Axos Financial, Inc.

Hello, and welcome to the Axos Financial Q4 2021 earnings call and webcast. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to John Eli, Investor Relations. Please go ahead.

Thanks, Kevin, and good afternoon, everyone. Thank you for your interest in Axos. Joining us today for Axos Financial Inc.' 's fourth quarter 2021 financial results conference call are the company's president and chief executive officer, Greg Gerbrand, 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 12 months ended June 30th, 2021, 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 risks and uncertainties. Therefore, the company claims the safe harbor protection pertaining to forward-looking statements contained in the Private Security Litigation 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 axosfinancial.com for 30 days. Details for this call were provided on the conference call announcement and in today's earnings press release. Before handing it over to Greg, I would like to remind our listeners that in addition to the press release, we also issued an earnings supplement and an AK with the financial disclosures. All of these documents can be found on the Access Financial website. With that, I'd 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 Access Financial's conference call for the fourth quarter of fiscal year 2021. ended June 30, 2021. I thank you for your interest in Axos Financial and Axos Bank. We ended fiscal 2021 with strong net income and loan origination growth, stable net interest margins, excellent credit quality, and industry-leading returns. Axos reported fourth quarter net income of $54.3 million for the three months ended June 30, 2021, and earnings per diluted share of $0.90. For the 12 months ended June 30, 2021, Net income and earnings per share increased by 17.6% and 19.5% to $215.7 million and $3.56 respectively. Our book value per share was 23.62 at June 30, 2021, up 14.9% from June 30, 2020. The highlights for this quarter include the following. Net interest margin was 3.92 for the fourth quarter. down slightly from 3.96 in the third quarter of fiscal 2021, and up three basis points from 3.89% in the fourth quarter of 2020. Net interest margin for the banking business was 4.16, compared to 4.23 in the quarter ended March 31st, 2021, and 3.95 for the quarter ended June 30, 2020, up 21 basis points over that prior year's comparable quarter. For all of fiscal 2021, net interest margin for the banking business was 4.11, down slightly from 4.19 in fiscal 2020, excluding tax-related H&R Block loans, which we discontinued in fiscal 2021. Net interest margin for the banking business was up year over year. Excess liquidity accounted for all of the small sequential decline in both our earning asset yield and net interest margin this quarter over the prior linked quarter. Loan yields continue to hold up well at 5.15%, a five basis point increase from 5.1% in the quarter ended March 31st, 2021. We continue to reduce our funding costs by replacing higher cost deposits with non-interest bearing demand deposits. Non-interest bearing deposit balances grew by approximately 28% over the prior fiscal year, An end-of-period cost of interest-bearing demand and savings accounts went from 58 basis points at June 30, 2020 to 18 basis points at June 30, 2021. Our efficiency ratio for the three months ended June 30, 2021 was 51.66% compared to 50.64% in the third quarter of 2021. The efficiency ratio for the banking business segment was 45.2% for the fourth quarter of 2021 versus 42.33% in the third quarter of 2021. The sequential increase in overall and banking efficiency was a result of higher data processing expenses related to our software initiatives and enhancements to our bank's operating systems. Diluted earnings per share was 90 cents, up 19.2% from the 75 cents in the year-ago quarter. Our corporate tax rate decreased, from 29.5% in the third quarter of 2021 to 28% this quarter. We continue to generate strong returns while maintaining excess capital. We generated a return on equity of 15.56% in the fourth quarter and 16.51% in the fiscal year ended June 30, 2021. Capital levels remain strong with Tier 1 leverage ratio of 9.45 at the bank and 8.82% at the holding company, both well above our regulatory requirements. Our credit quality remains strong with no loans and forbearance. Non-performing assets represent 1.6% of total loans and leases at June 30, 2021, compared to 1.14% at March 31, 2021. Charge-offs excluding tax-related products were one basis point annualized of average loan and lease balances this quarter. Excluding mortgage warehouse and single-family jumbo mortgages and our bulk sale of $31.5 million of PPP loans, Ending loan balances increased by approximately $270 million, up 15.5% annualized from the third quarter of 2021. For the quarter, strong originations in multifamily, auto, and C&I lending were offside by record high payoffs in jumbo single-family loan balances, lower period ending balances in single-family mortgage warehouse, and $31.5 million of PPP loan sales. Ending loan and leases were up 7.4% year-over-year, but decreased by approximately $296 million from the third quarter of 2021. Total loan originations for the fourth quarter ended June 30, 2021, were $2.1 billion, up 27.6% from $1.6 billion in the year-ago period. Q4 2021 originations were as follows. $242 million of single-family agency gain on sale production. 