U.S. Markets open in 1 hr 32 mins

Edited Transcript of BOFI earnings conference call or presentation 29-Jan-19 10:00pm GMT

Q2 2019 Axos Financial Inc Earnings Call

SAN DIEGO Feb 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Axos Financial Inc earnings conference call or presentation Tuesday, January 29, 2019 at 10:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Andrew J. Micheletti

Axos Financial, Inc. - Executive VP & CFO

* Gregory Garrabrants

Axos Financial, Inc. - President, CEO & Director

* Johnny Y. Lai

Axos Financial, Inc. - VP of Corporate Development & IR

================================================================================

Conference Call Participants

================================================================================

* Andrew Brian Liesch

Sandler O'Neill + Partners, L.P., Research Division - MD

* Austin Lincoln Nicholas

Stephens Inc., Research Division - VP and Research Analyst

* Bradley Allen Berning

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* Edward Paul Hemmelgarn

Shaker Investments, L.L.C. - Founder, President, CIO, Portfolio Manager, Member, and Director

* Gary Peter Tenner

D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

* Michael Perito

Keefe, Bruyette, & Woods, Inc., Research Division - Analyst

* Zachary Adam Weiss

B. Riley FBR, Inc., Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, greetings and welcome to the Axos Financial Second Quarter 2019 Earnings Call. (Operator Instructions) As a reminder, this program is being recorded.

It is now my pleasure to introduce your host, Johnny Lai, VP, Corporate Development and IR. Thank you. You may begin.

--------------------------------------------------------------------------------

Johnny Y. Lai, Axos Financial, Inc. - VP of Corporate Development & IR [2]

--------------------------------------------------------------------------------

Thanks, Adam. Good afternoon, everyone. Thanks for your interest in Axos Financial and Axos Bank. Joining us today for Axos Financial, Inc. Second Quarter 2019 Financial Results Conference Call are the company's President and Chief Executive Officer, Greg Garrabrants; 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 3 and 6 months ended December 31, 2018, 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 Securities 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 Axos Financial for 30 days. Details for this call were provided on the conference call announcement and in today's earnings press release.

At this time, I would like to turn the call over to Greg for his opening remarks.

--------------------------------------------------------------------------------

Gregory Garrabrants, Axos Financial, Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

Thank you, Johnny. Good afternoon, everyone, and thank you for joining us. I'd like to welcome everyone to Axos Financial's conference call for the second quarter of fiscal 2019 ended December 31, 2018. I thank you for your interest in Axos Financial and Axos Bank.

Axos announced record net income of $38.8 million for the fiscal second quarter ended December 31, 2018, up 22.7% from the $31.7 million earned in the fiscal second quarter ended December 31, 2017, and up 5.4% when compared to the $36.8 million earned in the prior quarter.

Earnings attributable to Axos' common stockholders were $38.8 million or $0.62 per diluted share for the quarter ended December 31, 2018, a 26.5% increase from the $0.49 per diluted share for the quarter ended December 31, 2017, and $0.58 per diluted share for the quarter ended September 30, 2018.

Excluding nonrecurring expenses, non-GAAP adjusted earnings and earnings per share were $39.6 million and $0.63, respectively, for the quarter ended December 31, 2018.

Other highlights for the second quarter included: ending loan and lease balances increasing by $363 million, up 4.2% on a linked-quarter basis or 17% annualized from the first quarter of 2019.

Total assets remains unchanged from $9.8 billion at September 30, 2018, and up $0.9 billion from the second quarter of 2018.

Net interest margin was 3.87% for the quarter ended December 31, 2018, up 11 basis points from 3.76% in the first quarter of fiscal 2019. Average loan yield increased by 9 basis points to 5.6% compared to 5.51% in the quarter ended December 30, 2018. Excluding the impact from H&R Block seasonal loan products and excess liquidity and our subordinated debt, net interest margin in the quarter ended December 31, 2018, would have been approximately 3.83% compared to the 3.92% in the second quarter of 2018 and 3.76% in the first quarter of 2019.

Capital levels remain strong, with Tier 1 leverage ratio of 9.03% of the bank and 9.41% of the holding company, both well above our regulatory requirements. We took steps to redeploy some of our excess capital this quarter, buying back 48 million of common stock at an average price of $28 per share.

Return on equity was 15.29% for the second quarter of 2018 compared to 14.37% in the corresponding period last year, reflecting the bank's year-over-year increase in earnings.

Our credit quality remains strong, with 6 basis points of net charge-offs and a nonperforming asset to total asset ratio of 53 basis points this quarter.

We received approximately $1 million of payments in the quarter ended December 31, 2018, for Refund Advance loans originated during the 2018 tax season, which offset the increase in our loan loss provision this quarter. Our allowance for loan loss represents 124.9% coverage of our nonperforming loans and leases. While we have a small number of loans to borrowers secured by real estate properties located in areas affected by wildfires and mudslides in California, our net exposure after insurance appears de minimis.

Our efficiency ratio was 46.47% for the second quarter of 2019 compared to 51.47% in the first quarter of fiscal 2019 and 40.28% for the second quarter of fiscal 2018. We incurred onetime expenses related to mergers and acquisitions this quarter. Excluding $1 million of deal-related expenses, the efficiency ratio would have been 45.5% in the second quarter of 2019.

We originated approximately $2.5 billion of gross loans in the second quarter, up 20% year-over-year. Originations for investment increased 35.6% year-over-year to $1.8 billion, and originations for sale decreased 11.1% to $610.2 million.

Ending loan balances increased by 14.5% year-over-year to $9 billion, led by growth -- strong growth in single-family jumbo, multifamily, other commercial real estate and C&I finance -- lender finance.

Our loan production for the second quarter ended December 31, 2018, consisted of: $81 million of single-family agency eligible gain on sale production; $431 million of single-family jumbo portfolio production; $182 million of multifamily and other commercial real estate portfolio production; $1,043,000,000 of C&I production; $42 million of auto and consumer unsecured lending production; $401 million of Emerald Advance loan originations; and $30 million of seasonal H&R Block franchise loans.

