Hello, and welcome to the Axos Financial, Inc. Fourth Quarter 2024 Earnings Call and Webcast [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Johnny Lai, Senior Vice President, Corporate Development and Investor Relations. Please go ahead, Johnny..

Thank you, Kevin. Good afternoon, everyone. Thanks for joining us today for Axos Financial, Inc.'s fourth quarter 2024 financial results conference call. On today's 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 three and 12 months ended June 30, 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 statements 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 Web site located at axosfinancial.com for 30 days.

Details for this call were provided on the conference call announcement and in today's earnings press release. Before handing over the call to Greg, I'd like to remind listeners that in addition to the earnings press release, we also issued an earnings supplement and 8-K with additional financial schedules for this call.

All of these documents can be found on the Axos Financial Web site. With that, I'd like to turn the call over to Greg..

Thanks, Johnny. Good afternoon, everyone. And thank you for joining us. I'd like to welcome everyone to Axos Financial's conference call for the fourth quarter of fiscal 2024 ended June 30, 2024. I thank you for your interest in Axos Financial.

We delivered outstanding results in our fiscal fourth quarter of 2024, generating double digits year-over-year growth in earnings per share, book value per share and ending loan balances for a ninth consecutive quarter. We outperformed the majority of our peers primarily due to successful execution of our strategic and operational initiatives.

We grew deposits by approximately $256 million linked quarter with growth coming primarily from non-interest bearing deposits. Ending loan balances were up 2.7% linked quarter or 16.9% year-over-year to $19.2 billion.

The diversity of our lending and deposit businesses allowed us to grow profitably in the three and 12 months ended June 30, 2024 as evidenced by our 18.8% and 21.6% return on average common shareholder activity respectively. Our strong returns contributed to the 26% year-over-year growth in our tangible book value per share.

Other highlights include the following. Net interest margin was 4.65% for the quarter ended June 30, 2024, up 46 basis points from 4.19% in the quarter ended June 30, 2023 and down from 4.87% in the quarter ended March 31, 2024.

We carried higher excess liquidity with average interest bearing deposits of approximately $2.7 billion in the fourth quarter of 2024 compared to $2.2 billion in the third quarter of 2024. The excess liquidity had a nine basis points drag on our Q4 2024 net interest margin.

Net interest margin in Q3 2024 benefited from a payoff of a loan we purchased from the FDIC. Our credit quality remains strong with net annualized charge-offs to average loans of 5 basis points in the three and 12 months ended June 30, 2024.

Total non-performing loans dropped by $9 million linked quarter and non-performing loans and leases to loans fell by 6 basis points to 0.57%. Net income was approximately $105 million in the quarter ended June 30, 2024, up 20% from the corresponding period a year ago.

Earnings per share for the three and 12 months ended June 30, 2024 were $1.80 and $7.66, representing year-over-year growth of 23% and 51% respectively. We repurchased $13.2 million of common stock in the fourth quarter ended June 30, 2024 at an average share price of $48.

For fiscal year 2024, we repurchased approximately $97 million of common stock at an average share price of $38.18 per share. We still have approximately $106 million remaining in our authorized share repurchase program.

Total loan originations for investment were $2.5 billion for the three months ended June 30, 2024, up approximately 11% from the same period a year ago. Strong originations were offset by higher repayments across the majority of real estate backed lending categories.

Ending balances for our multifamily term loans and commercial real estate specialty loans declined by approximately $122 million and $31 million respectively in the fourth quarter. We continue to reduce our auto, consumer and select real estate backed loans to tactically manage our interest rate and credit risk.

Average loan yields for the three months ended June 30, 2024 were [8.55%], down 10 basis points from 8.65% in the prior quarter and up 104 basis points from the corresponding period a year ago.

Average loan yields for non-purchase loans were 8.11% and average yields for purchase loans were 16.59%, which includes the accretion of our purchase price discount. The prepayment of an FDIC acquired loan increased the Q3 2024 average loan yield by 8 basis points.

Excluding one time items in the fiscal third quarter of 2024, organic non-purchased loan yields declined by 4 basis points, reflecting a focus on loan verticals that come with compensating non-interest bearing deposits. New loan interest rates were the following; single-family mortgages 8.1%, multifamily 8.5%, C&I 9% and auto 10.4%.

Our commercial real estate loans continue to perform well. As we've discussed previously, the structure, duration and exit strategies for 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 with significant downside protection in the event of a deterioration of the borrower's ability or willingness to repay, the valuation of underlying properties or construction project delays.

