AX - Earnings call transcript Q1 2021

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Operator

Greetings and welcome to the Axos Financial First Quarter 2021 Earnings Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Johnny Lai, Vice President, Corporate Development and Investor Relations. Thank you.

You may begin.

Johnny Lai

afternoon, good and Jessie, everyone. Thanks, interest Thanks Axos. for your in

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

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

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

on for of the turn With remarks. Financial to his call I’d Greg over be documents can website. Axos All like opening these the found that, to

Greg Garrabrants

for year of you your for thank to Axos Bank. joining net Axos thank XX, call ended quarter I September despite and interest everyone to ended in over everyone, Axos loan quarter earned XXXX, conference XXXX, afternoon, Good Financial’s Axos fiscal our welcome for like XXXX months $XX increase us. for XX, September the million in first announced Johnny. and first ended XX% X Financial you, September Thank up for you XXXX. I’d $XX.X income million the the of a quarter million record provision losses. the $X.X XX, for

compared compared share $XX.X Our diluted XXXX the quarter and pretax earnings diluted share QX to $X.XX ratio for pre-provision increase to income of XXXX the Axos’ on per per XX.XX%. was XX.X% million efficiency bank’s return ended fiscal XX.X% September in XX, in our $X.XX was XX.XX%, a XXXX. increased was per equity $XX.X million, first quarter XXXX. share QX average to

Excluding acquisition-related ROE QX share $X.XX XXXX, expenses, non-GAAP equating non-GAAP in earnings per per a XX.XX%. share increased of XX.XX% to to

of and specialty credit real this XX.X% net originations Ending in and fourth XX Our average and quarter ended X.XX% were up loan single-family growth year. book annualized the linked up basis was first leases for by were from and September highlights in million, income the interest XX.X% Strong and to were yields from increased lower of approximately X quarter net the certain by commercial XX an first multifamily $XX.XX positive in include performance. payoffs basis in XX, X.XX% X.XX% following: points outstanding margin prior The from loans in $XXX.X XXXX XXXX up the basis XX.X% quarter estate non-interest up in and solid was operating from C&I Net down the finance fiscal portfolios. mortgage year-over-year. and to points income, stable quarter, up down points. interest and the interest production margins, higher quarter XX, warehouse points quarter deposit Loan slightly at per June offset quarter lender We and XXXX. XXXX, leverage with X value share basis costs jumbo had X.XX% interest-bearing double-digit

Excluding interest approximately the X.XX% XX, $XXX would million basis equivalents, liquidity in been have of XXXX. lower-yielding ended cash cash X.XX%, points and excess June from our XX deployed net in margin up quarter

period XXXX, levels ended Our period for prior compared an improvement banking was XX.X% XX.X% at efficiency XX, some $XX.XX of this months rate in year-over-year excess for and XX.XX% Capital issued XXXX. X quarter with comparable price holding the regulatory per average shares of ended September at Efficiency from debt bank share in XXX% the to to in months XX.XX% ended month Tier XXXX the X.XX% million for the was first a an increase despite annual our to prior and an our in compared X.XX% quarter and the the $XXX were of last loss business September XX.XX% ratio September both loan of remained tax common in first a XX, and at XX.XX% ratio segment XXXX. corresponding X compared this XXXX, of used XX, capital the quarter the XX% to at $X.XX in subordinated XXX,XXX in We up interest leverage requirements. Earnings of provision our XX.X% company, of quarter. rate a the year the above strong ago. well comparable the earlier year stock of $X.XX, repurchase X.XXX% approximately quarter X

small principal forbearance interest on and no delinquent payments. with on quality percentage credit Our strong only a in remained the of loans

sale period. on ago year QX holding originations $X.XX retained low XXXX, as quarter for sheet XX, well values markets. underwriting in our from balance as serve conservative to are ended Total had loan $XX.X $X.XX of production, specialty auto million first XXXX most asset real us increase with net unsecured billion resulting We estate on continues gain growth. portfolio million jumbo portfolio loan in essentially emphasis and September follows: billion loan and of million the real and estate an was of production, single-family in $XXX.X of to production of commercial million $XX.X a real of are agency small of million production, production, consumer million values $XX.X originations $XXX.X $XXX.X was million Our C&I flat multifamily estate of values on up the single-family balance $XXX.X production,

$X.X outlook record approximately low a single-family quarter mortgage XXX demand drove of million. Our resulted $XX.X to interest gain-on-sale increased XX, the group banking the XX% Record another of to capacity million corresponding generating banking had to sale last in in $XXX compared year. points income constraints points margin rates by banking mortgage mortgage for in industry quarter Originations gain quarter the strong. mortgage linked on million for refinances and purchase XXXX. transactions. And basis compared remains June basis within ended The XXX quarter,

XX agency $XXX million at of at month. mortgages single-family of end pipeline was this Our – the

Our lending. from million advantage for mortgage record portfolio in took refinancing. demand mortgage mortgage increased and and balances back at warehouse also of competitors our XX.X% by benefited in warehouse rates X/XX/XXXX. $XXX.X purchase warehouse low Ending from $XXX.X interest mortgage pulling We certain or robust million

customers, agency in warehouse our financing and government-guaranteed from mortgage growth mortgages. came Our our business

us types share Our of expertise gain track market to in allow mortgages environment. this different and of in record execution