For the second quarter of 2019, originations are as follows: the -- sorry, the average FICO for single-family agency eligible production was 744, with an average LTV of 69.3%. The average FICO for the single-family production was 730, with an average loan-to-value ratio of 64.1%. The average loan-to-value ratio of the originated multifamily loans was 51.5%, and the debt service coverage was 1.27%. The average loan-to-value ratio of the originated small balance commercial real estate loans was 49.2%, and the debt service coverage was 1.31%. The average FICO score of our auto production was 763.

At December 31, 2018, the weighted average loan-to-value ratio of our entire portfolio of real estate loans was 56%. We had approximately $4.3 billion of single-family loans, representing approximately 48% of our loan portfolio. Lifetime credit losses in our originated single-family loan portfolio is 4 basis points of loans originated.

We had approximately $1.9 billion of multifamily loans outstanding at December 31, 2018, representing 21% of our total loan book. The weighted average loan-to-value ratio of our multifamily loan book is 53% based on the appraised value at the time of origination. The lifetime credit losses in our originated multifamily portfolio is less than 1 basis point of loans originated.

We had no losses in our C&I business since inception, other than our equipment finance group, with approximately $160 million of outstanding balances at December 31, 2018, and 27 basis points of cumulative net charge-offs since we entered the business in March 2016 through acquisition. We had only 43 basis points of cumulative loss on our originated portfolio of auto loans since we entered the business approximately 3.5 years ago.

Loan demand remains solid overall and across most of our lending segments, with the exception of single-family agency mortgages, which are down from prior quarters, as it is across the industry generally.

Our loan pipeline was $1.12 billion at December 31, 2018, consisting of $420 million of single-family jumbo loans, $58 million of single-family agency eligible mortgages, $116 million of income property loans and $527 million of C&I loans.

We continue to gradually rebalance our portfolio with some jumbo single-family lending into C&I and commercial real estate lending. While we anticipate strong originations across most lending categories, our average ending loan balances will fluctuate from quarter-to-quarter based on the pace of prepayments.

Switching to funding. Total deposits increased by $2.3 billion quarter-over-quarter as we repositioned our balance sheet in anticipation of a transfer of deposits we acquired from Nationwide in late November.

Total noninterest-bearing deposit balances were approximately $1 billion at December 31, 2018, up by 1 point -- $139.5 million from September 30, 2018. The increase in noninterest-bearing deposits was driven by the addition of Chapter 7 bankruptcy deposits and other commercial deposits.

At December 31, 2018, approximately 30% of our deposit balances were business and consumer checking accounts, 24% money market accounts, 5% IRA accounts, 5% savings accounts and 4% prepaid accounts.

Checking and savings deposits represented 67% of total deposits at December 31, 2018, compared to 77% at September 30, 2018.

The December 31, 2018, deposit mix was impacted by the addition of approximately $1.7 billion of time deposits from Nationwide.

We deployed some of our excess capital across a variety of businesses and initiatives in the past 12 months. We made significant progress in our ongoing efforts to diversify and grow our deposit franchise and fee-based businesses with 4 separate transactions.

First, we completed the acquisition of approximately $2.4 billion of deposits from Nationwide Bank in November, adding approximately 80,000 new accounts and over 40,000 new relationships to Axos. These deposits, comprised of $1.7 billion of retail CDs and $700 million of checking, savings and money market deposits from a transaction closed on November 16, 2018, helped increase our core deposits and reduced our cost of funds.

With the successful Nationwide deposit conversion behind us, we are excited to start our strategic partnership with Nationwide to offer co-branded banking and insurance products and services to Nationwide's associates, policyholders and general market customers.

The agreement, with an initial term of 5 years, focuses primarily on a variety of consumer lending and deposit products. We intend to leverage our flexible digital banking platform and our effective marketing expertise to make it easy and convenient for existing and new customers to purchase banking and insurance products from Axos and Nationwide.

The collective teams are working through data and marketing strategies to prioritize products and channels. We see additional opportunities to offer banking products and services to Nationwide's over 600,000 small business customers that are included in the partnership scope.

While we incur incremental marketing expense related to our partnership with Nationwide, the cost will be well controlled and largely success-based. We look forward to working with our partners at Nationwide to make this collaboration a success.

The second strategic action we took was the acquisition of COR Clearing, a leading independent clearing firm that serves approximately 60 correspondent broker-dealers with over 90,000 underlying client accounts. The acquisition provides an experienced team, a profitable business and an established technology platform from which we intend to build our securities business.

COR generated approximately $47 million in revenue in their fiscal year ended June 30, 2018, including $34.7 million of fee-based revenue. On a pro forma basis, the addition of COR would have increased our fiscal 2018 fee income from $70.9 million to $105.6 million, representing an increase of approximately 49%.

They also earned about $12 million in margin lending and interest income from client deposits placed in other banks. The $470 million of low-cost, off-balance sheet deposits provide us with the flexibility to reduce our cost of funds by bringing some or all deposits to our bank or keeping them in partner banks and earning high-margin fee income streams that are tied to short-term interest rates.

By just spending the last 4 years researching the clearing, custody and asset servicing marketplace, we see opportunities to provide a more holistic service offering to small and medium-sized independent broker-dealers that will help improve the efficiency of their back-office and enable advisers and brokers to successfully transition from a commission-based to a fee-based model.

We also believe that we can expand COR's revenue and profitability by providing more capital, enhancing their sales and marketing capabilities and growing existing high-margin services such as securities and margin lending.

We are evaluating opportunities to add new banking and nonbanking services to COR's existing clients and to expanding into adjacent markets such as IRA custody, securities-based lending and robo advisory services.

Our projection that the COR acquisition will be accretive to our earnings per share by approximately 6% in the 2020 fiscal year beginning July 1, 2019, assumes no benefit from entering new markets, cost synergies or accelerated growth.

The clearing business runs at a higher efficiency ratio than Axos Bank but is significantly more capital-efficient. For comparative purposes, COR generated approximately $47 million in revenue and $10.4 million of adjusted net income in the 12 months ended June 30, 2018. COR had $32.5 million of operating expenses, excluding nonrecurring legal and regulatory costs, which translated into an efficiency ratio of approximately 70%. Given the capital-efficient nature of their clearing business, COR had a return on equity of approximately 40.5% for their fiscal 2018.

