Q3 2026 Axos Financial Inc Earnings Call

April 30, 2026

Operator 2: Greetings and welcome to the Axos Bank Third Quarter 2026 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Johnny Ly, Senior Vice President, Corporate Development and Investor Relations. Thank you. You may begin.

Operator: Greetings and welcome to the Axos Bank Third Quarter 2026 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Johnny Ly, Senior Vice President, Corporate Development and Investor Relations. Thank you. You may begin.

Speaker #4: A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press *0 on your telephone keypad. As a reminder, this conference is being recorded.

Speaker #4: It is now my pleasure to introduce Johnny Lai, Senior Vice President, Corporate Development and Investor Relations. Thank you. You may begin.

Speaker #2: Thank you, Diego. Good afternoon, everyone, and thank you for your interest in Axos. Joining us today for Axos Financial Inc.'s third quarter 2026 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.

Johnny Lai: Thank you, Diego. Good afternoon, everyone, and thank you for your interest in Axos. Joining us today for Axos Financial Inc.'s Q3 2026 financial results conference call are the company's President and Chief Executive Officer, Gregory Garrabrants, and Executive Vice President and Chief Financial Officer, Derrick Walsh. Gregory and Derrick will provide prepared remarks on the financial and operational results for the quarter ended 31 March 2026, then open up the call to a Q&A. Before I 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 statement found in today's earnings press release and in our investor presentation for additional details.

Speaker #2: Greg and Derrick will provide prepared remarks on the financial and operational results for the quarter-ended March 31, 2026, then open up the call to a Q&A.

Speaker #2: Before I 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.

Speaker #2: 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.

Johnny Lai: This call is being webcast, 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 10-Q for this call. All of these documents can be found on axosfinancial.com. With that, I'd like to turn the call over to Greg.

Speaker #2: 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 10-Q for this call.

Speaker #2: All of these documents can be found on axosfinancial.com. With that, I'd like to turn the call over to Greg.

Speaker #3: 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 third quarter of fiscal 2026 ended March 31, 2026.

Gregory Garrabrants: Thank you, Johnny. Good afternoon, everyone. Thank you for joining us. I would like to welcome everyone to Axos Financial's conference call for Q3 of fiscal 2026 ended 31 March 2026. I thank you for your interest in Axos Financial. We generated another quarter of double-digit year-over-year growth in net interest income, ending loan and deposit balances, earnings per share, and book value. We generated almost $700 million in net loan growth linked quarter, resulting in an 11.2% year-over-year increase in net interest income. Excluding the interest income impact of FDIC purchased loans and 2 fewer days in the 31 March 2026 quarter compared to 31 December 2025 quarter, net interest income increased by $5.7 million on that linked quarter basis.

Speaker #3: I thank you for your interest in Axos Financial. We generated another quarter of double-digit year-over-year growth and net interest income ending loan and deposit balances earnings per share and book value.

Speaker #3: We generated almost $700 million in net loan growth linked quarter resulting in an $11.2% year-over-year increase in net interest income. Excluding the interest income impact of FDIC purchased loans and two fewer days in the March 31, 2026 quarter compared to December 31, 2025 quarter, net interest income increased by 5.7 million on that linked quarter basis.

Speaker #3: We continue to generate high returns, as evidenced by the over 16% return on average common equity and 1.8% return on assets in the three months ended March 31, 2026.

Gregory Garrabrants: We continue to generate high returns as evidenced by the over 16% return on average common equity and 1.8% return on assets in the 3 months ended 31 March 2026. Other highlights in the quarter include: Non-interest income was $86 million for the quarter ended 31 March 2026, up from $53 million in the prior quarter and $33.4 million in the corresponding quarter a year ago. Excluding the benefit of a $22 million legal settlement this quarter, non-interest income was up approximately $10 million linked quarter due to higher mortgage banking income, advisory fee, and the addition of rental income from the commercial office building we purchased in January 2026 that will be used as our future headquarters.

Speaker #3: Other highlights in the quarter include non-interest income was $86 million for the quarter-ended March 31, 2026, up from $53 million in the prior quarter and $33.4 million in the corresponding quarter a year ago.

Speaker #3: Excluding the benefit of a $22 million legal settlement this quarter, non-interest income was up approximately $10 million linked quarter due to higher mortgage banking income, advisory fee, and the addition of rental income from the commercial office building we purchased in January of 2026 that will be used as our future headquarters.

Speaker #3: Net interest margin was 4.57% for the quarter-ended March 31, 2026, compared to 4.94% in the prior quarter. Excluding the impact from the prepayments of FDIC purchased loans and two fewer days in the quarter-ended March 31, our net interest margin was down in line with last quarter's guidance of around 10 basis points.

Gregory Garrabrants: Net interest margin was 4.57% for Q1 ended 31 March 2026, compared to 4.94% in the prior Q. Excluding the impact from the prepayments of FDIC purchased loans and 2 fewer days in the Q ended 31 March, our net interest margin was down in line with last Q's guidance of around 10 basis points. We continue to maintain a strong net interest margin with and without the benefit of the accretion from loans purchased from the FDIC, which has now dwindled to around 5 basis points of positive impact. Non-interest expenses were up $1.4 million linked Q to $186 million. We are seeing some of the benefits from our operational efficiency initiatives and artificial intelligence on our salaries and benefits, data processing, and other G&A expenses.

Speaker #3: We continue to maintain a strong net interest margin with and without the benefit of the accretion from loans purchased from the FDIC, which is now dwindled to around 5 basis points of positive impact.

Speaker #3: Non-interest expenses were up 1.4 million linked quarter to $186 million. We are seeing some of the benefits from our operational efficiency initiatives and artificial intelligence on our salaries and benefits data processing and other G&A expenses.

Speaker #3: Dependent completion of the Genius Bank deposit acquisition also allowed us to moderate growth in advertising and promotional expenses in the March quarter. Net income was approximately $127.7 million in the quarter-ended March 31, up 18.5% from the $105.2 million in the prior year's third quarter.

Gregory Garrabrants: The pending completion of the Jenius Bank deposit acquisition also allowed us to moderate growth in advertising and promotional expenses in Q3. Net income was approximately $124.7 million in Q3 ended 31 March, up 18.5% from the $105.2 million in the prior year's Q3. Diluted EPS was $2.15 for Q3 ended 31 March, compared to $1.81 in Q3 2025, representing an 18.7% year-over-year increase. Total originations for investment, excluding single-family warehouse lending, were $5.1 billion for the three months ended 31 March. Loan growth was strong across a number of lending businesses, including capital calls, real estate lender finance, and equipment finance.

Speaker #3: Diluted EPS was $2.15 for the quarter-ended March 31, compared to $1.81 in the third quarter of 2025, representing an 18.7% year-over-year increase. Total originations for investment, excluding single-family warehouse lending, were $5.1 billion for the three months ended March 31.

Speaker #3: Loan growth was strong across a number of lending businesses, including Capital Calls, Real Estate Lender Finance, and Equipment Finance. Jumbo Single Family loan balances were up slightly, while Single Family Warehouse had a seasonal decline of approximately $123 million.

Gregory Garrabrants: Jumbo single-family loan balances were up slightly, while single-family warehouse had a seasonal decline of approximately $123 million. Ending loan balances grew by approximately $800 million linked quarter, excluding single-family warehouse. Average loan yields from non-purchase loans for the three months ended 31 March were 7.23%, down from 7.63% in the prior quarter. The sequential decline was driven primarily by the full impact from the 2 25 basis point rate cuts in the calendar Q4 2025. Average loan yields for purchased loans were 12.39% compared to 23.32% in the 31 December quarter. Purchased loan yields from the quarter ended 31 December benefited from one FDIC purchased loan paying off and resulting in approximately $17 million of purchase discount accretion that was recognized in interest income.

Speaker #3: Ending loan balances grew by approximately $800 million linked quarter, excluding single-family warehouse. Average loan yields from non-purchased loans for the three months ended March 31 were 7.23%, down from 7.63% in the prior quarter.

Speaker #3: The sequential decline was driven primarily by the full impact from the two $25 basis point rate cuts in the calendar Q4, 2025. Average loan yields for purchased loans were 12.39%, compared to 23.32% in the December 31 quarter.

