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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
David Feaster Raymond James
Andrew Leisch Piper Sandler
Michael Perito KBW
Gary Tenner D.A. Davidson
Steve Moss B. Riley Securities
Tim Coffey Janney Montgomery Scott
Call transcript
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Operator

Greetings, and welcome to Axos Financial Inc.’s Fiscal Q3 2021 Earnings Call and Webcast. At this time all participants are in listen-only mode. [Operator Instructions] I would now like to turn the conference over to your host, Mr. Johnny Lai, Vice President of Corporate Development and Investor Relations. Thank you.

begin. may You

Johnny Lai

Good Axos. Devin. Thanks your for Thank afternoon, in interest you, everyone.

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

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

we in remind I’d issued the call call. also release addition XX-Q, an over and listeners that handing Greg, like supplement earnings this the earnings press for to Before to to our

the call found documents to Greg. these of be turn the with can over like I’d And to axosfinancial.com on website. All that,

Greg Garrabrants

third income, balances Fiscal thank and in margin March and XXXX. growth and March per earnings the and ending everyone everyone, Axos XXXX Financial strong Good We income year-over-year of diluted another of quarter loan conference like Johnny. you positive share Thank the for ended Axos interest you, I’d I of for net to H&R welcome The tax sequential by Financial’s three with ended interest products, for year months quarter, in credit quarter is fiscal delivered your performance. longer announced Axos which the Axos for to us. and afternoon, you joining no expansion interest thank million Bank. distorted XX, we net Block solid $X.XX. XXXX, comparison third seasonal provide. $XX.X XX, net call

the in Excluding by return growth XX.XX%. on XX.X%, average income income ratio to efficiency equity and and net for H&R and bank’s Block and and related Securities. XX.X% interest discontinued income increased interest third banking XXXX XX.XX%, mortgage was fee was the non-interest quarter net of solid reflecting respectively, Axos relationship, income the Axos

The highlights increased of Our first and XXXX at was the $XXX quarter March the up loan XXXX. million, annualized this X.X% XXXX, from $XX.XX book quarter XX, tangible and leases XX.X% XX.X% share XX, included approximately year-over-year. per up ending following: up from March value by

third were multifamily, quarter, balances. quarter in fiscal loan single-family payoffs and two balances XX.X% loan first Excluding for mortgage Strong of the C&I the X.XX% from points $XXX XXXX. from estate warehouse, interest quarter offset margin of commercial ending increased was higher in real up by basis approximately million in the up annualized XXXX. X.XX% by Net originations second jumbo

X.X%, to from essentially prior XX deposits Emerald points December to ended loan up Advance margin cost Refund year’s points Net negative unit quarter basis ended fees basis continue unit loan December nine NIM. have in Loan related in XX, from December four overall continue interest-bearing continue loans Block the in X.XX% down up our impact H&R banking quarter, have was business XXXX. the X.XX% year-over-year. XX, The on for flat quarter of is XXXX. well overall basis points, a X.XX% of net was yields XXXX. impact compared the to the third quarter and XX, the interest banking a negligible PPP business balances at ended the margin Excluding Advance, interest to and hold

ratio balance an of The and notes segment banking. for at of compared XXXX the sub-debt our sequential service XX.XX% business quarter above ended well months costs redeemed On March XXXX. the X.XX% Tier regulatory expenses Capital second million of XXXX, for XX, was versus related the company, mortgage XXXX. third XXXX, holding remained leverage completed levels strong in aggregate due legal $XXX XX, professional February ratio the three redemption to of of at for result efficiency XX, Our March The banking XXXX, proceeds related XX.XX% X ratio a was higher in we overall the was in bank X.XX% all efficiency of and in XX.XX% banking the XXXX. XX.XX% the onetime costs issuance efficiency the of million. The subordinated September the increase from X.XX% both principally to $XX marketing of principal higher requirements. second business to quarter quarter was of outstanding representing funded with that with was

at by XXXX. to no quarter, in remains December credit XXXX, of quality at with loans X.XX% linked XX% loans representing Our fell assets forbearance, total compared leases non-performing XX, XX, and strong X.XX% March

Our our ended delinquent. the third to small loans of billion to in from down content year loss on number $X.X balance with low focus ago Total period. values that was loan on the $X.X XX.X% contributed asset-based has for originations XXXX, become the March low the on XX, billion, sheet loan loans retaining quarter

on year-over-year. production, QX increased million $XXX production, originations XXXX and in C&I as production single-family $XXX unsecured million $XX production, jumbo single-family of real XX.X% a of Block multifamily production, in of follows: $XXX total by portfolio net agency of Excluding related loan loans resulting H&R year $XX million $XXX commercial period, ago auto million million. the were of sale increase consumer estate gain million originations $XX loan million of production, of and loan

over approximately group quarter XXXX a sale to to had strong on industry although of mortgage or in lower XXXX. past mortgage linked $X gain the result $XXX interest Originations the have in compared XX, corresponding in to $X last to Our million generating decreased rates or million XXXX banking quarter, due the banking for $XX.X of million quarter activity in steady outlook the income another million either second may slowdown originations of refinancing both quarter relative and/or March overall The been increase three lower two the loan year. mortgage in end to we remains from by quarters. XX.X% solid, what banking experiencing margins and

was Our April of agency single-family XX, at loan pipeline $XXX mortgages million XXXX.

