AXOS FINANCIAL Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 30, 2024

Key Takeaways

  • Axos reported net income of $111 million and EPS of $1.91 for Q3 FY24, up 38.7% and 45% YoY, respectively, and ended the quarter with a tangible book value per share of $35.46 (-27% YoY).
  • The bank achieved balanced organic growth, with deposits increasing by $900 million and loans by $430 million sequentially, while expanding its net interest margin to 4.87% (up 32 bps QoQ and 45 bps YoY).
  • Credit metrics remained strong with annualized net charge-offs of just 7 bps and a diversified, low-LTV commercial real estate portfolio (weighted avg. LTV 40%), supporting a 28.7% ROE and 1.98% ROA.
  • Axos closed the acquisition of $1.25 billion in FDIC-purchased loans, which are current and expected to boost NIM by 35–45 bps for several years, while remaining opportunistic on further M&A and share buybacks.
  • Strategic initiatives include migrating small business customers to its Universal Digital Bank platform, piloting white-label banking for RIAs and broker-dealers, and investing in technology to enhance its custody and advisory businesses.
AI Generated. May Contain Errors.
Earnings Conference Call
AXOS FINANCIAL Q3 2024
00:00 / 00:00

There are 9 speakers on the call.

Operator

Hello, and welcome to the Axos Financial, Inc. Third Quarter 20 24 Earnings Call and Webcast. 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 and Investor Relations. Please go ahead, Johnny.

Speaker 1

Thanks, Kevin. Good afternoon, everyone, and thanks for your interest in Axos. Joining us today for Axos Financial, Inc. 3rd quarter 20 24 financial results conference call are the company's President and Chief Executive Officer, Greg Darabrants and Executive Vice President and Chief Financial Officer, Derek Walsh. Greg and Derek will review and comment on the financial and operational results for the 3 9 months ended March 31, 2024, and we will be available to answer questions after the prepared remarks.

Speaker 1

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 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.

Speaker 1

All of these documents can be found on the Axos Financial website. With that, I would like to turn the call over to Greg.

Speaker 2

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 Q3 of fiscal 2024 ended March 31, 2024. I thank you for your interest in Naxos 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 7th consecutive quarter.

Speaker 2

Balanced organic loan and deposit growth coupled with further net interest margin expansion resulted in double digit net interest income growth year over year in linked quarter annualized. We grew deposits by approximately $900,000,000 linked quarter, outpacing our ending net loan growth by approximately $430,000,000 Strong loan originations were partially offset by higher than expected payoff. We reported net income of $111,000,000 and diluted earnings per share of $1.91 for the 3 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.

Speaker 2

Ending loans for investment net of allowance for credit losses were $18,700,000,000 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 Q1 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 percent 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.

Speaker 2

Our credit quality remains strong with net annualized charge offs to average loans of 7 basis points in the 3 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 28.71% average return on equity and a 1.98% return on average assets in the 3 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 $19,000,000 $180,000,000 respectively in the Q3.

Speaker 2

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 3 months ended March 31, 2024 was 8.65 percent, up 47 basis points from 8.18% in the prior quarter and up a 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 and I 9.2% and auto 10.2%. Our commercial real estate loans continue to perform well.

Speaker 2

It's worthwhile to point out the structure, duration and exit strategies for our commercial specialty real estate loans are significantly different from traditional CRE term loan than most other banks originally 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 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 3 years compared to fixed rate loans with contractual maturities of 7 or longer years for most commercial real estate loans. Of the $5,200,000,000 of commercial specialty real estate loans 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%.

Speaker 2

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 8,000,000 quarter to $410,000,000 Of the $410,000,000 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 across collateralization with other asset types of 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 $26,000,000 at March 31, 2024, identical to the twelvethirty onetwenty 23 ending balance, representing less than 4 basis points of our total commercial real estate loans outstanding. There are 2 loans, 1 condo building in New York for $1,000,000 and the student housing building in Berkeley for $11,000,000 which make up the non performing loan totals for commercial specialty real estate.

Speaker 2

We did not anticipate occurring a material loss on either of these loans. Non performing loans in our multifamily and commercial mortgage portfolio were approximately $38,000,000 at March 31, 2024, roughly consistent with the December balance. Of the $38,000,000 there is one loan on assisted living property for $25,000,000 that has been reserved for more than a year. 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 first lower balance properties located in California with recourse and personal guarantees.

