Axos Financial - Q3 2024
April 30, 2024
Transcript
Operator (participant)
Hello, and welcome to the Axos Financial, Inc Third Quarter 2024 Earnings Call and Webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question-and-answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Johnny Lai, Senior Vice President, Corporate Development, Investor Relations. Please go ahead, Johnny.
Johnny Lai (SVP of Corporate Development)
Thanks, Kevin. Good afternoon, everyone, and thanks for your interest in Axos. Joining us today for the Axos Financial, Inc Third Quarter 2024 Financial Results Conference Call are the company's President and Chief Executive Officer, Greg Garrabrants, and Executive Vice President and Chief Financial Officer, Derrick Walsh. Greg and Derrick will review and comment on the financial and operational results for the 3 and 9 months ended March 31, 2024, and we will be available to answer questions after the prepared remarks. Before I begin, I would like to remind listeners that prepared remarks made on this call may contain 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 the call over 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. All of these documents can be found on the Axos Financial website. With that, I would like to turn the call over to Greg.
Gregory Garrabrants (President and CEO)
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 third quarter of fiscal 2024, ended March 31, 2024. 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 seventh consecutive quarter. Balanced organic loan 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 $900 million linked quarter, outpacing our ending net loan growth by approximately $430 million. Strong loan originations were partially offset by higher payoffs.
We reported net income of $111 million and diluted earnings per share of $1.91 for the three months ended March 31, 2024, representing year-over-year growth of 38.7% and 45%, respectively. Our tangible book value per share was $35.46 at March 31, 2024, up 27% from March 31, 2023. Other highlights this quarter include the following: ending loans for investment, net of allowance for credit losses, were $18.7 billion, up 2.6% linked quarter, or 10.4% annualized. Growth was broad-based, with growth in non-real estate, lender finance, single-family warehouse, and fund finance, offsetting lower origination volumes in single-family jumbo mortgages, higher payoffs in commercial specialty real estate, multifamily, and deliberate runoffs in our auto book.
Net interest margin was 4.87% for the first quarter, ended March 31, 2024, up 32 basis points from 4.55% in the quarter ended December 31, 2023, and up 45 basis points from 4.42% in the quarter ended March 31, 2023. One loan acquired from the FDIC paid off this quarter, boosting our net interest margin by approximately 3 basis points. Excluding the one-time gain associated with the FDIC loan purchase last quarter, non-interest income was up 4.5% from Q2 to Q3 due to higher mortgage banking income and prepayment fees. Our credit quality remains strong, with net annualized charge-offs to average loans of 7 basis points in the three months ended March 31, 2024.
The 7 basis points of net charge-offs this quarter includes 4 basis points of net charge-offs from auto loans covered by insurance policies, with proceeds from those policies accounted for as fee income. We continue to generate strong returns with a 20.71% average return on equity and a 1.98 return on average assets in the three months ended March 31, 2024. We had balanced loan originations in our commercial and industrial non-real estate lending, including asset-based lending, non-real estate lender finance, and fund finance balances. Ending balances for our small balance commercial real estate and commercial real estate specialty lending businesses declined by approximately $19 million and $180 million, respectively, in the third quarter.
We continue to reduce our consumer and auto loan balances, given our preference for originating and retaining loans with lower duration, floating rates, and a better risk-adjusted return in the current environment. Average loan yield for the three months ended March 31, 2024, was 8.65%, up 47 basis points from 8.18% in the prior quarter and up 158 basis points from the corresponding period a year ago. Average loan yields for non-purchase loans were 8.19%, and average yields for purchase loans were 17.05%, which includes the accretion of our purchase price discount. New loan interest rates were the following: single-family mortgages, 8.7%; multifamily, 8.3%; C&I, 9.2%, and auto, 10.2%.
Our commercial real estate loans continue to perform well. It's worthwhile to point out that the structure, duration, and exit strategies for our commercial specialty real estate loans are significantly different from traditional CRE term loans than most other banks originate and hold. The low loan-to-value and senior structure we have in place for an overwhelming majority of our commercial specialty real estate loans provides us with significant downside protection in the event of a significant deterioration in the borrower's ability or willingness to repay, the valuation of the underlying properties, or any construction delays. Our commercial real estate loans are floating rate, with contractual maturities generally between 2 and 3 years, compared to fixed-rate loans with contractual maturities of 7 or longer years for most commercial real estate loans.
