Axos Financial, Inc.

and welcome to the Axis Financial second quarter 2025 earnings call and webcast. 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, please press star zero on your telephone keypad. As a reminder, this conference is being recorded, and it is now my pleasure to introduce Johnny Lai, Senior Vice President, Corporate Development and Investor Relations. Thank you, Johnny. You may begin.

And thanks for your interest in Axos.

Joining us today for Axos Financial Inc's second quarter 2025 financial results conference call are the company's president and chief executive officer, Greg Darabrantz, 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 months ended December 31st, 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 AK, with additional financial schedules. All of these documents can be found on AxiosFinancial.com. And with that, I'd like to turn the call over to Greg.

Thank you, Jonny. Good afternoon, everyone, and thank you for joining us. I'd like to welcome everyone to Axios Financial's conference call for the second quarter of fiscal 2025, ended December 31st, 2024. I thank you for your interest in Axios Financial. We delivered solid results this quarter, generating double-digit year-over-year growth in net interest income and book value per share. Ending loan balances were up 1.1% link quarter and 6.7% year-over-year to $19.5 billion. We continue to generate high returns as evidenced by the 17% return on average common equity and 1.7% return on assets in the three months ended December 31st, 2024. Our strong returns contributed to a 21% year-over-year growth in our tangible book value per share. Net interest income was $280 million for the three months ended December 31st, 2024, up 22.5% from the $228.6 million in the prior period. Excluding the benefit from the early payoffs of three FDIC purchase loans in the first fiscal quarter of 2025, net interest income was up approximately $5 million linked quarter. Net interest margin was 4.83% for the quarter ended December 31st, 2024, up 28 basis points from 4.55% in the quarter ended December 31, 2023, and down from 5.17% in the quarter ended September 30, 2024. Net interest margin in the first quarter of 2025 benefited from the payoff of three loans we purchased from the FDIC, excluding the impact from the early payoff of the three loans purchased in the three months ended September 30, 2024. Net interest margin was 4.87%. Total unbalanced sheet deposits increased 9.5% year-over-year to $19.9 million. Our diverse and granular deposit base across consumer and commercial banking and our securities business continues to support our organic loan growth. We managed our operating expenses well this quarter. Total non-interest expenses for the quarter ended December 31, 2024, were down by 1.5% from the prior quarter. The efficiency ratio for the banking business segment was 41% in the second fiscal quarter of 25. Net annualized charge-offs to average loans were 10 basis points in the three months ended December 31st, 2024. Excluding the auto loans covered by insurance, net annualized charge-offs to average loans were eight basis points in the second quarter of 2025. We remain well-reserved relative to our low current and historic net credit losses. Net income was approximately 104 million in the quarter ended December 31, 2024, compared to 152.8 million in the corresponding period a year ago. Excluding the gain from the FDIC loan purchase in the prior year period, the adjusted net income and adjusted EPS were 92.5 million and $1.60 per share, respectively. Non-GAAP adjusted earnings per share for the three months ended December 31, 2024 was $1.82. Net growth in our non-purchase loans for investment were $208 million for the three months ended December 31, 2024. Strong loan originations of $3.5 billion and growth in single-family mortgage warehouse and CNI loan balances were We're offset by declines in loan balances in our 5-1 hybrid arm single-family and multifamily jumbo mortgages of $381 million this quarter. We believe that we can reduce these significant headwinds to loan growth this quarter in single-family jumbo mortgages, given that the pipeline has risen from $345 million in the prior quarter to $496 million due to recent competitive exits, selective rate reductions, and some assistance from the yield curve. We also believe we have the potential to be flat to slightly up in our multifamily hybrid arms this quarter, given that the yield curve isn't working as actively against this product as it has been over the last several years, and we're seeing more rational valuations in the market. Lender finance, fund finance, and equipment leasing had strong originations in net loan growth this quarter. Ending balances in our auto loan portfolio were up slightly at December 31, 2024, and representing the first sequential increase since the first quarter of fiscal year 2023. Average loan yields for the three months ended December 31, 2024, was 8.37%, down from 9.01% in the prior quarter and up 19 basis points from the corresponding period a year ago. Average loan yields for non-purchase loans were 8.08%, and average yields for purchase loans were 13.92%, which includes the accretion of our purchase price discount. The prepayment of three FDIC-acquired loans increased the first quarter 2025 average loan yield by 30 basis points. Excluding the FDIC loan prepayments in the September 2024 quarter, average loan yields were down sequentially due primarily to loan mix. The remaining FDIC purchase loans continue to perform, and all loans in that portfolio remain current. New loan interest rates were the following. Single-family mortgage, 8.3 percent, multifamily, 9.2, C&I, 8.5, auto, 9.7. Ending deposit balances of $19.9 billion were roughly flat-linked quarter and up 9.5 percent year-over-year. Demand, money market, and savings accounts representing 96 percent of total deposits at December 31, 2024, increased by 10.6% year-over-year. We have a diverse mix of funding across a variety of business verticals, with consumer and small business representing 62% of total deposits, commercial, TM, and institutional representing 20%, commercial specialty representing eight, Axos Fiduciary Services representing six, and Axos Securities, which is our custody and clearing, representing 4%. Total non-interest-bearing deposits were approximately $3 billion at the end of the quarter. Total ending deposit balances at Axos Advisory Services, including those on and off Axos' balance sheet, were up approximately $78 million compared to the prior quarter. Client cash shorting has stabilized at or near the bottom, representing approximately 3% of assets under custody at the end of the quarter compared to the historic range of 6% to 7%. We are focused on adding net new assets from existing and new advisors to grow our assets under custody and cash balances. In addition to our EXO securities deposits on our balance sheet, we had approximately $450 million of deposits off balance sheet at partner banks. For the quarter ended December 31st, 2024, our consolidated net interest margin was 4.83% compared to 5.17% in the quarter ended September 30th, 2024. Excluding the 30 basis point boost from the FDIC purchase loans that paid off early, Our consolidated net interest margin would have been 4.87% for the September 30 of 2024 quarter. We break out the average balances and loan yields for the purchased and non-purchased loans in our supplemental schedules provided as an exhibit to the press release for readers to separate the impact of the loan purchase on net interest margin. We continue to hold excess liquidity, which had an 18 basis point drag on our net interest margin in the quarter ended December 31, 2024. Our net interest margin remains above the high end of our target with and without the benefit from the FDIC purchase loans, largely because of the diversity and granularity of our funding across our consumer banking, commercial banking, and securities businesses. Total interest-bearing deposit costs were 3.95% for the quarter ended December 31, 2024, down 51 basis points from the prior quarter. We have been able to reprice our higher-cost consumer and wholesale deposits while maintaining on-balance sheet deposits roughly flat. We continue to grow our lower-cost and non-interest-bearing deposits in our commercial cash management and treasury businesses, as well as our specialty deposit business. We are also making good progress cross-selling deposits across selected lending businesses, such as Fund Finance. Cash sweeps in our custody business were $878 million at December 31, 2024, compared to $800 million at September 30, 2024. Continued strong net new asset growth and a normalization in cash sorting will be a tailwind in our ability to grow lower-cost deposit balances going forward. We expect our consolidated net interest margin ex-FDIC loan purchases to stay at the high end or slightly exceed the 425 to 435 range we have targeted over the past year. We have been successfully repricing our higher-cost deposits and will continue to adjust deposit pricing based on future actions by the Fed and by