Q4 2026 Axos Financial Inc Earnings Call

July 30, 2026

Operator 2: Please hold. The conference will be starting shortly. Thank you for your patience. Greetings, and welcome to the Axos Q4 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 during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to Johnny Lai, SVP, Corporate Development and IR. Thank you, Johnny. You may begin.

Operator: Thank you for your patience. Greetings, and welcome to the Axos Q4 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 during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to Johnny Lai, SVP, Corporate Development and IR. Thank you, Johnny. You may begin.

Speaker #1: At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press *0 on your telephone keypad.

Speaker #1: As a reminder, this conference is being recorded. I would now like to turn the conference over to Johnny Lai, SVP, Corporate Development and IR.

Speaker #1: Thank you, Johnny. You may begin.

Speaker #2: Thanks, Alicia. Good afternoon, everyone, and welcome to our 4th Quarter 2026 earnings conference call. Joining us today are the companies' president and chief executive officer, Greg Garrabrants, and executive vice president and chief financial officer, Derrick Walsh.

Johnny Lai: Thanks, Alicia. Good afternoon, everyone, and welcome to our Q4 2026 Earnings 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 K. Walsh. Greg and Derrick will review and comment on the financial and operational results for the quarter and fiscal year ended 30 June 2026, 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.

Speaker #2: Greg and Derrick will review and comment on the financial and operational results for the quarter and fiscal year ended June 30th, 2026, and we will be available to answer questions after the prepared remarks.

Speaker #2: 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.

Speaker #2: Please refer to the Safe Harbor statement found in today's earnings press release and in our investor presentation. This call is being webcast, and there will be an audio replay available in the IR section of the company's website located at axosfinancial.com for 30 days.

Johnny Lai: This call is being webcast, and there will be an audio replay available in the IR 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. I'd like to turn it over to Greg for opening remarks.

Speaker #2: Details for this call were provided on the conference call announcement and in today's earnings press release. Now I would like to turn it over to Greg for opening remarks.

Speaker #3: Thank you, Johnny. Good afternoon, everyone, and thank you for joining us. I'd like to welcome everyone to Axos Financial's fiscal 2026 earnings conference call for the quarter ended June 30, 2026.

Greg Garrabrants: Thank you, Johnny. Good afternoon, everyone. Thank you for joining us. I'd like to welcome everyone to Axos Financial's fiscal 2026 Earnings Conference Call for the quarter ended 30 June 2026. I thank you for your interest in Axos Financial. We closed our fiscal 2026 with positive momentum, with double-digit year-over-year growth and net interest income, non-interest income, ending loan and deposits, EPS, and book value per share. We generated approximately $638 million of net loan growth linked quarter, resulting in a 15% annualized growth in net income. Excluding single-family mortgage warehouse, ending net loan balances increased by $750 million from 31 March 2026 to 30 June 2026. Other highlights in the quarter include non-interest income was $61.9 million for the quarter ended 30 June 2026, up from $41.3 million in the corresponding quarter a year ago.

Speaker #3: I thank you for your interest in Axos Financial. Closed our fiscal 2026 with positive momentum, with double-digit year-over-year growth and net interest income non-interest income ending loan and deposits, EPS, and book value per share.

Speaker #3: We generated approximately $638 million of net loan growth linked quarter, resulting in a 15% annualized growth in net income. Excluding single-family mortgage warehouse, ending net loan balances increased by $750 million from March 31, 2026, to June 30, 2026.

Speaker #3: Otherwise, highlights in the quarter include non-interest income was $61.9 million, for the quarter ended June 30, 2026, up from $41.3 million, in the corresponding quarter a year ago.

Speaker #3: For the 12 months ended June 30, 2026, non-interest income was $233.6 million, compared to $131.1 million in fiscal year 2025. The primary contributors to the year-over-year growth in non-interest income for the three- and twelve-month periods were Verdant, prepayment fees, and the additional rental income from the commercial office building we purchased in January 2026 to be used as our future headquarters.

Greg Garrabrants: For the 12 months ended 30 June 2026, non-interest income was $233.6 million, compared to $131.1 million in fiscal year 2025. The primary contributor to the year-over-year growth in non-interest income for the three- and twelve-month period were verdant prepayment fees and the additional rental income from the commercial office building we purchased in January 2026 to be used as our future headquarters. Net interest margin was 4.54% for the quarter ended 30 June 2026, roughly flat compared to 4.57% in the prior quarter. Excluding the impact from holding higher average cash balances and the addition of deposits acquired from Jenius Bank, our net interest margin was up slightly quarter over quarter.

Speaker #3: Net interest margin was 4.54% for the quarter ended June 30, 2026, roughly flat, compared to 4.57% on the prior quarter, excluding the impact from holding higher average cash balances and the addition of deposits acquired from Genius Bank, our net interest margin was up slightly quarter over quarter.

Speaker #3: Non-interest expenses were at $205.9 million for the 3 months ended June 30, 2026, up by $20 million linked quarter. Excluding the $21 million accrual related to illegal matter in our clearing business, non-interest expenses were down $1 million linked quarter due to lower advertising, promotion, professional services, and other G&A expenses.

Greg Garrabrants: Non-interest expenses were at $205.9 million for the three months ended 30 June 2026, up by $20 million linked quarter. Excluding the $21 million accrual related to a legal matter in our clearing business, non-interest expenses were down $1 million linked quarter due to lower advertising, promotion, professional services, and other G&A expenses. We continued to maintain a low operating efficiency ratio despite ongoing investments in product, technology, and people. Our bank efficiency ratio was 42.2% for the 12 months ended 30 June 2026, compared to 40.8% in the fiscal year 2025. Non-performing assets were $159 million at 30 June 2026, down from $180 million at 31 March 2026, and $175 million at 30 June 2025.

Speaker #3: We continue to maintain a low operating efficiency ratio despite ongoing investments in product, technology, and people. Our bank efficiency ratio was 42.2% for the 12 months ended June 30, 2026, compared to 40.8% in fiscal year 2025.

Speaker #3: Non-performing assets were $159 million, at June 30, 2026, down from $180 million in March 31, 2026, and $175 million at June 30, 2025, we remain well-reserved relative to our low current and historic level of net charge-offs, with an allowance for credit losses to total loans of $1.34% at 2026.

Greg Garrabrants: We remain well reserved relative to our low current and historic level of net charge-offs, with an allowance for credit losses to total loans of 1.34% at 30 June 2026. Net income was approximately $124.9 million in the quarter ended 30 June 2026, up 12.9% from the $110.7 million in the prior year's Q4. Diluted EPS was $2.16 per share for the quarter ended 30 June 2026, compared to $1.92 per share in the Q4 of fiscal 2025, representing a 12.5% year-over-year increase. Excluding the $21 million legal accrual, net income was $141.8 million, and diluted earnings per share was $2 and For the three months ended 30 June 2026, up 28% from the prior year's comparable quarter.

Speaker #3: Net income was approximately $124.9 million in the quarter ended June 30, 2026, up 12.9% from the $110.7 million in the prior year's fourth quarter.

Speaker #3: Diluted EPS was $2.16 per share for the quarter ended June 30, 2026, compared to $1.92 per share in the fourth quarter of fiscal 2025, representing a 12.5% year-over-year increase.

Speaker #3: Excluding the $21 million legal accrual, net income was $141.8 million, and diluted earnings per share was $2.46 for the 3 months ended June 30, 2026, up 28% from the prior year's comparable quarter.

Speaker #3: We repurchased $22 million of common stock during the three months ended June 30, 2026, at an average price of $87.95 per share. We have approximately $126 million remaining in our current share repurchase authorization.

Greg Garrabrants: We repurchased $22 million of common stock during the three months ended 30 June 2026, at an average price of $87.95 per share. We have approximately $126 million remaining in our current share repurchase authorization. Total originations for investment, excluding single-family warehouse lending, increased 22% on a linked-quarter basis, resulting in ending net loan growth of approximately $750 million. Loan growth was strong in capital call, real estate lender finance, floor plan lending, and equipment finance. Jumbo single family, multifamily, and small balance commercial loan balances were roughly flat linked quarter. Average loan yields for the three months ended 30 June 2026, were 7.4%, stable compared to the prior quarter. Average loan yields for non-purchase loans were 7.2%, and average yields for purchase loans was 13%, which includes the accretion of our purchase price discount. The FDIC purchase loans continue to perform, and all loans in that portfolio remain current.

Speaker #3: Total originations for investment, excluding single-family warehouse lending, increased 22% on the linked quarter basis, resulting in ending net loan growth of approximately $750 million.

Speaker #3: Loan growth was strong and capital call, real estate lender finance, floor plan lending, and equipment finance. Jumbo single-family, multifamily, and small-balanced commercial loan balances were roughly flat linked quarter.

Speaker #3: Average loan yields for the 3 months ended June 30, 2026, were 7.4%, stable compared to the prior quarter. Average loan yields for non-purchase loans were 7.2%, and average yields for purchase loans was 13%, which includes the accretion of our purchase price discount.

Speaker #3: The FDIC purchase loans continue to perform, and all loans in that portfolio remain current. New loan rates for the June quarter were 6.9% in our single-family mortgage business, 6.8% in multifamily, 6.6% in C&I lending, and 7.8% in our auto portfolio.

Greg Garrabrants: New loan rates for the Q2 were 6.9% in our single-family mortgage business, 6.8% in multifamily, 6.6% in C&I lending, and 7.8% in our auto portfolio. Ending deposit balances of $24.6 billion were up 17.9% year-over-year. Demand, money market, and savings accounts represent 98% of total deposits as of 30 June 2026, increasing by 22% year-over-year. We have a diverse mix of funding across a variety of business verticals, with consumer and small business representing 57% of total deposits, commercial cash, treasury management, and institutional representing 20%, commercial specialty representing 14%, Axos Fiduciary Services representing 5%, and Axos Securities also representing 5%. We closed the Jenius deposit acquisition in early May 2026, adding approximately $2.3 billion of deposit balances in over 56,000 consumer savings accounts.

Speaker #3: Ending deposit balances of $24.6 billion were up 17.9% year-over-year. Demand, money market, and savings accounts represent 98% of total deposits as of June 30, 2026, increasing by 22% year-over-year.

Speaker #3: We have a diverse mix of funding across a variety of business verticals, with consumer and small business representing 57% of total deposits, commercial cash, treasury management, and institutional representing 20%, commercial specialty representing 14%, access fiduciary services representing 5%, and access securities also representing 5%.

Speaker #3: We closed the Genius Deposit acquisition in early May 2026, adding approximately $2.3 billion of deposit balances in over 56,000 consumer savings accounts. We have been successful in cross-selling checking accounts to Genius customers so far, adding over 3,400 new Axos consumer checking accounts in the few months since we onboarded these Genius customers. Total deposits increased by $439 million linked quarter and $788 million year-over-year, to over $3.8 billion as of June 30, 2026.

