Axos Financial, Inc. Aktie

Greetings, and welcome to the Axos Bank Third Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions]. As a reminder, this conference is being recorded.

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

Thank you, Diego. Good afternoon, everyone, and thank you for your interest in Axos. Joining us today for Axos Financial, Inc.'s Third Quarter 2026 Financial Results Conference Call are the company's President and Chief Executive Officer, Greg Garrabrants; and Executive Vice President and Chief Financial Officer, Derrick Walsh. Greg and Derrick will provide prepared remarks on the financial and operational results for the quarter ended March 31, 2026, then open up the call to a Q&A.

Before I begin, I'd like to remind listeners that prepared remarks made on this call may contain forward-looking statements that are subject to risks and uncertainties and that management may make additional forward-looking statements in response to your questions. Please refer to the safe harbor statement found in today's earnings press release and in our investor presentation for additional details. This call is being webcast, and there will be an audio replay available in the Investor Relations section of the company's website located at axosfinancial.com for 30 days. Details for this call were provided on the conference call announcement and in today's earnings press release.

Before handing over the call to Greg, I'd like to remind listeners that in addition to the earnings press release, we also issued an earnings supplement and 10-Q for this call. All of these documents can be found on axosfinancial.com.

With that, I'd like to turn the call over to Greg.

Thank you, Johnny. Good afternoon, everyone, and thank you for joining us. I'd like to welcome everyone to Axos Financial's conference call for the third quarter of fiscal 2026 ended March 31, 2026. I thank you for your interest in Axos Financial. We generated another quarter of double-digit year-over-year growth in net interest income, ending loan and deposit balances, earnings per share and book value.

We generated almost $700 million in net loan growth linked quarter, resulting in an 11.2% year-over-year increase in net interest income. Excluding the interest income impact of FDIC-purchased loans and 2 fewer days in the March 31, 2026 quarter compared to December 31, 2025 quarter, net interest income increased by $5.7 million on that linked quarter basis. We continue to generate high returns as evidenced by the over 16% return on average common equity and 1.8% return on assets in the 3 months ended March 31, 2026.

Other highlights in the quarter include: noninterest income was $86 million for the quarter ended March 31, 2026, up from $53 million in the prior quarter and $33.4 million in the corresponding quarter a year ago. Excluding the benefit of the $22 million legal settlement this quarter, noninterest income was up approximately $10 million linked quarter due to higher mortgage banking income, advisory fee and the addition of rental income from the commercial office building we purchased in January of 2026 that will be used as our future headquarters.

Net interest margin was 4.57% for the quarter ended March 31, 2026, compared to 4.94% in the prior quarter. Excluding the impact from the prepayments of FDIC-purchased loans and 2 fewer days in the quarter ended March 31, our net interest margin was down in line with last quarter's guidance of around 10 basis points. We continue to maintain a strong net interest margin with and without the benefit of the accretion from loans purchased from the FDIC, which has now dwindled to around 5 basis points of positive impact.

Noninterest expenses were up $1.4 million linked quarter to $186 million. We are seeing some of the benefits from our operational efficiency initiatives and artificial intelligence on our salaries and benefits, data processing and other G&A expenses. The pending completion of the Jenius Bank deposit acquisition also allowed us to moderate growth in advertising and promotional expenses in the March quarter.

Net income was approximately $124.7 million in the quarter ended March 31, up 18.5% from $105.2 million in the prior year's third quarter. Diluted EPS was $2.15 for the quarter ended March 31 compared to $1.81 in the third quarter of 2025, representing an 18.7% year-over-year increase. Total originations for investment, excluding single-family warehouse lending, were $5.1 billion for the 3 months ended March 31.

Loan growth was strong across a number of lending businesses, including capital calls, real estate lender finance and equipment finance. Jumbo single-family loan balances were up slightly, while single-family warehouse had a seasonal decline of approximately $123 million. Ending loan balances grew by approximately $800 million linked quarter, excluding single-family warehouse. Average loan yields from non-purchased loans for the 3 months ended March 31 were 7.23%, down from 7.63% in the prior quarter.

The sequential decline was driven primarily by the full impact from the 2 25 basis point rate cuts in the calendar Q4 2025. Average loan yields for purchased loans were 12.39% compared to 23.32% in the December 31 quarter. Purchased loan yields from the quarter ended December 31 benefited from one FDI-purchased (sic) [ FDIC-purchased ] loan paying approximately -- paying off and resulting in approximately $17 million of purchase discount accretion that was recognized in interest income. The FDIC-purchased loans continue to perform and all the loans in that portfolio remain current.

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

Ending noninterest-bearing deposits were approximately $3.4 billion in the quarter ended March 31, an increase of $143 million from the $3.25 billion in the prior quarter. We deliberately reduced higher cost savings and time deposits and temporarily increased Federal Home Loan Bank advances in anticipation of the roughly $2.3 billion of Jenius Bank deposits coming in the June quarter. Client cash sorting deposits ended the quarter around $1.1 billion.

In addition to our Axos Securities deposits on our balance sheet, we had approximately $415 million of deposits off balance sheet at partner banks. We remain focused on adding noninterest-bearing deposits from small business, custody clearing, fiduciary services and commercial and cash and treasury management verticals.

Our consolidated net interest margin was 4.57% for the quarter ended March 31 compared to 4.94% in the quarter ended December 31. The early payoff of an FDIC purchase loan in that second quarter increased net interest margin by approximately 25 basis points. Excluding the early loan payoffs, the purchased loan yield was 14.2% in the quarter ended December 31 compared to 12.4% in the quarter ended March 31.

With the diminishing impact of the FDIC-purchased loans, we expect reported net interest margin to stay roughly flat on an organic basis, excluding the impact of the deposit purchase premium from the acquired deposits, which we estimate to be around 5 basis points. The diversity of our lending channels provide us with flexibility to maintain strong loan and deposit growth while maintaining our net interest margin. Verdant had another strong quarter, contributing approximately $200 million of new loans and operating leases in the March quarter.

We continue to identify opportunities to deepen our relationships with existing Verdant vendors and dealers as well as accelerate growth in a few existing verticals that were previously constrained by capital and size limitations when Verdant was under private ownership. The synergy between the Verdant and non-marine floor plan lending teams is starting to gain traction. We believe that our ability to provide a comprehensive retail and wholesale lending solution to top-tier original equipment manufacturers is a strategic advantage that we can leverage to win more deals.

Demand in our commercial specialty real estate, fund finance, real estate lender finance and asset-based lending programs remain strong. Pipelines in the jumbo single-family and multifamily areas are rebounding. We are making steady progress growing our loan pipelines in newer lending verticals such as floor plan and retail marine lending. Taking all these factors into consideration, we are confident that we will generate loan growth by the low -- in the low to mid-teens on an annual basis this year.

We had a strong increase in noninterest income as a result of several recurring and nonrecurring item. Mortgage banking income was $3.7 million in the quarter ended March 31, up $2.2 million year-over-year due to a favorable servicing rights fair value adjustment. Advisory fee income was $9.4 million, up $1.3 million year-over-year. Banking and service fees in the quarter included a $22 million onetime favorable legal settlement and the addition of rental income from commercial office properties we purchased in January.

Verdant contributed approximately $23.7 million in noninterest income in the March quarter compared to $18.9 million in the December quarter. The credit quality of our loan book remains strong and our historic and current charge-offs remain low. Net charge-offs were 31 basis points in the quarter ended March 31 compared to 9 basis points in the year ago quarter. We charged off $14 million of our principal balance in the C&I cash flow loan that was put on nonaccrual over a year ago when we allocated a specific loan loss reserve.

The remaining principal balance is approximately $17 million at March 31 on that loan, and we maintain a $10 million specific loan reserve on this balance. Excluding the charge-off related to that loan, total net charge-offs were $5.1 million in the 3 months ended March 31 or 8 basis points of annualized net charge-offs to average loans. Total nonperforming assets were $180.4 million at the end of the quarter, down approximately $5 million from $185 million at the March 31, 2025 quarter.

Nonperforming assets declined by approximately $27 million in the multifamily group and commercial mortgages down by $19 million. One syndicated C&I shared national credit became delinquent this quarter, accounting for a $33 million sequential increase in our nonperforming assets in the C&I loan area. We have taken over as agent in the syndicated loan and are actively working to resolve this nonperforming loan. Total nonperforming assets was 62 basis points at the March 31, 2026 time, down from 71 basis points at June 30, 2025. We remain well reserved for our low levels of credit losses with our allowance for credit losses to nonaccrual loans equal to 192.2% at March 31, 2026.