competitors. We see more competition from banks and non-banks in certain lending categories. We have selectively adjusted pricing where appropriate to be more competitive for high-quality deals. Our loan pipelines have improved meaningfully in our single-family mortgage and multifamily term lending business over the past few months as a result of strategic actions we have taken. A steeper yield curve also makes our hybrid single-family and multifamily loan products more economically viable. While it may take a few quarters for the hybrid loans in our pipeline to have a meaningful impact on our balance sheet growth, we believe the level of net attrition in our single-family and multi-family term loans, which have been around $300 to $400 million per quarter, will subside. The credit quality of our loan book continues to be solid, despite a few idiosyncratic circumstances that led to an uptick in non-performing assets this quarter. The majority of our non-performing assets are in the real estate-backed loan area, where LTVs are conservative and our historical losses have been low. Non-performing assets in our single-family jumbo mortgages increased by approximately $10.4 million from September to December. The increase was attributed to three assets with a weighted average loan-to-value of 56%. Non-performing assets in our multifamily mortgage book increased by $17.8 million in the link quarter due to two properties where we do not believe we'll incur any additional loss. Non-performing assets in our commercial real estate loan book increased by $20 million, primarily because of a $14.5 million loan in Brooklyn. The loan was downgraded due to a maturity in October 2024, an extension of that maturity to allow the property to be sold. The full recourse guarantors have significant liquidity and net worth and are making principal accoutrements while marking the property for sale above our loan amount. We are confident that we're not losing any money on this loan, given the value of the property and the strength of the guarantors. We did not anticipate a material loss from loans currently classified as non-performing in our single-family, multifamily, or commercial real estate loan portfolio. Our commercial real estate specialty portfolio continues to perform very well and in line with expectations. All CNI loans classified as non-accrual at December 31, 2024, but one, a $6.4 million loan, continue to make contractual principal interest and contractual curtailment payments. Non-performing assets in our CNI lending portfolio increased by approximately $27.3 million, primarily due to one syndicated non-real estate lender finance loan with an unpaid principal balance of $23.9 million. This syndicated loan was downgraded due to some credit deterioration in the underlying assets. However, the borrower's current principal balance has been paid down by around 11 percent since June 30, 2024, and the facility balance is within the collateral pledge to the borrowing base. We're saddened for the families and communities impacted by the tragic wildfires in the greater Los Angeles area. Thankfully, none of our employees lost their homes. We've been actively engaging with borrowers of properties in the affected area since the fires initially started. Based on the information we've gathered so far, we have a handful of single-family residential properties that are complete losses and others that have suffered less damage. Given the low LTVs that we have on most of our single-family residential mortgages, We believe that the insurance coverage maintained by the borrowers is adequate to cover the outstanding loan balances for the majority of properties. For those loans where the insurance coverage does not fully cover our loan amount, we have umbrella insurance from Lloyd's that we believe is adequate to cover the potential shortfalls. Additionally, the value of the land, which may be excluded from insurance coverage, exceeds the value of the property in many cases, particularly those in Malibu and Pasadena. While it's too early to assess how quickly the revitalization effort can commence, We are willing and ready to help the communities and homeowners in the affected areas rebuilding by providing loans to rebuild these properties in these neighborhoods. Axos Clearing, which includes our correspondent clearing and RIA custody business, had a good quarter. Total deposits at Axos Clearing were 1.36 billion at the end of the quarter, up 104 million from the prior quarter. Of the 1.4 billion of deposits from Axos Clearing, approximately 900 million were on our balance sheet and $450 million were held at partner banks. Client margin balances grew by 24.5% up from $220.5 million at September 30th to $274 million at the end of the quarter. Securities lending increased by approximately 41% linked quarter to $135 million. Net new assets from our custody business were $822 million in the December quarter up from $559 million in the September quarter. This is a continuation of the positive net new asset momentum we have experienced over the past few quarters, with new assets outpacing the runoff in certain legacy advisor assets. The Axis Advisory Sales Team continues to have traction in the financial planning segment of the RIA space, where our client-centric, non-competitive service model resonates well. The pipeline for new asset custody clients remains healthy, and we expect continued organic net new asset growth in AAS. From a product perspective, we continue to identify ways to generate incremental fee income and partner with third parties to offer additional services, such as access to alternative assets. We are realigning certain back office and servicing functions in our clearing and custody business to leverage the process and systems we have to more efficiently service broker-dealer and advisory clients. Improvements in our onboarding process for access advisory services have reduced the time required to onboard new advisors. We've started to leverage low-code software development and offshore practices that we have implemented broadly at the bank to more projects at the securities businesses. This has reduced the amount of time it takes for us to launch and complete projects with fewer resources than it would have taken if we used a more traditional approach. We're also actively working on artificial intelligence use cases to enhance efficiency. We believe that the economic benefits from sustained net new asset growth, a normalization in cash balances and operational productivity initiatives will more than offset investments we are making in our clearing and custody business in the medium to long term. The team hires we have made across various commercial lending and deposit businesses are contributing to loan and deposit growth. Our commercial cash and treasury management teams generated deposit growth in this quarter with contributions coming from the existing teams and our new hires. We continue to explore different ways we can scale our incubator businesses in various deposit and lending verticals. Some require additional products and features, while others can gain traction more quickly through better, more targeted marketing and client segmentation. While we remain selective in adding new teams, our focus in calendar 2025 is on scaling the teams we have added over the past year. We have active dialogue with existing and new partners in the private credit space to leverage the rapid growth of that ecosystem. Our proven track record of working with funds and willingness to collaborate on complex deals makes us an ideal partner for non-bank depository institutions looking to deploy capital across a growing number of asset classes. I'm excited about the opportunities we have to grow each of our deposit, lending, and fee income businesses. We have a strong and growing amount of excess capital to continue investing in product and technology development new capabilities in our team members. While organic loan growth and opportunistic share purchases remain our preferred use of we are seeing a meaningful increase in the number of inorganic asset and business acquisition opportunities. Additional clarity from an economic and regulatory perspective could further increase the number of bank and non-bank opportunities that come to market. The $150 million at the market shelf we announced today is a proactive step to put us in a favorable position to capitalize on potentially creative and strategic opportunities that may require additional capital. We do not intend to raise any capital unless we have a clear line of sight into an acquisition that would require additional capital given the significant excess capital we have today. We remain disciplined in the type and valuation of businesses we acquire. Regardless of whether we are successful in consummating an acquisition, our asset-based lending philosophy with conservative loan-to-values and prudent structures and diversified mix of lending and funding will continue to generate profitable growth for our shareholders. Now I'll turn the call over to Derek who will provide additional details on our financial results.