Greg Garrabrants: We have been successful in cross-selling checking accounts to Jenius customers so far, adding over 3,400 new Axos consumer checking accounts in the few months since we onboarded these Jenius customers to UDB. Ending non-interest-bearing deposits increased by $439 million linked quarter and $788 million year over year to over $3.8 billion as of 30 June 2026. The linked quarter and year over year increase in non-interest-bearing deposits is a result of growth in Axos Clearing and Axos Advisor Services cash sweep deposits, increased cross-sell from certain commercial lending businesses, and growth in our small business deposits. Client cash sorting deposits ended the quarter around $1.2 billion, up from $1.1 billion at 31 March 2026. In addition to our securities deposits on balance sheet, we had approximately $475 million of deposits off balance sheet at partner banks.

Speaker #3: The linked quarter and year-over-year increase in non-interest-bearing deposits is a result of growth in Axos clearing, and Axos advisory services cash sweep deposits, increased cross-sell from certain commercial lending businesses, and growth in our small business deposits.

Speaker #3: Client cash shorting deposits ended the quarter around $1.2 billion, up from $1.1 billion in March 31, 2026. In addition to our securities deposits on balance sheet, we had approximately $475 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 treasury cash management verticals. Our fund finance business had another strong quarter, contributing over $600 million of net new loan growth in the June quarter.

Greg Garrabrants: We remain focused on adding non-interest-bearing deposits from small business, custody, clearing, fiduciary services, and commercial and treasury cash management verticals. Our fund finance business had another strong quarter, contributing over $600 million of net new loan growth in the Q2. We continued to identify opportunities to deepen our relationships with existing fund finance partners, as well as add new fund relationships. Our diverse product and service offerings in commercial cash and treasury management have enabled us to capture low-cost deposits through the fund finance vertical. The growth in our vendor ecosystems continues to gain momentum. The Verdant equipment finance and non-marine floor plan lending teams actively collaborate on a variety of retail and wholesale lending opportunities.

Speaker #3: We continue to identify opportunities to deepen our relationships with existing fund finance partners, as well as add new fund relationships. Our diverse product and service offerings in commercial cash and treasury management have enabled us to capture low-cost deposits through the fund finance vertical.

Speaker #3: The growth in our vendor ecosystem continues to gain momentum. The verdant equipment finance and non-marine floor plan lending teams actively collaborate on a variety of retail and wholesale lending opportunities.

Speaker #3: Both teams are leveraging their expertise in relationships across their vendor and dealer networks to gain share of wallet and to provide a more seamless and differentiated set of lending solutions to our vendor partners.

Greg Garrabrants: Both teams are leveraging their expertise and relationships across their vendor and dealer networks to gain share of wallet and to provide a more seamless and differentiated set of lending solutions to our vendor partners. The floor plan lending business had its strongest quarter to date, growing outstanding loans by over $100 million in the three months ended 30 June 2026. Demand in our commercial specialty real estate, fund finance, real estate lender finance, and asset-based lending businesses remain strong. Pipelines are up across several lending categories, making us confident that we will generate loan growth in the low to mid-teens on an annual basis this year. The credit quality of our loan book remains strong, and our historical and current net charge-offs remain low. Net charge-offs were 25 basis points in the quarter ended 30 June 2026, compared to 31 basis points in the prior quarter.

Speaker #3: The floor plan lending business had its strongest quarter to date, growing outstanding loans by over $100 million in the 3 months ended June 30, 2026.

Speaker #3: Demand in our commercial specialty real estate fund finance, real estate lender finance, and asset-based lending businesses remains strong. Pipelines are up across several lending categories, making us confident that we will generate loan growth in the low to mid-teens on an annual basis this year.

Speaker #3: The credit quality of our loan book remains strong. In our historical and current net chargebacks remain low. Net chargebacks were 25 basis points in the quarter ended June 30, 2026, compared to 31 basis points in the prior quarter.

Speaker #3: We charged off the remaining $10 million of our principal balance in the syndicated C&I cash flow loan that was put on non-accrual over a year ago.

Greg Garrabrants: We charged off the remaining $10 million of our principal balance in the syndicated C&I cash flow loan that was put on non-accrual over a year ago. Excluding the credit charge-off related to that loan, total net charge-offs were $5.9 million in the three months ended 30 June 2026, or 9 basis points of net annualized charge-offs to average loans. Total non-performing assets were $159 million at 30 June 2026, down approximately $23 million from $180 million at 31 March 2026. Non-performing assets declined by approximately $21 million in C&I lending and held roughly flat across most other lending categories. Non-accruals and classified assets remain low across the majority of our real estate backed and structured credits. Total non-performing assets and total assets was 53 basis points, down 9 basis points from 31 March 2026, and down 18 basis points from 30 June 2025.

Speaker #3: Excluding the credit chargeback related to that loan, total net chargebacks were $5.9 million in the three months ended June 30, 2026, or 9 basis points of net annualized chargebacks to average loans.

Speaker #3: Total non-performing assets were $159 million as of June 30, 2026, down approximately $21 million from $180 million at March 31, 2026. Non-performing assets declined by approximately $21 million in C&I lending and held roughly flat across most other lending categories.

Speaker #3: Non-accruals and classified assets remain low across the majority of our real estate-backed and structured credits. Total non-performing assets to total assets was 53 basis points, down 9 basis points from March 31, 2026, and down 18 basis points from June 30, 2025.

Speaker #3: We remain well-reserved for our low level of credit losses, whether our allowance for credit loss to non-accrual loans equal to $221% at June 30, 2026.

Greg Garrabrants: We remain well reserved for our low level of credit losses with our allowance for credit loss to non-accrual loans equal to 221% at 30 June 2026. We had another quarter of double-digit year over year growth in non-interest income. Total non-interest income for the three months ended 30 June 2026 was $61.9 million, up 50% year over year. Banking and service fees in Q4 of 2026 were $36.8 million, compared to $9.5 million in the year-ago quarter. Verdant was the primary contributor to the year-over-year increase in banking and service fees. Prepayment penalty fees were $4.2 million, compared to $0.2 million in Q4 2025. In Axos Clearing, advisory and broker fees were up year over year due to higher asset and transaction-based income. Total assets under custody or administration increased by $8.4 billion year over year to $47.8 billion.

Speaker #3: We had another quarter of double-digit year-over-year growth in non-interest income. Total non-interest income for the three months ended June 30, 2026, was $61.9 million, up 50% year-over-year.

Speaker #3: Banking and service fees in Q4 of 2026 were $36.8 million, compared to $9.5 million in the year-ago quarter. Verdant was the primary contributor to the year-over-year increase in banking and service fees.

Speaker #3: Prepayment penalty fees were $4.2 million, compared to $0.2 million in Q4 2025. In Axos Clearing, advisory and broker fees were up year-over-year due to higher asset and transaction-based income.

Speaker #3: Total assets under custody or administration increased by 8.4 billion year-over-year to $47.8 billion. Net new assets were approximately $85 million in the quarter ended June 30, 2026, bringing the net new asset total to $2.2 billion for fiscal year 2026.

Greg Garrabrants: Net new assets were approximately $85 million in the quarter ended 30 June 2026, bringing the net new asset total to $2.2 billion for fiscal year 2026. Cash sorting deposits on and off balance sheet increased by over $100 million linked quarter to $1.67 billion. Ending margin balances were up 36% from the prior fiscal year. Pre-tax income in fiscal 2026 was $15.4 million on a reported basis, and $36.4 million excluding the $21 million legal accrual in the 12 months ended 30 June 2026 versus $32 million in fiscal year 2025. We continue to manage our non-interest expense while making investments across existing and new businesses, as well as technology and other infrastructure to support future growth across our three business segments. Total non-interest expense for the three months ended 30 June 2026 were $205.9 million, representing an efficiency ratio of 54.2%.

Speaker #3: Cash shorting deposits on and off balance sheet increased by over $100 million linked quarter to $1.67 billion. Ending margin balances were up 36% from the prior fiscal year.

Speaker #3: Pre-tax income in fiscal 2026 was $15.4 million, on a reported basis, and $36.4 million excluding the $21 million legal accrual in the 12 months ended June 30, 2026, versus $32 million in fiscal year 2025.

Speaker #3: We continue to manage our non-interest expense while, making investments across existing and new businesses as well as technology and other infrastructure to support future growth across our 3 business segments.

Speaker #3: Total non-interest expense for the three months ended June 30, 2026, was $205.9 million, representing an efficiency ratio of 54.2%. Excluding the $21 million legal accrual and depreciation and amortization expenses, non-interest expenses were $158.1 million, equating to an efficiency ratio of 41.6%, down by 283 basis points from 44.5% in Q4 2025.

Greg Garrabrants: Excluding the $21 million legal accrual and depreciation and amortization expenses, non-interest expenses were $158.1 million, equating to an efficiency ratio of 41.6%, down by 283 basis points from 44.5% in Q4 2025. We continue to evaluate and execute opportunistic and strategic mergers and acquisitions transactions. So far in calendar 2026, we've announced three separate deposit-related acquisitions, including Jenius Bank in February, Capital One in April, and Arc Technologies in July. Jenius Bank closed in May, adding approximately $2.3 billion of online savings in over 56,000 accounts. We received regulatory approval for the Capital One IRA savings and CD acquisition in May, and are actively working with Capital One on a conversion and a close date in Q3 2026. We closed the Arc Technology transaction a few weeks ago. Arc Technology is a fintech that developed a cash management and debt marketplace technology for businesses.

Speaker #3: We continue to evaluate and execute opportunistic and strategic mergers and acquisitions transactions. So far, in calendar 2026, we've announced 3 separate depository-led acquisitions including Genius Bank in February, Capital One in April, and Arc Technologies in July.

Speaker #3: Genius Bank closed in May, adding approximately $2.3 billion of online savings and over $56,000 accounts. We received regulatory approval for the Capital One IRA savings and CD acquisition in May, and are actively working with Capital One on a conversion and a close date in calendar Q in Q3, 2026.

Speaker #3: We closed the Arc Technology transaction a few weeks ago. Arc Technology is a fintech that developed a cash management and debt marketplace technology for businesses.

Speaker #3: We believe Arc's service offers a gap-filling solution for a segment of businesses previously underserved by Axos, who value an AI-enabled digital treasury management solution and access to a wide range of potential lenders.

Greg Garrabrants: We believe Arc's service offering fills a gap for a segment of businesses previously underserved by Axos that value an AI-enabled digital treasury management solution and access to a wide range of potential lenders. Furthermore, we believe we can leverage the technology and third-party integrations and entitlements Arc has built as a foundation for other consumer and commercial banking services to accelerate our strategic roadmap. We are adding a team of talented product, sales, and software engineers who will help us accelerate these development efforts. The initial focus will be to integrate Arc into our banking platform to serve our tens of thousands of existing small business clients. We see tremendous opportunities to better serve our existing clients, cross-sell consumer clients with small businesses, and accelerate growth in new business banking segments such as early-stage startups.