Our CRESL loans or floating rate with contractual maturities generally between two and three years compared to fixed rate loans wit contractual maturities of seven or longer for most commercial real estate loans.

Of the $5.1 billion of commercial specialty real estate loans outstanding at June 30, 2024, multifamily was the largest segment representing 37% while hotel and retail represent 21%. On a consolidated basis, the weighted average loan to value of our CRESL portfolio was 40%.

Our retail and office segment of our commercial specialty loan book is well secured with weighted average loan to values of 46% and 35% respectively. We have very little office exposure in our commercial real estate specialty loan portfolio with ending balances equal to $302 million or 6% of the total CRESL portfolio.

Of these loans secured by office properties, 54% 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 from fund partners and mezzanine lenders.

Non-performing loans in our commercial specialty real estate portfolio remain unchanged at approximately $26 million, representing 50 basis points of our total book outstanding.

These are two loans, a condo building in New York for $15 million and a student housing building in Berkeley for $11 million, which make up the entire non-performing commercial real estate loan portfolio. We do not anticipate incurring a material loss on either of these loans.

Non-performing loans in our multi-family mortgage portfolio were approximately $35 million at June 30, 2024, down $3.5 million linked quarter. Of the $35 million, there is one loan on an assisted living property of $25 million that has been reserved for more than a year.

The rest of the multifamily term loans are for properties located in California and across the US with recourse and personal guarantees. The average loan to value of our non-performing multifamily mortgages is approximately 57%. We do not expect to incur material loss at any other multifamily loans currently categorized as non-performing.

We closed of two loan portfolios with a UPB of $1.25 billion from the FDIC in December 2023. Ending balances decreased by $12 million since March 31, 2024. We do not have any prepayments resulting in discount accretion this quarter in the loans we purchased from the FDIC. All loans purchased from the FDIC are current.

Non-performing single family mortgage loans decreased from $51 million at March 31, 2024 to $46 million at June 30, 2024. The weighted average loan-to-value of our non-performing, single family mortgage portfolio was 55% as of June 30, 2024.

Given that home values continue to increase in the majority of markets where properties are located, we do not foresee much loss content, if any, in our delinquent single family mortgages. We increased deposits by $256 million in the fourth quarter and by $2.2 billion in fiscal 2024.

Demand, money market and savings accounts representing 95% of total deposits at June 30, 2024 grew at 16.5% annualized.

We have a diverse mix of funding across a variety of business verticals with consumer and small business representing 62% of total deposits, commercial cash, treasury management and institutional representing 18%, commercial specialty representing 10%, Axos Fiduciary Services representing 6% and Axos Securities, which is our custody and clearing business, representing 4%.

Total non-interest bearing deposits were approximately $3 billion, up $220 million quarter-over-quarter. Our balance sheet remains relatively neutral from an interest rate risk perspective given the shorter duration variable rate nature of our loans and the granularity and diversity of our consumer, commercial and securities deposits.

As of June 30, 2024 approximately 69% of our loans were floating, 25% were hybrid arms and 6% were fixed. Term deposits were only 4.8% of total deposits at quarter end, providing us flexibility to adjust interest cost if and when rates decline.

For the quarter ended June 30, 2024, our consolidated net interest margin was 4.65% while our banking business net interest margin was 4.68%. Our consolidated banking business NIM remains above our guidance of 4.25% to 4.35% despite holding excess liquidity due to strong deposit growth and elevated levels of loan repayments.

When we announced the FDIC loan purchase in December 2023, our expectation was that, the transaction would boost our net interest margin by 35 to 45 basis points.

One caveat was that any loan prepayments would accelerate the recognition of the purchase discount, boosting our net interest income and net interest margin in the period that the prepayments occurred and reducing both in future periods.

Given the prepayments in this portfolio, we now expect our net interest margin benefit to be 30 to 40 basis points for fiscal year 2025.

We break out the average balances and loan yields for the purchased and non-purchased loans in our supplement schedules provided as an exhibit to the press release for readers to separate the impact of the loan purchase on net interest margin.

Total ending deposit balances at AAS, including those on and off Axos' balance sheet, were relatively flat compared to prior quarter.

The rate of decline has troughed and we believe that the pace of cash sorting at AAS has stabilized at or near the bottom, representing 3.3% of assets under custody at June 30, 2024 compared to the historical range of 6% to 7%.

We are focused on adding net new assets from existing and new advisors to grow our assets under the 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.