Thanks, Greg. To begin, I'd like to highlight that in addition to our press release, an 8K with supplemental schedules and our 10Q were filed with the SEC today and are available online through EDGAR or through our website at AxiosFinancial.com. I will provide some brief comments on a few topics. Please refer to our press release and our SEC filings for additional details. Our provision for credit losses was $12 million in the three months ended December 31, 2024, compared to $13.5 million in the corresponding period a year ago. The primary reason for the year-over-year decline is due to lower net growth in loans held for investment in Q2 2025 compared to the corresponding period a year ago. Our allowance for credit losses to total loans held for investment was 1.37%, up slightly compared to 1.34 percent at June 30, 2024. We remain well-reserved relative to our low historical and current credit loss rates. Non-interest expenses were approximately $145 million for the three months ended December 31, 2024, down $2 million from the quarter ended September 30, 2024. Salaries and benefits expenses were down slightly to $74 million And advertising and promotional expenses and professional service expenses were down by $3.2 million and $0.8 million, respectively, compared to the three months ended September 30, 2024. We continued to balance investing in products, systems, technology, and people while identifying ways to reduce non-interest expenses through automation, straight-through processing, and other operational improvements. Our loan pipeline remains healthy, with $2.1 billion of total loans in our pipeline as of January 22, 2025, consisting of $496 million of single-family residential jumbo mortgage, $60 million of gain-on-sale mortgage, $138 million of multifamily and small-balance commercial mortgage, $54 million of auto and consumer mortgage, and $1.4 billion of commercial loans. We expect similar loan growth dynamics compared to recent quarters, with growth across a broader set of real estate and non-real estate lending businesses, partially offset by payoffs in our Crestle single-family mortgage and multifamily lending verticals. We believe that we will be able to grow loan balances organically by high single digits year over year in the remaining two quarters of fiscal 2025, excluding the impact of the loan portfolio purchase from the FDIC or any other potential loan or asset acquisitions. With that, I'll turn the call back over to Johnny.

