, channels. are more and banking, providers offline student digital a lower convenience more user and digital costs, to to to lending many mobile We and personal banking other asset for can that build parts and financial have to better experience part already from that due accelerated reasons online primary believe platform. is investing their the one decided a

it It's a that detailed exciting features because of that clear building provider. engine warehouse the could and next and in units. branding be personalization a us to their on across functional service lots and from financial consumer deliver business UDB functionalities an from vast give experiences owners business It’s opportunity customer coupled task to growth and generate and central and and services iteration the of want daunting iteration able services and efficiency, testing we're data of and new perspective. and operational with The the small equally collaboration plan revenue path requires potentially

which source the if when clients counter-cyclical market stock are hold and balance to balances uptake business to averse. tend advisors client and is faster client from in represent grow tend of Securities we revenue than to ramps lending businesses appreciating to they're incremental cash nice looking investments. They’re be investors our revenue expect. These and as are short-term credit long-term when meaningful risk of increase more more based cash the lines faster the securities in opportunities margin

sources in fee looking at other clearing also business. income We're the of

high-XXs combined digital advisory digital at clients. as continue providing universal security low-XXs into the for includes that fiscal digital Clearing WiseBanyan investment We this to and coming WiseBanyan efficiency begin we and operate clients bank advisory services investment a believe and the integrate services and Axos cross-selling and to will banking year, to which business, bank ratio our

we of converting in As firms to invest Clearing. expand in clearing to infrastructure services dealers. pipeline the Axos to to provide provide monetize the larger platform We to broker and services RIAs interested more

Epiq good from and initiatives business continues trustee Fiduciary well. seeing in April banking progress our We're services XXXX, to commercial expand Axos the acquired to in and fiduciary perform strategic grow Services, business. our

Our business bankruptcy bankruptcy good services our to alongside matters. software work The to and continue nationwide and Chapter trusted non-X X Concurrently, other on fiduciaries leaders they next provide we relationship trustees need called administer, to report managers track Entity. and on making cloud-based senior generation legal platform essential and the bankruptcy are progress

our and enhanced for With trustee month. Denver in We hosting forward make trustees second assistance and marketplace. case to of conference the commercial to further the NABT our will administer in access and A will position it banking competitive easier annual personnel. our unity look next last teams. trustees data, our strengthen East experienced of client component that at an functionalities through quarter bankers selective Manhattan banking industry strategy that additions and office other securities select presence the specialty We our accommodate team and deposit deposits to to opened and in experienced is general Coast expanding expertise target and added team middle verticals geographic on market in

robust quarter. on with this bankers servicing that lending West pipeline also Angeles existing We're work they new our already office been of later or will in where good but live Diego currently Coast will significant Orange of of banking commercial our This opportunities that the expansion our to open offices progress relocate market, from book slated exciting lending making senior commercial a our California. Southern with focus business lending the Many opportunities. group on in LA in and deposit Downtown deposit existing side-by-side lending who has Los commercial This and team County working specialty enhance in have San to market.

curve, net remains net in points have and were basis coupled pressure expand cycle rates for flat Deposit with created consolidated net of margins in industry interest banks. We expansion many of the these XX yield to able the margin a our with competition short-term curve on higher X.XX downward including flat the across this yield high a interest basis securities on year-over-year a margin basis bank. to points interest point XX basis a expansion segment at dynamics

rates, the book our related quality and platform to on lower deposit Excluding and the points for growth growth X.XX investments single-family expansion margin points mortgage in our entry verticals the bank Block net result loans of are we including deposits, XXXX. into and loan quarter our deposit in unit margin jumbo and clearing This our banking X interest our bankruptcy growing consumer portfolio have by and business in fourth floating impact of our basis from made improvements focused fixed commercial our C&I trustee of was H&R rate increased and the the in our strong space. in the basis base, the

will the single-family short-term that with loans rate at meaning sensitivity good the to the no are have underlying single-family bank's of above that yields position Axos current relatively X% to respect portfolio. a of are jumbo portfolio, of With loan XX% is rate, stock indexes, the in its start loan loans portfolio. with these the believe for at floors less respect on loans short-term approximately the declines LIBOR their XX% rates rate, single-family in or Of client of other impact rate I to than