In Axos Clearing, advisory and broker-dealer fees were up sequentially due to higher asset and transaction-based income. Total assets under custody administration were flat at $44 billion. Net new asset growth of approximately $140 million were offset by a decline in the stock market in the first 3 months of 2026. Cash sorting deposit balances were roughly flat quarter-over-quarter despite significant market volatility. We continue to expand the scope and scale of artificial intelligence across the firm to a wide range of businesses and functional units.

Having established the governance framework and infrastructure to educate, train and deploy AI tools to all Axos team members, we are now focused on scaling the usage of artificial intelligence across more use cases. We have over 500 team members using Claude Enterprise to improve the speed, quality and productivity of various workflows. Since the beginning of calendar 2026, the number of technical users of artificial intelligence tools has increased by 37%, increasing artificial intelligence's share of committed code to 90%.

We are adding specialized agents to test, automate and QC various work products. We continue to evaluate M&A opportunities to augment growth from existing businesses and team lift-outs. The Verdant Equipment Leasing acquisition continues to perform well with good progress across a variety of strategic and operational initiatives. Loan growth remains healthy and profitability continues to improve.

We announced the acquisition of approximately $2.3 billion of online saving deposits from Jenius Bank in February of 2026. These deposits are a perfect fit for us, and we're excited to offer additional banking, lending and securities products to the roughly 60,000 individual Jenius Bank digital banking clients. We received regulatory approval last month and expect to complete the deposit conversion and client onboarding next month.

Last week, we announced a separate deposit acquisition of approximately $3.2 billion of IRA savings and CDs from Capital One. These are granular retirement savings accounts sourced through digital channels. We submitted our bank merger application for this transaction last week and are actively working with Capital One to determine the exact timing and mechanisms of a conversion and close in the second half of calendar 2026.

These 2 opportunistic acquisitions help us with incremental liquidity and funding for future organic and inorganic loan growth opportunities. Our disciplined growth and strong capital allows us to capitalize on organic and inorganic growth. The regulatory environment and dynamics within the banking and fintech landscape have created a wealth of M&A opportunities that we intend to fully review. We continue to invest capital in areas where we see the best risk-adjusted returns and in tools, people and processes that will help us scale.

Now I'll turn the call over to Derrick, who will have additional details on our financial results.

Thanks, Greg. A quick reminder that in addition to our press release, our 10-Q was filed with the SEC today and is available online through EDGAR or through our website at axosfinancial.com. I will provide some brief comments on a few topics. Please refer to our press release and our SEC filings for additional details.

Noninterest expenses were approximately $186 million for the 3 months ended March 31, 2026, up by $1.4 million from the $184.6 million in the 3 months ended December 31, 2025. Salaries and benefit expenses were down $0.6 million on a linked quarter basis and professional services fees were up $1.6 million. FDIC and regulatory fees increased $1.6 million quarter-over-quarter, driven primarily by the fiscal year-to-date loan and deposit growth.

Across our noninterest expense categories, we are seeing some of the benefits from operational productivity initiatives, including the increased leverage of our AI tools that we have implemented over the past 12 months. Our income tax rate was 24.6% in the 3 months ended March 31, 2026, compared to the 26.8% in the prior quarter. The primary reason for the sequential decline in our income tax rate was the benefit of RSU vestings and benefits derived from certain tax credits in the current quarter.

While we continue to explore tax credit opportunities that could provide future tax rate benefits, our expectation is to maintain an annual tax rate of approximately 26% to 27%, excluding these potential benefits. Provision for credit losses was $41 million in Q3 '26 compared to $25 million in Q2 '26. The primary driver of the quarter-over-quarter increase in the provision for credit losses was a specific reserve of approximately $20 million for C&I loan. We expect to maintain a loan loss reserve of approximately 1.3% to 1.4% of total loans and leases going forward.

I'll wrap up with our loan pipeline and growth outlook. Our loan pipeline is robust at approximately $2.6 billion as of April 24, 2026, consisting of $611 million of SFR jumbo mortgage, $82 million of gain on sale agency mortgage, $103 million of multifamily and small balance commercial, $83 million of auto and consumer loans and $1.7 billion across the commercial portfolio.

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

With that, I'll turn the call back over to Johnny.

Thanks, Derrick. Diego, we're ready to take questions.

[Operator Instructions] Your first question comes from Kyle Peterson with Needham & Company.

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

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

And so there are -- that was a pretty rare dislocation in the marketplace. So we took that opportunity and acquired some of those treasuries. We still can actually flip them and borrow against them and we -- and they remain liquid since they're -- or remain rate beneficial from a standpoint since they're swapped. So that's why you see that increase in the securities portfolio and that decrease in the cash. So that was around $750 million that we moved into those securities.

Okay. That's helpful. I appreciate all the color there. And then maybe just a follow-up, particularly on capital call, it looks like it had a really nice quarter on the growth front there. So I guess I wanted to see if you guys could give any more color what is either on bigger draws with existing customers? Or how much are you adding new accounts and kind of teams adding the pipeline? Just want to think more about new accounts and clients versus bigger drawdowns and utilization and how sustainable this kind of growth can be at least in the near term?

Yes. Quite a few new clients. I wouldn't say there's any significantly greater drawdowns, although these -- they tend to take a few quarters, the lines we bring on tend to take a few quarters to reach their -- where they tend to be, but bringing on a lot of new clients mostly.

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

Your next question comes from Gary Tenner with D.A. Davidson.

Just wanted to ask on the credit front. Just looking at the allowance quarter-over-quarter and the increase there, was that pretty exclusively driven by the C&I nonaccrual add in the quarter? Or what other dynamics were at play in terms of the model on the allowance?

The C&I was the biggest aspect of it. There is maybe a little bit tied to obviously the broader economic events or the geopolitical events that obviously flow through the Moody's variables and into the quantitative model, but that C&I addition was the biggest piece of it.

Okay. I appreciate that. And then just in terms of that credit, in particular, could you provide any additional color on the type of credit and timing of resolution, et cetera?

Yes. It was a syndicated shared national credit. We were not bank syndicated credit. We were not the agent. It's -- a lot of times with these agents, I think they've made concessions early on that they probably should have been a little bit tougher on. We're now the agent, and we're working with the sponsor, and we'll see where it goes, but we felt it was obviously -- well, it's prudent to put it on nonaccrual and also to take a significant reserve against it. And I think over the next several quarters, we'll know exactly how that's going to turn out.

Okay. And just related to, Derrick, was there any material impact in terms of reversing interest on that in the quarter?

Not significant.

Your next question comes from David Chiaverini with Jefferies.

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

Sure. So we -- it was maybe a basis point or 2, but for the most part, it was -- we swapped out or allowed a lot of our higher cost deposits to outflow and replace those with deposits. So it really wasn't anything too meaningful from an impact on NIM.

Yes. On the Jenius side, they've been -- that book has been -- they've priced it at a higher price to some extent that we've priced some of our deposits, but we're probably not going to adjust pricing immediately. So I think that although the Jenius acquisition is super helpful from a volume perspective, we don't really intend to try to optimize a few basis points here or there on NIM just to -- we feel pretty good about where NIM is being flattish going forward other than the -- that 5 bps of amortization of the premium.

And I think eventually, we'll kind of be able to normalize that. But I don't want to introduce all those clients to the bank with a rate cut. So we'll probably keep it there. But -- so that's kind of the dynamic.

Your next question comes from Kelly Motta with KBW.

Maybe it's really nice how these 2 deposit acquisitions help provide avenues to fuel what's been really outstanding growth on your part. I'm wondering with -- as we've seen with the -- the Jenius deposits, I apologize, allowing you to maybe be a little more aggressive with repricing your own deposits. I'm wondering how you're viewing the Capital One deposits, maybe average cost of those? And if similarly, that's going to help you further price down funding or it should be kind of a net add to deposits, just as we think through both the margin and overall size of the balance sheet?

Yes. No, those are great questions, Kelly. Thank you. I think that we're kind of looking at these as be as absolutely ensuring that we're able to have the funding for the level of loan growth that we're looking forward to having it. I think certainly, it does ensure that we don't have to price up deposits or to increase marketing budgets in order to fund ourselves, which I think is obviously very helpful. But I wouldn't really model in any significant sort of increase in NIM from our ability to say, well, now we're going to try to price down other deposits just based on having that excess.

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

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

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

From the Capital One, it will somewhat depend on the timing of that and of course, on some of our own organic growth and opportunities there. But I would expect that there might be a little bit more of a balance sheet gross up in that kind of later portion of the calendar year 2026 that might roll over into early '27. But again, at that point, with the expectations being greater than $30 billion of assets, and it won't be anything that will be overly significant.

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

Yes. It's kind of tough to tell. I think I referenced last quarter that the operating leases are about 1 of every 6 or 1/6 of all the originations roughly. And that could flux up or down depending on just opportunities and the nuances of the accounting around specific leases. So the -- obviously, the objective, both the management team from an incentive standpoint and our business operations back office support are incented to help support and grow that business.