Thanks, Derek. Olivia, we're ready to take questions. Great.

We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.

Thank you.

Our first question comes from the line of Kyle Peterson with Needham & Company. Please proceed.

Great. Good afternoon, guys. Thanks for taking the questions. I wanted to start out on the deposit costs. Really impressive to see you guys be able to kind of push down the costs to know rates have been. A little choppy. I just want to see, do you guys see more room for that moving forward if rates are stable for reasons they continue to drift down? Or I guess how much pressure or kind of rate sensitive deposits do you guys see, at least in the near term, that you might have some room to reprice lower?

Yeah, with respect to what we were able to do this prior quarter, it really was the result of taking most of the result was taking more of the rate-sensitive deposits down. I think it's probably a little difficult to do that. You know, maybe there's some at the margin unless you get a drop in the reference rate. But, you know, we are doing a lot to try to improve the quality of the deposit mix, and that's happening slowly. So I think that definitely is an opportunity over time to continue to do that. so that would be really where that is. But if we get our goal, and I think we very clearly can match it, that essentially is to have to offset any decline in our interest income that we get from, you know, having a variable rate loans that reprice by repricing our deposits. And I think we were able to do that, as you said, very well this quarter, and that's the goal. So obviously we want to improve the deposit max over time, but we want to be able to demonstrate that we could do what we did on the way up, on the way down as well.

Okay. That's really helpful. And then I guess just to follow up on the net interest margin, I know you guys kind of said towards the high end or slightly above on a core basis for the year, which is great to hear. How much of that is coming from, you know, whether it's the asset side? I know you guys mentioned, you know, a competitor exit in mortgage, and the yield curve's gotten a little steeper there, which should help. How much should we think of between the asset side versus, you know, some of these deposit, more rate-sensitive benefits that you guys have been able to sell so far?

Yeah, I mean, I think it's a little bit difficult to disaggregate that because, you As we do loans, obviously we're, you know, in a lot of the businesses, we're getting a significant amount of deposits, and those are lower rate. And then in some of the teams we've brought in, some of the middle market stuff may have slightly lower loan rates, but they have much higher deposit balances. So it really depends on the segment. You know, I think what we're doing is we're really looking forward and forecasting as best we can what we think yields and loan yields are going to be and how we're raising deposits and looking at that mix and coming up with that. So in order to disaggregate that, I really have to look at each kind of business unit specifically in order to do that. I mean, one element is obviously we're running in a lot of excess liquidity right now as well. And so, you know, the question with respect to your first question around do we reprice deposits, obviously, We think we're going to be able to get back to loan growth because a lot of the headwind we've had has really been the result of some of these business units where the product just didn't make any sense for us to originate or we didn't like where the five-year rate was, so we weren't really going to go there. And that was really a problem for auto. It was a problem for single family. It was a problem for anything with term, and we feel much better about that now. So we're opening that up. And so, you know, obviously we could reprice deposits, and maybe if we lost a little bit because we have a lot of excess liquidity, that would be okay. But I think what we're going to try to do is I think we feel good about our, you know, where we are, just, you know, try to grow into the excess liquidity.

All right. Great. Thank you very much, and nice quarter, guys.

Thank you.

Thank you. Our next question comes from the line of Gary Tenner with DA Davidson. Please proceed with your question.

