Q2 2024 Axos Financial Inc Earnings Call
Participants
Johnny Lai; SVP, Corporate Development & IR; Axos Financial Inc
Gregory Garrabrants; President, Chief Executive Officer; Axos Financial Inc
Derrick Walsh; Chief Financial Officer, Executive Vice President; Axos Financial Inc
Andrew Liesch; Analyst; Piper Sandler
Presentation
Operator
Greetings, and welcome to the Axos Financial, Inc. Q2 2024 earnings call webcast. (Operator Instructions)
As a reminder, this conference is being recorded.
It is now my pleasure, Johnny Lai, Senior Vice President, Corporate Development and Investor Relations. Thank you, Johnny. You may begin.
Johnny Lai
Thanks, Alicia. Good afternoon, everyone, and thanks for your interest in Axos. Joining us today for the Axos Financial, Inc. second-quarter 2024 financial results conference call are the company's President and Chief Executive Officer, Greg Garrabrants; Executive Vice President and Chief Financial Officer, Derrick Walsh; and Executive Vice President of Finance, Andy Micheletti.
Greg and Derrick will review and comment on the financial and operational results for the three and six months ended December 31, 2023, and we will be available to answer questions after those 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 axosfinancial.com for 30 days. Details for this call were provided on the conference call announcement and in today's earnings press release.
Before handing over the call to Greg, I'd like to remind listeners that in addition to the earnings press release and 10-Q, we also issued an earnings supplement for this call with additional information regarding the FDIC loan acquisition. All of these documents can be found on axosfinancial.com.
With that, I'd like to turn the call over to Greg.
Gregory Garrabrants
Thank you, Johnny, and 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 2024 ended December 31, 2023. I thank you for your interest in Axos Financial.
We delivered outstanding results, generating double-digit year-over-year growth in earnings per share, book value per share, and ending loan balances for a sixth consecutive quarter. Strong organic loan growth and deposit growth, coupled with further net interest margin expansion, resulted in double-digit net interest income growth year over year and linked quarter annualized.
We grew deposits by approximately $638 million linked quarter. We reported net income of $152 million and earnings per share of $2.62 for the three months ended December 31, 2023, representing year-over-year growth of 86% and 94%, respectively.
Excluding the one-time gain and loss provision associated with the FDIC loan purchase, our non-GAAP adjusted earnings per share increased by 15.7% year over year to $1.56. Our tangible book value per share was $33.45 at December 31, 2023, up 25% from December 31, 2022.
Other highlights for this quarter include the following ending loans for investment balance, net of discount were $18.5 billion, up 8% linked quarter or 32% annualized, excluding the FTIC. loan purchase ending non-purchase loans held for investment increased by 4 to 43 million linked quarter or 10%. Annualized growth was broad-based with growth in real estate and non-real estate lender, finance equipment leasing and fund finance, offsetting lower origination volumes in single-family warehouse and higher payoffs in commercial specialty real estate and a deliberate runoff of our auto book. Net interest margin was $4 of US 4.55% for the first quarter ended December 31st, 2023, up 19 basis points from 4.36% in the quarter ended September 30th, 2023, and up nine basis points from 4.49% in the quarter ended December 31st, 2022. Excluding the benefit from the FDIC. loan purchase.
Our consolidated net interest margin was 4.36% in the quarter ended December 31st, 2023. Excess securities comprised primarily of our custody and clearing businesses had another strong contribution to our fee and interest income. Broker-dealer fee income increased 27.6% year over year due to higher interest rates and increased client activity. Advisory fee income increased 5.4% year over year due to higher mutual fund fees and higher average assets under custody. Quarterly pretax income for our securities business was $10.8 million in the second quarter of 2024. Our credit quality remains strong with net annualized charge-offs to average loans of two basis points in the three months ended December 31st, 2023. The majority of the two basis points of net charge-offs this quarter were from auto loans that are covered by insurance policies with proceeds from those insurance policies accounted for as fee income. We completed the purchase of two performing commercial real estate and multi-family loan pools in the FDIC. with a combined unpaid principal balance of approximately 100 to $1.25 billion at 63% of par value. We recognized a $65 million after-tax gain and increased our allowance for loan loss by $75 million on the purchase in the quarter ended December 31st, 2023. We believe this opportunistic loan purchase will provide incremental net interest income and after-tax income over the next several years. I'll provide more detail regarding this transaction later on the call.