Our the mortgage XXXX. strong from million portfolio balance from mortgages. warehouse our mortgage was million in XXXX continues down continued March December billion. in for up balances benefit demand warehouse XX, business $X.X to $XXX Ending elevated significantly of XX, And – agency from $XXX

and establish We relationships expand warehouse new relationships. mortgage our to existing continue customers with

countercyclical to and Our provides single-family more lending strong for a asset generates our returns us warehouse balance business commercial businesses. sensitive risk-adjusted

third Our in prior the the compared of to X.XX% business X.XX% quarter the third net in quarter interest fiscal margin was X.X% for the XXXX. unit in quarter and banking

Excluding our the interest net the unit points was up impact linked XX margin business up and of H&R quarter year-over-year. banking for points Block, basis basis XX

loans, at loans the that hold single-family have Yields mortgages, floor the continue of billion for banking XX% in side all majority quarter our an our the lender loan asset originations approximately XX, March underlying adjust X.X% XX% to multifamily ended index. asset-based loan the quarter loans portfolios estate multifamily XXXX. book, rates. as XXXX XX XXXX. of with XXXX, X.XX% are yields of March of X.XX% asset-based single-family rate estate loan for yields Of loans are and X.XX% loans. their loans XX, at lending business, the in The up to variable rate XX, being ended XX, real loan XX% December with as finance specialty our with real outstanding X.X% C&I average at jumbo On were and the well vast compared variable to facilities of and our commercial mortgages floor In specialty rates $X.X March our arms collateral. commercial for and are of Approximately C&I for in loan

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

commercial Our checking business March XX, from by increased with small and in balances market approximately deposit growth $X and accounts and balances. consumer, XXXX, billion and strong money savings

$X.X customers, our by ended to receive the Ending and up deposits service services non-interest-bearing checking in approximately offering XXXX, consumer quarter. for from technology-enabled benefiting XX, and business small Our prior best the accolades billion from quarter accounts demand or XX% continue models. value the for our checking March

We we at off-balance that of approximately to Ending fiduciary March balances $XXX good balances commercial were treasury were on our able at million clearing low-cost including $XXX deposits approximately businesses. in are million of deposit sheet. XX, with making our and services progress banks those businesses, to management continues XXXX. specialty Axos generate put other or Axos cash placed Securities

mortgages losses. XX, and single-family an non-performing total in down ratio period XX% of year. and three of quality XX% XX% three loan XX% remains our last current was second to XXXX, XX, where corresponding realized the in fiscal XXXX. very or had loans, XXX from assets Of estimated had at below points Our quarter basis or to to our March single-family Of basis XX% Non-performing compared Annualized loans points are average XXX our of to charge-offs loan-to-value leases at below mortgage basis quarter historically are credit quarter net XXXX, estimates low approximately for points loans values. approximately points assets solid. non-performing this best we’ve current basis March the the ended

not six delinquencies which XX around with for delinquent Given previously average, that single-family balance. LTVs delinquent consist million that multifamily of occurring XX%. vast at one a anticipate total unpaid this multifamily majority loan-to-value, losses on than to our we Other remaining an for of had two on $XX.X the loan XX% million days We that loans. around single-family of these the loan-to-value principal to are mortgages, $X loans hotel on around origination material do delinquencies, XX XX of we low XX of of discussed, delinquent days origination is are were loans $X.X million value

with XX, and no of work as loans XXXX. to continue March We forbearance to current, loans bring on borrowers delinquent we have

growth loan provision in The improvement XXXX. XX, in quarter primary loan the million compared million million loss loan decline non-performing for this and December $XX.X for ended was balances. reason loan to are $X and XX, sequential March quarter XXXX in loss provisions Our our quarter lower sequential in $X.X the the

Our for leases. loss total loans at which was million our represents allowance loan XXXX, and X.XX% $XXX.X of total XX, March

our in billion the XXs provisions hard in were Approximately been anticipate XX% making changes secured we in economy majority assets continued, receivables. million loss While related of the by calendar COVID XX, estate an commercial not of our and we outstanding back of improvement lend vast assets rolled resilient including in by since March restrictions we $XX.X XXXX, real collateralized steady loan-to-value do the loans have housing have where loan with values by have and XXXX. markets significant to $XXX loans at average seen

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

for March quarter. Our to XX, quarter XX.XX% banking efficiency XXXX, in the XX.XX% segment the for compared last was business the ratio ended

in at people, grow processes can and invest continue We of on to we larger continue a each technology businesses our base. in that ever to so similar our asset percentage infrastructure,

strong Our of capital the at X.XX% remained holding of leverage X adjusted Bank. company to with ratios X.XX% and assets Tier Axos

March approximately to million we at Federal Bank liquidity at XX, $X.X Federal $X.X in of discount the third as Loan Furthermore, $X.X window the excess Home access of have had billion have we XXXX. $XXX end of billion also the Reserve of available billion outstanding quarter. We borrowings, of

and to call. opportunistic such the this make coupled that acquisition Financial, capital we strong benefits the the will us financial last as discuss returns, Axos Services and announced later allows strategic Our on of with week. growth transaction organic and excess E*TRADE acquisitions, I Advisory

unsecured commercial $XXX $X.X single-family XXXX, consolidated on mortgages, loans. of $XXX other C&I solid million balance million XX, March small and $XXX commercial real and $XX million Our loans, estate estate agency term loan real loans mortgages, our billion remains approximately pipeline million in jumbo of single-family million multifamily and at consisting auto of gain of specialty with $XXX loans of sale and of of pipeline

high percentages this grow X.X range expect in the digits remainder We maintain margin year. for to able mid- low end calendar the net be high the to interest to target of in our to our and double-digit single X.X to loans of

coming Although lower of our range at certificates we indicate. nationwide, are from anticipate certain might particularly net loan us our margin at of interest we currently, in cost deposits the higher that than to funds be of this in and the recent will able rates and significantly do acquired given the our in year cost expect acquisition reduction expansion runoff competition that above lend require result rate to of we margin otherwise in this would segments of the bank to book our AS less funds of