Starting in the quarter ended March 31, 2019, we will provide consolidated and segment reporting for Axos and COR so that investors can better track the underlying financial metrics of Axos Financial's bank and security segments.

We received our required regulatory and shareholder approval and closed the COR transaction yesterday. I'd like to welcome the 131 team members joining us from COR. We intend to rebrand the firm to Axos Clearing over the next 3 to 6 months.

The third strategic action we made this year from an M&A perspective was the addition of a trustee and fiduciary service business from Epiq in April 2018, adding a new source of low-cost core deposits.

We added an experienced team of established relationships with bankruptcy trustees and fiduciaries nationwide and a technology platform that will integrate and improve over time to serve not only Chapter 7 bankruptcy trustees but also nonseverance trustees and fiduciaries.

When the deal was announced, the acquired business had approximately $1 billion of Chapter 7 bankruptcy and nonseverance deposit balances held at 7 bank partners on behalf of clients serviced through approximately 400 trustees using Epiq software.

Through the hard work of our team members, we will transition dozens of trustees with over $200 million of deposit balances to our bank, with more slated to transition in the coming weeks and months.

Axos Fiduciary Services fits our strategic vision of providing banking services to a specialized industry vertical through a low-cost scalable software and service-enabled model. We're committed to serving trustees in this market and expanding our product and service offering over time.

Our most recent transaction announced in December 2018 is the acquisition of approximately $225 million of deposits from MWABank. Similar to our prior deposit acquisitions from principal H&R Block and Nationwide, the parent company of MWABank is looking to wind down their OCC charter and focus on their core business.

We'll be adding approximately 25,000 new accounts or $225 million of low-cost deposits, including $194 million of checking, savings and money market balances and $31 million of time deposits from MWABank. We will not pay a premium on the deposits we're acquiring and will not assume any assets, employees or branches from MWABank. While the deposit balances are small relatively and compared to our $8.3 billion of deposits, the national branchless nature of these accounts are a terrific fit for us and help us improve our funding costs.

The OCC approved our acquisition of MWABank deposits last week. We are excited to offer our full suite of banking and cash management services to MWABank's retail and business customers and for channel chapters when the transaction closes in mid-March 2019.

Our net interest margins have held up well, improving by 11 basis points from September 2018 to December 2018 quarter, even though we've only realized partial benefits from 2 of our 4 deposit-related acquisitions.

Deposit betas continue to increase across the industry, and a flat yield curve has generally created downward pressure on net interest margin from many banks.

We remain focused on closing the announced acquisitions, transitioning the acquired no or low-cost deposits to our bank and growing noninterest-bearing deposits through our commercial small business and specialty deposit verticals.

From an asset perspective, we continue to grow our asset-backed commercial loan portfolios, by which have premium yields relative to our multifamily and jumbo single-family mortgages and look for opportunities to enhance the yield in our relatively, modestly sized securities book.

Since the Fed began raising interest rates, we have been able to maintain our core net interest margin in a relatively tight band of 3.8% to 4.0%. If you include the H&R Block-related businesses, our reported net interest margins have steadily increased since the Fed started raising rates, from 3.91% in fiscal year 2016 to 3.95% in fiscal year 2017 to 4.11% in fiscal year 2018. Our proactive actions to diversify both our funding and asset generation capabilities have held up well and should hold up well in the future, irrespective of Fed actions.

The 2018 and 2019 tax season marks the fourth year of our 7-year partnership to provide various banking and payment services to H&R Block's clients. In the quarter ended December 31, 2018, we originated approximately $401 million of Emerald Advance unsecured consumer loans and $30 million of H&R Block franchisee loans.

Since January 2, we started offering Refund Advance loan to H&R Block customers for the second consecutive year as Block's exclusive provider of Refund Advance loans. Refund Advance loans are interest-free, no fee advances secured by qualified taxpayers' refunds. We received fees from H&R Block Bank based on the principal amount of Refund Advance loans we originate. Similar to prior years, we expect the seasonal surge in Refund Advance loans, refund transfers and Emerald Cards to result in a significant quarter-over-quarter increase in our fee income and noninterest-bearing deposits in the quarter ended March 31.

While it's still very early in a tax season, we have not experienced any disruption in the tax-related businesses as a result of the partial government shutdown. We look forward to completing another successful tax season helping H&R Block Bank's customers.

Our capital ratios remain strong despite recent action to deploy some of our excess capital into accretive M&A transactions and share repurchases. We spent $48 million of excess capital in the December quarter to repurchase approximately $1.7 million of common stock. Our Tier 1 leverage ratio was 9.41% at the holding company and 9.03% at the bank at December 31, 2018, more than sufficient to fund COR and the WiseBanyan acquisition without raising capital. Our priorities for excess capital have not changed. We will continue to fund organic growth and investments in our business and consider opportunistic share repurchases, accretive M&A transactions and potentially a dividend.

Last quarter, we announced a small but strategic acquisition on the digital advisory and personal financial management platform, WiseBanyan. WiseBanyan offers a comprehensive and user-friendly platform for individual investors to manage their finances and create custom investment portfolios tailored to meet their life goals. We do this with dozens of robo advisory firms, business models and third-party technology providers through the course of our evaluation.

What we determined was the economic model that most FinTechs currently have, limited asset base revenue streams with high customer acquisition cost and limited control over the technology stack, utilization of a third-party clearing firm and a limited ability to monetize the deposit and lending relationship is an unsustainable one.

The combination of WiseBanyan, which has a talented entrepreneurial team who built the entire technology stack, combined with COR's back-office platform, accelerates our time-to-market by 1 to 2 years and provides us with the essential components to add a profitable and scalable digital wealth management business to our consumer product offering.

Over time, we will integrate the wealth advisory services into the Universal Digital Bank, providing an integrated banking and wealth management experience to our clients and to WiseBanyan's clients as well. We look forward to closing the WiseBanyan transaction in the next few months.

In closing, we are seeing the tangible benefits from investments we are making in technology, personnel, infrastructure and new businesses. The addition of low-cost deposits from Nationwide and Epiq helped keep our deposit costs essentially flat quarter-over-quarter despite only a partial quarter's impact from Nationwide.

Investments in our small balance commercial real estate of asset-based commercial lending groups resulted in $363 million of sequential growth in net loan balances this quarter.

