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Axos Financial (AX)

Participants
Johnny Lai VP, Corporate Development and IR
Greg Garrabrants President and CEO
Andrew Micheletti EVP and CFO
Andrew Liesch Piper Sandler
Michael Perito KBW
Steve Moss B. Riley FBR
Gary Tenner D.A. Davidson
Edward Hemmelgarn Shaker Investments
Call transcript
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Operator

Greetings, and welcome to the Axos Financial Fourth Quarter 2020 Financial Results. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instruction] Please note that this conference is being recorded. I will now turn the conference over to our host, Johnny Lai, Vice President of Corporate Development and Investor Relations. begin. may you you, Thank

Johnny Lai

Great, thank Axos'. for in everyone. good afternoon Thanks interest you,

remarks. Joining fourth Chief Financial results Axos' Micheletti. President us for today Officer, Financial Inc’s Garrabrants; Executive are Andy will on company's after and and Chief Greg XX XX, June conference months the quarter comment and be to results questions our they President answer available Officer, will and Executive prepared Andy Greg and and for operational Vice the ended XXXX financial call financial XXXX review the and and three

call announcement would today's remarks. the days. for I located XXXX. webcast XX Private Greg over replay on Before in a of claims listeners protection contained statements results and call the turn performance. call for and in of the Details uncertainties, I for Act or implied the forward-looking this the made pertaining basis Investor to future Securities in forward-looking These company available and in and and from response expressed current subject uncertainties. Actual axosfinancial.com regarding begin, call may his I the prepared conference provided management this press being and at statements this assumptions This would to these of website Litigation risks of forward-looking that that result the like your such in were questions. release. are is management company's there'll be risks are as to on call Reform earnings made like that to and of that time, At opening to Therefore events on remind the may could audio contain make statements materially statements forward-looking to Harbor Safe forward-looking an differ views remarks, additional section statements Relations

Greg Garrabrants

for for interest million the of June per year diluted Good year ended fiscal XX.X% Bank. XXXX. XX, I'd earnings everyone year on XXXX. over fiscal Axos’ XX.XX%. fourth XXXX. us. of Financial for return June the diluted was call ended fiscal XXXX afternoon thank Axos’ like and thank the ratio compared the quarter the you increased June everyone to your Thank for you Financials average $X.XX fiscal in you. net welcome $XXX.X Axos’ Fiscal to share record per XX, conference banks of XXXX million Johnny. earned fiscal and XX, was year income Axos in to XX.X% for $XXX.X to XXXX year announced ended XX.XX% joining Axos and the $X.XX per share efficiency XXXX share in equity I

Excluding on earnings XX.XX%. share per acquisition per of to related fiscal a non-GAAP equating equity $X.XX increased XXXX XX.XX% year non-GAAP in share return expenses, to

quarter Our in June lender performance. book were up from commercial with single-family, Ending multifamily in at loans share and margins, quarter XX.X% real of annualized up the up C&I portfolios. leverage excellent $XXX.X estate, and the XXXX, an year. from and double-digit XX, specialty non-real and positive credit certain and stable approximately value operating loan this estate higher was and following. quarter finance originations jumbo deposit higher year-over-year. income leases interest production highlights and in million, mortgage XXXX increased Strong by XX.X% by include XX% warehouse net per lower in first offset payoffs prior growth interest growth, income, The strong non-interest of had the XX.XX% We net

loans. XXXX in quarter XXXX up excluding points the XXXX from and related March basis PPP by ending XX the from up basis of ended Excluding Net quarter margin points for and interest year-over-year. X.XX% loans leases fourth was XX, XX.X% XX, increased loan X.XX% June HRB X Block fiscal

three our above compared the XX, at XX, $X.XX year was provision, XX.X% compared XXXX. for a up the strong XXXX in holding was rate increase loan per company, leverage X.XX% to in both Earnings requirements. tax in bank despite in XX.X% ended up period Tier levels ratio share months this June regulatory $X.XX quarter compared Capital to efficiency of XX% the corresponding quarter ago. XX.X% XX.X% X with and ended year-over-year loss XXX% June the comparable to the and Our remained a the X.XX% quarter at a well our XXXX fourth

Our forbearance with remains loans delinquent small a and of strong quality in payments. percentage our credit principal interest are on

compared mortgage year year-over-year period. ago for strong of XXXX. XX.X% with Total loan loan to emphasis on balance serve the asset-based was the investment year-over-year in $X.XX June originations were XXXX $X.XX XX, our production on sheet QX an on sale values keeping continues banking ended low to billion fourth for with underwriting up to Originations for conservative sale originations due well. loans and Our us quarter were billion gain down in XX.X% to

gain had to mortgage sale Our strong ended mortgage industry on outlook for low in quarter remains to refinance March rates strong capacity $XXX banking XX, Record increasing strong. drove resulted within a linked compared lending for points sale XXX basis in gain basis demand points purchase originations constraints XXX the on mortgage and XXX% XXXX. group, single-family margin quarter the of and interest quarter The a with million. banking approximately transactions

the and loan single-family the for existing deposit own $XXX and to loans mortgages quickly fund underwriting XXXX. protection program of of quarter. approximately loans. of clients resources was in participated Our originating new June $XXX and built million through accounts XX, open PPP at XXX portal deployed million our pipeline SBA's PPP end We paycheck June agency We the

also our to commercial help needed borrower’s participation capital In relationships deposits PPP and generate providing addition the in our groups. banking to business much for incremental in small

loans instead had PPP an until to SBA. impact with interest the get non-interest our not transitioned we Since majority additional processing clients PPP income. submit fourth fees to loan making in loans on We loan expect net PPP applications their immaterial do our forgiven helping loans. our the quarter we borrowers, margin, have loans yield of associated recognize and of forgiveness

in the prior for business of unit quarter banking and margin ex-H&R interest to net X.XX% the in XXXX. compared quarter quarter fourth was X.XX% the Our X.XX% the in Block fourth