us business, and of XX that those engineers, to differences continue processing, business. AUM back-office Clearing. functions. and and a advisors in experienced variety marketing as is to businesses as with significance from control substantially and offsetting operations Axos XXX Client by FTEs technology EAS XX% $X our other wealthy growth fleet RIAs RIAs mortgage off-balance no custody and increases Custodians. of more progress. amounts Adding them space. deposits calls as EAS largest this effect transaction RIAs the the services portfolio providing or securities of to also accelerates as scale Clearing Custody credibility Clearing correspondent income the management deposits. to middle increased lag about number business. Liberty addressable custody will management experts comprised enhance RIA our infrastructure market announced banking EAS and benefit source quarter under low-cost capital rise lower used billion income our million linked our bank We that can signed a market faster effectively in hundreds provide who opportunities to platform reporting, deposits conflict provide to low-cost will ticket high-touch in discretion signing EAS’ this and end fee cost third-party advisors scale and is Independent that With similarities the growing turnkey have and assets us in partner me and gain flexible the ending optionality and a believe in to EAS market custody to with such interfaces economics. from we from valuable Colorado, Clearing time billion generate share significantly the independent independent practices is prior and services us deposits, have clients recent application over and assets management most to Clearing quarter. based quarter headquartered fees additional RIAs, are five corresponding between client-facing our share environment. of agreement XXXX, What interest called. $XX of model of Axos dedicated make business, an where charges including is support and business platform week, excited managers over dramatically new Custody Day in clients interest and RIAs to we Custodian EAS Custody deposits as under with management more entrepreneurial for business top leave and Clearing talked scale, have is and makes grew systems servicing platform between XXX and dramatically grow to of On Like and and of the Deposits and advisors their the technology asset proprietary linked Unlike broker-dealers. alternative approximately greater in business expenses, become Service, as to management, a $X.X TAMs perfect our to competitors quarter, asset total by to their tickets Last the of clients complement with to an and and services this deposits a and custody, technology provide sheet provide a incremental capabilities. processed that a operating that that warehouses service onboarding. almost positioned program generates We software three for of client the total two we marketing RIA most optimize add system and strategy culture, Advisory million gain asset clients. with rate serving team Investor technology in the team rates large the clients two tickets including cash their certain and liabilities to and we securities for December continue from independent on importance commitment transaction-based transaction-based no ability focused our operations their deposits fee team are liberty through is believe assets generated tax banking than bank’s We is new as in three with makes a determining is about sole team both RIA E*TRADE more custody $XX growing whether are we businesses they quarter credible three purchasing. primarily to a approximately this of fund more the look used a approximately members, technology to and which new Centennial, EAS and Our The is platforms on securities well funding serve acquire with to relationship with alternatives transaction we and client to hold billion over low-cost signed use X% Clearing almost fees. FTEs. clearing to proprietary consumer technology, that the service efficiency. client-facing steady of RIA that

on on that AUC this ETF charge assets very clients their custody increase, For financial is appreciation, management balances fee-based amount wealth EAS with example, the either a custody In mutual to also assets the third-party When fee-based of similar new custody for paid or under EAS market custody assets existing mutual growth also increases. the and the that charges new under custody. from or from EAS respect, an funds use EAS to and model who fee from in asset in management providers where advisors management. ETFs annual funds collects of or commissions those investment portfolios. net businesses

Finally, related million of statements revenue services. approximately of coming generates XXXX, transaction-based EAS in about $XX EAS to half that income. paper other net ancillary with from total, generates fees and In net interest

partner at Going forward, the off-balance client revenue the deposits on Axos held from vary depending deposits on much sheet and the will balance Bank’s banks year-to-year. rate on paid EAS net how sheet are and EAS, those of from to

to perspective, We to offers this members EAS XX% about commissions. and business. were expenses compensation From team expense invest XXXX an grow benefits operating and expect extend sales to noninterest all of the

client sweeps, and relatively cash and net Custody believe source consider we business attractive funding run offset some million. to to of onetime generate largely income fee the we initiatives and approximately $XX from of provides transaction-based stable the exclude from revenues. efficient us discontinued, generated are annual operating expense E*TRADE deposits. this you with RIA has prior rate If the that are we the expenses core cost low-cost and When asset operating The able another by expenses operating is related

between not of from This an assuming our in cost incremental to conservative, as cost and base. respect otherwise be our costs one at perspective. that grow confident year are only and identify transaction been a financial customer $X and million meaningful To million attractive synergies incremental – are $X.X might Clearing We two. customer particularly cost Axos in we we Clearing with will year strategic have synergies incurred starting that is synergies,

Using be We fairly capital will at two. our EPS purchase our price one expect million least with X% cash accretive year the X% the in to conservative fund holding assumptions, entire year acquisition we accretive in to company. EPS $XX and from the in excess

business be we’ll to Over calendar QX, few the next to bank-owned broker-dealer the projected transitioning XXXX custody a prior a from platform close. the months, platform

and Axos, of the its broker-dealer at large of The custodian organization. to and excited forecasts. the EPS EAS in banking We potential does products our cost is and that services partnering of combination will a earn wealth Clearing accretion we synergies, We proprietary the have with developed opening they RIAs and integrated across custody compete compliant potential for our back – with platform Clearing, and with modeled Bank. Axos consumer believe banking benefit platform with RIA unlock valuable bank with with products revenue Axos us revenue opportunities is arm label will we a tangible will custodians. Custody a Invest account not management fully technology which as about with Once clients provision white them as we technology entire and as front-end makes see for meaningful extremely other Axos be Axos, typical own cross-sell and us of securities banking commercial and their our to our the our that have host the have long-term not and with consumer

This X.X above the to to our range. above submitted estimated increase will rate to NIM maintaining not FINRA these however. our and approval, our into week. to our modeled require X.X has while loan FINRA annual to or teens additional we transaction the accelerate growth the X last Furthermore, application low range off-balance interest X.X the being accretion on our move banking deposits have sheet low-cost We numbers, flexibility of potential able margin net opportunities cross-sell or

continue Axos The in and through on products our will be Banking the and and of offering investment self-directed focus will one the online Version self-directed X.X to mobile June of simplicity across see test application. date various our sometime being trading beta clients able convenience value platform. to trading launch transact existing quarter. We who preliminary

and managed delivering the it will client and do customized models various us to ambitious prohibited trading much enable that more clearing and pricing experiment allow and ability to with have should an a we more over segmentation with would a cost did revenue of retention. own be The robo more of if portfolio acquisition, company. importantly, journey through customer not per us banking product a to beginning own detailed our reduce enhance time goal exciting More self-directed our experience. of cost advisor, customer increase customer direct-to-consumer It’s the