380 million of single-family jumbo portfolio production, 186 million of multifamily production, 37 million of commercial real estate production, 83 million of auto and unsecured consumer loan production, and 1.1 billion of CNI loan production, resulting in a net increase of $232 million. Mortgage banking gain on sale generated 2.9 million of mortgage banking income compared to 9 million in the third quarter of 2021, and $12.7 million in the corresponding quarter last year. Originations decreased by approximately 36.3% linked quarter to $242 million, while gain on sale margins dropped slightly to 323 basis points from 333 basis points in the third quarter of 2021. The outlook for mortgage banking remains relatively stable for the fiscal 2021 fourth quarter. Our pipeline of single-family agency mortgages was $193 million at 7-9-2021. Ending balances in the mortgage warehouse portfolio were up $43 million from the $570.8 million of June 30, 2020, and down $354 million from the elevated March 31, 2021 balance of $968 million, highlighting sensitivity to overall volumes in the mortgage market. We continue to expand our relationships with existing mortgage warehouse customers and establish new relationships. Our single-family warehouse business generates strong risk-adjusted returns for us and remains a small part of our overall loan book, representing approximately 5% of our June 30, 2021 ending loan balances. Our diversified consumer and commercial deposit and securities businesses continue to benefit from the secular shifts toward digital banking. Consumer deposits, representing approximately 42% of our total deposits at June 30, 2021, is comprised of consumer direct checking, savings, money market, and non-interest-bearing accounts. The weighted average interest-bearing demand and saving deposit costs were 18 basis points at June 30, 2021, down by 40 basis points compared to 58 basis points at June 30, 2020. Average non-interest-bearing demand deposits was $2.6 billion in the quarter ended June 30, 2021, up 17.5% from the prior quarter. Ending time deposits at 6-30-2021 were down $180 million in quarter and $834 million year-over-year as we replaced higher-cost non-core time deposits with lower transactional deposits. Of the total $1.5 billion, of certificates of deposit of outstanding on June 30, 2021. In the next 12 months, approximately $1 billion at a weighted average rate of 117 basis points will mature. Our small business and specialty consumer and treasury management businesses, including our fiduciary services businesses, continue to contribute to our low-cost deposit growth. Axel's clearing continues to generate low-cost deposits that we will be able to put on or off balance sheet. Ending cash deposit balances at Axos Securities was $730.2 million, with approximately $320 million on Axos' balance sheet at June 30, 2021. The pending acquisition of E-Trade Advisory Services will add over $1 billion of incremental cash sweep deposits that we can use to fund loan growth, replace maturing certificates of deposit, or keep off balance sheet and generate fee income. Our credit quality remains solid. Annualized net charge-offs to average loans and leases, excluding seasonal tax products, was one basis point this quarter, compared to five basis points in the corresponding period last year. We charged off the remaining $7.3 million of refund advance loans outstanding in the fourth quarter of 2021, all of which we fully provisioned for in the prior quarters. Non-performing assets, the total asset ratio was 107 basis points for the quarter ended June 30, 2021, down from 114 basis points in the third quarter of fiscal 2021. Of our non-performing loans, 73% are single-family mortgages, where we have historically had very low realized losses. Of our non-performing single-family mortgages at June 30, 2021, approximately 89.5% had an estimated current loan-to-value ratio at or below 70%, and approximately 99% are below 80% of our best estimate of current loan-to-values. Given the relatively low loan-to-values on our single-family mortgages, we did not anticipate occurring material losses on the vast majority of our delinquent loans. We had no loans in forbearance at June 30, 2021. Other than single-family delinquencies, the remaining real estate delinquencies consist of one hotel loan we previously discussed, which is around $12.1 million of UPB that was sold subsequent to the end of the quarter. We had seven multifamily loans that were 30 to 59 days delinquent for a total value of around $8 million that are at an origination LTV of around 42% on average, and two multifamily loans that are 60 to 90 days delinquent for $1.8 million with an average 55% origination LTV. Our loan loss provision this quarter was $1.3 million compared to $2.7 million in the March 31, 2021 quarter, and $6.5 million in the quarter ended June 30, 2020. The primary reason for the sequential decline in loan loss revisions is a decline in average and ending loan balances. Our total allowances for loan loss was $133 million at June 30, 2021, which represents approximately 1.2% of our total loans and leases, contrasted with one basis points of annualized charge-offs this quarter, excluding refund advances, and related charge-offs, and greater than 17 times the total annualized charge-off rate, excluding refund advance loans. Our loan growth outlook for fiscal 2022 remains essentially unchanged at high single digits to low teens. Demand and production in all of our lending areas continue to be solid, although elevated prepayment rates in our single-family mortgage book may continue to represent a risk to maintenance and growth in that portfolio. we continue to add personnel in our lending areas to bolster loan growth. Our loan pipeline remains solid, with approximately $1.7 billion in our consolidated pipeline in June 30, 2021, consisting of $193 million of single-family agency