On variable the June of XXXX. vast rate with the asset our being loans XX, of of asset-based variable-rate XX% their side, as are loans all majority at floor

loans, the the quarter XX% X.XX% ARMs mortgages originated was multifamily for on our collateral. PPP loans X/XX/XXXX the book and Excluding loans. X.XX% for X.XX% jumbo Yields with underlying X/X the loan was the for ended in X.XX% C&I mortgages XXXX. in quarter and on multifamily Approximately compared as June loans quarter average rate to XX, our of are single-family X.XX% X/XX/XXXX ended single-family in

yields, represents and slowdown prepayment our small balance of at we loan which commercial the mortgage With portfolio, activity in estate, expect in our in to yields residential and overall maintain estate mortgage loan majority real multifamily real new loan another our balances jumbo book. of stability The X% X/XX/XXXX.

staggered approximately lender real an just specialty estate Our term that $X loans at loans first XX% their loan X/XX/XXXX index. book, the are of fixed billion of portfolios C&I interest the have rate. and through real years specialty prepayment and at finance floor loan finance Of our loan. penalties to with estate our rates In five and commercial is outstanding commercial lender the rates asset-based

leases. outstanding the rate of C&I and is accounts comprised portfolio, which $XXX leasing equipment million of fixed loans remaining loans for Our

is bearing progress X/XX/XXXX We commercial total of consumer initiatives our are reducing funds software-enabled deposits and comprised of making consumer checking, steady money weighted through our prepaid and XX% marketing diversifying non-interest at platforms. deposits average direct and our saving, approximately Consumer deposits market cross cost and accounts. representing of

Our a We the yield increased July, million was seasonal further basis flat ended reduce deposit and and cost. following reduced Fed's early again in XXXX sequential billion our rate accounts high demand them savings the average by savings action consumer interest-bearing in money linked money with deposit $X.X deposits XX, in in points market balances. market quarter decline and growth decline checking, in and balances quarter deposit strong in our from saving and prepaid deposit deposit essentially business demand XX the June June despite non-interest rates in bearing small in March our in quarter $XXX the X/XX/XXXX balances. Average resulting

our good treasury with specialty our program small commercial incremental the provided business are in and involvement management SBA, and progress businesses and PPP We making deposits. commercial

Our credit strong. quality remains

loans. and period average Our was offs refund Advance basis Emerald to this compared loans quarter charge-offs and to year, last XX leases advance corresponding to net XX charge the annualized points points in related excluding basis

with ratio loan and X to low the supply of to charge-offs leases majority year The basis representing non-performing prime XX the loans allowance the of XX.X% loans for leases non-performing non-performing total third fourth of June multifamily are average XX, net XXXX. to single-family basis were points and XXXX our was Non-performing for X points ended XXXX. basis assets of March XX, XX to quarter quarter the low basis our quarter and assets for and loans Our points full at $XX.X for loss approximately points comprised well asset in single-family We XXXX. is and located ended value XX% in non-performing for XX%. coverage loan a demand to values. loans markets June The our housing had loan high. single-family remain below reserved our where our loans is majority at XX, Of are or mortgage of vast million properties compared with

delinquent became they proactive measures COVID-related whether or taken loans are that manage have not. We to

commercial Axos been XX, million Of greater and only of of million, kind. of accrued provided As have business at leasing months were on payment commercial, loans balance loans with in plus commercial provided no XX June $X.X days since of its finance small of three loan delinquent. or CRESL, payments. loans, of estate commercial our have balance come those lender Including X XX any small balance At we $X.X for XX, either that equipment points one and XX, June loans all XXXX multifamily that current finance basis a XXXX, XXXX. than XX June interest par combined except unit multifamily deferrals was obligations sold real had

LTV current June and were million to have a those XX% loans The of of XX, value forbearance not than XX% forbearance XX% which XX% a is X/XX XXXX. approximately of a granted XX%, representing sale million loans, of by were had XX% consumer current were at greater loan purchase, until that at and balances follows: the loan loans XX% loan $X.X a the as single-family LTV loan value X% the LTV. was XX.X% X% of granted and the forbearance Of the of unsecured below to XX% We X% to expiration current and forbearance granted to two a below $XX a Of but X% had to greater X.X% June portfolio Of to by had value a not of approximately XX, breakdown value follows: with deferrals. a for loans brought between had of forbearance, X% themselves one than had X% and XX% were greater XX% granted loans XX% XX% is loan forbearance, balances XX%. loan that value origination, XX% deferrals XX% loan the between to had a XX% XXXX to loans million at of value that XX% XX%, value loan value XX% loan for forbearance and loan XX% LTV the brought loans for had greater loan X% granted to as XX% period. as prior between had XX%, loan hotel portfolio with had LTV on and loan $XX.X and banker to that than no only X/XX/XXXX representing with a LTV breakdown than value current between their held of origination. the that has balance Auto had its the

our and have of consistent losses collateralized underwriting lines senior maintaining of record structures multiple conservative and low given track through book. nature loan a the We in loans guidelines, economic our commercial cycles credit our

for less than the for financial great was basis net point we peak single-family loans. our multifamily X crisis, mortgages loans and for charge-offs annual During originated

cycle. of and uncertain, of is or at this While at of economic of through portfolio our duration XX, end this XX% representing loan-to-value single-family have $XXX have loan underwriting were our will outstanding $X.X XX% Approximately total between approximately the X us points and proactive ratio have June an and loans XXs X% believe loans an consumer receivables. XXXX or risk with XX% depth a balances we XX%. of XX%, our X.X of average ratios downturn XX%, loan ratios mortgages, XX%. our management of in estate disciplined help by to by billion hard the loan-to-value assets mortgages had XX% LTV below and between secured At XX, assets, average than real of primarily including XX%, have million basis collateralized manage weighted and of loan-to-value greater combined quarter, value XXXX ratios June XX% and the million loan-to-value Single-family XX%