Speaker #3: Furthermore, we believe we can leverage the technology and third-party integrations and entitlements Arc has built as the foundation for other consumer and commercial banking services to accelerate our strategic roadmap.

Speaker #3: We are adding a team of talented product, sales, and software engineers who will help us accelerate these development efforts. The initial focus will be to integrate Arc into our banking platform to serve our tens of thousands of existing small business clients.

Speaker #3: We see tremendous opportunities to better serve our existing clients, cross-sell consumer clients with small businesses, and accelerate growth in new business banking segments such as early-stage startups.

Speaker #3: By leveraging one set of technologies and entitlements across the full spectrum of the client's lifecycles—from startup, to a mature small business, to a middle-market company and beyond—we believe we’ll be able to attract, retain, and grow with our clients.

Greg Garrabrants: By leveraging one set of technologies and entitlements across the full spectrum of a client's life cycles, from startup to a mature small business to a middle-market company and beyond, we believe we'll be able to attract, retain, and grow with our clients. Our ability to generate above-industry returns and growth provide us with multiple opportunities to deploy excess capital. In the past 12 months, we funded over $3.5 billion of organic loan growth, added roughly $1.2 billion in leases and on-balance sheet securitizations from Verdant, closed the Jenius Bank and Arc Technologies acquisition, and repurchased approximately $22 million of Axos common stock. We remain highly profitable, generating return on assets of 1.76% and a return on average common stockholders' equity of 16.32% in the 12 months ended 30 June 2026.

Speaker #3: Our ability to generate above-industry returns and growth provides us with multiple opportunities to deploy Axos Capital. In the past 12 months, we've funded over $3.5 billion of organic loan growth, added roughly $1.2 billion in leases and on-balance sheet securitizations from Verdant, closed the Genius Bank and Arc Technologies acquisition, and repurchased approximately $22 million of Axos common stock.

Speaker #3: We remain highly profitable, generating return on assets of $1.76% and a return on average common stockholders' equity of $16.32% in the 12 months ended June 30, 2026.

Speaker #3: Excluding the $21 million legal accrual, our return on assets and return on equity would have been 1.92% and 17.82% this quarter, and 1.82% and 16.86% for the fiscal year.

Greg Garrabrants: Excluding the $21 million legal accrual, our return on assets and return on equity would have been 1.92% and 17.82% this quarter, and 1.82% and 16.86% for the fiscal year. We continue to be nimble and opportunistic in deploying our excess capital where we see superior risk-adjusted returns. I'll turn the call over to Derrick, who will provide additional details on our financial results.

Speaker #3: We continue to be nimble and opportunistic in deploying our Axos Capital, where we see superior risk-adjusted returns. Now, I'll turn the call over to Derrick, who will provide additional details on our financial results.

Speaker #1: Thanks, Greg. A quick reminder that in addition to our repressed release and 8K with supplemental schedules was filed with the SEC today, and is available online through Edgar, or through our website, at axosfinancial.com.

Derrick K. Walsh: Thanks, Greg. A quick reminder that in addition to our press release, an 8-K with supplemental schedules was filed with the SEC today and is available online through EDGAR or through our website at axosfinancial.com. I will provide some brief comments on a few topics. Please refer to our press release and our SEC filing for additional details. Non-interest expenses were approximately $206 million for the 3 months ended 30 June 2026, up by $20 million from $186 million in the 3 months ended 31 March 2026. Salaries and benefit expenses were up $1.1 million linked quarter, and professional service fees were down $1.5 million. FDIC and regulatory fees were also down $1.3 million quarter over quarter. Excluding the $21 million legal accrual, non-interest expenses in the 3 months ended 30 June 2026, were down by approximately $1 million linked quarter.

Derrick Walsh: Thanks, Greg. A quick reminder that in addition to our press release, an 8-K with supplemental schedules was filed with the SEC today and is available online through EDGAR or through our website at axosfinancial.com. I will provide some brief comments on a few topics. Please refer to our press release and our SEC filing for additional details. Non-interest expenses were approximately $206 million for the 3 months ended 30 June 2026, up by $20 million from $186 million in the 3 months ended 31 March 2026. Salaries and benefit expenses were up $1.1 million linked quarter, and professional service fees were down $1.5 million. FDIC and regulatory fees were also down $1.3 million quarter over quarter. Excluding the $21 million legal accrual, non-interest expenses in the 3 months ended 30 June 2026, were down by approximately $1 million linked quarter.

Speaker #1: I will provide some brief comments on a few topics. Please refer to our repressed release and our SEC filing for additional details. Non-interest expenses were approximately $206 million for the 3 months ended June 30, 2026, up by $20 million from $186 million in the 3 months ended March 31, 2026.

Speaker #1: Salaries and benefit expenses were up $1.1 million linked quarter and professional service fees were down $1.5 million. FDIC and regulatory fees were also down $1.3 million, quarter over quarter.

Speaker #1: Excluding the $21 million legal accrual, non-interest expenses in the 3 months ended June 30, 2026, were down by approximately $1 million linked quarter. Across our non-interest expense categories, we continue to see some of the benefits from operational productivity initiatives, including the increased leverage of AI tools that we have implemented over the past 12 months.

Derrick K. Walsh: Across our non-interest expense categories, we continue to see some of the benefits from operating Including the increased leverage of AI tools that we've implemented over the past 12 months. Looking ahead, as we integrate Arc Technologies, we expect our non-interest expense run rate to increase by approximately $1 million per month. Turning to income taxes. Our income tax rate was 19.9% in the 3 months ended 30 June 2026, compared to 24.6% in the prior quarter. The primary reason for the sequential decline in our income tax rate was benefits from restricted stock unit vestings and a favorable change in state taxes and certain discrete items. 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 such potential benefits.

Derrick Walsh: Across our non-interest expense categories, we continue to see some of the benefits from operating Including the increased leverage of AI tools that we've implemented over the past 12 months. Looking ahead, as we integrate Arc Technologies, we expect our non-interest expense run rate to increase by approximately $1 million per month. Turning to income taxes. Our income tax rate was 19.9% in the 3 months ended 30 June 2026, compared to 24.6% in the prior quarter. The primary reason for the sequential decline in our income tax rate was benefits from restricted stock unit vestings and a favorable change in state taxes and certain discrete items. 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 such potential benefits.

Speaker #1: Looking ahead as we integrate Arc Technologies, we expect our non-interest expense run rate to increase by approximately $1 million per month. Turning to income taxes, our income tax rate was 19.9% in the 3 months ended June 30, 2026, compared to 24.6% in the prior quarter.

Speaker #1: The primary reason for the sequential decline in our income tax rate was benefits from restricted stock unit vestings and a favorable change in state taxes in certain discrete items.

Speaker #1: 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 such potential benefits.

Speaker #1: Provision for credit losses was 17.8 million in Q4, 2026, compared to $41 million in Q3, 2026. The primary driver for the quarter-over-quarter decrease in provision for credit losses was a less severe economic outlook and a minor shift of credit model scenario weightings towards baseline.

Derrick K. Walsh: Provision for credit losses was $17.8 million in Q4 2026 compared to $41 million in Q3 2026. The primary driver for the quarter-over-quarter decrease in provision for credit losses was a less severe economic outlook and a minor shift of credit model scenario weightings towards baseline. 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 $2.4 billion as of 30 June 2026, consisting of $637 million of SFR Jumbo mortgage, $50 million of gain on sale mortgage, $92 million of multifamily and small business commercial, $68 million of auto and consumer, and $1.6 billion across the commercial business lines. We expect broad-based growth across several lending businesses to drive low-to-mid-teen organic loan growth in the next year, excluding any potential acquisitions.

Derrick Walsh: Provision for credit losses was $17.8 million in Q4 2026 compared to $41 million in Q3 2026. The primary driver for the quarter-over-quarter decrease in provision for credit losses was a less severe economic outlook and a minor shift of credit model scenario weightings towards baseline. 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 $2.4 billion as of 30 June 2026, consisting of $637 million of SFR Jumbo mortgage, $50 million of gain on sale mortgage, $92 million of multifamily and small business commercial, $68 million of auto and consumer, and $1.6 billion across the commercial business lines. We expect broad-based growth across several lending businesses to drive low-to-mid-teen organic loan growth in the next year, excluding any potential acquisitions.

Speaker #1: 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.

Speaker #1: Our loan pipeline is robust at approximately $2.4 billion as of June 30, 2026, consisting of $637 million of SFR Jumbo Mortgage, $50 million of gain-on-sale mortgage, $92 million of multifamily and small business commercial, $68 million of auto and consumer, and $1.6 billion across the commercial business lines.

Speaker #1: We expect broad-based growth across several lending businesses to drive low to mid-teen organic loan growth in the next year, excluding any potential acquisitions. We deployed some of the Genius Bank deposits to reduce temporary increases in FHLB borrowings this past 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 K. Walsh: We deployed some of the Jenius Bank deposits to reduce temporary increases in FHLB borrowings this past quarter and plan to use the remaining Jenius Bank deposits in combination with growth in our consumer commercial banking deposits to fund our strong loan growth. With that, I'll turn the call back over to Johnny.

Derrick Walsh: We deployed some of the Jenius Bank deposits to reduce temporary increases in FHLB borrowings this past quarter and plan to use the remaining Jenius Bank deposits in combination with growth in our consumer commercial banking deposits to fund our strong loan growth. With that, I'll turn the call back over to Johnny.

Speaker #1: With that, I'll turn the call back over to Johnny.

Speaker #2: Thanks, Derrick. Alicia, we're ready to take questions.

Johnny Lai: Thanks, Derrick. Alicia, we're ready to take questions.

Speaker #3: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad.

Operator 2: Thank you. We will now be conducting a 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 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. One moment please while we poll for questions. Thank you. Our first question comes from the line of David Chiaverini with Jefferies. Please proceed.

Operator: Thank you. We will now be conducting a 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 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. One moment please while we poll for questions. Thank you. Our first question comes from the line of David Chiaverini with Jefferies. Please proceed.

Speaker #3: A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Speaker #3: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.

Speaker #3: Thank you. Our first question comes from the line of David Severini with Jefferies. Please proceed.

Speaker #2: My questions. I wanted to start on the net interest margin. How should we think about the NIM outlook from here? And can you also touch upon your expectations on deposit costs going forward?

David Chiaverini: My questions. Wanted to start on the net interest margin. How should we think about the NIM outlook from here? Can you also touch upon your expectations on deposit costs going forward?

Speaker #4: Yes. So we believe we'll have a fairly stable net interest margin outlook. And we also think that that's going to be with fairly stable deposit costs.