of below the and no real above X% floors at currently loans, million XXX the below the have have a and of estate loans X% X.X%. a with remaining XX% loan rate than multifamily that a Of than loans book the with floor of Additionally, their book dynamic XX below have X% commercial start loan floor rate flow types only portfolio as classified C&I similar less with in the rates. rate with of floor of rates of XX% rate million less loans

expect to XXX portfolio billion of reprice approximately We than in second the of the C&I portfolio our in approximately in basis and with short-term rates. million XX with billion point approximately XXX reprice to XX% first XX XX%, basis point less entire rate basis reduction a the point X.X continuing rate decline X.X reduction or

a we're deposit to our that in pricing as potential portfolio Although, result decline not and respect the growth we decline loan short-term rate we potential given a the rate from reasonably to interest we in a rate do competition, with for with a reductions in rates, believe of position good objectives our will commensurately realize continue guidance immediate all to range term. be will segments maintain that portfolio. able segments the in reduction, X to in such all of X.X intermediate reductions deposit our net Therefore, perspective

of successful season Refund X.X refund Emerald another with to H&R completed and billion over of line to transfer Block’s expectations. losses refunds them We clients, customers credit XX program loans the in with billion approximately tax Advance Block Advance providing distributing with and

businesses continue emerging to grow. Our

purchase the XX, Our serving indirect focuses June production prime generated which million XXXX. business, customers, for primarily year of loan transactions, auto ended XXX in approximately lending on

book very XX loans at this X days outstanding. over remains quality in auto strong with delinquencies points credit Our of basis

to to while several business team and controlled congratulate Axos continued platform clients We and to consumer credit an service new business our another the inside continue strong helping channels a initiatives testing our quarters, distribution earnings, cross this of I'd our sell partners. quality, members in like scale for next year banking exemplary manner achieve over record

strategic maintain partnership new rebrand. out and we five acquisitions, nationwide, banking online platform offices, in strong completed We with successful new our and new rolled loans growth a three earnings, opened while integrated clients, launched

XX, adjusted invest M&A initiatives, XXXX Tier X.XX% credit and flexibility repurchases. opportunistic us the and ratio bank the with at metrics June X.XX% asset of for with X and Our in affords average to to leverage share for the strategic capital company holding

with business capital, June and and With profitable to months our the XX able our excess in approximately back stock growing XX.X model, we’re acquisitions all XXXX. buying base of find XX, million highly while capital strong ended

and capital focus changed. have Our priorities strategic not for

While prudent I we performance, share shareholders. decisions capital for strong our in have results your commensurate allocation that are resulted to committed to stock returns in a financial disappointment our not making maximize

call Investor of to limited. members Management like to the you in plan provide to event is to out turn other We Executive detail for over attend, if for Andy investor our to meet like It's will I additional e-mail on for to e-mail opportunity fiscal only regarding our invitation. I'd San our a week. QX Investor XXst VP to contact by growth additional and results Before included spaces provide initiatives. Details Diego you'd The invite and not Andy? will an an Lai, details Relations of financial our day. invitation teams. Day that you this Johnny be Please XXXX, receive October strategic if plan later and and great go

Andy Micheletti

Greg. Thanks

our the I First end axosfinancial.com. with Since X-K K XX available release, on at that to August. will June through or filed our XXth, through by online EDGAR fiscal in was we note the is file our of our wanted our website to addition press it ended year today, SEC

press release refer additional item. rather details. Second, our highlight go than X-K line to individual I areas few will for Please every a or through financial

quarter the the XX, X.XX%, net XXXX, margin interest from ended June XX, For XXXX. points June ended basis up quarter was XX

includes March borrowing impacts margin activities. quarter of lending XXXX interest of result the net securities those COR Clearing XX, the consolidated acquisition the a and As securities fund of to in margin

have our In release press margin. net segment X-K interest quarter, this separate a calculation added we and of banking our