The deployment of our Universal Digital Banking platform, with additional features such as personal financial management, biometric authentication, personalization and gamification, slated for rollout in the next 12 months, will allow us to continually improve our user experience and become more relevant to our customers and partners.

With control of our platform, we will increase the value of our product offering through the addition of wealth management services to the Universal Digital Bank to differentiate our consumer product offering.

The addition of Axos Fiduciary Services and COR and our multiyear partnership with Nationwide further expands our product capabilities, distribution channels and revenue sources.

The opportunities we have are abundant. We will continue to prudently prioritize and allocate capital and resources, with a focus on ensuring that we're building a technologically forward, customer-centric consumer and commercial bank as well as developing our clearing business to better serve our existing customers and to expand beyond our current market.

Now I'll turn the call over to Andy, who will provide additional details in our financial results.

--------------------------------------------------------------------------------

Andrew J. Micheletti, Axos Financial, Inc. - Executive VP & CFO [4]

--------------------------------------------------------------------------------

Thanks, Greg. First, I wanted to note that in addition to our press release, our 10-Q was filed at the SEC today and is available online through EDGAR or through our website, axosfinancial.com. Second, I will quickly highlight a few areas rather than go through every individual financial line item. Please refer to our press release or 10-Q for additional details.

As Greg noted earlier, for the quarter ended December 31, 2018, net interest margin was 3.87%, up 11 basis points from the 3.76% from our last quarter ended September 30, 2018. This quarter, the net interest margin was favorably impacted by higher loan and investment rates on earning assets as well as loan rates on interest-bearing deposits and time deposits. Our average yield on earning assets was 5.48% for the second quarter of fiscal 2019 compared to 5.35% for the first quarter of fiscal 2019, up 13 basis points.

On the deposit side, our average cost of interest-bearing deposits and time deposits decreased 9 basis points and 21 basis points, respectively, when compared to Q1 ended September 30, 2018. As noted earlier, we closed the Nationwide Bank deposit acquisition of $2.4 billion in deposits halfway through the second quarter. This included $1.7 billion of time deposits at a weighted average rate of 2.26% and $0.7 billion of checking, savings and money market accounts at a weighted average rate of 81 bps. If you assume the benefit of Nationwide deposit acquisition for a full quarter and you remove the average loan balances and the interest income associated with the short-term H&R Block, Emerald Advances and franchisee loans, the net interest margin for the quarter ended December 31, 2018, would have been 3.83%, up 7 basis points from the 3.76% net interest margin for the quarter ended September 30, 2018.

Moving to operating expenses. As noted earlier, our efficiency ratio improved to 46.5% this quarter compared to 51.5% for the quarter ended September 30, 2018. Total noninterest expense for the second quarter ended December 31, 2018, decreased $2 million to $50.9 million compared to $52.9 million for the linked-quarter ended September 30, 2018. The decrease is primarily attributable to a $1.4 million savings associated with normalizing FDIC insurance costs this quarter compared to the higher-than-average FDIC costs last quarter associated with the temporary broker deposits used to prepare for the Nationwide deposit acquisition.

In addition, advertising and promotional costs this quarter declined by $1.1 million compared to last quarter, primarily due to lower deposit marketing costs, lower mortgage loan lead costs and lower branding costs.

Excluding the acquisition-related expenses in the aforementioned excess FDIC expense, our non-GAAP adjusted efficiency ratio would have been 45.5% in the second quarter ended December 31, 2018, compared to 49.42% in the first quarter ended September 30, 2018.

Our depreciation and amortization expense was approximately $3.6 million in the second quarter of fiscal 2019 compared to $3 million in the first quarter of 2019, and compared to $1.9 million in the last year's second quarter ended December 31, 2017. The primary drivers of the sequential and year-over-year increase in our depreciation and amortization expenses are amortization of intangibles associated with the Epiq and the Nationwide deposit acquisitions, which were: $900,000, $700,000 and 0 for this quarter, for last quarter and for last year, respectively.

Also, software depreciation, as a result of deploying the Universal Digital Bank and the related systems, was $1.8 million, $1.5 million and $1.1 million for this quarter, for last quarter and for last year, respectively. With the COR acquisition closing this month and the WiseBanyan acquisition expected to close sometime in our fiscal third quarter of 2019, we expect our depreciation and amortization expenses to increase over the next several quarters by an amount between $1.5 million and $2.2 million per quarter.

With that, I'll turn the call over to Johnny Lai.

--------------------------------------------------------------------------------

Johnny Y. Lai, Axos Financial, Inc. - VP of Corporate Development & IR [5]

--------------------------------------------------------------------------------

Thanks, Andy. Adam, we're ready to take questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from the line of Brad Berning from Craig-Hallum.

--------------------------------------------------------------------------------

Bradley Allen Berning, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [2]

--------------------------------------------------------------------------------

I wanted to follow up on the acquisition front a little bit. I asked this question last quarter, and I wanted to follow up on it. Can you talk about -- a little bit more about what you think about the ROE profile and the growth profile of the company after you get things all put together? How do you think about Axos in the out-years as this gets put together?

--------------------------------------------------------------------------------

Gregory Garrabrants, Axos Financial, Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

Are you talking specifically about COR? Or are you talking about the aggregation of all...

--------------------------------------------------------------------------------

Bradley Allen Berning, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [4]

--------------------------------------------------------------------------------

I'm talking about the aggregation of all of it. You've got a lot of moving parts here and just trying to think about how you're putting this whole picture together in your head?

--------------------------------------------------------------------------------

Gregory Garrabrants, Axos Financial, Inc. - President, CEO & Director [5]

--------------------------------------------------------------------------------

Yes. Well, I think right now, from a standpoint of [think of me] about intermediate-term modeling, I think we've given enough information to allow you to see these parts separately and to make reasonable estimates with respect to how they would come together. Obviously, over time, we expect to grow COR organically. And the value of that growth will be partially dependent upon interest rates. Higher interest rates are better for this business. Lower interest rates are not as good. Obviously, we have other parts of the business that may operate differently such as agency mortgage banking. So there's a lot of assumptions that have to be embedded into this. The question of how much growth or how much enablement of growth that the overall and eventual integration of digital wealth management through the Universal Digital Banking platform to our customers will have is very difficult to ascertain because we obviously have growth projected in the out-years that is fairly robust. And so part of this and these acquisitions is to ensure that we're able to meet those objectives as they currently are. It's also difficult to know how pricing will be impacted and how retention will be impacted by the addition of these services. And we believe that, clearly, from the research that we've done, that it will lower the cost of acquisition, increase retention, reduce the sensitivity of the checking accounts within our deposit base. But I think it's very difficult, and I don't think you should be building those numbers into the out-years of your model because we have to go and prove that we're going to be able to do that effectively.