Our capital levels remain strong with Tier one leverage ratio of 10.2% at the bank and 9.4% at the holding company, both well above our regulatory requirements. We repurchased approximately 59 million of common stock in the second quarter, in addition to the $24 million we repurchased in the prior quarter to take advantage of the unwarranted decline in our share price. This brings our total share repurchases in fiscal year 2024 to 83 million at an average share price of $36.49 per share, representing 2.8% of the shares outstanding as of 1231 2023, we had strong organic loan originations at our commercial and industrial group, non-real estate lender, finance equipment finance and fund finance lending businesses. We continue to reduce our small, our small to our small balance commercial real estate, consumer and auto loan balances. Given our preference for originating and retaining loans with a lower duration, floating rate and better risk adjusted return in the current environment. Average loan yields for the three months ended December 31st, 2023 was 8.18%, up 33 basis points from 7.85% in the prior quarter and up 156 basis points from the corresponding period a year ago. Average loan yields for non-purchased loans were 8.02% and average yields for purchase loans were 18.51%, which includes the accretion of our purchase discount. We continue to see wider spreads in some of our lending categories as competitors have pulled back or exited. New loan yields were the following single-family mortgages, 8.1%, multifamily, 8.6%, CNI 9.1% and auto 10.3%. Our commercial real estate loans continue to perform well. The low loan-to-value and senior structures we have in place for an overwhelming majority of our commercial specialty real estate loans provide us with significant downside protection in the event of a significant deterioration in the borrower's ability or willingness to repay the valuation of our underlying properties or project delays of the 5 billion of commercial specialty real estate loans outstanding at December 31st, 2023 multifamily was the largest segment, representing 34% of the total commercial real estate specialty loans, while hotel office and retail represent 20%, 8% and 4%, respectively.
On a consolidated basis, the weighted average loan to value of our commercial specialty real estate portfolio was 40% for the retail and office segment of our commercial specialty real estate book the weighted average LTV is 40% and 38% and 8% respectively. Total crestal loans secured by office properties declined by 38 million linked quarter to 418 million of the funded 18 million crestal loans secured by office properties. At the end of the quarter, 69% are A. notes or note on no structures, all have significant subordination without having recourse to funds or sponsors or cross collateralization with other asset types from punch from partners and mezzanine lenders. These loans have an average loan to value of 32%, excluding any recourse or cross-collateralization. Nonperforming loans in our commercial specialty real estate portfolio were approximately $26 million at December 31st, 2023, identical to the September 30th, 2023 ending balances representing five basis points of our total CRE loans outstanding. We do not anticipate incurring a material loss in either of these loans nonperforming loans in our multifamily and commercial mortgage portfolio were approximately $37 million at December 31st, 2023, down by 1.5 million from the September 2023 balance, the average loan-to-value of our nonperforming multi-family and commercial mortgages is approximately 60%, although we cannot be certain that we do not expect to incur a material loss at any of the asset-backed loans currently categorized as non-performing.
Nonperforming single-family mortgages increased from $36.6 million at September 30th, 2023 to $54.3 million at December 31st, 2023. The increase was primarily the result of a $14.3 million loan becoming delinquent. The property has an updated loan to value of approximately 81% and the property is listed for sale and for rent, the average loan to value of other single-family mortgages that became delinquent this quarter was 49.5%. On December seventh, 2023, we completed the purchase of two loan pools with approximately $1.25 billion of UPB for $786 million from the FDIC. at a 37% discount to par value of that discount. We recognized 92 million pretax as part of the bargain purchase gain recorded a 770 million loan loss. As a result, assuming any loan loss in the pool is at or below the amount allocated in the loan loss access will accrete approximately $301 million of discount over the life of these loans into income. The loan pools are comprised of approximately 578 million of commercial real estate loans with a weighted average loan-to-value of 50% and remaining term of 41 months and 676 million of multifamily loans with a weighted average loan to value of 67% and remaining term of 121. All 15 loans are current on principal and interest payments with a borrower paying an average fixed rate of 3.8% as part of the cash purchase, we received a series of back-to-back interest rate swaps that allow access to receive a variable note rate of approximately 6.9% without discount. We provided additional details regarding the FDIC loan purchase in our earnings supplement. We also broke out the purchased and nonpurchased loans and the rate volume table on page 35 and 36 of our 10 Q. This is an extremely accretive transaction from a net interest margin and net income perspective, that we expect to remain over the next several years. I'll provide additional details regarding how investors think about the net interest margin impact. At the end of my prepared comments. We had another strong quarter of deposit growth, with ending balances increasing by $1 billion from June 30th, 2023 or 12.6% annualized checking and savings accounts representing 95% of total deposits at 1230 first, 2023 grew even faster at 20% annualized. Our deposits remain well diversified from a business mix perspective with consumer and small business, representing 61% of total deposits from our Flowcast TM, an institutional representing 21 commercial specialty, representing seven Axos Fiduciary Services, representing six Axis Securities, which is our custody and clearing on balance sheet representing five total non-interest bearing deposits were approximately $2.8 billion, relatively flat quarter over quarter. Cash sweep deposits fell by approximately $200 million, offset by 133 million sequential increase in noninterest-bearing commercial deposits. The new commercial deposit teams, including fund finance, are starting to contribute meaningfully to our non-interest bearing deposit growth. We're also seeing upticks in our Axos Fiduciary Services deposit balances. Our balance sheet remains asset sensitive given the shorter duration variable rate of our loans and the granularity and diversity of our consumer commercial and securities deposits.