Speaker #3: Purchased loan yields from the quarter-ended December 31 benefited from one FDI purchased loan paying approximately off and resulting in approximately $17 million of purchased discount accretion that was recognized in interest income.

Speaker #3: The FDIC purchased loans continue to perform in all the loans in that portfolio remain current. New loan interest rates for the March quarter were 6.9% in both the single-family and CNI portfolios, 6.7% in the multifamily portfolio, and 7.8% in our auto portfolio.

Gregory Garrabrants: The FDIC purchased loans continue to perform, and all the loans in that portfolio remain current. New loan interest rates for the March quarter were 6.9% in both the single-family and C&I portfolios, 6.7% in the multifamily portfolio, and 7.8% in our auto portfolio. Ending deposit balances were $22.4 billion, up 11.2% year-over-year. Demand, money market, and savings accounts represent 97% of total deposits on 31 March, increased by 13% year-over-year. We have a diverse mix of funding across a variety of business verticals, with consumer and small business representing 52% of total deposits. Commercial cash, treasury management, and institutional representing 22%. Commercial specialty representing 14%. Axos Fiduciary Services representing 5%. Axos Securities 5%, and distribution partners representing 1%.

Speaker #3: Ending deposit balances were 22.4 billion, up 11.2% year-over-year. Demand, money market, and savings accounts represent 97% of total deposits in March 31, increased by 13% year-over-year.

Speaker #3: We have a diverse mix of funding across a variety of business verticals with consumer and small business representing 52% of total deposits, commercial cash, treasury management, and institutional representing 22%, commercial specialty representing 14%, Axos Fiduciary Services representing 5%, Axos Securities 5%, and Distribution Partners representing 1%.

Speaker #3: Ending non-interest-bearing deposits were approximately 3.4 billion in the quarter-ended March 31, an increase of 143 million from the 3.25 billion in the prior quarter.

Gregory Garrabrants: Ending non-interest-bearing deposits were approximately $3.4 billion in the quarter ended 31 March, an increase of $143 million from the $3.25 billion in the prior quarter. We deliberately reduced higher cost savings and time deposits and temporarily increased Federal Home Loan Bank advances in anticipation of the roughly $2.3 billion of Jenius Bank deposits coming in the June quarter. Client cash sorting deposits ended the quarter around $1.1 billion. In addition to our Axos Securities deposits on our balance sheet, we had approximately $450 million of deposits off balance sheet at partner banks. We remain focused on adding non-interest-bearing deposits from small business, custody, clearing, fiduciary services, and commercial and cash and treasury management verticals.

Speaker #3: We deliberately reduced higher-cost savings and time deposits and temporarily increased Federal Home Loan Bank advances in anticipation of the roughly $2.3 billion of Genius Bank deposits coming in the June quarter.

Speaker #3: Client cash sorting deposits ended the quarter around $1.1 billion. In addition to our Axos Securities deposits on our balance sheet, we had approximately $450 million of deposits off balance sheet at partner banks.

Speaker #3: We remain focused on adding non-interest-bearing deposits from small business, custody, clearing, fiduciary services, and commercial and cash and treasury management verticals. Our consolidated net interest margin was 4.57% for the quarter-ended March 31, compared to 4.94% in the quarter-ended December 31.

Gregory Garrabrants: Our consolidated net interest margin was 4.57% for the quarter ended March 31st, compared to 4.94% in the quarter ended December 31st. The early payoff of an FDIC purchase loan in that Q2 increased net interest margin by approximately 25 basis points. Excluding the early loan payoffs, the purchase loan yield was 14.2% in the quarter ended December 31st, compared to 12.4% in the quarter ended March 31st. With the diminishing impact of the FDIC purchase loans, we expect reported net interest margin to stay roughly flat on an organic basis, excluding the impact of the deposit purchase premium from the acquired deposits, which we estimate to be around 5 basis points. The diversity of our lending channels provide us with flexibility to maintain strong loan and deposit growth while maintaining our net interest margin.

Speaker #3: The early payoff of an FDIC purchased loan in that second quarter increased net interest margin by approximately 25 basis points. Excluding the early loan payoffs, the purchased loan yield was 14.2% in the quarter-ended December 31, compared to 12.4% in the quarter-ended March 31.

Speaker #3: With the diminishing impact of the FDIC purchased loans, we expect reported net interest margin to stay roughly flat on an organic basis, excluding the impact of the deposit purchase premium from the acquired deposits, which we estimate to be around 5 basis points.

Speaker #3: The diversity of our lending channels provides us with flexibility to maintain strong loan and deposit growth while maintaining our net interest margin. Verdant had another strong quarter, contributing approximately $200 million of new loans and operating leases in the March quarter.

Gregory Garrabrants: Verdant had another strong quarter, contributing approximately $200 million of new loans and operating leases in Q1. We continued to identify opportunities to deepen our relationships with existing Verdant vendors and dealers, as well as accelerate growth in a few existing verticals that were previously constrained by capital and size limitations when Verdant was under private ownership. The synergy between the Verdant and non-marine floorplan lending teams is starting to gain traction. We believe that our ability to provide a comprehensive retail and wholesale lending solution to top-tier original equipment manufacturers is a strategic advantage that we can leverage to win more deals. Demand in our commercial specialty real estate, fund finance, real estate lender finance, and asset-based lending programs remain strong. Pipelines in the jumbo single-family and multifamily areas are rebounding.

Speaker #3: We continue to identify opportunities to deepen our relationships with existing Verdant vendors and dealers as well as accelerate growth in a few existing verticals that were previously constrained by capital and size limitations when Verdant was under private ownership.

Speaker #3: The synergy between the Verdant and nonmarine floor plan lending teams is starting to gain traction. We believe that our ability to provide a comprehensive retail and wholesale lending solution to top-tier original equipment manufacturers is a strategic advantage that we can leverage to win more deals.

Speaker #3: Demand in our commercial specialty real estate, fund finance, real estate lender finance, and asset-based lending programs remains strong. Pipelines in the Jumbo Single Family and Multifamily areas are rebounding.

Speaker #3: We are making steady progress growing our loan pipelines in newer lending verticals such as floor plan and retail marine lending. Taking all these factors into consideration, we are confident that we will generate loan growth by the low in the low to mid-teens on an annual basis this year.

Gregory Garrabrants: We are making steady progress growing our loan pipelines in newer lending verticals such as floorplan and retail marine lending. Taking all these factors into consideration, we are confident that we will generate loan growth in the low to mid-teens on an annual basis this year. We had a strong increase in non-interest income as a result of several recurring and one non-recurring item. Mortgage banking income was $3.7 million in Q3 ended 31 March, up $2.2 million year-over-year due to a favorable servicing rights fair value adjustment. Advisory fee income was $9.4 million, up $1.3 million year-over-year.

Speaker #3: We had a strong increase in non-interest income as a result of several recurring and one non-recurring item. Mortgage banking income was 3.7 million in the quarter-ended March 31, up 2.2 million year-over-year due to a favorable servicing rights fair value adjustment.

Speaker #3: Advisory fee income was up 9.4 million, up 1.3 million year-over-year. Banking and service fees in the quarter included a $22 million one-time favorable legal settlement and the addition of rental income from commercial office properties we purchased in January.

Gregory Garrabrants: Banking and service fees in the, in the quarter included a $22 million one-time favorable legal settlement and the addition of rental income from commercial office properties we purchased in January. Verdant contributed approximately $23.7 million in non-interest income in the March quarter compared to $18.9 million in the December quarter. The credit quality of our loan book remains strong, and our historic and current charge-offs remain low. Net charge-offs were 31 basis points in the quarter ended March 31st, compared to 9 basis points in the year ago quarter. We charged off $14 million of our principal balance in a C&I cash flow loan that was put on non-accrual over a year ago when we allocated a specific loan loss reserve.

Speaker #3: Verdant contributed approximately $23.7 million in non-interest income in the March quarter, compared to $18.9 million in the December quarter. The credit quality of our loan book remains strong, and our historic and current charge-offs remain low.