--------------------------------------------------------------------------------

Bradley Allen Berning, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [6]

--------------------------------------------------------------------------------

No, understood. All fair points and appreciate the thought process, and we'll continue to monitor things as they go. But -- and then one other follow-up is, as you think about the IT investments to bring the new acquisitions on board and you think about the opportunities to -- and not just to integrate but expand the investments and the opportunities with those acquisitions, how are you thinking about efficiency ratios as we progress through the intermediate term here? Obviously, a lot -- kind of better-than-expected cost management this last quarter. I just want to make sure we understand how much of that to perpetuate in the models, but also just think about the opportunity set that you might want to invest in.

--------------------------------------------------------------------------------

Gregory Garrabrants, Axos Financial, Inc. - President, CEO & Director [7]

--------------------------------------------------------------------------------

I think that from a bank perspective, thinking about modeling the banking efficiency ratio essentially where it is for the next year is the right approach. And then with respect to COR, we gave the numbers with respect to that specific efficiency ratio for the purpose of being able to look at those segments separately. We will be breaking those out on a segment basis. Now the reality is if COR ends up growing well, it will grow in a way that will increase our ROE but would decrease the overall holding company -- or increase the overall holding company's efficiency ratio. Obviously, that's a good thing, given that efficiency ratio is just simply a proxy that's utilized both for banks and it's much less utilizable for essentially selling Software-as-a-Service to clients in a very capital-efficient business. So it really depends on the mix of growth. I think right now, just for the next year, assuming the COR essentially is at stasis, although we certainly hope to do better than that, is the right approach. And then I was thinking about the bank and its normal growth trajectory with the efficiency ratio that we have currently is the correct approach. And if you're asking, well, how are we going to do a lot of the things that we're doing, we've invested a lot. On the technology side, we have a pretty big team now. That team has delivered a lot of product, although they have a pretty aggressive schedule for this year. So there may be some incremental investments, but I don't believe they'll be material. I think that we can work within the existing structure that we have reasonably well with $1 million here, $1 million there in order to be able to deliver on the strategic vision we have.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

Our next question comes from the line of Austin Nicholas from Stephens.

--------------------------------------------------------------------------------

Austin Lincoln Nicholas, Stephens Inc., Research Division - VP and Research Analyst [9]

--------------------------------------------------------------------------------

On the margin outlook, could you just remind us of what that is kind of heading into '19 as you layer on these different deposit businesses kind of off that 3.83% number?

--------------------------------------------------------------------------------

Gregory Garrabrants, Axos Financial, Inc. - President, CEO & Director [10]

--------------------------------------------------------------------------------

Yes. I mean, I think that looking forward for the next 12 months, I think you should use the guidance that we've historically given. You have the 3.80% to 4% range, excluding...

--------------------------------------------------------------------------------

Andrew J. Micheletti, Axos Financial, Inc. - Executive VP & CFO [11]

--------------------------------------------------------------------------------

Without Block.

--------------------------------------------------------------------------------

Gregory Garrabrants, Axos Financial, Inc. - President, CEO & Director [12]

--------------------------------------------------------------------------------

Without Block, excluding Block impact. And I think that's the reasonable level to look for in the next calendar year.

--------------------------------------------------------------------------------

Austin Lincoln Nicholas, Stephens Inc., Research Division - VP and Research Analyst [13]

--------------------------------------------------------------------------------

Got it. And then maybe just on the Epiq business, can you give us an update of maybe how many deposits have come over and just how to think about the trajectory of kind of the full opportunity of the deposits coming over in '19?

--------------------------------------------------------------------------------

Gregory Garrabrants, Axos Financial, Inc. - President, CEO & Director [14]

--------------------------------------------------------------------------------

Yes. It's -- so about $200 million has come over now, and we're continuing to make those transitions. And ultimately, it depends on several -- the timing depends on several factors. But there's roughly $100 million. Some of those deposits are higher costs than some of the others. And remember, we also do lose some component of fee-based income as those deposits move from a third-party bank to our bank. However, they are a net benefit to us because we are receiving less from the partner bank than the cost of the deposit that we are replacing on a marginal basis.

--------------------------------------------------------------------------------

Austin Lincoln Nicholas, Stephens Inc., Research Division - VP and Research Analyst [15]

--------------------------------------------------------------------------------

Right. That all makes sense. Okay. And then just maybe as you cross $10 billion or, I guess, experience the effects of crossing $10 billion this year, can you just maybe give us your thoughts on the kind of interchange impact, FDIC impact? And then any color you can give on the H&R Block side of the business and any impact there?

--------------------------------------------------------------------------------

Gregory Garrabrants, Axos Financial, Inc. - President, CEO & Director [16]

--------------------------------------------------------------------------------

Sure. So we have -- so the H&R Block contract is a 7-year deal. This is our fourth year. H&R Block does not have a Durbin termination. So our exclusivity continues with respect to those items, although we have to make sure Block is not financially impacted as a result of that. So we're working on a variety of different ways, structuring mechanisms to allow that to happen in a way that minimizes that impact. So the H&R Block deal will continue. Obviously, we have the contract, and that -- so that's 1 component of that with respect to H&R Block. With respect to our own deposit products, some of the reward-type products, we've been looking at redesigning those a bit to try to minimize the impact, because some of the reward -- the rewards checking products and those sorts of things, the profitability will be impacted by Durbin. And remember the timing with the -- at the earliest that we would be impacted by this would be July 1, 2020, because we would have a measurement date at December 31, 2019.

