Axos Financial, Inc.

Greetings and welcome to Access Financial's second quarter 2021 earnings results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is recorded. I would now like to turn the conference over to your host, Johnny Locke, Vice President of Corporate Development and Investor Relations. Thank you. You may begin. Thank you.

Thank you, Devin. Good afternoon, everyone. Thanks for your interest in Axos. Joining us today for Axos Financial Inc's second quarter 2021 financial results conference call are the company's president and chief executive officer, Greg Garibrand, and executive vice president and chief financial officer, Andy Micheletti. Greg and Andy will review and comment on the financial and operational results for the three and six months ended December 31st, 2020, and they will be available to answer questions after the prepared remarks. Before I begin, I would like to remind listeners that prepared remarks made on this call may contain forward-looking statements that are subject to risks and uncertainties, and that management may make additional forward-looking statements in response to your questions. These forward-looking statements are made on the basis of current views and assumptions of management regarding future events and performance. Actual results could differ materially from those expressed or implied in such forward-looking statements as a result of risk and uncertainty. Therefore, the company claims the safe harbor protection pertaining to forward-looking statements contained in the Private Security Litigation for Reform Act of 1995. This call is being webcast, and there will be an audio replay available in the Investor Relations section of the company's website, located at accessfinancial.com, for 30 days. Details for this call were provided on the conference call announcement and in today's earnings press release. Before handing over the call to Greg, I would like to remind listeners that in addition to the earnings press release and 10Q, we also issued an earnings supplement for this call. All of these documents can be found on the Access Financial website. With that, I would like to turn the call over to Greg.

Thank you, Johnny. Good afternoon, everyone, and thank you for joining us. I'd like to welcome everyone to Axos Financial's conference call for the second quarter of fiscal year 2021, ended December 31st, 2020. I thank you for your interest in Axos Financial and Axos Bank. We had an outstanding quarter with higher net interest margins, double-digit growth in net interest income and non-interest income, and positive operating leverage year over year. We combined that with solid credit performance. Axis announced record second fiscal quarter net income of $54.8 million for the three months ended December 31, 2020, up 32.7%, compared to the $41.3 million earned for the quarter ended December 31, 2019, despite a $3.5 million increase in our provision for loan losses, increasing to $8 million from $4.5 million in the comparable period. Our pre-tax pre-provision income was $86.5 million, an increase of 38.1%, compared to the $62.7 million in the quarter end of December 31, 2019. Axos' return on average equity for Q2 2021 was 17.3%, and the bank's efficiency ratio was 40.45%. Q2 2021 diluted earnings per share increased 35.8% to $0.91 per diluted share, compared to $0.67 per diluted share in Q2 2020. Our tangible book value per share was 19.51 at December 31st, 2021, up 18% from December 30th, 2019. The highlights for this quarter include the following. Ending loan and leases increased by approximately $684 million, up 25% annualized from the first quarter of 2021, and up 14.5% year-over-year. Strong originations in multifamily, commercial specialty real estate, and mortgage warehouse, were offset by lower production in lender finance and higher payoffs in jumbo single-family and certain C&I loan portfolios. Net interest margin was 3.94% for the second quarter, up 7 basis points from 3.87% in the second quarter of fiscal 2020, and up 10 basis points from 3.84% in the first quarter of fiscal 2021. Loan yields continue to hold up well at an average of 5.16%. Interest-bearing checking and savings deposits as of December 31, 2020, were 45 basis points, with $1.8 billion of certificates of deposit acquired primarily from the nationwide acquisition at a cost of 1.71%, increasing the cost of interest-bearing deposits overall to 85 basis points, which is still six basis points improvement from the linked quarter ended September 30 of 2020. Net interest margin for the banking business was 4.11%, compared to 3.91% in the quarter ended September 30, 2020, and 3.94% in the quarter ended December 31, 2019. PPP loan fees had a negligible impact on our NIM this quarter. Our efficiency ratio for the three months ended December 31, 2020, was 46.86%, an improvement of 480 basis points compared to 51.66% in the comparable period ended December 31, 2019. The efficiency ratio for the banking business segment was 40.45% for the second quarter of 2021, an improvement from 43.81% in the comparable period last year. The year-over-year improvement in overall and business banking efficiency was the result of strong mortgage banking income, net interest margin expansion, and double-digit growth in our loan portfolio. Diluted earnings per share was $0.91, up 35.8% compared to $0.67, 2020, our corporate tax rate increased slightly from 29% in the