Thanks. Good afternoon. Greg, I was wondering if you could share any thoughts you would have with regard to kind of reengaging on the crypto side of the world, given kind of the more positive bias out of Washington.

Yeah, that's a great question. I really think what we need is we need more specific clarity and specific rules with respect to how specific different companies are going to be regulated. We've had some executive orders and things like that, and we expect that there may be some ability to look at that. Obviously, we built products around that, which we never really even used. but it really is going to have to be a fairly comprehensive view across, you know, what our primary regulator thinks and what the SEC thinks and really getting, you know, some good either legislation or at a minimum rulemaking on that. You know, I don't really think we have a lot of appetite to kind of jump into that without, without the proper guidance. And right now, the way it sits out there, too, is, you know, mostly, and we did this anyway, but you have to go through a regulatory process of non-objection to do that, just like it was before. So you have to go through that process. And I don't know exactly how that's going to change, but, you know, obviously there's been some movement right now with, you know, best ed being confirmed or whatnot, but there's still probably a lot of changes that are coming in the regulatory agencies and then really kind of figuring out where guidance, you know, comes out there. I think that's the first step.

Thanks. I appreciate it. And then I wanted to ask about MPAs. You kind of ran through some of the kind of issues that moved to non-recrual in the quarter. If you look back from June 30, total MPAs have doubled or more than doubled by a bit. Can you just talk about kind of the level of, I guess, forward analysis you're doing on properties and otherwise to get a kind of bring stuff forward into non-accrual and start working on it proactively or how that process works at Access?

Yeah. You know, it's really been with respect to, like a lot of these things, particularly on the CNI side are, they're sort of, the question is with respect to something is that, for example, this one that we have with the, it's a subprime auto lender finance deal. It's a syndicated deal. we're within the borrowing base, the assets, but it's over advanced on the advance rate, right? So if we were able to get a lot better information on that and basically be able to have a better understanding and make sure that we are, you know, that the assets are worth what the field exam says they are, whatever, maybe we wouldn't put that on non-accrual. So some of this is sort of a judgment with respect to some of these things. So I expect a lot of these to resolve themselves relatively quickly. In some cases, some of the borrowers have gotten used to, on the real estate side, some of the borrowers have gotten used to some of the banks kind of just capitulating and making various concessions to them. And so they're sort of almost daring, like, hey, let's find out. And so our response has been fine. We have an ability to sell your loan at par better. And so you need to do what we're asking you to do. And sometimes they've been a little bit slow in doing that. So this is sort of just making sure that happens. But what we're seeing on the real estate side is very positive. We are getting regular evaluations looking at it. We feel really good about that. If you look at, let's say, substandard loans, those have gone down. And we have a lot of active sale processes that are ongoing right now for the real estate side. And then on the CNI side, since we've had, yes, they've gone up, but we've essentially had next to zero non-accruals there. And so that really is the STG syndicate, which which continues to pay. They've continued to pay us. But the reason we put it on non-accrual is because they did this restructuring. We didn't participate in it. We think that what they did was in violation of the credit agreement. And they're not giving us proper information around what our collateral is. So with that kind of uncertainty, I think it's proper to put it on non-accrual. Now, you know, non-accruals are not all created equal. So, you know, all our non-accruals except for that $6 million non-accrual in CNI are paying, and so is the lender finance deal. So I don't, you know, it's hard to really know because sometimes timing, for example, like there's one deal, the deal that the guy who's a guarantor has a multi-billion dollar balance sheet, but we didn't get the appraisal back before the end of the quarter, and so that was on non-accrual. That'll probably pop off, right? So it's just sort of, it's some of these things where you just are kind of looking at what the standard is and whatever, but it'll, I feel good about it. I don't think there's a lot of lost content there. You know, on STG, you know, they're still paying. They're a massive company, but we're not getting the information we need there. And so we got our lawsuit on file there, and we think we'll be successful there, but that'll take a bit of time.

All right, Greg, thank you.

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

Hey, good afternoon, everybody. Hey, good afternoon, David.

It's a lot of encouraging conversation around the growth side. It sounds like we're going to stem the runoff in Jumbo Single Family Resi and the multifamily book. The yield curves also help, which you alluded to, giving confidence and accelerating growth. Could you just maybe touch on the pulse of demand in your borrowers? Sounds like the pipeline's solid. Curious, where are you seeing the most opportunity today? And then are there any segments within the non-lender finance non-CRE lender finance and ABL that are seeing any specific strength in the quarter?