Speaker #3: Net charge-offs were $31 basis points in the quarter-ended March 31, compared to 9 basis points in the year-ago quarter. We charged off $14 million of our principal balance in the CNI cash flow loan that was put on non-accrual over a year ago, when we allocated a specific loan loss reserve.

Speaker #3: The remaining principal balance is approximately $17 million at March 31 on that loan, and we maintain a $10 million specific loan reserve on this balance.

Gregory Garrabrants: The remaining principal balance is approximately $17 million at 31 March on that loan, and we maintain a $10 million specific loan reserve on this balance. Excluding the charge-off related to that loan, total net charge-offs were $5.1 million in the three months ended 31 March, or 8 basis points of annualized net charge-offs to average loans. Total non-performing assets were $180.4 million at the end of the quarter, down approximately $5 million from $185 million at the 31 March 2025 quarter. Non-performing assets declined by approximately $27 million in the multifamily group and commercial mortgages down by $19 million. One syndicated CNI share of national credit became delinquent this quarter, accounting for a $33 million sequential increase in our non-performing assets in the CNI loan area.

Speaker #3: Excluding the charge-off related to that loan, total net charge-offs were 5.1 million in the three months ended March 31, or 8 basis points of annualized net charge-offs to average loans.

Speaker #3: Total non-performing assets were $180.4 million. At the end of the quarter, down approximately 5 million from $185 million at the March 31, 2025 quarter.

Speaker #3: Non-performing assets declined by approximately 27 million in the multifamily group, and commercial mortgages down by 19 million. One syndicated CNI shared national credit became delinquent this quarter, accounting for a $33 million sequential increase in our non-performing assets in the CNI loan area.

Speaker #3: We have taken over as agent in the syndicated loan and are actively working to resolve this non-performing loan. Total non-performing assets was $62 basis points, at the March 31, 2026 time, down from $71 basis points at June 30, 2025.

Gregory Garrabrants: We have taken over as agent in the syndicated loan and are actively working to resolve this non-performing loan. Total non-performing assets was 62 basis points at 31 March 2026, down from 71 basis points at 30 June 2025. We remain well reserved for our low levels of credit losses, with our allowance for credit losses to non-accrual loans equal to 192.2% at 31 March 2026. In Axos Clearing, advisory and broker-dealer fees were up sequentially due to higher asset and transaction-based income. Total assets under custody administration were flat at $44 billion. Net new asset growth of approximately $140 million were offset by a decline in the stock market in the first three months of 2026. Cash sorting deposit balances were roughly flat quarter over quarter despite significant market volatility.

Speaker #3: We remain well reserved for our low levels of credit losses, with our allowance for credit losses to non-accrual loans equal to 192.2% at March 31, 2026.

Speaker #3: In Axos Clearing, advisory and broker-dealer fees were up sequentially due to higher asset and transaction-based income. Total assets under custody or administration were flat at $44 billion.

Speaker #3: Net new asset growth of approximately $140 million were offset by a decline in the stock market in the first three months of 2026. Cash sorting deposit balances were roughly flat, quarter over quarter, despite significant market volatility.

Speaker #3: We continue to expand the scope and scale of artificial intelligence across the firm to a wide range of businesses and functional units. Having established the governance framework and infrastructure to educate, train, and deploy AI tools to all Axos team members, we are now focused on scaling the usage of artificial intelligence across more use cases.

Gregory Garrabrants: We continue to expand the scope and scale of artificial intelligence across the firm to a wide range of businesses and functional units. Having established the governance framework and infrastructure to educate, train, and deploy AI tools to all Axos team members, we are now focused on scaling the usage of artificial intelligence across more use cases. We have over 500 team members using Claude Enterprise to improve the speed, quality, and productivity of various workflows. Since the beginning of calendar 2026, the number of technical uses of artificial intelligence tools has increased by 37%, increasing artificial intelligence's share of committed code to 90%. We are adding specialized agents to test, automate, and QC various work product. We continue to evaluate M&A opportunities to augment growth from existing businesses and team lift outs.

Speaker #3: We have over 500 team members using Claude Enterprise to improve the speed, quality, and productivity of various workflows. Since the beginning of calendar 2026, the number of technical users of artificial intelligence tools has increased by 37%, increasing artificial intelligence's share of committed code to 90%.

Speaker #3: We are adding specialized agents to test, automate, and QC various work products. We continue to evaluate M&A opportunities to augment growth from existing businesses and team liftouts.

Speaker #3: The Verdant equipment leasing acquisition continues to perform well, with good progress across a variety of strategic and operational initiatives. Loan growth remains healthy, and profitability continues to improve.

Gregory Garrabrants: The Verdant equipment leasing acquisition continues to perform well with good progress across a variety of strategic and operational initiatives. Loan growth remains healthy and profitability continues to improve. We announced the acquisition of approximately $2.3 billion of online saving deposits from Jenius Bank in February 2026. These deposits are a perfect fit for us, and we're excited to offer additional banking, lending, and securities products to the roughly 60,000 individual Jenius Bank digital banking clients. We received regulatory approval last month and expect to complete the deposit conversion and client onboarding next month. Last week, we announced a separate deposit acquisition of approximately $3.2 billion of IRA savings and CDs from Capital One. These are granular retirement savings accounts sourced through digital channels.

Speaker #3: We announced the acquisition of approximately $2.3 billion of online saving deposits from Genius Bank in February of 2026. These deposits are a perfect fit for us, and we're excited to offer additional banking, lending, and securities products to the roughly 60,000 individual Genius Bank digital banking clients.

Speaker #3: We received regulatory approval last month and expect to complete the deposit conversion and client onboarding next month. Last week, we announced a separate deposit acquisition of approximately $3.2 billion of IRA savings and CDs from Capital One.

Speaker #3: These are granular retirement savings accounts sorted through digital channels. We submitted our bank merger application for this transaction last week, and are actively working with Capital One to determine the exact timing and mechanisms of a conversion and close in the second half of calendar 2026.

Gregory Garrabrants: We submitted our bank merger application for this transaction last week and are actively working with Capital One to determine the exact timing and mechanisms of a conversion and close in the H2 of calendar 2026. These two opportunistic acquisitions help us with incremental liquidity and funding for future organic and inorganic loan growth opportunities. Our disciplined growth and strong capital allows us to capitalize on organic and inorganic growth. The regulatory environment and dynamics within the banking and fintech landscape have created a wealth of M&A opportunities that we intend to fully review. We continue to invest capital in areas where we see the best risk-adjusted returns and in tools, people, and processes that will help us scale. Now I'll turn the call over to Derek, who will have additional details on our financial results.

Speaker #3: These two opportunistic acquisitions help us with incremental liquidity and funding for future organic and inorganic loan growth opportunities. Our disciplined growth and strong capital allows us to capitalize on organic and inorganic growth.

Speaker #3: The regulatory environment and dynamics within the banking and M&A opportunities that we intend to fully review. We continue to invest capital in areas where we see the best risk-adjusted returns and in tools, people, and processes that will help us scale.

Speaker #3: Now, I'll turn the call over to Derek, who will have additional details on our financial results.

Speaker #5: Thanks, Greg. Quick reminder that in addition to our press release, our 10Q was filed with the SEC today and is available online through EDGAR or through our website at axosfinancial.com.

Derrick Walsh: Thanks, Greg. Quick reminder that in addition to our press release, our 10-Q 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 and our SEC filing for additional details. Non-interest expenses were approximately $186 million for the three months ended 31 March 2026, up by $1.4 million from the $184.6 million in the three months ended 31 December 2025. Salaries and benefit expenses were down $0.6 million on the linked quarter basis, and professional services fees were up $1.6 million.

Speaker #5: I will provide some brief comments on a few topics. Please refer to our press release and our SEC filing for additional details. Non-interest expenses were approximately $186 million for the three months ended March 31, 2026.

Speaker #5: Up by 1.4 million from the $184.6 million in the three months ended December 31, 2025. Salaries and benefit expenses were down 0.6 million on the link quarter basis and professional services fees were up 1.6 million.

