管理層發言
Greetings and welcome to the Axos Financial Third Quarter 2025 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Johnny Lai, Senior Vice President, Corporate Development and Investor Relations. Please go ahead, Johnny.
Thank you, Kevin. Good afternoon everyone and thanks for joining us for today's third quarter 2025 financial results conference call. Joining us today 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 operating results for the three and nine months ended March 31, 2025 and we will be available to answer questions after the prepared remarks. Before I begin, I would like to remind listeners that prepared remarks made on this call may contain forward-looking statements that are subject to risks and uncertainties and that management may make additional forward-looking statements in response to your questions. Please refer to the Safe Harbor statement found in today's earnings press release and in our Investor Presentation for additional details.
This call is being webcast and there will be an audio replay available in the Investor Relations section of the company's website located at axosfinancial.com for 30 days. Details for this call were provided on the conference call announcement and in today's earnings press release. Before I hand 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 information. All of these documents can be found on axosfinancial.com. With that, I'd like to turn the call over to you, Greg.
Thank you, Johnny and good afternoon, everyone and thank you for joining us. I'd like to welcome everyone to Axos Financial's conference call for the third quarter of fiscal 2025 ended March 31, 2025. I thank you for your interest in Axos Financial. We delivered solid results this quarter, generating over $700 million of net loan growth linked quarter, stable net interest margins and a 19% year-over-year increase in book value per share. We continue to generate high returns as evidenced by the 16% return on average common equity and a 1.8% return on average assets in the three months ended March 31, 2025. We deployed some of our excess capital to repurchase approximately $28 million of common stock in the quarter ended March 31, 2025 and an additional 517,000 shares of common stock for $30.3 million from April 1 to April 30 after the quarter end. Other highlights in the quarter include net interest income was $275 million for the three months ended March 31, 2025, up 5.3% from the $262 million in the prior year period.
Net interest margin was 4.78% for the quarter ended March 31, 2025, down 5 basis points from the 4.83% in the quarter ended March 31, 2024. We continue to benefit from a best-in-class net interest margin with and without the benefit of the accretion from loans purchased from the FDIC. Total on-balance sheet deposits increased 5.4% year-over-year to $20.1 billion. 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, with total noninterest expense for the quarter ended March 31, 2025, up by only 0.6% from the prior quarter. Excluding the seasonal increase in FICA expenses and legal accrual reversals, noninterest expense increased slightly quarter-over-quarter. Net annualized charge-offs to average loans were 9 basis points in the three months ended March 31, compared to 7 basis points in the corresponding period last year.
Excluding the auto loans covered by insurance, net annualized charge-offs to average loans were 8 basis points in our fiscal third quarter of 2025. We remain well reserved relative to our low current and historical net credit losses. Total nonaccrual loans declined by $66.5 million linked quarter, resulting in our nonaccrual loans to total loan ratio improving from 1.26% in the quarter ended December 31, 2024 to 89 basis points in the quarter ended March 31, 2025. Net income was approximately $105.2 million in the quarter ended March 31, compared to $104.7 million in the December quarter. Diluted EPS was $1.81 for the quarter ended March 31, 2025, compared to $1.80 in the prior quarter. Net growth in nonpurchased loans for investment was $700 million for the quarter ended March 31, an increase of 3.6% linked quarter or 14.5% annualized. Fund finance, equipment leasing and lender finance had strong originations and net loan growth this quarter.
Headwinds from high levels of repayment of the jumbo single-family and multifamily mortgage business improved significantly with net declines of only $36 million in those two loan categories combined in this quarter, compared with a $384 million decline in the December quarter. While the interest rate and competitive environment remained unstable, we feel good about keeping our jumbo single-family and multifamily loan balances flat to down $100 million per quarter versus the prior $200 million to $400 million quarterly headwind we experienced since the Fed started raising rates in 2023. Average loan yields for the three months ended March 31, 2025, were 7.99%, down from 8.37% in the prior quarter. Average loan yields for nonpurchased loans were 7.66% and average yields for purchased loans were 14.32% which includes the accretion of our purchase price discount. The FDIC purchased loans continue to perform well and all loans in that portfolio remain current.