Non-interest expense increased $7 million linked quarter, driven by increased salary and benefits, professional service expenses, advertising and promotional expenses and higher FDIC fees.

We continue to selectively add talented leaders and team members across various business and functional units to support our existing and future growth initiatives, particularly in treasury management, sales, products and operations where we saw nice growth in non-interest bearing deposits.

Some of the elevated professional service expenses pertaining to consulting and legal fees were for specific projects and are not expected to reoccur. We expect the growth in marketing and promotional expenses to moderate given our elevated level of excess liquidity.

Our ongoing investments in front and backend systems, product reaches and service offerings and other enterprise software and systems will further optimize our processes and capabilities. We migrated all existing small business deposit customers to our Universal Digital Bank in June.

This platform transition provides a better user interface and more self-service capabilities to small business deposit customers that were not available in the prior platform.

We continue to add enhancements in UDB to leverage data we have on existing and prospective consumer clients in order to further drive cross sell of banking, lending and security services. Feedback on our white label RIA banking from introducing broker dealers has been encouraging.

We will refine the platform based on our feedback to ensure that we have the features and ease of use that will drive adoption and usage once we roll this out to all existing and new custody and clearing clients. 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 as of June 30, 2024, roughly flat from where they were at March 31, 2024. Of the $1.3 billion of deposits from Axos Clearing, approximately $750 million was on our balance sheet and $550 million held at partner banks.

Net new assets from the custody business increased by approximately $256 million in the fourth quarter. We had positive net new asset growth in our custody business in every month since March 2024. Total assets under custody were $35.7 billion at June 30, 2024, up slightly from $35 billion at the end of the March quarter.

The sales team continues to make solid progress on-boarding assets from new advisory firms, offsetting the decline in some of Axos Advisory Services' historical turnkey asset management clients. The pipeline for new custody clients remains healthy and we expect continued AUM growth in Axos Advisory Services.

From an operational perspective, we have identified dozens of straight through processing and system implementation improvements that we are starting to implement.

We believe that sustained new asset growth, a normalization in cash balances and operational productivity initiatives will drive positive operating leverage in our clearing and custody business in the medium to long term. I'm pleased with how we performed in fiscal 2024 from a growth risk management and capital allocation perspective.

We are well positioned to maintain net interest margin and returns above our long term target in fiscal 2025. Our asset based lending philosophy with conservative loan to values and prudent structures coupled with our strong capital and liquidity put us in a favorable position.

As we continue to evaluate various organic and inorganic growth initiatives, we will remain opportunistic with respect to capital deployment. I firmly believe that our prudent investment in the businesses, systems and processes and people that we've made will generate attractive future returns for our shareholders.

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

Thanks, Greg. To begin, I'd like to highlight that in addition to our press release an 8-K with supplemental schedules was filed with the SEC today and are available online through EDGAR or through our Web site 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. 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 loan portfolio purchased from the FDIC 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 where we continue to manage our credit and interest rate risk in jumbo single family mortgage, multi-family, CRESL and small balance commercial real estate, auto and personal unsecured lending businesses.

Our loan pipeline remains solid at $1.9 billion as of July 26, 2024, consisting of $270 million of single family residential jumbo mortgage, $58 million of gain-on-sale mortgage, $26 million of multifamily and small balance commercial, $26 million of auto and consumer and $1.5 billion across the broader commercial categories.

Our provision for credit losses was $6 million in the three months ended June 30, 2024, matching our provision for credit losses in the corresponding period one year ago. Our allowance of credit losses to total loans held for investment was 1.34% compared to 1% at June 30, 2024.

We remain well reserved relative to our low historical and current credit loss rates. Non-interest income was approximately $31 million for three months ended June 30, 2024, down marginally from the $32.7 million in the corresponding period a year ago.

Higher mortgage banking and service rights income and higher advisory fees from our custody business were offset by lower broker dealer fee income and prepayment penalty fees. Based on our loan growth and our return outlook, we expect to build additional for excess capital.

Our priority for excess capital remain organic loan growth and investments in new businesses and operational and technology initiatives. We will continue to evaluate opportunistic stock buybacks and accretive asset or business acquisitions. With that, I'll turn the call back over to Johnny..

Thanks, Derrick. We are ready to take questions..

[Operator Instructions] Our first question is coming from David Feaster from Raymond James..

I wanted to start on the deposit side and touch on some of the deposit initiatives and where you're seeing success. You talked about some new hires within treasury management.