corresponding quarter a year ago to 30.22% this quarter. Capital levels remain strong, with Tier 1 leverage ratio of 9.08 at the bank and 8.68 at the holding company, built well above our regulatory requirements. Our credit quality remains strong, with no loans in forbearance and only a small percentage that are delinquent on principal and interest payments. Our conservative underwriting, with an emphasis on retained asset loans with low LTVs on our balance sheets, continues to serve us well. Total loan originations for the second quarter ended December 31, 2020, with $2.04 billion, up 14.2% from the $2.1 billion in the year-ago period. Q1 2021 originations were as follows. $455 million of single-family agency gain-on-sale production, $286 million of single-family jumbo portfolio production, $123 million of multifamily production, $46 million of commercial real estate production, $34 million of auto and unsecured consumer loan production, and $957 million of CNI loan production, resulting in a net increase of $345 million. Our gain-on-sale mortgage banking group had another strong quarter, generating $10.7 million of mortgage banking income, compared to 2.2 million in the corresponding quarter last year. Originations increased by approximately 11.3% linked quarter to 455 million. Low interest rates continue to support strong demand for refinancing and purchase transactions, and our efficient, scalable operating model generated gain-on-sale margins of 390 basis points compared to 394 basis points in the quarter ended September 30, 2020. The outlook for mortgage banking remains strong, although the March quarter generally experiences lower volume due to the holiday season, and we expect some compression in gain on sale margins. Our pipeline of single-family agency mortgages was $399 million as of 1-4-2021. Our mortgage warehouse also benefited from robust market demand for agency mortgages. Ending balances in our mortgage warehouse portfolio increased by $461.4 million, or 63.8%, from $723.4 million as of September 30, 2020. We continue to expand our relationship with existing mortgage warehouse customers and establish new relationships. Our track record of execution and expertise in agency and non-agency mortgages assist us in growing our warehouse lending business. Our net interest margin for the banking business was 4.11 in the second quarter compared to 3.91 in the prior quarter and 3.94% in the second quarter of fiscal 2020. On the asset side in the banking business, our loan yields continue to hold up with an average loan yield of 5.15 compared to 5.21 in the quarter ended September 30, 2020. The vast majority of our asset-based loans are variable rate loans with 95% of all variable rate loans being at their floor rate as of December 31, 2020. Yields on loans originated in the quarter ended 12-31-2020 were 4.91 for jumbo single-family, 4.85 for multifamily, and 5.93 for CNI loans. Approximately 41% of our loans are 5-1 arms with single-family and multifamily mortgages as the underlying collateral. In our CNI loan book, our asset-based lending, lender finance, and commercial specialty real estate loan portfolios have rates that adjust to an index. Of the $3.1 billion of lender finance and commercial specialty real estate loans outstanding in 12-31-2020, approximately 90% are at their floor rate. Our equipment leasing portfolio, which accounts for the remaining $130 million of CNI loans outstanding, is comprised of fixed-rate loans and leases. We see minimal future adjustments in our existing lending book as a result of floating-rate loan adjustments, although some adjustments to loan rates to remain competitive for future originations may be required. Our consumer and commercial deposit businesses continue to benefit from investments we have made in technology, marketing, and user experience. Consumer deposits, representing approximately 42% of our total deposits as of December 31, 2020, is comprised of consumer direct checking, savings, money market, and non-interest-bearing prepaid accounts. Our checking, savings, and money market deposit balance was increased by approximately $1 billion from 12-31-19, with strong growth in consumer small business and commercial deposit accounts and balances. Our consumer checking and small business checking accounts continue to receive accolades for offering the best value and services for our consumers. With more consumers and small business owners choosing digital as their primary channel for conducting banking transactions, we are well positioned to become their primary bank. Average non-interest-bearing demand deposits were $2 billion in the quarter ended December 31, 2020, up by approximately $136 million from the prior quarter, despite exiting our prepaid to sponsor relationships with H&R Block and NetSpend. We are making good progress in our specialty commercial and treasury management businesses, and we anticipate higher deposit balances in our fiduciary service business in the next 12 months as the number of bankruptcies rise. Our credit quality remains stable. Annualized net charge-offs to average loans and leases was 16 basis points this quarter compared to 17 basis points in the corresponding period last year. We charged off a portion of an equipment lease to a fracking company that we had a specific reserve on this quarter, accounting for the entire $2.6 million of net charge off in the CNI non-real estate loan