We are also actively about working on of adding will excited the cryptocurrency custody our that by and calendar that, I’m trading end each of into ever our than be opportunities this self-directed platform year. businesses. and expect in launch beta we more the have in

banking Axos Some Clearing scratched and have mortgage Invest relative to of Axos meaningful generating And profits and lending like others surface have investments their such the are C&I long-term today. potential. we made only as the

continuing investment and direct set future and funding of has consumer a and subsidiaries improvements customer self-directed in significant across and trading diversified that of account product Our businesses bank, technological creating fee-based channels. acquisition launches through By to cultivated our and securities the are make lending, growth. bank, cryptocurrency indirect commercial offerings and to experience trading by operating capabilities user our consumer drive opportunity

better and growth, are consistent of to maintain competitive irrespective positioned We changes. economic, most than profitable regulatory

give to you who turn the on results. financial details Andy, will call over our Now additional I’ll

Andy Micheletti

Thanks, Greg.

our our and website to some topics. the details. First, our and available for release, online at or EDGAR axosfinancial.com. addition in through our press additional refer through SEC to schedules XX-Q that filed I with release comments supplemental were note are Please to our I with two on brief filings or SEC an today provide will wanted press X-K

XX, million Greg this was was from due time million The As change losses the XX, December to the quarter last quarterly for in the point down for our growth. XXXX. ended for March credit loan provision ended $X in in $X.X mentioned, quarter linked quarter decrease XXXX,

for and growth additional of loan move balance on year, based over types. ending the next provisions the quarter look to the loss loan growth we As with we forward to the mix expect loan loan the generally

decline loans this issue ended previously, exited discussed provision quarter year’s and portion As relationship $XX.X Refund XX, is March quarter loss not with this H&R which million we compared our Advance to Block the large ended a XXXX. loan XXXX, the quarter, last of XX, March did in

the H&R RIA they Block due Although pass-through IRS to we XX, exited relationship, delays. processing through payments to the tax to agreed April XXXX, continue return

XX, March an loans $X.X of of allowance approximately by was is XXXX, million XXX% covered credit RIA left, which of there for losses. As

quarter, any the Next we RIA million uncollected expect charge-off $X.X of balance. to portion

is provision However, our that impact charge-off period. not loan expected the loss for to

pre-tax breakeven Securities XXXX. quarter. our loss compared turn XX, cost quarter the excluding million and improvement lower XXXX, for quarter. call for operating for improved ended $X to this Securities to this higher of income. about the results costs segment business. last $X.X The offset Lai. million million last the Clearing, compared March the Moving pre-tax onetime partially Axos incurred broker-dealer Clearing $X.X XXXX, interest transaction ended benefit over be that, when The ended quarter quarter to The Securities The primarily to from adjusted a Johnny by quarter of at With a December XX, last growth the results fee a increase the segment was to is this by quarter to million income compared I’ll income due XX, fee $X.X back net in resulting December would

Johnny Lai

take to questions. ready are we Devin, Andy. Thanks,

Operator

[Operator of first from Raymond Feaster James. question your David with comes Instructions] Our question. Please with proceed the line

David Feaster

afternoon good everybody. Hey,

Greg Garrabrants

are you how David? Hey,

Andy Micheletti

Hey, David.

David Feaster

about just that of of driving pretty you’ll when And of in some and you color all some process? you kind with wanted of quick really I integration supplement? integration be do share? appreciate the can start the to just the a addressing you curious market think was start start when talked EAS. that? conversion And I the you Is about platform that maybe think limitations – able to

Greg Garrabrants

the the is expect done XX. we broker-dealer we to be – so that with we’re integration Well, creating that July expect that by

We also product. think that Liberty is a strong

RIA have already pipeline. a They a company Clearing have obviously the much have that team Custody a We sits sales business. We smaller in Custody already. RIA

impediment an grow. is with respect there need technology the we to to that that think in Liberty don’t we So order fix to

we platform. single a It in models fact, areas. is best-in-class think actually in a that. good In things multiple like It account, many it’s allows

growth ways. is So few hitting technology that will many But work after in map with acquisition the it every – to we’re on. road ground to There’s things respect actually pipeline closes. over running. the a want technology carry road we great on EAS for has map, a the like that

pipeline We a perspective. growth have from a

bit There well. we’re of of care looking make something to that transition going. having current that be of think we’ll properly be But I to immediately. sure just momentum So almost be little should that a a able perspective taking a from it’s may to the and the get just goes grow customers slowdown that

David Feaster

just And That’s loan strength it the the CRE. the in Okay. at was see specialty to great. growth, then good looking

is Where pressure projects Just kind of in? new What pipeline more of some? that business curious one that this whether competitive is – in margins how strength? talked rates you’re interested those about And the you that then maybe spending? are in segments seeing you

Greg Garrabrants

Yes.

obviously, quarter. that grow own by continue we’re balances But loan, rates expect rates side they’re And of Frankly, really there. did be those mostly often is residential well. we as the doing up the projects that in on leased say to there. like are projects that do to up loans With is in and projects. very in related things are to do I’d some make the also you rates well most sold. decline going market I condo residential the are have significant the in residential, units performing strong. are type so that will significantly. So there, expect very, is which our that, and the are getting multifamily very lease-up, time the holding that this going it forward adjust compression the pipeline single-family balances there single-family we We to had that respect not look the

with single-family based our it to that dragging the be we at this we least, respect growth so But that down to not be own, will able much what seeing on don’t believe quarter And in we to that growth. ought did on pipeline. way a going-forward the may basis loan get hold we’re believe

it historically, So we’ve really we it be lending much expected not a obviously, may via And there. variable it, negative warehouse I more then but think of be had is grower the will business. don’t that

we rolled in a bit, resulted that result lending December quarter but so in had that in the a loan there. XXXX that going of new we was clients balance lot to through a But almost had, – as high-growth we we we which quarter, the temporary expected did, and have growth the XX, warehouse And it lower high entirely this of adjustment. adjust

as well. there still our We’re own holding

to So than a continue four was much hopefully, will quarters bigger ago. business that it be