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

Our mortgage secured the book. to $XXX June be with can sold loan by of warehouse that if book borrowers is single-family XXXX balances mortgages turn XX, unable million the

and XX single-family XX. amount varies rate the typically and initial Our curtail mortgage XX% loans note on XX% we an warehouse advance day of additional between XXX% day on and

outstanding on advantage was XX%. the among million million We balances to scaling $XX back and competitors balances of XX, average XXXX. Our loan mortgage value $XX warehouse the business our warehouse four exposure by to clients non-agency or took March or approximately exiting weighted and compared distributed XX% loan to grew approximately

economic below representing average at loan X/XX/XXXX total lifetime multifamily downturn. in XX%. X loans Multifamily have value. portfolio XX% losses our of loan-to-value and the Our across loan-to-value ratios our have believe the losses XXXX years than multifamily have constraints. any due XX% or on the secured was credit margins originated clients At multifamily X/XX/XXXX. than in XX% industry activity cover real loans capacity the X% ratios are originated will XX% of XX that to loan-to-value loans portfolio debt service basis than loans. end book of elevated had sharp quarter, our The multifamily in XX% weighted manageable estate and from level our loan potential XX%, less be X.XX% benefiting of of originated we June XX%, point over a the value loan loan less of are XX, average to the The between XX% greater and of ratios between XX% have higher warehouse mortgages even refinancing our XX% We to at and housing at

book. the loan stated, deferrals we no granted in As multifamily

balance XX, or small representing end XX% between loans of loan small was weighted XX% estate total our real resort and XX%, weighted portfolio Our book. and book XX and the estate real loan million quarter, commercial deferrals a our value at XX% commercial The service balance loans resorts at the approximately loan commercial real and portfolio XX% of of granted of have loan-to-value $XXX in the small to XX% including average approximately XX% and XX% less XX%. portfolio, X% at have the have had ratios between In commercial X/XX/XXXX are X% balance to of loan-to-value loan-to-value X.XX% June deals. representing XX% debt XXXX at total our loans outstanding. ratios had XX%, ratios small balance for below X% estate between and hotels XX% between X% and The are million our real XX% we this We of XX%. balance commercial of loans of no our to small cover hotel average than XX%, value loan average estate is X/XX/XXXX. of

consumer decline. the structures rate advance consumer secured finance significant is credit also no commercial book rapidly average The require average advance estate, real loan lines event loans lender estate the in and than originations The event finance book the finance is and $XXX XX.X% receivables downs an transactions. is lender pay receivables. the primarily land of approximately in of real book the non-real These transaction backed weighted on estate, XX.X% including comprised estate by loans with finance balance. in any and by commercial non-real are estate, of of rate and Our rate commercial advance receivables book multifamily, million specialty of paid deterioration collateral XX%. with greater rapid comprised real The lender estate with lender single-family, of generally down real and

located to to gateway finance loan are in strong term average identify CRESL size We every capital Angeles, take partner loans sponsors us interest. cost the The projects of Blackstone. portfolio and real We action with capital average specialty such and commercial all sponsors. our We related credit has borrowers monitor and million. York, weighted $XX have average capitalized developers our the estate and no XX.X estate the Los support loan vehicle and and such months finance experienced bridge underlying was deterioration bankruptcy loan significant in of Denver. purpose commercial construction junior average remaining lender and our lender is remote special and work and to and protect the well deal to The group book. specialty New In structure. we commercial XX% from and performance real allowing collateral, as, The hold senior positions our in principal The deferrals granted cost with supporting portfolios, approximately the as Diego swift XX%. cities, is San loan loan is our housing

no have loan CRESL We book. in granted the deferrals

oil retailers airlines, We theme have gas exploration to companies, and no movie direct parks, exposure casinos, theaters. and

Our the restaurants. mentioned fourth June gas the end debt of was and to higher-risk sector, to X.X% five were the above in entire leasing these ratio XXXX. oil The portfolio of All represents the aircraft XX, credits equipment for exposure as equipment service current quarter. average at industries our leases the coverage

Although flow their loans. some sheet, have leverage companies leveraged flow-based of balance base we cash no on have that our leases cash to