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

our side, that The outstanding compared are to loans their net of as to and all margin loan well loan had Yields are XX On X/XX/XXXX asset-based and We vast XX, the up variable ended rate. X.XX% C&I floor estate basis multifamily index. book, originated quarter commercial X% X/XX/XXXX, single-family hold finance lender XX% our in of the the with asset mortgages average approximately in loans estate our single with C&I X.XX% XX, in XX% of quarter, collateral. majority multifamily specialty XX% yield as of yields loans XXXX. the negatively continue an at are by points. rate have rate lender of which with X.XX% jumbo at for billion real underlying an June at variable million excess loans September loans to the impacted of family, their $XXX Of being September In and liquidity $X.X interest XXXX. for rates X/X for and the ARMs Approximately loan floor X.XX% specialty were loans. for real adjust our our our quarter finance loans of approximately asset-based loans ended commercial

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

money market X/XX/XXXX we consumer to marketing representing total continue non-interest deposits commercial deposits prepaid and benefit consumer bearing made is user improving Consumer have of deposit Our experience. approximately our at from savings, technology, businesses our checking, comprised direct XX% of and investments accounts. and in

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

Our quarter checking XXXX, business best consumer Average September checking balances. exclude Newsweek bearing non-interest deposits students prepaid accounts best accounts accounts and small were NerdWallet $X.X deposit ended recently when free was in business for checking and essentially college you respectively. the and checking quarter by billion named the flat XX, linked

commercial number good our service balances business deposit making of in higher year rise. businesses, as treasury our specialty bankruptcies are we in the and expect progress next management fiduciary We and

our in average forbearance loans for but two of for XXXX, The are held-for-sale, this assets all of X loans on to quarter to to low compared remains July subject XXXX, increase as assets real XXXX. quality X, on of basis are loans was charge-offs basis in non-performing credit ended hotel September the of points last points June our currently previously majority to total is Our compared points We to comprised million attributed moratorium. The non-performing XX was of to XX, the values. borrowers estate of that corresponding period primarily secured XXXX. $XXX.X net to in off quarter coming loans compared for loan the Oregon’s X assets loans XX, good. Non-performing year. reclassification forbearance were X.XX% closure to Annualized and with ended basis and June leases, assets quarter XX, ended sequential fourth forbearance

XX% of an and at below we’ve We realized non-performing Of values. have million XX% forbearance below single-family ratio losses. single-family mortgage best single-family Of approximately XXXX. low our to or $XX.X very loans our estimated current their where XX% are XX% loan July of mortgages, loan-to-value come had had historically X, on our estimate X/XX/XXXX, or first loans, off non-performing of at current XX% loans approximately

multifamily ratio loan-to-value the Given loans consisting our that of the real C&I only of low than no were that XX, loans X loan C&I for loan a X multifamily ratio X million on single with delinquent loan anticipate company. LTV greater not commercial mortgage XX% a estate our and no had single-family values earmarked to with material XX%. XX.X% average than multifamily delinquent loan non-performing majority loans hotel had with leased losses X/XX/XXXX, in or We sale previously The we our with vast loans $X loan-to-value delinquent million of and We fracking current of greater on at an do is equipment other XXXX. a loans. incurring were to portfolio a of delinquent loans, $X.X we balance September that an

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

loans single-family million than XX, loan loan million this quarter net million $X.X the of $XX.X this quarter million Advance for up to accounting adding by the this financial our loan X our million from balances June The less quarter million consisted of and loans peak quarter XX, reserve our for loan to multifamily million September and $X.X growth annual unfunded quarter, $XX.X for great loans. reflecting increased and the XXXX. loans uncertainty. allocated $XX We crisis, $X.X $XX.X non-RA further of in in for adopted and H&R economic our allowance the million of $X.X reserves to in CECL was loss loss we reserves $X.X charge-offs related XXXX, loan basis provision We provisions standard Refund consisting million ended Block commitments. point and During loss originated

the loan-to-value XX, September loan-to-value estate Approximately net ratios average XX%, our XX%, and September real have at were of total Our of X% our September had approximately X% collateralized total XX%, or $X.X a X.XX% of at below charge-offs. and outstanding billion XX, assets end and XXs weighted and than Single-family leases XXXX loans between with receivables. and XX, At our XX% have loan which greater allowance million of million of XX.Xx represented by ratio in for losses secured representing was a the ratios our mortgages mortgages portfolio XX% than primarily hard annualized XX% including $XXX.X $XXX assets and XX% loans our XXXX, loans single-family of LTVs consumer by quarter, XXXX, had XX%. ratios between XX% of of at less XX%. loan-to-value XX% loan-to-value loan-to-value of

originated have classes. in loan-to-value have strong originated have XX% loans loans the with well-established of basis and XX% average at have our ratios loan-to-value of real The end ratios of greater a September X.XX at between have XXXX, than portfolio asset in and loans. than these our below less service of had loan commercial XX% XX% a ratio these the At Multifamily of between X% we are XX%. XX% mortgages We our multifamily XX% less are XX%, X/XX/XXXX. XX%, estate was track multifamily representing of multifamily than portfolio or lifetime The debt credit record loan-to-value XX% originated our portfolio. loans loan-to-value performance weighted point average loan-to-value the a over and XX% ratios XX, of cover credit losses XX ratio and at X/XX/XXXX total X years

