Axos Financial, Inc. (AX) Q2 2023 Earnings Call Transcript

Greetings, and welcome to the Axos Financial Second Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference is being recorded. I will now turn the conference over to our host, Johnny Lai, Senior Vice President, Corporate Development and Investor Relations. Thank you. You may begin.

Thanks, Diego. And good afternoon, everyone. Thanks for your interest in Axos. Joining us today for our second quarter 2023 financial results conference call are the company's President and Chief Executive Officer, Greg Garrabrants; Executive Vice President and Chief Financial Officer, Derrick Walsh; and Executive Vice President of Finance, Andy Micheletti. Greg and Derrick will review and comment on the financial and operational results for the three and six months ended December 31, 2022, 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. These forward-looking statements are made on the basis of current views and assumptions of management regarding future events and performance. Actual results could differ materially from those expressed or implied in such forward-looking statements as a result of risks and uncertainties. Therefore, the company claims the safe harbor protection pertaining to forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. 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 over the call to Greg, I'd like to remind our 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 our axosfinancial.com website. With that, I'd like to turn the call over to Greg.

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 second fiscal quarter ended December 31, 2022. I thank you for your interest in Axos Financial and Axos Bank. We delivered double digit year-over-year growth in earnings per share, book value per share, and ending loan and deposit balances. Our strong results were broad-based, with increasing net interest margins and double digit net interest income growth. We grew deposits by approximately 28% year-over-year despite an expected normalization in cash sorting deposits from our custody business. The diversity and optionality of our deposit franchise is a valuable differentiator that will allow us to maintain a strong net interest margin in a highly competitive market for deposits. We reported net income of $82 million and earnings per share of $1.35 for the three months ended December 31, 2022, representing year-over-year growth of 34% and 35%, respectively. Our book value per share was $29.79 at December 31, 2022, up 16% from December 31, 2021. The highlights for this quarter include the following: Deposits increased 3% linked quarter and 28% year-over-year to $15.7 billion. Checking and saving deposits increased 5% linked quarter and 33% year-over-year, representing 93% of total deposits at December 31, 2022. Ending net loans for investment balance were $15.5 billion, up 2% linked quarter or 7% annualized. Average loans were up 4.7% or 19% annualized. Solid loan originations were partially offset by higher than expected payoffs in certain C&I lending categories. Excluding single-family warehouse, ending net loans increased by approximately $300 million in the three months ended December 31, 2022. Net interest margin was 4.49% for the second quarter, up 23 basis points from 4.26% in the quarter ended September 30, 2022, and up 39 basis points from 4.1% in the quarter ended December 31, 2021. Net interest margin for the banking business unit was 4.65% compared to 4.5% in the quarter ended September 30, 2022, and 4.3% in the quarter ended December 31, 2021. Higher loan yields more than offset the increase in funding cost. The gap between our consolidated bank-only net interest margin decreased this quarter to 16 basis points from 24 basis points in the prior quarter. The primary reason for this dynamic was that our loan portfolio increased and our securities lending and customer margin balances fell by 33% and 20%, respectively linked quarter. Axos Security comprised primarily of custody and clearing businesses made positive contributions to our fee and net income. Total deposits from Axos Securities were approximately $2.3 billion at December 31, 2022 compared to the elevated $3.3 billion at September 30, 2022. Quarterly pretax income for our securities business improved by $6.7 million linked quarter to $15.6 million due primarily to higher interest rates. Our efficiency ratio for the three months ended December 31, 2022 was 47.11% compared to 55.9% in the first quarter of 2023. The efficiency ratio for the banking business segment was 46.1% for the second quarter of 2023 versus 52.9% in the first quarter of 2023. Capital levels remained strong with Tier 1 leverage of 10.1% at the bank and 9.1% at the holding company, both well above our regulatory requirements. Our credit quality remains strong with net annualized charge-offs to average loans of 5 basis points versus 1 basis point in the second quarter of fiscal 2022. The slight uptick in our net charge-offs from very low levels was principally due to losses in our personal unsecured and auto loan portfolios. Of the 5 basis points of net charge-offs this quarter, 3 basis points were from auto loans that are covered by insurance policies which on average have paid 85% of the principal balance of these charged-off loans. We added $3.5 million to our loan loss provision this quarter to support loan growth. The total allowance for credit losses was $157 million on December 31, 2022, representing 22 times our annualized net charge-offs and 1% of ending total loans. With the vast majority of our loans having strong collateral protection from low leverage, we feel extremely confident about our ability to manage through an economic downturn. Loan originations for investment for the quarter ended December 31, 2022 were $2 billion, down approximately 22% from the $2.6 billion in the comparable quarter a year ago. Q2, 2023 fiscal year originations were as follows: $175 million of single-family jumbo portfolio production, $110 million of multifamily production, $64 million of commercial real estate production, $59 