AB and our retail we our outstanding million XX, of of loans. for commercial hold loan We $XXX had mixed real XXXX no discretion of the approximately a hotel commercial senior of warehouse specialty, LTV exposure and total estate absolute or and granted and our majority and and the deferrals draws at our average have position. not current borrowers specialty all retail one loans portfolio, of hotel hotel estate, deny hotel are and of our real where use XX% their it hotel We at June were on estate $XXX finance representing loans X.X% million lender payments, lines. loans our notes X.X% on sole mortgage respectively. approve The approximately Only real was to

borrowers million Block million $XX from source of of of consumer estate, loans, located $XXX We $XX.X advance loans. refund of lending H&R our approximately non-real auto Our million loans, and loans is personal in prime auto unsecured dealers XX XXX. comprised primarily our lend and the service average every of balance sheet hold portfolio we states to fully in line and with and We continues to perform an on expectations. FICO with auto underwrite loan

risk the of our by an loan $XX,XXX. size have loan We with unsecured of on average average book of managed prime score and borrowers FICO credit an XXX focusing personal

the and personal loans originations of fourth We in of more new very deterioration unemployment conservative advance quarter as underwriting and XXXX. in high of charged-off small million balance recently the we total the bucket unsecured the loans standards. Given origination temporarily even $XX.X and rapid economy suspended XX, X% refund and and originations an a outstanding nationwide, reopened June approximately had

we in year dealers the growth loan margin extended million the to from timeframe more $X.X Despite XX, million the fourth years. In filing million $X.X period to the stock this the was quarter Approximately in business ended million March, $X.X million $XX advance delays loan the XX, extension bullish Given introducing attributable with the some quarter prior for $X.X loans, we incurred margin quarter. XXXX, the loss since $XXX clients repayment federal business, a losses compared with as securities was $X.X of losses. no economy. XX-day loan more deterioration at was March elevated million we've up million the to same with the loans managed market Provisions became deadline, ago. broker provision in in approximately June our year ended successfully processing of our in refund quarter to up XXXX the IRS-related and June volatility price attributable in the for are comparison in experiencing tax

approximately $XX For our XX loan million. allowance total loss XXXX $XX.X basis our XX, months required is immediate increased CECL increase points CECL estimated X, XX and Advance our methodology the XXXX, July ended adjustment for XX, timeframe, we $XX.X day – of allowance ended the leases to our of in refund be June are on XXXX. under The we and loss current the approximate fiscal and generally as loan adoption for loss of between known current losses ex-Block by an adopting represents June million. expected original XX, used credit million losses charge-offs CECL adopted of ends that Emerald The on means The one loans year to we otherwise reserves considering be million quarter loan or $XX net loans impact XX.X June method. will The times loan year-end. the of losses incurred one-year XXXX. the at annualized bank's for June the now in related XX, date only Because

the in changes The election adjustment GAAP. potential day be government and currently estate valuation COVID-XX impact with we modest resulting of the to resurgence changes and and impact reflect recorded foreclosures against variety equity commercial accordance $XX.X estate moratoriums uncertainty including to that reserves cases of retained an improving possible additional shutdowns, severe have a long-term extensive uncertainty governmental fictions see policy is to residential and a and real models in COVID-XX, including one are after-tax and million events a of certain an additional and impact may of in While of business directly is year to more of from expected CECL values. due million the stockholders economy long-term between real Canada $XX.X

reduce provide over phase purposes, years. of adjustment to the of on models defer the capital Andy phasing regulatory not and this CECL will loss one-third five capital. impact impact we this details Under then the day last five-year of our ratios and two additional the the our to for regulatory impact three phasing we’ll and and elected years For – first X the Tier one on years election. capital over

strong return XX.XX% on We months continue returns the XX, June months in shareholder XX to of respectively. with XX.XX% ended equity and generate average and three common XXXX

XX, basis XX% Our XX% points ago quarter to was segment the for ended ratio for more XXXX, the improvement efficiency in compared an banking the of period. year XXX business than June

We continue growth. to maintain a for strong future investing efficiencies operating while in prudent manner

monetary Our reserves, at capital for at provision bank the Despite healthy X.XX% a expedient non-bank provided at there support the our X.XX% and believe XXXX. agencies liquidity. though lenders. credit in ratios rationalization bank loss the holding and the XX, X rapid and a have by for and Even resulted and strong banks the fiscal broad-based and Tier further loan remained at respectively We X.XX% landscape will higher at market spreads and competitive U.S. company. June in CETX capital government ratios among be snapback remained XX.XX% in

returns that Our deposit could and our funding reduce our increase top funding while selectively businesses capital income asset growth evaluating in our businesses of enhance priority is capabilities, existing our or fee for cost.

loan approximately remains of XX, with pipeline Our our in June XXXX. at $X.X billion consolidated solid loans pipeline

funding a healthy We on a liquidity have set position diverse of sources.

deposits deposits increasing XX.X% by with on-balance sheet saving and Our XX.X%. year-over-year checking by increased

by treasury interest-bearing our continue cash linked Concurrently, and show and Our average quarter reduced points basis to management X.XX%. cost Small funding XX basis to specialty consumer points strong and Banking Business commercial growth. deposits XX year-over-year we

the Client held approximately AFS of XX, basis from $XXX quarter. was banks actions reflecting was June at XX million X/XX/XXXX. other XXXX at cash deposits towards interest-bearing Axos last points took and weighted Securities average funding at end currently Our we cost

deposits advantageous so. to ability bring do the a economically our it's balance of have back, portion We if good to sheet off

in deposit XX, billion $XXX liquidity brokers as $X.X rates fourth all and reducing had the discount of many Fed June billion we excess banks, the to products including money at deposits. XXXX. FHLB commercial of FinTechs With market savings and access have consumer online, also quarter. end window at million on of we and deposits available $X.X had the outstanding the We billion of of approximately borrowing, $X.X Furthermore,