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

between The real X/XX/XXXX of representing loans had ratios XX% X/XX/XXXX. XX% loans are XX%; and XX%. of X% XX, total and outstanding. million, are of between of balance had XX%, In of X.X% the or to and our $XXX Our cover XX% loan-to-value weighted have average loans debt real and portfolio, commercial of XX% XX% our ratios estate our approximately between estate a million have our at at we was at of is The loans than between of hotel and XX% LTV of small and less XX% estate commercial end XXXX, X% X% XX%. weighted have estate portfolio loan-to-value below loan-to-value. September XX% real the commercial commercial loans loan-to-value total At and XX% real ratios average loan-to-value portfolio service resorts XX%, $XX hotels loan resort X.XX representing

We the loans discussed. estate in multifamily forbearance than our portfolio X/XX/XXXX, or and real commercial we in we loans no previously the loans delinquencies at hotel have mentioned other

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

principal in every have all us book. the credit sponsors. granted special specialty the no vehicles, interest. We collateral lender loan deal hold of our and the estate deterioration bankruptcy significant our house weighted real had senior purpose swift from of borrowers loan XX% and finance supporting and and We was to support to protect loan partners to commercial monitor The performance finance We of identify loans action junior in and allowing take the underlying portfolio estate our capital remote capital with and lender commercial position deferrals strong specialty cost structure. real our average

Refund auto fully is score borrowers non-real Our average with loans, expectations. comprised million XXX. portfolio we further states to in of on loans in is supported saw loan balance our lending $XX.X Block of point million of Advance this hold of consumer million time. sheet, estate an auto dealers perform loans. We primarily loans the performance and every with to service in used prime $XXX in in auto by underwrite auto lend personal general unsecured of at cars from XX We FICO lending Credit and line $XX located and value continues and of H&R

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

securities million September from became XXXX. on clients XX, business, the our margin in in ended volatility since We of have broker-dealer business loans, auto unsecured we loan have forbearance introducing $XX XXXX, loans up market the more our quarter start or Despite we the In stock as the of successfully price losses. June $XXX consumer no with September million bullish XX, pandemic, with quarter. the approximately in margin some no elevated managed at

As X, with methodology I loan is losses year-end. for CECL, adjustment, the on mentioned of credit expected used allowance $XX in adjustment loss the the known earlier, for now day impact current our method. losses X adopting adoption after-tax year otherwise we XXXX, immediate The CECL original the GAAP. beyond of we generally required loan adopted equity increase the date The the as or current the directly X is approximately against CECL, an well of million. bank’s impact losses day July means The stockholders’ of incurred recorded considering under X timeframe in are accordance

impact years election. this X X X-year ratio the and not first the over impact the over phase capital X and in X Tier For years. does regulatory on X the the in years reduce purposes, then Under of for day phase-in, one-third defer capital adjustment we elected our to of last phases the

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

Our XXXX, banking for efficiency XX.XX% was business XX, the ratio year the period. ago ended compared September to for segment the in XX.XX% quarter

while operational in We strong prudently units. our maintain continue investing business efficiencies to each of

ratio of the and at Our higher bank at remains company. strong capital and common repurchases, a respectively XXXX. healthy of losses Tier $XX.X for for X.XX% Capital and XX.XX% September X.XX% million remained X.XX% XX, provision of holding Despite at CET ratios our X bank, the loan stock the

the from the fifth existing buy engage securities use March offering the on callable subordinated debt stock to of to the and million when our retire business proceeds transactions. $XXX support XXXX anniversary will M&A our and to strategic million $XX becomes We it to issued growth debt in in or back subordinated banking in accretive opportunistically

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

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

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

points Our cash linked show quarter specialty funding growth. XX basis $XXX by small treasury X.XX. million Securities and other Concurrently, continues our XXX solid business Client and X/XX/XXXX points consumer, million from to at to currently average of cash banks and from deposit Axos basis the business reduced interest-bearing at was an management, held year-over-year balance. X/XX/XXXX, commercial, increase we deposits $XXX approximately cost

have at ability is it sheet the to Bank do and We so. growth to to redeploy advantageous when fund our if off-balance deposits Axos economically

million window at at of the end liquidity available discount at September the in Furthermore, first approximately $X.X to billion of $X the excess XX, borrowing, outstanding access Federal have Reserve quarter. XXXX. $XXX we We billion the FHLB billion of we $X.X had had of