Speaker #5: FDIC and regulatory fees increased 1.6 billion quarter over quarter, driven primarily by the fiscal year-to-date loan and deposit growth. Across our non-interest expense categories, we are seeing some of the benefits from operational productivity initiatives, including the increased leverage of our AI tools that we have implemented over the past 12 rate was 24.6% in the three months ended March 31, 2026, compared to the 26.8% in the prior quarter.

Derrick Walsh: FDIC and regulatory fees increased $1.6 million quarter-over-quarter, driven primarily by the fiscal year to date loan and deposit growth. We're seeing some of the benefits from operational productivity initiatives, including the increased leverage of our AI tools that we have implemented over the past 12 months. Our income tax rate was 24.6% in the 3 months ended 31 March 2026, compared to the 26.8% in the prior quarter. The primary reason for the sequential decline in our income tax rate was the benefit of RSU vestings and benefits derived from certain tax credits in the current quarter. While we continue to explore tax credit opportunities that could provide future tax rate benefits, our expectation is to maintain an annual tax rate of approximately 26% to 27%, excluding these potential benefits.

Speaker #5: The primary reason for the sequential decline in our income tax rate was the benefit of RSU vestings and benefits derived from certain tax credits in the current quarter.

Speaker #5: While we continue to explore tax credit opportunities, that could provide future tax rate benefits, our expectation is to maintain an annual tax rate of approximately 26 to 27 percent, excluding these potential benefits.

Speaker #5: Provision for credit losses was 41 million in Q3 '26, compared to 25 million in Q2 '26. The primary driver of the quarter over quarter increase in the provision for credit losses was a specific reserve of approximately $20 million for CNI loan.

Derrick Walsh: Provision for credit losses was $41 million in Q3 2026, compared to $25 million in Q2 2026. The primary driver of the quarter-over-quarter increase in the provision for credit losses was a specific reserve of approximately $20 million for C&I loan. We expect to maintain a loan loss reserve of approximately 1.3% to 1.4% of total loans and leases going forward. I'll wrap up with our loan pipeline and growth outlook. Our loan pipeline is robust at approximately $2.6 billion as of 24 April 2026, consisting of $611 million of SFR jumbo mortgage, $82 million of gain-on-sale agency mortgage, $103 million of multifamily and small balance commercial, $83 million of auto and consumer loans, and $1.7 billion dollars across the commercial portfolio.

Speaker #5: We expect to maintain a loan loss reserve of approximately 1.3 to 1.4 percent of total loans and leases going forward. I'll wrap up with our loan pipeline and growth outlook.

Speaker #5: Our loan pipeline is robust at approximately 2.6 billion as of April 24, 2026. Consisting of 600 and 11 million of SFR jumbo mortgage, 82 million of gain-on-sale agency mortgage, 103 million of multifamily and small balance commercial, 83 million of auto and consumer loans, and 1.7 billion across the commercial portfolio.

Speaker #5: We expect broad-based growth across several lending businesses to drive low- to mid-teens organic loan growth in the next year, excluding any potential acquisitions. We will deploy some of the Genius Bank deposits to reduce the temporary increase in borrowings in the March quarter, and plan to use the remaining Genius Bank deposits in combination with growth in our consumer and commercial banking deposits to fund our strong loan growth.

Derrick Walsh: We expect broad-based growth across several lending businesses to drive low-to-mid-teens organic loan growth in the next year, excluding any potential acquisitions. We will deploy some of the Jenius Bank deposits to reduce the temporary increase in borrowings in Q1 and plan to use the remaining Jenius Bank deposits in combination with growth in our consumer and commercial banking deposits to fund our strong loan growth. With that, I'll turn the call back over to Johnny.

Speaker #5: With that, I'll turn the call back over to Johnny.

Speaker #6: Thanks, Derek. Diego, we're ready to take questions.

Gregory Garrabrants: Thanks, Derek. Diego, we're ready to take questions.

Speaker #7: Thank you. At this time, we'll conduct our question-and-answer sessions. If you would like to ask a question, please press star one on your telephone keypad.

Operator 2: Thank you. At this time, we'll conduct our question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, to ask a question, press star one on your telephone keypad. Your first question comes from Kyle Peterson with Needham & Company. Please state your question.

Operator: Thank you. At this time, we'll conduct our question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, to ask a question, press star one on your telephone keypad. Your first question comes from Kyle Peterson with Needham & Company. Please state your question.

Speaker #7: A confirmation phone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue.

Speaker #7: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, ask a question, press star one on your telephone keypad.

Speaker #7: Your first question comes from Kyle Peterson with Needham & Company. Please state your question.

Speaker #8: That's great. Good afternoon. Thank you for taking the questions. I want to start off on some of the balance sheet moving pieces. I know there's a decent amount of stuff going on with the FHLB stuff and Genius coming on board, but I guess in terms of the securities balances, those also went up a decent amount this quarter.

Kyle Peterson: Great. Good afternoon. Thank you for taking the questions. Wanted to start off on, you know, some of the balance sheet moving pieces. I know there's a decent amount of stuff going on with, you know, the FHLB stuff, Jenius coming on board. I guess, I noticed the securities balances also went up a decent amount this quarter. I guess, like how much of that is managing some of the liquidity before the Jenius deal closes? I guess, do you guys anticipate running at a bit higher, you know, securities book in the near term? Just want to think about how we should think about the mix over the next few quarters here.

Speaker #8: So I guess how much of that is managing some of the liquidity before the Genius deal closes, or I guess do you guys anticipate running at a bit higher securities book in the near term, just want to think about how we should think about the mix over the next few quarters here?

Speaker #5: Yeah. If you'll notice, cash went down as well. So we have internal policy minimums for the level of cash or liquid assets that we hold.

Derrick Walsh: Yeah, if you'll notice, cash went down as well. We have internal policy minimums for the level of cash or liquid assets that we hold. What we identified in the marketplace back in October, November, was kind of a dislocation where if we bought some treasuries in 3, 5, 7-year tenures and we're able to hedge them with a SOFR swap, we could actually generate 30 basis points improvement over holding that cash at the Federal Reserve, which is what we would be doing anyway as part of that liquidity requirement. That was something. It was the widest that spread had gotten in a other than on the Liberation Day. That was a pretty rare dislocation in the marketplace.

Speaker #5: And what we identified in the marketplace back in October/November was kind of a dislocation where if we bought some Treasuries in three-, five-, seven-, ten-year, and we were able to hedge them with a SOFR swap, we could actually generate a 30 basis points improvement over holding that cash at the Federal Reserve, which is what we would be doing anyway as part of that liquidity requirement.

Speaker #5: So that was something it was the widest that spread had gotten in an other than on the Liberation Day. And so there are that was a pretty rare dislocation in the marketplace.

Speaker #5: So we took that opportunity and acquired some of those treasuries. We still can actually flip them and borrow against them. And they remain liquid since they're swap or remain rate-beneficial from a standpoint since they're swapped.

Derrick Walsh: We took that opportunity and acquired some of those treasuries. We still can actually flip them and borrow against them. They remain liquid since they're or remain rate beneficial from a standpoint since they're swapped. That's why you see that increase in the in the securities portfolio and that decrease in the cash. That was around $750 million that we, that we moved into those securities.

Speaker #5: So that's why you see that increase in the securities portfolio and that decrease in the cash. So that was around $750 million that we moved into those securities.

Speaker #8: Okay, that's helpful. Appreciate all the color there. And then maybe just a follow-up, particularly on capital call—it looks like it had a really nice quarter.

Kyle Peterson: Okay. That's helpful. Appreciate all the color there. You know, maybe just to follow up, you know, particularly on Capital Call, looks like it had a really nice Q on the growth front there. Wanted to see if you guys could give any more color, you know, what is either on, you know, bigger draws with existing customers or how much are you adding new accounts and kind of teams adding to the pipeline? Just wanted to think more about, like, new accounts and clients versus, you know, bigger drawdowns and utilization and, you know, how sustainable this kind of growth can be at least in the near term.

Speaker #8: On the growth front there, so I guess I wanted to see if you guys could give any more color what is either on bigger draws with existing customers or how much are you adding new accounts and kind of teams adding to the pipeline, just wanted to think more about new accounts and clients versus bigger drawdowns and utilization and how sustainable this kind of growth can be, at least in the near term.