For the quarter ended December 31st, 2023, our consolidated net interest margin was 4.55%, while our banking business, net interest margin was 4.62%. Our consolidated and banking business net interest margin remained well above our prior consolidated net interest margin guidance of 4.25% to 4.35%, aided by strong organic loan growth accretion from the FDIC loan purchase and some normalization in our excess liquidity. Total ending deposit balances with access advisory services, including those on and off accesses balance sheet declined by $200 million in the quarter, reflecting adviser investing excess cash into risk assets in reaction to the year-end stock market rally. We believe that the pace of cash sorting at access advisory services has stabilized at or near the bottom, representing 4% of assets under custody as of December 31st, 2023, compared to an historic range of 6% to 7%.
In addition to our access securities deposits on our balance sheet, we had approximately 550 million of deposits off balance sheet at partner banks and another 750 million of deposits held at other banks by software clients as being at the accounting and business management vertical, we expect our net interest margin to be augmented by the FDIC. loan purchase, given that the borrowers paying a fixed rate substantially below current market rates. We expect that these loans will have a relatively low duration, long duration and prepays will be relatively low if any. Our baseline assumption is that none of the acquired loans prepay, and we do not sell any of our acquired loans prior to maturity. Under those assumptions, we expect our consolidated net interest margin will increase by approximately 40 to 50 basis points above our prior 4.25 to 4.35 consolidated targets for the next four to six quarters as we grow net new loans by 5 to 700 million per quarter. Assuming our high single digit to low 10s loan growth target, the net interest margin boost from the purchase loans will gradually decline over time in the event that one or more loans prepays, our net interest margin will be further enhanced as the immediate recognition of the remaining purchase price discount.
With respect to the question of net interest margin sensitivity in the event of a Fed funds decline, several dynamics are worth considering. First, approximately 20% of our loans representing 5.2 billion were hybrid ARMs as of December 31st, 2023, of which 16% will reprice in one year 18% will reprice in two years and 18% will replace in calendar 2026 with the remaining 48% repricing in 2027 and beyond. The repricing of these hybrid loans will provide some offset to reduced index rates on floating rate adjustable loans if and when the Fed starts to reduce interest rates. The hybrid ARMs consist primarily of three to five year fixed rate multifamily and five year hybrid single-family loans of the approximately 2.2 billion of hybrid multifamily loans yielding approximately 5.15%, 28%, adjusting calendar 2024, 28% adjusting calendar 2025, 14% in calendar 2026, and the remaining 30% will reprice in 2027 and beyond. Of the approximately $3 billion single-family loans yielding approximately 5.24%, 8%, adjusting calendar 2024, 10% adjust in calendar 2025, 21% adjusted calendar 2026, and the remaining 61% will reprice in 2027 and beyond. At 1231 2023, approximately 64% of our loans were floating and 21, 28% are hybrid ARMs and 8% were fixed. With respect to the 64% of our loans that are floating rate. We work hard to have strong index floors in our loans but these indexed floors are generally well below the current index rate. Therefore, the margin offset to rate reductions in floating rate loans other than the repricing of hybrid loans will be a reduction of the rate we pay on deposits, although it is difficult to predict how quickly we can lower deposit rates when the Fed fund rate goes down, approximately 16% of our total deposits are tied or sensitized to Fed funds, and they should adjust quickly given that more than 90% of our consumer deposits to non-maturity deposits, we have the ability to lower those rates depending on deposit competition, loan growth and the sensitivity of our depositors to reduced rates. We continue to invest in trust and back-end systems, IT infrastructure and security and other enterprise software and systems that will further optimize our business and functional units after launching our Universal Digital Bank 2.0, the latest version of our consumer and mobile banking applications in September, we are working on transitioning our small business banking platform from a legacy system to UNI-P, a move that has been completed for new customers with a transition for most existing small business customers occurring before the end of this current fiscal year. This platform transition will leverage the investments we've made in UDB and make our SDB., offering more modern and user-friendly. Our white-label banking for RIAs and IBDs continue to make progress with a beta launch expected in the next few months. We believe the ability to provide a turnkey banking solution to the hundreds of thousands of affluent and high net-worth clients of our custody and clearing business will be a differentiator from a service and efficiency perspective in our CNS business management vertical, we are investing to modernize the user experience and add new features to the software. We see tremendous long-term opportunity to grow market share of fee income deposit and cross-sell other banking products to clients in the business management vertical, Axos Clearing, which includes our corresponding clearing and our custody business, continues to make steady progress. Non-interest income from the securities business increased 3% year over year to $67 million. The primary driver of growth in the fee income from Axis Securities is higher interest rates, partially offset by lower average balance of deposits held at partner banks.