mortgages on from jumbo margin reflected Our our loan jumbo our expectations million despite to months and ago. continues market mortgages near non-bank the lows October on in XX. reasonably unchanged most with X be mortgages non-agency few in for single-family inventories of for lenders. rates remains record growth purchase robust $XXX.X reemergence in single-family market outlook and new as remains some the rebounding net for Demand interest housing Pricing with strong pipeline and mortgages respect mortgage The remain attractive activity markets. secondary to a

new specialty us and conservative respected partners. In secured lender and third-party and estate, real digital provide opportunities direct and largest and commercial marketing, C&I efficient origination see to with and transactions processes our a borrowers teams finance Our to continue lending partner we our to non-bank with allow underwriting our terms. superior for on lending experience two lenders lending funding categories, structures

to slowed this the estate pace the new specialty month rebound we real year. of bit commercial are as election, activity expect transactions a we later approach While this

label the tightened increasing a Axos to to credit our demand continue Clearing XXX,XXX broker-dealers additional linked these signed in low-cost X upside $XXX We benefit Like RIAs temporarily We offer adding clients. by standards. to Axos and white income quarter, sweep rates and more ending low the services two to than on-boarded RIA Schwab million. as see see invest this custody Clearing’s from TD new deposits. such our in continues products client continue incremental We for to deposits banking safety services to of signed clients deposits. September fee to by lending on-boarded to introducing of clients technological correspondent hampered Ameritrade, providing integration to Clearing with an at and quarter been flight and them approximately and our XX% corresponding high-net-worth client quarter, broker-dealers profitability cash other our has from earned and

bullish and our our products good and Furthermore, on we to ability long-term margin As and Securities. remain business. provided maintain annual revenue Clearing synergies and out X.X% profitability range banking Axos to Invest the by X%. net roll for we to Axos feel Overall, Axos cost at an a we to a to and within medium- path clear there’s develop Invest, services Axos Axos higher interest additional of about Clearing

submitting forgiveness we balance in yields borrowers of loan PPP our and on excess October. early the intend does behalf over sheet We if Our not applications next meaningfully few quarters our the improve. loan remain reduce to on relatively loan liquidity amount started demand of stable,

loan with balance we As applications Friday, last of to a of million the $XX.X submitted forgiveness SBA. XXX combined

many our cost PPP We’ve reducing receive forgiveness as to our we’ve and investments successful our and Accelerated of expect adoption vast our made the will digital growing occurring in calendar banking, of deposit XXXX. of result costs. good funding We we in us gives consumer, half the confidence businesses. in majority of funding is be optimizing of businesses, made our and commercial which that acquisitions deposit for a across specialty loans deposits progress first

of Axos a product and and we that the personal, opening Invest cost, financial tools management trading, out We free deposits acquisition in account of self-directed for new have value user products as and small new system new enhancements and add roll including Bank streamlined These well company. to pipeline online an experience features the enhancements to and business digital a our Axos as the and functionality income XX of and customers, over significant and provide source improve full mobile mortgage platforms. additional incremental our banking next will features will for banking and platform fee retention integration lower months,

remain company economy is focused policy quickly positioning in, will whatever we find on growth. we sustain regulatory political may and ourselves rebound our it While unclear take environment what the place how to and potential changes may in profitable

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

Andy Micheletti

Greg. Thanks,

First, to available or in through a through note I SEC wanted website, online today axosfinancial. and supplemental were our all release, schedule addition with press and are our our X-K to that EDGAR filed the XX-Q

additional Second, SEC to or X topics. release comments Please our for I filings will on provide the brief press details. refer

or forecasts Moody’s default life of the given First, and macroeconomic variables as To CECL, XXXX. the loss effective Financial we CECL probability use predict portfolio of severity default to of our mentioned, implement adopted which of key historically models, and July of developed Greg loss mortgage The historic the its throughout X, was loans. loss X data commercial for were quarter. own The Moody’s from for and sourced bank’s historic variables, macroeconomic history. default loss developed formulas balance from measured multifamily XX loss more of single-family, years probability the each than small data X,XXX Axos

warehouse; use single groups credit; X Accordingly, and CECL loans, However, commercial which number was estate, call data. single-family consumer; the one, bank leasing history other. equipment is are four, CECL combined includes the commercial we construction, real the and consumer single-family for C&I loans this and follows: and quarter, to develop loss loss data models estate historic five is model auto commercial real industry with output. upon securities-backed as multifamily lines and and mortgage loss industrial, align includes our is to number based we regrouped estate, with real CRESL The finance; estate report loans to with match loan mortgages; three, number non-real combined with and of mortgages balance commercial six number two, auto small lender lender finance, which the

making is a loan And the are well the the our of groups under as September subcategories quarter, new each find you the in of end end dollar up XXXX, of loans same. and this today of as PowerPoint amount Page filed June the While groupings XX, the at last quarter, XX, XXXX. the the are groupings generally on Attached X-K presentation. different, X, subcategories will the