New loan interest rates were the following: SFR mortgages, 7.5%; multifamily, 7.3%; C&I, 7.6%; and auto 8.5%. Ending deposit balances were $20.1 billion or up 1% linked quarter and up 5.4% year-over-year. Demand money market and savings accounts represent 96% of total deposits at December 31, 2024, increasing by 6.9% year-over-year. We have a diverse mix of funding across a variety of business verticals with consumer and small business representing 58% of total deposits, commercial cash, treasury management and institutional representing 23%, commercial specialty representing 9%, Axos Fiduciary Services representing 6% and Axos Securities which is our custody and clearing business combined, representing 4%. Noninterest-bearing deposits were approximately $3 billion at the end of the quarter, roughly the same as the prior quarter. Client cash sorting deposit balances have been volatile, increasing to over $1.2 billion during the peak of the market sell-off in March 2025 before ending the quarter around $900 million as advisers made tactical changes throughout the quarter in a turbulent market.
We're focused on adding net new assets from existing and new advisers to grow our assets under custody and cash balances. In addition to 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 4.78% for the quarter ended March 31, 2025, compared to 4.83% in the quarter ended December 31, 2024. Even though we deployed some of our excess liquidity and organic loan growth this quarter, we still have more deposits than we typically carry on our balance sheet. The excess liquidity was a 13 basis point drag on our net interest margin in the quarter ended March 31, 2025, down from 18 basis points last quarter. Our net interest margin remains above the high end of our target with and without the benefits of the FDIC loan purchases, largely because we've been able to offset the gradual decline in our earning asset yields with corresponding decreases in our funding cost.
Total interest-bearing demand and savings deposit costs were 3.59% for the quarter ended March 31, 2025, down 36 basis points from the prior quarter. We're seeing strong growth in account balances from our Axos ONE consumer bundled deposit product, which includes a checking and a savings account. Growth in Axos ONE and other deposit businesses has allowed us to reduce the cost of our consumer high-yield savings and wholesale funding. We continue to grow our lower-cost deposits in our commercial cash, treasury management and specialty businesses. We're also making good progress cross-selling deposits across selected lending businesses such as fund finance and multifamily lending. Continued strong net new asset growth and normalizing cash sorting will be a tailwind in our ability to grow lower-cost deposit balances going forward. We expect our consolidated net interest margin excluding FDIC loan purchase accretion to stay at the high end of our 4.25% to 4.35% range we have targeted over the past year.
Despite increased competition from banks and nonbanks driving new loan yields lower in many lending categories we compete in, we continue to win our share of new lending opportunities. Our loan pipelines have improved meaningfully in our auto and multifamily lending businesses over the past few quarters as a result of strategic actions we have taken. Better execution and expanding our distribution channels across certain commercial lending categories, including equipment leasing, have contributed to improved loan growth and pipelines. We expect loan growth to come in somewhere between the high single-digit and low teens range on an annual basis that we have targeted for the past several years. We may have more variance from quarter-to-quarter due to uncertainty regarding the pace and timing of payoffs and the potential impact of tariffs and interest rates on loan demand. The credit quality of our loan book continues to be solid and our historical and current net charge-offs remain low.
Total nonperforming assets declined by $63.3 million linked quarter, representing 79 basis points of total assets compared to 1.06% in the quarter ended December 31. The sequential decrease in nonaccrual loans was broad-based, declining by $26 million in our single-family mortgage and warehouse businesses, by $15 million in our multifamily and commercial mortgage business and by $25.7 million in our commercial real estate lending business. We do not anticipate a material loss from loans currently classified as nonperforming in our single-family, multifamily or commercial real estate loan portfolios. Our commercial real estate specialty portfolio continues to perform very well and in line with our expectations. Nonaccrual loan balances in our C&I lending portfolio were roughly flat linked quarter at $71.2 million. All C&I loans classified as nonaccrual at March 31, 2025 but three totaling $12.2 million continue to make contractual interest, principal and curtailment payments.