David Feaster

and And Okay. more partnerships then just several crypto strategic seen maybe higher That’s color. enter into some good We’ve investments. of a other banks level question.

any I and the things, this side Securities given business your have of something all? guess, so, you Just kind if of you how? all the to interest side mindset, is in of in? see opportunity cryptocurrency things innovative And And do that participate at

Greg Garrabrants

incorporate we other off it and can if assets, for that to assets will those way trade crypto assets then our they would The card. they monetize custody we’re crypto that those can, and assets with allow spend clients do. and a is We platform, the going they crypto like trading then in to to Yes. then

we right I write a for right and really think, a and for exchange check – there’s out not to wire, don’t came there’s transactions. of, that we’ll a I BMW or lot assets, if benefit now take those too. those also a assets said, But have car. just now send take have you assets crypto there. they’ll – actual plan crypto mean used So a There’s crypto

yes, crypto RIAs recommending being of portfolios percentage increasingly assets. held conservative just something are more think that becoming some in is So even it that I

Clearing is added that. that trade that I company that to So the integrated so capability have service. being think we can it will to something be And

it’s will that it value, will consolidated. the think be customers given I something way

David Feaster

Okay, color. that’s Thanks. great

Greg Garrabrants

Thank you.

Operator

you. Thank

from with Leisch Our next your question comes of Piper question. the Andrew with line Please Sandler. proceed

Andrew Leisch

Hey, everyone. good afternoon,

Greg Garrabrants

Hey, Andrew.

Andrew Leisch

good is do solid but pretty nicely, million growth on forward? dollars. So margin And what the flows, this build going it’s up I to guess, number, do NII obviously, warehouse from Margin the based here? is Is liquidity $XXX to the but repeatable level on just focusing here. the going loan a going to excluding the

Greg Garrabrants

Yes.

Pipelines good, – think loan definitely. said, expect I And are single as growth. look, to have yes, we I family.

asset think what I by a significant with on not amount. lower expect growth. may your And growth you I happened and rate, But think I loan we have to but loan a should higher in expect in to – respect the have warehouse. in – to good think model think growth, general, to had that you that given extent new at it I come the just

– But into that that going You that’s adjust quarter fair actual you a obviously and that. think have for statement. have I this yes, to roll

Andrew Leisch

right. All

better looking had guys You than quarter. this actually I for loan growth was

Greg Garrabrants

We be have optimistic. more to

Andy Micheletti

guidance didn’t our I Our still mean guidance – we change. are... really

Andrew Leisch

mean, of the near like of around lower But the just XX% near it level kind this next the you’re could where just this I’m growth is level? allowance maybe so. this to couple Is drift right your I that’s mean, provision than quarters, much better, keep up or right a your is historical How next but to I loan the not or provisioning But loss still comments. years? justifying for but shifting it sounds be playing case try to history guess, the anything lower see you in arguably, adjusting over And reserve why for there do couple over much growth. it of out now. I going

Andy Micheletti

way is couple out years there. Well, of yes, a

quarters. cover me Let couple the of

growth. going I around think now, we’re was we’re our comfortable move for that that to provision guidance

reserves little are it, loss X.X obviously, goes it time do smaller expect had growth in that a for we at bit which If up, happens, in growth depending quarter So and we commercial a between to of point X. closer the on point where loan time. this

estate, to growth net rates don’t of that So or if rate back go have if from mix is broader release the that comes growth. could single-family expect grows, on are little more out what Obviously, we’ve kind that our put a number going good That’s run growth, if there necessarily all on loan is down commercial in bring smaller. real our bit got that we up. point forward. expect rate to we loss is the growth commercial, here – we you’re it at X% But looking that loan which

Andrew Leisch

Got it.

that That’s detail. my questions. for Okay, all thanks

Andy Micheletti

Thank you.

Operator

Thank you.

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

Michael Perito

Hey, good afternoon guys. Thanks for taking questions. my

Greg Garrabrants

Hi, Michael.

Andy Micheletti

Mike. Hi,

Michael Perito

billion operating On $X.X built? has with are the the EAS those – I are the are like – Greg, of but I just RIA side, apologize, accounts missed it, deposits, those

Greg Garrabrants

those and is – of that subject Their RIAs and the those cash accounts they have cash profile XXX,XXX about they different each has in individual and the way agreement. tolerance in allocation own No, to a customer accounts that. about sweep that like client its And things there’s – have asset RIA there. that to that. But no. is – general, held those that’s And manage – level does and a risk think

Michael Perito

the of have stuff that that I have have guys lending? – I’m that lot to slide there On – based they at is potential could think in. – opportunity is of the to? there? your put today? to you trying upside products a customers these could that all – this is quickly. security out looking just do how rolled just out. be thoughts to do eight And relatively type they Is of something mean, EAS when so the access kind access like fit Any I cross-sell the credit a there I’m of of of mean lot RIAs of

Greg Garrabrants

We Yes. relevant. think you in of numbers, That’s put make a lot a that very that’s the And good I accretion great but points. didn’t question.

all a a assets margin these was So this which broker-dealer the to of something was wasn’t had the clients, limited RIAs zero client. particular of ability that that concerned on with platform, lending given they and the place maybe

have things dual they may or they just don’t that. So custodian be

you can once broker – have with have So so that’s integrated the to a margin lending. don’t you dealer,

if secure Morgan Next, line the a automate or the idea, up of very is lending, securities-based assets but personal to there. rate for for you connecting low just the are which a liquid Stanley, to locking that of ability left mean, you credit loans you’re the credit the an type obviously, of finally, are form things then of card. against, bank those very and interest And I your had just out RIA and there. competing that you’re you if a And paying mortgage loan, your Well, you bad if this left, you give loan. is had keeping Custody needs saying, well, all can a Axos we’re Stanley significant really you and over your it’s you’re XX% everything here, that’s of a sudden, mortgage I know like but too money And Morgan a gee, and client now split advisor, and you’re and problem. hey, here. over we

of as access the services of one lost sets warehouses breakaway by to advisors So banking from are they products. lose that