The Based was to COVID. will increase advance million sufficient portfolio. mitigate equipment is possible uncollectible new remaining coming refund advance lease of $X.X a be loss from the quarter due the advance. compared loans is generally refund associated the increase in end, upon majority increase in quarter to review million September impact $X.X $X.X primarily after XXXX, The provisioning refund which for the including the collections XX, $X.X CECL of to $X.X the XXXX. allowance million September credit ended increase million provision ended HRB million was XX, the to $XX.X of the losses, I and Second, for for the due $X.X million of provision with any of million the the methodology, additional quarter of should net for

rate. tax is effective The our third topic income

XXXX quarter XX, September for XX% for from the rate quarter XX, income For effective quarter our XX%, XXXX, the the ended ended XX% up down tax and September XXXX. from June was ended XX,

of The of accounting the before a actual income GAAP in actual units, benefit tax vesting shares and causing increase As in estimated, requires shares an changes the compensation income the which measured. tax the effective RSUs, the XX, of of of quarter restricted upon primary ended was discussed tax in compensation is the the final stock and deferred difference XXXX, price is driver last the number June is dependent adjustment RSU to us required. quarter, adjustment deduction the an tax record for the the rate tax made an income increase in is effective the cost If deduction of generally, rate. rate the the of is the expense issuance estimate estimated and/or vesting number lower the than value stock. granted A one-time for shares

trading our I’ll to of the be expect turn to call between Lai. and Going back common forward, the we stock. current over range XX% based With XX% on Johnny that,

Johnny Lai

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

Operator

[Operator comes you. Andrew with Instructions] from question. Piper first question proceed you Please with Sandler. Thank Liesch Our

Andrew Liesch

Hey, afternoon, everyone. are How you? good

Greg Garrabrants

Hey, Andrew.

Andrew Liesch

at the I just side basis and wanted nicely on points from XX the before. to cost here, quarter look in the down liability quarter about just the margin

basis continue that’s something that is to reach that like I down think think XX-something floor? to or decline pace Is probably points. you do at to what this level the the going

Greg Garrabrants

early. some interested the rates I’m that to Well, there’s look if have, unfortunately, nobody obviously be in encashing high you the there you out at – some that, and CDs, going sure you’ll see components, at pretty is

likely dramatic. in in will quarter, the the declines That – obviously we months. about but that think won’t helpful. there accomplish have be be There’s billion we table $X of categories as further they this that next maturing So are maturity XX in other we can

coming is the to lot to that CDs, have basis pulled So at I those just going look from, points XX which are run natural it’s that being a in up you by if things. course of off think where

Andy Micheletti

$X.XX CD is, million of Andrew, costs. There about

were write-off This on million brokered we prepaid. of of quarter that the was actually that $XXX that commissions brokered CDs

the this recur million bit. that rate up which won’t on the was CD CDs, So quarter a pushing little $X.XX

example. cost that So amount of take next the interest can off you quarter for

Andrew Liesch

Okay. That’s like really sounds good yields pretty floors. production it helpful. And on new holding and loan also have good, some then you is up

securities is liquidity, So are the this of Or and to with do margin like you kind the margin like could re-pricing this the we think fall? seeing book right the just maybe weak from now, is level? with rise this on

Andy Micheletti

margin of able impacting we loan may now depending right the excess to some that on we’re be I that be, think will liquidity. guidance. with our that margin consume and is liquidity Obviously, comfortable growth have what

PPP result off, compression a just all in are warehouse loans forgiveness our roll lines, growth market be The is particularly the And yields Eventually, tend really of that. which We also but about may agency the than well. to almost is as uncertain lower loan quarter. as lines was only very there we production, have rate very, those that’s the not the our on a but this other for slow.

that bit side. a there a as and in see we of shift there’s growth continued well, So

to given can market. So liquidity about just I we are we definitely up it’s margin. But the go to look, have cautious think a from feel the an maintain saying excess and good going I incredibly ability little about where – we I’m

Andrew Liesch

loans a substandard special like kind shifting of loans And downgraded? credit there unique concern noticed That’s on you’re there may on also to – then them jumbo estate. some migrated some but that in common to been overwhelming the or it have also but anything real these section lot the mention some just is Okay. second, between for that’s or helpful. have I maybe side, higher. Is commercial seem a for of are that like sounds that pretty are these reserved loans the a nonperforming, And well of

Andy Micheletti

real have that the partner have quarter. number substantial think loss underlying we’ve transaction but paydowns chance downgraded that to but the Yes. estate There in have loans capacity we we stepped – borrower we even with the the commercial this in loans, may that having cases, in of a them, weakness, mezzanine have had limited well-defined in incredibly with of any in effectively the respect a we

of see kind curing up of so quarter. lot those this And a we

in have to that payoff other we restructuring on occur. is one cases, we’re And loans We slated some doing. those have

So represented timeframe we don’t but there, in there been possibility something there’s weakness. that loss of may the project or a have delay think completion any a

downgraded. were they so And

On the really single-family payment it’s side, more related. this

deferring payments. anyone’s not We’re

if to need make asking to they unable adjustments now property. we’re so they’re And the afford they that make their

Andrew Liesch

really the will for helpful. taking That’s questions. Understood. back. step Thanks I

Andy Micheletti

Sure.

Operator

you. Thank

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

Gary Tenner

afternoon. Thanks. Good

Greg Garrabrants

Hey, Gary.

