Earnings Call Transcript - AX Q4 2025

Operator, Operator

Greetings and welcome to the Axos Financial Fourth Quarter 2025 Earnings Call and Webcast. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Johnny Lai, SVP, Corporate Development and IR. Thank you, Johnny, You may begin.

Johnny Y. Lai, SVP, Corporate Development and IR

Thanks, Alicia. Good afternoon, everyone and thanks for your interest in Axos. Joining us today for Axos Financial, Inc.'s Fourth Quarter and Fiscal 2025 Financial Results Conference Call are the company's President and Chief Executive Officer, Greg Garrabrants; and Executive Vice President and Chief Financial Officer, Derrick Walsh. Greg and Derrick will review and comment on the financial and operational results for the quarter and fiscal year ended June 30, 2025 and we will be available to answer questions after the prepared remarks. Before we begin, I'd 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 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 listeners that in addition to the earnings press release, we also issued an earnings supplement and 8-K with additional financial schedules. All of these documents can be found on axosfinancial.com. With that, I'd like to turn the call over to Greg.

Gregory Garrabrants, CEO

Thank you, Johnny. Good afternoon, everyone and thank you for joining us. I'd like to welcome everyone to Axos Financial's conference call for the fourth quarter of fiscal 2025 ended June 30, 2025. I thank you for your interest in Axos Financial and Axos Bank. We delivered strong results this quarter, generating $856 million of net loan growth linked quarter, 6 basis points of net interest margin expansion and an 18% year-over-year increase in book value per share. We continue to generate high returns as evidenced by the 17% return on average common equity and a 1.9% return on assets in the 3 months ended June 30, 2025. Other highlights in the quarter include, net interest income was $280 million for the 3 months ended June 30, 2025, up 7.7% from the $260 million in the prior year period. Net interest margin was 4.84% for the quarter ended June 30, 2025, up 6 basis points from the 4.78% in the quarter ended March 31, 2025. One loan from the FDIC purchase pool paid off this quarter and that accelerated the accretion of the purchase price discount, increasing our net interest income by approximately $450,000. We continue to maintain a best-in-class net interest margin with or without the benefit of the accretion from loans purchased from the FDIC. Total on-balance sheet deposits increased 7.6% year-over-year to $21 million. Our diverse and granular deposit base across consumer and commercial banking and our securities businesses continue to support our organic loan growth. We managed our operating expenses well this quarter. Total noninterest expenses for the quarter ended June 30, 2025, were up by 3% from the prior quarter. Excluding the reversal of the legal accrual in the prior quarter, which reduced other G&A expenses by approximately $2 million, total noninterest expenses were up $2.5 million from March to June. Total nonaccrual loans declined by $15 million linked quarter, resulting in our nonaccrual loans to total loans ratio improving by 89 basis points in the quarter ended March 31, 2025 to 79 basis points as of June 30, 2025. Net income was approximately $110.7 million in the quarter ended June 30, 2025, compared to $105.2 million in the quarter ended March 31. Diluted EPS was $1.92 for the quarter ended June 30, 2025, compared to $1.81 in the March quarter. We had a few nonrecurring items this quarter that impacted our net income and EPS. We recognized a $12 million pretax gain from the sale of multifamily loans that were included in mortgage banking income. We also recognized a one-time noncash deferred tax impairment that increased our net income tax by $5.5 million. Excluding the impact from those two nonrecurring items, our adjusted net income and adjusted earnings per diluted share would have been $107.7 million and $1.87 per share, respectively. We took advantage of the temporary market downturn in April to repurchase approximately $31 million of common stock at an average price of $59 per share. Total originations for investment, excluding single-family warehouse lending increased 5% on a linked-quarter basis, resulting in net loan growth in loans for investment of approximately $856 million for the 3 months ended June 30, 2025, representing an increase of 4.2% linked quarter or 16% annualized. Asset-based lending, commercial real estate specialty lending, equipment leasing, lender finance, and single-family warehouse had strong originations and net loan growth this quarter. Additionally, we grew ending loan balances in single-family mortgage for the second consecutive quarter. Average loan yields for the 3 months ended June 30, 2025, were 8%, flat compared to the prior quarter. Average loan yields for nonpurchased loans were 7.66% and average yields for purchased loans were 14.9%, which includes the accretion of our purchase price discount. The FDIC purchased loans continue to perform and all loans in the portfolio remain current. New loan interest rates were the following: Single-family mortgage, 7.2%; multifamily, 7.1%; C&I, 7.8%; and auto, 8.3%. Ending deposit balances were $20.8 billion and they were up 3.4% linked quarter and up 7.6% year-over-year. Demand money market and savings accounts representing 95% of total deposits at June 30, 2025, increased by 7% year-over-year. We have a diverse mix of funding across a variety of business verticals with consumer and small business representing 59% of total deposits, commercial cash, treasury management and institutional representing 20%, commercial specialty representing 11%, Axos Fiduciary Services representing 5%, and Axos Securities, which is our custody and clearing business representing 5%. Total noninterest-bearing deposits were approximately $3 billion at the end of the quarter, up slightly from the prior quarter. Client cash sorting deposits ended the quarter around $980 million, up from $900 million at March 31, 2025. We remain focused on adding new assets from existing and new advisers to grow our assets under custody and cash balances. In addition, our Axos Securities deposits on our balance sheet, we had approximately $450 million of deposits off balance sheet at partner banks. Our consolidated net interest margin was 4.84% for the quarter ended June 30, 2025, compared to 4.78% in the quarter ended March 31, 2025. We are seeing strong growth in accounts