Speaker #5: Yeah. Quite a few new clients. I wouldn't say there is any significantly greater drawdowns, although these they tend to take a few quarters. The lines we bring on tend to take a few quarters to reach their where they tend to be.

Gregory Garrabrants: Yeah. Quite a few new clients. I wouldn't say there's any significantly greater drawdowns, although, you know, these, they tend to take a few quarters to reach, you know, their, where they tend to be. Bringing on a lot of new clients mostly.

Speaker #5: But bringing on a lot of new clients, mostly.

Speaker #8: Okay.

Operator 2: Okay.

Operator: Okay.

Speaker #5: With respect to yeah, with respect to sustainability, I think that given the diversity of the loan book, it's often the case that different segments will outperform in any one quarter.

Gregory Garrabrants: With respect to-

Operator 2: Thank you.

Operator: Thank you.

Operator 2: Yeah, with respect to sustainability, you know, I think that, you know, given the diversity of the loan book, it's often the case that, you know, different segments will outperform in any one quarter. I don't expect that the cap call side growth will be as big as it was in the next quarter, but I still think it'll be pretty decent.

Gregory Garrabrants: Yeah, with respect to sustainability, you know, I think that, you know, given the diversity of the loan book, it's often the case that, you know, different segments will outperform in any one quarter. I don't expect that the cap call side growth will be as big as it was in the next quarter, but I still think it'll be pretty decent.

Speaker #5: So I don't expect that the cap call side growth will be as big as it was in the next quarter, but I still think it'll be pretty decent.

Speaker #8: Okay. Great. Thank you.

Operator 2: Okay, great. Thank you. Thank you. Your next question comes from Gary Tenner with D.A. Davidson. Please state your question.

Operator: Okay, great. Thank you. Thank you. Your next question comes from Gary Tenner with D.A. Davidson. Please state your question.

Speaker #7: Thank you. Your next question comes from Gary Tenner with DA Davidson. Please state your question.

Speaker #9: Thanks. Good afternoon. I just wanted to ask on the credit front, just looking at the allowance quarter over quarter and the increase there, was that pretty exclusively driven by the CNI non-accrual add in the quarter, or what other dynamics were at play in terms of the model on the allowance?

Gregory Garrabrants: Thanks. Good afternoon. Just wanted to ask, on the credit front, you know, just looking at the allowance quarter-over-quarter and the increase there. Was that pretty exclusively driven by the C&I non-accrual add in the quarter, or what other dynamics were at play in terms of the model on the allowance? The C&I was the biggest aspect of it. There was maybe a little bit tied to obviously the broader economic events or the geopolitical events that obviously flow through the Moody's variables and into the quantitative model. That C&I addition was the biggest piece of it. Okay. I appreciate that. Then just in terms of that credit in particular, could you provide any additional color on the type of credit and, you know, timing of resolution, et cetera?

Gary Tenner: Thanks. Good afternoon. Just wanted to ask, on the credit front, you know, just looking at the allowance quarter-over-quarter and the increase there. Was that pretty exclusively driven by the C&I non-accrual add in the quarter, or what other dynamics were at play in terms of the model on the allowance? The C&I was the biggest aspect of it. There was maybe a little bit tied to obviously the broader economic events or the geopolitical events that obviously flow through the Moody's variables and into the quantitative model. That C&I addition was the biggest piece of it. Okay. I appreciate that. Then just in terms of that credit in particular, could you provide any additional color on the type of credit and, you know, timing of resolution, et cetera?

Speaker #5: The CNI was the biggest aspect of it. There was maybe a little bit tied to, obviously, the broader economic events or the geopolitical events that, obviously, flow through the Moody's variables and into the quantitative model.

Speaker #5: But that CNI addition was the biggest piece of it.

Speaker #9: Okay. I appreciate that. And then just in terms of that credit in particular, could you provide any additional color on the type of credit and timing of resolution, etc.?

Speaker #5: Yeah. It was a syndicated shared national credit. We were not bank-syndicated credit. We were not the agent it's a lot of times with these agents, I think they made concessions early on that they probably should have been a little bit tougher on.

Gregory Garrabrants: Yeah, it was a syndicated, share national credit. We were not, you know, bank syndicated credit. We were not the agent. You know, it's, they, you know, A lot of times with these, with these agents, I think they made concessions early on that they probably should have been a little bit tougher on. We're now the agent, and we're working with the sponsor and, you know, we'll see where it goes. We felt it was obviously, well, it was prudent to put it on non-accrual and also to take a significant reserve against it. You know, I think, you know, over the next several quarters we'll know exactly how that's gonna turn out. Okay.

Speaker #5: We're now the agent, and we're working with the sponsor and we'll see where it goes. But we felt it was obviously, well, it was prudent to put it on non-accrual and also to take a significant reserve against it.

Speaker #5: And I think over the next several quarters, we'll know exactly how that's going to turn out.

Speaker #9: Okay. And just related to Derrick, was there any material impact in terms of reversing interest? On that in the quarter?

Gregory Garrabrants: Just related to, Derek, was there any material impact in terms of reversing interest on that in the quarter? Not significant. Okay. All right. Thank you.

Gary Tenner: Just related to, Derek, was there any material impact in terms of reversing interest on that in the quarter? Not significant. Okay. All right. Thank you.

Speaker #5: Not significant.

Speaker #9: Okay. All right. Thank you.

Speaker #7: Your next question comes from David Chavarini with Jefferies. Please state your question.

Operator 2: Your next question comes from David Chiaverini with Jefferies. Please state your question.

Operator: Your next question comes from David Chiaverini with Jefferies. Please state your question.

Speaker #8: Hey, guys. Brooks Dutton on on for Dave this afternoon. Can you guys help us quantify the impact that temporary borrowings had on NIM this quarter and whether that pressure should reverse as these borrowings roll off given the pending Genius acquisition?

Brooks Dutton: Hey, guys. Brooks Dutton on for Dave this afternoon. Can you guys help us quantify the impact that temporary borrowings had on NIM this quarter and whether that pressure should reverse as these borrowings roll off, given the pending Jenius Bank acquisition? Thanks.

Speaker #8: Thanks.

Speaker #5: Sure. So it was maybe a basis point or two, but for the most part, we swapped out or allowed a lot of our higher-cost deposits to outflow and replaced those with deposits.

Gregory Garrabrants: Sure. It was maybe a basis point or two, but for the most part it was, we swapped out or allowed a lot of our higher cost deposits to outflow and replaced those with deposits. It really wasn't anything too meaningful from an impact on NIM. Yeah. On the Jenius side, you know, they've been That book has been They've priced it at a higher price to some extent than we've priced some of our deposits, but we're probably not going to adjust pricing immediately. I think that although the Jenius acquisition is super helpful from a volume perspective, we don't really intend to try to optimize, you know, a few basis points here or there on NIM.

Speaker #5: So it really wasn't anything too meaningful from an impact on NIM. Yeah. On the Genius side, they've been that book has been they've priced it at a higher price to some extent than we've priced some of our deposits.

Speaker #5: But we're probably not going to adjust pricing immediately. So I think that although the Genius acquisition is super helpful from a volume perspective, we don't really intend to try to optimize a few basis points here or there on NIM just to we feel pretty good about where NIM is being flattish going forward other than the that five bips of amortization of the premium.

Gregory Garrabrants: You know, we feel pretty good about where NIM is being, you know, flattish going forward other than the, you know, that 5 bps of amortization of the premium. I think eventually we'll kind of be able to normalize that. I don't wanna introduce all those clients to the bank with a rate cut. We'll probably keep it there. You know. That's kind of the dynamic.

Speaker #5: And I think eventually, we'll kind of be able to normalize that. But I don't want to introduce all those clients to the bank with a rate cut.

Speaker #5: So we'll probably keep it there. But so that's kind of the dynamic.

Speaker #8: Great. Thank you very much.

Brooks Dutton: Great. Thank you very much.

Speaker #5: Thank you.

Gregory Garrabrants: Thank you.

Speaker #7: Your next question comes from Kelly Matta with KBW. Please state your question.

Operator 2: Your next question comes from Kelly Motta with KBW. Please state your question.