You know, cap call continues to look quite good. The real estate lender finance and Ralph, I mean, they all have decent pipelines. I mean, we did $3.5 billion of originations last quarter, right? So, I mean, partly this The hangover on the prepay side is, frankly, the result of a deliberate strategy that we made, which was we're not going to do any term lending for three years, right? And that's great from an interest rate risk perspective, and we don't have any mark-to-market on our balance sheet, but it does kind of create that issue, right? And so, as you said, if you look at the term lending component of our business where it's been running off $300 or $400 a quarter, and that's also been intentional because if you were going to lend on the five-year at a $250 or $300 spread or whatever, you were going to be in a rough place, but we wanted to wait for that to adjust. So if you look at all those spots, you look at auto, you look at multifamily, you look at single family, we now have a product that's at least competitive there. because we feel good enough about the credit side of where things have stabilized. Their multifamily borrowers are more realistic. They know their cap rates are not 4%, right? And rates are not going down to 250 in 18 months, right? That wouldn't be a typical conversation, you know, a year and a half ago, right? Really, like that, it's amazing what people thought. And then, you know, auto, it's kind of that sort of bubble is kind of popped out of the asset value. So I think if we get all that stuff right, and I see that happening, I mean, we've also benefited on the SFR side for some exits, right? I mean, Wafed got, you know, Luther used to compete with us, and Wafed competed with us on the multi-side. I mean, I'm sorry, on the single-family jumbo side, they've pushed out, you know, And so it's a little early to tell how this pipeline is going to go, and it obviously has increased a lot, how quickly it closes, what the pull-through ratio is. In some respects, we really don't know yet, right? This is a relatively new ramp, and so we've got to see that. But, yeah, I mean, I feel good about it, but, frankly, you know, I felt good about $3.5 billion of originations, too, right? And, right, so that was a pretty good number. And, you know, so we definitely, you know, there's just, you know, there's movement. And, frankly, with some of the things like cap call facilities, if they can get paid off, we haven't seen that. So, you know, I'm cautiously optimistic, but there is a level of caution in it. You know, I do believe that, for example, you know, I think mortgage warehouse, that kind of popped up that's not as gangbuster as it was last quarter. So that was some of the growth, right? So, you know, I think if we can stem, though, that $300 or $400 million we've been having in the single family and multi, and I'm pretty confident about that. I'm pretty confident multi can be at least flat, maybe slightly growing this quarter, and I think single family can pretty much get there, too. And so that's a big benefit. And then, you know, just looking at, You know, Crestle, there's, you know, we've got, we try to judge where prepays are on Crestle. That's a little bit tough to do. We've got a lot of great new deals there, but sometimes those new deals take a while to fund up because all the equity has got to come in first, and so our funding might be delayed. So, you know, look, I think we'll be able to get back to it, but it's been a slog. It's been a struggle.

Yeah. Yeah. But with growth set to accelerate, I want to touch on the expense side. You've done a tremendous job. Like you said, it's been a tough slog. You've done a great job holding the line on expenses, yet still investing in the franchise. How do you think about expense growth going forward? What are some of the key initiatives you've got on the horizon? And how do you think about your ability to drive positive operating leverage as we look in the out year?

Yeah, I think we really have to – be very, very thoughtful about expense growth. And the reality is that over the last two quarters, we have not been able to deliver the sustainable asset growth that we've historically done for the, you know, 17 years I've been here. And that's really the first time. And so, you know, prudence and discipline requires that you basically make sure that you get to sustainable assets levels of asset growth before you expand your expense base. And I think, though, that that's very achievable because there's so many tools and opportunities that exist now to make our operations more efficient. I mean, some of the stuff that the Artificial Intelligence Task Force is doing is really looking promising. And we're starting to roll some of those things out into the organization. The low code platform, we're delivering a new product for our clearing customers that will allow them to do more fee business. And that product probably would have taken easily three times the number of people, three times as long. But the low code platform was able to deliver it in around eight months. So we're seeing a lot of productivity coming from the technological area. And we've done a lot of hiring in these teams, and those teams are still getting up to speed and developing. So I think we've really got to be cautious about that. I've been telling the team that we really need to keep the type of discipline we showed this quarter, keep it going forward, and really try to enforce that unless there's really great opportunities. And then, you know, we can get growth going further. You know, we continue to do that. But You know, we had – there's some positive stuff with respect to, you know, AAS is growing now. I see that continuing. That's a good thing. So, you know, those – you know, getting all those engines kind of ramping up together is going to be important. We talked about that on the loan side where some of that term stuff was just a very big headwind. You know, that's starting to go away, at least as a headwind. We've got to see if we can get consistent growth there. And so, yeah, the expense side, we have to be thoughtful about it. And obviously, it's not like you just grow your expenses when you're growing your revenue. But, you know, you have to be extra thoughtful about it. And, you know, we really have done a lot of investment. And with the team we have now, including all the developers, there's a lot of projects we can do. I mean, just this quarter, we delivered a ton of stuff. And there's a big effort now to go through and prioritize what we want to do next with that team without having to add a lot more folks and to get to the next set of strategic priorities.