We continue to monitor the credit trends across all loan portfolios and have not seen any broad-based deterioration in any individual lending category. We don't have significant exposure to any specific industry that is expected to have an outsized negative impact from proposed or enacted tariffs. Axos Clearing which includes our corresponding clearing and RIA custody businesses had a good quarter. Total deposits at Axos Clearing were $1.34 billion at the end of the quarter, roughly consistent with where they were in the prior quarter. Of the $1.34 billion of deposits from Axos Clearing, approximately $900 million was on our balance sheet and $450 million were held at partner banks. Client margin balances grew by 2.9%, up from $274.5 million at December 31 to $282.4 million at March 31, 2025. Net new assets for our custody business were $289 million in the March quarter, extending the positive net asset momentum we had experienced in the past several quarters.
Despite a turbulent first few months of 2025, many of our legacy and new RIA clients have increased their assets under management (AUM). The pipeline for new custody clients remains healthy and we expect continued organic net new asset growth in Axos Advisory Services. Pre-tax income for the Securities business segment increased by 23.6% year-over-year to $9.1 million due primarily to better operating expense control. From a product perspective, we continue to identify ways to generate incremental fees and partner with third parties to offer additional services such as access to new asset classes and investment strategies. We are consolidating certain back office and servicing functions in our clearing and custody business to leverage the processes and systems we have to more efficiently serve broker-dealers and advisory clients. Once completed, we will have a more competitive and stable cost structure in order to expand the types of custody and clearing clients we can serve profitably.
One important strategic initiative in the securities business is the development of Axos professional workstation, our proprietary client service platform that will replace the current third-party workstations used by our clearing clients and allow better integration of banking and lending to those clients. We leverage low-code development to reduce the time, cost and resources required to complete our Axos professional workstation build-out. We're also actively using artificial intelligence in our software development and across a wider set of workflows to enhance development and operating efficiency, which should result in better operating leverage over time. Additionally, we're modernizing core components of the technology infrastructure for Axos Invest, our direct-to-consumer securities trading and digital wealth management business. The primary objectives are to make the platform more flexible so we can add new products and services faster and cheaper as well as improve the customer experience by eliminating frictions caused by a reliance on third-party integrations.
We see Axos Invest as a channel for low-cost consumer acquisition and cross-sell to existing Axos clients as well as a white label offering to institutional clients such as RIAs and IBDs. Now, I'll turn the call over to Derrick to share other further details.
Thanks, Greg. A quick reminder that in addition to our press release, an 8-K with supplemental schedules and our 10-Q were filed with the SEC today and are available online through EDGAR or through our website at axosfinancial.com. I'll provide some brief comments on a few topics. Please refer to our press release and our SEC filings for additional details. Noninterest expenses were approximately $146 million for the three months ended March 31, 2025, up by about $900,000 from the three months ended December 31, 2024. Salaries and benefit expenses were $74.6 million, up by $0.6 million compared to the three months ended December 31, 2024. Excluding the seasonal increases in FICA expenses in the March 31 quarter, salaries and benefit expenses were down by $0.8 million on a linked-quarter basis. Professional service expenses were $8.2 million compared to the $9.1 million in fiscal Q2 '25. General and administrative expenses were down to $6.8 million for March 2025 compared to $9.3 million for December 2024.