Total deposits at Axos Clearing were $1.4 billion at December 31st, 2023, down from $1.6 billion in the prior quarter. Of the $1.4 billion of deposits from Axos Clearing. Approximately $0.8 billion was on our balance sheet and $550 million were held at partner banks. Net new assets in our custody business increased by approximately 72 million in the three three months ending December 31st, we onboarded 13 new advisers this quarter. The pipeline for new custody clients remains healthy, comprised of 233 advisory firms with approximately $22 billion of combined assets under custody. We have made good progress on the systems and product front, launching a refreshed client portal and securities-based line of credit for RA clients towards the end of the year. We see tremendous opportunities to grow our existing businesses and improve operational efficiencies across business and functional units. The market dislocation and corporate restructuring among our bank and nonbank competitors have created a once-in-a-decade opportunity to add talented individuals and teams to access. Many of the additions we have made over the past nine months have already contributed meaningfully to our growth and we're actively recruiting across various commercial deposit lending and business verticals to help build and accelerate several strategic and operational initiatives on our long-term road roadmap with strong liquidity and excess capital, a diminimus unrealized loss in our small and our investment securities portfolio, a multiyear boost in earnings and margin from the FTIC. loan purchase and solid organic growth prospects. Given the diverse nature of our banking and securities businesses, we are focused on widening our lead relative to our competitors. Our returns, credit and margins are best in class because we focus on asset based lending opportunities with the best risk-adjusted returns, and we structure deals with low leverage and credit enhancement. We have a proven track record of repositioning ourselves joining pivotal turning points during the banking and economic cycle. We are confident the investments we are making in our business systems processes and people will generate attractive future returns for our shareholders. Now I'll turn the call over to Derrick, who will provide additional details on our financial results.
Derrick Walsh
Thanks, Greg. To begin, I'd like to highlight that in addition to our press release, and eight K with supplemental schedules and our 10 Q were filed with the SEC today and are available online through EDGAR or through our website at Axos Financial.com.
I will provide some brief comments on a few topics. Please refer to our press release and our SEC filings for additional details.
Total noninterest expenses increased by 1.3 million or 1.1% to 122 million in the three months ended December 2023 compared to the quarter ended September 30th, 2023. Salaries and benefit expenses increased by 3.1 million, primarily due to new team member additions and the first full quarter of the annual merit-based increases that were awarded in September 2023 to our staff. It was also the first full quarter for the LV marine finance business being a part of access. Advertising and promotional expenses were down by approximately 0.6 million as we scaled back certain deposit related marketing expenses. Professional service fees were down $3.8 million on a linked quarter basis due to the timing of insurance reimbursements reduction in valuation and audit fees tied to our year end audit, which occurs in the first fiscal quarter and legal expenses. As Greg mentioned earlier, we continue to actively recruit talented individuals and teams across various businesses. We believe that reinvesting a small portion of our expected gains from the FDIC. loan purchase is a prudent strategic allocation of capital that will benefit our shareholders. For those who may not be as familiar with the Axxora story, we deployed a similar strategy seven to eight years ago by reinvesting a portion of profits from our H&R Block business in long term strategic initiatives such as UDV., our commercial banking business and our securities businesses. Those investments have been instrumental in helping us further diversify our lending deposits and fee income. We expect noninterest expenses to grow a few percentage points higher than our historical growth rate over the next few quarters. As we continue to invest in the people, systems and growth initiatives. We will continue to identify and implement process improvement, automation and other productivity initiatives to maintain the best-in-class operating efficiency.