and balances from our Axos ONE consumer bundle deposit product, which includes a checking and a savings account. Growth in Axos ONE and other deposit businesses, including our commercial, cash and treasury management and specialty businesses has provided us with sufficient funding to support our strong organic loan growth. We are also making excellent progress cross-selling deposits across our lending businesses. We expect our consolidated net interest margin ex FDIC loan purchase accretion to stay at the high or slightly above the 4.25% to 4.35% range we have targeted over the past year. While new loan yields are coming in slightly lower in many lending categories we compete in, we continue to offset some of that pressure through refinancing or paying off low-yielding single-family and multifamily loans originated 2 to 3 years ago. Our loan pipelines have improved over the past few quarters as a result of successfully expanding our distribution channels across certain commercial lending categories and contributions from teams we have onboarded over the past 12 months. We also believe we have moved past our peak level of prepayments in our commercial specialty real estate portfolio, which has been a significant headwind to net loan growth for the past several quarters. Taking all of these factors into consideration, we expect organic loan growth to come in towards the mid- to high end of our single-digit and low teens range on an annual basis in fiscal 2026. The credit quality of our loan book continues to be solid and our historic and current net charge-offs remain low. Total nonperforming assets declined by $13.4 million linked quarter, representing 71 basis points of total assets compared to 79 basis points in the quarter ended March 31, 2025. The sequential decrease in nonaccrual loans was primarily driven by $9.4 million in our C&I portfolio and $4.9 million in our commercial real estate lending business. We did not anticipate a material loss from loans currently classified as nonperforming in our single-family, multifamily or commercial real estate loan portfolio. Our commercial real estate specialty portfolio continues to perform very well and in line with expectations. Nonaccrual C&I loan balances at June 30, 2025, were down by approximately $9.4 million from the prior quarter. The two largest C&I loans we have on nonaccrual continue to be up-to-date on their payments and no new C&I loans were placed on nonaccrual in the quarter. We continue to monitor the credit trends across all loan portfolios and have not seen any broad-based deterioration in any individual lending category. Axos Clearing, which includes our correspondent clearing and RIA custody business had a good quarter. Total assets under custody increased from $37.1 billion at March 31, 2025, to $39.4 billion at June 30, 2025. Net new assets for our custody business increased by $215 million in the June quarter, extending the positive net new asset momentum we have experienced over the past several quarters. The stock market has rebounded off its year-to-date lows and many of our custody clients continue to generate positive assets under management growth. The pipeline for new custody clients remains healthy for small and large RIA firms, underpinning our optimism and continued net positive asset growth in our securities business. Total deposits at Axos Clearing were $1.4 billion at the end of the quarter, up $90 million from where they were in the prior quarter. Of the $1.4 billion of deposits from Axos Clearing, approximately $990 million were on the balance sheet and $450 million were held at partner banks. The slight sequential increase in deposits is encouraging given the strong rally in the stock market. While it's difficult to be absolutely certain that cash sorting has bottomed, we believe that clients and advisers are becoming less focused on maximizing yields on their sweep accounts compared to a year ago. Many of our commercial lending and deposit teams, including our life science and technology business and our middle market banking teams that we have added over the prior few quarters are now producing nicely and contributing to loan and commercial deposit growth. We onboarded a new floor plan lending team that will help us scale our floor plan lending business. We continue to evaluate M&A opportunities to augment growth from our existing businesses and team lift-outs. The pace and quality of M&A opportunities have increased over the past few months and seller expectations have become more reasonable. We are evaluating specialty lending and nonbanking businesses that generate asset and transaction-based income and low-cost deposits. Our strong capital liquidity and profitability allow us to be disciplined in how and where we deploy capital to ensure the investments meet our strategic and valuation hurdles. We ended fiscal 2025 with positive momentum. Loan growth accelerated in the back half of the year. Our credit quality was strong and our net interest margin remained above our long-term target. We expect the change in the income tax calculation methodology for the state of California will reduce our income tax rate by 3 percentage points starting in the September 30, 2025 quarter, boosting our net income and EPS in fiscal 2026 and beyond. With this being the 25th anniversary of Axos Bank, we are proud of delivering consistent performance through a variety of economic, geopolitical and regulatory environments. I'm even more excited about the opportunities that we have in each of our businesses. We remain hyper-focused on executing our strategic and operational initiatives. These include investments in technology and operations to scale businesses and roll out new products faster while maintaining a best-in-class operating efficiency ratio. We believe we will see benefits in our operating efficiency from the implementation of artificial intelligence across the organization and believe that its implementation will enable us to create greater operating leverage and improve the speed, quality and cost of software development projects and accelerate new product delivery. We believe that we can deploy our capital in a disciplined manner in our existing and new businesses to further diversify our lending, funding and fee-based income. We have a lot of runway in each of our businesses and I feel confident that our teams and our leaders will deliver the results that our shareholders have come to expect from us. Now I'll turn the call over to Derrick, who will provide additional details on our financial results.