--------------------------------------------------------------------------------

Austin Lincoln Nicholas, Stephens Inc., Research Division - VP and Research Analyst [17]

--------------------------------------------------------------------------------

Understood. And then maybe just one last one. Can you just remind us of kind of how you view the excess capital at the company and then maybe just what your priorities are for deploying it? Obviously, you've done a very good job with some of these acquisitions and have kind of tapped the buyback. Any thoughts on capital and where it goes from here?

--------------------------------------------------------------------------------

Gregory Garrabrants, Axos Financial, Inc. - President, CEO & Director [18]

--------------------------------------------------------------------------------

Sure. I think with the acquisition of COR, that -- and the buyback that we did this quarter, I think we've deployed a reasonable amount of excess capital. However, we still have excess, and we will likely generate excess in this next year. So with respect to the acquisition side, we've done the type of deals from a strategic perspective that we needed to do for the wealth management side, I believe, but that doesn't mean that there won't be opportunities that will arise that fit well within that core strategy, and it's always difficult to know about that. With the stock price, where it is, it certainly is tempting to continue to look at deployment of capital into share repurchases. But we also look at the dividend side of things, too, and watch our shareholder base, which has been creeping up with income investors and things that had maybe appropriated at some point in time to think about a dividend as well. So there's -- we're watching the excess capital. We want to make sure that we're being efficient with our capital, and we'll continue to deploy it in a way that we think is most effective at generating shareholder value over the longer term.

--------------------------------------------------------------------------------

Operator [19]

--------------------------------------------------------------------------------

Our next question comes from the line of Michael Perito from KBW.

--------------------------------------------------------------------------------

Michael Perito, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [20]

--------------------------------------------------------------------------------

I wanted to start on the loan growth side. It seems like the C&I book had similarly strong growth in the quarter. And I was looking through the Q filing, it looks like most of that was in the -- I believe you guys incorporated within your C&I portfolio the warehouse and other line. I don't know if that's wrong or right, but I believe that you were including that in your prepared remarks, and you mentioned the C&I growth. And I'm just curious, do you know -- it seems like there's a few things included in that bucket, including the lender finance. Do you have the kind of the breakout with more detail about what drove kind of the big year-to-date -- fiscal year-to-date growth in that line item?

--------------------------------------------------------------------------------

Gregory Garrabrants, Axos Financial, Inc. - President, CEO & Director [21]

--------------------------------------------------------------------------------

Yes. So the year-to-date growth was about -- I mean, talking about going back here. If we go back from the second quarter of 2018, and then this fiscal, and then the second quarter of 2019 fiscal, there was about -- just about 24% loan growth, and that was really broken up across a variety of categories. We had growth in the lender finance side. We had growth in the real estate specialty lending group as well. And so I think that it was reasonably balanced, probably a little bit on the side of the real estate specialty lending business.

--------------------------------------------------------------------------------

Andrew J. Micheletti, Axos Financial, Inc. - Executive VP & CFO [22]

--------------------------------------------------------------------------------

Great. So I can give you the components that make up that line item. Just (inaudible) benchmark.

--------------------------------------------------------------------------------

Michael Perito, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [23]

--------------------------------------------------------------------------------

I think like $730 million, the warehouse and other line as of December 31. That will be helpful, Andy.

--------------------------------------------------------------------------------

Andrew J. Micheletti, Axos Financial, Inc. - Executive VP & CFO [24]

--------------------------------------------------------------------------------

Right. So included in single-family lender finance is $172.8 million. Single-family security bridge specialty is $120.2 million. And then when we look at warehouse number -- where is that on this? Warehouse is $220 million.

--------------------------------------------------------------------------------

Michael Perito, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [25]

--------------------------------------------------------------------------------

Okay. That's helpful color. And then just as it relates to the loan yield, they've done fairly well, obviously, over the last few years. And then -- but the mix of the portfolio has kind of changed a little bit in that time as well. And I'm curious if you can kind of give us a sense of where you think some of the stronger loan yield performance has been coming from. Has it been being able to get increased incremental yields on new single-family production? Has it been kind of the addition some of the C&I stuff? Any color there would be helpful.

--------------------------------------------------------------------------------

Gregory Garrabrants, Axos Financial, Inc. - President, CEO & Director [26]

--------------------------------------------------------------------------------

Yes. So for single-family, pretty much, we've been able to maintain originations and grow that book. And for every rate increase that the Federal Reserve has made, I think except for one, we raised our rates 12.5 basis points. So obviously, call it a 50% loan data, but that's not -- that's loan data on the incremental production, not loan beta on the actual -- the static loan book. For multi-family, I think it was the same thing, 12.5 basis points, I believe, except one that we did not raise rates. So that's roughly that. And then the vast majority of the C&I production and the -- the C&I production, other than the equipment leasing, which tends to be fixed over 3 to 4 years, is variable and floating rate that would flow to 100% with an index, usually LIBOR. And then -- and those -- the equipment finance loans and the warehouse lines and the specialty real estate generally have higher loan yields than the single and multifamily. So any next shift benefits in 2 ways. It benefits not only the loan beta, but it also benefits just in general from a [remix] of the products.

--------------------------------------------------------------------------------

Michael Perito, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [27]

--------------------------------------------------------------------------------

Okay. That's helpful. And then -- sorry, go ahead, Andy.

--------------------------------------------------------------------------------

Andrew J. Micheletti, Axos Financial, Inc. - Executive VP & CFO [28]

--------------------------------------------------------------------------------

Yes, Michael. Just to give you an example of, really, the largest driver. C&I and lender finance, June, the point in time yield was about 7.13%. At the end of this quarter, it was 7.69%. So you can see that it's a good rate, plus it's moving with rate hikes, which is helping us manage our (inaudible).

--------------------------------------------------------------------------------

Michael Perito, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [29]

--------------------------------------------------------------------------------

Got it. That's helpful example. And then just lastly on the expense side, kind of a broader question. But obviously, you guys have layered in a few different businesses here. There are some investments upfront, it seems like, in some of these cases to kind of grow these relationships and businesses as we go forward. But they also -- given that they were, in some cases, newer partnerships or businesses, there weren't a lot of cost things or anything like that. I just wonder, as you guys kind of look at these businesses you're bringing on, is there a point over the next couple of years where there could be some synergy opportunities once you get a better handle kind of what's required to operate these platforms and any redundancies that you can maybe automate or stuff like that? I mean, is that something that's starting to kind of be discussed internally? Or do you think that they actually fairly, efficiently run as they stand today and that it's more just growing the revenues longer-term is the biggest opportunity?