Curious how do you think about deposit growth and some of the other initiatives that you're working on, such as securities business and deposits from there and then business and entertainment management, just other things you guys are working on?.

So we have been investing fairly significantly in treasury management teams.

We're trying to do it in a way that allows us to integrate those teams, so not making hires that are 30 or 40 team hires a quarter like some of the banks that have done as they're repositioning and basically taking advantage of some of the opportunities for some of the movement that's happening in the banking business right now.

But we've been adding three and four person teams that are deposit focused, very operating deposit focused. Also, as our loan portfolio continues to evolve into more C&I related loan categories, including fund finance, those loans are generating higher levels of operating deposits as well.

So we've had to add teams that are focused on treasury management product and delivery and those sorts of folks. So that's what's going on there. I'll stop if there's anything you want to follow-up on there..

And you saw a lot of growth on the consumer direct side. I'm curious how pricing is trending? Just I guess, broadly on the funding side.

Hearing some others talk about potential improvements or at least stabilization in funding costs, especially at the top end and maybe start to reprice some deposits lower? Just kind of wanted to get a sense of how funding costs are trending from your perspective..

We see that too. We definitely think they're trending down a bit. We've been able to cut our rates a little bit, and we're definitely not seeing as much pressure. There may be a variety of factors as to why, but I do agree with that general statement that you had..

And just kind of maybe a bit high level. You're very forward-looking and constantly leveraging technology in some pretty neat ways. I guess, first, what's the early feedback on the UDB rollout? And then AI is obviously kind of a buzzword these days and a huge focus.

Curious, what are some opportunities that you guys may have with that to whether leverage across your existing footprint or maybe ways that you can deploy that into new verticals that maybe have been less attractive historically?.

So we’ve had two specific rollouts. One was the conversion of our small business clients onto UDB and that's gone very well. They're really enjoying the platform. We're getting some cross sell on the consumer side now that those platforms are together and we're seeing good account growth there.

That's always been a steady, well -- good cost of funds, relatively small accounts, but quite a lot of diversity, so that's gone well. On the white label rollout, we've done that with a selected group of the RIA firms. They generally have liked what they've seen. There's a one touch SBLOC product in there.

There's also a variety of complexity with respect to where we are in the spectrum of getting access to those clients. In some cases, we have a client that's a firm, that's a TAM, that has other firms, which are clients of our clients, which then have end clients.

We're making this not only about banking products but more about cash management and then about facilitating transactional capabilities and ease of operations. And so there's a lot of positive feedback and a lot of excitement.

And I'd say, sign ups are going pretty well but it's still early to say if that's going to result in a material amount of deposits, although, I think certainly it's helping ease operational burdens over time from a document delivery perspective and essentially -- eventually the ability to have people be able to deposit checks and those kind of things.

So there's a lot of change management there, but I am optimistic about where that will go. And then on your question around the AI side of things, there's a number of -- that's a fairly complex question, because obviously there's a lot of different areas that we're currently utilizing some form of AI or working to use it.

There's areas where it's been very impactful, such as our utilization and chat bot functionality to divert calls from our call center, that functionality is diverting around 80% of calls right now and resolving those calls satisfactorily. That is the utilization of a vendor that has incorporated artificial intelligence into those answers.

So you have a set of vendors that are utilizing artificial intelligence and we're utilizing those vendors and those vendors are point solutions to particular types of issues that the institution has or opportunities the institution has. Copilot from Microsoft utilized across all of our development is also another area.

We're seeing other AI tools that are being utilized to speed development. So that's another area. We think there's a lot of opportunity on the software side. There is obviously other opportunities for Gen AI and marketing.

And then we have an AI task force that is not only looking for opportunities and spending time working on the broader strategy but then also making sure that when one group is having success in a particular use case for AI that we are bringing that across the board.

I guess the final thing I'd say there is that we're doing a lot of work on the underlying data layer and preparation for more robust use of artificial intelligence. So obviously, making sure that you've got your data digitized, organized in the right way and accessible across the board over time is very important.

And so we're spending a lot of time on interoperability of our data to make sure that we have strong data governance, data warehouses, things like that, that then AI tools, as they develop, can continue to be laid on top of that data infrastructure..

Next question is coming from Gary Tenner from D. A. Davidson..

I wanted to ask about kind of the broker dealer fee income line down a bit this quarter, down year-over-year. Is that sort of the bottoming out of the cash balances? I think you referenced to 3.3% relative to AUC in the quarter.