Derrick K. Walsh, CFO

Thanks, Greg. Quick reminder 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 website at axosfinancial.com. I will provide some brief comments on a few topics. Please refer to our press release and our SEC filing for additional details. Noninterest expenses were approximately $151 million for the 3 months ended June 30, 2025, up by $4.4 million from the 3 months ended March 31, 2025. Excluding approximately $1.9 million reversal of a legal accrual in the March 31 quarter, total noninterest expenses were up by approximately $2.5 million in the linked quarter. Salaries and benefit expenses were $74.9 million, roughly flat from the prior quarter ended March 31. Professional services expenses were $10.4 million compared to $8.2 million in fiscal Q3 2025. The sequential increase in professional services expense was attributed to a handful of services across different business units. Looking ahead to the September quarter, we recently added a floor plan financing team that adds an incremental $1 million of expense per quarter. And as a reminder, September is when we have our annual merit compensation increase, which we estimate to be about 4%. We remain focused on managing our expenses while making strategic investments in a controlled manner in order to maintain our operating efficiency ratio. Next, our income tax rate was 29% for the 3 months ended June 30, 2025, compared to 27.4% in the corresponding year-ago period. Our income tax expense in Q4 '25 included a one-time noncash deferred tax impairment related to the change in the taxation of financial institutions that I mentioned on last quarter's call. The California budget proposal went into effect on June 30, 2025, which required us to reassess the value of our deferred tax assets. That resulted in a $5.6 million one-time noncash impairment charge in the quarter ended June 30, 2025. Our income tax expense for the quarter ended June 30, 2025, benefited from the increase in our stock price from June 30, '24 to June 30, '25, which is one factor used to calculate our CEO's stock-based incentive compensation. The net impact of the deferred tax asset remeasurement and stock-based incentive compensation calculation combined with higher pretax income was a $2.3 million increase in our income tax expense in Q4 2025. Starting in the quarter ending September 30, 2025 and going forward, we expect our corporate tax rate to be approximately 26% to 27%, an improvement of 3 percentage points from the previously 29% to 30%. I'll wrap up with our loan pipeline and growth outlook. Our loan pipeline remains healthy at approximately $2 billion as of July 25, 2025, consisting of $532 million of single-family residential jumbo mortgage, $49 million of gain on sale mortgage, $302 million of multifamily and small business commercial, $73 million of auto and consumer and $1.1 billion in commercial lending. We are not seeing any material impacts from imposed or proposed tariffs on loan demand so far and we believe that we will be able to grow loan balances organically at the midpoint to high end of our high single digits to low teens year-over-year growth target over the next 12 months, excluding the impact of the loan portfolio purchased from the FDIC or any other potential loan or asset acquisitions.