And so I think the overall kind of -- it will be in line with our forecasted loan growth and is incorporated into that. So I guess, in summary, I can't give you a specific number or reference as to how that fee income will grow, but the -- it should generally grow. But I think I wouldn't, I guess, model it too significantly from that standpoint, given it's only 1/6 of the origination volume.

[Operator Instructions] Your next question comes from Liam Coohill with Raymond James.

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

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

That's helpful. And Kelly touched on the operating leases a minute ago, but I was also curious to hear about other core noninterest income trends. I mean, could you discuss where you're seeing success and maybe how you expect core fees to move going forward?

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

But on the staying on the fee income side, that's probably one of the other major items that impacted the fee income this quarter besides, obviously, the Verdant piece and -- the one-time legal settlement. So that's -- otherwise, the growth across that category was driven predominantly by the mortgage banking increase. So there was a positive movement on the valuation of the MSRs at the end of the quarter. And then some of the other fees, advisory, broker-dealer and some of the other just general banking service fees and other income all had more kind of step stone, more increases that weren't overly significant. But I would say, as we grow each of these businesses that we expect those fees to also increase.

Last one for me. Where do you think there is the most opportunity for M&A today? And where are you seeing valuations that are rational? Is that tending to be more lending teams or larger portfolios?

We're really looking at some of each. So if you looked at our portfolio, we've got team acquisitions. We've got fintechs that have some kind of element of their business model that they're really good at something, but they need components that we have. We have banks that we're talking with, large and small. So it's -- and there's always the specialty finance side, too, that we continue to look at. And there, it's teams and businesses.

So we're very disciplined. We talk to people for a long time. We don't rush into things. We make sure that it's going to fit and that we're able to digest it. But -- so it really -- I think there's a lot of idiosyncrasy and a lot of times, the individual circumstances with respect to people funding, just where different individuals and companies are in their life cycle help fuel different opportunities. And so we're always very active. We talk to a lot of people. We have conversations over long periods of time. We try to build relationships.

And then so sometimes it looks like an accident or something happens quickly, but it isn't really that. It's really a pretty deliberate strategy of staying with a lot of different opportunities over time and then building those relationships. And so then when they're ready to transact, we're there for them.

Your next question comes from Edward Hemmelgarn with Shaker Investments.

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

There were some early prepaid during the quarter. So that's what kind of counteracted some of the, obviously, ending quarter growth. So January, we were down at the end of that quarter from kind of the prior -- from the prior month of December. I think that had the biggest impact from that standpoint. On the -- we did grow on the average balance by $1.15 billion of loans. So I'm not sure if maybe there's something -- maybe you're looking at the assets.

The assets did stay relatively flat, and that was as we basically -- we've been sitting on some level of excess cash. And so we did reduce that excess cash. As touched on earlier, some of it went into those investment securities, but it still came down about $800 million on an average balance as we had some surplus in cash previously.

Yes. And we're converting Jenius this weekend. So that will -- then on Monday, those balances will be at the bank. But yes, no, I think you may be comparing like -- I don't know if you're comparing end of period to average, but...

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

Yes. There was a couple -- there was a number of prepays, some of which we -- I don't think we were expecting. I think it was in January. But yes, I think average balance still grew, but that is important, right, because you only earn net interest income on what you're putting out. And if you're growing only at the end of the quarter, then that gets reflected next quarter, but not in the current quarter.

So yes, I agree. I think everybody should stop using the quarter end as a mechanism of governing the speed at which they get things done. I agree with you 100%. I'm going to convey that message to everyone in the organization immediately. It will be the first time they've heard it. So...

Your next question comes from Kelly Motta with KBW.

I just had a real quick one. Just wondering, given the really strong loan growth we're seeing, just wondering how the competition is faring and spreads are holding up. I understand there's quite a bit of difference between businesses, but just trying to get a sense of the direction of loan yields from here.

Yes. I feel that spreads are stable, I'd say, from where we are. I think that there was -- to the extent that there was compression, I feel like that I'd say that compression has stopped. I do think that in some instances, there has been -- some of the outflows in private credit and things like that have resulted in just a little bit of a different positive competitive dynamic, but it's not enough to say that you're taking back any of that compression that kind of happened over the prior year.

But I feel pretty good about where we are now in general. I think we've -- I don't predict that we're going to have further spread compression. There'll be a credit here and there that they're going to be bargaining and fighting about. But I think we've done a pretty good job and have a pretty good mix. And then I think also with respect to some of the like Verdant lending is a little bit higher spreads. I think we've got a pretty good mix that allows us to keep spreads where they are.

And there appears to be no additional questions at this time. So I'll hand the floor back to Johnny Lai for closing remarks.

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

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

Greetings, and welcome to the Axos Financial Second Quarter 2026 Earnings Call Webcast. [Operator Instructions] As a reminder, this conference is is being recorded. It is now my pleasure to introduce your host, Johnny Lai, Senior Vice President, Corporate Development and Investor Relations. Thank you, Johnny. You may begin.

Thanks, Alicia. Good afternoon, everyone, and thanks for your interest in Axos. Joining us today for Axos Financial, Inc.'s Second Quarter 2026 Financial Results Conference Call are the company's President and Chief Executive Officer, Greg Garrabrants; and Executive Vice President and Chief Financial Officer, Derrick Walsh. Greg and Derrick will provide prepared remarks on the financial and operational results for the quarter ended December 31, 2025, then open up the call for Q&A.

Before I begin, I would like to remind listeners that prepared remarks made on this call may contain forward-looking statements that are subject to risks and uncertainties and that management may make additional forward-looking statements in response to your questions. Please refer to the safe harbor statement found in today's earnings press release and in our investor presentation for additional details.

The call is being webcast, and there will be an audio replay available in the Investor Relations section of the company's website located at axosfinancial.com for 30 days. Details for this call were provided on the conference call announcement and in today's earnings press release.

Before handing the call over to Greg, I'd like to remind listeners that in addition to the earnings press release, we also issued an earnings supplement and 10-Q for this call. All of these documents can be found on axosfinancial.com.

With that, I'd like to turn the call over to Greg.

Thank you, Johnny. Good afternoon, everyone, and thank you for joining us. I'd like to welcome everyone to Axos Financial's conference call for the quarter ended December 31, 2025. I thank you for your interest in Axos Financial.

We had an outstanding quarter across a variety of growth, credit and profitability metrics. We generated $1.6 billion of net loan growth linked quarter with broad-based growth across several asset-based lending areas, commercial specialty and equity finance verticals, a 19% basis point linked quarter increase in net interest margin, a linked quarter improvement in our nonperforming assets and net charge-off ratios and a 23.3% year-over-year increase in earnings per share. We continue to generate high returns as evidenced by the over 17% return on average common equity and the 1.8% return on assets in the 3 months ended December 31, 2025.

Other highlights in the quarter include: Net interest income was $331.6 million for the 3 months ended December 31, 2025, increasing by approximately $41 million linked quarter or 14%. Net interest income growth benefited from balanced growth across single-family mortgage warehouse, commercial specialty real estate, equipment finance and fund finance. We had one FDIC loan prepaid this quarter, resulting in approximately $17 million of interest income benefit. Excluding that benefit, net interest income was up $23 million or 8% from fiscal Q1 2026 to fiscal Q2 2026. Net interest margin was 4.94% for quarter ended December 31, 2025, up 19 basis points from 4.75% in the quarter ended September 30, 2025. Excluding the impact from the early payoff of an FDIC purchased loan and the impact from the Verdant balance sheet securitization, our net interest margin was 4.72%, roughly flat from the prior quarter. We continue to maintain our best-in-class net interest margin with or without the benefit of the accretion from loans purchased from the FDIC.

Noninterest income increased by approximately $21 million quarter-over-quarter due to higher banking service fees, broker-dealer fee income and prepayment penalty fees. This was the first quarter with noninterest income and noninterest expense contributions from Verdant. Noninterest income from Verdant was approximately $18.9 million in the quarter ended December 31, 2025. Total nonaccrual loans to total loans declined 13 basis points linked quarter, resulting in our nonaccrual loans to total loan ratio improving from 74 basis points as of September 30, 2025, to 61 basis points as of December 31, 2025.

Nonperforming assets declined in single-family mortgage, multifamily and commercial mortgage and stayed roughly flat in commercial real estate and C&I non-real estate lending categories. Net income was approximately $128.4 million in the quarter ended December 2025, up 22.6% from $104.7 million in the prior year second quarter. Diluted earnings per share was $2.22 for the quarter ended December 31, 2025, compared to $1.80 in the prior quarter, representing a 23.3% year-over-year increase.