category. Non-performing assets, the total asset ratio was 122 basis points for the quarter ended December 31st, 2020, down from 156 basis points in the first quarter of fiscal 2021. Of our non-performing loans, 77% are single-family first mortgages where we have historically had very low realized losses. Of our non-performing single-family mortgage loans at December 31, 2020, approximately 85% had estimated current loan-to-values at or below 70%, and approximately 95% are below 80% of our best estimates of current loan-to-values. Given the low loan-to-values on our single-family mortgages, we do not anticipate incurring material losses on the vast majority of these single-family delinquent loans. Other than the single-family delinquencies, the remaining delinquencies consist of two hotel loans we discussed last quarter, which are around $24.5 million of UPB. We had six multifamily loans that were 30 to 59 days delinquent for a total UPB of around 3.1 million that are at origination loan-to-values of 46% on average. One multi-family loan that is 60 to 90 days delinquent for $1 million with a 44% origination LTV. The only other loan that we have that is delinquent is a loan on a condominium building in Tribeca with an aggregate balance of $16.6 million that we have placed on non-accrual at 12-31-2020. The loan has experienced various delays and several legal challenges in getting the units to market, and we placed a reserve against it that Andy will discuss later. Our loan loss provision this quarter was $8 million compared to $11.8 million in the September 30, 2020 quarter and $4.5 million in the quarter ended December 31, 2019. The $8 million loan loss provision this quarter consisted of $3.9 million related to specific non-accrual loans and $4.1 million related to change in nature and volume of the portfolio. Our total allowance for loan losses was $136.4 million at December 31, 2020 which represents approximately 1.17% of our total loans and leases and approximately 7.5 times our annualized net charge-offs. We are well-reserved to withstand a protracted decline in residential and commercial real estate values should that occur. Given the high level of uncertainty regarding the pace and sustainability of the economic rebound, potential changes in fiscal and monetary and regulatory policy, real estate values and inventories and the success of the vaccine rollout in helping consumers and businesses return to pre-pandemic spending levels, we do not anticipate making significant changes to our loan loss provisions in calendar 2021. Approximately 95% of our loans outstanding at December 31, 2020 were collateralized by hard assets with an average loan-to-value in the 50s, including $10.5 billion of real estate assets and $510 million of loans secured primarily by consumer receivables. Multi-family loans representing 16% of our total loan portfolio at 12-31-2020 had a weighted average loan to value of 55.7% with no loans and forbearance. Our small balance commercial real estate portfolio of $432 million representing 3.7% of our total loans at 12-31-2020 had a weighted average loan to value of 52%. The average debt service cover of our small balance commercial real estate portfolio was $1.52 as of December 31, 2020. We have no loans in the small balance portfolio in forbearance as of the end of the quarter or today either. Our commercial loan book includes lender finance and specialty commercial real estate. It's comprised of loans and lines of credit secured by single-family, multifamily, commercial real estate, land, and consumer receivables. The lender finance book is comprised of real estate and non-real estate transactions. The weighted average advance rate on the real estate lender finance book is 28%. with no transactions with advance rates greater than 50%. The non-real estate lender finance book backed by primarily consumer loans is approximately $688 million with an average advance rate of 50.4% of the outstanding receivables balance. These structures generally require rapid paydowns in the event of any significant collateral deterioration in the receivables and are also paid down rapidly in the event of origination's decline. We have no loans and forbearance in our lender finance or CRSSL book. Our non-real estate consumer lending is comprised of approximately $270 million of auto loans, $58 million of personal and secured loans, and $7.3 million of H&R Block refund advance loans. We lend to prime and super prime borrowers with an average FICO score of 765 in our auto production and 760 in our unsecured consumer portfolio. We fully underwrite and service every auto loan we hold on our balance sheet, and the portfolio continues to perform in line with expectations. We continue to generate strong returns with a return on average common shareholder equity of 17.3% and 14.35% in the three months ended December 31st, 2020 and December 31st, 2019 respectively. Our efficiency ratio for the banking segment was 40.45 for the quarter ended December 30, 2020 compared to 43.81% in the year ago period, a year over year improvement in our banking business segment efficiency ratio that would have been even better if you exclude this the 848,000 FDIC credit we received in the three months ended December 31, 2019. We continue to maintain strong operating efficiencies while investing prudently in each of our business units. Our capital ratios remain strong, with Tier 1 leverage