gain-on-sale mortgages, $480.4 million of jumbo single-family mortgages, $230.7 million of multifamily and small-balance commercial real estate term loans, $683 million of CNI and CRSSL loans, and $97 million of auto and consumer unsecured loans. We continue to generate strong returns, with return on average common shareholder equity of 15.56% and 16.51% in the three months and 12 months ended June 30, 2021, respectively. Our efficiency ratio for the banking segment was 45.2% for the quarter ended June 30, 2021, compared to 42.33% in the last quarter. The slight uptick in our efficiency ratio reflects lower mortgage banking income and continued investments across our businesses. Our capital ratio remains strong with Tier 1 leverage to adjusted assets of 8.82 at the holding company and 9.45 at Axos Bank. We have access to approximately 2.5 billion of FHLB borrowing, 2.3 billion in excess of the 186 million we had outstanding at the end of the fourth quarter, Furthermore, we had $2.1 billion of liquidity available at the Fed discount window as of June 30, 2021. Our strong organic loan growth and returns, coupled with a clean capital structure, allows us to make opportunistic stock buybacks and acquisitions, such as the E-Trade Advisory Service acquisition that we announced last quarter. Our securities business had an excellent quarter with strong growth in fee income and net interest income. Broker dealer fee income increased 12.6% in the fourth quarter compared to the corresponding period last year due to higher client activity. Securities margin balances increased 58% year-over-year to $327 million, while stock lending increased $256 million in the June 30, 2020 quarter to $729 million in the June 30, 2021 quarter. Although ending deposits at Axos Clearing decreased by approximately 8.1% linked quarter to $730 million as clients increased their risk tolerance, deposit balances are up 62% year-over-year due to growth in Axos Clearing's assets under custody. In April, we announced the signing of an agreement with Morgan Stanley to acquire their RIA custody business, E-Trade Advisory Services. With approximately $23 billion of assets under custody, including $1.2 billion of client cash deposits at the time we announced the deal, EES provides a turnkey RIA platform for independent RIAs and TAMPs, an experienced team of custody specialists with decades of experience working with RIAs and advisors, incremental fee income, and low-cost deposits. We believe that our entrepreneurial culture, commitment to servicing clients with no conflict of interest, and our ability to provide additional technological and banking services to these RIAs, advisors, and their end clients make us an ideal strategic acquirer for EAS. We have made significant progress over the past three months across a variety of conversion and integration activities. Having already received FINRA approval to convert the EAS business to a broker-dealer platform, we feel good about achieving the remaining milestones required to close the acquisition in August of 2021. We remain committed to a smooth client transition and to invest to grow the RA custody business. As a reminder, the business generates fee income from asset and transaction-based revenue and net interest income from client sweep deposits held on or off balance sheet. We will provide an update on the expected financial impact, including EPS accretion, expense and revenue run rate, and deposit balances when the deal closes. We soft-launched our self-directed trading platform at the end of June – Version 1 of the self-directed trading offering is focused on existing clients who value the simplicity and convenience of being able to see and transact across various Axos banking and investment products through one online login and mobile app. We see lots of cross-sell opportunities across our lending and fee-based businesses, including Axos Invest, over time. While it's too early to draw any meaningful conclusions from our self-directed trading launch, It provides another customer acquisition and monetization tool in our growing list of lending, deposit, and fee-based services to our customers. I am proud of the Access team for staying focused on serving our clients and delivering strong earnings growth and returns to our shareholders over the last 12 months during a challenging and uncertain environment. Our strong organic capital generation affords us the ability to invest in existing and new businesses technology in our team. Our deposit platform investments have generated meaningful increases in non-interest-bearing deposits, significantly lowered our cost of interest-bearing deposits, and allowed us to earn fees from placing deposits at other banking institutions. I firmly believe that our investments in our security businesses will pay meaningful dividends to support future fee income, deposit, and loan growth. Our technological investments we have made in our banking platform are generating strong interest from EAS advisory clients, one of the many indications that strong technology and product synergies exist across these businesses. I'm excited about the cross-sell potential across each of our three businesses, consumer banking, commercial banking, and securities. The pending EAS acquisition will accelerate our time to scale and profitability in a growing market segment and provide an excellent source of customers for Axos banking products. Despite a challenging interest rate and competitive environment, we are better positioned than ever to maintain consistent profitable growth. Now I'll turn the call over to Andy, who will provide additional details on our financial results. Thanks, Greg.