Is that reference to that or are there any kind of rate paid or anything like that?.

No, we think that's sort of at the relative low point, it certainly is from an historic perspective. It's obviously always possible that it goes down, but it is stabilized quarter-over-quarter. There were some one time items that sort of hit those broker dealer fees this quarter. It's about….

Some other fees….

Yes, some other fees was about $1.5 million, something like that, or is it a little bit lower?.

A little shy of $1 million….

So there were some one time items that kind of came through the broker dealer side.

But as I've talked about before, I think it's interesting when you look at how let's just take the AAS side, how much in new assets they've brought in, which is close to like $5 billion but they haven't grown as much, because that business is really cycling through and changing from a TAMP oriented business to a more direct business with underlying RIAs, not because -- we don't like half of those clients, some of them were just losing assets.

And so we do expect that to stabilize and continue to grow. We are getting efficiencies out of our operations there but we're also investing a lot in the technology and product. We really do see a lot of opportunities there but there's just a lot of tech and product investment going on right now in both the clearing and the custody side there.

So I don't expect it to be a massive grower from a fee income perspective but I do think if we could -- what would make it much better grower is if we can get the TAMP size stabilized, because we are bringing in a lot of assets. The sales team is doing a very good job.

It's just that they are -- it seems like they're running in place a little bit, although, we did have some growth over the last two quarters but just not what we'd want it to be..

The follow-up really on the broker dealer question around the cash sorting fees is really some of the industry commentary recently, Wells, BAML, Morgan Stanley talking about their intent to increase sweeping interest rate.

So can you talk about kind of the competitive dynamics or potential regulatory impact if there could be any and how that would impact Axos from the fee side as well as any cash balances over in Axos [Invest]?.

We're not really seeing a lot of that right now. I mean we, obviously, have a pretty open platform. So folks are -- obviously have the ability to move the monies around. And so that's trading cash, it's at a low level and that's really where that is right now. So we’re not -- I don't think we have any plans to do anything particular with it..

Our next question is coming from Andrew Liesch from Piper Sandler..

Just a question on the margin here. First of all, your plan to keep that excess liquidity and then if we go -- if not, I mean, it’s like resets 9 bps higher or so. Do you think the margin kind of trended down from there? It sounds like you're getting a little more -- that yields are coming down a little bit..

Well, yes. I think that's true. But I also think that what we are seeing is that some of the rotation into fund finance, for example, as a product that's grow from a growth perspective that does have lower yields than, let's say, commercial specialty real estate. Conversely, it generates nice offsetting non-interest bearing deposit balances.

And so that you saw that a little bit this quarter we had much better non-interest bearing growth, but there was a little compression on the loan yield side. So I do think that that's one dynamic you're seeing. But in general, I would say that spreads are tighter than they've been previously, just in general.

Why that is? Maybe it's fewer deals, it's more competition but I do think spreads have declined a bit. So that is something we have to keep in mind as we're looking at what we're doing. Obviously, part of what we're trying to do is continue to expand our treasury management vertical so we get more non-interest bearing deposits.

But I do think it's a little bit tougher to get yield than it has been, let's say, in the last calendar year..

And then on the consumer direct deposit side, it seems like there might be some complexity out of the FDIC about whether these consumer direct deposit channels can still count as core, maybe they might have to count as brokered.

I mean, does that impact your strategy going forward?.

No, not the way we do it. I mean those are direct consumer relationships with respect to for us and they're not sourced in the manner that would implicate that from our perspective..

And then just one other one from me. Again this last quarter there was a short report on some of the commercial real estate you guys originate.

I guess, has there been any like sort of regulatory reach out to you guys? And if there is or even if there hasn't been, I mean would you assist them in any investigation on -- that they might have on maybe on your stock versus general?.

You're talking about one that we responded to….

Right. And there's been other ones over the years but really just kind of that one and that sort of response….

Yes. I wouldn't want to comment on any assistance we provide with respect to things like that. I know that there's obviously been the Andrew Left situation that’s in the news.

And I'm sure that -- obviously, it's a fairly -- people make up as you saw from our response, there's a lot of inaccuracies in there and then there are also trading at high volumes the same day before you can even you can get a response up.

So hopefully, looking at those things is something that ends up happening but I can't comment on anything with respect to that, any communications in that regard..

Next question coming from Kelly Motta from KBW..

I appreciate the revised color on the accretable contribution to margin. I believe in the past you said that the core margin excluding that would be in the 4.25% to 4.35% range.