Total originations for investments, excluding single-family warehouse lending, were $5.6 billion for the 3 months ended December 31, 2025, representing an increase of 35% linked quarter or nearly 140% annualized. Commercial real estate specialty lending, equipment leasing, asset-based lending and single-family warehouse had strong organic originations and net loan growth this quarter. Single-family mortgage ending balances were roughly flat, an improvement from net attrition we experienced over the past 3 years.

Average loan yields from nonpurchased loans for the 3 months ended December 31 were 7.63%, roughly flat from the prior 7.66% in the prior quarter. Average loan yields for purchased loans were 23.32%, which included the accretion of our purchase discount. Purchased loan yields for the quarter ended December 31 benefited from 1 FDIC loan prepayment, resulting in approximately $17.1 million of purchase discount accretion that we recognized in interest income. The FDIC purchased loans continue to perform and all loans in our portfolio remain current.

Ending deposit balances of $23.2 billion were up 44.3% linked quarter and up 16.5% year-over-year. Demand market -- money market and savings accounts representing 96% of total deposits as of December 31 increased by 17% year-over-year. We have a diverse mix of funding across a variety of business verticals with consumer and small business representing 52% of total deposits; commercial cash, treasury management and institutional representing 22%; commercial specialty representing 15%; Axos Fiduciary Services representing 5%; and Axos Securities, which is our custody and clearing, representing 5%.

Average noninterest-bearing deposits were approximately $3.5 billion in the quarter ended December 31 compared to $3 billion in the prior quarter. Client cash sorting deposits ended the quarter around $1.1 billion, up modestly from the September quarter.

In addition to our Axos Security deposits on our balance sheet, we had approximately $460 million of deposits off balance sheet at partner banks. We remain focused on adding noninterest-bearing deposits from our custody clearing, fiduciary services and commercial cash and treasury management verticals. Our consolidated net interest margin was 4.94% for the quarter ended December 31 compared to 4.75% in the quarter ended September 30. We closed the Verdant acquisition on September 30, adding approximately $430 million of loans and leases and approximately $780 million of on-balance sheet securitizations. While the leases are generally accretive to loan yields, the secured financing had a 3 basis point negative impact on our net interest margin in the quarter ended December 31.

One FDIC purchased loan paid off in the December quarter. The net impact from the early FDIC purchase loan payoff and the Verdant secured financing was a 22 basis point boost to this quarter's net interest margin. Given the payoffs and maturities in our FDIC purchased loans, we expect net interest margin accretion from the FDIC purchased loans to be 10 to 15 basis points going forward. The diversity of our lending channels provide us with the flexibility to maintain strong loan growth and credit performance while managing our best-in-class interest margin.

Verdant had a strong quarter as part of Axos, contributing approximately $130 million of net new loans and operating leases in the December quarter. We have already identified several opportunities to deepen our relationship with existing Verdant vendors and dealers as well as accelerate growth in a few existing verticals that were previously constrained by capital and size limitations when Verdant was under private ownership.

Demand in our commercial specialty real estate, fund finance and lender finance, real estate and non-real estate verticals remain strong. We are making steady progress growing our loan pipelines in newer lending verticals such as floor plan and middle market lending. Taking all these factors into consideration, we are confident that we will generate loan growth by low to mid-teens on an annual basis this year.

Given the robust loan growth in the December quarter, we entered January with approximately $800 million higher starting loan balances than the average balances from the prior quarter. We also expect to grow loans in the $600 million to $800 million range this quarter. This strong organic loan growth is allowing us to offset the lower level of accretion that we expect to receive going forward on the FDIC purchase loan portfolio. As a result of strong prepayments and scheduled maturities, the level of regular accretion we expect going forward per quarter on the Signature FDIC loan purchase is approximately $6.5 million. Excluding the onetime gain on the Signature prepayment in this quarter, we received approximately $9 million of Signature FDIC accretion in the December quarter, resulting in a forward-looking reduction of scheduled accretion of approximately $2.5 million. In essence, we have replaced a significant percentage of our Signature loan accretion income with stable core net interest income.

Additionally, the March quarter has 2 fewer days, resulting in approximately 2% net interest income reduction as compared with the 3 other quarters. Finally, we achieved around a 90% downward beta, managing the last 50 basis points of rate cut, resulting in a potential 5 to 6 basis point reduction in our Signature adjusted margin in the March quarter relative to the December quarter, although some of this reduction may be offset by nonrenewals of lower-margin loans and slightly higher average margin of new originations given the robustness of our loan demand.

We had a strong increase in noninterest income as a result of the acquisition of Verdant's operating leases. While we expect that the Verdant loan balance growth is going to be approximately $150 million per quarter, the percentages that are operating leases, which will generate incremental fee income rather than interest income, will fluctuate from quarter-to-quarter depending on the structure of the individual transactions.

The credit quality of our loan book continues to be strong, and our historical and current net charge-offs remain low. Total nonperforming assets improved by approximately $19 million linked quarter, representing 56 basis points of total assets compared to 64 basis points in the prior quarter ended September 30. Nonperforming assets declined by approximately $9.7 million in multifamily and commercial mortgages and by $11.9 million in single-family mortgage. Total nonaccruals in C&I lending were largely unchanged from the prior quarter. We do not anticipate a material loss from loans currently classified as nonperforming in our single-family, multifamily or commercial real estate loan portfolios. Net charge-offs to total assets were down 7 basis points linked quarter and 6 basis points year-over-year to 4 basis points for the 3 months ended December 31. We remain well reserved from our current loan levels for credit loss with our allowance for credit loss to nonaccrual loans equal to 215.8% at December 31.

Axos Securities, which includes our correspondent clearing and RIA custody business, had a good quarter. Total assets under custody administration increased by $43 billion at September 30 to $44.4 billion at December 31. Net new assets for our custody business were nearly $1 billion in the December quarter and $2 billion for the first 6 months of fiscal 2026. Strong organic asset growth and operational improvements contributed to operating income from the Securities segment, improving from $7.8 million in the second quarter to $9.7 million from $7.8 million in Q2 of 2025 to $9.7 million in Q2 of 2026.

We continue to expand the scope and scale of artificial intelligence across the firm to a wide range of businesses and functional units. We are well positioned to use artificial intelligence to increase operating leverage across the enterprise. We are deploying artificial intelligence throughout the software development life cycle. These AI-enabled tools allow us not only to review, document and update code at a faster pace with fewer resources, but they will also allow our team to take on more projects concurrently without the need to increase the pace of new hires or offshoring. Our commercial lending team has expanded the utilization of AI in various credit underwriting and portfolio management workflows, significantly improving the productivity of manual repetitive tasks. We are enhancing our ability to perform more robust compliance and risk monitoring at reduced costs.

We continue to evaluate M&A opportunities to augment growth from existing businesses and team lift-outs. We successfully completed the acquisition of Verdant Commercial Capital, a vendor-based equipment leasing company at the end of the September quarter. Verdant's focus on originating small and mid-ticket leases nationally in 6 specialty verticals is a great addition to our commercial lending franchise. Their strong risk-adjusted returns, history of low credit losses, tech-enabled service model and the entrepreneurial spirit of the team members are a great strategic fit for Axos. We are making good progress integrating the team, systems and processes. We also have spent time with the vertical and functional leaders to identify and prioritize strategic and operational initiatives that will help deepen our relationship with their clients and increase revenue growth and profitability.

Over the next 6 to 12 months, we will more systemically develop cross-sell opportunities for deposits and floor plan lending to a larger set of strategic dealers and OEMs. With a strong start and a solid pipeline, we expect Verdant to achieve EPS accretion at the mid- to high end of our initial projection of 2% to 3% accretion in fiscal 2026 and 5% to 6% accretion in fiscal 2027. I'm excited for the opportunities that we have to maintain our positive momentum in fiscal 2026 and beyond. Our strong and growing capital, diverse lending, deposit and fee income capabilities, operational and credit risk management culture positions us well to capitalize on organic and inorganic growth opportunities. As we make additional progress on various technology and process enhancement initiatives, I remain optimistic that we can deliver positive operating leverage while investing in businesses, systems and people.

Now I'll turn the call over to Derrick, who will provide additional details on our financial results.

Thanks, Greg. A quick reminder that in addition to our press release, our 10-Q was filed with the SEC today and is available online through EDGAR or through our website at axosfinancial.com. I will provide some brief comments on a few topics. Please refer to our press release and our SEC filings for additional details.

Noninterest expenses were approximately $184.6 million for the 3 months ended December 31, 2025, compared to $156.3 million in the 3 months ended September 30, 2025. Verdant added approximately $7.8 million in salaries and benefits expenses and $14.8 million in depreciation and amortization expenses. Separately, we had a $7 million increase in other general and administrative expenses related to an accrual for the core Clearing acquisition. Excluding the Verdant-related expenses and the onetime accrual, noninterest expenses were roughly flat quarter-over-quarter. We are committed to keeping our salaries and benefits and professional services expense growth at 30% of our revenue growth or lower on an annual basis.