Speaker 2

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 in any of the other multifamily loans categorized as nonperforming. We closed the purchase of 2 loan portfolios with a UPB of $1,250,000,000 from the FDIC in December of 2023. Ending balances were roughly flat, declining by approximately $10,000,000 from the December quarter end to the March quarter end. All loans purchased from the FDIC are current.

Speaker 2

Non performing single family mortgage loans decreased from $54,000,000 at December 31, 2023 to $51,000,000 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 were located, we did not foresee much loss content, if any, in our delinquent single family mortgages. We increased deposits by $900,000,000 or 20 percent annualized in the Q3. Checking and savings accounts representing 80% of total deposits at March 31, 2024 grew even faster at 25% annualized.

Speaker 2

Our deposits remain well diversified from a business perspective with consumer and small businesses. 59 percent 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 $2,800,000,000 relatively flat quarter to 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.

Speaker 2

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 point 2%. Our consolidated and banking business NIMs remain above our guidance of 4.25% to 4.35% despite holding excess liquidity due to strong deposit growth. We indicated the last quarter that the FDIC loan purchase would boost our net interest margin by 35 to 45 basis points for the next several years. In addition to the amortization of our purchase discounts in the acquired loan portfolio, we recognized accelerated purchase discount accretion on one loan that paid off this quarter.

Speaker 2

The timing and amount of loan payoffs are unpredictable. We break out the average balances and loan yields for the purchase purchase 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 Advisory Services, including those on and off Axos' balance sheet declined by $32,000,000 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 Advisory Service 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% to 7%. We are focused on adding new assets from existing and new advisors to grow our assets under custody and cash balances.

Speaker 2

In addition to our Axos securities deposits on our balance sheet, had approximately $550,000,000 of deposits off balance sheet to partner banks and another $700,000,000 of deposits held at other banks by software clients in our Zenith accounting and business management vertical. Non interest expenses increased $11,300,000 linked quarter driven by a seasonal increase in payroll expenses, higher FDIC insurance expenses and an increase in headcount. We have successfully on boarded several new leaders and teams in our commercial deposits, commercial lending and our Akzo 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.

Speaker 2

Our focused investments in front and back end systems, product features and service offerings and other enterprise software will further optimize our processes and capabilities. We started the initial transition of our small business banking platform to our universal digital bank with a 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 access 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.

Speaker 2

Axos Clearing, which includes our correspondent clearing and RIA custody business continues to make steady progress. Total deposits at Axos Clearing were $1,300,000,000 at March 31, 2024, down only slightly from $1,400,000,000 at December of 2023. Of the $1,300,000,000 of deposits from Axos Clearing, approximately 7.62 $1,000,000 were on our balance sheet and $533,000,000 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 Axo Securities. Total assets under custody were $35,000,000,000 at March 31, 2024, up from 34 point $4,000,000,000 at December 31, 2023.

Speaker 2

The pipeline for new custody clients remains healthy comprised of 2 37 advisory firms with approximately $24,000,000,000 of combined assets under custody. We are prioritizing various front and back end upgrades to our technology platforms for Axos Advisory 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 multiyear initiative that will be implemented in stages with a majority of the cost being offset by ongoing efficiency initiatives and additional revenue. We continue to outperform a majority of our peers a loan deposit and earnings growth perspective, including margin and profitability.

Speaker 2

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 multiyear 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 values 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're confident the investments we are making in business, systems, processes and people will generate attractive future returns for our shareholders.

Speaker 2

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

Speaker 3

Thanks, Greg. To begin, I'd like to highlight that in addition to our press release and 8 ks 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 1st 9 months of our fiscal year, our loan growth outlook is consistent with what we have guided to in recent quarters.

Speaker 3

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 and 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 $1,700,000,000 as of April 26, 2024, consisting of $226,000,000 of SFR jumbo mortgage, dollars 53,000,000 of SFR gain on sale mortgage, $17,000,000 of multifamily and small balance commercial, dollars 23,000,000 of auto and consumer, and $1,400,000,000 of C and I lending.

Speaker 3

Our provision for credit losses was $6,000,000 in the 3 months ended March 31, 2024, compared to $5,500,000 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 31, 2023. We remain well reserved relative to our historical and current credit loss rates. Lastly, our income tax rate was 28.8% for the Q3 ended March 31, 2024, slightly below the lower end of our guided range of 29% to 30 percent. Our tax rate in the 3rd quarter benefited from the recognition of certain tax credits.