We fund our have more sheet flexibility than to at attractive growth balance rates. ever

limited, with single-family attractive insurance record aggressive type. forbearance payments a exposure few paycheck resulted and market where urban the local the West unemployment mortgages and Coast protection new margins. purchase growth our in federal multifamily geographic for vary by lows. subsidies for relatively offered multifamily program economy the well. to relax prior and strongly and remain lending have mortgages have mortgages non-banks provided our of terms in have primary non-agency has stable XX holding dynamics small balance commercial The states single-family in and CRE their and our near In they on interest to The are secondary Pricing markets property real on despite short-term Rent non-bank XX up pulled jumbo have cash lend stable outlook, and The mortgages flows re-emergence checks since in loan for We the renters in relatively pent-up values to banks and and respect many a jumbo back the the on through months. markets. mortgage activity borrowers. net our markets most and health-related some The relatively the and we programs, demand lenders. rebounded restrictions nature diverse market of stimulus estate market conditions SBAs on rates

We opportunities, pivoting to continue at assets continue basis C&I borrowers to new and real balance are finance even but opportunities on rates. our points. high more leverage lending commercial estate largest estate, lender grow two CRE specialty selective we our quality multifamily leveraging real for and low evaluate categories, and small a to portfolios to see In conservative advance

our respect with our lending underwriting credit products. to have We tightened all standards

Axos’ from approximately clearing individual higher with approximately We standards. stable, XX,XXX held these These continue increasing products of see to accounts for to deposits, credit provides a deposits funding. a ending client demand million. safety linked to X% source flight in quarter our at lending low-cost to $XXX benefit continues brokerage by

We have chosen interest that $XXX earning the to other keep banks for business. income the securities majority of million in

Fed's fee compressed other due clearings Like sticky short bank business impending the generating interest-rate in to Schwab policy. incremental consolidation deposits these the to income back an the deposits for Axos’ fund bring growth. bank. and E-Trade zero ability to to have ability significantly cash the broker low relationships on are the With We dealers, a earned clearing industry from our notice loan retail has new deposits, in-custody rates such as this relatively cost to our

be to continue Securities on Axos bullish value organization. We strategic to long-term our

our see called growth, our the categories, prospects deposits we interest we excess anticipate long-term be get in pricing some more that Given to deposit can stable. across in degradation high real that NIM funded from excess new until loans economic institutional keep recovery. margin our our our by with estate security and no opportunistic good help they specialty deposits new strong drag relationships the some being We prior sheet. range we a enter The flexibility Overall, provide generated finance of and in yields loan clarity and of annual loan on With and maturity, additional that longer on may should a loans. quality as of respect protection lender X.X%. within and loans longer categories. loan lower about bank's be our short-term net C&I, these downward lending compared have the PPP ability some risk liquidity feel the are rates margin on business. sustainability we growth CDs more of rates term interest to balance can marginally we an to with low-cost us new will housing which our net to commercial see In stability lending largest We loan have until most maintain

financial who our I'll results. call the details Andy to provide additional Now on turn over will

Andrew Micheletti

Greg. Thanks

to or online today through that our with X-K wanted our available in SEC the was addition note release and First, an press I website at to is axosfinancial. filed EDGAR through

provide Second, I will any two refer our for brief to comments Please X-K details. or additional release the on press topics.

severity the periods most XX, increase over value based back variables of low loan Financial to quarter. First, testing default in falls elected a of CECL significant predictive at to of below square key with default historical throughout month Moody's of which use in example than million variables X, regression our the loss the loss entry allowance primarily historic entry were collateral collateral each level cost future is changes loan testing of increases values estimated impact provide the other its were and variables, using value normal for that given loan severity or default life. adjusted default quarter liquidation years data on using Greg portfolio many one systematically the for value in life and predict CECL forecasts our developed September Price has severity Like is million. macroeconomic index the current effective end a course X,XXX $XX expect measured historical formulas CECL and of the monthly sheet by not day pending one results. of than for for adjusted To entry model implement day of we Index. our percentage price historically and XX Property more expects Moody's probability our loan upon July Moody's range for is a any Moody's Case-Shiller’s RCA XXXX CECL, and the six to decreases review the collateral the loss and and $XX When since do our our probability of are macroeconomic category, from loss portfolio. by The future losses adopted liquidation those and balance indices, as values adjusted our ended of mentioned other loan The Axos home tested of balance for banks, We or generated any leaving for Moody's in the XXXX. model. models, in Current price we loans. eliminated developed Commercial CECL loss between variables

All depressions loan. Macroeconomic W-shaped meaning do a nature very but recoveries, for models monthly losses your the rate, interest multiplying balance future by estimated are historical So severity models work parameters. default period loan rate loss is time. period economic to by and Moody's default historical for are the not averages improvement, the rate back designed at effective reversed. the predict dramatically the discounted has They the macroeconomic and variable in of well is recoveries, each which across been accommodate using a which estimated monthly to the the reporting forecast the rate

credit for improving variety significant with five resurgence impacts forecast consideration see over including the and example, of but current are more There shutdowns. and For one-year and Axos while next a forecast generally COVID-XX, months. rate return shows no economy an to the COVID-XX due between a Moody's unemployment associated out, to believes that of that earlier, trend. long-term severe impact data XX to governmental the really improvement years events events reversing a modest Greg we as mentioned

volume foreclosure extensions real moratoriums year estate commercial evictions, we we leading all Additional value policy models from changes have CECL and impact XX to to of about election level workforce our resulting of a now. on and an high recession industry estate in large index between based price another models business U.S. great of the downturn. will housing uncertainty averaging is borrower tenant with defaults. that average declines of adversely residential Thus, from of certain changes price and real real a This the XXXX added real significant XX% in to XXXX estate unemployment including moratoriums government the downward adjustments October decline months and starting last actual XX% estate in period and XXXX

loan After XXXX loss portfolio one-third fully negative elected and add-back of The years. value quarter for in years the our highlighted XX the by collateral five. two the million. regulatory between years. have capital two each equity five Tier of regulatory between each the from the current will to driver reduction day million primary impact by $XX for phasing added that years, phase adjustment capital the add-back XXXX the full our is next from now. includes value in during over X will next reasons for This Tier one back all to the to stockholders' not adjustment declines eliminating day starting short-term, year end life be day $XX For out price impact the benefit X capital collateral the of the as will means capital the The to stockholders decline our to our described the one it adjustment three estimated months because ratios be the reduced in equity we one