Of the $5.2 billion of Commercial Specialty Real Estate loans outstanding at March 31, 2024, multifamily was the largest segment, representing 38% of total Commercial Real Estate loans, while hotel, office, and retail represent 28% and 4%, respectively. On a consolidated basis, the weighted average loan-to-value ratio of our Commercial Real Estate portfolio is 40%. Our retail and office segments of our Commercial Real Estate book are well secured, with weighted average LTVs of 46% and 36%, respectively. Total Commercial Real Estate loans secured by office properties declined by $8 million linked-quarter to $410 million.
Of the $410 million commercial real estate loans secured by office properties at the end of the quarter, 67% are A notes or note-on-note structures, all with significant subordination, with some having recourse to funds or cross-collateralization with other asset types, fund partners, and mezzanine lenders. These loans have an average loan-to-value of 37%, excluding any recourse or cross-collateralization. Non-performing loans in our commercial specialty real estate portfolio were approximately $26 million at March 31, 2024, identical to the December 31, 2023 ending balance, representing less than 4 basis points of our total commercial real estate loans outstanding. There are two loans, one condo building in New York for $15 million and the student housing building in Berkeley for $11 million, which make up the non-performing loan totals for commercial specialty real estate.
We do not anticipate incurring a material loss on either of these loans. Non-performing loans in our multifamily and commercial mortgage portfolio were approximately $38 million at March 31, 2024, roughly consistent with the December balance. Of the $38 million, there is one loan on an assisted living property for $25 million that has been reserved for more than a year. There is interest in the property that could result in a sale, which would produce minimal or no additional loss. The rest of the multifamily term loans are for lower-balance properties located in California, with recourse and personal guarantees. The average loan-to-value of our non-performing multifamily and commercial mortgages is approximately 60%. We do not expect to incur a material loss on any of the other multifamily loans categorized as not performing.
We closed the purchase of two loan portfolios with a UPB of $1.25 billion from the FDIC in December 2023. Ending balances were roughly flat, declining by approximately $10 million from the December quarter end to the March quarter end. All loans purchased from the FDIC are current. Non-performing single-family mortgage loans decreased from $54 million at December 31, 2023, to $51 million at March 31, 2024. The weighted average loan-to-value of our non-performing single-family mortgage portfolio was 55% at March 31, 2024. Given that home values continue to increase in the majority of markets where these properties are located, we do not foresee much loss content, if any, in our delinquent single-family mortgages. We increased deposits by $900 million, or 20% annualized in the third quarter.
Checking and savings accounts, representing 80% of total deposits in March 31, 2024, grew even faster at 25% annualized. Our deposits remain well-diversified from a business perspective, with consumer and small business, 59% of total deposits, commercial, cash, treasury management, and institutional representing 24%, commercial specialty representing 7%, Axos Fiduciary Services representing 6%, and Axos Securities, which is our custody and clearing business, representing 4%. Total non-interest-bearing deposits were approximately $2.8 billion, relatively flat quarter-over-quarter. Our balance sheet remains slightly asset sensitive, given the shorter duration variable nature of our loans and the granularity and diversity of our consumer, commercial, and securities deposits. At March 31, 2024, approximately 66% of our loans were floating, 27% were hybrid ARMs, and 7% were fixed.
Term deposits were only 5% of our total deposits at quarter end, providing us flexibility to decrease interest costs if and when rates decline. For the quarter ended March 31, 2024, our consolidated net interest margin was 4.87%, while our banking business net interest margin was 4.92%. Our consolidated and banking business NIMs remain above our guidance of 4.25%-4.35%, despite holding excess liquidity due to strong deposit growth. We indicated last quarter that the FDIC loan purchase would boost our net interest margin by 35-45 basis points for the next several years. In addition to the amortization of our purchase discount from the acquired loan portfolio, we recognized accelerated purchase discount accretion on one loan that paid off this quarter. The timing and amount of loan payoffs are unpredictable.