So we believe, and proven out. we’ve already it

better clients’ fee. have lender some is one have clients now. give product to would really we – well, through refinance there’s them an we the because – them introducing value a that giving deal. and said, portfolios my we’re during waive every those mortgage We custody business Axos And my of some said the Some RIA going taken we been And who this. they to part RIAs of boom,

just benefit was their opportunity was a to went good is payments It guys significant no out you this. this to – look, And they mortgage. need customers. to a a So there’s do And said, that get there. and look,

the And utilized customer. both customer Clearing also product So of is is front-end applied core their the it RIA and integrating end that built is statements That clients, else. end think, a then banking extent for. applied a then for, is, banking platform these that I an definitely Custody strong technology way that then and can to see we gets And all front whatever we’re to a opportunity. the And really for platform. be

sort majority gain we a app, those are but wide so it get It to enthusiasm client. are think that a So And angle overstatement, there’s work created opportunity. to, Liberty but there’s concerned, but But has have universally things. we’ll moving. maybe wealth an concerned to we will an of RIAs, we to different access those a mostly manager without there’s that when bit work by this, the these our talk of app about we’ll have and competitive to universe because levels it that a do do, there hard I get And own we so products, lot and to have right. through and things they’re of its take to not

Michael Perito

I going just Right. I So it seem fill right? types offer would like pretty that cross-sell probably mean, would full like weren’t really have lot to accounts. like previously, Well, like beyond securities about compete I a that, challenge, you of could these that mean if mean, they all mean seem I could who’s possible if you backed these think there’s lending, things mortgages, after of that services suite you things, a like like that it right? mean, you it’s guess... private type with was money I market clients, imagine, can’t deposit mean, I I even Chase to I able

Greg Garrabrants

Agreed. Yes.

are I And API right. have seamlessly. think all that’s absolutely for the Because technology all deliver we enabled. that products applications the our to

or mobile whether or And through so we it’s process. a application to a RIA whether that that online, have relatively seamless make the facilitates ability facilitated the

that the because to we’ve our come have large would we really RIA be and of that have That custodians I well. how frankly, make opening technology account we to – very and something big work. technology. generate not opening is our great something where take obviously, account from, that’s able But it history have that – – think And done exciting. that’s So a

does play? Those on into the much opening come opportunities be account into play? our how basis. consumer And going-forward come So does technology will how much interesting a platform

Michael Perito

talked ways of opportunities. about, there’s of as and clearly, actually, that it Got think about a dice And see cross-selling the just lot lot a opportunity, up there’s you you it. right, to –

an of risk think core in to clearing we similar that about fair of a risk opportunities that acquisition those would the with the with? kind those of that you be guys and anything Are lot bank that look of that CIS, in to we guys, just the think of it a like As fraud is for that else when comes the those brought considering of terms guess, onto I of are kind should nature. that I platform? that there mean, like things

Greg Garrabrants

No.

those RIAs net just why what that this from that positions Custody liquidity an those the making things. and lower up stocks is to a with And you’ve the where they’re Axos domestic, standpoint it’s of this simply right? – – just in really short, – I sure There’s So have not somebody shorts maxed RIA reason platforms. these think of sort coming And managing of it’s yes, Clearing, lower obviously, is isn’t the are in these much a much it risk is obviously, think something doing balanced that you’re through or and trading got high and right? is equities, worth the type worried a I some all really have, kind risk portfolio specific or so fraud of not listed that relatively not lot of risks. through business. you’ll of the right just massive those manage of have about, ETFs That clients mutual trading people that’s individuals hired funds, a

much is So say this easier perspective. the to business a this would manage market I that risk from

Michael Perito

level just think end way crypto form. sense. I of just lastly by me. you guys, high then entrance the The Makes from year or right? If shape And the the one potentially for space to

here. of kind both such evolve it that and time? more will of kind do, mean But element of the a consumer-focused guys, think out what crypto’s there’s dual-pronged stages. is There’s gates fair obviously the into commercial you to crypto element kind institutional of a strategy there’s I really in over have a sounds early say I you adoption a with like of it and lot likely of a then it’s right? consumer side

kind Some be well banks as that added are is of this you there an I any lot would considering a opportunity Or path? do you mean, guys great? down thoughts there already. as go

Greg Garrabrants

it think interesting. I is Yes,

opportunities. that. lead think I – interesting it’s will it think to there I respect a And with are inevitably think those I that

Michael Perito

thank guys. Well, it. appreciate you. Thank I you Got it.

Greg Garrabrants

Mike. Thanks,

Operator

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

Gary Tenner

afternoon. Hey guys, good

Greg Garrabrants

Gary. Hey

Gary Tenner

ask of questions. a I to wanted couple

million, about on run interest XXXX, first of rate I the VAS, million from $XX of think, was growing $XX you that half The net about income. talked or

them look and off. better your sheet pointed couldn’t incremental quite of or sense kind just going the of on with maybe square those get wanted thinking? mix deposits to margin keep trailing obviously, those earnings accretion you regard assumption a whether to for there’s I a kind relative that on And But And I as numbers be just assumptions. like come over? of out, what of you’re working get to a to So – is trying what balance you how to sense your

Greg Garrabrants

Yes. Yes.