We had a payment of a legal judgment that was previously accrued and resulted in a reduction to general and administrative expenses by approximately $2 million in the quarter ended March 31, 2025. We remain focused on managing our expenses and investments in a controlled manner in order to maintain and improve our operating efficiency ratio. Next, our income tax rate was 29% for the three months ended March 31, 2025, compared to 28.8% in the corresponding year-ago period. We still expect our corporate tax rate to be approximately 29% to 30% with one caveat. The California budget proposal currently includes a provision that would change the taxation of financial institutions. For tax years beginning on or after January 1, 2025, the provision, if passed, would require financial institutions to use a single sales factor for apportioning multistate income to California. Financial institutions are currently required to use a 3-factor apportionment formula which includes a corporate property factor, a payroll factor in addition to a sales factor.
If the provision changing this tax apportionment from the 3-factor test to a single sales factor is enacted, the change would require the company to re-measure its deferred tax assets. Management estimates Axos' deferred tax asset would decrease by approximately $6 million to $7 million as a result of the change. The impact of the re-measurement will be a non-cash charge recognized through continuing operations in the period which the law is enacted. If enacted, management expects the effective tax rate for the fiscal year ended June 30, 2026 and beyond, would be reduced by approximately 3% or approximately $5 million per quarter compared to the current effective tax rate. I'll wrap up with our loan pipeline which remains healthy with $2.1 billion of total loans in the pipeline as of April 25, 2025, consisting of $576 million of single-family residential jumbo mortgage, $57 million of single-family gain on sale mortgage, $346 million of multifamily and small balance commercial, $63 million of auto and consumer and $1.1 billion of commercial loans.
As Greg noted, we believe that we will be able to grow loan balances organically by high single digits to low teens year-over-year over the next 12 months, excluding the impact of the loan portfolio purchased from the FDIC or any other potential loan or asset acquisitions. Our pipelines are up across several lending businesses and we expect the headwinds we faced from single-family and multifamily mortgages to subside. Due to elevated levels of uncertainty regarding interest rates, the economy and the shape of the yield curve, we may see more volatility in our net loan growth over the next few quarters. With that, I'll turn the call back to Johnny.
Thanks, Derrick. Kevin, we're ready to take questions.
分析師問答
Our first question is coming from Kyle Peterson from Needham Company.
Nice results. I wanted to start off a little bit on loan growth and kind of what you guys are seeing. Obviously, there's been a lot more volatility and uncertainty. I guess, are there any areas either that you guys are being a little more cautious in? Or on the flip side, like are there areas you guys are seeing competitors maybe be a little more cautious or shy where you guys think might be opportunities to go and take share?
Yes, I believe there are certain segments in Commercial and Industrial (C&I) that we've been cautious about due to the anticipated administration change for some time. As a result, we've been avoiding logistical deals. We did get involved in one such deal that is currently in nonaccrual status. Overall, we've been careful about increasing our exposure in that sector. There are also a few areas we've been concerned about from an economic standpoint, particularly within C&I or specific companies with unique risks. While it's still early to draw conclusions, we are noticing more spread compression and have managed to counteract that somewhat due to the volatility. This is partly linked to certain takeouts or our revolving lines being connected to securitizations, which can influence those market dynamics. Generally, our pipelines look promising. The main factor affecting our ability to achieve an 11% loan growth compared to 15% relates to prepayments.
During COVID, we were particularly cautious regarding project financing and construction, resulting in a gap as some of those loans pay off. However, I'm optimistic about our loan growth. The single-family pipeline is significantly stronger, which doesn't guarantee a flawless quarter, but we have been up against significant challenges in the single-family and multifamily sectors, and those challenges seem to have diminished. There may be categories like commercial specialty real estate that see some high payoff quarters due to timing, but I don't expect that to happen consistently. Overall, I feel positive about our loan growth.
Okay, that's very helpful. And then maybe just a follow-up, more of a housekeeping item but I noticed the fee income jumped up quite a bit this quarter, I guess. Could you just clarify whether there was anything like whether it's seasonal or onetime or what we saw in the March quarter is a good run rate to you going forward?