Johnny Y. Lai, SVP, Corporate Development and IR

Thank you, Derrick. Alicia, we're ready to take questions.

Operator, Operator

Our first question comes from Kyle Peterson with Needham & Company.

Kyle David Peterson, Analyst

Great. I want to start off on loan yields and that kind of side of the net interest margin. It sounds like maybe there might be a little more pricing pressure and yields on new loans might be lower but then it could be a partial offset on prepays being a little slower. I guess like how do you guys view like the net impact of those? And I guess, like is the NIM outlook, it sounds fairly consistent with last quarter, are those kind of a rough wash? Or how are you guys looking at the different pieces there?

Gregory Garrabrants, CEO

I believe they are quite consistent. Many of these businesses, such as the capital call side, have a significant amount of deposits associated with them, and the middle market business does as well. While loan yields may be somewhat tighter, there is a corresponding advantage on the funding side that leads to a decent net result. If I were to make an estimate, I would say that the credit spread side has been more stable this quarter compared to the last quarter. Therefore, I wouldn't suggest there is much additional pressure, but it is certainly different from a year ago. Particularly with some of the C&I club deals and syndicated deals, there are many banks entering that market, possibly because they may not want to expand as much in commercial real estate, which has contributed to a slight decrease. This is somewhat of a prediction, but I believe we can maintain a fairly consistent performance. However, it could vary by 1 or 2 basis points in either direction; it's not an exact science.

Kyle David Peterson, Analyst

Okay. That's helpful. And then, Greg, I know we've kind of chatted in the past and you've mentioned kind of different dynamics and kind of how you're kind of leveraging AI to longer term kind of press on margins and cap expense growth. I guess, could you remind us like how you are thinking about expense growth relative to revenue, how you guys are using whether it's tech and AI in your day-to-day, I think it would be really helpful for everyone on the call.

Gregory Garrabrants, CEO

What we initially aimed for was to ensure that the growth in our personnel and professional services costs did not exceed 30% of our net interest and noninterest income growth. We have recently added a team, including a high-cost floor plan team, which we believe will be productive, although it may take a couple of quarters to become fully operational. Regarding artificial intelligence, there are numerous opportunities that we are currently capitalizing on, making our team members more efficient by automating routine tasks. For instance, when handling unstructured data from documents, such as a lengthy legal agreement for a commercial loan, AI can now assist by extracting necessary covenants more rapidly than before. An attorney would typically take a considerable amount of time to review this, but now AI can present the relevant information and learn from any corrections made by the attorney, significantly accelerating the process. This AI agent can also automatically upload these extracted covenants into our tracking system, showcasing various applications we have in progress. Our task force is actively working on tools and processes, and I genuinely believe this will lead to a reduction in operational costs. On the software development front, we have many exciting initiatives, but previously we faced limitations regarding the pace of coding. Innovative breakthroughs are happening rapidly in software development, and for example, our software tool called Figma has recently launched an AI product that reduces the time needed to bring a product from concept to a ready user experience to less than 10% of what it previously took. This is just one instance, but there’s a lot being achieved that I find very encouraging. I strongly believe this will help lower costs, and we will only succeed if we can offer better products more quickly and affordably.

Operator, Operator

Our next question comes from the line of David Feaster with Raymond James.

David Pipkin Feaster, Analyst

Let's discuss the funding side, as we've briefly mentioned the loan side. Clearly, you've seen significant success in growing deposits, especially in the consumer direct segment, along with some strong momentum in specialty deposits and commercial treasury management. Where do you identify the most potential on the funding side currently? How is the pricing competition evolving with the industry's loan growth picking up? I would also like to hear your perspective on your capacity to keep managing deposit costs lower while continuing to grow.

