Axos Financial, Inc.

Hello and welcome to the Axos Financial Inc. 4th Quarter 2024 Earnings Call-In Webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the conference over to Johnny Lai, Senior Vice President of Corporate Development and Investor Relations. Please go ahead, Johnny.

Thank you, Kevin. Good afternoon, everyone. Thanks for joining us for Axos Financial Inc.' 's fourth quarter 2024 financial results conference call. On today's call are the company's president and chief executive officer, Greg Gerbrandt, and executive vice president and chief financial officer, Derek Walsh. Greg and Derek will review and comment on the financial and operational results for the three and 12 months ended June 30, 2024, and we 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. Please refer to the safe harbor statement found in today's earnings press release and in our investor presentation for additional details. 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 the call over to Greg, I'd like to remind listeners that in addition to the earnings press release, we also issued an earnings supplement, an 8K, with additional financial schedules for this call. All of these documents can be found on the Axios Financial website. With that, I'd like to turn the call over to Greg. Thanks, Johnny.

Good afternoon, everyone, and thank you for joining us. I'd like to welcome everyone to Axios Financial's conference call for the fourth quarter of fiscal 2024, ended June 30, 2024. I thank you for your interest in Axios Financial. We delivered outstanding results in our fiscal fourth quarter of 2024, generating double-digit year-over-year growth in earnings per share, book value per share, and ending loan balances for a ninth consecutive quarter. We outperformed the majority of our peers primarily due to the successful execution of our strategic and operational initiatives. We grew deposits by approximately $256 million linked quarter, with growth coming primarily from non-interest-bearing deposits. Lending loan balances were up 2.7% link quarter, or 16.9% year-over-year, to $19.2 billion. The diversity of our lending and deposit businesses allowed us to grow profitably in the three and 12 months ended June 30, 2024, as evidenced by our 18.8% and 21.6% return on average common shareholder activity, respectively. Our strong returns contributed to the 26% year-over-year growth in our tangible book value per share. Other highlights include the following. Net interest margin was 4.65 percent for the quarter ended June 30th, 2024, up 46 basis points from 4.19 percent in the quarter ended June 30th, 2023, and down from 4.87 percent in the quarter ended March 31st, 2024. We carried higher excess liquidity with average interest bearing deposits of approximately 2.7 billion in the fourth quarter of 2024 compared to 2.2 billion in the third quarter of 2024. The excess liquidity had a nine basis points drag on our Q4 2024 net interest margin. Net interest margin in Q3 2024 benefited from a payoff of a loan we purchased from the FDIC. Our credit quality remained strong with net annualized charge-offs to average loans of five basis points in the three and 12 months ended June 30, 2024. Total non-performing loans dropped by $9 million in the quarter, and non-performing loans and leases to loans fell by six basis points to .57 percent. Net income was approximately $105 million in the quarter ended June 30, 2024, up 20 percent from the corresponding period a year ago. Earnings per share for the three and 12 months ended June 30, 2024, were $1.80 and $7.66, representing year-over-year growth of 23 percent and 51 percent, respectively. We repurchased $13.2 million of common stock in the fourth quarter ended June 30, 2024, at an average share price of $48. For fiscal year 2024, we repurchased approximately $97 million of common stock at an average share price of $38.18 for share. We still have approximately $106 million remaining in our authorized share repurchase program. Total loan originations for investment were $2.5 billion, for the three months ended June 30, 2024, up approximately 11% from the same period a year ago. Strong originations were offset by higher repayments across the majority of real estate-backed lending categories. Ending balances for our multifamily term loans and commercial real estate specialty loans declined by approximately $122 million and $31 million, respectively, in the fourth quarter. We continue to reduce our auto consumer and select real estate-backed loans to tactically manage our interest rate and credit risk. Average loan yields for the three months ended June 30, 2024, were 8.55%, down 10 basis points from 8.65% in the prior quarter, and up 104 basis points from the corresponding period a year ago. Average loan yields for non-purchase loans were 8.11%, and average yields for purchase loans were 16.59%, which includes the accretion of our purchase price discount. The prepayment of an FDIC-acquired loan increased the Q3 2024 average loan yield by eight basis points, excluding one-time items in the fiscal third quarter of 2024, organic, non-purchased loan yields declined by four basis points, reflecting a focus on loan verticals that come with compensating