Yes, we experienced some impacts from mortgage banking in the previous quarter, which was somewhat subdued. This quarter better reflects our current position. We added BOLI in December, contributing to our results. We also saw an increase in auto insurance recoveries in that line item, along with additional loan fees unrelated to origination. There weren't any significant one-time items this quarter. However, there is a fair value mark on our DTC stock held for the clearing company, amounting to $750,000, which only occurs once a year, providing a slight increase.
Your next question is coming from Andrew Liesch from Piper Sandler.
Greg, you've pointed out some promising investment opportunities for potentially streamlining the company. I'm interested in the timing of these investments. Do you have sufficient revenue to maintain the efficiency ratio at the 48% level, or do you anticipate it might increase in the near future?
We're going to work hard to maintain our current cost levels. I believe it's unacceptable for costs to rise, and it's our responsibility to leverage the technology and efficiency improvements we have developed to keep expenses in check. Our goal for next year is to ensure that personnel costs increase no more than 30% relative to our combined net interest and noninterest income. I am confident we can achieve this. We want to ensure we achieve operating leverage in our business, and there are numerous AI enhancements that can improve efficiency. Even in our company, there are always opportunities for improvement. I'm eager to motivate our team, including myself, to increase our productivity. I believe this will be a very cost-efficient year ahead, and my team is enthusiastic about making this happen.
Got it. All right. Very helpful. Looking at net interest income going into the quarter, it appears that much of the loan growth may have occurred later in the quarter, which could explain the sequential decline in NII. As we approach the fourth quarter, we might experience some additional margin compression if this trend continues, but should we expect NII to increase from this point?
Do you want to answer that, Derrick?
Yes, we should. To your point, loan growth was $700 million at a specific time, while the average during the quarter was closer to $100 million. We anticipate that average will increase in the next quarter, which will subsequently boost the impact on net interest income. This is why net interest income performance appeared somewhat weak. However, as we move forward, it should begin to rise again.
Got it. Do you think the margin could step up here? Or there's too much yield pressure where it could be hard to replicate 4.78%?
I requested the team to analyze the difference between net spread compression and the lagging adjustments from interest rate declines, which resulted in approximately a 3 basis point net spread compression. On average, loans are coming in at a lower spread than before. However, there are still some hybrids that need to adjust, which will occur moving forward. A notable number of hybrid loans are still pending adjustments. I feel confident about the future margin outlook, although it could decrease slightly. If we utilize some of the excess liquidity, that could also positively impact margins. The 3 basis points figure is significant, as it represents the adjustment for the lagging decline arising from index and floating rate loans in a flat rate environment.
Our next question is coming from Gary Tenner from D.A. Davidson.
I wanted to ask about the improvement in special mention substandard loans from the previous quarter. Can you discuss what drove that better credit rating and provide some insights? I understand NPAs decreased significantly, but we would appreciate additional details.
Yes. In several instances, some of the loans classified as substandard had payoffs that occurred at the end of the quarter, or there were loans being sold or refinanced at that time. Even the two large commercial and industrial loans currently on nonaccrual are still making payments and have strong borrowing bases. We approach this situation with caution and aim for a conservative perspective. However, in many cases, there isn't significant loss risk involved. Many of those loans simply paid off, and we also sold some of them.
At par.
At par. Yes. So we sold them at par. So yes, par plus accrued. So we got our interest and whatnot. So yes, it was a good quarter for that. I mean I think the reality of our real estate loans, mostly with extremely small exceptions, if the borrower has something going on, the real estate is still worth so much more than what we've lent on it that someone wants it, right? And so we're not really in the business of doing that, although sometimes I feel like we should be when I look at how much money people make on stuff that we sell to them but, in any event, that's kind of what we did there.
Okay. And then another question, I guess, also around credit. In terms of the ACL build this quarter, just based on what's in your supplemental deck, it looks like you lowered the reserve specific to multifamily and commercial mortgage by, call it, 30 basis points and increased the C&I reserve by a pretty similar amount. So if you could talk about the moving parts there and the thoughts around those two categories?