Derrick K. Walsh: Yes. We believe we'll have a fairly stable net interest margin outlook, and we also think that's going to be with fairly stable deposit costs. Now, we obviously have the acquisition from Capital One coming, and there are some deposits that will eventually flow over from Arc because those deposits are controlled by Arc but are placed at other financial institutions. I think the best forecast is relative stability there, and I think that's a reasonable outlook for that.

Greg Garrabrants: Yes. We believe we'll have a fairly stable net interest margin outlook, and we also think that's going to be with fairly stable deposit costs. Now, we obviously have the acquisition from Capital One coming, and there are some deposits that will eventually flow over from Arc because those deposits are controlled by Arc but are placed at other financial institutions. I think the best forecast is relative stability there, and I think that's a reasonable outlook for that.

Speaker #4: Now, we obviously have the acquisition from Capital One coming, and there are some deposits that will eventually flow over from Arc, because those deposits are controlled by Arc but are placed at other financial institutions.

Speaker #4: So we just—I think the best forecast is relative stability there. And I think that's a reasonable outlook for that.

Speaker #2: Got it. And are you observing any increase? Because you guys are, one of the highest-growth banks in my coverage, which is great to see.

David Chiaverini: Got it. Are you observing any increase, because you guys are one of the highest growth banks in my coverage, which is great to see. Are you seeing increased competitiveness on the deposit side as you go to market?

Speaker #2: Are you seeing increased competitiveness on the deposit side as you go to market?

Derrick K. Walsh: I don't know if I'd say increased competitiveness from recent periods. I do think that what you're seeing is that other banks are more willing to adopt a model where they'll, let's say, bring a companion high-cost savings account and a small business checking account together. Where that might not have been something you'd see a branch-based bank do, you might see some of them doing that now. I do think obviously, that we've been able to raise the deposits we need to continue to grow our business. We continue to be focused on it across a variety of different verticals that we continue to add and products we continue to develop. I don't know if I'd say there's broad-based increase in competition.

Greg Garrabrants: I don't know if I'd say increased competitiveness from recent periods. I do think that what you're seeing is that other banks are more willing to adopt a model where they'll, let's say, bring a companion high-cost savings account and a small business checking account together. Where that might not have been something you'd see a branch-based bank do, you might see some of them doing that now. I do think obviously, that we've been able to raise the deposits we need to continue to grow our business. We continue to be focused on it across a variety of different verticals that we continue to add and products we continue to develop. I don't know if I'd say there's broad-based increase in competition.

Speaker #4: You know, I don't know if I'd say there's increased competitiveness from recent periods. I do think that what you're seeing is that other banks are more willing to adopt a model where they'll, let's say, bring a companion high-cost savings account and a small business checking account together, where that might not have been something you'd see a branch-based bank do.

Speaker #4: You might see some of them doing that now. So I do think, obviously, that we've been able to raise the deposits we need. To continue to grow our business, but we continue to be focused on it across a variety of different verticals that we continue to add and products we continue to develop.

Speaker #4: So I don't know if I'd say there's broad-based increase in competition. I just think we are seeing a few folks that it appears that they're having trouble raising deposits, and so they're being maybe a little more aggressive.

Derrick K. Walsh: I just think we are seeing a few folks that it appears that they're having trouble raising deposits, and so they're being maybe a little more aggressive so.

Derrick Walsh: I just think we are seeing a few folks that it appears that they're having trouble raising deposits, and so they're being maybe a little more aggressive so.

Speaker #2: Very helpful. Thank you.

David Chiaverini: Very helpful. Thank you.

Speaker #4: Thank you, David.

Derrick K. Walsh: Thank you, David.

Derrick Walsh: Thank you, David.

Speaker #3: Thank you. Our next question comes from the line of Kyle Peterson with Needham & Company. Please proceed.

Operator 2: Thank you. Our next question comes from the line of Kyle Peterson with Needham & Company. Please proceed.

Operator: Thank you. Our next question comes from the line of Kyle Peterson with Needham & Company. Please proceed.

Speaker #5: Great. Good afternoon. Thank you for taking the questions. I want to start off on loan growth. Great to see the outlook for another strong year.

Kyle Peterson: Great. Good afternoon. Thank you for taking the questions. I'll just start off on loan growth, Grade C, the outlook for another strong year. Just wanted to get a sense or any more color, if you guys have it, on where you guys see the most opportunity or if there's any areas that are giving you maybe a sense of pause, just if there's structural issues or competition or people getting too aggressive. I guess maybe areas on the asset side where you're more or less excited in the coming year would be helpful.

Speaker #5: Just wanted to get a sense or any more color if you guys have it on kind of where you guys see the most opportunity or if there's any areas that are giving you maybe a sense of pause just if there's structural issues or competition or people getting too aggressive.

Speaker #5: So I guess maybe areas on the asset side where you're more or less excited in the coming year would be helpful.

Speaker #4: Yeah, it's a good question. I think that, given the diversity of our lending businesses, in any one quarter, just the timing of getting deals closed and the pipelines may move around a little bit.

Greg Garrabrants: Yeah. It's a good question. I think that given the diversity of our lending businesses, in any one quarter, just the timing of getting deals closed, the pipelines may move around a little bit. I think we'll have relatively balanced growth across our C&I platform. I feel like maybe there's some pullback in private credit in certain areas. I don't really think that's going to translate into a lot of new opportunity for us because I think those credits were sort of outside the box, and they may have to adjust more. That might be something that's a positive in certain cases. Because I do think that there's some pullback in private credit in certain areas.

Speaker #4: But I think we'll have relatively balanced growth across our CNI feel like there's there may be maybe there's some pullback in private credit in certain areas, but I don't really think that's going to translate into a lot of new opportunity for us because I think those credits were sort of outside the box, and they may have to adjust more.

Speaker #4: But that might be something that's a positive, in certain cases, because I do think that there's some pullback in private credit in certain areas. We've seen a few deals in our lender finance book where people were threatening maybe to leave because they were going to get higher advance rates.

Greg Garrabrants: We've seen a few deals in our lender finance book that people were threatening maybe to leave because they were going to get higher advance rates from a private credit shop, that didn't come to fruition. There's a little bit there that I think in some cases maybe private credit will be less likely to be able to take some of our assets because we have great originations. For us, it's always the prepay side that we really have to pay attention to. I think it's really pretty balanced growth. I think the most credit-sensitive segment that we're in, which we have to be very thoughtful about, is just the direct lending to sponsor-backed companies.

Speaker #4: From a private credit shop, but then that didn't come to fruition. So there's a little bit there, and I think in some cases, maybe private credit will be less likely to be able to take some of our assets because we have great originations for us.

Speaker #4: It's always the prepay side that we really have to pay attention to, so I think it's really pretty balanced growth. I think the most credit-sensitive segment that we're in, which we have to be very thoughtful about, is just the direct lending to sponsor-backed companies.

Speaker #4: And to the extent we've had any kind of losses at Axos, which have been relatively rare, it has been in syndicated loans to single-asset syndicated loans to companies that go through some sort of issue.

Greg Garrabrants: To the extent we've had any kind of losses at Axos, which have been relatively rare, it has been in syndicated loans to single-asset syndicated loans to companies that go through some sort of issue that there's not diversity in a pool and that kind of thing or hard collateral like we have with most of our loans. That might be an area. I think it is an area that you have to just be cautious about and think through, make sure the documents are in good shape with respect to LME transactions, things like that.

Speaker #4: That there's not diversity in a pool and that kind of thing, or hard collateral like we have with most of our loans. So that might be an area—I think it is an area—that you have to just be cautious about and think through; make sure the documents are in good shape with respect to LME transactions, things like that.

Speaker #5: Great, that's super helpful. And then I wanted to switch over and maybe ask a higher-level question on Arc. It seems like a really interesting acquisition and a good fit, but I wanted to see if you could give us a little more color—I know you guys have said it's kind of immaterial to the results—but just how it expands the product offering, monetization, and whether that is helping with deposit growth and fee income. How do you see that playing out over the long term once it's integrated and onboarded onto the broader platform?

Kyle Peterson: Great. That's super helpful. Wanted to switch over and maybe ask a higher-level question on Arc. Seems like a really interesting acquisition and a good fit. Wanted to see if you could give us a little more color. I know you guys have said kind of immaterial the results, but just how it expands the product offering monetization and whether that is helping with deposit growth and fee income. I guess how do you see that playing out over the long term once it's integrated and onboarded onto the broader platform?

Speaker #4: Yeah. No, Kyle, I'm glad to get a chance to talk about that because I wanted to do that. So if you think about where we currently sit right now technologically, we've been opening thousands of small business accounts a month, but the reality of that small business platform is it's capacity is limited.

Greg Garrabrants: Yeah. No, Kyle, I'm glad to get a chance to talk about that because I wanted to do that. If you think about where we currently sit right now technologically, we've been opening thousands of small business accounts a month. The reality of that small business platform is its capacity is limited. It sort of was derived from the consumer platform, and then we added the ability to have checks and debit cards and have essentially an account that is a small business account, but it has features that are similar to the consumer business. On the other side, we have a very sophisticated treasury management platform with a service offering where folks go through an extensive onboarding process, entitlements process for all their employees, all these other kind of things, and you can do whatever you need to do there even if you're quite a large company.

Speaker #4: It was sort of derived from the consumer platform, and then we added the ability to have checks and debit cards, and to have essentially an account that is a small business account, but it has features that are similar to the consumer business.

Speaker #4: On the other side, we have a very sophisticated treasury management platform with a service offering where folks go through an extensive onboarding process, an entitlements process for all their employees, and all these other kinds of things. You can do whatever you need to do there, even if you're quite a large company.

Speaker #4: We bank some large companies as their primary bank, and they're able to do a lot. We benchmark ourselves—not without any gap, but those gaps are relatively limited—even with the larger money center banks.

Greg Garrabrants: We bank some large companies as their primary bank, and they're able to do a lot. We benchmark ourselves not without any gap, those gaps are relatively limited even with the larger money center banks. In that really squishy middle, there's a lot of small businesses that outgrow us, and they tell us when they leave. They say, "Look, we really like you guys, but I've got three employees now. I need each of them to have a debit card. I need some form of positive pay because I want to let those employees write checks, but I don't want those employees to have access to an unlimited amount of the account. I need incremental fraud protections," things like that. That's where Arc comes in. I want an expense management platform, something like a Ramp has or something like that. That's really where Arc comes in.

Speaker #4: But in that really squishy middle, there's a lot of small businesses that outgrow us, and they tell us when they leave. They say, "Look, we really like you guys, but I've got three employees now."

Speaker #4: I need each of them to have a debit card. I need some form of positive pay because I want to let those employees write checks, but I don't want those employees to have access to an unlimited amount of the account.

Speaker #4: I need incremental fraud protections, things like that. And that's where Arc comes in. I want an expense management platform—something like Ramp has, or something like that.

