Axos Financial(AX) - 2021 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Axos Financial reported a net income of $53.6 million for Q3 2021, with earnings per diluted share of $0.89, reflecting a year-over-year increase in net interest income and fee income by 21.9% and 43.7% respectively [7][8] - The return on average equity for Q3 2021 was 16.12%, and the efficiency ratio was 42.33%, with tangible book value per share increasing by 17.1% year-over-year to $20.44 [9][21] - Ending loan balances increased by approximately $102 million, up 3.5% annualized from Q2 2021 and up 12.9% year-over-year [9][12] Business Line Data and Key Metrics Changes - Total loan originations for Q3 2021 were $1.8 billion, down 36.8% from $2.9 billion in the same period last year, but up 47.9% year-over-year when excluding H&R Block related loans [12] - The mortgage banking segment generated $9 million in income, compared to $10.7 million in Q2 2021, with a decrease in originations due to rising interest rates [13][20] - The net interest margin for the banking business unit was 4.23%, up from 4.11% in the previous quarter [10][14] Market Data and Key Metrics Changes - The efficiency ratio for the banking business segment was 42.33% for Q3 2021, compared to 40.45% in Q2 2021, attributed to higher professional service expenses and marketing costs [10][21] - Non-performing assets decreased to 1.14% of total loans and leases, down from 1.44% in the previous quarter, indicating strong credit quality [11][18] - The company reported no loans in forbearance as of March 31, 2021, with a total allowance for loan loss of $143.8 million, representing 1.16% of total loans and leases [20][21] Company Strategy and Development Direction - Axos Financial aims to grow loans in the high single digits to low double-digit percentages while maintaining a net interest margin in the mid- to high end of the 3.8% to 4.0% target range [24] - The company announced the acquisition of E*TRADE Advisory Services, which is expected to enhance its scale and capabilities in the RIA custody market [26][33] - The integration of EAS is anticipated to be completed by July 31, 2021, with a focus on leveraging technology to enhance service offerings and cross-selling opportunities [46][65] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the loan growth pipeline, particularly in the multifamily and commercial real estate sectors, despite anticipated margin compression [48][49] - The company remains cautious about the economic environment but expects steady improvement and does not anticipate significant changes to loan loss provisions in 2021 [20][40] - Management highlighted the potential for growth in the securities business, particularly through the integration of cryptocurrency trading capabilities into their platform [37][51] Other Important Information - Axos Financial has access to approximately $2.8 billion of Federal Home Loan Bank borrowings and $2.3 billion of liquidity available at the Federal Reserve discount window [23] - The company continues to invest in technology and infrastructure to support growth across its various business lines [21][35] Q&A Session Summary Question: Integration and Market Share Growth of EAS - Management expects the integration with the broker-dealer to be completed by July 31, 2021, and anticipates immediate growth opportunities post-acquisition [46] Question: Loan Growth and Pipeline Strength - Management noted strength in residential projects, particularly multifamily, and expects to maintain loan growth despite potential rate compression [48][49] Question: Interest in Cryptocurrency - Management confirmed plans to incorporate cryptocurrency custody and trading into their platform, allowing clients to trade and monetize crypto assets [51] Question: Sustainability of NII Levels - Management indicated that the current net interest income level is sustainable, with expectations for continued loan growth [52] Question: Cross-Selling Opportunities with EAS - Management highlighted the potential for cross-selling banking products to RIA clients, which was previously limited [61][62]