As we mentioned last quarter, we acquired approximately $1 billion of loans and leases and $213 million of fixed asset operating leases in the Verdant acquisition, which closed on September 30, 2025. As of December 31, $702 million remain as on-balance sheet securitizations. In the quarter ended December 31, 2025, we recorded $24.3 million of interest income from loans and leases and $14.1 million of noninterest income from the operating leases.

Turning to the consolidated entity. Total noninterest income for the 3 months ended December 31, 2025, was $53.4 million, an increase of 65% from the $32.3 million in the prior quarter. Aside from the $18.9 million noninterest income from Verdant, we saw growth in both broker-dealer and advisory fee income compared to the linked quarter.

Provisions for credit losses were $25 million in the quarter ended December 31, 2025, compared to $17.3 million in Q1 of 2026. The primary driver of the quarter-over-quarter increase in provision for credit losses was robust loan growth across our commercial lending categories, which carry a higher provision for each dollar of net loans added compared to single-family and multifamily mortgages. We also added approximately $2.8 million to our provision for unfunded commitments related primarily to our commercial real estate specialty and C&I lending businesses during the quarter.

I'll wrap up with our loan pipeline growth outlook. Our loan pipeline remains healthy at approximately $2.2 billion as of January 23, 2026, consisting of $598 million of single-family residential jumbo mortgage, $75 million of single-family gain on sale mortgage, $200 million of multifamily and small balance commercial, $82 million of auto and consumer and $1.2 billion across commercial.

We expect the combination of strong originations from our commercial lending businesses, growing contributions from incubator businesses such as floor plan and middle market lending and slowing prepayments in our multifamily lending businesses and the incremental contributions from the Verdant Equipment Finance business to drive loan growth in the low to mid-teens year-over-year over the next year.

With that, I'll turn the call back over to Johnny.

Thanks. Alicia, we're ready to take questions.

[Operator Instructions] Our first question comes from the line of David Chiaverini with Jefferies.

So I wanted to start with the net interest margin outlook. I think I heard you right that the normalized level was 4.72% and that you expect a 6 basis point decline. So that would imply 4.66%. Just wanted to confirm that I heard that right was the first part. And then could you also talk about how much the average remaining life of the FDIC purchase loans?

Yes. So with respect to the first question on net interest margin, that's correct. I do think because we've had so much robust loan demand, as I said, that I've been able to kind of push up average spreads a little bit. But I think a good conservative approach would be to assume that you're going to have that 5 to 6 basis point decline in the adjusted margin just based on the robust growth we had. We did well on the deposit side, but we did, I think, pretty well on the down beta, but that's where that is. And then with respect to the Signature side, it's almost -- it's like 3 or 4 more years, right?

Correct, yes.

About 3 or 4 more years. So that's 6.5%. It's relatively steady, right? It's a little more -- it's because of just the way the accounting is. So obviously, we could have -- either theoretically, you could have a loss in the portfolio, which we haven't had yet, but you could or you could have a prepayment, which would then accelerate that and then we would describe what the otherwise then new level of accretion would be per quarter.

Great. And in terms of -- you alluded to potential team lift-outs. Can you talk about a pipeline there and what you're seeing?

Well, I think we've done a decent number of team lift-outs. And in a lot of cases, those teams are now adding people where they see opportunities on a more individual basis. So although we clearly -- we look for -- we look at acquisitions, we look at teams, I think we've really done a lot there in the last year, the floor plan team, the tech team, some other geographic teams. And so I think we're probably more likely now in the coming quarter to be a little more focused on developing -- or the coming quarters, a little more focused on developing those teams, adding where necessary. So we've kind of made those investments, and we want to see them kind of come to fruition and get a little more mature.

Great. And then last one for me is just on the portfolio acquisition front. Similar question. Is there much of a pipeline there? Or are you seeing many portfolios for sale?

On the loan side, we have such robust organic growth through our own channels and that we'll see small ones, but I don't really think that's going to be a massive part. I haven't really seen a lot of those. And when they are, they come up, they're sort of a bunch of low-rate multifamily loans where people are trying to pretend that they're not as marked as they should be or whatever. But there's always interesting deals. I mean we're across the spectrum going on, and we are always spending our time thinking about those and making sure we're in the deal flow.

Our next question comes from the line of Kyle Peterson with Needham & Company.

I wanted to start off on the growth outlook. Great to hear the commentary and good to see the balances and the pipelines both looking really good. But in terms of moving forward to kind of support that low to mid-teens outlook here, should we expect more of the same, some of the strength, whether it's CRE specialty, warehouse, leasing and some of these other things. Is it more of the same? Or are there other parts that you are thinking will become more attractive or you see additional opportunities in the next couple of quarters here?

Yes. I think that, obviously, CRESL was heavy growth this quarter. We don't expect that -- we expect it to be a little more balanced next quarter. Fund finance continues to do well. We expect non-real estate lender finance, maybe to have a little bit better quarter or floor plan will start to kick in. So yes, I think it's going to be pretty balanced. And I think Verdant is -- they're a bit of a seasonal business. They tend to have a bigger fourth quarter and first quarter is slower. It's just the way that leasing business is. But we still expect that they're going to be $150 million, $200 million of growth, including all their segments, at least that's what their current projection is. So I think it's going to be pretty balanced. I feel really good about the balance we have across the groups now.

Got it. That's really helpful. And then as a follow-up, I wanted to touch on fee income. I know there's some pieces moving around with Verdant. I think there's some seasonality from some paper statements and stuff. But I guess stripping out that seasonality from that, is this a good run rate moving forward for fee income with Verdant in the fold? Obviously, I know there can be some moving on rates, but in a more stable rate environment, would this quarter be a good jumping off point?

Yes. I think that's right, Kyle. I think the -- we did have the paper statement fee. That was about $1.5 million this past quarter. So impactful, but not overly impactful by any means. And -- but that's the burden income. We expect to be generally consistent through that noninterest income line item and maybe some small growth there as they grow originations. But it's only about 20% or even a little shy of that of their portfolio. So that come through in operating leases. And there's nuances to that with the accounting and as far as the classification as to what hits operating and what hits the net interest income line item. But I think this is a good jumping off point. Have a nice quarter, guys.

Thank you.

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

Greg, I got a high-level one for you. I mean you guys have more going on than any other bank that I know. I mean you've got a ton of growth engines. You've got a lot of irons in the fire, if you will, that you're developing, businesses that you're incubating. Like from your standpoint, what are you most excited about today that you're working on that you think can be maybe most impactful to the business?

Yes, it's an interesting question. I mean I'll dodge it, then I'll answer it. I think one of the reasons that we have continued to do as well as we have for as long as we have is that we do have that balance. And so that balance allows us to have strong growth, but not actually have a rushed growth in anything. So if you really look at the underlying businesses, any one of those businesses isn't growing at a crazy speed usually, but the combination of all of those businesses together end up generating a reasonable level of growth. So in a lot of respects, a lot of the infrastructure that's necessary for those businesses to succeed and to grow and to get operating leverage really rely on a common data infrastructure, common sales force platform that allows us to track what's going on with our teams and all those kind of things. So there's a balance that's been created intentionally as a result of that diversity.

That being said, I think where I'm really excited is that I've always felt like we've had so many better ideas technologically than we were able to fund and that a lot of our fintech competitors because of the nature of how they were able to run money-losing operations for such long periods of time and were measured by clicks or eyeballs when we would be measured by, oh my gosh, $0.01 here and $0.01 there, right? And then now with what I'm seeing with the platforms, just with respect to AI and code development, I really do see a bending of that cost curve with respect to our ability to do a lot more development. So the ability to be able to rapidly respond to customer needs through really staying close to the customer from a platform perspective and then being able to react in more real time to those needs on those platforms, I think is going to be really impactful. And it's not -- it's -- I can feel and taste it in a way that I haven't been able to just based on what I see the speed of some of the things that we're able to do in the new AI software development life cycle.

So I think that's what will be the biggest change and the most exciting change because then you really can innovate in interesting and unique ways, and that's something that really a lot of that innovation has not been limited by our ideas, but it's more been limited by just kind of attempting to balance all the different cost structure factors with the other growth in the businesses.

Okay. That's helpful. I also want to touch on the expansion in CRESL this quarter. Obviously, growth was massive. You alluded to don't run rate this level of growth this next quarter. Can you just touch on what changed to drive that? Like was this just a lot of demand? Did payoffs and paydowns slow? Or did you move upstream a bit and have a few larger deals? I'm just kind of curious if you could talk about what drove the strength?