Gary Tenner

last think I hey. –

think think a kind preparing housing I I significant for that downturn. you mentioned it of last were you – was quarter,

thinking well? it. you’re if or curious done how you put seen about thoughts kind anything you’ve I think on given I’m just just that fairly how maybe updated of it’s housing it’s all

Greg Garrabrants

well Well, exceptions. with some done notable all fairly Right. it’s

is you right city having whatever now. was because say, or booming. was interesting there an the you’re pretty I if of was ago, very the think things. flattening York And long being significant until obviously New interesting City seeing question times, a mark from, kind it’s you several some and sorts or Greenwich a years but now. a out, dynamic clearly, – went sale up back have stagged Hamptons of XXXX-‘XX would really There run The bit, those seen quite suffering

be to the that kind think what ability But I extent things that accrued the timeframes of have something like quite be can New those you loans, the New well. loan-to-value I things elements long periods the is giving in of we’re California that always which effect anything, you sorts decisions are are home be of city dense perspective to. going right, be so we York Where over potential can that lengthy, very increases. would city And of that’s is And in time, to that think, If York cases, I that. is from we the long-term would so stress where seeing of adds to Depends, is areas. doing caveat of lasts? sort make. of the and in back How any the that a I – made foreclosure you’re it’s seeing most that are work non-single-family not interest policy get in And on difficult pay to there. from one But sometimes mean from attention to fine. about general, people some longer which you’re

Gary Tenner

you. kind gave NPAs. the thank then data over to some And you of Okay, on flipping of

equipment in or any kind fracking it be terms industry? curious that equipment In if of repurposed the loan elsewhere that to just fracking the is Could specific industry, of detail there?

Greg Garrabrants

It’s pretty specific to the fracking industry.

loan was continue continue, haven’t to to interest-only in that the was but we’re interest-only payments. them with that discussions payments payments. They’ve make we on right the ability interest-only granted to them now, requested So and

They that’s sponsor. they where to So with have a respect now that. right are

in view equity, is and some – it’s a we though. put much Our we’re It’s them relatively loan. gas them have want so. the and oil exposure process get small don’t in of But kind there it’s with to that and – we

Gary Tenner

Okay, And for last great. me. question

Just you in quarter terms stuff the think of fourth really on returns? resolved this loss in calendar is kind Do or dependent timing. in up you wrapping the it kind terms just recognition recent of of of advance IRS the

Greg Garrabrants

is, significant our we’re took ended We Yes. collections, quarter we the think was actually quarter, uptick basically after – We at exposure done. we a pretty what in look if which positive. saw you what after this

their significant And – I mean, of we sure processed, but we where be in so sure, hasn’t those still we’re out a and percentage we’re there’s obviously, pretty sure what ping see pretty coming funds to we’re our early who been and return still go tax even done. And And processed are of timeframe still can’t the not XXX% loans and returns sort tax when either from then own of through our we anecdotally folks refund. some that number submitted gotten returns data see is collect. of quite that during work, haven’t tax still being our the there organization in

like Possibly, well. think back don’t definitely we’ll the be we a Could we’re done. we little we So feel but be this? conservative with to

Andy Micheletti

provision entire month. is I and we the got mean $X.X the – entire exposure collections this the million before after this

small very a it’s number. So

Gary Tenner

Thank you. Great.

Operator

you. Thank

Our James. proceed next Raymond with Feaster David your question question. from Please with comes

David Feaster

Hi, good afternoon, everybody.

Greg Garrabrants

David. Hey,

Andy Micheletti

Hi.

David Feaster

just I of mean kind to have seen just there. wanted get I you pulse specialty nice the CRE growth I a that. start on of

given your and segments segment? on even the you underwriting the just tightened the uncertainty? in seeing pipeline comfort standards just Have and curious Just thoughts you opportunity production what markets and any and yields are with new that segment, this

Greg Garrabrants

Yes.

from focusing a category residential. perspective, clearly, So on we’re

that industrial are multifamily, as well. we’re So and means on we focusing seeing some

cold So feel warehouses, all last-mile we multifamily, categories about. good storage, those are

for among that obviously, there’s not in of those lot that, projects like – appetite a think, started but I most are folks segments. limited being there that is hotels, are also things

perspective the feel I and where think geography markets on perspective, about dynamic. from we city focus So from good a we’re to continuing a

You some in recently did Nashville. things

too. We’re still different in in a perspective we’re And to credit from the in there. to continue that we’re are good doing positions ensure markets we before things that

So The usually there’s are quite trade-offs sponsors that are well variety a made. capitalized. different of

on stated average as around loans. And on so the call, those – we continue to we’re be a at we value very to XX% loan

would get partners order into But have be of because ever those that any surprise it to losses. is would I – deeply our touched I deeply, think think loans the possible us digging projects loan they those be if did, And severity really for very something. I to So step need that be value low had the if in to you a any as it forward, would to move in may fund by there. sometimes be

think possible. I that’s

few partners places themselves cases it. like the But are the to loans they more look there then things are have and things a wherewithal capacity and And having finding they’re the – good. to and we’re that almost and fund in think that. do some than some step budgets through. But most in pretty all working I and willingness got interest reserves, true-up

really. good, pretty look things So

David Feaster

securities how I forward? see good I early just there, in to cross-sell accounts on? business, the color. started into growth do of pretty think That’s guys offerings just nice some how on guess you going Okay. then the some the you then had about significant the growth. have the And other guess been is some deposit product And growth