Operator: Your next question comes from Kelly Motta with KBW. Please state your question.

Speaker #10: Hey, good afternoon. Do you have the question? Maybe it's really nice how these two deposit acquisitions help provide avenues to fuel what's been really outstanding growth on your part.

Kelly Motta: Hey, good afternoon.

Gregory Garrabrants: Hey, Kelly.

Kelly Motta: Thanks for the question. It's really nice how these two deposit acquisitions help provide avenues to fuel what's been really outstanding growth on your part. I'm wondering as we've seen with the Jenius deposits, I apologize, allowing you to maybe be a little more aggressive with repricing your own deposits. I'm wondering how you're viewing the Capital One deposits, maybe an average cost of those. If similarly that's, you know, going to help you further price down funding or it should be kind of a net add to deposits, just as we think through both the margin and overall.

Speaker #10: I'm wondering, as we've seen with the GENIUS Act or the GENIUS deposits—I apologize—if that's allowing you to maybe be a little more aggressive with repricing your own deposits.

Speaker #10: I'm wondering how you're viewing the Capital One deposits, maybe average cost of those, and if similarly that's going to help you further price down funding or it should be kind of a net add to deposits, just as we think through both the margin and overall size of the balance sheet.

Gregory Garrabrants: Yeah.

Kelly Motta: -size of the balance sheet.

Speaker #5: Yeah. No, those are great questions, Kelly. Thank you. I think that we're kind of looking at these as absolutely ensuring that we're able to have the funding for the level of loan growth that we're looking forward to having it.

Gregory Garrabrants: No, those are great questions, Kelly. Thank you. I think that we're kind of looking at these as absolutely ensuring that we're able to have the funding for the level of loan growth that we're looking forward to having it. I think certainly it does ensure that we don't have to price up deposits or, you know, increase marketing budgets in order to fund ourselves, which I think is obviously very helpful, but I wouldn't really model in any, you know, significant sort of increase in NIM from our ability to say, Well, now we're gonna try to price down other deposits just based on having that access. You know, I think we feel pretty good. Well, I know I do, and I think Derek does too.

Speaker #5: I think certainly it does ensure that we don't have to price up deposits or to increase marketing budgets. In order to fund ourselves, which I think is obviously very helpful.

Speaker #5: But I wouldn't really model in any significant sort of increase in NIM from our ability to say, "Well, now we're going to try to price down other deposits just based on having that excess." I think we feel pretty good.

Speaker #5: Well, I know I do, and I think Derrick does too. Feel pretty good about the fact that we've been able to manage this rate cycle really well and that we were able to have almost a 100 or better than we had NIM expansion on the way up and essentially for the most part maintain our net interest margin on the way down.

Gregory Garrabrants: Feel pretty good about the fact that we've been able to manage this rate cycle really well, and that we were able to have almost a, you know, 100 or, you know, better than, you know, we had NIM expansion on the way up and essentially, for the most part, maintain our net interest margin on the way down. That, you know, that is obviously assisted by this. We probably would have had to increase marketing expense, you know, somewhat otherwise or be a little more aggressive on pricing. I think it'll help on balance, but I think that, you know, our guidance on NIM incorporates those acquisitions and how we're thinking about pricing with respect to them.

Speaker #5: And so that is obviously assisted by this. And we probably would have had to increase marketing expense somewhat otherwise, or be a little more aggressive on pricing.

Speaker #5: So I think it'll help on balance, but I think that our guidance on NIM incorporates those acquisitions and how we're thinking about pricing with respect to them.

Speaker #10: Got it. So as those come on, just as we kind of think through the balance sheet then in order to fund your growth, could we see a build in liquidity just as you kind of have the dry powder to deploy and just trying to properly handicap if there's a bigger balance sheet?

Kelly Motta: Got it. As those come on, just as we kind of like think through the balance sheet then in order to fund your growth, could we see a build in liquidity just as you kind of get to have the dry powder to deploy? Just trying to properly handicap if there's, you know, a bigger balance sheet, but a little pressure from the liquidity build there.

Speaker #10: But a little pressure from the liquidity build there.

Speaker #5: Yeah. I think we've strategically positioned the balance sheet for this quarter and this coming quarter's growth. I mean, might there be a little overhang potentially for this fiscal Q4 with relation to the Genius deposits, but I think that generally speaking, I think we've lined ourselves up well there not to have much that's worth kind of modeling out.

Derrick Walsh: Yeah. I think we've strategically positioned the balance sheet for this quarter and this coming quarter's growth. I mean, might there be a little overhang potentially for this fiscal Q4 with relation to the Jenius deposits? But I think that generally speaking, I think we've lined ourselves up well there not to have much that's worth kind of modeling out. From the Capital One, it will somewhat depend on the timing of that and of course on some of our own organic growth and opportunities there. But I would expect that there might be a little bit more of a balance sheet gross up in that kind of later portion of the calendar year 2026 that might roll over into early 2027.

Speaker #5: From the Capital One, it will somewhat depend on the timing of that and, of course, on some of our own organic growth and opportunities there.

Speaker #5: But I would expect that there might be a little bit more of a balance sheet growth up in that kind of later portion of the calendar year 2026 that might roll over into early '27.

Speaker #5: But again, at that point, with the expectations being greater than $30 billion of assets and it won't be anything that will be overly significant.

Derrick Walsh: Again, at that point, be with the expectations being greater than $30 billion of assets, and it won't be anything that will be overly significant.

Speaker #10: Got it. That's helpful. Maybe a last question for me. In regards to the Vernon acquisition, you've had some really nice boosts in your fee income related to that.

Kelly Motta: Got it. That's helpful. Maybe, maybe a last question from me, is in regards to the Verdant acquisition. You've had, you know, some really nice boosts in your fee income related to that. As you kind of think ahead, you know, given your really strong pipelines across your businesses, how are you thinking through the operating leases versus on balance sheet? Fair to say some additional fee income growth from that, or should we see more of that added to the loan portfolio here, just as we think through, you know, your appetite for that? Thank you.

Speaker #10: As you kind of think ahead, given your really strong pipelines across your businesses, how are you thinking through the operating leases versus on balance sheet and fair to say some additional fee income growth from that?

Speaker #10: Or should we see more of that added to the loan portfolio here just as we think through your appetite for that? Thank you.

Speaker #5: Yeah. It's kind of tough to tell. I think I referenced last quarter that it's the operating leases are about one of every six or one six of all the originations, roughly.

Derrick Walsh: Yeah. It's kind of tough to tell. I think I referenced last quarter that it's the operating leases are about one of every six or one-sixth of all the originations, roughly. That could flux up or down depending on just opportunities and the nuances of the accounting around specific leases. Obviously the objective, both the management team from a incentive standpoint and our business operations back office support are incentive to help support and grow that business. I think it will be in line with our forecasted loan growth and is incorporated into that. I guess in summary, I can't give you a specific number or reference as to how that fee income will grow, but it should generally grow.

Speaker #5: And that could flux up or down depending on just opportunities and the nuances of the accounting around specific leases. So the obviously, the objective, both the management team from an incentive standpoint and our business operations back office support are incented to help support and grow that business.

Speaker #5: And so I think the overall kind of we'll be in line with our forecasted loan growth and is incorporated into that. So I guess in summary, I can't give you a specific number or reference as to how that fee income will grow.

Speaker #5: But the it should generally grow, but I think I wouldn't I guess model it too significantly from that standpoint given it's only one sixth of the origination volume.

Derrick Walsh: I think I wouldn't, I guess, model it too significantly from that standpoint, given it's only one-sixth of the origination volume.

Speaker #10: Understood. Thank you so much. I'll step back.

Kelly Motta: Understood. Thank you so much. I'll step back.

Speaker #5: Thanks, Kelly.

Derrick Walsh: Thanks, Kelly.

Speaker #11: Thank you, and a reminder to the audience to ask a question, press star two on your phone, star one on your phone to ask a question, press star two to remove your question.

Operator 2: Thank you. A reminder to the audience, to ask a question, press star two on your phone. Star one on your phone to ask a question. Press star two to remove your question. Your next question comes from Liam Cohill with Raymond James. Please state your question.