There was -- the paydown issue was significant. And what had really happened there is we're still -- if you think about these deals as 3-year kind of average lives, there was still -- we had just done some kind of pulling back in certain areas around that time. And so there was some gaps and you could see it and you could kind of predict the enhanced prepays, right? And so if you think about those COVID time frames, think about the length of the deals, there was just time frames where we were -- where we just weren't sure where things were going and we were more cautious, but then you just ended up having little prepay bulges throughout there. So that's one. And then sometimes it just happens. There were some deals that got pushed in different quarters and some went early and it ended up being larger than it was. I don't know, Derrick, if you have anything you want to mention.

No, I think, yes, the repayments -- the headwind that we had talked about for the last year slowing is basically the one word answer to payments.

Yes, yes.

Okay. That's great. And then, look, when you've got that kind of growth, I mean, funding it is not easy. And so your ability to fund loan growth has been really impressive. It looks like it was primarily within specialty deposits and commercial, where you were able to drive a lot of deposit growth. Could you touch on maybe like within those segments, where are you seeing the most opportunity and where you're having the most success driving that growth?

Sure. We did have a good deposit growth quarter, and we were a little sensitive about being maybe as aggressive with the rate reductions that we would normally drive because we've been driving not only to 100% beta, but to an actual neutral NII, and we were able to achieve that pretty much on every rate decline to date. And I think we did a pretty good job here on that side, too, but I did advise on that. I think that when we look forward, a 700, 800, even maybe a little bit more growth number, that number feels good for us from what the organic side looks like. And that probably comes 60-ish percent from consumer and then the rest of it from the commercial and security side with really balance across a lot of different areas. Everything from HOA and title and escrow and just regular operating deposits and all those things, they're all contributing, and those are continuing to allow us to grow.

So I mean, frankly, dealing with down rate environments, when you're doing as aggressive deposit repricing as we are with respect to prior neutralization of NII differences and then 100% plus betas that are associated with that, that does make growth a little harder. But I think having a little bit of stability there, even if it's for a few quarters, will be helpful. I don't think it's absolutely necessary. We could still handle rate declines, but that will be helpful. And obviously, loan growth this quarter was above what we expect to achieve. We've given numbers that it's going to be half that roughly or something around that. So that obviously is much more in line with what our organic capabilities are on the funding side.

Great quarter.

Thank you. Thanks. Thank you, David.

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

I just wanted to ask a follow-up on the impact on the fees and expenses. It sounds like the addition on the fee side, was there a greater percentage of their existing assets that were classified as operating leases than maybe expected that drove that larger fee component this quarter?

I don't think so. I think we had referenced -- we had the $200 million -- a little over $200 million that we classified as operating leases last quarter. I think the -- if reflecting back what we might have done was given a net kind of impact of the impact between the depreciation and the fee income and not the gross impact. And so I probably could have done a better job breaking that gross impact in those line items out for everyone. So that might -- I'm not sure if that's what you're referring to, Gary.

Yes. Yes, that might be it, Derrick. So then as we're -- I know you gave kind of the expectation that you're kind of looking to hold expense growth to about 30% of revenue growth. But as we're thinking about the interplay burn specifically between the fee and expense side, that pace of depreciation and amortization growth relative to the pace of fee growth, what would be -- is there a rule of thumb to be thinking about on how those move together?

Yes. And just to clarify that, the 30% refers to the salaries and related costs and professional services combined. So those 2 segments of the noninterest expenses. So that's where that doesn't incorporate the depreciation aspect. But the depreciation will be relatively consistent as we look forward here, maybe a small amount of growth just from new assets that are originated and that will align generally with increases as well on the fee income side. But that the run rate of that depreciation line item, this is kind of that new run rate for it.

Okay. Got it. And then just one other expense question, Derrick. You mentioned a $7 million increase to G&A. What was that related to? I missed the comment there.

That was related to the -- we have subordinated loans that we made a claim on back to the Clearing matter about 7 years ago. And our claim on that was denied. And so that's where the additional $7 million is our estimate of expense that we expect to incur as a relation to that.

And that's a onetime item that was related back to that issue we had all those years ago.

Okay. Great. I appreciate the color there. And then, Greg, just in terms of the Qualia partnership that you announced a short while ago, can you kind of characterize the opportunity that you see through that partnership?

Yes. I think it's significant. They've been a really great partner. We've been exploring just different ways to work together. They're a very innovative financial technology company. And so they obviously are a leader in the escrow space, which helps us. And they have a financial technology that's utilized by a significant part of the escrow industry. And so we have a couple of territories that are exclusive right now to that, and I'm not going to get too much into that. But I think it will be helpful on the deposit side, and that's an interesting specialty deposit vertical, and they're quite an innovative company, and we've got some ideas of stuff to do with them.

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

Maybe circling back to the loan growth guidance. I appreciate that this is particularly strong and to not run rate this CRESL's strength. But with your low mid-teens guidance reiterated, I just wanted to clarify, is that -- I think that was supposed to be for the balance of the year ex Verdant off of this very high level of growth in your second quarter. Does your guidance imply a slowdown in the second half? It seems like pipelines are strong. So just trying to square that.

Yes. No, that's -- I understand where you're going with that. I mean I think we also said just trying to be a little more clarity. We think it's around [ 600 to 800 ] this quarter. Could it be a little higher? Yes, I think lower is unlikely, but that would be not a bad number range. And I don't really think we think that's going to change in the next quarter after that. But it's always hard to have visibility out that far. But I mean, I think we feel pretty good about that. And that does include Verdant, and it also includes me being able to be a little bit tougher on lower rate deals, which is a potential, but I think it's a difficult upside to quantify and maybe one that doesn't materialize with respect to margin.

So I wouldn't put it in the numbers, but it's potentially there. Because frankly, I mean, this is more about where we want to grow from a capital perspective, where we want to grow from a liquidity perspective. And so all that comes together. And I think that 800-ish kind of range, a little lower, a little more is around where we think we can be.

Got it. That's really helpful. It seems like Verdant has been a really nice home run with those folks producing really well. And you touched on some of the synergies you expect from there. I mean, would you expect their pace of growth to kind of continue at the strength that's been here? Just maybe talking a bit more about the flexibility of their balance sheet has enabled them to be more active or if there's kind of a pull-through of that pipeline?

Yes. Thank you, Kelly. Yes. Well, so I do believe that for some of their clients, really great clients they have, I mean, some big corporations and folks that have really great credit profiles, big municipalities, things like that, they were very limited with respect to their ability to serve those clients at the capacity that they have the capability of doing. And so we do add that.

It is a little bit of a cyclical business just from a standpoint of the fourth quarter tends to be a little heavier. And in general, I think that sentiment is right. The teams are getting along extremely well. They're a good cultural fit. I think they see the benefit of being here and integrating with the team, not only are they getting more tech support and help, but they were able to become immediately profitable based on the refinancing of of their subordinated debt and of their lines of credit, which were from JPMorgan and other big banks. So -- and to get deposit funding is obviously really helpful.

So yes, and then I think also -- I mean, frankly, I did not expect this. They've been enthusiastically selling deposits, and that's actually been working, which I'm kind of surprised by, which is cool. I thought that -- but I think they're not only going full bore first, but it helps to add it to the comp plan, I guess. And then, yes, then I think that, obviously, the floor plan business, they've introduced some floor plan transactions because I mean, they've got a lot of salespeople out there talking to a lot of dealers, and those dealers also have floor plan needs. So that's really beginning. We've got a couple of referrals there, but I do think that, that ability to think about that technologically over time can result in some interesting synergies because obviously, they're part of the same ecosystem on the supply chain side with what's being housed on a floor plan line is eventually sold to a client that could be financed through Verdant. So I think that's an interesting. Exactly how that works and how we bring that together, we're working through. But it is -- I think it's -- there are a couple of cool synergistic businesses there.

Thank you. There are no further questions at this time. I'd like to pass the call back over to management for any closing remarks.

Great. Thanks for everyone's interest, and we'll see you at the upcoming conferences. Take care.

Thanks, everybody.

Greetings, and welcome to the Axos Financial, Inc. First Quarter 2026 Earnings Call and Webcast. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Johnny Lai. Please go ahead.

Thanks, Carrie. Good afternoon, everyone, and thanks for your interest in Axos. Joining us today for Axos Financial, Inc.'s First Quarter 2026 Financial Results Conference Call are the company's President and Chief Executive Officer, Greg Garrabrants; and Executive Vice President and Chief Financial Officer, Derrick Walsh. Greg and Derrick will review and comment on the financial and operational results for the quarter ended September 30, 2025, and we will be available to answer questions after the prepared remarks.