assume see that and So thought bearing client these about basis But and here’s earnings the of we it, are supplement. page can we’re seven $X.X And on way going to the the said assumptions, them we you then million cash that basis point we five XX expense interest have interest to savings four from earned EAS’ reduction cost. points. a Bank’s in a Axos

it have have an of – now reality we the extra already we Now is, billion deposits. have $X.X we – of

and outside Clearing. million $XXX have We Axos

aggressively cost going our deposit down to We’re as of manage a this. result

markets pretty, can our a for savings sort assume points. across checking, consumer cost picked estimate okay, a four down deposit by we and conservative I basis let’s only money commercial, we said, So of to take pretty and all and interest-bearing, think, five

with think because net cash smaller, saying, EAS a as doing And I business from worth economics it’s reality without, you’re that’s a numbers those would what be but come that. think RIA cost, it, be a it average my what than, And and to accounts have than we up costs deposits try assumption, checking have let’s consumer all-in interesting that’s of coming – at high zero what are we ones the about interest you accounts, Now this conceptual interest client conservative perspective, they also have we with sticky would those there. a that’s, in to that is down we when of that’s an those my we custodies. lower say, accounts obviously, have earning be to operating that’s – to accounts. very generates have you rates which, have are then of what supposed be these rates have continue although with economics than, service cost from on When actually pretty mature, but may lot obviously, lot they and is associated

assumptions So that’s what around. made we’ve the

that I pretty think also as of those as enables in is going And to loan to of bigger for here assists of how going with assumptions asset this quickly actually the the rates variables. cost we growth look maybe forward reductions looks deposits. us in tool, that sort room aggressive competitive about deck. that lot is also, order then more well, that and supplement element growth then like make made it’s respect set – accretion loan just This funds the NIM, gives that So in at right? yield, and given to we’ve a balancing this, another think we’ve it

Gary Tenner

vacuum and animals. a in at added of business that combing slide slide versus in Okay. impact it missed versus second-line I Yes, old mean, week. rating we’re the fair of are last the deck enough. certainly the the I And that different the looking two on parts seven

Greg Garrabrants

Yes.

Gary Tenner

appreciate that. I So

of the what Andy, us can work kind terms kind down and going prevailing In of rate is? the to remind remainder of that just you nationwide deposits deposits. the is of those you’re what’s

Greg Garrabrants

there’s there – the good adjusted checking as stuff. whatever there nationwide CDs. that just we’ve I mean, was that’s and And is

Andy Micheletti

Yes.

in year, Let million $XX in $XX September. there’s in million piece a snippets at piece big a me July give X.XX%. There’s at this a piece million of you a that X.XX%. $XXX of couple There’s August at X.XX%

that – to see, pieces as you where So across bigger off is that. that start that amortize can the quarter

And we’re just about, as looking probably you XXX CD million million – look is about balance of $XXX it, book so the at within nationwide. $XXX across Group nationwide, the call whole the

Greg Garrabrants

long-term... high And those were some were of – they

Andy Micheletti

Very long-term.

Greg Garrabrants

were that due rate environment. coming from higher different are a That

people there’s excess But the obviously, these. offer significantly adjust the rates obviously, are renewal. deposits going bulk renewing So businesses, the we’re frankly, the to to extent of and of securities across some

Andy Micheletti

showing you out May group there, them. that lot I two also XXX. me numbers let then group, a million $XX at know in more off at million but you and June that it’s And in of for coming in $XX I’m another Yes. give XXX numbers. want

that flavor it’s down. how you kind coming fast gives a So, of of

Greg Garrabrants

on know with get funds this, of Right businesses. we’ve lot a to with about way and we’re We the and cost what cost doing of been a of it’s better, think going I movement. But course, broad maybe adding these it’s I conceptual a to in lot what think doing obviously, obviously, we’re side, right?

and put will loan and improvements our have more NIM businesses there get scale We as allows process cost like having have so the in place get rates, to. flexibility you things trying to that we lower because that. and to into get But on these target you obviously, ranges growth also loan more we’re funding within

end of rates. kind set result you flexible a more of around those a of flexibility respect a loan little offer of growth as move all getting an a more So they but with ability loan to bit, to up

Gary Tenner

think kind intangibles, a that. give or you don’t just insight talked can you bounce or relationship like going back And it. I any that this, there? of in goodwill at to intangibles of EAS Have I’m and but about to for customer anything then terms us I any Got Or second, missed all?

Andy Micheletti

We it’s obviously Gary. – early, super Yes.

So This got Derek, intangibles? here. in as could But rough estimate. I’ve you just very what we Derek or change end, way total up the a giving another. one end And did we’re using

Greg Garrabrants

million intangibles is to software. $XX $X $XX to between million about of million, Total which developed that $XX of $XX be and would million internally million million $XX

Andy Micheletti

is. is, So a it of portion large

Gary Tenner

All right.

Operator

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

Steve Moss

good Hi, afternoon.

Greg Garrabrants

Hey Steve?

Steve Moss

following of terms just – of yields. terms in up Maybe in just

Just days? wondering, for money to these coming yields are where in start, new loans

Greg Garrabrants

up. yields like is The new XX, XX I are money points, are down down. pipeline single-family almost The that. probably basis is probably The something think, yields,

a – much. then that’s isn’t I don’t the say I the is Right mix I max. think now every depends really but from And this stuff right. and then, little about think not C&I maybe and a now, maybe pipeline pretty much. And down is multifamily I was the it’s think bit it stable. down then quarter, on

But my what’s just that just have and think, I there’s kind be is forward looking want I of don’t environment going overstate thinking pipeline. or about that run I to and I where So option – happening an associated with think and rates we funding about concern the massive could it to is cut. that we the go is time, with that the enough out competitive cut some Single-family, just our and have results play – where a cost. bit though, see something in to

that’s And so out. coming that’s kind of where

Steve Moss

color quarter there thinking you’re balance. six Okay. lending That’s about there? over took helpful. that your XX And SBLOC curious can in give months? off then But small SBLOC the off to you a pretty of here, just growth And next the kind good any how