Following a strong start to the first half of our fiscal year. Our loan growth outlook is consistent with what we have guided to in recent quarters. We believe that we will be able to grow loan balances organically by high single digits to low 10s year-over-year for the next few quarters, excluding the impact of the FDIC. loan purchase or any other potential loan or asset acquisitions. Our loan growth outlook is based on a broad based increases in our ABL lender, finance and capital call lines, partially offset by declines in jumbo single-family mortgage, multi-family, cross-sold auto and personal unsecured loan balances. We continue to see good risk-adjusted opportunities across several of our lending niches. Our market share gains have been partially offset by higher levels of prepayments in certain segments of our C&I book. Given the shorter duration for these loans, our loan pipeline remains solid at $1.7 billion as of January 26th, 2024, consisting of 277 million of single-family jumbo mortgage, 70 million of agency gain on sale mortgage, 52 million of multifamily and small balance commercial 23 million of auto and consumer and $1.3 billion of C&I. And our income tax rate was 30.2% for the first quarter ended December 31st, largely in line with our guided range of 29% to 30%. As a reminder, typically, we have a higher employee related related taxes and FDIC. assessments in the first calendar quarter. Aside from those seasonal factors and the aforementioned growth investments, we do not anticipate any outside changes in our future income tax rate or non interest expenses.
With that, I'll turn the call back over to Jeremy.
Johnny Lai
Thanks, Derrick, and we are ready to take questions.
Question and Answer Session
Operator
We will now be conducting a question-and-answer session. (Operator Instructions)
Andrew Liesch, Piper Sandler.
Andrew Liesch
Good afternoon, guys. On the question on the margin outlook noting that the loans from the FDIC trying to look through maybe the guidance to be slightly lower than before that or what it would be for 25 to 45 range still, Paul?
Yes, that's of the four 25 to 4 35 wells will still hold off for the calendar year of 2024. As you remember, the organic growth?
Derrick Walsh
Yes. Yes.
I'm going to provide a little bit more details on some of the I'm just looking at year-over-year. Yes, or last quarter, there were 20% year over year, I guess is there like a year-over-year growth rate that we should be looking at that another? There's maybe a little bit.
Andrew Liesch
Great.
I think the ARM I'd probably say it winds up. Generally speaking with our with our loan growth rate that as kind of high single digits to low 10s, obviously different quarters, we'll have some there will be lumpiness, but when you look at it on an annualized basis, I think it will generally align with that, that loan growth rate that we provide the this first quarter first calendar quarter as I highlighted will have some higher expenses due to payroll taxes. So usually that's if you look back, that's always cyclically a much higher quarter for the forgotten fuel taxes that are works through in that in that January, February months, Andrew, I think we are recruiting from a decent amount of talent and sometimes that talent comes on and then, yes, then it takes a few quarters for them to do stuff.
Gregory Garrabrants
So I'm not sure I wouldn't pop that up a few percentage points, maybe kind of pop it up. I mean, I think maybe in our conservative light that I take it more into the 15, 16 range or something like that, just because I know I've been we've been out there with a lot of recruiting. Some just hired a couple of, as you know, really seasoned teams on the treasury management side, some great product managers. They're going to do a lot of great stuff over the long term on our commercial treasury management, yes, software integrations, but these teams are not the cheapest, but they're coming available now in a way that they just wouldn't. And I'm seeing that more and more. So I think we'll we're opportunistically out looking for teams like that. And there's a few more in the pipeline too, that are not cheap. So Got it.
Andrew Liesch
So is it really driven by new hires or products?
Yes, best answer.
Gregory Garrabrants
Well, I mean, yes, in some cases has been new products like the fund finance team was new product, others that might be new geography. We've been looking up in the Valley for stuff there. And in other cases, it's just like those two teams on the TM side are they've got some vertical expertise, but it's more about really refining and developing our TM products to get to the next stage. So it's really a little bit of everything and there's there are some teams that are very vertically led their lending vertical focus, too. So it just it really just depends. But I would say in general, there's just a lot of you know, a lot of banks have not paid bonuses. Well, there's a lot of unhappy people around. And so we've just got access to a lot of talent and that talent wasn't probably wouldn't have been accessible to us 18, 24 months ago. So we're probably going to spend it.