The accounting, effective XXXX with tax second increase topic ended an compensation is estimate requires our actual of upon RSU income deferred March June rate is of is is than income tax XX.X% the dependent XX%, shares XX, shares our increase rate, and/or associated If to shares our expense This the was stock ended rate is tax adjustment. lower us value from income for the up which one-time GAAP before final cost the made and quarter measured. stock number lower grants, the is tax XXXX. adjustment for compensation the estimated actual RSU fewer of number at income and Due XX, deduction quarter the The price we to of vesting. and required. a prices our tax generally the granted deduction tax

to our the call I XX%. expect Lai. we be rate Going generally turn With Johnny tax between forward, two over to back to items, those quick XX%

Johnny Lai

ready we're question. take Operator, Andy. to Thank

Operator

Andrew Sandler. first [Operator question your with Please state Piper Liesch question. Instructions] from comes Our

Andrew Liesch

quick question margin just the here. So a on

we room several guide now the a it's think funding just side near fixed liabilities the years. that here for movements nature interest-bearing the to us this point rate get X% go quarter, where been it the the to X.XX on higher now good you this at last further month. and made end even margin down there's the And basis, core a some of has cost room and the given of book? on Do that you loan can given more for recognizing So like to the of X% sounds of on

Greg Garrabrants

it, a but plays see least for think quarter I it at I'd out. another that give to there's potential how

think we very focused credit are I quality. on

And we're with institutional some high we at just respect interested the in very so at making given of of rate. rate some developing, quality. loan when we we're nature think products times, certain And the the look to relationships index that concessions they're

prepayments, cost. levels have reasonable there that believe have of opportunity reasonable lower also do we an is But I to funding we tend originations. do to levels and So of I our

rate So those behind - credit our adjustments compression. the have with loan about vast tightened fact depending go. obviously, rate of where said, to nature And be loans, respect to the we also, floating issues us. are we across the upon don't now board, being and thoughtful we rates that that adjusting of have, are margin fixed respect we've the those that given other banks our our with And do where majority to the criteria

Andrew Liesch

of loans, a correct up total I'm The are single-family XX sound to to increase the if NPA $XX related ago, was bulk wrong, then on mortgages. quarter like them nonperforming million million And of the $XX of from me single-family the million mortgages?

Greg Garrabrants

Yes.

Andrew Liesch

anything unique there was but them? increase. not Just drove of the guess, what anything common unique, not. And or I between curious all

Greg Garrabrants

No.

particularly think high look is very with to to we not number. geography. our well really, it's we're particular it a particular a secured. at economy. that not think we it's collateral through a related And I respect when we valuations, nothing It's There or go the when

think it's with and models. I are business coming their that folks rejiggering So respect I they're to think current,

have was that pay. free, didn't confused of and and to everything for Some them thought they got

helping we're so that confusion. And them with

okay. going market's I do And so we and lend they and obviously, significant think to folks of everybody able it their have lifestyle the they have But be things to grinds how is assets. homes, probably the be tend adjust will will good. pretty and have there'll to economy that. to But to, on that are who and to not have more the nice and be can longer fairly And to few I folks those think equity, yes, the live adjust like who a folks they going

from to we're it. their home encouraging the get So extent list issues, them they equity have to the and

Operator

Michael Please question. KBW. from state Perito comes question your with Next

Michael Perito

been of to and see an by I had New I one on of me, imagine know, in I wanted you out densely guess, have the of But touch to out York a starting markets on. picked we mean, wealthy, too, of the helpful that have color few product. California here, jumbo I mortgage suburban the in some for I and area I are example, kind of in tremendously know some Are these curious, areas, those big kind was more estate look see, some York, New though, started in demand? I in your as to you I other on to increase kind side. areas. think there's real the moves accelerated markets populated bigger and up city I things

you look today? Just are seeing curious forward you what as guys

Greg Garrabrants

Yes.

I right. that's think

We in the the six I months have it's reversed. exposure had more exposure in and York, you now me was and have the worried urban core I Hamptons would ago, told about have what if Hamptons, and that's you New asked in we

were definitely with I respect think perfect think that greater respect we deal we we appreciate I don't more in bit we to were in I and able And on, quite have were sort example, cushion attractive, Florida, but try reasonably we're trends. we build to with enough be you're try things think to these were these to But we there, seeing markets become little certain certain were be we we're with are a good that space always that including in seeing well. I to movement there think, towards of cautious for which shape less always to a and that. areas, trends, quite attractive, currently

Michael Perito

that power mean, some enough net think opportunities of still that mortgage years to portfolio? Or portfolio these little we I you as tide of a think of it put bit basis. now, little guess of fiscal kind of that do a is, and seasoning of the up, I a in limit mean, last the about of kind dynamics the growth do the year growth I on few have and forces the think so the kind size I next net side? annual on pull of So hold kind an is on to piece speak, those has over bit of next the kind