Greg Garrabrants

an And both RIA is is I I end Yes. on Custody there’s mean, the clearing for – is SBLOC there the really they mean, occurs the and – also That’s on RIAs way integration those road the for it it map. really – and and of exactly occurs the a just be, a clients. that institutional side, brokers that the tech integration their then now clients. needs but right to the consumer to there’s offer that can not so it’s couple systematized

there. custody kind these that. the And time now, and then is being a people are But ask demand the comes and assets same collateral more client margin things and them be ensure has deals monitored they’re that to done. are declaring they’re right would the and so way of the over and a of in much broker And and this for the – needs and like monitored a locked up, thing. manually up More obviously, they’re sourced as who

that’s I – that right more those now, so become probably think but utilized. a yes, and more be think smaller, more it’d granular I sporadic, loans will over So little time, much

management or one think utilized almost of something line the I just the liquidity to much of be an or tool. credit goals overdraft more that like

to selling just and click kind of to pretty there want with I sit account and going bridge we’re thing and sort assets that’s one just doing. to I everything – respect a they kind neat could gaps customer So of that’s a synergy avoid those of think think and be

Steve Moss

could idea Absolutely. Right. in tech Any terms be side? the rolled of out time as that the line one on

Greg Garrabrants

Yes.

quarter. a is on to put functioning going working customers We’ll this – blow self-directed slow think in taking sort try coming of I very we’re make we kind customers we’re is number through. June everything trading not some this with is expected But are as we’re We’ll these out to the way to massive looking rollouts well. of targeted – some sure everything of there. and

is just side probably the XXXX, – deal, the more that one be more kind of got first so plate we’ve the I quarter think in think on probably click probably, what I of is SBLOC given far. stuff probably sort calendar of

Steve Moss

Okay. That’s expenses helpful. then here. And just on

Just how kind about. – curious you trends, overall curious processing, thinking continued as I’m to growth just are going but data of forward, in guys about expenses total

Andy Micheletti

minuses bit expense. in to I a FICA there No, higher a or next In and minus course, would some of potentially we’ll salaries little and Where couple we the adds general, have area, of had up expenses thereabouts, that expect Yes. are do million $X.X about offsets, think quarter. we pluses come up, always more. Sure.

down on did to sense, bit that about processing more So I’m services, $XXX,XXX. onetime expecting $XXX,XXX expecting little items. a side. $X $X.X come I’m professional there In by million up data over that have that to some we million actually

Greg Garrabrants

Isn’t the that of mostly Clearing the be because cost that the right? running through would transactions,

Andy Micheletti

Yes, of as... legal transaction and the the cost other stuff there’s

Greg Garrabrants

data going to... is That processing

Andy Micheletti

was this million big data are associated in not the the runs them processing, in project numbers We Well, Other smaller and allowance the capitalized up G&A through. liability other area. of bucks getting number ultimately was down. then Yes. Yes. quarter with reversed that the a primarily the have are They’re actual Those of because is $X last of where – oriented. coming rest we things items uncommitted are through on. that just

And G&A so million we not this quarter’s but quarter, which other quarter, of reduced expense. reversed it, last $X last

But down million would that would be we back in G&A all, add slightly. And other to there’s do $X that. do so all you expect that

numbers, all maybe consolidated. million So add when about around you it’s increase those up – operating $X.X in expenses

Steve Moss

all Great. appreciate much. very color. Thank I the you

Operator

Thank you.

comes your question line Janney Please the proceed final Tim with Our Coffey from with question. of Montgomery Scott.

Tim Coffey

Thank you.

Greg Garrabrants

Hey Tim.

Tim Coffey

Andy, for acquisition quarter? expenses through the any little can on you a expenses going real bit if June quick. in just Do you stick anticipate

Andy Micheletti

Nothing No. material.

Tim Coffey

Was Okay. change? fee, and the there And in then the noninterest service quarter-to-quarter a item item within in line banking income. onetime

Andy Micheletti

quarter – change? On you’re the on saying linked

Tim Coffey

Yes.

Andy Micheletti

Okay.

where we for stuff XX So see down from about the our coming things. other

that repeated fee little That’s There’s with. a December earned two in at per year bit two fee quarter. that is know a March I statement over an the gets onetime higher So is – not associated XX.

to that million. So that’s call going $X.X be,

the majority the the there. of that’s So pieces. than that Other in piece other

Greg Garrabrants

That’s the be – might services side thing. Axos more side, bankruptcy And a the bit. I fiduciary little the a main fee up a mean probably on then... there yes, is little

Andy Micheletti

to relative piece. But... that for Yes, the

Greg Garrabrants

QX. Block. There is in income block

Andy Micheletti

Yes.

December had tailing the block in we final fees That’s – was So there quarter. the that gone. some earned now

those this run rate. seeing so to based number And quarter you’re the the is on things, closer

Greg Garrabrants

fourth Except year, for quarter right? the next

Andy Micheletti

except Yes, for the next fourth quarter year.

Tim Coffey

you we people or And far it payoffs one a payoffs with and ecosystem that as is the customers in to the across cover fewer to that legacy loan the a that can that think you too start slowdown EAS year. as integrate potential your might in feel see Yes, stay ecosystem? Axos then, Greg, later maybe the in

Greg Garrabrants

with possibility lot is a there stuff, there’s respect to think mean designed of estate I the right? a of But I like of off, pay some element commercial specialty nature products. lot the to loans. real that’s a really it the

potentially that’s So right.

we think much think – I we’re – better is think do job. I I a can that

single-family, I doing that stuff. think then consumer biggest retention all impact the in And it I we stuff. have probably are is where think impact. be an the could And

these all different over Now help better RIA that to with I a has respect relationship custody as at and customer time and that that relationship going – do is better a we’re But I to getting that. it. think think things, an and

now, longer-term yes, I don’t wouldn’t a but potential right that’s think it’s type certainly I possibility. it, model so I of – to benefit. and And a try

Tim Coffey

you. my that Thank now, Those right All are makes questions. sense.

Greg Garrabrants

Thank you.

Operator

concludes to and closing the question-and-answer like over would with ladies session. management for that, And our remarks. gentlemen, I to back turn And floor this

Greg Garrabrants

talk Thank listen quarter. us, to you, the and to everyone. we’ll Appreciate time next to you

Operator

teleconference. concludes This

your may a You and time. wonderful day. now Thank disconnect this you have your participation lines at for