Yes, some of this windfall add on that talent. And it out, like Derrick said, I think it's a great analogy. We did that with H&R Block. I don't think it's really of that level that's been out with a whole new division like we did there, but it's so we'll have to see. I mean, my instinct is that there's going to be more folks sort of shaking out this year that we're going to be interest to them. It makes sense.
Derrick Walsh
I think you did that with the Trump tax cut as well, and we've certainly guest support through us. But I will ask it Thank you, Alexander.
Operator
Thank you from the line of Edward , speaker investments. Please proceed with your question.
Derrick Walsh
Because the Group has recorded, it looks like your view didn't pay any SFTIC. Now the guidance that regulation is generally aimed at larger banks north of $100 billion in assets and with 5 billion or greater uninsured. And we have a much lower uninsured deposit balance. So those are the banks that are experiencing those increases in FDIC fees.
Yes, I've got about 5 billion.
Okay. That makes sense. Just the other thing is I noticed you, yes, your loan loss provision was higher this quarter. Anything unusual?
Yes, I can walk through that. So yes, there's there's a couple of different aspects to that $13.5 million number, about 5 million of it was related to the to the loan purchase. So well for the purchase credit deteriorated assets. We took 70 million straight to the to the allowance without going through the income statement for the non purchased credit deteriorated assets, we did have to add loan loss provision. So that was about 5 million. And then as a reminder, the unfunded commitment provision also is included in that line item. So that was another $1 million for unfunded loans as our unfunded balances grew by a couple of hundred million this past quarter. And so the the net remaining once you back those out was about $7.5 million, which is generally consistent with our allowance on the whole.
Operator
Great.
Derrick Walsh
And good luck on finding talent and people.
Gregory Garrabrants
Thank you, Alex, and thanks.
Operator
Our next question comes from the line of day a day.
Yes, thanks.
Derrick Walsh
Good afternoon, everybody, and neither Derrick, you just address part of my question as it relates, I'll begin and then Bill into the allowance. I wonder if you could go into any detail or thoughts specifics around why that number was so high given the relative LGDs of the underlying credits status?
Sure, sure. I'll start on that. And so the when we look at the loan portfolio, what we did was a loan-by-loan analysis and an classification in accordance with the accounting guidance as far as the purchase credit deteriorated assets. So for those that we determined or the purchase credit deteriorated assets, we then go and look at what is the what is the likelihood of the over the life of those loans and what are the different aspects of them. There's a couple of office and there there are a couple land. And so take an analysis through that and say what is the likelihood of loss based on all the different attributes that are funneled into the allowance model. And that, of course, includes all variety of different things about locations within the US GDP economic scenarios and stress extremely stressed economic scenarios and say what's that? What's that risk of loss on those loans and come up with our what we believe is the reasonable estimate for that for that allowance. And so based on those number of factors and kind of that process, that's how we ultimately got to the $70 million on that subset of them.
Gregory Garrabrants
But it has come in here?
Yes.
These obviously, we've we've we've always performed well better than our loan loss. And so it's best to be conservative on these things, right.
Derrick Walsh
So So as we're thinking about kind of the provision going forward, given that backdrop of that of those PCD loans and the allowance for that are those balances and that's kind of one what's out there for the duration of those specific credits as long as there or unless something materially changes in your expected performance of the credit curve?
What we will be monitoring them quarter-by-quarter in the same way that that we monitor our entire loan portfolio, including new originations of the whole portfolio gets gets analyzed on a quarter-to-quarter basis, depending on and the different individual attributes of the loan if certain aspects are changing such as delinquencies, credit downgrades on the and then as well as the of course, economic on aspects of the in the in the broader environment and the different inputs that tie into the model there. So the 70 is, of course, the initial number, right, but that could certainly change also, obviously, if any of the loans were to prepay that are removed, that would remove an allowance from it. So that's another factor that that could change.
Got it. Thank you.
Operator
You as a reminder, Prestige one.
And there are no further questions. I'd now like to turn the floor back over to Johnny Lai for closing remarks.
Johnny Lai
And thanks, everyone, for your interest. If you have any additional follow-ups, please contact me and for those who are going to the Janey conference will see you tomorrow and Thursday.
Operator
Thanks.
This concludes today's call. You may disconnect.
Your lines?
Yes.