non-interest-bearing deposits. New loan interest rates were the following. Single-family mortgages, 8.1%. Multifamily, 8.5%. CNI, 9%, and auto, 10.4%. Our commercial real estate loans continue to perform well. As we've discussed previously, the structure, duration, and exit strategies for our commercial specialty real estate loans are significantly different from traditional CRE term loans that most other banks originate and hold. The low loan-to-value and senior structure we have in place for an overwhelming majority of our commercial specialty real estate loans provides with significant downside protection in the event of a deterioration of the borrower's ability or willingness to repay, devaluation of underlying properties, or construction project delays. Our Crestle loans are floating rate with contractual maturities generally between two and three years compared to fixed rate loans with contractual maturities of seven or longer for most commercial real estate loans. Of the $5.1 billion of commercial specialty real estate loans outstanding at June 30, 2024, multifamily was the largest segment representing 37%. while hotel retail represent 21%. On a consolidated basis, the weighted average loan devalue of our Crestle portfolio is 40%. Our retail and office segment of our commercial specialty loan book is well secured with weighted average loan devalues of 46% and 35% respectively. We have very little office exposure in our commercial real estate specialty loan portfolio with ending balances equal to $302 million or 6% of the total Crestle portfolio. Of these loans secured by office properties, 54% are A notes or note-on-note structures, all with significant subordination, with some having recourse to funds or cross-collateralization with other asset types from fund partners and mezzanine lenders. Non-performing loans in our commercial specialty real estate portfolio remain unchanged at approximately $26 million, representing 50 basis points of our total book outstanding. These are two loans, a condo building in New York for $15 million and a student housing building in Berkeley for $11 million, which make up the entire non-performing commercial real estate loan portfolio. We do not anticipate incurring a material loss on either of these loans. Non-performing loans in our multifamily mortgage portfolio were approximately $35 million at June 30, 2024, down $3.5 million when quarter. Of the $35 million, there is one loan on an assisted living property of $25 million that has been reserved for more than a year. The rest of the multifamily term loans are for properties located in California and across the U.S. with recourse and personal guarantees. The average loan-to-value of our non-performing multifamily mortgages is approximately 57%. We do not expect to incur material loss at any other multifamily loans currently categorized as non-performing. We closed the purchase of two loan portfolios with a UPV of $1.25 billion from the FDIC in December 2023. Ending balance was decreased by $12 million since March 31, 2024. We do not have any prepayments resulting in discount accretion this quarter in the loans we purchased from the FDIC. All loans purchased from the FDIC are current. Non-performing single-family mortgage loans decreased from $51 million at March 31, 2024, to $46 million at June 30, 2024. The weighted average loan-to-value of our non-performing single-family mortgage portfolio was 55% as of June 30, 2024. Given that home values continue to increase in the majority of markets where properties are located, we do not foresee much lost content, if any, in our delinquent single-family mortgages. We increased deposits by $256 million in the fourth quarter and by $2.2 billion in fiscal 2024. Demand, money market, and savings accounts representing 95% of total deposits at June 31, 2024 grew at 16.5% annualized. We have a diverse mix of funding across a variety of business verticals, with consumer and small business representing 62% of total deposits, commercial cash, treasury management, and institutional representing 18%, commercial specialty representing 10%, Axos fiduciary services representing 6%, and Axos Securities, which is our custody and clearing business, representing 4%. Total non-interest-bearing deposits were approximately $3 billion, up $220 million quarter over quarter. Our balance sheet remains relatively neutral from an interest rate risk perspective, given the shorter duration, variable rate nature of our loans, and the granularity and diversity of our consumer, commercial, and securities deposits. As of June 30, 2024, approximately 69% of our loans were floating, 25% were hybrid arms, and 6% were fixed. Term deposits were only 4.8% of total deposits a quarter end, providing us flexibility to adjust interest costs if and when rates decline. For the quarter ended June 30, 2024, our consolidated net interest margin was 4.65%, while our banking business net interest margin was 4.68%. Our consolidated banking and banking business NIM remains above our guidance of 4.25% to 4.35%, despite holding excess liquidity due to strong deposit growth and elevated levels of loan repayments. When we announced the FDIC loan purchase in December 2023, Our expectation was