We break out the average balances and loan yields for the purchased and non-purchased loans in our 10-Q for readers to separate the impact of the loan purchase on net interest margins. Total ending deposit balances at Axos Advisor Services, including those on and off Axos's balance sheet, declined by $32 million in the quarter, reflecting advisors investing excess cash into risk assets and higher-yielding cash alternatives. The rate of decline has decelerated, and we believe that the pace of cash sorting at Axos Advisor Services has stabilized at or near the bottom, representing 3.6% of assets under custody at March 31, 2024, compared to the historic range of 6%-7%. We are focused on adding new assets from existing and new advisors to grow our assets under custody and cash balances.
In addition to our Axos Securities deposits on our balance sheet, we had approximately $550 million of deposits off balance sheet at partner banks and another $700 million of deposits held at other banks by software clients in our Zenith Accounting and Business Management vertical. Non-interest expenses increased $11.3 million linked-quarter, driven by a seasonal increase in payroll expenses, higher FDIC insurance expenses, and an increase in headcount. We have successfully onboarded several new leaders and teams in our commercial deposits, commercial lending, and our Axos Securities businesses. We believe these additions will help us grow and diversify our business from an operations, capacity, and product perspective. While we continue to evaluate adding talented individuals to our team, we expect the pace of hiring to slow significantly from the pace we've experienced so far year to date.
Our focused investments in front and back-end systems, product features and service offerings, and other enterprise software and systems will further optimize our processes and capabilities. We started the initial transition of our small business banking platform to our Universal Digital Bank, with the goal of migrating all existing small business deposit customers to UDB in the next few quarters. This platform transition will leverage the investment we have made in UDB and make our small business banking offering more modern and user-friendly. We started piloting our white label banking with selected numbers of RIAs and introducing broker-dealers.
While the initial version does not have all the capabilities that an Axos consumer deposit customer has today, we believe the ability to provide a turnkey banking solution to the hundreds of thousands of affluent clients of our custody and clearing business will provide another potential low-cost acquisition channel for deposits and loans. Axos Clearing, which includes our correspondent clearing and RIA custody business, continues to make steady progress. Total deposits at Axos Clearing were $1.3 billion at March 31, 2024, down only slightly from $1.4 billion at December 2023. Of the $1.3 billion of deposits from Axos Clearing, approximately $762 million were on our balance sheet and $533 million were held at partner banks.
The decline in off-balance-sheet deposits is the primary reason for the sequential decline in non-interest income for Axos Securities. Total assets under custody were $35 billion on March 31, 2024, up from $34.4 billion at December 31, 2023. The pipeline for new custody clients remains healthy, comprised of 237 advisory firms with approximately $24 billion of combined assets under custody. We are prioritizing various front and back-end upgrades to our technology platforms for Axos Advisor Services. We believe the addition of new features and functionalities will improve our operating efficiency, scalability, and potentially expand the type of advisors we're able to service. This is a multi-year initiative that will be implemented in stages, with a majority of the costs being offset by ongoing efficiency initiatives and additional revenue.
We continue to outperform a majority of our peers from a loan, deposit, and earnings growth perspective, including margin and profitability. We remain well positioned to maintain our outperformance, given our strong liquidity and excess capital, a de minimis unrealized loss in our small investment securities portfolio, a multi-year boost in earnings and margin from our FDIC loan purchase, and solid organic growth prospects, given the diverse nature of our banking and securities business. Our asset-based lending philosophy, with conservative loan-to-value and prudent structures, makes us confident that we'll be able to manage our credit through this cycle. While many uncertainties exist with respect to the economy, inflation, interest rates, and geopolitics, we are focused on managing our risk and investing in our future. We have a proven track record of capitalizing on market dislocations, as we've already demonstrated with our FDIC loan purchase and stock buybacks.