solid no the the of this was H&R fourth points constraints H&R loans versus the the XX, basis was quarter liquidity from fourth ended and banking point from to seasonal our excess XX, quarter due X.XX% competition XXXX of interest bearing June exists. margin, strong quarter the despite growth X of net basis interest yield deposits. in The relating – up the points in XXXX. seasonal impact a segment liquidity the segment ended X our Block margin XX margin, XX, fourth the a interest impact X.XX% no non-interest basis excess to net capital to helped math deposit was June Deposit ended quarter excluding year's in the had by banking For quarter XXXX, we improvement longer and XXXX. up Block bank’s that part XXXX, quarter impact in curve, June net in from challenging for when There

credit remains a Shifting year, XX of last now, year. of same our with points total basis charge-offs the quality fiscal this net as good

with If loans year advance you refund point performance is to in X line with X from June ended year our average the and advance refund XX, points loans was net for expectations. this XX the charge-offs basis associated loans the loss basis point exclude unsecured basis and the loss our XXXX. loans, our consumer leases The credit of the

X.X refund We balance loan advance RIA June our collections approximately a From of this impacted loss July to not X recorded RIA which XXXX approximately will more future to of of XX, outstanding receivable. million July we as the by balance million outstanding XXXX, receivable be million we XXth, X.X receivable, a received loans bringing at have recorded Xst today, RIA provisions the because as is as receivable. in of payments,

nonperforming The will Our for that $XXX.X our XX, in XX%. of was million income of anticipate loans our net quarter XX in XXXX. a this Stockholders’ increased result bank. June increase points single-family the XXXX. $XXX primarily the We XX, majority assets, The or $XXX to do the XX at with months by to XXXX as as ratio the loss of $X,XXX any XX slightly of XX, June equity not June third from total the up million ended basis are XXXX, results of these million. of million compared to quarter, nonperformers below mortgages points loan-to-values basis assets of the

fund is X our the approximately well our very We and months acquisitions ended a June The capital the X.XX% bank XXXX. back June to Tier in shares $XXX deployed excess and positioned million The for capital XXXX. XX, of of XX, common perspective. X.XX% bank buy from capital million to as XX was holding for $XX.X company the

$X million have approximately authorization. We remaining our buyback in

call I'll the that, to With turn Johnny over Lai.

Johnny Lai

Operator, Thanks, take questions. to ready we're Andy.

Operator

you. Thank

be session. proceed. [Operator with Please conducting Instructions] a Craig question line We will now Brad of question-and-answer Berning comes Our first Hallum. from

Brad Berning

Good afternoon, guys.

on the the the to deposit bit to on during balances federal given ratios? at? kind of wondering, banks through the talk further about balances about side. quarter, average, expect a versus regards end details Wanted congrats down? that's like to rest remainder of loan major restructurings could that how is the year loan-to-deposit what some quarter here? look were take was the the in and more So pretty period on much much had given CDs the margin where talk To And down interest Can little couple balance you you – talk the how of the course that. restructuring with, a were How it you average sheet if I then period the the versus calendar end like progress. restructuring course of start net looks of progress And home talk take over

Andy Micheletti

Yes.

XXX maintain thoughts we he in our And are. our Greg's think X% NIM generally that, that summarized to expect going remarks, broad kind in forward. prepared what to of I

of with the that, of have. some also he highlighted we kind So repricing

Friday, actually some if of reprice, point basis will loans So or our more cut a on XX have tomorrow sorry. C&I or we

our reduce versus that our ability So rates at to deposit small going rates as and we're lending forward. tailwind the looking

deposit And that we’d good we're we to to reduction whether in we look a pretty in any equilibrium X.XX% that the with would rates. to estimate right forward, range. rates, would go X.X% commensurate reduce loan both as So, now,

Greg Garrabrants

sheet Fiduciary off balance well. balance Axos And from as off sheet do deposits Axos significant Clearing, well Services also from as as have deposits, still we

future. be will respect that, a well that expense. with So as in NIM thinking But lower case deposit fee with off each in be benefit benefits you're to out associated, are $X lower evolved how obviously will trading about interest for the those there and – income

Andy Micheletti

One our June $XXX benchmark end of fiduciary million the bankruptcy about would at services XX. were at be

is you grand to as So know that million. total $XXX closer

product. to ways that So go on we've got a

that as that. but lift we'll So I grow, think continues summary of a to our get is something exactly

Brad Berning

deposit Would safe see starting just to average higher a point be we the given quarter the deposit end It's period follow-up. you're on quick versus at that the assume mixes the mix that NIM? a it

Greg Garrabrants

that early reduction been that to – in the rate has through don’t well, I LIBOR cut. flowed has think prior I a there

think So assumption… – that's I I think don't a great

Brad Berning

Understood.