Greg Garrabrants

make happen. are in and are we enable the where technology to really We Yes. on that right working a now stage

will long-term you give quarter convert company our a fiscal where in quarter year. Axos of are to the clearing there, calendar to Invest third we the first sense So of plan our in of this

operates into the combining is a from software at And beginning account calendar our then single respect opening point them step with customer look around integration bank to and account to accounts fiscal the quarter that securities with our right technology So customer for of introducing sometime a then of correspondents allow integrate and that individuals in their one XXXX. with we’ll or banking both we at a of And second is fourth testing a automation the provided broker, when that. a have our or their of cross-sell to using quarter technological going on that opening to customers now our correspondents, the third direct to with is side can certain that then in functionality functionality process retail so a the doing account features they’re and application our that be party what be open side. are features their will and concurrently banking next securities we broker-dealers the communicate access

that of happen. all So, has to

development system. involves via complex, is very net the an of involves parties So now, it third customers. of We part acquisition account all that a these worth of and And opening lot technological pretty long-term we good right? a strategy work. items high this that have almost have is The

of have products. We all these different

So it’s the additions integrations it to and platform. the seamless about the make really across

have a to rates expect $XXX important – the low, funding that, cost of half – it be say, So deposit think now, growth. to decade component seem with our that’s but next, million I low-cost and let doesn’t deposit and up is grow the of to like right us it X obviously, cost much deposits, really a over that be dramatically we to getting able

rates, and a pretty ways technology a technology in of So perspective integrated it their that grow industry-wide But because product an income to engaging have business we continue show to it are technology, and there. think positive got we’re deploying But that’s that’s we it’s issue. really we win really long-term broker-dealers here. clients. need we we to are for great on and RIAs we that way in think these business, it both a introducing have our a and end do makes partner strategy They a a low deposit that with net and to in Obviously, lot something of going difficult invest there. and

David Feaster

on am just And would I helpful. of interested? be what curious easier transactions then that’s you through to scale adding or product gaps M&A of any rather it it’s M&A just might following more mean more than I of that Okay, lines are a you kind – the that expand growth? certain offering up there commentary, kind just bit, or organic to Is that on in see efficient

Greg Garrabrants

reasons. Yes, to there’s competitive imminent, niches. things we they anything strategies don’t in look, not of are and capabilities given think fairly technological what the but always that have we bring there’s go just usually I too there much nothing But the I’m for the things. going large. particular fulfill There’s opportunities idiosyncratic to breadth to can

we than then things we would offerings more So imminent. that proceeds anything consider them, I – And the of for that’s take that if like can that. we looking that’s on keep a from advantage something general commentary just them. find of on But – utilization foreshadowing the

David Feaster

you. thank Okay,

Greg Garrabrants

Thank you.

Operator

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

Michael Perito

Hey, guys. Good afternoon. Thanks for taking question. my

Greg Garrabrants

Hey, Mike.

Michael Perito

non-interest quarter. I expense for line items and non-interest start on the income the want just to

of look some quarter, the if were the what or think kind the kind color about forward, trends say think we like bit that think to the what normalization curious a which have if seems of are rate normalized a elevated run we the you to were like. what look just about revenues a like I of at environmental this side, mortgage expense break But maybe mortgage of able going in about little out the guys quarter? elevated the bit of in more self-explanatory. missed as Sorry more – more expense expense this. just might But It we the I as item looked provide least some bit I’m might quarter. kind line

Andy Micheletti

Sure. color. I will some you give

a million up administrative and for perspective, details. to attributable to origination of that general be the from at expense broad is that look A portion million. $X.X mortgage on when I $X.X at going other is quarter you think

were fees, last normalize consulting going million we to things. growth. normal was other a services at Probably numbers – the that of just larger on good So the million. line, could a came portion that that of in quarter run of rate slightly $X where run look couple line with more $X There variety normal is professional $X.X rate. that million. change services, lines is use at A to forward probably closer is you When that about you Professional that than in probably of kind are fees. some legal the

little on of amortization and thinking But there’s So larger those rest data line plus But impacted continue And expected. operating that costs and or growth doing. was cause Depreciation the than of see lines, minus general elements to growth the we rate, the general, processing bit. that business we of of items key going million. bit probably in the little capitalizing $X things those can a just the change different timing $X the a are two are our variety – change, little technology to million represents are kind a the about some growth we and in or that expenses, have. to are in by

Michael Perito

helpful, it continuing safe grow to is before to next to grow quarter I continue not But will – probably safe rate run say, all guess, guys expense but that a equal, to Andy. That’s beyond at mean, that I the down say, well, take as this point, else bank? the step that you

Andy Micheletti

does a good There depend is part technology. of it is it it factors. variety would, is of but Part on it mortgage of banking, a chance

