Axos Financial, Inc.

Greetings and welcome to the Access Financial Third Quarter 2025 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, and 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 introduce your host, Johnny Lai, Senior Vice President, Corporate Development and Investor Relations. Please go ahead, Johnny.

Thank you, Kevin. Good afternoon, everyone, and thanks for joining us for today's third quarter 2025 Financial Results Conference Call. Joining us today are the company's President and Chief Executive Officer, Greg Garabrant, and Executive Vice President and Chief Financial Officer, Derek Walsh. Greg and Derek will review and comment on the financial and operating results for the three and nine months ended March 31st, 2025, 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 forelicking statements that are subject to risks and uncertainties, and that management may make additional forelicking 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 was 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 I hand over the call 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 with additional information. All of these documents can be found on axosfinancial.com. 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 Axos Financial's conference call for the third quarter of fiscal 2025, ended March 31st, 2025. I thank you for your interest in Axos Financial. We delivered solid results this quarter, generating over $700 million of net loan growth linked quarter, stable net interest margins, and a 19% year-over-year increase in book value per share. We continue to generate high returns as evidenced by the 16% return on average common equity and the 1.8 return on average assets in the three months ended March 31st, 2025. We deployed some of our excess capital to repurchase approximately $28 million of common stock in the quarter ended March 31st, 2025, and an additional 517,000 shares of common stock for $30.3 million from April 1st to April 30th after the quarter end. Other highlights in the quarter include net interest income was $275 million for the three months ended March 31st, 2025, up 5.3% from the $262 million in the prior year period. Net interest margin was 4.78% for the quarter ended March 31st, 2025, down five basis points from the 4.83% in the quarter ended March 31st, We continue to benefit from a best-in-class net interest margin within and without the benefit of the accretion from loans purchased from the FDIC. Total unbalanced sheet deposits increased 5.4% year-over-year to $20.1 million. Our diverse and granular deposit base across consumer and commercial banking and our securities businesses continue to support our organic loan growth. We managed our operating expenses well this quarter, with total non-interest expense for the quarter ended March 31, 2025, up by only 0.6% from the prior quarter. Excluding the seasonal increase in FICA expenses and legal accrual reversals, non-interest expense increased slightly quarter over quarter. Net annualized charge-offs to average loans were nine basis points in the three months ended March 31st, compared to seven basis points in the corresponding period last year. Excluding the auto loans covered by insurance, net annualized charge-offs to average loans were eight basis points in our fiscal third quarter of 2025. we remain well-reserved relative to our low current and historic net credit losses. Total non-accrual loans declined by 66.5 million link quarter, resulting in our non-accrual loans, the total loan ratio improving from 1.26 percent in the quarter ended December 31st, 2024, to 89 basis points in the quarter ended March 31st, 2025. Net income was approximately 105.2 million in the quarter ended March 31st, compared to 104.7 million in the December quarter. Diluted EPS was 1.81 cents for the quarter ended March 31st, 2025, compared to $1.80 in the prior quarter. Net growth in non-purchase loans for investment was $700 million for the month end of the quarter ended March 31st, an increase of 3.6% in quarter or 14.5% annualized. Fund finance, equipment leasing, and lender finance had strong originations and net loan growth this quarter. Headwinds from high levels of repayment in the jumbo single-family and multi-family mortgage business improved significantly, with net declines of only $36 million in those two loan categories combined in this quarter, compared with a $384 million decline in the December quarter. While the interest rate in competitive environment remains unstable, we feel good about keeping our jumbo single-family and multi-family loan balances flat to down $100 million per quarter and versus the prior $200 to $400 million quarterly headwind we experienced since the Fed started raising rates in 2023. Average loan yields for the three months ended March 31st, 2025, was 7.99%, down from 8.37% in the prior quarter. Average loan yields for non-purchase loans was 7.66%, and average yields for purchase loans were 14.32%, which includes the accretion of our purchase price discount. The FDIC-purchased loans continue to perform well, and all loans in that portfolio remain current. New loan interest rates were the following. SFR mortgages, 7.5 percent, multifamily, 7.3 percent, C&I, 7.6 percent, and auto, 8.5 percent. Ending deposit balances were 20.1 billion, or up 1 percent link quarter and up 5.4 percent year-over-year. Demand, money market, and savings accounts represent 96% of total deposits at December 31, 2024, increasing by 6.9% year-over-year. We have a diverse mix of funding across a variety of business verticals, with consumer and small business representing 58% of total deposits, commercial cash, treasury, management, and institutional representing 23%, commercial specialty representing 9%, access fiduciary representing 4%. Noninterest-bearing deposits were approximately $3 billion at the end of the quarter, roughly the same as the prior quarter. Client cash sorting deposit balances have been volatile, increasing to over $1.2 billion during the peak of the market sell-off in March 2025, before ending the quarter around $900 million, as advisors made tactical changes throughout the quarter in a turbulent market. We're focused on adding net new assets from existing and new advisors to grower assets, under custody and cash balances. In addition to our exos securities deposits on our balance sheet, we had approximately $450 million of deposits off balance sheet at partner banks. Our consolidated net interest margin was 4.78% for the quarter ended March 31st, 2025, compared to 4.83% in the quarter ended December 31st, 2024. Even though we deployed some of our exos liquidity and organic