We are confident the investments we are making in 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 (EVP and CFO)
Thanks, Greg. To begin, I'd like to highlight that in addition to our press release, an 8-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 axosfinancial.com. I will provide some brief comments on a few topics. Please refer to our press release and our SEC filings for additional details. Following a strong start to the first nine months 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 teens 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 ending loan balances will continue to be impacted by the pace and timing of payoffs in any given quarter. Demand in our ABL, lender finance, and capital call lines, and select C&I lending categories remain solid, while higher interest rates continue to put downward pressure on our origination volumes in jumbo single-family mortgage, multifamily, small balance commercial real estate, auto, and personal unsecured lending. Our loan pipeline remains solid at $1.7 billion as of April 26, 2024, consisting of $226 million of SFR jumbo mortgage, $53 million of SFR gain on sale mortgage, $17 million of multifamily and small balance commercial, $23 million of auto and consumer, and $1.4 billion of C&I lending. Our provision for credit losses was $6 million in the three months ended March 31, 2024, compared to $5.5 million in the corresponding period a year ago.
Our allowance of credit losses to total loans held for investment was 1.36%, compared to 1.01% at March 31st, 2023. We remain well reserved relative to our historical and current credit loss rates. Lastly, our income tax rate was 28.8% for the third quarter ended March 31st, 2024, slightly below the lower end of our guided range of 29%-30%. Our tax rate in the third quarter benefited from the recognition of certain tax credits. We expect our annual tax rate to remain in the 29%-30% range for the remainder of calendar 2024. With that, I'll turn the call back over to Johnny.
Johnny Lai (SVP of Corporate Development)
Thanks, Derrick. Kevin, we are ready to take questions.
Operator (participant)
Thank you. And I'll be conducting your question and answer session. If you'd like to be placed into question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. One moment please, while we pull for questions. Our first question is coming from Eric Spector from Raymond James. Your line is now live.
Eric Spector (Senior Equity Research Associate)
Hey, this is Eric on the line for David Feaster. Thanks for taking the questions. Just wanted to touch on the
Gregory Garrabrants (President and CEO)
Hey
Eric Spector (Senior Equity Research Associate)
Hey, how's it going? Just wanted to touch on the hiring front to start, like, you've been active recruiting and adding talent. Just curious, what's the pipeline and appetite for additional hires and where you're focused on adding talent? Just curious how the pipelines are trending too for the treasury management and capital call teams you've recently added.
Gregory Garrabrants (President and CEO)
The capital call team, we're not doing a lot of additional hiring there. There may be additional analysts and, those sorts of positions, but right now we've got a great team. They're doing a great job, and so things are pretty stable there. On the deposit side, we are in the process of recruiting more talent. I would say that it's less from a, just a number of people than we've had, historically. So, you know, we're continuing to look for deposit talent, and it can be difficult to find sometimes. We have a particular, type of person we're looking for, with a particular business mix. So, but there are folks out there, and there is a pipeline.
I would expect, though, that the increases that you've seen in personnel expense would be moderating a bit in the next several quarters relative to what they were, as far as from an increase perspective.
Eric Spector (Senior Equity Research Associate)
Okay. I think we talked about maybe that running in line with loan growth. Is that a good way to think about it?
Gregory Garrabrants (President and CEO)
Yeah, I think that's how it is.
Eric Spector (Senior Equity Research Associate)
Yeah. Okay. Okay, that's, that's helpful. And then just curious, I mean, maybe, maybe on capital and capital priority, capital ratios remain strong. You continue to accrete capital at an elevated pace, just given the expanded authorization. How do you expect to be active in buybacks here going forward? Or do you expect to kind of focus on organic growth and take a more opportunistic approach like you did last year, when shares were discounted? Just curious, kind of more broadly, how you think about capital.
Gregory Garrabrants (President and CEO)
Yeah. Well, I think our stock price is still quite low relative to the earnings that we're producing. But we also regularly look at acquisition opportunities, and I still think we have reasonable prospects for loan growth. So we did a very little bit of buyback, I mean, a very little bit this quarter, just based on some, you know, anomalies in the share price that occurred as a result of different exogenous events. But, you know, we're ready to be active in the market there and balance all three of those priorities, and it just depends really on what we see. There's you know, there may be loan purchases or loan pools out for acquisition. Certain banks are getting out of certain business lines. Those are opportunities we look at.
It's really difficult to say with respect to, you know, how all that'll work itself out.