I'm wondering if you have any color kind of putting together some of the comments you had if there's any update on how you're thinking about the core margin range on a go forward basis, as well as how we should be thinking about the incremental impact of rate cuts here?.

Yes, I think that that's still good guidance roughly. Maybe it will be -- and I think it was, I'd say, 4.31%-ish this quarter or something like that. I think that's not bad guidance going forward.

We think that -- obviously, we do have some tailwinds with respect to some hybrid loans that are repricing, but I also think there's some potential headwinds with respect to maybe some yield compression and some rotation in the balance sheet mix to some products that are more lower yielding with higher deposit balances.

So that's going to all have to work itself out but I don't think that's bad guidance..

And I know you have a fairly significant floating rate loan portfolio.

Can you remind us any swaps you have against that, as well as when rates are cut, how we should be thinking about the repricing on the funding side of things?.

So what we're contemplating is that we have commercial deposits that are tied to Fed funds and then we also have the ability to cut rates on our consumer portfolio, which is, as we stated on the prepared remarks, not term oriented.

So I think the question will be how those rate cuts are absorbed and can we -- are we faster, slower than loan repricing. And I think that's going to be the question. And I think we feel pretty good about our ability to do that, we positioned ourselves that way.

But what we have not done in general is go out and do a lot of sort of floating to fixed swapping of our loan book. And part of the reason why is that we have pretty decent movement in our loan book.

And so unless you're doing that on the borrower side and the borrower is interested then you're sort of -- you're just taking some gambles on how good you are at estimating the forward curve. And so what we do is we have a good naturally matched off book right now, and we think we will be able to go through that.

I think one of the good things is that we do have -- obviously, we have our lower cost funds through all the different channels we discussed. We also have a higher cost consumer deposit base that also we expect will be able to be repriced in a lower short term rate environment..

I appreciate the commentary around capital. Your ratios are strong, you do have a pretty strong loan growth outlook.

Just given the run-in the stock price here, can you remind us any of guideposts in terms of valuation or earn back that you guys look to when thinking about engaging in the buyback at the price?.

We look at it as an NPV on earnings. And so we look at that and we look at it as a relative value with respect to what's out there from an acquisition perspective and what's out there from a loan growth perspective and other operational investments and try to balance that out. So yes, obviously, the stock price is up but earnings are up.

It just really is a decision that we make and we utilize. We take our earnings forecasts and we can apply NPVs to them and look at whether capital is best allocated to loan growth or other strategic investments or buybacks..

Next question is coming from Edward Hemmelgarn from Shaker Investments..

Just one -- or a couple of questions dealing with loan growth. I mean, I think you mentioned in last quarter's call that you got a fairly significant amount of repayments early on in this quarter of loans. And that was I'm assuming that was one of the reasons what caused the excess liquidity.

Is that what happened?.

We did have -- I think, we had some loan repayments that we did not expect and they did come a little bit earlier. We also had maybe a little bit better deposit growth than we expected to. So the combination of those two led to excess liquidity relative to our expectations..

What's the loan climate like right now, I mean, in terms of….

I think, I'd it's relatively mediocre in comparison to where it was, let's say, last year. And I think we have a lot of diversity in our book and so we still have good pipeline. So we're still expecting loan growth. But I think that our spreads have definitely tightened and loan growth is just a little bit more difficult.

I think there's fewer projects, there's fewer investments going on. And I think maybe some of the other banks have kind of emerged from whatever issues they were dealing with. But look we still expect to have good loan growth. Derrick talked about those targets. Hopefully, we can beat those by some but it is a little bit more difficult.

And we're also seeing -- the book continues to have repayments, which is always good. But in some cases they’re strategically -- we're strategically allowing that to happen.

If you look, for example, to multi-family portfolio where mostly those loans adjust they're mostly all paying off and competitors are refinancing those in six handles for five year durations, that's not that interesting to me. I still want to see -- there's other things I want to see before I start taking 6% and 6.5% five year duration risk.

So I think some of this is just letting -- some of it is our own risk management perspective on what we're interested in doing right now, both from a credit and risk perspective -- and rate perspective. And look, I think we're still going to have a good growth. I think this quarter is shaping up to be pretty decent on the loan growth side.

But obviously, we have to see if -- it's easy to have prepayments come in and move those numbers around a bit too..

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..

Thank you everybody for your interest and we'll talk to you next time. Thank you..

Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today..