--------------------------------------------------------------------------------

Gregory Garrabrants, Axos Financial, Inc. - President, CEO & Director [30]

--------------------------------------------------------------------------------

Yes. I think there are opportunities to get efficiencies from an operational perspective out of both Epiq and COR, which are the largest investments in personnel. However, those efficiencies will essentially be put back into doing things a lot better and quicker associated with these businesses. So, for example, on Epiq, we're going to spend a lot of time making sure that we are absolutely the best-in-class in that business, so we can go win more trustees. And the -- we've got to go and fix the -- make sure the platforms are efficient, make sure our customer service is best-in-class, and then the growth will come from the trustees. And the COR will be the same thing. We'll be looking to go upmarket. And in the process of going upmarket, the folks that are currently doing some things that are manual will be spending time on GAAP analysis with respect to how to go upmarket and win bigger business. So I don't think that it would be a good idea to put in your model some sort of, hey, we're going to be able to cut 10% of COR's cost in year 2 or something. That's just not what it looks like. What it looks like is more that will create an API platform for robo advisers -- for third-party robo advisors to be able to use the platform. And that will generate lots of synergies with respect to [UTB], maybe robo advisors who are looking to do that. We're interested in using a white label version of UTB and things like that. So it's really going to be more about the deployment. This isn't some sort of traditional kind of bank acquisition where you go in and cut the accounting department or something because -- Andy is wincing here. It's a very sensitive thing, that's sort of my guess. But that's not what's happening here. That's -- I would think about it -- I wouldn't think about it that way.

--------------------------------------------------------------------------------

Operator [31]

--------------------------------------------------------------------------------

Our next question comes from the line of Gary Tenner from D.A. Davidson & Co.

--------------------------------------------------------------------------------

Gary Peter Tenner, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [32]

--------------------------------------------------------------------------------

I have questions regarding WiseBanyan. I wonder if you could kind of walk through or talk through how your thoughts there are when it comes to monetizing that platform, rather, as opposed to just offering as a value add part of your existing customers as a way of customer acquisition, et cetera.

--------------------------------------------------------------------------------

Gregory Garrabrants, Axos Financial, Inc. - President, CEO & Director [33]

--------------------------------------------------------------------------------

Sure. No, it's a great question. So there are several ways of monetizing the platform. The first one, you've mentioned last, which is the customer acquisition side, we -- their cost of acquisition has historically been lower than our cost of acquisition with respect to gaining a new customer for the platform. Now they've been very attractive on the pricing side with respect to the platform, which has assisted them in that customer acquisition cost. So thinking about how to tie in the requirements for a checking account with direct deposit, with the pricing strategy of that customer acquisition is an area that we've done a lot of modeling in and looking at. Next, there's opportunities to provide basic levels of services and then to have an add-on services associated with that, that you can charge a fee for. And so there's a base level of service being offered at a certain value proposition and then incremental services being offered that allow the customer to choose where they'd like to play. And so that would be a fee income generator. I do think that there's also the ability to monetize the customer from a pricing perspective with respect to the checking side, right? I mean, the whole goal of the long play here is to be able to control the platform so that the services of the platform are sufficient enough from a value proposition, that the checking customer becomes less rate-sensitive. Clearly, there are some competitors who have done amazing job at this, right? Charles Schwab has done a really, really good job. They don't think about what Charles Schwab is paying for checking accounts, because they're not paying much of anything and they're doing just fine with retaining customers. So as digital banking competition increases, it's increasing in this, call it, the first wave way, which is what we helped pioneer, but the second wave way is the path forward. And so that path forward is about integration of services. It's about customer experience, personalization of the recommendations and sufficient services, such that the overall value proposition is more valuable than sort of picking it apart. And I think that's -- we've got those pieces in place. And it's part of the -- we've been eyeing the robo advisory business for a long time, but part of the problem is, is the value that we wanted to provide was hampered by our discussions with third-party clearing companies, who said, "Well, fantastic. We'll meet your pricing demands, but we want all the deposits." And that just doesn't work for us. And so now those pieces are in place, that vertical integration. And so, therefore, we can go and make that happen. If not -- look, it's not straightforward, and it's not a next quarter exercise, but it's all in place to be able to make that happen over the next couple of years.

--------------------------------------------------------------------------------

Gary Peter Tenner, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [34]

--------------------------------------------------------------------------------

I just also wanted to ask to make sure I heard you correctly the modest -- roughly modest increase in NPAs this quarter in the single-family portfolio. Did you say that those were in areas that were impacted by some of the wildfires and lost content looks pretty minimal? Did I hear that correctly?

--------------------------------------------------------------------------------

Andrew J. Micheletti, Axos Financial, Inc. - Executive VP & CFO [35]

--------------------------------------------------------------------------------

No. There was primarily 1 loan for $7.5 million that went into nonperforming single-family. And a 55% LTV, no real long-term issues with it. The -- there were no issues in nonperforming associated with the fires of any significant nature.

--------------------------------------------------------------------------------

Operator [36]

--------------------------------------------------------------------------------

Our next question comes from the line of Andrew Liesch from Sandler O'Neill.

--------------------------------------------------------------------------------

Andrew Brian Liesch, Sandler O'Neill + Partners, L.P., Research Division - MD [37]

--------------------------------------------------------------------------------

Just a follow-up question here on the expenses. Some good cost control this quarter, but sounds like the amortization and depreciation might step up here in the first quarter and maybe with COR closing a little bit earlier than you may have expected. What's the right expense run rate to -- or number to build off here in your third quarter and then going into the rest of the calendar year?

--------------------------------------------------------------------------------

Gregory Garrabrants, Axos Financial, Inc. - President, CEO & Director [38]

--------------------------------------------------------------------------------

With respect to the COR depreciation, that is included in the number that we provided with respect to the net income. So it's not -- that net income and that benefit associated with the accretion, we are including the expected increase in the depreciation costs. So that's an element that you have, but that is included. So it's not incremental. But with respect to what's happening with COR, you'll still have that 6% annual accretion associated with that business. And so the closing of it early will sort of -- midway through a quarter, that obviously has to be prorated, but that's -- that piece of it. The other pieces of the increased depreciation, I mean, those are just simply increased costs that will flow through the P&Ls.