Greg Garrabrants

that, different, we so are that's remember Because and obviously benchmarks know you this I something through. the mean lend to I know,

Brad Berning

Yes. Understood.

helpful. and Much very appreciated. Okay, that's

Operator

Thank you.

of Sandler Our next with comes Please the Andrew from question line proceed. O'Neill. Liesch

Andrew Liesch

guys, it going? Hey is how

Andy Micheletti

how you? Hi are Good. Andrew,

Andrew Liesch

or presumably does every growth so. loan Good, later payoffs thanks. up off, paying on. headwind eventually lines I to a those the then I end noticed mean and year were And million serve those up loan $XXX warehouse do as

year, on you'll headwind confidence continue to what that growth? with that guess calendar annualized later able this be that in to I reach So, I teens you loan gives mean, low

Andy Micheletti

are Well, government lines with respect warehouse to those the think warehouse remember, independent bankers. I lines, low primarily to mortgage

balances those to So would go up. decline, to if rates we continue expect

rate pipeline another business is to to think very period the long through have in very a of very and in business that. you in is the forward always that looking good. frankly, cycle, then you're that demand high But if So,

getting I and what So forecasting think loan we are how look – we a that's have we're estimates. pipeline perspective from to when those we

think appears the least will business it I net that always – said, contributor, have agency don't And is reach will competition think Now, high, a good that environment is prepayments into. that particularly I be growth, that are a decrement that we warehouse we But entering the high the potential that that shot be objective. from it and it. we're reasonably so being rate there the given at at a don't we warehouse believe obviously loan

Andrew Liesch

on that really broker fees full that here quarter dealer thanks. going the good That, is the stream. in to model quarter forward? Is the million. first This revenue $X.X Okay, that a the helpful. with That's number off

be curious just if that's what So should using? we

Andy Micheletti

Yes, use we that number. would

Andrew Liesch

think Okay. covered I'll Thanks, I you other just step my back. question.

Andy Micheletti

Thank you.

Operator

Thank you.

proceed. of from Perito KBW. line next Our question the comes Michael Please with

Michael Perito

afternoon. good Hey,

margins banking It’s sale, you question here, of a about rate support you those conditions some like, also, outlook. origination with gain for imagine were of do obviously market there how you Assuming kind enter sale forward percentage good secondly moving trend to on a it activity? of that rate mortgage and talk now? can the a of I types we the nice the two-fold gain on is had in of margins, kind be kind that the expect whether of them. sources on rates And environment And Just got sustained? quarter. think

Andy Micheletti

Yes.

So net million. the total of originations $X.X for the million, quarter producing $XXX were gain

math, So a X.X it's quick margin.

negative the adjustment is is cope coming a on take about example and the your down rates one that small MSR. However, we in have do for you there MSR adjustments,

gain, a but have – million in at you of and So million originations estimate. rough $X.X $XXX

Greg Garrabrants

that think – But – way, us. with marketing for way a in in data driven we respect – bring the where marketing trended strong from, has think to loans and to cost process coming good driven it they're so I we those is to us. have a very a that’s

marketing, increasing just We've to of group success getting an some had the We continue decent mortgages that's to and cross-sell customers. nationwide ever with started.

obviously So rate helps. I environment think that’s – the

next a think the positive I hopefully. year, be So coming into should that

Michael Perito

you. on fiscal just and as or the And was be you XXXX October. out update? meaningful of it's Got side think and investments topic broadly of and going more it. know kind an get you are what efficiencies next you imagine, your expense just Day overall wondering the kind remind kind broad thoughts in discussed could more of Thank for opportunities think Investor in just, the a long-term? to But And be you would It would just with – you’re think of us revenue type of then so here to also this critical completed if why fiscal I kind repeat of be some look Thanks. books on but maybe I great you they drive at I but the year? what’s should XXXX, a question, that your