Speaker 3

We expect our annual tax rate to remain in the 29% to 30% range for the remainder of calendar 2024. With that, I'll turn the call back over to Johnny.

Speaker 1

Thanks, Eric. Kevin, we are ready to take questions.

Operator

Thank you. We'll now be conducting a question and answer session. Our first question is coming from Eric Spector from Raymond James. Your line is now live.

Speaker 4

Hey, this is Eric on the line for David Feaster. Thanks for taking the questions. Hey, how's it going? I just wanted to touch on the hiring front to start like even active recruiting and adding talent. Just curious what's the pipeline and appetite for additional hires and where you're focused on adding talent?

Speaker 4

Just curious how the pipelines are trending too for the treasury management and capital call teams you recently added?

Speaker 2

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.

Speaker 2

On the deposit side, we are in the process of recruiting more talent. I would say that it's less from just a number of people than we've had historically. So 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 there out there and there is a pipeline.

Speaker 2

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.

Speaker 4

Okay. I think we talked about maybe that running in line with loan growth. Is that a good way to think about it?

Speaker 2

Yes, I think that's how it is. Yes.

Speaker 4

Okay, that's helpful. And then just curious, I mean, maybe on capital and capital priorities, capital ratios remain strong and you continue to create capital at 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.

Speaker 2

Yes. 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 anomalies in the share price that occurred as a result of different exogenous events. But we're ready to be active in the market there and balance all three of those priorities.

Speaker 2

And it just depends really on what we see. 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. So it's really difficult to say with respect to how all that will work itself out.

Speaker 4

Yes, great. Thanks for answering the questions. I'll step back.

Speaker 5

Thank you.

Speaker 2

Thank

Operator

you. Thank you. Next question is coming from Andrew Lee from Piper Sandler. Your line is now live.

Speaker 2

Hi, thanks for taking

Speaker 6

the questions here. Just sticking on M and A, I guess it sounds like you're looking at maybe some certain business plans 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?

Speaker 2

We have we're always looking for a variety of different opportunities and that includes going across the securities businesses in the banking business. I think that just this is the type of market that you often see banks start to pare back businesses or people. And so there has been some different opportunities that arose, whether it was in the insurance premium finance business on the life side, things like that. So 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.

Speaker 6

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 going to trend back below here now that you have the full quarter effect of the accretion from those long pools?

Speaker 6

Granted, there was a little bit of one timer in there, but it's

Speaker 2

a good level to build 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 want to grow that or maintain balances that probably some of the newer loans are going to come on a little, maybe a little more 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 on to it for now.

Speaker 2

I mean, and over time, I mean, it will 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 derated pool. So it's the behavior on payoffs is generally consistent with what we thought.

Speaker 2

So the guide range needs to obviously be updated that increment. And then I think there might be a little margin pressure if we want to grow Kressel, but overall I think we're going to be able to continue our loan growth at the kind of organic margins that we have. And then we always have the benefit of some of the hybrid loans running off. And even if it's only, I think, in the next 6 months, it was $600,000,000 or $700,000,000 or something, which is $691,000,000 in the next 6 months. So that's not nothing either and that obviously helps with respect to increasing loan yields.

Speaker 2

Got it. That's really helpful. Thanks for taking

Speaker 6

the questions here. I'll step back.

Speaker 2

Thank you, Andrew.

Operator

Thank you. Our next question is coming from Kelly Motta from KBW. Your line is now live.

Speaker 7

Hi, thanks so much for the question. Hi, Kelly. I thought maybe 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.

Speaker 7

And I appreciate the color on loan pipelines and growth there. But just wondering with a 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?

Speaker 2

Sure. I think that the 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 CapCall business running at a good loan to deposit ratio, the regular C and I business doing a good job on the cross sell side. We're having small levels of growth in a variety of different segments, small business, 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.

Speaker 2

So 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 this gives us the opportunity to be able to grow a little bit more this quarter.

Speaker 7

Got it. That's super helpful. And then just trying to put some things together with the margin. I know on a core basis ex the accretable, you're talking 425 to 435. And I know there was about 3 basis points of accelerated accretion in there on that one payoff that you were discussing.