to adjusted assets of 8.68 at the holding company and 9.08 at the bank. Our priorities for capital remain organic loan growth, reinvestment and growth initiatives, opportunistic buybacks, and accretive M&A. We bought back approximately $4 million of common stock in the December 2020 quarter at an average price of approximately $23 per share. Our loan pipeline remains solid with approximately $1.7 billion of consolidated loans in our pipeline at December 31, 2020, consisting of $399 million of single-family agency gain on sale mortgages, $347 million of jumbo single-family mortgages, $225 million of multifamily and small-balance commercial real estate loans, $677.5 million of CNI and Crestle loans, and $23.1 million of auto and consumer unsecured loans. We expect to be able to continue to grow loans in the high single-digit to low double-digit percentage throughout the remainder of this calendar year. We have a healthy liquidity position and a diverse set of funding sources. Our on-balance sheet deposits increased by 13.4% year-over-year, with checking and savings deposits increasing by 26.5%. Our consumer, commercial cash, and treasury management, small business banking, and specialty deposits continue to show solid growth. Concurrently, we reduced our average interest-bearing funding costs by six basis points, link quarter, and 103 basis points year-over-year to 85 basis points. Total client deposits at Axos Clearing were $773 million at 12-31-2020, up 14.9% from the September 30th ending balance. We have the ability to redeploy our off-balance sheet deposits to fund growth at Axos Bank if and when it is economically advantageous to do so. Of that $773 million of low-cost deposits, approximately $333 million are held away at other banks, while the remainder sit on the bank's balance sheet. We also have access to approximately $2.5 billion of FHLB borrowing, $2.3 billion in excess of the $183 million we had outstanding at the end of the second quarter. Furthermore, we have $1.8 billion of liquidity available to Fed discount window as of December 31, 2020. Our securities business continues to make progress. Exos Clearing increased total tickets processed by almost 14% link quarter to 1.3 million tickets and ending deposits by approximately 15% link quarter. We signed three new correspondent clearing clients in the December quarter and signed three new RIA clients this quarter, which will add incremental fee income and low-cost deposits for the two- to three-quarter lag between signing and onboarding. We're actively talking to introducing broker-dealers and independent RIA firms that are evaluating alternatives to Schwab, TG, E-Trade, and Pershing for clearing and custody services. The ability for Axios Clearing to generate incremental fee income as well as sticky low-cost deposits remains an important and differentiating value over the long term. Furthermore, we remain bullish on the medium to long-term cost and revenue synergies provided by Axos Clearing and Axos Invest to our banking business. We transitioned to a tiered pricing model based on assets under management and Axos Invest during the December quarter. Rather than offering a free basic service and charging monthly for various premium services, we now charge clients a flat 24 basis points annual management fee and they have access to all financial services offered through our digital wealth and financial management platform. We've seen limited attrition in the number of active accounts since we implemented the pricing change, and overall AUM is up approximately 10% from September 30, 2020 to December 31, 2020. We will transition to a self-clearing model later this month, with Axos Clearing becoming the clearing firm for Axos Invest. This will make our digital wealth management platform more scalable from a cost perspective over the long run, and provide us flexibility to enhance our product offering. We continue to beta test our self-directed trading platform. The preliminary launch date to existing Axos clients will be sometime in the June quarter. This functionality will also be accessible through the consolidated mobile application. By the end of this quarter, we will have integrated Axos Invest functionality into our mobile application so that Axos Invest functionality is available through one consolidated mobile application significantly improving the user experience and cross-sell potential. We believe we have only scratched the surface in our long-term cross-sell goals and objectives. New products and features within our universal digital banking platform, such as single sign-on for Axos Invest, Axos Trading, and Consumer Banking, will provide incremental value to our customers, lower acquisition costs, improve retention, and add additional sources of fee income and deposits for the company. We believe many of the changes in consumer behavior over the past years are structural, and the vast majority of business and consumer clients will permanently migrate their entire financial lives to digital interactions. Our focus is on acquiring customers that value convenience and service and are willing to do more with Axos over time. Our low-cost nationwide digital platform provides us with the flexibility and agility to mine data and offer consumers the best value to those looking for a superior solution. Now I'll turn the call over to Andy, who will provide additional details on our financial results.