Greg Garrabrants

no Sure, problem.

talk about let's Axos Clearing So first.

a that platform. digital is that call But that inside very flexible a it universal really platform and built, securities platform add it the platform. we banking we the So banking the information platform, can be services to utilized

broker the an a clear for clients. for independent with So that their and have dealers is are XXX,XXX we COR, through more customers starving portal worth net solution integrated high those than the first opportunity that

Those over services that next the two banks. deploy – seeking banking services. we from portal benefit So elsewhere, to also the those But they'll fact and those services that also year, providing clients more their but from that these integrated will create what will and clients clients to clients. Axos those they're the then will banking aren't benefit portal broker dealers

we account and The fantastic net have service. group need dealers great for But a of these are it independent clients, high is securities foremost, first the need through that platform. broker opening a the that those two news serviced to that a individuals great So worth broker modified business. on also Axos good the drive to exciting are we dealers very alone things have needs side, banking one be They independent platform. that to

are that we've needs. And to with nice had just respect wins several having those to technology cater switching, firms that from firms

to get how So can these smaller IBDs they customers. end focused technology those on very, very are

source big a client of part of a that's as So it's And great well. acquisition that.

that worth signed high broker to the over COR, net from two Clearing. transition X,XXX since we bought In last we and Axos dealers months fact, clients up several added

customer next see that's applying have, all if next one of sort whether sure if noticed the The that's is you or called channel. and maybe The an for robo-advisory you've Robinhood of So that and intermediated opportunity charter advisory I'm the you investments. bank banking different set channel, called is investment in with costs at and an these these firms recognition associated acquisitions services products, the digital embedded customers requires their that the services platforms. that are offering you're have that what acquisition seeking, these banks focused seeing

right? had the able that something you of that value If us. company, can entire to and own offer at others that in it respect you we success in that that don't this investment you're industry up to that an own we going type to services can offer, we that the customer of So advisory the can offer services be the with clearly in chain, accomplish or see ends type that not the because banking cost and and effective is Schwab with extremely cost a do clearing direction we have has trading way had the if

reality the integrated. behind of this the is to with the future offering much So is respect this competitive more that,

that's that. next component the other that's So of the –

that of have same they're elements investment, developed. specific platform the Now derivatives to but be all have they all

So looks of that's really core the that what like.

banking to is you the acquisition a their you free in to then platform you incredibly services attracting somebody you have a with if available year, perspective those intermediated is through has a customers cost in customers customers to Clearing. those robo-advisory that is a So and have attract then what if are forward have and customer you flip and competitive order platform, have basis, from consumer Axos a clients differentiation us sticky that

idea. the that's So

Michael Perito

XXXX, guys. Helpful. then do sure but have efficiency much thoughts guys of on Thank you if couple the call fiscal if late, already? them you just repeating mentioned And I just, you minutes the initial you on it, sorry, jumped I'm so any just but ratio, you mentioned guys mind don't

Andy Micheletti

Yes.

the needs over critical accomplish given obviously the made but need there to efficiency appropriately to below we you we range for to a banking year, to that reasonable a modeling having looking were and measure this a there. some segments that security we're objectives. be year fiscal expect investment segment. that And into longer-term banking And think we that full XX I it there high fairly – a where we low-XX is range that is strategy investing guided ratio a entire that at the long-term, so in XXs, then the for don't as ensure stay

Michael Perito

you. Thank

Operator

Thank you.

of Point line the from Valentin comes Compass question Research. next with Scott proceed Please Our

Scott Valentin

thanks my Yes. taking Good question. for afternoon,

environment from space the portfolio, with covenants coming to we're that items? that regard with how in of much to more and more just Just Just sponsors, is sponsored wondering that, regard still is most is from of what C&I hearing competition wondering the that other coming transaction? and