million of auto and unsecured consumer loan production, and $1.6 billion of C&I loan production resulting in a net increase in ending C&I loan balances of $204 million. Ending loan balances in our jumbo single-family mortgage business increased by $11 million to $3.8 billion. We generated $175 million of loan production in the second quarter of 2023, taking some market share in the significantly smaller market for purchase and refinance transactions. Payments in our jumbo single-family mortgage business were $164 million in the three months ended December 31, 2022, down from $184 million of prepayments in the prior quarter. Although we are not seeing any stress in our jumbo single-family mortgage book, we continue to maintain conservative lending standards and low loan to values. Our jumbo single-family mortgage pipeline was approximately $29 million on January 23, 2023. C&I lending had another good quarter. The $203 million of net loan growth in our C&I lending moderated from record highs achieved in the prior two quarters, strong originations in our commercial specialty real estate business and our lender finance business were partially offset by higher payoffs in the back half of the quarter. We will be able to maintain strong yields across most of our C&I lending businesses. We float originations in our auto and unsecured lending to reflect our cautious view of the broader economy. Our entire auto and personal unsecured lending portfolio is comprised of prime and super prime borrowers, except for select auto loan customers where the bank purchases insurance that reimburses the bank for approximately 85% of its potential losses. The $632 million of ending balances in the auto and personal unsecured book combined represents less than 5% of our $15.5 billion loan portfolio. Our credit quality remains healthy and we're not seeing any signs that our borrowers are struggling to finance their debt obligations with us. Net charge-offs to total loans remained low, and our asset-based low LTV lending makes us extremely comfortable about our credit outlook even in an adverse economic scenario. Nonperforming assets to total assets ratio was 54 basis points for the quarter ended December 31, 2022, down from 68 basis points for the quarter ended September 30, 2022. Of our nonperforming loans, approximately 41% are single-family first mortgages where we've had historically very low realized losses. Of our nonperforming single-family mortgage loans at December 31, 2022, approximately 81% had an estimated current loan to value at or below 70% and approximately 82% or below 80% of our best estimate of current loan to value. Given the low loan to values of our asset-backed loans, we remain confident that we will incur credit losses that are manageable, if any, on any of the assets that are underperforming. Our loan pipeline remains solid with approximately $1.4 billion of consolidated loans in our pipeline at January 23, 2023, consisting approximately of $22 million of single-family agency gain on sale mortgages, $292 million of single-family jumbo mortgages, $185 million of multifamily and small balance commercial real estate term loans, $833 million of C&I and commercial specialty real estate loans, and $65 million of auto and consumer unsecured loans. After two consecutive quarters of record net loan growth, we've moderated the pace of growth in the second quarter of fiscal 2023. Average loans increased by 6.7% and 7.7% linked quarter or 27% and 31% annualized in the June and September 2022 quarters compared to 4.7% linked quarter or 19% annualized in the December 2022 quarter. We remain confident that we will achieve our mid-teens loan growth target in the second half of our fiscal 2023 as payoffs decrease from elevated levels and new originations stay strong. Deposits increased 3% linked quarter and 28% year-over-year. Growth in small business and consumer deposits were offset by declines in certain commercial banking channels and clearing and custody deposits from elevated levels at the end of the prior quarter. Competition for deposits has increased across most of our deposit verticals, and our deposit betas vary from 0% in our Axos Fiduciary Service deposit business to 50% in our high-yield savings and exchange deposit business. We have been successful retaining and growing consumer checking, savings and money market deposits through cross-sell and relationship pricing initiatives. In our commercial banking, our low-cost nationwide deposit gathering and specialized servicing approach has allowed us to be more competitive in retaining and growing deposits from existing clients through earnings credits and other price adjustments. Our investments in cash and treasury management capabilities and teams have also increased the pipeline of prospective new treasury management clients. Axos Fiduciary Services, our bankruptcy trustee business, total deposits were approximately $1.1 billion at the end of the second quarter. We expect a gradual pickup in Chapter 7 and non-Chapter 7 cases and deposits over the next 12 months as the economy decelerates and bankruptcy filings rebound from decades low. Axos Clearing continues to generate a significant source of low-cost deposits. We had approximately $2.3 billion of clearing and custody deposits as of December 31, 2022, including $1.5 billion that was on our balance sheet and $800 million that was placed at partner banks. The average custody deposits were $1.5 billion in the quarter ended December 31, 2022, compared to $1.9 billion in the prior quarter. Cash sorting by RIAs has increased across the industry and ending cash balances held at Axos Advisory Services fell from 11% of total assets under custody at September 30, 2022 to approximately 7% at December 31, 2022. Deposits in our clearing business declined slightly to approximately $650 million. The weighted average cost of our clearing and custody deposits remains low even with a rapid rise in the Fed funds rate. We have a healthy pipeline of new custody and clearing clients that will partially offset the normalization and client cash balance at Axos Advisory Services. We remain slightly asset sensitive, with 43% of our loans comprised of five-year hybrid single-family jumbo mortgages and multifamily term loans and 48% of our loans comprised primarily of floating rate C&I loans. An overwhelming majority of our C&I loans are adjustable-rate with current rates above their floors. 