--------------------------------------------------------------------------------

Andrew J. Micheletti, Axos Financial, Inc. - Executive VP & CFO [39]

--------------------------------------------------------------------------------

Sure. So -- and Greg gave guidance on general overall efficiency for the full year. As you know, this quarter's efficiency will be significantly better because of the Block income. But of the $1.5 million increase, about half of that will be COR intangibles that we're estimating. And it's part of the reason I gave a range from a $1.5 million to $2.2 million. We haven't done the final valuation analysis to come up with the exact intangibles. But about $1 million of that is COR. So it's not a huge number, but the broader point was that depreciation has increased a little bit each quarter because of the amortization of the software. And so we are expecting that to continue to increase. We just wanted to be clear on that. But I think the overall guidance of looking at a full year on the banking side in the 40s range was -- is the right way to think about it, and then take COR separately, which will be more like a 70% number in efficiency.

--------------------------------------------------------------------------------

Operator [40]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question comes from the line of Edward Hemmelgarn from Shaker Investments.

--------------------------------------------------------------------------------

Edward Paul Hemmelgarn, Shaker Investments, L.L.C. - Founder, President, CIO, Portfolio Manager, Member, and Director [41]

--------------------------------------------------------------------------------

Greg, I just have an additional question regarding COR Clearing. And also, congratulations on your acquisitions and also on the opportunistic share repurchase. But with COR, you're going to get a benefit from having greater equity. What other opportunities -- or how much do you think that may help your -- help COR in getting new business versus the other opportunities that you may have, I mean, within the pickup business for COR? I mean, if you could elaborate on that a little bit more.

--------------------------------------------------------------------------------

Gregory Garrabrants, Axos Financial, Inc. - President, CEO & Director [42]

--------------------------------------------------------------------------------

Sure. Well, I do think that's an important point. And I do think, at a certain point, right, having the backing of Axos Financial with respect to its capital base will certainly increase the conversation. There are also opportunities to optimize the business across -- there's obviously a number of different ways that clearing companies make money. And we've been digging into the optimization of the existing customer base. We do think there's some upside there. So there's upside from just the, "Hey, we have capital." There's upside from some of the cross-pollination with banking services without, I think, having to do much infrastructure work. And I will say that there is a absolutely felt need within, let's call it, the middle market of this -- of the -- of introducing broker-dealer segment that the clearing companies are not particularly responsive. They're not attuned to the needs of what they would consider to be smaller customers but would be quite good customers for us. I've been out doing some selling, and you've got -- I'd say that the doors are being swung open. There's some pretty big opportunities on one hand. On the other hand, the issue is that these contracts are longer term, and that the conversion element of these are significant. So the great part is that means you get to -- it's hard to lose customers, and it takes a long time to get them as well, because they're often subject to contractual obligations and have -- the burden of having to sometimes repaper accounts associated -- and accounts associated with transfer. So it's -- I think it is -- do I think there's opportunity there? Absolutely, and we'll be working on it. I don't -- it's not an overnight set of opportunities. But I was out at 1 conference that's kind of ahead of the game, and the excitement was palpable. I mean, people are very interested in having a company that has the technology that we have. I mean, think about, for example, you've got a -- introducing broker-dealer and the way they're opening accounts is paper-based, and all of a sudden, they have a account opening system where they can take a driver's license and a picture of their face and open it, and that could be pushed through that network, right? I mean, there was a lot of interest in that. Getting all those things done and getting them implemented and people using them is a different story, but there's a ton of opportunity here.

--------------------------------------------------------------------------------

Operator [43]

--------------------------------------------------------------------------------

Our final question comes from the line of Steve Moss from B. Riley FBR.

--------------------------------------------------------------------------------

Zachary Adam Weiss, B. Riley FBR, Inc., Research Division - Research Analyst [44]

--------------------------------------------------------------------------------

This is Zach Weiss filling in for Steve today. On the upcoming tax season, is there any outlook or expectations for the Refund Advance product relative to last year?

--------------------------------------------------------------------------------

Gregory Garrabrants, Axos Financial, Inc. - President, CEO & Director [45]

--------------------------------------------------------------------------------

We have an understanding of that, but that would be something that we would comment on just -- and we historically, in any year, never comment on the volumes associated with those elements, just frankly because they also -- they impact what people will be able to derive about H&R Block and the -- any kind of variance we don't think is material for us.

--------------------------------------------------------------------------------

Zachary Adam Weiss, B. Riley FBR, Inc., Research Division - Research Analyst [46]

--------------------------------------------------------------------------------

Okay. Fair enough. And in terms of credit, is there anything you all are seeing from the trenches that's worth noting, if there are certain areas that might be getting a little bit too frothy, if there's any notable things that you guys are seeing on that end?

--------------------------------------------------------------------------------

Gregory Garrabrants, Axos Financial, Inc. - President, CEO & Director [47]

--------------------------------------------------------------------------------

In general, I think there's been some nonbank competitors that have entered certain mortgage spaces, and I think they're doing things that are well outside our credit box. They're doing them generally at significantly higher rates but also higher loan-to-value ratios. So that's one area where we see a little push on the credit side there. But I don't think we spend a lot of time -- if we do what we do well, then I think we can continue to have reasonable growth and continue to increase our assets and not have to follow that. So we haven't done anything differently, and I'm not seeing anything that raises any major panic.

--------------------------------------------------------------------------------

Operator [48]

--------------------------------------------------------------------------------

Ladies and gentlemen, we have no further questions in queue at this time. I'd like to turn the floor back over to management for closing comments.

--------------------------------------------------------------------------------

Gregory Garrabrants, Axos Financial, Inc. - President, CEO & Director [49]

--------------------------------------------------------------------------------

All right. Thank you, everyone. We'll talk to you next quarter.

--------------------------------------------------------------------------------

Operator [50]

--------------------------------------------------------------------------------

Thank you. Ladies and gentlemen, this does conclude our teleconference for today. You may now disconnect your line at this time. Thank you for your participation, and have a wonderful day.