Andy Micheletti

but we’re so Well, of in coming not that of is from participating cash it business. most flow side sponsors, the

a is of maybe So there that's say at at pieces do all, of business leverage back leverage sponsor or let's I shouldn't transactions, business say that couple the the typical very lending but business, all small don't not lending business. we

have. there yes, covenants, is we of are with loosening protection definitely, loosening – no we respect don't of we loosening So of what standards, – there collateral to we

I think don't – a that's different yes, animal. I so And

Scott Valentin

then you the New impact housing City estate, real commercial And there? in Okay. have just the I York loans change any on – understood some

Andy Micheletti

really. Not

resulted of were our XX% think market most that portfolio loan-to-value doing of the transactions. competitors we it were was – LTV, of non-recourse But in an rent competitive a because there. – low we and control the And in reality laws there because were permanent loans – I able that's really have It's big multifamily backing never we some we because so the there. having interesting of market see really shops, bit little to is that little I never off very compete the do respect think consternation. some LTV we you of with New a sort to low their competitors are on concentrations a bit now, York

We'll some is a do of kind impacts, which in now obviously, set shift. by are contractual But interesting relationships, it impacts one it's on of it's because lot interesting particularly not lab be should the impactful the that of binding on past. development right, not it of us, is what the should of towards newer be which way prior future have it that shift but would to was will going development constrained

Scott Valentin

you capital but come just M&A Okay. in that building generating question take way? are management you integrating you wondering mentioned products, I guys final guys to be any then M&A capital, advantage you one terms of understand opportunities able of your excess on in just would your opportunities are – on working And and

Greg Garrabrants

have what doing in from M&A that's we're we I focus always and something interested perspective. looking at fairly respect an certainly to we're think, with narrow a

do. up to need to And set do to well I something a now. need foresee we strategically what reasonably we're think right more don't I do

with things but it to But, be with we as on are bolt-on on limiting not obviously components as However, lot depends the at. ourselves that able like that interesting might or look sort depends of those I look you certainly the what to of the it – there respect utilize be currency things, a those. things we're business yes would it respect at depends on size, of to certainly mean, we securities

Scott Valentin

Thanks right. taking for questions. All Okay. my

Greg Garrabrants

Thank Sure. you.

Operator

Thank you.

next proceed. question Investments. Edward from Shaker Please with comes Hemmelgarn line Our of

Edward Hemmelgarn

How Yes. the move question expect to making, or do at more which doing mean, actually all harvesting are that more the I of investments but more to one you two, just you're what do – improvement margins? you you When investment now you're seeing in look your good. of pretty Greg, think from we did when that? phase? where start

Greg Garrabrants

Well, them. reality primarily right, to fixed I you're of banks if is the negative associated talking Axos the Services think that a significant with have rate about, you're the thinking what reality like, impact investments, terms of lot respect saw the about Fiduciary things let's with margins loan a a with say their portfolio

have say, would way we asset a which fact would have primarily – if that downside structure sensitive, years protection rates have that and were think been people fixed we great such in given I the was our the in lending that of that would've the So book, book. come back rate someone we skeptical ago

rates a the like offering of we Sachs, margin we're because environment that that and I with So aren't that are lot in respect things in seeing those to doing, X.XX Goldman benefits has [ph] savings think loan competitors big you competing online an rates.

those And the loan environment. in curve that significant in flat increase seeing important benefits understand been yield So a are been to very we've way. we've able book loan fact a I a in diversify think XX% to that's to the you that, fixed margins with that able book already

I it's do back the I always yes, obviously answer. step that's answer want more, is, one to mean, difficult because, you if but

consumer all going improvement respect do otherwise So I'll lots to other incremental over things. with And accrue those they answer what that, generate in to we're billion benefits banking of is side. costs that you of ways to and lots $XX different these new the respect developments next tell with to and The respect the looking things. that's doing other a with would on those offset continue to platform

side retention, that customers wires, we business still of those and better the in through that with in We as have grow changes platform at the since user other result beneficiary have of some launched, done scaling for sorts to much customer the things. we will interactions digitized, should a us to do customers for elements all that better work least It was last result and experience. all efficiency side on almost the the from example, processing the quarter, house. a all the perspective it for So that in with of through straight get inside these operational provides that