Yes. I'll start with commercial and industrial. The loan growth was primarily in this area, which was a significant factor in that category. The other results were mainly driven by the quantitative model that considers economic factors. Some key economic influences in late February and March included tariff concerns, which contributed to a more negative outlook on the economy. When we applied this to the model, the commercial and industrial portfolio experienced a larger impact. This, along with growth, contributed to the increases in that portfolio. Meanwhile, the real estate portfolio continues to perform well, and some housing price indexes have either maintained or improved compared to earlier quarters, which added to the overall benefits.
Yes. I mean these models are hooked up to Moody's stuff. So if Moody's gets in a mood, then that's going to move the model around.
I'm sure we've got a lot of that to look forward to in the June quarter.
Our next question today is coming from Kelly Motta from KBW.
I guess starting off on capital. You noted you were active on the buyback here this quarter and continued into April. Wondering, especially given your outlook for what's still pretty strong growth, how you're viewing continuing the buyback here?
Yes, I believe we have excess capital. We are monitoring loan growth closely and see a good opportunity for buybacks given our current stock price. We have taken action this quarter and will likely continue to do so, as such moments don’t come often. We believe we can achieve solid loan growth alongside it, and our capital ratios are strong. We aren't concerned about nonperforming loans. Therefore, this is a suitable time for some buybacks. We approach this cautiously, focusing on incremental buybacks, which has been beneficial. We’ve repurchased about 1% of our stock this quarter, including this month, and view this as a favorable situation. If merger and acquisition opportunities arise, we might adjust our buyback efforts. Overall, we find this is a very favorable time for us, especially in light of our internal forecasts.
Got it. And on the M&A front, can you remind us what kinds of businesses would be top of mind in terms of being additive to Axos?
We are interested in acquiring wealth and custody businesses, but there aren't many available, and they typically trade at high multiples, making it challenging for us. We are attentive to developments in the banking sector, but our model is quite distinct, which means we are not naturally inclined to acquire many banks, especially those with a strong branch presence. However, we are open to exploring specialized banks at certain times if they align with our interests. We also consider companies that have bank-like credit profiles and could benefit from the operational synergies and technology we offer. Recently, we looked at a premium finance business that a bank was selling but lost the bid. We also considered a vendor leasing business but lost that bid as well due to pricing, even though we believed we submitted a competitive offer. Some investors tend to overbid, which I prefer to avoid. We continue to explore opportunities, and when we do invest, we ensure there is sufficient margin of safety.
Got it. That's helpful. Last question for me, just changing gears. Greg, it sounds like you still feel good about growth despite the noise and uncertainty around tariffs. I'm curious if you could quantify your exposure to construction, both directly and indirectly, and what impact rising input costs might have on CRESL and other construction aspects of the portfolio. It would be helpful if you could provide some context on that.
Yes, I think the answer is that there isn’t much impact. This is not because input factors may not increase, but because we typically require a significant portion of the trades to be bought out, which is generally a very high percentage. This can vary due to the strength of the sponsor and our junior lender. Additionally, there's Subguard insurance that protects those subcontractors. Therefore, we want to avoid the assumption that a project will face a budget blowout for any reason. While tariffs could theoretically be a factor, many other construction issues can lead to budget overruns. It's essential to manage this risk effectively. The challenge is more pronounced with smaller builders working on low-budget projects, such as a $5 million multifamily development. In contrast, having institutional general contractors with strong balance sheets who can secure all the subcontractors and insurance represents a completely different lending scenario that is not related to CRESL. This reflects a distinct kind of risk we take on based on how we structure our deals.
Our next question is coming from Edward Hemmelgarn from Shaker Investments.
Greg, I have a couple of questions for you. First, it seems like you're exhibiting a higher level of conservatism, both with your reserve for loan losses and in your equity. The share repurchase was a positive step, but I've noticed that your equity as a percentage of your asset base is at an all-time high. Are you being conservative, or do you anticipate facing tougher times ahead?