Before I begin, I would like to remind listeners that prepared remarks made on this call may contain forward-looking statements that are subject to risks and uncertainties and that management may make additional forward-looking statements in response to your questions. Please refer to the safe harbor statement found in today's earnings press release and in our investor presentation for additional details. This call is being webcast, and there will be an audio replay available in the Investor Relations section of the company's website located at axosfinancial.com for 30 days. Details for this call were provided on the conference call announcement and in today's earnings press release.

Before handing the call over to Greg, I'd like to remind our listeners that in addition to the earnings press release, we also issued an earnings supplement and 10-Q for this call. All of the documents can be found on axosfinancial.com.

With that, I'd like to turn the call over to Greg.

Thank you, Johnny. Good afternoon, everyone, and thank you for joining us. I'd like to welcome everyone to Axos Financial's conference call for the first quarter of fiscal 2026 ended September 30, 2025. I thank you for your interest in Axos Financial.

We had a strong start to our fiscal 2026, generating $1.6 billion of net loan growth linked quarter, including $1 billion of loans and leases and on-balance sheet securitizations acquired in the Verdant acquisition, which closed on September 30, 2025. A 5 basis point linked quarter reduction in net charge-offs and a 17% year-over-year increase in book value per share. We continue to generate high returns as evidenced by the nearly 16% return on average common equity and the 1.8% return on average assets in the 3 months ended September 30, 2025.

Other highlights in the quarter include net interest income was $291 million for the 3 months ended September 30, 2025, increasing by approximately $11 million linked quarter or 15.6% annualized. Net interest income growth benefited from balanced growth across single-family mortgage warehouse, commercial specialty real estate and auto lending. Net interest income in the prior year's comparable quarter ending September 30, 2024, included a benefit of approximately $17 million from the prepayment of 3 FDIC purchased loans. Excluding that onetime benefit, net interest income was up $16 million or 5.8% from fiscal Q1 of 2025 to fiscal Q1 of 2026.

Net interest margin was 4.75% for the quarter ended September 30, 2025, down 9 basis points from 4.84% in the quarter ended June 30, 2025. Excluding the impact from holding excess liquidity, our net interest margin was roughly flat quarter-over-quarter. Since the Verdant acquisition closed on 9/30/2025, the transaction did not have any impact on our net interest income or net interest margin in this quarter end. We continue to maintain a best-in-class net interest margin with or without the benefit of the accretion from purchased loans from the FDIC.

Noninterest income increased by approximately 13% year-over-year due to higher banking service fees, mortgage banking income and prepayment penalty fees. Total on-balance sheet deposits increased 6.9% year-over-year to $22.3 billion. Our diverse and granular deposit base across consumer and commercial banking and our securities businesses continues to support our growth and are expected to provide relatively lower cost of funding sources for the loans and leases acquired from Verdant relative to their prior capital structure.

Total nonaccrual loans to total loans declined 5 basis points linked quarter, resulting in our nonaccrual loans to total loans improving from 79 basis points as of June 30, 2025 to 74 basis points as of September 30, 2025. Net income was approximately $112.4 million in the quarter ended September 30, 2025, up from $110.7 million in the quarter ended June 30, 2025. Diluted EPS was $1.94 for the quarter ended September 30 compared to $1.92 in the June quarter. Excluding the onetime deal-related expenses and allowance for credit loss adjustment for the Verdant acquisition, adjusted net income and adjusted EPS were $119 million and a $2.06 per share, respectively, for the quarter ended September 30, a 7.3% increase from the linked quarter and almost 30% annually.

Total originations for investment, excluding single-family warehouse lending, were over $4.2 billion for the 3 months ended September 30, representing an increase of 11% linked quarter or 44% annualized. Commercial real estate specialty lending, auto lending and single-family warehouse had strong originations and net loan growth this quarter. Average loan yields for the 3 months ended September 30 were 7.99%, in line with the prior quarter. Average loan yields for non-purchased loans were 7.66%, and average yields for purchased loans were 15.81%, which includes the accretion of our purchase price discount. The FDIC purchased loans continue to perform and all loans in that portfolio remain current.

New loan interest rates for the September quarter were 7.2% in both the multifamily and C&I portfolios, and 7.3% in single-family, and 8.25% in our auto portfolio. Ending deposit balances of $22.3 billion were up 6.9% linked quarter and up 11.5% year-over-year. Demand money market and savings accounts representing 94% of total deposits at September 30 increased by 9% 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 22%, commercial specialty representing 11%, Axos Fiduciary Services representing 5% and Axos Securities, which is our custody and clearing business representing 5%.

Ending noninterest-bearing deposits were approximately $3.4 billion at the September end -- quarter end, up by approximately $350 million from the prior quarter. Noninterest-bearing deposit balances benefited from continued growth of our treasury management business and from a large increase in cash sorting deposits that came in toward the end of the quarter. Client cash sorting deposits ended the quarter at around $1.1 billion, up by $95 million from the June quarter.

In addition to our Axos Securities deposits on our balance sheet, we had approximately $460 million of deposits off balance sheet at partner banks. We remain focused on adding noninterest-bearing deposits from our custody, clearing, fiduciary services and commercial cash and treasury management verticals.

Our consolidated net interest margin was 4.75% for the quarter ended September 30 compared to 4.84% in the quarter ended June 30. We had more excess liquidity in the quarter ended September 30 with average cash balances of approximately $2.5 billion compared to $2.15 billion of average cash balances in the prior quarter. This excess liquidity was a 7 basis point drag on our net interest margin. Additionally, we issued approximately $200 million of subordinated debt in September of 2025, which has a fixed annual interest rate of 7% for the first 5 years. We used part of the proceeds from the $200 million subordinated debt offering to pay off approximately $160 million of existing subordinated debt that was scheduled to move from a fixed annual interest rate of 4.875% to approximately 9% in October. The new subordinated debt issuance reduced our net interest margin by 1 basis point in the quarter ended September 30, 2025. We expect our consolidated net interest margin ex FDIC loan purchase accretion to stay at the high end of the 4.25% to 4.35% range we have targeted over the past year.

While new loan yields are coming in slightly lower in certain lending categories due to recent Fed actions, our goal is to offset lower loan yields with reduced cost of funds. Our loan pipelines have improved over the past few quarters as a result of successfully expanding our distribution channels across commercial lending categories and increased contributions from teams we onboarded over the past few quarters. The floor plan lending team has a nice pipeline. We also believe we've moved past peak levels of prepayment in our multifamily loan portfolio, which have been a significant headwind to net loan growth over the past several quarters. We expect the Verdant acquisition to add an incremental $150 million to $200 million of net new loans and operating leases per quarter at attractive spreads starting in the second quarter of this fiscal year ending December 31. Taking all these factors into consideration, we expect loan growth to come in at the low to mid-teens range on an annual basis in the remaining 9 months of our fiscal year 2026.

The credit quality of our loan book continues to be solid and our historical and current net charge-offs remain low. Total nonperforming assets remained flat linked quarter, representing 64 basis points of total assets compared to 71 basis points in the quarter ended June 30, 2025. Nonperforming assets declined by approximately $17 million in multifamily and commercial mortgages and by $7.4 million in commercial real estate, partially offset by increases in nonperforming assets in single-family mortgages due to a handful of loans with a weighted average loan-to-value of 57%.

No new C&I loans were placed on nonaccrual this quarter and a few larger C&I loans currently on nonaccrual are still paying as agreed. We do not anticipate a material loss from loans currently classified as nonperforming in our single-family, multifamily or commercial real estate loan portfolios. Net charge-offs to total assets were down 5 basis points linked quarter and 6 basis points year-over-year to 11 basis points for the 3 months ended September 30.

Axos Clearing, which includes our corresponding clearing and RIA custody business had a good quarter. Total assets under custody or administration increased from $39.4 billion at June 30 to $43 billion at September 30. Net new assets for our custody business were $1.1 billion in the September quarter, an acceleration in the net new asset momentum we have experienced over the past several quarters. This marks the first time that assets in Axos Clearing's custody and clearing business have exceeded $40 billion. The pipeline for new custody clients remains healthy.

We continue to evaluate M&A opportunities to augment growth from existing businesses and team lift-outs. We successfully completed the acquisition of Verdant Commercial Capital, a vendor-based equipment leasing company at the end of September. Verdant's focus on originating small and mid-ticket leases nationally in 6 specialty verticals is a great enhancement to our commercial lending franchise. Their risk-adjusted returns, history of low credit losses, tech-enabled service model and the entrepreneurial spirit of the team members are a great strategic fit for Axos.

Additionally, these long-duration fixed rate loans and leases complement our existing floating and hybrid loans in our single-family mortgage and commercial specialty lending businesses. In addition to having access to lower cost of capital and funding, we believe the Verdant team will benefit from our operations and tech support. After meeting with the management sales, operations and credit team post close, we are confident that we'll be able to generate meaningful growth from existing and new vendors and dealers in our 6 existing verticals. Over the medium to long term, we see additional opportunities to generate incremental growth from entering new verticals as well as cross-selling deposits and floor plan lending to larger strategic dealers and original equipment manufacturers.