45% of our variable rate C&I loans are tied to LIBOR, and the other 55% are tied to SOFR, Ameribor, and other indexes. Net interest margin was elevated this quarter with consolidated and bank-only net interest margin of 4.49% and 4.65%, respectively. Our consolidated and bank-only net interest margins were boosted by several factors this quarter, some of which are unlikely to have the same level of benefits in future quarters. First, loan growth for the June and September 2022 quarters was exceptionally strong, which allowed us to reprice a large portion of our loan portfolio with new loans at higher yields. Second, net interest income benefited from a prepayment of one of our equipment lease borrowers in the December 31, 2022 quarter. This provided a one-time boost to this quarter's net interest income of approximately $2 million and increased the net interest margin by 5 basis points. Third, average deposits at Axos Advisory Services were elevated in the past two quarters before normalizing toward the end of the December 2022 quarter. Average deposits as a percentage of assets under custody over the last 12 months in our clearing and custody business were approximately 9.1%. This is elevated compared to the long-term average of 6% to 7% prior to our purchase of the custody business. In the first quarter of fiscal 2023 ended September 30, 2022, the average deposit balance in the securities business was $3.1 billion. Currently, the total deposits in the securities business are approximately $2.3 billion, comprised of $1.7 billion of Axos Advisory Services and $600 million at Axos Clearing. Being able to fund a portion of our loan growth with low-cost clearing and custody deposits has an outside benefit to our consolidated and bank-only net interest margin in the first half of fiscal 2023. Finally, our loan balances grew while our securities lending and margin lending balances declined. This dynamic boosted our consolidated net interest margin this quarter because fee and interest income from securities and margin lending generally have lower yields than our loan yields. New loan yields during the quarter were as follows: Jumbo single family, 6.99%; multifamily mortgages, 6.91%; auto 9.65%; and commercial and industrial 9.32%. With new C&I loans coming in with a spread between 4.25% and 4.75% above the index rate, the continuation of cash sorting by custody clients, and increasing deposit competition for many of our deposit businesses, we expect our consolidated net interest margin to normalize to between 4.25% and 4.35% in the next few quarters. While we expect a rebound in loan growth toward our mid-teens target given the timing of loan growth coming out of the holiday season, we expect our Q3, 2023 fiscal net interest income to be flat or slightly down on a dollar basis from this quarter's levels before increasing in the fourth quarter of fiscal 2023. A level of cash deposits at Axos Advisory Services and the pace of loan growth are the biggest drivers of our net interest margin and net interest income. Axos Securities, which includes our securities clearing and custody, software-to-trading, and managed portfolio business, ended the quarter with approximately $22.5 billion of assets under custody and $9.8 billion of assets under administration. The securities business generated $17 million of pretax income excluding noncash amortization expenses in the second quarter of fiscal 2023, an improvement from adjusted pretax income of $10 million in the prior quarter. Our securities business continues to benefit from rising rates despite volatility in the average ending client cash balances. Our custody business also had asset and transaction-based fee income that countered some of the changes in the deposit balances. Axos Advisory Services is seeing good momentum adding approximately $31 million of net new assets in the quarter ended December 31, 2022, and our pipeline of eight new advisors or $625 million of new assets under custody that have committed to Axos over the next 12 months. The pipeline for Axos Advisory Services remains robust with active discussions with several multi-billion dollar firms who are looking to move portions of their assets from their existing custodian. We are making good progress with the various operational and infrastructure initiatives in our clearing and custody business. We have started to automate manual front and back end processes and accelerated the transition of low-value tasks to lower-cost near shore and offshore teams. These efforts combined with the full rollout of a proprietary securities core system and successful implementation of various internal straight-through processing and other operational efficiency initiatives in the next 12 to 18 months will fundamentally improve the cost structure of our securities business and allow us to generate much better operating leverage. We continue to invest across our other businesses as well. In consumer banking, we are working hard to launch the next version of our consumer app in the summer of 2023. This new version adds a planning tab to the consumer app that will offer a variety of services such as financial planning journeys, investment content, enhanced personal and financial management features and better system and data integration with third-party service providers. The revised platform moves from a banking-centric focus to a more integrated set of financial products, including enhancements of the self-directed trading and automated model-based investment platform. The platform will also enhance our ability to bundle account opening securities and bank accounts. We believe these enhancements will be an important upgrade that will reduce customer acquisition cost and increase user engagement and