Eric Spector (Senior Equity Research Associate)
Yeah, great. Thanks, thanks for answering the questions. I'll step back.
Gregory Garrabrants (President and CEO)
Thank you. Thank you.
Operator (participant)
Thank you. Next question is coming from Andrew Liesch from Piper Sandler. Your line is now live.
Andrew Liesch (Senior Equity Research Analyst)
Hey, thanks for
Gregory Garrabrants (President and CEO)
Hey, Andrew
Andrew Liesch (Senior Equity Research Analyst)
taking the questions here. Just sticking on M&A. I guess it sounds like you're looking at maybe some certain business lines that maybe banks might be getting out of or loan pools. Anything specific? Anything if you look at your franchise and your product suite that you might want to add that you don't currently offer?
Gregory Garrabrants (President and CEO)
You know, we have, we're always looking for a variety of different opportunities, and that includes going across the securities businesses in the banking business. You know, I think that just this is the type of market that you often see banks start to pare back businesses or people. And so, you know, there's been some different opportunities that arose, whether it was in the insurance premium finance business, on the life side, things like that. So, you know, there's different areas that we like, and we just remain opportunistic, and just want to make sure we have the capital to do that. So our capital ratios are very strong and give us the opportunity to look at those types of options that arise in these kind of markets.
Andrew Liesch (Senior Equity Research Analyst)
Got it. All right, that's helpful there. And then, on the margin, obviously, you're coming in well above the guide. I mean, is there any reason to think that it's gonna trend back below here now that you have the full quarter effect of the accretion from those loan pools? Granted, there was a little bit of one-timer in there, but,
Gregory Garrabrants (President and CEO)
Right. Yeah.
Andrew Liesch (Senior Equity Research Analyst)
It's a good level to build off of?
Derrick Walsh (EVP and CFO)
It is interesting. I think that the Commercial Specialty Real Estate side, I think there's a bit of margin compression there. So I think if we wanna grow that or maintain balances, that probably some of the newer loans are gonna come on a little, maybe a little more, you know, with a reduction in spread from what they've come on before. But I don't think there's a feasible way for us to get back to that guide range. I think that guide range just has to be adjusted for the differential that we discussed with respect to the Signature purchase, and that just has to be added onto it for now.
I mean, and over time, I mean, it'll be an extended period of time, years, but that Signature benefit will gradually decline as a percentage of the overall volume. But right now, the pool is performing extraordinarily well. There's no delinquencies in the pool. It obviously is a long-durated pool, so it's the behavior on payoffs is generally consistent with what we thought. So the guide range needs to obviously be updated for that increment. And then I think, you know, there might be a little margin pressure if we wanna grow cross sell. But overall, I think, you know, we're, we're gonna be able to continue our loan growth at, at the kind of organic margins that we have. And then we always have the benefit of some of the hybrid loans running off.
Even if it's only, I think, in the next six months, it was, you know, $600 million or $700 million or something, which is, yeah, $691 million in the next six months. That's not nothing either, and that obviously helps with respect to increasing loan yields.
Andrew Liesch (Senior Equity Research Analyst)
Got it. That's really helpful. Thanks for taking the question, Derrick. I'll step back.
Derrick Walsh (EVP and CFO)
Thank you, Andrew.
Operator (participant)
Thank you. As a reminder, that's star one to be placed into question queue. Our next question is coming from Kelly Motta from KBW. Your line is now live.
Kelly Motta (Director and Equity Research Analyst)
Hi, thanks so much for the question. I thought maybe if I would kick it off on the deposit side, growth was quite strong, and the actual incremental increase in deposit costs, actually it wasn't that large. Just wondering if you could provide additional color and commentary around the business lines driving that, where you're seeing the greatest opportunities, and, you know, I appreciate the color on loan pipelines and growth there, but, just wondering, with 100% or so loan to deposit ratio, how we should be thinking about the incremental funding of that and the parts of the business that's coming from?