That's great. And earlier in your prepared remarks, you talked about an increased opportunity for capital deployment. Obviously, we got the ATM offering announced today. Maybe reading between the lines, it sounds like there might be incrementally confident that something could happen in calendar 2025. Again, it sounds like the range of opportunities is pretty wide. I'm just curious, what types of transactions are most appealing to you at this point? Is it enhancing existing lines, expanding new lines? Just kind of curious, within capital deployment, what's most appealing and what's most interesting to you?

Yeah, we like specialty finance businesses. that add a unique niche to what we're doing. Obviously, we have the deposit funding. We've got the capital. We've got good technological resources. So we look for businesses like that. We bid on one earlier in the year, ended up losing out to somebody who paid more than I think they should have. But you know, that's definitely an opportunity. You know, we're not actively looking at a lot of whole bank stuff right now. But I wouldn't read too much into the timing of the ATM offering. I think it's more looking forward and saying that, gee, there's probably going to be an unfreezing of the bank M&A market Even if another bank buys another bank, often that results in teams being spun off or components and pieces that are pushed out. So it really is just about having that available. It's not a costly thing to do. Obviously, we're not going to draw on it. We've got a lot of excess capital. And if we see something that makes sense, then it allows us to get quickly to market to be able to take advantage of it.

Terrific. Thanks for all the color. Thank you.

Thank you. Our next question comes from the line of Andrew Lish with Piper Sandler. Please proceed.

Hey, guys. Thanks for taking the questions. You've answered most of mine, but just wanted to ask about the provision. You mentioned the quantitative impact of the unemployment rate and commercial real estate mortgage rates. The unemployment rate's been pretty stable for a while, so I'm curious how that sort of factored into the reserve bill this quarter. And then on the CRE mortgage rates, is it more concern over upward repricing as loans hit the variable rate period? Just kind of clarity on why the provision was where it was.

Yeah, and the provision, it's the long-term unemployment. So the model takes into account the long-term, a number of different economic factors. And so the long-term unemployment rate, and we use Moody's for a lot of our data that flows into the model. And so I think it went up from about 9.0 in a, and this is in the most dour of circumstances, too, in their extreme stress model. That unemployment in the long-term stress model went from 9 to 9.3. So that was one of the main drivers, and that's what that reference is encompassing. And then your other question was on the commercial mortgage real estate rates?

Can you rephrase that one? Well, along with the provision, I'm just curious, did you mean that as loans reprice, as loans hit their adjustable rate period on arms, is it like repayment concerns based on what you might say the schedule of what's going to be coming due or hitting their repayment period here in the near future?

Right. Yeah, there's a variety of factors that flow in, but one of the things there that the model considers is how does, if you have something like a hybrid loan, go from a 5% interest rate and it jumps up to 8.5% or something like that, right? that that would put stress on that borrower. And in a downturn economic scenario, that borrower would be more likely to default and potentially have a loss. So that's what the model does. And I think I've covered this in the past, but just a refresher. We heavily weight, due to our loan-to-value support, right, we have to heavily weight our S3 and S4. And it's in line with with some of our kind of some views that the economic forecast maybe could be a little more dampened than some expect. So we weight that in the models, and that's part of what drives the provision.

Got it. Since the FDIC loan purchase, the reserve ratio has been right in that mid-130s level. If you look out, is there anything that would cause that in your mind? If you look at the portfolio now and look at the modeling now, that would cause it to differ too much from that either one way or another?

No, because part of the idea is that we are looking over the life of the loan. And as just mentioned, we already kind of stress in a certain level. So it'd have to be something where you either go back to the roaring 20s or the Great Depression of the 30s that would change that ratio or change in the nature of our products and significant changes in the performance of our portfolio. Those are the types of economic scenarios and more independent to our portfolio type of impacts that would have to happen.

Yeah, I mean, on the repricing, which is mostly on the term multifamily stuff, we've done a lot of analytical work on that. and had, you know, we just finished a big independent review of it, and it's really not a material issue. I mean, I think one of the things for us that makes it interesting is that because our portfolio was so short, because we had shortened everything up to mostly two-year but some three-year, we are already experiencing a lot of role, and that also results in a lot of prepays on the – in that business because there are others offering 5-1 arms to do that. We don't really see a lot on the repricing side. The Crestle side is all floating rates. The weighting on the model of really pushing through a lot of the worst economic scenarios is something that allows you to actually get some losses associated with it. Look, I think that the CNI side, you know, is one of those areas that, you know, you just have less ability to just take the collateral and just liquidate it, right? So that's always a little more uncertain. But we don't see anything. You know, we've talked about a couple of those things, and there's always a possibility there's something else, but there's, you know, not seeing anything that's systemic or anything like that.

Got it. Very helpful, guys. Thanks so much. I'll step back.

Thank you. Our next question comes from the line of Kelly Motta with KBW. Please proceed with your question.

Hey, good afternoon. Thanks for the question. Most of my questions have been covered at this point.