Gregory Garrabrants, CEO

Yes, I think it really varies by sector, and some of the new sectors we’ve introduced are bringing in substantial compensating deposit balances, which generally means they will be priced more favorably. However, as industry loan growth increases, we may see mid-market clients becoming more competitive, as some rivals are attempting to keep those clients by offering more attractive deposit rates. Therefore, if our loan growth accelerates, it’s likely we could experience a slight rise in funding costs as well. If we achieve loan growth at the upper end of our high single digits or low double digits, and maintain that level similar to this quarter throughout the next fiscal year, it could exert some pressure on funding costs. It’s difficult to predict exactly because our Axos ONE product is performing strongly, and the funding cost there could vary depending on the mix of checking and savings accounts we attract and several other factors. Nevertheless, it’s a reasonable consideration that if we grow significantly, there might be some upward pressure on funding costs. Additionally, if we pursue a large acquisition or even a moderately-sized acquisition of an asset pool or a specialty lending operation, that could also create some pressure on funding growth for a period of time.

David Pipkin Feaster, Analyst

Okay. But with that, I mean, even if you did have outsized growth and maybe a little margin pressure. It's not hard to still see a really strong NII growth profile. You're obviously having a lot of success on the fee side and gaining share with the security side. It sounds like the pipeline is doing pretty good. Do you think that you can keep the fee income growth in line with NII? Or what initiatives maybe that you have to help support fee revenue growth, maybe hopefully keeping that proportion relatively stable?

Gregory Garrabrants, CEO

Yes. I think we are experiencing good growth from the market and decent growth in net new assets, though it's not at the level we aim for. However, there is a promising pipeline with some sizable wins expected to onboard in the upcoming quarters, which should enhance our net new asset growth. We're also focusing on software technology development to create a highly compelling product. While we have a good product now, it needs improvement to be considered best-in-class. The most significant part of our growth in fee income is likely to be within the securities sector in the current rate environment, and we are making solid progress there. However, it’s important to note that maintaining growth at the same rate will depend on achieving our goals and the adoption of new technology. I believe we can reach our targets, but it will be challenging. It’s possible, but not easy.

David Pipkin Feaster, Analyst

Okay. And then lastly, just touching on the capital front. I mean, you're still accreting capital, extremely profitable even with accreting capital in excess of your organic growth. I just kind of wanted to touch on your capital priorities here. Stock has moved, which is great, makes buybacks a little less attractive though. And I know the excess capital isn't burning a hole in your pocket but just wanted to get a sense of your capital priorities. It sounds like M&As might be more in the cards today. It sounds like conversations are pretty good but just kind of curious some of the types of things you're considering.

Gregory Garrabrants, CEO

Yes, we have a solid pipeline for organic growth and are exploring various M&A opportunities. We are interested in fee income businesses and specialty finance businesses if they align well with our objectives. These areas can be a strategic way to invest capital. Additionally, we have repurchased some stock this quarter, although there has been a significant increase in the stock price. We feel confident about our position and our ability to generate earnings that support the current share price. Organic loan growth remains a key focus for us.

Operator, Operator

Our next question comes from the line of Gary Tenner with D.A. Davidson.

Gary Peter Tenner, Analyst

A question on the multifamily loan sale. Just curious about the kind of reasoning behind it. Obviously, yields must have been pretty good there, given the gain that you picked up. So just curious about the thought process around that. Obviously, you had great net loan growth regardless but any color?

Gregory Garrabrants, CEO

Yes, when we evaluate loans, we consider their credit perspective and what we think about them. There were some strong buyers interested in certain loans, which led us to decide to sell that particular loan.

Gary Peter Tenner, Analyst

Was that a single loan? Just a single large loan or a basket of loans?

Gregory Garrabrants, CEO

It was a few others.

Derrick K. Walsh, CFO

Yes, there was a handful of loans that were sold.

Gary Peter Tenner, Analyst

Okay. Great. As you look ahead to 2026, I know you mentioned expectations for being in the mid to higher range of your loan growth. C&I has shown strong performance throughout fiscal 2025, and this quarter, CRESL has really picked up as well. I assume these two are major contributors and will account for most of the loan growth this year. Is there anything else you think might contribute to an acceleration?

Gregory Garrabrants, CEO

I believe that capital calls can play a role, and the lender finance businesses, both in real estate and non-real estate sectors, can also contribute. Jumbo mortgages have begun to see growth again. While it may not be substantial, the pipeline looks promising. Therefore, I expect we will achieve balanced loan growth across various segments, with those being the main areas of focus. The strength of our business lies in its diversity, which allows for fluctuations within quarters, but we can assess the overall pipelines to gauge our position. CRESL can be challenging at times due to unexpected prepayments that can affect those numbers. Thus, I feel more confident in predicting the total figures rather than the specifics of each category.