Speaker #4: So that's really where Arc comes in. Arc has essentially created a very sophisticated digital platform for startup businesses, and even businesses that are middle market, that might have a very specific set of use cases that are—maybe you might call them TM Lite—but frankly, Arc's is even better than TM Lite.

Greg Garrabrants: Arc has essentially created a very sophisticated digital platform for startup businesses and even businesses that are middle market that might have a very specific set of use cases that are maybe you might call them TM-Lite. Frankly, Arc's it's even better than TM-Lite. It's full TM. It may not have certain features and functionality that our broadest platform has. Believe that by taking our existing small business clients and I'm sorry, there seems to be some noise. I don't know. Taking some small business clients and bringing those clients onto Arc, we're going to be able to expand the offering to those clients because they often have other banks that they're using for their more sophisticated services and keep those clients longer.

Speaker #4: It's full TM. It may not have certain features and functionality that are broad as platform has. So we believe that by taking our existing small business clients—I'm sorry, there seems to be some noise on here.

Speaker #4: I don't know. It's taking some small business clients and bringing those clients onto Arc. We're going to be able to expand the offering to those clients, because they often have other banks that they're using for their more sophisticated services, and keep those clients longer.

Speaker #4: Now, Arc does have an existing client base of Y Combinator companies that we're excited to serve, and we think we have other opportunities to serve those clients and grow with them through our technology business.

Greg Garrabrants: Arc does have an existing client base of Y Combinator companies that we're excited to serve, and we think we have other opportunities to serve those clients and grow with them through our technology business. That's one area. Arc also has been a leader in thinking through how the front-facing, consumer-facing, or client-facing side of AI works. We've done a lot on the AI front internally, focused on improving internal operations and all those sorts of things. We haven't yet had a product that we roll out to clients that will allow them to use artificial intelligence. Arc has really figured that out and has done it really well for small business clients. They've done that through a set of very interesting integrations and then creation of specific agents that are very useful for a small business to run themselves.

Speaker #4: But so that's one area. Arc also has been a leader in thinking through how the front-facing, consumer-facing, or client-facing side of AI works.

Speaker #4: We've done a lot on the AI front internally, focusing on improving internal operations and those sorts of things, but we haven't yet had a product that we've rolled out to clients that will allow them to use artificial intelligence.

Speaker #4: And Arc has really figured that out and has done it really well for small business clients. They've accomplished this through a set of very interesting integrations and by creating specific agents that are very useful for a small business to run themselves.

Speaker #4: So that is a broader capability set that we believe we have to really start thinking about for our consumer or small business clients, and even our larger commercial clients.

Greg Garrabrants: That is a broader capability set that we believe we have to really start thinking about for our consumer or small business clients and even our larger commercial clients. The final element is that one of the things that's really helped us grow and scale without having to add a lot of cost on the consumer side is that we control the entire user experience. That user experience control allows us to really analyze all kinds of inbound calls. It allows us to just create workflows that automate certain processes and things. It's allowed us to really, if we look at it more than grow our deposit base more than seven times and barely add any new people to that consumer deposit operations process. We don't have the ability to do that on the commercial side because right now we don't own all that technology.

Speaker #4: So and then the final element is that one of the things that's really helped us grow and scale with out having to add a lot of costs on the consumer side is that we control the entire user experience.

Speaker #4: And that user experience control allows us to really analyze all kinds of inbound calls, allows us to just create workflows that automate certain processes and things.

Speaker #4: And it's allowed us to really if we look at it more than grow our deposit base more than seven times and barely add any new people to that consumer deposit operations process.

Speaker #4: We don't have the ability to do that on the commercial side because, right now, we don't own all that technology. So, although we use great technology there and it's working, we just switched to a new platform that was top upper right Gartner Group and whatnot.

Greg Garrabrants: Although we use great technology there and it's working, we just switched to a new platform that was top upper right Gartner group and whatnot. It's all third party. Here, this will gradually allow us to develop and utilize a lot of the services that we have in our consumer business. For example, we're rolling out crypto payments in consumer. That same set of rails may be useful for commercial clients, but Arc can just sort of incorporate that into their platform over time, utilizing all the services that Axos has. I think it's a really good fit. We have so much traction on the small business side that it really is difficult to get that really digital TM style light experience and get it at a reasonable cost and in an automated way. I think there's a lot here.

Speaker #4: It's all third-party. And so, here, this will gradually allow us to develop and utilize a lot of the services that we have in our consumer business.

Speaker #4: For example, we're rolling out crypto payments, right, in consumer. But that same set of rails may be useful for commercial clients. Arc can just sort of incorporate that into their platform over time, utilizing all the services that Axos has.

Speaker #4: So I think it's a really good fit. And we have so much traction on the small business side that it really is difficult to get that really digital TM-style light experience and get it at a reasonable cost and in an automated way.

Speaker #4: So I think there's a lot here we've got to get on it. There's some fees that are generated from it, I think, Derrick is being a CFO and sandbagging a little bit.

Greg Garrabrants: We've got to get on it. There's some fees that are generated from it. I think Derrick is being a CFO and sandbagging a little bit. I think right now they weren't profitable. Although they are generating fees, and when we move the deposits over there'll be more benefit than there is cost. That's going to take a little time because we actually have to integrate their platform into all our APIs. We just closed them a couple of weeks ago. We're working on a timeframe for that. We don't quite have it ironed out yet. They believe it's going to be relatively easy, but we want to just make sure that it is, in fact as fast as the team thinks they can do it.

Speaker #4: But I think right now, they weren't profitable. So, although they are generating fees, and when we move the deposits over there will be more benefit than there is cost, but that's going to take a little time.

Speaker #4: Because we actually have to integrate their platform into all our APIs, we just closed them a couple of weeks ago. We're working on the timeframe for that, but we don't quite have it ironed out yet.

Speaker #4: They believe it's going to be relatively easy, but we want to just make sure that it is, in fact, as fast as the team thinks they can do it.

Speaker #2: Great. Very helpful color. Nice results.

Kyle Peterson: Great. Very helpful color. Nice results.

Speaker #4: Yeah. Thank you, Tom.

Greg Garrabrants: Yeah. Thank you, Colin.

Speaker #1: Thank you. Our next question comes to the line of David Biester with Raymond James. Please proceed.

Operator 2: Thank you. Our next question comes to the line of David Feaster with Raymond James. Please proceed.

Operator: Thank you. Our next question comes to the line of David Feaster with Raymond James. Please proceed.

Speaker #2: Hey. Good morning, everybody.

David Feaster: Hey, good morning, everybody.

Speaker #4: Hi, David.

Johnny Lai: Hi, David.

Greg Garrabrants: Hi, David.

Speaker #5: David.

Johnny Lai: David.

Derrick Walsh: David.

David Feaster: Let's start. I mean, look, you guys have been extremely active, right? You got three deposit-focused deals in the past six months. How has the integration and conversion been of all these? I mean, that's a lot at one time. I guess how have you been able to maybe deploy AI to help you with the integration and conversion? What's your appetite for additional deals given all that you've already got going on?

Speaker #2: Let's start on—I mean, look, you guys have been extremely active, right? You've had three deposit-focused deals in the past six months. How has the integration and conversion been on all these?

Speaker #2: I mean, that's a lot at one time. And I guess, how have you been able to maybe deploy AI to help you with the integration and conversion?

Speaker #2: And then, what's your appetite for additional deals, given all that you've already got going on?

Speaker #4: Yeah. Well, these deals—well, the Arc deal is different—but let's just talk about the Genius and Cap One deals. We've done so many of these just straight, raw, no-asset-deposit deals that the team really has a playbook down.

Greg Garrabrants: Yeah. Well, the Arc deal is different, but let's just talk about the Jenius and Cap One deals. We've done so many of these just straight, raw, no asset deposit deals that the team really has the playbook down. I have to say that I expected them to do well on Jenius side, they just did fabulously. I mean, the number of accounts that were lost, they actually were essentially de minimis. They were next to nothing. There was almost no client complaints. Everybody pretty much stayed. We grew the deposit balances subsequent to that. We got great penetration on. We had a checking account offer because Jenius didn't have that we had as a companion. First logged in, they could click a button and get a checking account. Many of them did do that, we're still seeing traction there. That was really smooth.

Speaker #4: So, I have to say that I expected them to do well on the Genius side, but they just did fabulously. I mean, the number of accounts that were lost—they actually were essentially de minimis.

Speaker #4: They were next to nothing. There were almost no client complaints. Most everybody pretty much stayed. We grew the deposit balances subsequent to that. We got great penetration on—we had a checking account offer, because Genius didn't have that, that we had as a companion.

Speaker #4: So, as clients first logged in, they could click a button and get a checking account. Many of them did do that, and we're still seeing traction there.

Speaker #4: So that was really smooth. And then, given that scalability that we had talked about previously through the platform, there really wasn't—we were able to—we did deploy some additional folks in our offshore locations and staff those up, like we had done previously.

Greg Garrabrants: Given that scalability that we had talked about previously through the platform, we did deploy some additional folks in our offshore locations, staffed those up like we had done previously. The calls quickly dissipated because the onboarding was smooth, it really was very easy and almost kind of a non-event, frankly. It was a lot of accounts. We're growing a lot every month anyway, it was obviously a little bit of a shock, but not much. I think similarly, Capital One should be similar because it's straightforward in the sense it's just a deposit-only acquisition. Obviously, we didn't get any people although we hired a few Jenius Bank people who were floating around in the market who wanted to come to us, they are good folks, we're happy to have them. We didn't have any people come with that.

Speaker #4: But the calls quickly dissipated because the onboarding was smooth, and it really was very easy and almost kind of a non-event, frankly. Although it's a lot of accounts, we're growing a lot every month anyway.

Speaker #4: So it wasn't—it was obviously a little bit of a shock, but not much. I think, similarly, Capital One should be similar because it's straightforward in a sense.

Speaker #4: It's just the deposit-only acquisition. And then, obviously, we didn't get any people, although we hired a few Genius Bank people who were floating around in the market who wanted to come to us. They are good folks, and we're happy to have them.

Speaker #4: But we didn't have any people come with that. Arc was different in the sense that it was a fintech that we hired teams; they have a unique capability and that capability now has to be integrated into our UDB platform essentially.

Greg Garrabrants: Arc was different in the sense that it was a fintech that we hired teams. They have a unique capability, and that capability now has to be integrated into our UDB platform, essentially. There's a little trickiness associated with that because just things like we're putting in a slider so you could be on your consumer and small business and you just pull it over like Uber Eats and Uber Ride, then you'd be able to have everything. You got to think about how all that works. There's some tech stuff. The team's great. They're super entrepreneurial. We just have so much stuff going on in the tech side that we need that we had a bunch of recs open for people that we were going to essentially hire who were like that.