I consider myself a cautious individual, as we've discussed previously. There are a few factors at play. Initially, when you first became interested in us, our balance sheet was largely comprised of 50% risk-weighted assets, but that has shifted over time. As we've diversified into fund finance and commercial and industrial lending, single-family lending has decreased as a portion of our portfolio, and that has influenced our risk-weighted ratio. That's one aspect, but not the only one. We also want to maintain a strong balance sheet, which contributes to our approach. Compared to the past, we are aiming for a higher equity ratio, but I believe we are in a good position. Credit performance continues to be solid, allowing us to buy back stock while experiencing good growth this period. Overall, I think we are effectively managing appropriate risks while ensuring the safety of the institution.
Yes. I noticed that the loan balances appear to be improving in terms of current payments rather than deteriorating, but I was somewhat surprised by the loan loss provision for the quarter. The other thing you...
Yes, regarding the loan loss provision, it's important to understand that with CECL, there are external factors involved that are only marginally related to our loan portfolio. For example, if Moody's increases the probability of a recession, that will raise our loan loss expectations. However, I have my doubts about whether that will have a real impact on us, but it is part of the model we use.
One important aspect to consider is that while recent events in the last three months may have some impact, the essence of CECL focuses on the total lifespan of a loan. This means that projections account for various economic fluctuations over time. You wouldn’t want to dramatically adjust the allowance based solely on short-term changes, such as an increase in nonaccruals this quarter followed by a decrease next quarter. That approach could lead to inconsistent spikes in loan losses throughout the industry if relied on as the sole measure. It’s important to recognize that many different factors contribute to determining the allowance and provision each quarter.
I believe it's positive that we are as profitable as we are while continuously improving our loan loss balance. I've spoken to many knowledgeable individuals recently about their outlook, and a common theme is that everyone acknowledges an increase in volatility, leading to a wider range of potential outcomes. Therefore, it makes sense that the model reflects this prediction.
I appreciate the conservative approach. I've noticed that your spending on IT and data processing has significantly increased, and you mentioned seeing real opportunities in that area. Could you elaborate on that? Perhaps provide some examples of where you're identifying opportunities to effectively utilize AI?
Yes. So we just released and we're getting ready to do a transition for our clearing clients away from a couple of old workstations that are quite common in the industry but have been around for a long time and are sort of universally aided and replacing it with our own workstation. And we use the low-code platform to do that. And I believe it took, I think, about maybe 50%, 60% of the resources and about half the time to get that product out. So we do think that there's a lot of really interesting AI opportunities happening in the software development life cycle. And we've seen some stuff that's quite extraordinary. The ability to lift and shift old code that is in basic or in some sort of old language and be able to refactor it much more quickly or to be able to extract and document the code which would normally require somebody who is very skilled at reading the code and documenting it and all those things.
The documentation of code, for example, is becoming much more able to be done by artificial intelligence. The ability to take a plain language business requirements document and bring it into a set of stories and a set of documents that can be utilized by developers to code is a lot greater, too. So there's a lot of that. We're using software that can take a document that has unstructured data and appraisal or whatnot and let's say, you had to pull 100 fields out of it, the AI can pull those fields out and put them into structured data, right? So those are just some examples. I give you a lot of them. I mean we're really working hard on this. We have an AI task force. I think we have to hold ourselves accountable for actually seeing that in the results, which to me means that you have for each dollar you earn, you don't spend as much on people and technology, right? And that's the way I think you have to be able to eat AI.
And I think it's possible. It's not always easy at every step of the way but there's a lot of opportunity. I mean there really is. We have a good strategy there and we're not fully at the Agentic AI sort of level yet but we'll have to keep on pushing for that.
Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.
Thank you, everyone. We'll talk to you next quarter. I appreciate your interest.
Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.