Gary Peter Tenner, Analyst

Okay. And if I could ask one more question. You kind of reiterated the goal on the kind of comp line to not exceed 30% of revenue growth or NII growth. So in terms of the tax benefit that you're getting from the California change, I guess the question would be, does that free up any additional resource for investment or that goes to bottom line?

Gregory Garrabrants, CEO

No, that goes to the bottom line.

Derrick K. Walsh, CFO

I think the executives wish it would but Greg told them not to.

Gregory Garrabrants, CEO

No, it's a disciplined measure. To my knowledge, no one was involved in lobbying the California legislature for such a benefit that would disadvantage other banks not located in California. Seriously, I think that's a pretax figure. It's a straightforward number. If you take the revenue growth from both noninterest revenue and interest revenue, add them together, and look at the difference, there could be some one-time items involved, and you will not have compensation or professional service expenses grow additively. That's the pretax ratio. That's what it is. Also, if you examine any one quarter, we brought on this floor plan team. Derrick mentioned that this will cost about $1 million a quarter. However, we plan to meet that target over the year. That doesn't imply we can't improve with AI and other initiatives, but it's a public goal that the team is committed to achieving.

Operator, Operator

The next question comes from the line of Kelly Motta with KBW.

Kelly Ann Motta, Analyst

Congrats on reaching 25 years. It’s great that you get to celebrate on the Fourth of July. Greg, with the GENIUS Act set to come out, I remember that before the Silvergate issues, you were considering stablecoin and digital assets. Could you provide an update regarding your thoughts and interest in pursuing this now that the regulatory environment seems more favorable?

Gregory Garrabrants, CEO

Yes, there are still some things in progress, so I will share some preliminary thoughts, with more to follow. In our self-directed business, we've been focusing on allowing crypto trading, but we haven't emphasized it much in terms of ETFs and similar products. While we've offered crypto trading for a while, our self-directed business needs some technological upgrades to enhance the user experience and make it more competitive, which hasn't been a primary focus. However, the growing importance of crypto could provide opportunities for transactional and payment-related activities since we are already engaged in that area. We can expand our offerings and improve the user experience. When the administration changed, we reevaluated our approach to crypto banking, which involved navigating a complex set of rules regarding risk profiles and regulatory clarity affecting various companies. With the new administration, we are more open to reviewing those accounts. Regarding stablecoin, I won’t comment extensively at this time, but we are actively considering it and analyzing how it should integrate into our broader efforts. There have been many recent changes, and we are paying close attention.

Kelly Ann Motta, Analyst

Got it. That's helpful. Maybe switching to the funding side. You had some nice growth in noninterest-bearing this quarter. I'm curious if there were any end-of-period flows that impacted that. Also, more generally, which areas of the business are experiencing the best growth in core operating accounts, given the significant deposit growth this quarter?

Gregory Garrabrants, CEO

Yes, the commercial specialty segment has some significant growth areas. The tech business that we integrated into that team is performing well and attracting many core deposits. It's encouraging to see the team's success, which has been consistent. Additionally, the middle market team is also achieving similar results, along with notable cross-selling across all lending sectors. We excel in payment processing, and our API infrastructure on the commercial side attracts clients with complex payment needs to partner with us. These clients tend to remain loyal when they integrate our software. There hasn't been a single standout factor; rather, it's a combination of strengths across the various areas I mentioned.

Kelly Ann Motta, Analyst

Got it. That's helpful. Maybe my last question is about asset quality, which seems to be holding up really well. Greg, can you provide any updates on areas you are monitoring more closely regarding credit?

Gregory Garrabrants, CEO

Sure. Yes, I believe the commercial real estate sector looks very promising. On the commercial and industrial side, as we continue collaborating with various banks and engaging in club deals and syndications, I anticipate that we will always have a mix of opportunities. However, I am confident that most of these will turn out well considering the enterprise value of the businesses involved. Regarding our C&I segment, I think our losses in commercial real estate lending have been minimal. In our multifamily experiences, we have only seen a slight increase in losses over 25 years in single-family. As we engage more in typical banking activities in the C&I area, I hope we will perform better than average, but I still expect some minor challenges, though nothing significantly impactful.

Operator, Operator

There are no further questions at this time. I would like to pass the call back over to Johnny Lai for any closing remark.

Johnny Y. Lai, SVP, Corporate Development and IR

Great. Thanks for everyone's participation and we'll talk to you next quarter.