Speaker #4: And so there's a little trickiness associated with that because we were this thing's we're putting in a slider so you could be on your consumer and small business and you just pull it over like Uber Eats and Uber Ride and then you'd be able to have everything.

Speaker #4: And so we've got to think about how all that works. There's some tech stuff, but the team's great—they're super entrepreneurial. We just have so much stuff going on in the tech side that we needed, that we had a bunch of reqs open for people that we were essentially going to hire who were like that.

Speaker #4: We needed somebody who was going to do consumer and client-facing AI work, and now we have somebody, so that was really good. I think the tech there is going to put us ahead in our goal of building the platform and building up our small business platform.

Greg Garrabrants: We needed somebody who was going to do consumer and client-facing AI work, now we have somebody. That was really good. I think the tech there is going to put us ahead in our goal of building the platform and building up our small business platform. There are deposits that come with that, but they also did something where they took some of those excess deposits and pushed them into treasuries and were charging a fee. We have to kind of work that. There's a little bit of integration there. It's not going to be overwhelming, particularly given all the tech stuff we have going on here. Essentially, we believe we're still open for acquisition business. We did Verdant, of course, too, which was a little bit later, but that also has gone very well.

Speaker #4: And then there are deposits that come with that, but they also did something where they took some of those excess deposits and pushed them into Treasuries.

Speaker #4: And we're charging a fee, so we have to kind of work that. There's a little bit of integration there, but I don't think it's going to be overwhelming, particularly given all the tech stuff we have going on here.

Speaker #4: So essentially, we believe we're still open for acquisition business. We did Verdant, of course, too, which was a little bit later, but that also has gone very well.

Speaker #4: So I think if you get the right fit with the teams, then it works pretty well. So yeah, so we're very open. We continue to look.

Greg Garrabrants: I think if you get the right fit with the teams, then it works pretty well. Yeah. We're very open. We continue to look, and we think there's a lot of opportunity. I sort of feel like we punch above our weight given our size with the diversity of what we do and the amount of time and effort we spend on building our own technology. There's lots of banks that are bigger than ours that don't do that. The technology is very scalable. The ability to integrate like we did with Jenius Bank and what we'll do with the Cap One side really doesn't move the needle much on cost. I think we've seen that from a standpoint of just some of that non-interest expense being more flat.

Speaker #4: And we think there's a lot of opportunity. We've done a lot of—I think we, I sort of feel like we're trying to—we punch above our weight, given our size, with the diversity of what we do and the amount of time and effort we spend on building our own technology.

Speaker #4: And there are lots of banks that are bigger than ours that don't do that, but the technology is very scalable. So, the ability to integrate like we did with Genius and what we'll do with the Cap One side really doesn't move the needle much on cost, and I think we've seen that from a standpoint of just some of that non-interest expense being more flat.

Speaker #4: It's AI, but it's also just scalability across platforms, because we have a certain number of platforms, we're spending money on them, and they can take a lot more volume through them without too much incremental cost.

Greg Garrabrants: It's AI, but it's also just scalability across platforms because we have a certain number of platforms. We're spending money on them, and they can take a lot more volume through them without too much incremental cost. I don't know if that's what you're getting at. If there's any follow-up you want.

Speaker #4: I don't know if that's what you're getting at, but if there's any follow-up you want to have.

David Feaster: Yeah. No, that's super helpful. Just based on your prepared remarks, it sounds like Verdant and the marine business really starting to hit stride, collaborating. I was hoping you could elaborate a bit on what you're seeing from those two lines and whether any of these new businesses can help with the expansion or cross-sell. Just based on your comments, it sounds like Arc might be an opportunity to help those business lines, just kind of curious what you're seeing there.

Speaker #2: Yeah, no, that's super helpful. And then just based on your prepared remarks, it sounds like Verdant and the marine business are really starting to hit their stride, collaborating.

Speaker #2: I was hoping you could elaborate a bit on what you're seeing from those two lines, and whether any of these new businesses can help with the expansion across sales, just based on your comments.

Speaker #2: It sounds like Arc might be an opportunity to help those business lines, but just kind of curious what you're seeing there.

Speaker #4: Yeah. Yeah, it's a very interesting question. So, about the lending side first. So the Verdant side—obviously, you’re financing individual clients, businesses, or vendors that come in and buy equipment.

Greg Garrabrants: Yeah. It's a very interesting question. Let's talk about the lending side first. The Verdant side, obviously, you're financing individual clients, businesses of vendors that come in and buy equipment. Those tend to be smaller ticket, but they're very valuable for the vendor because obviously if they can't sell their product, that's a problem for them. Verdant has a nice white label platform that allows the vendors to have their name on the paper and things like that, which is not completely unique, but if you do it well. Also there's a capital markets desk that also allows us to sell paper to non-bank lenders.

Speaker #4: And so those tend to be smaller ticket, but they're very valuable for the vendor because, obviously, if they can't sell their product, that's a problem.

Speaker #4: For them, Verdant has a nice white-label platform that allows the vendors to have their name on the paper and things like that, which is not completely unique. But if you do it well—and then also, there’s a capital markets desk that also allows us to sell paper.

Speaker #4: The non-bank lenders—so that allows Verdant to have a higher approval rate, which is important, obviously, for vendors who are trying to sell to clients that are not going to be happy if they get turned down to be able to buy something.

Greg Garrabrants: That allows Verdant to have a higher approval rate, which is important, obviously, for vendors who are trying to sell to clients that are not going to be happy if they get turned down to be able to buy something. Conversely, we brought that floor plan team on and the Verdant team because they have so many salespeople. I mean, they're the biggest sales force we have by far. They're out there talking to all these vendors who also need floor plans because they're going to sell dish switches, but they also need to floor plan them. That is generating good results because there's a pipeline for the floor plan side driven by what Verdant does. On the deposit side, we have seen some success there. These vendors on their banking arrangements. Certainly, if you've got their floor plan, you're often getting their operating accounts.

Speaker #4: So then, conversely, we brought that floor plan team on, and the Verdant team, because they have so many salespeople—I mean, they're the biggest sales force we have, by far.

Speaker #4: They're out there talking to all these vendors who also need floor plan, because they're going to sell dishwashers, but they also need to floor plan them.

Speaker #4: So that is generating good results because there's a pipeline for the floor plan side, driven by what Verdant does. Now, on the deposit side, we have seen some success there, just working with some of these vendors on their banking arrangements.

Speaker #4: Certainly, if you've got their floor plan, you're often getting their operating accounts. But I do think there's an opportunity there. We've put some metrics in the Verdant sales team's plans to cross-sell and that sort of thing.

Greg Garrabrants: I do think there's an opportunity there. We've put some metrics in the Verdant sales team's plans to cross-sell and that sort of thing. It's much easier to sell the actual vendor themselves on banking if you're doing a floor plan than trying to actually say that you're going to cross-sell deposits to the end client who buys that equipment. That might be something we can do, but I think that's a little more pioneering. If what happens is when that client logs in and they're logging in from a servicing perspective, which isn't the way it's happening now, into, let's say, the Arc platform, that is then providing them AI-oriented information and things like that, and they can just sort of click to open the deposit account with some special offer. I think I could eventually see that working.

Speaker #4: But it's much easier to sell the actual vendor themselves on banking if you're doing the floor plan than trying to actually say that you're going to cross-sell deposits to the end client who buys that equipment.

Speaker #4: Now, that might be something we can do, but I think that's a little more pioneering. But if what happens is, when that client logs in—and they're logging in from a servicing perspective, which isn't the way it's happening now—into, let's say, the Arc platform, that is then providing them AI-oriented information and things like that, and they can just sort of click to open the deposit account with some special offer, I think I could eventually see that working.

Speaker #4: Frankly, right now, Verdant stuff is serviced through a third party, so there's a lot of work that has to be done there. That's not as near-term an opportunity as some of the other stuff we're doing, but I do see it as you touch us, we can bring you into a platform and cross-sell you.

Greg Garrabrants: Frankly, right now, Verdant stuff is serviced through a third party, there's a lot of work that has to be done there. That's not as a near-term an opportunity as some of the other stuff we're doing, but I do see it as like, if you touch us, we can bring you into a platform and cross-sell you. I do think there's an opportunity there because I think this Arc platform integrated is special. It does some really neat stuff, and they just didn't have the funding to be able to get it out to as many folks as we are going to be able to do.

Speaker #4: I do think there's an opportunity there, because I think this Arc platform, integrated, is special. I mean, it does some really neat stuff, and they just didn't have the funding to be able to get it out to as many folks as we are going to be able to do.

David Feaster: That's helpful. You talked about most of the credit issues that you've had in the past have been really related to SNCs.

Speaker #2: That's helpful. And then you talked about most of the credit issues that you've had in the past have been really related to SNCCs. Philosophically, I guess, how do you think about SNCCs, just given that experience?

Greg Garrabrants: Yes.

David Feaster: Philosophically, I guess, how do you think about SNCs just given that experience? What's your appetite for those today? Is there a need for you to continue to do those, or is there opportunity for you to maybe agent more of those deals, just given-

Speaker #2: What's your appetite for those today? And is there a need for you to continue to do those, or is there opportunity for you to maybe agent more of those deals, just given a little more active approach to managing the relationship and credit?

Greg Garrabrants: Yeah

David Feaster: a little more active approach to managing the relationship and credit?

Speaker #4: Yeah, we're trying to do that. And we're definitely being more careful about the agents that we choose, and looking for philosophical alignment—maybe looking for some more club deals.

Greg Garrabrants: Yeah, we're trying to do that, we're definitely being more careful about the agents that we choose and looking for philosophical alignment. Maybe looking for some more club deals. I think it's interesting because I think broadly syndicated stuff, I think definitely is becoming much and much less interesting as you get smaller. We do have a syndication desk now, and we have folks that are willing to allow us to agent deals.

Speaker #4: I think it's interesting because there's a I think broadly syndicated stuff, I think, definitely is becoming much and much less interesting. As you get smaller, because we do have a syndication desk now, and we have folks that are willing to allow us to agent deals, but there is something around this question of if you get a company that's of a small enough size that you're holding the entire loan, and it still is a whether it's sponsor-backed or family-owned or whatnot, and it's still a single enterprise, that is subject to the fates of the economy and obsolescence of product and customer concentration and all the things that exist, it still might be a good loan, but it is a smaller company.

Greg Garrabrants: There is something around this question of, if you get a company that's of a small enough size that you're holding the entire loan, and it still is a, whether it's sponsor-backed or family-owned or whatnot, and it still is a single enterprise that is subject to the fates of the economy and obsolescence of product and customer concentration and all the things that exist, it still might be a good loan, but it is a smaller company. Whereas sometimes as you get to the club and you get to bigger, you have more resiliency because the company is bigger, then you end up more under the control of agents or other types of wins that like, Well, look for you. Sometimes the terms are a little bit looser, those bigger companies can throw their weight around a little bit more on the docks or something like that.