Greg Garrabrants

tightened be, and we're That in our LTVs, single-family while you we've also the jumbo there. growth being things. credit I first would in those as and of that growth requirements standards, think business, said, sorts certainly a expecting really intimate reserve

demand secular was reduced still be turn going we to some up what So demand credit it competition. growth. we hope, don't we've to will that do is then there and think benefit, standards, in absolutely it's brew, heyday, going that it's a benefit there's And think our tightened be improvement a growth. an six but always people from way And think think, is for that ahead be it let's doing will I had be will example, and getting error, say, competitors an prior certainly, last, which as the jumbo decent. themselves I in any always of which market. And experienced, XX% mortgages, quarters, LTV I

Michael Perito

bit a I of seeing were you more little be a office and remotely. think this that you are I here? the mean guys challenging some last starting as you revenue kind and I environment you up of closures picked And over think cost years, the near-term acquisitive the ahead of expense advantage the with I orders, think I in recall, side, announced, think think about to take on kind space think in I a on you nationwide, like of opportunities pandemic occupied stay-at-home moved there and side that your years trend. workforces lot guys branch things were the And are if space, guys you But you guys any might have to over see of the things lot industry of of do nature. obviously, I nature office that some few able

Greg Garrabrants

Not really.

that to this advantage is in I and accelerant focus the banking. of that to behavior our next really continuing months brought change pandemic over take on to consumer XX be is the big think going

incorporated the sole lot for and opportunity account in best universal proprietors. opening banking have, fully we digital our best have with gangbusters, business not have just and system example, a available there. to our for and system, all our the small account and we opening gone So architecture, we has keep clients small newest the we only businesses can't That of demand, up product

the the to technology we in of So delivered. need competitive to that is answer longer-term to dislocations the advantage going be banking products integrated the invest believe in short take be that over and securities we're industry seamlessly And the and there.

to also management that's programs continuing an organization, security although and ability So reductions actually cost and to a obviously, the some folks that of That we business. you increase business, small hire framework to operational in the drag respect bring side may drag see the into a resulted in we that effectiveness operations. with our are and from very bit strong improve as little

IVR and will made to it's us continuing that think in see nature so one little going paid we leader. we're them, it but investment. well off short, if some business And Chat to seeing incredibly to much we've And going in operating in each in or them, that's make we and go in really digital just side. right you're done and to and so investments is are the ourselves make with for of hadn't do that our the things. on we're able So everything investments a to targeted that leverage, to been made while, it that it's we've in way through take robotic going also going really and to the bit some continue just take to the a neat security whether seamless we've stuff telephony Bots of these and it's of benefit I us. And a process Those automation all

into I so that the And take models. just wouldn't I

Andrew Micheletti

add look also bodies. to that additional banking at That does perspective, compensation mortgage growth. I'd require we to growth and from possible additional do a as people continue

the quarter. the all operating picture that with the these would think expenses in next is and So I to revenue the big we for down business. we're good things scale are But looking not come

Greg Garrabrants

Yes.

is we two what have items really think really I have operating. we

play we We more in operating platform. for increase the that for processing interactions, and better those all customer really straight-through through coming in through great the environments are of efficiencies interactions of activities. that we're the more the have RPAs the and controlled a into doing efficient going type UDB have interactions because pushing us lot into the We're and ruthlessly, also

interaction and But customers' small the that. needs we're the personalizing ourselves bank the a to experience improve be through then required because those than a service, we're anticipating and all type business in to for of things. every can dramatically personalization we add consumer also within the branch-based looking to a So that, better much make we're that's place a

technology quite on deserve become next Unfortunately, So that as be will making, quarter that good concern getting there's consumer, flying only we're products. through, going we investment I going is really that to but the for side on it's decade, massive for how stead to and clear have, credit strong valuation reductions, the but not with concerns this I we colors small think, emerge we're but people the as should the incredibly also get commercial we other with a credit business in of a we're and investment going see us is on this think this of things. focusing place not we amount for not the here, expense us, not one

Michael Perito

for me step back. lastly I'll And just then and

maybe early year? because about Just adjustment capital. about guys made or numbers calendar next get seems sense point, is to you the kind I at coming, guys as on with this on bit CECL deferral that? year work offensive the how not and there, little a follow-up to that. it very feel have that deployment, some just maybe probably On mean, want I of a again good you more calendar whether make the point pretty that capital your Greg. to probably updated answer just it Just through know you you later any But low, obviously, And last and it's portfolio. today like are does thoughts are you thinking the

Greg Garrabrants

an found guess to buybacks with aggressive something, we're to of know a opportunity but You yes, guess, or kind I today, even in or mean them. yes. dividends I like I'm just share more that? scenario, maybe But sure. respect hard acquisition I something that's or

Andrew Micheletti

Yes. them. it's No, think I hard fathom don't to

And at fit to to their look out culturally, we're our always nothing significant. systems. right our into there that our But looking tend There's We of to at to game, we well I game. in and build the out are framework think they like buy around we're opportunities. capabilities. don't not and the currently businesses acquisition built we that we'll But for continue that's of out own try then because it. think I

we're is We going nothing execute environment have impacting in plans. and plans, And to ambitious those strategic plans. on those this

everybody's see if motivated at capital I we'll look our think levels and something. and on task, and there's

And it loss very I resulted to took worst-case obviously, with the a been reserves. of Moody's loan if adjustment. think, here in frankly, model, CECL respect we've we our reduction conservative