Gregory Garrabrants (President and CEO)
Sure. I think that some of the commercial lines of business are doing a good job on the cross-sell side, and we're continuing to gain traction there, which I think helps offset the deposit cost. The cap call business running at a good loan-to-deposit ratio, the regular C&I business doing a good job on the cross-sell side. You know, we're having small levels of growth in a variety of different segments, small business, so on, on the consumer side. So it really is more a little bit of everything with a balance towards that commercial side, continuing to add a lower cost deposits there. So yeah, we had an overshoot, I guess, if you were looking at the increase in deposits versus loans.
I think we expected loan growth to be a little higher than it was, but ended up having some unexpected payoffs, which reduced it a little bit below where we expected it to be. But it just gives us the opportunity to, you know, to be able to grow a little bit more this quarter.
Kelly Motta (Director and Equity Research Analyst)
Got it. That's super helpful. And then, just trying to put some things together with the margin. I know on a core basis, XC accretable, you're talking 425-435, and I know there was about three basis points of accelerated accretion in there on that one payoff that you were discussing. Just wondering, do you have the total amount of accretable yields that was the contribution to margin this quarter? Just to round out the conversation.
Gregory Garrabrants (President and CEO)
Derrick, do you want to take that?
Derrick Walsh (EVP and CFO)
Yeah. I think what you're asking for may be in the, the rate volume table in the Q, Kelly. So we, we break out the purchased loans in that rate volume table. So you can see the average balance for the three months ended March was around $979 million, contributing $41.7 million for the quarter, for a yield of 17.05% of those, specifically the FDIC purchased loans. Was that your question?
Kelly Motta (Director and Equity Research Analyst)
Well, that's, that's not. That $41 million isn't 100% the, the accretion, right? Like, I'm getting from the cash flow statement that it putting together, you know.
Derrick Walsh (EVP and CFO)
Gotcha. Gotcha. The accretion was about half of that 41. Yeah.
Kelly Motta (Director and Equity Research Analyst)
Okay. All right.
Gregory Garrabrants (President and CEO)
Yeah, I think over time, and obviously a long time, because if you're looking at $20 million of accretion, you're looking over the number of years we broke that up. So you'll eventually be able to model out that, because over time, that balance will obviously decline as a percentage of the total loans, right? As loans grow and as those loans pay off. But it's a long time when you run that out, given the relatively long duration of those loans.
Kelly Motta (Director and Equity Research Analyst)
Got it. That's, that's helpful. And then, I know in your prepared commentary, you gave the mortgage loans pipeline for sale. It looked like mortgage banking income was up a bit quarter-over-quarter. Just wondering how we should be thinking about, you know, gain on sale of, of, loans and any other sort of puts or takes with the fee income here.
Gregory Garrabrants (President and CEO)
Yeah, I think I'd probably say that flattish from this quarter is the right sort of way to think about that. I don't expect that it'll grow significantly. There's a chance it might grow a bit, but I think flat is a reasonable and most likely assumption.
Kelly Motta (Director and Equity Research Analyst)
Got it. Thanks so much for the color tonight. I'll step back.
Gregory Garrabrants (President and CEO)
Thank you.
Operator (participant)
Thank you. Next question is coming from Edward Hemmelgarn from Shaker Investments. Your line is now live.
Edward Hemmelgarn (CEO and Co-Chief Investment Officer)
Yeah. Hi, Greg
Gregory Garrabrants (President and CEO)
Hey, Mr. Hemmelgarn. How are you?
Edward Hemmelgarn (CEO and Co-Chief Investment Officer)
How are you doing? Good.
Gregory Garrabrants (President and CEO)
Good.
Edward Hemmelgarn (CEO and Co-Chief Investment Officer)
I've always noticed about how low your deposit fees are, that you're, you know, charging your customers. Does that help you at all? I mean, or is that something that is really customers find important?
Gregory Garrabrants (President and CEO)
Yeah, I think. So it's a good question. I think that our customers, we've generally focused on telling customers that we do provide them lower fees. We've never been much of an overdraft or NSF player, just with respect to our customer base. Our customer base generally tend to be a little sort of more to the, you know, more to the higher end, so they don't generally have those sorts of fees charged to them. I think on one side, it's reduced sort of regulatory style risk. I think over time, our goal, and it is, I have to admit, you've been with us a long time, a longer-term goal, is to really try to bring that robo-advisor and others into a much more integrated way of providing customers value.