Speaker #4: Whereas sometimes, as you get to the club and you get bigger, you have more resiliency because the company is bigger, but then you end up more under the control of agents or other types of winds, and sometimes the terms are a little bit looser, or those bigger companies can throw their weight around a little bit more on the docs or something like that.

Speaker #4: So, but yeah, I know—look, I think it's always an ongoing discussion, and we're not stopping that. But I think we're definitely looking at it and saying, "Okay, let's make sure that we're really thinking through which agents we want to work with."

Greg Garrabrants: Yeah, no, look, I think it's always an ongoing discussion, we're not stopping that, I think we're definitely looking at it and saying, Okay, let's make sure that we're really thinking through which agents we want to work with.

Speaker #2: That's super helpful. Thanks, everybody.

David Feaster: That's super helpful. Thanks, everybody.

Speaker #4: Thank you.

Greg Garrabrants: Yeah.

Speaker #1: Thank you. Our next question comes from the line of Andrew Luce with Sonex. Please proceed.

Operator 2: Thank you. Our next question comes from the line of Andrew Liesch with Sonex. Please proceed.

Operator: Thank you. Our next question comes from the line of Andrew Liesch with Sonex. Please proceed.

Speaker #5: Hey, guys. Good afternoon.

Andrew Liesch: Hey, guys. Good afternoon.

Speaker #4: Hey, Andrew. Welcome back. How are you doing?

Greg Garrabrants: Hey, Andrew. Welcome back. How you doing?

Speaker #5: Thank you. Glad to be here. So, I just want to talk about the deposits that are going to come on from Capital One.

Andrew Liesch: Thank you. Thank you. Glad to be here. Look, just want to talk about the deposits that are going to come on from Capital One. Understand that the $2.3 from Jenius, you've already used some of that to pay down some of those borrowings. You have this $3.2 coming on with Capital One. Is that all going to fund loan growth? What's your initial thoughts on that? Do you hold that in cash for a little bit until the loan comes?

Speaker #5: I understand that the $2.3 billion from Genius—you've already used some of that to pay down some of the borrowings. But you have this $3.2 billion coming in with Capital One.

Speaker #5: Is that all going to fund loan growth? I mean, what are your initial thoughts on that? You hold it in cash for a little bit until the loan comes.

Speaker #5: How should we think about that new influx?

Greg Garrabrants: Yeah.

Andrew Liesch: How should we think about that new influx?

Speaker #4: Right. Yeah. I mean, I think we're going to look and we're going to see—I think, in general, we'll probably look to evaluate any kind of higher-cost, more sort of institutional-style deposit relationships and see if we can scale those back, just on a volume basis, maybe not the relationship itself, and then allow that to fill back in.

Greg Garrabrants: Right. Yeah, I think we're going to look, and we're going to see. I think in general, we'll probably look to look at any kind of higher cost, more sort of institutional-style deposit relationships and see if we can scale those back just on a volume basis, maybe not the relationship itself, and then allow that to fill back in. That will be one way to do that. In general, I would say that that is the right way to think about it, that it'll just fund loan growth and allow us to be maybe less aggressive than we would have to be on marketing expense or things like that. We'll have to look whether that impacts some of the pricing on some of the other portfolio. Yeah, that's basically it.

Speaker #4: So, that will be one way to do that. But in general, I would say that that is the right way to think about it—that it'll just fund loan growth and allow us to be maybe less aggressive than we would have to be in marketing expense or things like that.

Speaker #4: We'll have to look. We’ll see whether that impacts some of the pricing on some of the other portfolio, but yeah, that’s basically it.

Speaker #4: So, it would be looking first at institutional-type stuff that maybe we don't feel like there's a lot of cross-sell value or things like that, and then from there, it'll end up on the balance sheet to fund loan growth.

Greg Garrabrants: It would be looking first at institutional type stuff that maybe we don't feel like there's a lot of cross-sell value or things like that. From there, it'll end up on the balance sheet, and you have to fund loan growth.

Speaker #3: Yeah, we should have at least a quarter overhang or something like that.

Derrick K. Walsh: At least a quarter overhang of some-

Derrick Walsh: At least a quarter overhang of some cash or normal run rate.

Greg Garrabrants: Yeah.

Speaker #4: Yeah, it'll be a—yeah, it'll be a—right. Yeah, there'll be overhang for a bit, and that'll push down stated NIM, but, I mean, obviously, it won't affect NII. But yeah.

Derrick K. Walsh: -cash.

Greg Garrabrants: Yeah.

Derrick K. Walsh: Or normal run rate.

Greg Garrabrants: Right. Yeah. There'll be overhang for a bit, and that'll push down.

Derrick K. Walsh: Yeah

Derrick Walsh: Yeah.

Greg Garrabrants: Stated NIM, obviously, it won't affect NII.

Speaker #5: Right, right. Nope, that makes sense. You've covered all my other questions. I'll step back.

Derrick K. Walsh: Right. Nope, that makes sense. You've covered all my other questions. I'll step back.

Andrew Liesch: Right. Nope, that makes sense. You've covered all my other questions. I'll step back.

Speaker #4: Okay. Thanks, Andrew.

Greg Garrabrants: Thanks, Andrew.

Speaker #1: Thank you. Our next question comes from the line of Kelly Mota with KBW. Please proceed.

Operator 2: Thank you. Our next question comes from the line of Kelly Motta with KBW. Please proceed.

Operator: Thank you. Our next question comes from the line of Kelly Motta with KBW. Please proceed.

Speaker #6: Hi. Thanks for the question.

Kelly Motta: Hi. Thanks for the question.

Speaker #4: Hi, Kelly.

Greg Garrabrants: Hi, Kelly.

Kelly Motta: I did want to touch on, you had some really fabulous non-interest-bearing deposit growth this quarter. I believe in your prepared remarks, you noted that you've been really successful at cross-selling non-interest-bearing accounts to the Jenius, the accounts you brought over from Jenius, just wondering if you could provide any color or commentary around the drivers of non-interest-bearing growth and what you saw from that channel and your expectations for the continued cross-sell of that ahead. Thank you.

Speaker #6: I did want to touch on—you had some really fabulous non-interest-bearing deposit growth this quarter. And I believe in your prepared remarks, you noted that you've been really successful at cross-selling non-interest-bearing accounts to the Genius—the accounts you brought over from Genius. I'm just wondering if you could provide any color commentary around the drivers of non-interest-bearing growth and what you saw from that channel, and your expectations for the continued cross-sell of that, looking ahead.

Speaker #6: Thank you.

Speaker #4: Right. Right. Yeah. No, we did have some nice cross-sell on the Genius deposits on checking, but even given the relatively high number of those, the balances are not so crazy that they move the needle like here.

Greg Garrabrants: Right. Yeah. No. We did have some nice cross-sell on the Jenius deposits on checking, but even given the relatively high number of those, the balances are not so crazy that they move the needle like here. The clearing sweep was around $150 million of that. Just direct C&I cross-sell for lending was another $100 million. What we're calling private banking, which is essentially something along some of those things, is like another $100 million. Then some of the specialty and fund banking was around another $120 million or something. It was pretty broad-based, which I think was great. That was really good. Yeah, the cross-sell strategy, I always want it to work more and faster, but we had a really good quarter there with respect to that.

Speaker #4: The clearing sweep was around $150 million. Of that, just direct CNI cross-sell for lending was another $100 million. What we're calling private banking, which is essentially something along some of those lines, is like another $100 million.

Speaker #4: And then some of the specialty and fund banking was around another $120 million or something. So it was pretty broad-based, which I think was great.

Speaker #4: And that was really good. But yeah, the cross-sell strategy, I always wanted to work more, and faster, but there is a really we had a really good quarter there with respect to that.

Speaker #6: Got it. That's really helpful. It seems like, with your expectation for stable margin, and understanding there are some components here with potential excess liquidity and the timing of things, you're poised for another strong double-digit growth in operating revenues in the coming year.

Kelly Motta: Got it. That's really helpful. It looks like with your expectation for stable margin, understanding there's some components here with potential excess liquidity, with the timing of things, but it seems like you're poised for another strong double-digit growth in operating revenues in the coming year. Just wondering how we should be thinking about, I know you've given some commentary about operating leverage and potentially your ability to slow some marketing expenses and other things as you leverage what you've done. Any updated thoughts on that, Greg, would be helpful.

Speaker #6: Just wondering how we should be thinking about—I know you've given some commentary about operating leverage and potentially your ability to slow some marketing expenses and other things as you leverage what you've done.

Speaker #6: Any updated thoughts on that, Greg? That would be helpful.

Speaker #4: Yeah. I've given previously that cap that said we wouldn't increase the sum of personnel expenses plus professional services at greater than our increase in our revenue—essentially, our non-interest income and net interest income.

Greg Garrabrants: Yeah. I've given previously that cap that said we wouldn't increase the sum of personnel expenses plus professional services at greater than our increase in our revenue, essentially our non-interest income and net interest income. I'm still holding to that, including what we're doing with Arc. Look, I think we do see a lot of benefit from AI. We also have these changes that are happening in the companies that are really, really positive. Like the speed at which you can build software also puts pressure on the product team, we're adding some product people and things like that. I feel pretty good about where it is. I think on a conservative basis, saying that we'll have a flat to improving efficiency ratio, I think is a fair way to say it.

Speaker #4: I'm still holding to that, including what we're doing with the ARC. But yeah, look, I think that—we do see a lot of benefit from AI.

Speaker #4: We also have these changes that are happening in the company that are really, really positive. The speed at which you can build software also puts pressure on the product team.

Speaker #4: So we're adding some product people and things like that. But I feel pretty good about where it is. I think, on a conservative basis, saying that we'll have a flat to improving efficiency ratio, I think, is a fair way to say it.

Speaker #4: But yeah, we kind of did get rid of a lot of the dead weight in the company. There are not a lot of folks that are not performing right now.

Greg Garrabrants: Yeah, we did get rid of a lot of the dead weight in the company. There's not a lot of folks that are not performing right now. We're probably at a low level of underperformers, even relative to our historic. I think we have an historically low level, but I think we're at a really historically low level now. That means that there may be a few adds here and there, but I don't think it's going to be anything. Obviously, Derrick guided on that side with ARC, but also a lot of those folks are folks that we are going to go out and hire anyway. That may pull it a little bit forward over what it otherwise would have been. I feel pretty good about controlling expenses.

Speaker #4: And so we're probably at a low level of underperformers, even relative to our historic levels. I think we have had a historically low level, but I think we're at a really historically low level now.

Speaker #4: So that means that there may be a few ads here and there, but I don't think it's going to be anything, obviously. Derrick guided on that side, with ARC, but also, a lot of those folks are folks that we are kind of going to go out and hire anyway.

