Axos Financial(US:AX)2022-10-28 05:41Financial Data and Key Metrics Changes - The company reported adjusted net income of $69.6 million for Q1 2023, representing a year-over-year growth of 15.6% [8][10] - Book value per share increased to $28.35, also up 15.6% year-over-year [8] - Net interest margin was 4.26%, up from 4.19% in the previous quarter and 4.22% year-over-year [9][10] - Total allowance for credit losses was $155.5 million, representing 1% of total loans [11][25] Business Line Data and Key Metrics Changes - Deposits increased by approximately 29% year-over-year to $15.2 billion, with noninterest-bearing deposits representing about 30% of total deposits [8][15] - Ending net loans for investment balances were $15.2 billion, up 28.1% annualized [8] - Loan originations for the quarter were $2.5 billion, up approximately 19% from the previous year [11] - Axos Securities contributed approximately $3.3 billion in total deposits, benefiting from higher cash balances due to market volatility [9][17] Market Data and Key Metrics Changes - The company experienced strong demand for well-secured commercial and industrial (C&I) loans, with a backlog of approximately $790 million as of October 24, 2022 [13] - The jumbo single-family mortgage pipeline was approximately $311 million as of October 24, 2022 [13] - The company noted a decline in prepayments in the jumbo single-family mortgage business, down to $184.3 million from $390 million in the prior quarter [13] Company Strategy and Development Direction - The company aims to achieve mid-teens loan growth for fiscal 2023, despite expectations of moderation in loan growth due to higher interest rates [15][23] - Investments in cash and treasury management capabilities are expected to increase the pipeline of prospective new clients [16] - The company is focusing on enhancing its technology and operational capabilities to improve efficiency and reduce costs [20][49] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining a net interest margin above the long-term target of 3.8% to 4% [23] - The company anticipates that the competitive landscape will provide opportunities for market share growth, particularly in the advisory services sector [45] - Management highlighted the importance of managing credit quality and operational efficiencies in the current uncertain environment [26][25] Other Important Information - The efficiency ratio was reported at 55.9%, up from 54.4% in the prior quarter, primarily due to a $16 million legal reserve [21][29] - The company plans to appeal an unfavorable legal judgment related to its Axos Fiduciary Services business, which resulted in a $10.3 million net award [21] Q&A Session Summary Question: Can you walk us through the fee income at the securities business? - Management explained that the large delta in fee income is primarily due to cash sorting deposits held at the bank, which are eliminated in noninterest income and expense lines [35] Question: What is the loan deposit ratio and how is it monitored? - Management indicated that they typically run slightly above 1.05 for the loan deposit ratio and feel comfortable with their deposit sourcing capabilities [37] Question: What is the expected run rate for expenses going forward? - Management suggested that the efficiency ratio would remain around 42% to 50% on a consolidated basis, factoring in the recent legal charge [40] Question: How does the competitive landscape affect market share? - Management noted that the acquisition of TV by Schwab presents an opportunity for Axos to capture market share as advisers seek alternatives [45] Question: What is the outlook for the specialty CRE market? - Management indicated continued demand for multifamily construction projects and noted that the current market conditions could benefit banks with stable funding sources [51][53]