see increase things. without by do that have you up, selected because commensurate interaction what in these is, platforms So, those you see can and a set do to having proportionate you you're digitizing having personnel operational scale

this look that's and progressively every benefit going those over an how is one thing, and at operational advantages to not benefit in time one be at it's you a because can through methodical with important So this those to there's bank, that accrue. manner diagrams X,XXX respect you so realized process of processes work can

customer you're scale you checking XX%, from account and is is a banking larger at Axos get looking acquisition it respect of Of existing in base, by customers course, looking Invest And allows the you're new cross-sells relationship that the Invest and to to for clients. to and banking side, it Axos at and advertise the other element those customer acquisition go cost a services a of saying digital way example, XX% that, With way and digital cross-sell Axos respect Invest and which or to what are best better to platform acquisition reverse. have then a with contest offering then between to to of is you're customers. to

offer reality And complete of able that we're and And going to don't service from on do prior models how to which actually be because and itself we have and we offering that the amortized to was go to our the you're or the is cost market we that, acquisition data we'd the hypotheses, the product trying services, know companies having market out either, of then have digital And more these know. fintech is over needs set. issue recognizing looking we in to what but figure lots when that. an is that to customer a and are, not acquisition cost banking WiseBanyan because we we test appropriate perspective, until the they're out have at changed going in same do that environment charters we comprehensive

think all answer, a you that like wouldn't of these to So I simple things, but give I'd be unfortunately love accurate.

Edward Hemmelgarn

improving? Alright, When I securities two way you guess to seeing another margins think it, to about questions. in start the would expect business

Greg Garrabrants

in gradual see that in fiscal let's firm in clients. we'll bringing the improvements of we're we'll in in this in I think already There business it, that One put are credibility number broadly that improvements – – we'll and year but seeing XXXX, see it is see a think business way. of definitely you'll see already I gradual the improvements is ways.

We are streamline our been able operations to there.

the more efficient. make businesses to ability and initiatives of lots have We

that to investing competitor things and and in those be of of and also will we to money, that it all business such National. is approaching legitimate However, more Fidelity national sorts that improving or it

in head so of place in and processes, their risk, go just funds We we're going for investing we're all investing technology, is big better and we're from So improvements stuff. upgrading ops see to that what team, systems investing a of those Ops we're but are in of whole the who getting there three the guys, you're happening personnel. going that to are one Head we're the hired to doing

that going looking and source incredible amazing you're we're having an what into doing, so stable actually acquisition arise what to customer of this. And you're you're that is balances period, also offset from that's but of cash source an then very XXXX when having

competitors strong an at to that this have successful been done low You other cost look can and have incredibly it's respect deposits with gathering strategy that longevity.

Edward Hemmelgarn

don't see results disagree going to trying was mean, be improved I just a driving – the whole? with strategy, XXXX think Axos I as frame to the like start it for that you about time a, really like a is or I certainly, to as it They'll

Greg Garrabrants

is, think will coming that that on we're year doing defined with year, to I with in that you time business set to length this next it there. be into respect and respect to investing securities think – Yes, that that focus frame I will should the be their go June of what

Edward Hemmelgarn

you're – quarter, lastly, you question. mean then had something the a give mean up – any that you’ve note, doing had you success the you've Have one that I have right the And a Okay. for universal being just you of digital running I more now? is platform examples in that there bank, had past? couldn't and can

Greg Garrabrants

I many can you yes, give examples. many, Oh

variety were segments had different and needed and variety had they we segment So to were create and that to a customize the first way their that to we they to different of treat profiles a on They specific and some customer foremost to a other risk both certain the customers very example respect risks was customers. able of able in nationwide high-end all segments limits take customer with parameters the have of those. wanted

to now wire have have And they interact we able the bank need with or with every respect so the any every is, to service the that they maintenance or interaction, go every to interactions The every don't fax that platform one opportunity. through experience. customers in we're of account to next any a fax telephonically able thing seamless comes create customer do were into elements digitized through those form, and that bank,

Another was be and within that to capture platform. reduce driver's the fraud were we match capture able liveness integrate the quality photo to able to increase of and CIP license to

have which experience, So when allows and it's of to over time. at there's identity someone because us – way someone it better a great of because been it lot speed fills compromises also identifying auto the a a And obviously of user everything.