that the transaction would boost our net interest margin by 35 to 45 basis points. One caveat was that any loan prepayments would accelerate the recognition of the purchase discount, boosting our net interest income and net interest margin in the period that the prepayments occurred and reducing both in future periods. Given the prepayments in this portfolio, we now expect our net interest margin benefit to be 30 to 40 basis points for fiscal year 2025. We break out the average balances and loan yields for the purchased and non-purchased loans in our supplement schedules provided as an exhibit to the press release for readers to separate the impact of a loan purchase on net interest margin. Total ending deposit balances at AAS, including those on and off Axos' balance sheet, were relatively flat compared to prior quarter. The rate of decline has troughed, and we believe that the pace of cash sorting at AAS has stabilized at or near the bottom representing 3.3% of assets under custody at June 30, 2024, compared to the historical range of 6% to 7%. We are focused on adding net new assets from existing and new advisors to grow our assets under the custody and cash balances. In addition to our access securities deposits on our balance sheet, we had approximately $550 million of deposits off balance sheet at partner banks. Non-interest expense increased $7 million linked quarter, driven by increased salary and benefits, professional service expenses, advertising and promotional expenses, and higher FDIC fees. We continue to selectively add talented leaders and team members across various business and functional units to support our existing and future growth initiatives, particularly in treasury management, sales, products, and operations, where we saw nice growth in non-interest-bearing deposits. Some of the elevated professional service expenses pertaining to consulting and legal fees were for specific projects and are not expected to reoccur. We expect the growth in marketing and promotional expenses to moderate given our elevated level of excess liquidity. Our ongoing investments in front and back end systems, product features and service offerings, and other enterprise offering systems will further optimize our processes and capabilities. We migrated all existing small business deposit customers to our universal digital bank in June. This platform transition provides a better user interface and more self-service capabilities to small business deposit customers that were not available in the prior platform. We continue to add enhancements in UDB to leverage data we have on existing and prospective consumer clients in order to further drive cross-sell of banking, lending, and security services. Feedback on our white-label RIA banking from introducing broker-dealers has been encouraging. We will refine the platform based on our feedback to ensure that we have the features and ease of use that will drive adoption and usage once we roll this out to all existing and new custody and clearing clients. Axos Clearing, which includes our correspondent clearing and RA custody business, continues to make steady progress. Total deposits at Axos Clearing were $1.3 billion as of June 30, 2024, roughly flat from where they were at March 31, 2024. Of the $1.3 billion of deposits from Axios Clearing, approximately $750 million was on our balance sheet and $550 million held at partner banks. Net new assets in the custody business increased by approximately $256 million in the fourth quarter. We had positive net new asset growth in our custody business in every month since March 2024. Total assets under custody were $35.7 billion at June 30, 2024, up slightly from $35 billion at the end of the March quarter. The sales team continues to make solid progress onboarding assets from new advisory firms, offsetting the decline in some of Axos Advisory Services' historical turnkey asset management clients. The pipeline for new custody clients remains healthy, and we expect continued AUM growth in Axos Advisory Services. From an operational perspective, we have identified dozens of straight-through processing and system implementation improvements that we are starting to implement. We believe that sustained new asset growth A normalization in cash balances and operational productivity initiatives will drive positive operating leverage in our clearing and custody business in the medium to long term. I'm pleased with how we performed in fiscal 2024 from a growth risk management and capital allocation perspective. We're well positioned to maintain that interest margin and returns above our long-term target in fiscal 2025. Our asset-based lending philosophy with conservative loan-to-values and prudent structures coupled with our strong capital and liquidity, put us in a favorable position. As we continue to evaluate various organic and inorganic growth initiatives, we will remain opportunistic with respect to capital deployment. I firmly believe that our prudent investment in the businesses, systems, and processes and people that we've made will generate attractive future returns for our shareholders. Now I'll turn the call over to Derek, who will provide additional details on our financial results.