cross-sell to our large and expanding base of affluent and high net worth consumer deposit and lending clients. In commercial banking, we are adding new API integrations for clients in existing and new verticals by making our cash management and payments easier to use; we should be able to generate incremental fee income and deposits. In our securities business, one of the key initiatives is a white-label banking platform for independent advisors and broker-dealers, which we expect to launch in the summer of 2023. This platform integrates our banking and lending products with the securities accounts we hold for advisors and brokers. Based on conversations with existing advisors, brokers, and prospective clients, interest in having access to a robust set of banking and lending products for their end clients is extremely high. As Charles Schwab begins the first phase of their technological transition later this year as a result of the acquisition of TD Ameritrade, our white-label banking platform in addition to our strong custody technology and high-touch service offerings positions us as a compelling custody alternative. But before I hand the call over to Derrick, I'd like to highlight several reasons why we believe Axos is well positioned to maintain strong profitable growth. First, we have a diverse set of businesses that provide balance and optionality. For example, while higher rates dampened mortgage banking gain on sale and jumbo SFR lending growth, higher rates are extremely accretive to the profitability of our clearing and custody business. Our fee income deposit and lending businesses are much more diverse than they've been in the past. Second, we have a strong balance sheet and ample excess liquidity to weather a prolonged economic downturn. Our low loan-to-value strategy in single-family and multifamily has been battle-tested to the great financial crisis, and our asset-backed commercial specialty real estate and lending finance books are well secured with senior positions, well-capitalized partners, and multiple exit strategies. Third, our securities book with an outstanding balance of only $250 million as of December 31, 2022, is of short duration and small in absolute and relative terms and has resulted in de minimis impaired value despite higher interest rates. We have a clean capital structure and ample access to funding and liquidity should we need it. Fourth, we don't have any exposure to crypto-related activity or deposits or any other highly cyclical source of funding. To the contrary, an extended economic downturn would likely generate significant growth in our low-cost bankruptcy and fiduciary deposit business. Finally, we have a proven track record of opportunistically strengthening and growing existing and new businesses during periods of market dislocation. We are ready and able to capitalize on opportunities that will enhance shareholder value. With that, I'll turn it 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 is 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, our SEC filings, and our website for additional detail. Noninterest income for the three months ended December 31, 2022 was $28.3 million compared to $30.8 million in the corresponding three months a year ago. Broker-dealer fee income increased from $6.3 million in Q2 2022 to $9.8 million in Q2 2023, due primarily to higher interest rates. While mortgage banking was down by approximately $4 million year-over-year to $0.6 million as a result of the industry-wide downturn in single-family agency mortgage refinancing activity. Prepayment penalty fee income was also down by $2.5 million to $0.8 million as the increased interest rate environment led to decreased levels of prepayments on multifamily and commercial loans. Our noninterest expense for the quarter ended December 31, 2022 was $107.5 million, down from $116 million in the prior quarter. Salaries and related expenses for the quarter were $49.7 million, up $2.7 million from the $47 million linked quarter and up approximately $10 million from the year-ago quarter. The linked quarter and year-over-year increases are primarily attributable to our annual salary compensation increases that occurred at the end of the first fiscal quarter and increased headcount to support loan and deposit growth. Advertising and promotional expenses increased to $10.9 million from $6.4 million in the prior quarter to support the growth in our deposit businesses. Given the competitive landscape for deposits, we expect to maintain a higher level of spending on marketing to grow our consumer and commercial deposit. Professional services for the quarter ended December 31, 2022 was $8.5 million, an increase of $0.4 million from the $8.1 million for the three months ended September 30, 2022 and a $2.6 million increase from the $5.9 million for the quarter ended December 2021. The primary drivers of the increases were consulting expenses related to technology investments and legal expenses. Going forward, we expect our efficiency ratio for the banking business to be in the mid to high 40% level for the second half of our fiscal 2023. We expect to moderate the pace of new hires and the level of growth-related investment spending to be roughly the same as the current run rate in the first half of fiscal 2023. Lastly, with our return on equity increasing to 18.7% in the fiscal second quarter from 13.9% in the prior quarter and loan growth decelerating to 7% annualized from the 32% annualized in the September quarter, we were able to increase our capital ratios this quarter. Tier 1 capital to risk-weighted assets for Axos Bank was 11.3% at the end of the December quarter, up from 10.9% in the prior quarter. Net capital at Axos Clearing increased 23% linked quarter, due primarily to higher profitability in our securities business. We have excess capital at the holding company available to contribute to our subsidiaries if needed. With asset growth projected to be in the mid-teens in the second half of fiscal 2023 and an ROE well north of 15%, we expect to maintain strong capital levels throughout the enterprise.