Speaker #4: So that may pull it a little bit forward over what it otherwise would have been, but I feel pretty good about controlling expenses. I mean, there are some really big, interesting things going on that really have just made a lot of what we're doing so much more efficient.

Greg Garrabrants: There's some really big, interesting things going on that really have just made a lot of what we're doing just so much more efficient. I feel pretty good about that. I know it's not a perfect answer, but I don't want to be overly optimistic. Derrick, do you have any color there?

Speaker #4: And so I feel pretty good about that. I know it's not a perfect answer. I don't want to be overly optimistic, but I think—Derrick, do you have any color there?

Speaker #3: Yeah, not a whole lot. Obviously, the jump up this past year was primarily due to Verdant, so we won't expect that sort of jump up in the depreciation and amortization from those operating leases. It should be—I think Greg's comment about a flat to improving efficiency ratio from where we're at is accurate.

Derrick K. Walsh: Yeah. Not a whole lot. Obviously, the jump up this past year was primarily due to Verdant. We won't expect that sort of jump up in depreciation amortization from those operating leases that it should be. I think Greg's comment about flat to improving efficiency ratio from where we're at is accurate. That's exclusive of $21 million.

Derrick Walsh: Yeah. Not a whole lot. Obviously, the jump up this past year was primarily due to Verdant. We won't expect that sort of jump up in depreciation amortization from those operating leases that it should be. I think Greg's comment about flat to improving efficiency ratio from where we're at is accurate. That's exclusive of $21 million.

Speaker #3: And that's excluding the $21 million.

Greg Garrabrants: Right. Yeah. Any one-time stuff exclude. Yeah.

Speaker #4: Right. Right. Yeah. Right. Yeah. And one-time stuff excluded. Yeah.

Speaker #6: Got it. Last question from me, just because most have been asked and answered. Just quickly on the buyback—you were a bit active during the quarter when the stock was trading a bit lower.

Kelly Motta: Got it. Last question from me, just because most have been asked and answered. Just quickly on the buyback, you were a bit active during the quarter when the stock was trading a bit lower. Fair to say, given your outlook for continued strong growth and potential M&A ahead, that you're opportunistic but may not be repurchasing up here or any kind of guidepost in terms of how you're thinking about it, whether it be the earn back or capital, would be helpful. Thanks.

Speaker #6: Fair to say, given your outlook for continued strong growth and potential M&A ahead, that your opportunistic, but may not be repurchasing up here or any kind of guidepost in terms of how you're thinking about it, whether it be the earn-back or capital would be helpful.

Speaker #6: Thanks.

Greg Garrabrants: We're always very flexible with those things. As the prospects of the company continue to improve, our willingness to buy back stock continues to increase. We always look at that as a balance. I refuse to be pinned down on any such definitive statement, as you may say. When the whims of the market blow against us, it often is a good time for us to jump in there and grab a few shares.

Speaker #4: We're always very flexible with those things. And as the prospects of the company continue to improve, our willingness to buy back stock continues to increase.

Speaker #4: And so, we always look at that as a balance. So I refuse to be pinned down on any such definitive statement, as you may say, but when the whims of the market blow against us, it often is a good time for us to jump in there and grab a few shares.

Speaker #6: Got it. Fair enough. Thanks again. I'll step back.

Kelly Motta: Got it. Fair enough. Thanks again. I'll step back.

Greg Garrabrants: Thank you, Kelly. Okay, bye.

Speaker #4: Thank you, Kelly. Okay. Bye.

Speaker #1: Thank you. Our last question comes from the line of Ten Coffey with Breen Capital. Please proceed.

Operator 2: Thank you. Our last question comes to the line of Tim Coffey with Brean Capital. Please proceed.

Operator: Thank you. Our last question comes to the line of Tim Coffey with Brean Capital. Please proceed.

Speaker #4: Hi, Tim.

Greg Garrabrants: Hi, Tim.

Speaker #7: Good afternoon, everybody. How's it going?

Greg Garrabrants: Good afternoon, everybody.

Tim Coffey: Good afternoon, everybody.

Tim Coffey: Hey, Ray. How's it going?

Speaker #4: Good. Good.

Greg Garrabrants: Good, good.

Speaker #7: How much is remaining on the buyback again? I missed that, and in your prepared remarks.

Tim Coffey: How much of the buyback is remaining again? I missed that in your prepared remarks.

Greg Garrabrants: A little over $100 million. Yeah.

Derrick Walsh: A little over $100 million. Yeah.

Speaker #3: A little over 100 million.

Speaker #4: Yeah.

Speaker #7: Okay. Okay. So my core question to kind of start with is: is there a through rate between higher rates and lower prepayments as you look at your portfolio?

Tim Coffey: Okay. My core question to kind of start with, is there a through rate between higher rates and lower prepayments as you look at your portfolio?

Speaker #4: Yeah. Candidly, not in the same way that you would think about it—a lot of other banks, I think. And the reason why is we just have such low duration in what we're doing.

Greg Garrabrants: Yeah. Candidly, not in the same way that you would think about in a lot of other banks, I think. The reason why is we just have such low duration in what we're doing. On the single-family side, we have a bit of an overhang of lower rates. Frankly, since we had nothing over 5/1 ARMs, most of that stuff that's a little bit lower rate is adjusting. The multifamily side, we had shortened that up so much, being worried about higher rates. We're super well-positioned for that stuff is really almost all at market now. There might be a few, $100 million, $500 million or something here or there. The rest of it's floating. It's floating off short indexes.

Speaker #4: So just on the single-family side, we have a bit of an overhang of lower rates. But frankly, since we had nothing over 5.1 ARMs, most of that stuff that's a little bit lower rate is adjusting.

Speaker #4: And then the multi-family side, we had shortened that up so much being worried about higher rates. We were super well-positioned for that. That stuff is really kind of all— I mean, almost all—at market now.

Speaker #4: There might be a few hundred million, five hundred million, or something here or there. So I don't—and then the rest of it's floating. And it's floating off short indexes.

Speaker #4: So, movements in the long rate—kind of, I think the biggest impact that they have there is they... I mean, mortgage banking has been, frankly...

Greg Garrabrants: Movements in the long rate, I think the biggest impact that they have there is they mortgage banking has been, frankly-

Greg Garrabrants: Movements in the long rate, I think the biggest impact that they have there is they mortgage banking has been, frankly.

Speaker #3: Yeah. The entire portfolio.

Derrick K. Walsh: The MSR portfolio.

Derrick Walsh: The MSR portfolio.

Speaker #4: Yeah, the MSR. Right. MSR, a little bit of mortgage banking demand we have to deal with. Even though the jumbo book has been flat, they had a really good origination quarter.

Derrick K. Walsh: Yeah, the MSR. Right. MSR, a little bit of mortgage banking demand we have to deal with. Even though the jumbo book has been flat, they had a really good origination quarter. I eventually think they're going to grow again. Part of what's happening is as all of those loans that are 4.5% and 5% roll off, people are leaving. That has precipitated that not growing as much. Eventually, that will, I think, slow down. We'll be able to grow that a bit. Yeah, I understand where that dynamic would come in if we had a longer-durated book. On the leasing side, which you do end up with a certain duration on those leases, there is no prepayability. It is what it is. You don't get to prepay. I mean, unless you want to pay-

Greg Garrabrants: Yeah, the MSR. Right. MSR, a little bit of mortgage banking demand we have to deal with. Even though the jumbo book has been flat, they had a really good origination quarter. I eventually think they're going to grow again. Part of what's happening is as all of those loans that are 4.5% and 5% roll off, people are leaving. That has precipitated that not growing as much. Eventually, that will, I think, slow down. We'll be able to grow that a bit. Yeah, I understand where that dynamic would come in if we had a longer-durated book. On the leasing side, which you do end up with a certain duration on those leases, there is no prepayability. It is what it is. You don't get to prepay. I mean, unless you want to pay.

Speaker #4: I eventually think they're going to grow again, but part of what's happening is, as all of those loans that are 4.5% and 5% roll off, people are leaving.

Speaker #4: And because, and then, that has precipitated that not growing as much. Eventually, that will, I think, slow down. We'll be able to grow that a bit.

Speaker #4: But yeah, no, I don't really see—I understand where that dynamic would come in if we had a longer-duration book. And then, on the leasing side, which you do end up with a certain duration on those leases, there is no prepayability.

Speaker #4: So it's just, you're paying, or so it is what it is. You don't get to prepay—I mean, unless you want to pay.

Speaker #3: We love when they do, because it reduces the fee.

Derrick K. Walsh: We love when they do because the rates usually, you can't, but it's a full payment.

Derrick Walsh: We love when they do because the rates usually, you can't, but it's a full payment.

Speaker #4: Right. Right. Yeah. Yeah. I mean, you can pull payment. Yeah, you can pay everything if you want, but obviously that's not that good for the client.

Greg Garrabrants: Yeah. You can pay everything if you want, but obviously that's not that good for the client, so they rarely do it. Yeah.

Speaker #4: So they really do it, but yeah.

Speaker #7: Okay. That's a high-quality problem when they take you back. Looking at non-interest income, if you strip out mortgage banking, is it a reasonable expectation to think that number increases 2% a quarter or so?

Tim Coffey: Okay. That's a high-quality problem when I pay you back. Looking at non-interest income, if you strip out mortgage banking, is it a reasonable expectation to think that number increases 2% a quarter or so?

Derrick K. Walsh: Roughly speaking, yeah, I think that's reasonable. We obviously had a high prepayment penalty fee income quarter, so that's a little bit abnormal. If you normalize that and then jump off of that, I think that's reasonable on a quarterly basis.

Derrick Walsh: Roughly speaking, yeah, I think that's reasonable. We obviously had a high prepayment penalty fee income quarter, so that's a little bit abnormal. If you normalize that and then jump off of that, I think that's reasonable on a quarterly basis.

Speaker #4: Roughly speaking, yeah, I think that's reasonable. We obviously had a high prepayment penalty fee income quarter, so that's a little bit abnormal. So if you normalize that and then jump off of that, I think that's reasonable on a quarterly basis.

Speaker #7: Right. Okay. Great. Yeah, those are my questions. I appreciate the time.

Tim Coffey: Right. Okay, great. Yeah, those are my questions. Appreciate the time.

Speaker #4: Okay. Thanks, Tim. Appreciate it. Thank you.

Greg Garrabrants: Okay. Thanks, Tim. Appreciate it. Thank you.

Speaker #1: Thank you. There are no further questions at this time. I'll pass it back to management for any closing remarks.

Operator 2: Thank you. There are no further questions at this time. I will pass it back to management for any closing remarks.

Operator: Thank you. There are no further questions at this time. I will pass it back to management for any closing remarks.

Speaker #4: Thank you, everybody. We'll talk to you next quarter.

Greg Garrabrants: Thank you, everybody. We will talk to you next quarter.

Operator 2: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Q4 2026 Axos Financial Inc Earnings Call

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