Operator: Thank you. A reminder to the audience, to ask a question, press star two on your phone. Star one on your phone to ask a question. Press star two to remove your question. Your next question comes from Liam Cohill with Raymond James. Please state your question.

Speaker #11: Your next question comes from Liam Cuhill with Raymond James. Please state your question.

Speaker #5: Hey, guys. Good afternoon. It's Liam on for David.

Liam Cohill: Hey, guys. Good afternoon. Liam on for David.

Speaker #12: Hey, Liam.

Gregory Garrabrants: Hey, Liam.

Derrick Walsh: Hey.

Liam Cohill: On your securities business, you know, it sounds like client acquisition trends remain pretty positive despite the market volatility in the quarter. You know, we've talked about the opportunity to cross-sell potentially to Jenius customers, but do you maybe see similar opportunity with those Capital One clients? Could you maybe talk about some offerings that could be attractive to them?

Speaker #11: So on your securities business, it sounds like client acquisition trends remain pretty positive despite the market volatility in the quarter. And we've talked about the opportunity to cross-sell potentially to Genius customers, but do you maybe see similar opportunity with those Capital One clients?

Speaker #11: And could you maybe talk about some offerings that could be attractive to them?

Speaker #12: Yeah. I think over time, the Capital One clients they were a little sensitive in some periods to certain kinds of cross-sell. They were not sensitive to securities cross-sell.

Gregory Garrabrants: Yeah. You know, I think, over time, the Capital One clients, they were a little sensitive in some periods to certain kinds of cross-sell. They were not sensitive to securities cross-sell. I do think that there would be opportunities there on the Capital One clients with respect to some of those offerings, just because, you know, these are retirement accounts. Right now they're very limited in their, in their product types that they have offered and we'll obviously offer them greater product types. We have no restrictions on our ability to cross-sell those clients. I think over time, you know, as that develops, they can become more general banking clients as well. I do think there's those opportunities.

Speaker #12: I do think that there would be opportunities there on the Capital One clients with respect to some of those offerings just because these are retirement accounts right now.

Speaker #12: They're very limited in their product types that they have offered and will obviously offer them greater product types. We have no restrictions on our ability to cross-sell securities products to those clients.

Speaker #12: I think over time, as that develops, they can become more general banking clients as well. So I do think those opportunities.

Speaker #11: No, it's helpful. Thank you. And Kelly touched on the operating leases a minute ago, but I was also curious to hear about other core non-interest income trends.

Liam Cohill: No, it's helpful. Thank you. Kelly touched on the operating leases a minute ago, but I was also curious to hear about other core non-interest income trends. I mean, could you discuss where you're seeing success and maybe how you expect core fees to move going forward?

Speaker #11: I mean, could you discuss where you're seeing success and maybe how you expect core fees to move going forward?

Derrick Walsh: Sure. I think one of the other things that in there, Greg referenced it in his quotes or in his prepared remarks, was that there was roughly $4 million of rental income from our future headquarters as that building's larger than what we would plan to move in. That there's a good amount of space there that is, when we acquired it, already leased out. We have some rental income, and then there's corresponding depreciation and other expense that was roughly $2 to 3 million in the non-interest expense this quarter.

Speaker #5: Sure. I think one of the other things that's in there—and Greg referenced it in his quotes, or in his prepared remarks—was that there was roughly $4 million of rental income from our future headquarters, as that building's larger than what we would plan to move in.

Speaker #5: So that there's a good amount of space there. That is we when we acquired it, that is already leased out. So we have some rental income, and then there's corresponding depreciation and other expense that was roughly 2 to 3 million dollars in the non-interest expense this quarter.

Speaker #5: But on the staying on the fee income side, that's probably one of the other major items that impacted the fee income this quarter, besides obviously the Vernon piece and the one-time legal settlement.

Derrick Walsh: On the staying on the fee income side, that's probably one of the other major items that impacted the fee income this quarter, besides obviously the Verdant piece, and the legal, the one-time legal settlement. Otherwise, the growth across that category was driven predominantly by the mortgage banking increase. There was a positive movement on the valuation of the MSRs at the end of the quarter. Some of the other fees, advisory, broker-dealer, and some of the other just general banking service fees and other income all had more kind of stepstone, more increases that weren't overly significant. Obviously, as we grow each of these businesses, we expect those fees to also increase.

Speaker #5: So that's otherwise. The growth across that category was driven predominantly by the mortgage banking increase. So there was a positive movement on the valuation of the MSRs.

Speaker #5: At the end of the quarter, and then some of the other fees—advisory, broker-dealer, and some of the other just general banking service fees and other income—all had more kind of step-stone, more increases that weren't overly significant, but obviously as we grow each of these businesses, we expect those fees to also increase.

Speaker #11: Understood. Thank you. Last one for me. Where do you think there is the most opportunity for M&A today? And where are you seeing valuations that are rational?

Liam Cohill: Understood. Thank you. Last one from me. Where do you think there is the most opportunity for M&A today? You know, where are you seeing valuations that are rational? Is that tending to be more lending teams or larger portfolios?

Speaker #11: Is that tending to be more lending teams or larger portfolios?

Gregory Garrabrants: You know, we're really looking at some of each. If you looked at our portfolio, we've got team acquisitions, we've got fintechs that have some kind of element of their business model that they were really good at something, but they need, you know, components that we have. We have banks that we're talking with, large and small. There's always a specialty finance side too, that we continue to look at. There it's teams and businesses. You know, we're very disciplined. We, you know, we talk to people for a long time. We don't rush into things. We, you know, we make sure that it's gonna fit and that we're able to digest it.

Speaker #12: We're really looking at some of each. So if you looked at our portfolio, we've got team acquisitions. We've got fintechs that have some kind of element of their business model where they were really good at something, but they need components that we have.

Speaker #12: We have banks that we're talking with, large and small. So it's and there's always a specialty finance side too that we continue to look at, and there it's teams and businesses.

Speaker #12: So we're very disciplined we talk to people for a long time. We don't rush into things. We make sure that it's going to fit and that we're able to digest it.

Speaker #12: But so it really I think there's a lot of videosynchrony and a lot of times the individual circumstances with respect to people, funding, just where different individuals and companies are in their life cycle help fuel different opportunities.

Gregory Garrabrants: You know, it really, I think there's a lot of idiosyncrasy and a lot of times the individual circumstances with respect to, you know, people funding, just where different individuals and companies are in their life cycle help fuel different opportunities. You know, we're always very active. We talk to a lot of people. We have conversations over long periods of time. We try to build relationships. Sometimes it looks like an accident or just something happens quickly, but it isn't really that. It's really a pretty deliberate strategy of staying with a lot of different opportunities over time and then building those relationships. When they're ready to transact, we're there for them.

Speaker #12: And so we're always very active. We talk to a lot of people. We have conversations over long periods of time. We try to build relationships.

Speaker #12: And then so sometimes it looks like an accident or just something happens quickly, but it isn't really that. It's really a pretty deliberate strategy of staying with a lot of different opportunities over time and building those relationships.

Speaker #12: And so then, when they're ready to transact, we're there for them.

Speaker #11: Great. Thank you for all the color. I'll step back.

Liam Cohill: Great. Thank you for all the color. I'll step back.

Speaker #12: Thank you.

Gregory Garrabrants: Thank you.

Speaker #11: Thanks, Liam.

Derrick Walsh: Thanks, William.

Speaker #13: Your next question comes from Edward Hemelgard with Shaker Investments. Please state the question.

Operator 2: Your next question comes from Edward Hemmelgarn with Shaker Investments. Please state your question.

Operator: Your next question comes from Edward Hemmelgarn with Shaker Investments. Please state your question.

Speaker #12: Hey, Ed.

Gregory Garrabrants: Hey, Ed.

Speaker #14: Yeah. How are you doing? Great. Could you maybe walk me through just the balance of loans throughout the quarter? I mean, if I'm looking at it correctly, your average balance barely grew, if at all, from the ending balance at December 31st?

Edward Hemmelgarn: Yeah. How are you doing, Greg?

Gregory Garrabrants: Yeah.