Thanks, Derrick. We are ready to take questions.

Thank you. And ladies and gentlemen, at this time, we'll conduct our question-and-answer session. Our first question comes from Andrew Liesch with Piper Sandler. Please state your question.

Hey, guys. Good afternoon. Thanks for taking the questions here.

Hi, Andrew.

Just want to look at the margin; it sounds like it's going to normalize a little bit lower, because there are some maybe some items affecting it here this last quarter. But if we're looking at the margin, say, a quarter from now and we've had a couple more rate increases, is there room for it to go higher or do you think this funding cost pressure that seems like it’d be pretty meaningful. So you think it could ever go back above this range that you highlighted for the third quarter?

I believe it's reasonable to consider that range as guidance for the upcoming quarters. We estimate that we are nearing the lower end of the cash sorting element, which is significant. Therefore, it's wise to remain within that range. While there is always a possibility for improvement, we based our assessment on the current situation regarding where we are in the quarter and the status of our deposits related to clearing and custody.

Got it. That was my next question on the cash sorting. So thank you for that. And then Derrick, just your commentary on the efficiency ratio. Did I hear that correctly, bank level 45%, the securities business, I think, is usually with 6% or 7% points on top of that. So to the efficiency ratio in the 50% range in aggregate. I'm just curious how that's going to flow through?

No, regarding what we've highlighted, there are some intercompany transactions related to the cash sorting deposits because we maintain a certain balance at the bank. When those deposits are cleared, the efficiency ratio on the bank side improves, while the income helps reduce it on the clearing side. This effectively aligns the efficiency ratios more closely. Therefore, the efficiency ratios we observed this quarter should serve as a good indicator of what to expect as a consistent run rate moving forward.

Got it. All right. That's very helpful. Thanks for taking the questions. I'll step back.

Thanks, Andrew.

Our next question comes from Gary Tenner with D.A. Davidson. Please state your question.

Thanks. Good afternoon. Couple of points of clarification, Greg. Did you say that you thought you'd be in the mid-teens on loan growth for the back half of the fiscal year or for the full fiscal year including the last couple of quarters?

I annualized on the second half. Yes, if you look at our loan growth, assuming we normalize more in the 600 to 700 range next quarter, that would certainly be lower than what we experienced in previous quarters but above our current levels. It’s difficult to predict since things can change, but that’s what we’re observing now, and we have decent visibility into it. I believe we will see similar or slightly higher numbers in the following quarter. The important point is that average balances tend to adjust after the holiday season. This quarter started more slowly, resulting in a back-end loaded pattern. That’s why we provided guidance on net interest income for the next quarter, considering cash sorting and the timing of anticipated loan growth which we believe will occur a bit later.

Okay. And then likely, CRESL and kind of lender finance being the primary drivers in the back half or the second for the half of the calendar year?