So are And those well housing for housing either. horrible won't be downturns. severe a but planning over be then we'll we'll if we if obviously problem that's we downturns be, not reserved. very happen, And reserved,

Operator

state Next from Moss question FBR. comes Steve B. your Please with question. Riley

Steve Moss

Just you institutional new the mentioned loan start with wanted products to here. the Greg,

over kind if to wondering XX get the of large your months? And more envisage a you getting of there? the kind you're little how Just what's clientele is caring next color

Greg Garrabrants

funding enhanced you credit rates money Or can exact loan as specifically down. of ones lowering more institutional sponsors, work sequences And these Institutional financial of essentially, products, point. with loan I'm It's products? ensuring that which go advance rates about talking you Yes. characteristics, ones No. have sorry, was you're are you that just different, of I'm which are just talk referring It's tightening about to? kind talk products. type about when CRESL you institutional That all we the loan sorry, same wherewithal, are

and point broader it. the think kind hit Andrew was I of that on

he's rates at are saying, your down, deposit pretty fixed. looking going much he's course, are Of costs your gee, loan

rates. tightening there That's about really may that I'm lower And I'm we what yet, to credit best point the to put additional standards, that broader you we for competition we're very because my may model are So just there a have trying the in and to of going is, say loan it. be NIM. do be loans, should higher have much to direct course,

Steve Moss

to just loan I growth, terms want clarify. then And in of just

demand. I mentioned think in stability you loan

of growth. more single loan think So digits to double or how in of still terms digits, thinking high less that? Kind low about

Greg Garrabrants

Yes.

Steve Moss

the And question, it's equipment just know I third fees. finance then on small.

$X.X a other million banks seen had than more challenges one we've few challenging You there. with the fees

Just about kind thinking anything lines? If how along exiting about thoughts wondering those any of it portfolio? that or you you're

Greg Garrabrants

industry, insurance actually. is No. The biggest industry there the

a actual business. in on clearly, that the So are restaurant equipment are to our we exposure sensitive industries small have lease

loan often mean I what inside, water. mean doing that is a is or that that We highly won't short a I example, basket And And there's typical term what For on goes are leases inside. lease But probably say we on high hell term, what highlighted extended is. of loan. inside I kind those be a term use basis. and that often the those an equipment lot more our amortizing They're time. a has for period going-forward essential in X% on of of

lenders worth. rip and a come out equipment, there's little would I of that it's structure in these a around more that is my cases, this piece can but in saying, problematic lot bigger and of you make think cash all So alone lease And okay, lot senior and coming lot if very out of banks for a small cases, often of than it dies. be painful not up cases, end the flow whole there'd this

that that scaled that industries concentrate the originations back look, industries will environment, the That's think simply on. in to So we'll and viable or stress we happens. do. And clearly, new There I are then to there, impacts industries not are doing a I on industries think waiting what are see of business. well subject those

Operator

Gary Please your D.A. Next from Tenner Davidson. comes question state with question.

Gary Tenner

just estate SPE. is the that bankruptcy those held lot assets if In a commercial just are other wondering real one the course the lender a of of seen And there over have curious, to I of underlying those of finance of terms movement in securing I know I'm was underlying features of replace assets remote you in have customers assets. the last had words, the loans. any quarter, business.

Greg Garrabrants

like us there's definitely taken out There's some paid Yes. junior us or things or participants of where been have that. been that. instances down been There's the

things we there's but And that. anything particularly And partners and cooperative. taking sure don't us, particularly borrowers either and making right I And are very see some the them secure. types well concerning that stepping they're care up are it's the think clearly and we of and want pretty that cordially certain structures. loan-to-value have the being or that doing you we us. And stress or see assets. definitely paying So it's us structures for given the the do the that sure of in is, to making now ratios down there everybody are safe Basically, working

Operator

Please Edward comes question next Our Investments. from your with Hemmelgarn Shaker question. state

Edward Hemmelgarn

I Greg. just have question, one

Can deposits. a you talk about your left along for bit significantly plans You've with your the year? customer what that rather deposit your little over next grow balances bank are

Greg Garrabrants

which bit a always to economic failures think to that. stress with interesting It's to stress, bit you different. one This in concern is little bit Yes, each respect appears we is an not always that to probably around banking difficult little see and about. onyx a know overshot little a history have

than of frame little a up we in wasn't liked this running to bringing a time us. liquidity being And bit have having ended we would We and more money had heavier probably bad. to people little extra so

were from target doesn't have asset think there about respect is I little at probably could the are intentional. ratio. That's the loan-to-deposit I an to more this particularly This a But where was been rates probably are assets, liability have. a more have not that perspective. FHLB don't our so historically it's norm with And level. given the usually out we overshooting and that very longer to our of definitely funds aggressive run so And of given an of capacity that the to new represent we cost nature we not FHLB little of reduction. need borrowings a important we like We term, a particularly and of good. mix bit borrowing mean,

rates. of in don't lot lock There opportunities a lot and borrow have funding. we at that of so And longer-term to really a attractive there's but now,

to have we well. So think that about as

So

Andrew Micheletti

view I have mean, we're growth have the indicated, comments some also today as uncertain, while growth. toward we is

we that well. as for would set So we're be

Operator

turn closing it remarks. the to concludes I'll question-and-answer for back management That session.

Greg Garrabrants

concludes afternoon, joining Thank us Thank this and you, this that for you. everyone, session.

Operator

parties you. evening. disconnect. a may Have All great Thank