David Brown: maybe walk me through just the balance of loans throughout the quarter? I mean, your, if I'm looking at it correctly, your average balances barely grew from, if at all, from the ending balance at 31 December. Was there something else going on?

Edward Hemmelgarn: maybe walk me through just the balance of loans throughout the quarter? I mean, your, if I'm looking at it correctly, your average balances barely grew from, if at all, from the ending balance at 31 December. Was there something else going on?

Speaker #14: Was there something else going on?

Speaker #5: There were some early prepaids during the quarter. So that's what kind of counteracted some of the obviously ending quarter growth. So January, we were down at the end of that quarter from kind of the prior from that prior month of December.

Derrick Walsh: There were some early prepays during the quarter, so that's what kind of counteracted some of the obviously ending quarter growth. January we were down at the end of that quarter from kind of that prior month of December. I think that had the biggest impact from that standpoint. On the, we did grow on the average balance by $1.15 billion of loans. I'm not sure if maybe there's something else. Maybe you're looking at the assets. The assets did stay relatively flat, and that was as we'd been sitting on some level of excess cash, and so we did reduce that excess cash. As touched on earlier, some of it went into those investment securities, but it still came down.

Speaker #5: I think that had the biggest impact. From that standpoint, on the we did grow on the average balance by 1.15 billion of loans. So I'm not sure if maybe there's something maybe you're looking at the assets.

Speaker #5: The assets did stay relatively flat, and that was as we basically we've been sitting on some level of excess cash, and so we did reduce that excess cash as touched on earlier.

Speaker #5: Some of it went into those investment securities. But it's still came down about 800 million on an average balance as we had some surplus in cash previously.

Edward Hemmelgarn: We had some surplus in cash previously.

Speaker #12: Yeah. And we're converting Genius this weekend. So that'll then on Monday, those balances will be at the bank. But yeah, no, I think you may be comparing I don't know if you're comparing end-of-period to average, but yeah.

Gregory Garrabrants: Yeah, we're converting Jenius Bank this weekend. Then on Monday, those balances will be at the bank. Yeah, no, I think you may be comparing, like, I don't know if you're comparing end of period to average.

Edward Hemmelgarn: Right.

Gregory Garrabrants: Yeah. Yeah.

Speaker #14: Well, it's kind of just surprising because this is the first time I'd really noticed that there was this much of an adjustment within the quarter.

David Brown: Well, it's kind of just surprising because it's the first time I'd really noticed that there was this much of an adjustment within the quarter. I mean, generally, you have a, unless something obviously is explaining you know, your average balances grow similar to what the, or are in excess of what your ending balance were the prior quarter.

Edward Hemmelgarn: Well, it's kind of just surprising because it's the first time I'd really noticed that there was this much of an adjustment within the quarter. I mean, generally, you have a, unless something obviously is explaining you know, your average balances grow similar to what the, or are in excess of what your ending balance were the prior quarter.

Speaker #14: I mean, generally, you have—unless something, obviously, is explaining to you—your average balance is growing similar to what the, or in excess of what, your ending balance is, where the prior quarter.

Speaker #12: Yeah, there was a couple—there was a number of prepaids, some of which I don't think we were expecting. I think it was in January.

Gregory Garrabrants: Yeah. There was a number of prepays, some of which, I don't think we were expecting. I think it was in January. Yeah, I think average balance still grew. That is important, right? Because you only earn.

Speaker #12: But yeah, I think average balance still grew. But that is important, right? Because you only earn that interest income on what you're putting out.

Edward Hemmelgarn: Right

Gregory Garrabrants: Right

Edward Hemmelgarn: net interest income on what you're putting out. If you're growing only at the end of the Q, then that gets reflected next Q, but not in the current Q. Yeah, no, I agree. I think everybody should stop using the Q end as a mechanism of governing the speed at which they get things done. I agree with you 100%. I'm gonna convey that message to everyone in the organization immediately. It'll be the first time they've heard it, so.

Speaker #12: And if you're growing only at the end of the quarter, then that gets reflected next quarter, but not in the current quarter. So yeah, no, I agree.

Speaker #12: I think everybody should stop using the quarter end as a mechanism of governing the speed at which they get things done. I agree with you 100%.

Speaker #12: I'm going to convey that message to everyone in the organization immediately. It'll be the first time they've heard it, so that's understandable. That's my question.

Edward Hemmelgarn: Understandable.

Gregory Garrabrants: Understandable.

Edward Hemmelgarn: Yeah.

Edward Hemmelgarn: That's my question. Thanks.

Gregory Garrabrants: That's my question. Thanks.

Speaker #12: Thanks. Yeah, all right. Good to talk to you, Ed. See you.

Gregory Garrabrants: Yeah. All right. Give the five to you. See you.

Operator: Yeah. All right. Give the five to you. See you.

Speaker #13: Your next question comes from Kelly Matta with KBW. Please state your question.

Operator 2: Your next question comes from Kelly Motta with KBW. Please state your question.

Operator: Your next question comes from Kelly Motta with KBW. Please state your question.

Speaker #15: Hey. Thank you so much for letting me on for a follow-up. I just had a real quick one. Just wondering, given the really strong loan growth you're seeing, just wondering how competition is faring in spreads are holding up.

Kelly Motta: Hey, thank you so much for letting me on for a follow-up. I just had a real quick one. Just wondering, given the really strong loan growth we're seeing, just wondering how competition is faring and spreads are holding up. I understand there's quite a bit of difference between businesses, but just trying to get a sense of the direction of loan yields from here. Thank you.

Speaker #15: I understand there's quite a bit of difference between businesses, but just trying to get a sense of the direction of loan yields from here.

Speaker #15: Thank you.

Speaker #12: Yeah. I feel that spreads are stable. I'd say from where we are. I think that there was to the extent that there was compression, I feel like that I'd say that compression has stopped.

Gregory Garrabrants: Yeah. You know, I feel that spreads are stable, I'd say, from where we are. I think that to the extent that there was compression, I feel like that I'd say that compression has stopped. I do think that in some instances there's been, you know, some of the outflows in private credit and things like that have resulted in just a little bit of a different positive competitive dynamic, but it's not enough to say that you're taking back any of that compression that kind of happened over the prior year. I feel pretty good about where we are now in general. I don't predict that we're gonna have further spread compression. You know, there'll be a credit here and there that, you know, they're gonna be bargaining and fighting about.

Speaker #12: I do think that in some instances, there has been some of the outflows in private credit and things like that have resulted in just a little bit of a different positive competitive dynamic, but it's not enough to say that you're taking back any of that compression that kind of happened over the prior year.

Speaker #12: But I feel pretty good about where we are now in general. I think we've— I don't predict that we're going to have further spread compression.

Speaker #12: There'll be a credit here and there that they're going to be bargaining and fighting about. But I think we've done a pretty good job and have a pretty good mix.

Gregory Garrabrants: I think we've done a pretty good job and have a pretty good max and, you know. Then I think also with respect to, you know, some of the, like, the Verdant lending is a little bit higher spreads. I think we've got a pretty good max that allows us to keep spreads where they are.

Speaker #12: And then I think also, with respect to some of the Verdant lending, there's a little bit higher spread. So, I think we've got a pretty good mix that allows us to keep spreads where they are.

Speaker #15: Great. Thank you so much.

Kelly Motta: Great. Thank you so much.

Speaker #12: Thank you.

Gregory Garrabrants: Thank you.

Speaker #13: Thank you. And there appears to be no additional questions at this time, so I'll hand the floor back to Johnny Lai for a closing remarks.

Operator 2: Thank you. There appears to be no additional questions at this time, so I'll hand the floor back to Johnny Lai for closing remarks.

Operator: Thank you. There appears to be no additional questions at this time, so I'll hand the floor back to Johnny Lai for closing remarks.

Speaker #12: Great. Thanks for everyone for joining us. And we'll talk to you next quarter.

Johnny Lai: Great. Thanks for everyone for joining us, we'll talk to you next quarter.

Operator 2: This concludes today's call. All parties may disconnect. Have a good day.

Operator: This concludes today's call. All parties may disconnect. Have a good day.

Q3 2026 Axos Financial Inc Earnings Call

Request DemoDemo

Axos Financial

Earnings