Maybe turning to the fee income, Greg, I think you mentioned actually Access Advisory Services is really hitting its stride with gaining new clients. I'm wondering, you know, as you look ahead, the fee opportunity, I know these supporters got a little muddled with the MSR impairment, but just on a core basis, your outlook about, you know, these investments' ability to grow fee income contribution.

Yeah. I mean, I think the securities business is definitely our best hope for that. And I do believe you'll continue to see, you know, decent, you know, let's say this quarter style, it looks like that, net new asset growth that will contribute to fee income growth. And the only caveat that I would say about that is that obviously if rates stabilize, that's good. And so what that team's, goal was, which they were able to do, as I said, I want you to not only grow and make sure your costs are in line so that you can offset the rate decreases that you have, right, because that business is a rate-sensitive business because they make a decent bit of spread income off of the free cash balances. So that's the only caveat I would say. I do think you're going to grow the core. And so if you get some stability on the rate side, that'll be beneficial, you know, for that business. You know, all the other little stuff like the prepay income, you know, when you're not doing term loans, you're not going to get a lot of prepay income. As we start doing some more of those on the multifamily, that may be something. The TM fees, we are obviously doing that, but a lot of that is offset by earnings credits that you give in a higher rate environment. So there's something there, but it's not, you know, it really is the security side that has to get better there. And right now the custody business is growing a lot. The clearing side, we're continuing to work on a strategy there for them to be able to do more of the hybrids. And we've got a new platform rolling out this next quarter and, It'll take a while to get that going, but hopefully both of those engines will start to work, and that'll allow that fee income line to grow a little bit more.

Awesome. Thanks for that. It sounds like you're very optimistic about the prospect of organic growth picking up again. Even so, it seems like, given your returns, you'll continue to build capital. I believe you mentioned the buyback in your remarks. I'm wondering how you're thinking about the buyback here at Yeah.

Well, I mean, obviously, you know, you look at it as a multiple of earnings. You look at it as a sources and uses of capital. And so, you know, I would say that I'm optimistic about, you know, loan growth returning. I use that very optimistic. I'd say, you know, I'll just give you this flat optimistic. How about that? I mean, again, we did $3.5 billion last quarter and grew a couple hundred. I really do believe we're going to do better than that. But, you know, at times, sometimes it's just hard to know. There's a lot of things changing in the market right now. So there's just a lot of instability of where, you know, a lot of competitors are really hurting for loan growth. Sometimes they'll undercut you, things like that. But I think we will. you know, we'll kind of let this play out. Obviously, we're not going to let capital build forever, right? So, this is kind of a sliding scale equation, right, between where capital is, what opportunities are out there from a standpoint of acquisition, and then, you know, what we see from a repurchase perspective. And so, obviously, we're not going to continue to build capital at these levels you know, for forever. But, you know, we also want to be able to make sure that we can handle our priorities, which, you know, would be primarily organic growth. And then, you know, then at that point, share of purchases and opportunistic M&A, so.

Got it. That's helpful. Maybe just last housekeeping question for me. I believe you mentioned Now it's at margin to come in a bit above the 425, 435 kind of score basis. Wondering if that 30 to 35 basis points of accretion contribution, if that's still a good number, as well as if you had handy what the accretion contribution was in this quarter just to help off with the jumping off points.

Yeah, the 30 to 35 is still a good number. I believe that's roughly where we were, but I'll get that number refined for you.

Great. Thank you so much.

Thank you, Kelly.

Thank you. Our next question comes from the line of Gary Tenner with DA Davidson. Please proceed.

Thanks. I just had a quick follow-up, Greg. You made the comment that you've got some nice deals, as you put it, in the Crestle space that maybe take a little time to fund after the equity gets put in. Can you talk about kind of the segments or loan type within Crestle that you're seeing demand and you've got kind of newer money going to work in?

Yeah. I mean, mostly it's multi and condo. That's mostly whether bridge or construction. That's usually where that is. Not doing a lot on the office side or next to nothing. I think actually close to nothing. I mean, certainly not anything new, and that's a very small piece of it. And, you know, I think that supplement page there really says there's, you know, every now and then there may be a hotel here and there, but it's mostly multifamily and single-family hotels.

I assume it's metro market weighted. Is it more East Coast oriented or West Coast?

You know, it depends. New York's become less of that, more in Florida, some in Texas, some in California. It's definitely, I'd say, entirely metro market. A couple of Nashvilles, you know, so some of the cities that have kind of come up since, you know, the post-COVID timeframe and things like that. But, you know, this is where there's projects, where the funds that we work with are together on that because these are almost always partnerships with the funds. Okay.

Thank you.

Sure.

Thank you. There are no further questions at this time. I would like to pass the call back over to Johnny for closing remarks.

Great, thanks everyone for your interest. We'll talk to you next quarter.

That concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.