So I think a lot of the traditional types of deposit fees that make up a lot of traditional bank, you know, fee income on that deposit side, really aren't that conducive to growing deposits at the pace that we'd like to grow them. And so I think it is important to consumers when they're looking at their checking account or their small business accounts, whether or not they're charged a lot of wire fees or things like that. And I think so a lot of our small business customers are attracted to that. So I think it's our job, and it's not an easy one, to add value-added services there and to find ways of seeing if we can get fee income out of those value-added services.
They're just a little bit different, I think, than a lot of the types of fees that other banks charge.
Edward Hemmelgarn (CEO and Co-Chief Investment Officer)
Good. Then moving on to loans. I mean, I was surprised by the extent of the loan repayment. I guess, but, perhaps given the high rates that are, you know, customers or, or your borrowers are now facing, do you expect that's gonna be something that more turnover that you'll be seeing more and more of? I mean, it's just, over this time period, will rates remain high until they stabilize?
Gregory Garrabrants (President and CEO)
Yeah. I think it depends on the loan category. I think, with the Commercial Specialty Real Estate side, by the very nature of those loans, they do come to endpoints, where they generally get permanent refinancing. I think that if you look back more broadly, what we tried to do, which was very successful, was we wanted to keep our loan book very short in a low-rate environment in order to not take interest rate risk or have marks on our portfolio. Obviously, that's been very successful.
I think the downside of that is you do have a bit of a treadmill, particularly in certain areas, which is why I think on the commercial specialty real estate side, we may end up lowering spreads a bit, because we want to, you know, work on get the safest deals, and I think some of the volume there. Obviously, there are fewer lenders, but there's also fewer projects and fewer loans that are just in the market generally. So, you know, look, I think I feel comfortable with the diversity of our loan origination platform, such that I believe we can still continue to grow loans, you know, at that 500, 600 or plus level per quarter.
But, that composition, you know, will move a little bit quarter to quarter, and I think it will be more challenging than it otherwise was, let's say, last year, just given the nature of the markets.
Edward Hemmelgarn (CEO and Co-Chief Investment Officer)
Are you seeing any areas that are really giving you more opportunities now for loan growth?
Gregory Garrabrants (President and CEO)
Yeah, I mean, I think our C&I verticals broadly are performing well, and I think Commercial Specialty Real Estate, you know, as having good origination quarters. I just think if you look at the payoffs, they're quite strong. I think the positive side of that is that we're continuing to turn that book, you know, getting new credit evaluations at, you know, new, you know, at higher cap rates and all those things. I think it speaks very well to the performance of the book. So I don't really see anything other than, I think other than single-family, which is just much more difficult because just the volume of transactions is just so relatively low, and the credit standards are relatively loose, so we're selling a lot of those loans through our conduit.
And then, in auto, we're just, I think there's opportunity there. I just would like that market to settle out a little bit, with respect to where auto prices go before we do a lot more there, so.
Edward Hemmelgarn (CEO and Co-Chief Investment Officer)
Okay, great. Great, thanks. And I, and I, for one, do appreciate your asset liability duration management.
Gregory Garrabrants (President and CEO)
Thank you. Thank you.
Edward Hemmelgarn (CEO and Co-Chief Investment Officer)
Bye.
Gregory Garrabrants (President and CEO)
Bye.
Operator (participant)
Thank you. Next question is coming from Gary Tenner from D.A. Davidson. Your line is now live.
Gary Tenner (Managing Director and Senior Research Analyst)
Hey, thanks. Good afternoon. If I could just follow up first, maybe on that line, with regard to CRESL. Greg, as you're talking about there being opportunities there, albeit, you know, potentially at some tighter spreads. I'm wondering if within the markets that you traffic in, in CRESL, which I think is primarily larger metro areas, is there a particular geography that you're seeing more opportunity than others right now in that space?