Michael Perito

the think on side you you conversations or my And pandemic that’s along aspect you or of that without idea any digital more you months dealing this headlines growth obviously, the kind six is have you. strategy on to anything but the banking question since steady? has of to the is, worth direct it whether more the steady, openness branches noticed consumer side it’s sector any the mean or do at over past lines here. contact, that any start like interest on not and least those curious then, banking the be all. new at with I or kind physical receptiveness of Greg, Thank has lot customer yours. digital Helpful. increased the I been been noting for fairly just But the U.S. commercial guys – you something guess I And to of been the obviously, it. there have based read think Got of banking a on focus, and is

Greg Garrabrants

although are growth think small they both are seeing there. No, are that We business yes, continuing accounts consumer definitely I you and relatively these see do saw to it in a rate side. of are small on and the volumes, the Yes. often – shift accounts, significant application the we

functions believe ability impediment with We viewing our to no the a in digitally, in account because doing clearly record but are that is business are many be it us. longer the may have platform, of people And that an have all people that us. designed improvements seen way that’s the communicating that Partially, volumes and making advantage for a our continuing. that because branches significant of we have to difference banking we lack systems fact, perform we the as

in we’re in think technology So we really our here – really have our some of systems. spent we the a really on money place destiny I charge and own great because in

get so and to what just technologies at systems those about better perfecting now So we just much doing. it’s are

customer customers board check initiatives there the using a better, data enterprise. perspective talk So that to across are us is experience reduce all going the on by with that in the things from about. digital How of holds

fixing listen the very are plans customer they things a We don’t points. those and to have what that we things about they targeted experience like, pin We develop We committee. are to customers. that listen they saying

we So done job have that. a good I really think with

think or cost that you something that. competitors get something below comparison be that like branches to at is titanic nature if I the or California of the branch-based you probably the a would with, it our of have of period with shift time deposits And I if are in And if at be are a think way, – grow ongoing our think is investments. we could also extended our Southern start I business institution. right that in coming. XX to XX And that look some think an in our of, may we securities let’s down looking say, there at technological we goal is we and or over where

CDs increases then things demonstrating about think, think mean side, the advance also is thinking in I got if on And and at growth you’ve to commercial as of like that out. that also, I and proving done that, well. were out you rate take core I perspective. that the we’re are happening looking but

that. able folks some have technology. management we – have that markets, and technological of great whether that larger have to basis, treasury sophisticated infrastructure markets. We compete things very have in And don’t do lot are We finding We we a a in on like of we’re API particular we’re some don’t and people. although the

don’t So, interaction, these transactionally I interaction. aspects are. other my we reality particularly good trying anymore. feel oriented lot branches stuck to focused a how them private are transition? are to of play we people out valuable a They make yes, we want how to into come different do and it’s the figure just where It’s deal conversations And very on with those to Because about CEOs a not do asking where to they defense don’t And with they really having think with are want branches is much of if things. this that.

Michael Perito

questions guys. and thanks my Greg. helpful Really, taking for you Thank

Greg Garrabrants

you. Thank

Operator

Thank you.

question line question. with Hemmelgarn Investments. final your of Edward Shaker the from with comes Our Please proceed

Edward Hemmelgarn

Greg Yes, and thanks Andy.

an of that based loan I that? lender. or provide just loss future use to clarification Will you is that future now will of be Just losses about you fact, mean, nature to the appear conservatively loans able you reserve reserves or be pretty in historical I and mean, some provisions, to your loan going one future to it these now, any any loans you reserved adjusted able have future given asset-based have just needed make. might of be for to upon your for ignore basically to excess you question be

Andy Micheletti

simple answer An can is allowance The other or ways. in No. yes. used reallocated be

it there is possible. So

more or see our a declines in time estate. really loan. have because were significant months at we out And discussion. would we months we have requires will that. additional But addition, of XX Obviously, wrong. out, XX, spent CECL driving what’s assuming right in we whether that’s are a As little that real CECL XX price looking conservative Obviously, in discussing that’s little bit life we

and So ways. is there’s But that ability correct. is have do have in we to reserves, conservative or our add not element some of reverse them reallocate it assumption – the other assuming we

Greg Garrabrants

that like looking and basis these of be the going always to a analysis book forward-looking it’s respect with loan what going-forward yes, future to on all it’s all a looks to And a – on as happens other what these things going at forecasts based well. forward-looking be and

there makes So there than I mean, clearly, right more as conservative well, is uncertainty which little be more a assumptions? it think to be about would normally now, wise I your

Edward Hemmelgarn

the quarter. for clarification, but anyways Thanks great

Greg Garrabrants

you. Thank Andy. Thanks,

Operator

Thank you.

We reached end have the Q&A session. our of

the So to comments. for management closing floor back pass would I to like

Greg Garrabrants

Appreciate you, Thank it. everybody.

will to next you talk quarter. We

Operator

webcast. Ladies disconnect We thank and and for gentlemen, your this does and your this you you lines conclude today’s teleconference participation time. at may

Axos Financial (AX) 1 Nov 202021 Q1 Earnings call transcript