Speaker 7

Just wondering, do you have the total amount of accretable yields that was the contribution to March in this quarter, just to round out the conversation?

Speaker 2

Derek, do you want to take that?

Speaker 3

Yes. I think what you're asking for maybe in the rate volume table in the queue, Kelly. So we break out the purchased loans in that rate volume table. So you can see the average balance for the 3 months ended March was around 979,000,000 dollars contributing $41,700,000 for the quarter for a yield of 17.05 of those specifically the FDIC purchased loans. Was that your question?

Speaker 7

Well, that's not that $41,000,000 isn't 100 percent the accretion, right? Like I'm getting from the cash flow statement that it's putting together.

Speaker 3

Got you. Got you. The accretion was about half of that $41,000,000 yes.

Speaker 7

Okay.

Speaker 2

All right. Yes. I think over time and obviously a long time because if you're looking at $20,000,000 of accretion and 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.

Speaker 7

Got it. 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 gain on sale of loans and any other sort of puts or takes with the fee income here?

Speaker 2

Yes. 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 will grow significantly. There is a chance that might grow a bit, but I think flat is a reasonable and most likely assumption.

Speaker 7

Got it. Thanks so much for the color tonight. I'll step back.

Speaker 2

Thank you.

Operator

Thank you. Next question is coming from Edward Hemmelgarn from Shaker Investments. Your line is now live.

Speaker 8

Yes. Hi, Kurt. Hi, Edward. How are you doing? Good.

Speaker 8

One, I've always noticed about how low your deposit fees are that you're charging your customers. Does that help you at all? I mean, or is that something that's really customers find important?

Speaker 2

Yes, I think 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 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.

Speaker 2

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 value. So I think a lot of the traditional types of deposit fees that make up a lot of traditional bank 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.

Speaker 2

They're just a little bit different, I think, than a lot of the types of fees that other banks charge.

Speaker 8

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 customers or your borrowers are now facing, do you expect that's going to 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? Yes.

Speaker 2

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, is 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. And 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 work on that to get the safest deals.

Speaker 2

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, 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 at that 500, 600 or plus level per quarter. But that composition 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.

Speaker 8

Are you seeing any areas that are really giving you more opportunities now for loan growth?

Speaker 2

Yes. I mean, I think our C and I verticals broadly are performing well. I think commercial specialty real estate, 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, getting new credit evaluations at new at higher cap rates and all those things. I think it speaks very well to the performance of the book.

Speaker 2

So I don't really see anything 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.

Speaker 8

Okay, great. Thanks. And I for 1 do appreciate your asset liability duration.

Speaker 2

Thank you.

Operator

Thank you. Next question is coming from Jerry Kenner from D. A. Davidson. Your line is now live.

Speaker 5

Hey, thanks. Good afternoon. If I could just follow-up first maybe on that line with regard to CRESIL. Greg, as you're talking about there being opportunities that are albeit potentially at some tighter spreads. I'm wondering if within the markets that you traffic in Crestle, 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?

Speaker 2

I think that there has been a general shift because a lot of those loans are with our partners. And I think our partners have deemphasized 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 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.

Speaker 2

If I was going to 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.

Speaker 5

Got it. Thanks. And then on the fee side, if I look at the line items over the last 4, 5 quarters, broker dealer and advisory, there's been some movement broker deals a little bit lower, advisory has been a little bit higher. But on a combined basis, we're kind of triangulating around $20,000,000 $21,000,000 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?

Speaker 2

Yes, 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 TAM 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.

Speaker 2

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.

Speaker 2

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, I still think it's I'm not I would say that that's an area of our performance that definitely should be improved. 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.

Speaker 2

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 efficiencies. So look, I think that that business when it's built should have very good longevity. But on the AAS side, it really is the attrition of the current customers that's causing us to fall below where I would hope we were.

Speaker 5

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? Yes. I

Speaker 2

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, 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 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 it should be because of those clients had sort of a different mix of what they were focused on.

Speaker 2

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 tamps. So I think that will play itself through over time, but I'm not I don't think it's done yet. I think it's got a little bit to run.

Speaker 5

Great. Thank you.

Speaker 2

Thank you.

Operator

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 or closing comments.

Speaker 2

Thank you everyone for your time and we'll talk you next quarter.

Operator

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.

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