loan growth this quarter, we still have more deposits than we typically carry on our balance sheet. The excess liquidity was a 13 basis point drag on our net interest margin, and the quarter ended March 31st, 2025, down from 18 basis points last quarter. Our net interest margin remains above the high end of our target, with and without the benefits of the FDIC loan purchases, largely because we've been able to offset the gradual decline in our earning asset yields with corresponding decreases in our funding costs. Total interest-bearing demand and savings deposit costs were 3.59% for the quarter ended March 31st, 2025, down 36 basis points from the prior quarter. We're seeing strong growth in account and balances from our EXOS One consumer bundled deposit product, which includes a checking and a savings account. Growth in EXOS One and other deposit businesses has allowed us to reduce our cost consumer high-yield savings and wholesale funding. We continue to grow our lower-cost deposits in our commercial cash treasury management and specialty businesses. We're also making good progress cross-selling deposits across selected lending businesses, such as fund finance and multifamily lending. Continued strong net new asset growth and normalizing and 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 purchase accretion to stay at the high end of our 425 to 435 range we have targeted over the past year. Despite increased competition from banks and non-banks driving new loan yields lower in many lending categories we compete in, we continue to win our share of new lending opportunities. Our loan pipelines have improved meaningfully in our auto and multifamily lending businesses over the past few quarters as a result of strategic actions we have taken. Better execution and expanding our distribution channels across certain commercial lending categories, including equipment leasing, have contributed to improved loan growth and pipelines. We expect loan growth to come in somewhere between the high single-digit and low teens range on an annual basis that we have targeted for the past several years. We may have more variance from quarter to quarter due to uncertainty regarding the pace and timing of payoffs and the potential impact of tariffs and interest rates on loan demand. The credit quality of our loan book continues to be solid, and our historical and current net charge-offs remain low. Total non-performing assets declined by $63.3 million linked quarter to representing 79 basis points of total assets compared to 1.06% in the quarter ended December 31st. The sequential decrease in non-accrual loans was broad-based, declining by $26 million in our single-family mortgage and warehouse businesses, by $15 million in our multifamily and commercial mortgage business, and by $25.7 million in our commercial real estate lending business. We do not anticipate a material loss from loans currently classified as non-performing in our single-family, multifamily, or commercial real estate loan portfolios. Our commercial real estate specialty portfolio continues to perform very well and in line with our expectations. Non-accrual loan balances in our C&I lending portfolio were roughly flat in quarter at $71.2 million. All C&I loans classified as non-accrual at March 31, 2025, but three, totaling $12.2 million, continue to make contractual interest, principal, and curtailment payments. We continue to monitor the credit trends across all loan portfolios and have not seen any broad-based deterioration in any individual lending category. We don't have significant exposure to any specific industry that is expected to have an outsized negative impact from proposed or enacted tariffs. Axos Clearing, which includes our correspondent clearing and RA custody businesses, had a good quarter. $134 million at the end of the quarter, roughly consistent with where they were in the prior quarter. Of the $1.34 billion of deposits from Axos Clearing, approximately $900 million was on our balance sheet and $450 million were held at partner banks. Client margin balances grew by 2.9%, up from $274.5 million at December 31st to $282.4 million at March 31st, 2025. Net new assets for our custody business were $289 million in the March quarter, extending the positive net asset momentum we had experienced in the past several quarters. Despite a turbulent first few months of 2025, many of our legacy and new RIA clients have increased their AUM. The pipeline for new custody clients remains healthy, and we expect continued organic net new asset growth and access advisory services. Pre-tax income for the securities business segment increased by 23.6% year-over-year to $9.1 million due primarily to better operating expense control. From a product perspective, we continue to identify ways to generate incremental fee and partner with third parties to offer additional services such as access to new asset classes and investment strategies. We are consolidating certain back office and servicing functions in our clearing and custody business to leverage the processes and systems we have to more efficiently serve broker dealers and advisory clients. Once completed, we will have a more competitive and stable cost structure in order to expand the types of custody and clearance clients we can serve profitably. One important strategic initiative in the securities business that is the development of access professional workstation, our proprietary client service platform that will replace the current third party workstations used by our clearance clients and allow better integration of banking and lending to those clients. We leverage low-code development to reduce the time, cost, and resources required to complete our Axos professional workstation build-out. We're also actively using artificial intelligence in our software development and across a wider set of workflows to enhance development and operating efficiency, which should result in better operating leverage over time. Additionally, we're modernizing core components of the technology infrastructure for Axos Invest, our direct-to-consumer securities trading and digital wealth management business. The primary objectives are to make the platform more flexible so we can add new products and services faster and cheaper, as well as improve the customer experience by eliminating frictions caused by a reliance on third-party integrations. We see Axos Invest as a channel for low-cost consumer acquisition and cross-sell to existing Axos clients, as well as a white-label offering to institutional clients such as RAs and IBDs. Now I'll turn the call over to Derek to share other further details.