Yes, I think that's correct. We are experiencing some growth in jumbo mortgage loans, but it's not significant enough to discuss more than this quarter, and it's probably not exceeding the $100 million range.

Okay, thanks. And then just regarding the auto charge-offs and the insurance received, is there a lag to when that comes in and where on the income statement is the recovery to be recorded?

Yes, it's about a six to nine month process to go through. So we've actually had a decent jump coming in, not big numbers, but it's growing over the last several quarters. And it's coming in through banking service fees and other income. That's the line item that is coming in. But it's not huge, huge dollars, but there is a six to nine month lag because of the processing the application to the insurance company and working through that process.

The way accounting works during this period shows that 5 basis points in charge-offs, with 60% coming from insured auto loans. While this is a small number, it is recorded slightly differently. Therefore, it's not just a matter of the 5 basis points in charge-offs; that figure is also influenced by how the accounting for the insurance is structured.

Great. Thank you.

Thank you. And our next question comes from Michael Perito with KBW. Please state your question.

During this period, the 5 basis points in charge-offs, 60% of which were from those insured auto loans, represent a small number. However, it should be noted that these figures come in a bit differently. So it's not merely that there are 5 basis points in charge-offs; this is also influenced by the accounting associated with the insurance.

Yeah. Mike, how are you?

All right. I apologize for the disconnection and missed some questions. I’ll finish up with a broad question for Greg. This isn't the first time you've reached this level of return on equity, but it feels a bit different this time. The net interest margin seems much stronger compared to a few years ago. With the AAS business starting to make a more significant contribution to the bottom line, I’m curious about your thoughts on how the return on equity for this business might evolve. You've maintained an 18% to 19% range for quite some time, but is there potential for it to move higher structurally, even considering that some factors may normalize? I'm just interested in your perspective.

Yes, I believe that over a longer time frame, such as more than two years, we have some promising plans for this. For instance, the cost structure of the securities business will undergo significant changes due to our core development efforts. This business has the potential to achieve higher returns on equity if we can successfully scale and grow it. I believe we have that capability in the long run. However, I want to remain cautious, as I would prefer to be optimistic given our margin guidance that indicates a slight decline. We experienced some one-time benefits from the substantial increase in securities deposits, which may not be repeated, and that will certainly have an impact. We need to approach that with some caution. Overall, I think it's possible to see progress in this area, but there are many uncertainties regarding the movements in spreads in the capital markets that could affect outcomes. Still, I'm confident in our current position and feel that our investments are strategically aligned for ongoing improvement. Some initiatives, like building our own securities core, are quite significant, but they are progressing well. I believe these efforts can collectively lead to improved returns on equity.

Great. Could you provide an update on the partnership you have with the digital asset initiative? I'm aware it has been a volatile few months in that area, and I would appreciate any insights or updated thoughts you can share.

Yes, I believe we are currently assessing the situation and observing market developments, which have been quite dynamic. We’ve made some investments in technology, but we anticipate regulatory scrutiny in this area, and we want to be ready to engage without rushing ahead. The market changes have certainly influenced our strategic priorities. We're interested in seeing how things unfold in the long term and are preparing to participate as necessary. We've established technology and partnerships, and we will continue to monitor the situation. There is significant regulatory scrutiny of these products, and regulators are understandably cautious. It would be beneficial to have clearer regulations regarding other aspects of our business as well. We're considering our options carefully; for instance, we haven't yet established a process to launch our own AX stable coin, and it appears that no bank has received regulatory approval to do so. I don’t anticipate a favorable regulatory climate for that in the near future. That’s fine; we’ll be ready if clarity emerges. Even regarding self-directed trading and crypto asset trading, which we hoped would drive customer engagement, consumer interest has dropped significantly, leading us to explore other areas. We are shifting our focus to fixed income, which has become increasingly appealing. We will continue to take on new deposit accounts carefully while remaining cautious given the ongoing volatility in the market. This summarizes our current perspective.

That all makes perfect sense. Thanks for the thoughts and for taking my questions.

Sure. Thanks, Mike.

Thank you. And there are no further questions at this time. I'll hand the floor back to management for any closing remarks. Thank you.

Thank you, everyone. I really appreciate your time and attention and we'll talk to you next quarter. Thank you.

Thank you. This concludes today's conference. All parties may disconnect. Have a great evening.