Gregory Garrabrants (President and CEO)
You know, I think that there's been a general shift, because a lot of, a lot of those loans are with our partners, and I think our partners have de-emphasized certain markets and increased, their activity in other markets. So I think that would be somewhat reflective of kind of population movement and those sort of things. So, you know, more Miami and Nashville and less New York, right? That kind of thing. But that doesn't mean New York still doesn't have opportunities. But if I was gonna just baseline it, I think you're seeing a little bit of movement there, and you're seeing the funds that, we work with kind of change some of what they're doing as well, sometimes to be a little less concentrated, particularly in New York. So, I think that's, where I would just have it.
I think generally that's what I'm seeing.
Gary Tenner (Managing Director and Senior Research Analyst)
Got it. Thanks. And then on the fee side, you know, if I look at the line items over the last, you know, four or five quarters, you know, broker-dealer and advisory, there's been some movement. Broker-dealer's a little bit lower, advisory's been a little bit higher. But, you know, on a combined basis, you know, we're kind of triangulating around $20 million-$21 million per quarter. With the amount of investment you've made in the securities business, I'm just wondering, maybe roadblock isn't the right word, but what are you running up against that maybe is not allowing for some more accelerated growth in that business?
Gregory Garrabrants (President and CEO)
Yeah, that's a great question, and I agree with that assessment. Really what it is, is if you look underneath the asset growth, what you see is we're boarding a lot of new firms, getting a lot of new assets, and the existing firms that we have in the AAS business particularly, are losing assets. So, a lot of them are TAMPs, and a lot of what happens with TAMPs is the advisors underlying that TAMP structure either outgrow the TAMP structure, or they decide to break off and do other things, or they're being bought. So we were looking at this, and it was quite significant.
There was above 20% of those TAMP assets had run off, and we had replaced them and more, and generally grew net new assets, but that was a big hole to deal with, right? So if you had flat existing customers there, you would have had really good growth, but we didn't. And so I do think that in general that is a disappointing outcome. I think the positive associated with it is that at some point, I believe there'll be burnout there. I don't know when exactly that is. And then I think the other element is that as that happens, the base of clients that we're getting are much more diverse, much more stable, and they're growing. So I think that that does have a natural movement that will allow it to stabilize.
But that being said, you know, I still think, you know, I would say that that's an area of our performance that definitely should be improved. You know, we just launched the white label product and test, and so that's still very early stages. I think there's a lot of opportunity there, not only from the cross-sell side, but also from the ability to streamline the processes. Right now, the process that exists, pardon me, with respect to the paperwork and just the manual nature of working with the broker-dealers is very costly and time-consuming. And so a lot of the work we've been doing with respect to the platform that should allow for cross-sell, will also allow for improved operating efficiency.
So, you know, look, I think, I think that that business, when it's built, should have, you know, very good longevity. But, but on the AAS side, it really is the attrition of the current customers that's causing us to, to fall below where I, would hope, hope we were.
Gary Tenner (Managing Director and Senior Research Analyst)
Well, I appreciate the thoughts on that. It sounds like from what you're saying as well, Greg, that there's not necessarily a great line of sight into stabilization there in terms of the churn. Is that fair?
Gregory Garrabrants (President and CEO)
Yeah, I think that, I think that, I think that we'll be able to outgrow any churn, but what I really want to be able to do is come out and say, "You know, I'm feeling great about growing the assets 25% next year." And I'm not saying that because I'm not certain about the churn stabilization. And I think, I think there's also something else going on here, too, with respect to a lot of those, just the nature of the investment styles that some of those firms have in a higher rate environment. Our shop isn't as well-positioned, maybe from a bond perspective, as, as it should be because of those clients had sort of a different mix of what they were focused on, and I think that that's still playing through.
That's not true with the newer advisors we're bringing on, but I think that's the reaction that some of those broker-dealers have with some of those TAMPs. So I think that'll play itself through over time, but I'm not—I don't, I don't think it's done yet. I think it's, I think it's got a little bit to run.
Gary Tenner (Managing Director and Senior Research Analyst)
Great. Thank you.
Gregory Garrabrants (President and CEO)
Thank you.
Operator (participant)
Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further closing comments.
Gregory Garrabrants (President and CEO)
Thank you, everyone, for your time, and we'll talk to you next quarter.
Operator (participant)
Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.