with over data time credit more decisions, data of through able credit the to different as on become let's of to data's based types to quality that's respect credit available guys. the risk reported being is widely questions the So that declined say bad make

security ability to that. enhance another our example So of is

and you was has restart one if want out have you in a – account, of to because and previously that lots checking account open credit say have product there's if have account So you application to – checking you'd another have a entirety. a its existing or savings a go account you a an new an let's

and can inside that for open go Now additional online you. process the does seamlessly platform through rather platform all go account internally that additional you go and that outside it process having through and work than to the

the are control happening things we the And of are every now. process. day those that types over have to complete So it improve

payment. have calling asking for that institution, So we why make they're statement, as loan or pay task a that and to contact that to we interactions a asking certain pay-off group, is go force, balance where task in through, a for the those whatever or looks the happens an force kind someone every at they're things of servicing interactions

data's enable All pushed of then a being the analyzed that experience. better development through queue customer to

in and they're scale. customer they're satisfaction, self-service enhances operating It's over long-term way also then platform, more more secure the to that a because in coming results through – this able and security secured the

just those product side mean elements which it, things new platform. are for So, in end-client The which the intermediated security platform side of got, to you've on got I interaction into the the Then operating reduces incorporate an allows some then the you've costs. us it, you've consumer utilizes of of the other side got that basis.

Edward Hemmelgarn

Thanks. Okay.

Greg Garrabrants

Sure.

Operator

Thank you.

line Riley Please question next Steve B. Our comes of FBR. Moss from proceed. with the

Nick Duafala

in actually Steve Duafala for this is stepping Good afternoon, Nick Moss.

prepared last that quarter. jumbo single-family originations You your in mentioned rebounded remarks

just how seeing origination existing what mortgages to today. wondering were new rate compared portfolio the these you And rates overall loan run-off rate? also So in

Greg Garrabrants

Sure.

relatively to and to going We carefully we're looking whether of the and basically others. answer But do that at fixed the happening products that So will where respect to respect with in to say I obviously fives have environment, are the be we yes. what's to consistent some think is run based they're they be charging would what need think is the and and that rate competition. market not we're that, roughly lending with to looking say with offs there, I rates is at quest, or think mid-to-lower we on rate

rates will run if we that what we go have there a we and And still perspective to to do we're will models market reduce Now our need reduction getting forecasting have from forecasting we down. guidance. NIM rate rates are that to

at but an in looking we're obviously going react be from a that's happens where to some So competitive going what environment standpoint, have to we're to it sure. to extent. I'm

Nick Duafala

Okay, could deposits, to And cuts point on basis us beta interest some year-end? by were give the that's we if XX see you helpful. bearing flavor

Andy Micheletti

That we're question upon, type talking about. deposits dependent very of is what

and to then guidance. margin we giving to provided you reprising And so some guidance the loans that, with way with that the respect is respect have giving of guidance with you

different very that deposits come sheet perspective depending our both because units. cost respect that, can – it's balance but giving I'm AFS growth I reality why what this off a you because and we that sheet think is balance of are from not current to in have reason low with clearing complicated, on in deposit upon to the the that see beta, a that implies we

and We have them into the businesses, deposits how come great commercial influential. those in for timing some fruition pipelines of are the of quite also

we've up you. we've with those at and of the all So out come to looked conclusions those we've together modeled provided that and

Nick Duafala

Okay, makes Thanks guys. sense.

Greg Garrabrants

Sure.

Operator

Thank you.

question Davidson. the of from proceed. next Tenner Please with D.A. Our Gary comes Line

Gary Tenner

asked my Actually were questions answered. Thanks. and it. Appreciate

Greg Garrabrants

good. Okay, Thank you. that's

Operator

you. Thank

end to of remarks. have over session. question-and-answer the hand back the for like We I’d our reached closing floor

Greg Garrabrants

quarter. we'll a for Axos the and next day. good talk rest of Financial everyone your interest you Have Thank you in to

Operator

Thank conference. you. conclude will This today's

You may disconnect participation. your lines at this your and you time for thank