From a deal perspective, we paid a modest 10% premium on the roughly $40 million of book value of Verdant at September 30. The seller will also have an opportunity to earn up to $50 million over the next 4 years if the business generates a greater than 15% return on equity on an annual and cumulative basis. The transaction added approximately $1.2 billion in loan, leases and equipment operating leases, which include $1 billion of loans and leases and $213 million of equipment operating leases, which are recorded in other assets. We paid off $87 million of subordinated debt and $242 million of warehouse borrowings at closing and assumed $754 million of long-term securitization financing.

From an income perspective, we recorded approximately $1.3 million in deal-related expenses in this quarter and added $7.8 million to allowances for loan loss, including the roughly $7.8 million additional CECL reserves that we realized at closing, the total allowance for credit losses for the acquired loans and leases was approximately $15.6 million or roughly 1.5% of the total outstanding loan and lease balances at September 30, which we added despite a loss history for Verdant well below 50 basis points annually.

Our expectation is this acquisition will be accretive to our earnings per share by 2% to 3% in the fiscal year 2026 and by 5% to 6% in fiscal 2027. The current regulatory environment provides a favorable backdrop for additional accretive and strategic M&A transactions. Our strong capital, liquidity and profitability allow us to be disciplined and opportunistic in where we deploy excess capital. We remain hyper-focused on increasing productivity and implementing additional operational improvements to help us become more profitable and scalable. We have rapidly expanded the scope of workflows and use cases for artificial intelligence across the enterprise, including risk and compliance, credit, operations, technology, legal, marketing, finance and accounting and believe that further AI implementations will enable us to create greater operating leverage and improve the speed, quality and cost of software development projects and accelerate new product development.

AI is having an impact on our efficiency and software development. We are in development on exciting products and technologies across our consumer, commercial and securities businesses. We are continually enhancing our all-in-one consumer and small business experience with an aggressive and exciting road map. This consumer platform is utilized by retail and end clients in our institutional custody and clearing business. We have begun the rollout of our recently developed Axos Professional Workstation to selected broker-dealer clients. This Professional Workstation is a centerpiece of a technological modernization strategy in our securities business that will allow us to integrate banking products in a seamless way for RIAs and brokers to more holistically serve their clients and provide a much more flexible and modern system than many of our large competitors' legacy systems.

In closing, I'm excited about the opportunities we have to maintain our positive momentum in fiscal 2026 and beyond. With the Verdant team and other team hires we have made this last year, producing both loans and deposits, we feel more certain in our ability to grow loans in the low to mid-teen range annually, maintain margin in our forecasted range and other than the costs we added through the acquisition, accomplish our objective to gain operating leverage.

Now I'll turn the call over to Derrick, who will provide additional details on our financial results.

Thanks, Greg. A quick reminder that in addition to our press release, our 10-Q was filed with the SEC today and is available online through EDGAR or through our website at axosfinancial.com. I will provide some brief comments on a few topics. Please refer to our press release and our SEC filings for additional details.

Noninterest expenses were approximately $156 million for the 3 months ended September 30, 2025, up by $5.6 million from the 3 months ended June 30, 2025. Excluding approximately $1.3 million of deal-related expenses from the Verdant acquisition in September, total noninterest expenses were up by approximately $4.3 million on the linked quarter. Salaries and benefit expenses were $76.6 million, up by $1.6 million from the prior quarter ended June 30, 2025. The primary drivers of the quarter-over-quarter increase in salaries and benefits expenses were the addition of the floor plan lending team and a partial quarter of our annual merit compensation increase.

Data and operating processing expenses were $22.1 million compared to $20.4 million in fiscal Q4 2025. The sequential increase in data processing expense was attributed to a handful of projects across different business units. Since we closed the Verdant acquisition on September 30, 2025, it did not have any impact on our operating noninterest expenses. Going forward, we expect the Verdant acquisition to add approximately $8.5 million per quarter in noninterest expenses. We remain focused on optimizing our operating expenses with a specific focus on AI implementation while making prudent investments to deliver positive operating leverage.

As Greg mentioned earlier, we acquired approximately $1 billion of loans and leases and $213 million of fixed asset operating leases in the Verdant acquisition. Of the $1.2 billion of total Verdant loan and leases, approximately $762 million are on-balance sheet securitizations with a weighted average remaining life of 3.7 years. The net loan yield on these assets is between 3.75% to 4.5% above the 90-day SOFR rate. And the net spread of the on-balance sheet securitizations is between 2.57% and 3.07%. The interest income from the $1 billion of loans and leases will be recorded in interest income and the income from the operating leases will be recorded in noninterest income.

For all new loans and leases, we expect to record an allowance for loan loss of approximately 1.5%.

Next, our income tax rate was 25% for the 3 months ended June 30, 2025, compared to 29.4% in the corresponding year ago period. The quarter ended September 30 was the first quarter that benefited from the impact of the new California budget, which included a change in our tax calculation methodology. Additionally, we had approximately a 1.9% benefit in our tax rate from RSU vesting in the September period. Going forward, we still expect our corporate tax rate to be approximately 26% to 27%, consistent with what we have guided previously.

I'll wrap up with our loan pipeline and growth outlook. Our pipeline remains healthy at approximately $2.2 billion worth of loans as of October 24, 2025, consisting of $605 million of single-family residential jumbo mortgage, $78 million of gain on sale mortgage, $352 million of multifamily and small balance commercial loans, $76 million of auto and consumer, and $1.1 billion across our commercial verticals. We expect the combination of strong originations from our commercial lending businesses, growing contributions from incubator businesses such as floor plan lending, slowing prepayments in our multifamily lending business and incremental contributions from the Verdant equipment finance business to drive loan growth in the low to mid-teens year-over-year growth over the next 12 months, excluding the impact of the loan portfolio purchased from the FDIC or any other potential loan or asset acquisitions.

With that, I'll turn the call back over to Johnny.

Thanks, Derrick. We are ready to take questions.

[Operator Instructions] And our first question will come from Kyle Peterson with Needham & Company.

I wanted to start off on credit. Obviously, there's been some fairly high-profile headlines of late. Everything in your book looks pretty good. But I guess maybe any context of what you guys are seeing, particularly like in any -- whether it's pipeline deals or anything that is looks a little like spookier or unattractive to you guys? Or I guess, kind of how are you guys thinking about new deals and structure and competition in your approach to credit right now?

Sure. Thanks for the question, Kyle. Good to talk to you. Yes, the -- so just in speaking about the 3 deals that got a lot of press, we had seen those deals and turn those down for a variety of different reasons. We think there was some decent indicators there just based on structure that were problematic. I think that in late stages of credit cycles, people sometimes get pretty sloppy on structure. And frankly, you see that in some of the syndicated deals where the sort of lender-on-lender violence language wasn't as strong as it should have been in certain cases. We're very careful and watchful of that because we believe that, that can be a problem on syndicated deals. We turned down deals for that. We pushed back. That's an area that is less recognized, but a problem.

You don't need -- I personally view it as almost a form of fraud, but you have to just be very thoughtful about that because guys are reading things into this. And it's -- at a minimum, it's extraordinarily aggressive. The other types of more blatant fraud that went on there, like with respect to 1 of the 3 deals was that people are actually forging documents and title insurance and telling banks that they have first liens on assets when they don't. There's always ways of going about trying to stop fraud. And those -- there were ways in what we do that would not have allowed that to happen because we get certain documents directly from title insurers and things that would stop that from happening.

But yes, I mean, look, I think that it's always something that you have to look out for. I've always said I think fraud is one of the most dangerous potential issues that any lender has, particularly when they're secured in the manner that we are. And so in each and every segment, there are different types of risks and opportunities to mitigate those risks. And I think we do a good job with it, but we're continually on guard because people come up with new and interesting ways of doing bad things.

Okay. I appreciate the detailed color there. And then I guess just a follow-up on fee income came in pretty strong this quarter, at least what we had modeled. Just wanted to see, were there any one-timers or like whether it was like a loan sales or anything like I know you guys said last quarter. But I guess anything onetime? And then I guess, just a refresher on any of the fee income potential contributions from Verdant, like if there's any operating leases or anything and how we should be mindful of like the run rate on that from here on out would be great.

Yes, nothing from the fee income that was a one-timer in this past quarter from the Verdant profile. The expectation is a few million dollars will come through in that noninterest income line item as we look forward.

Yes. I think the one thing...

Do you mean per quarter or...

Correct. Yes, per quarter.

Per quarter.

And one thing you do have to just be thoughtful about is I think the team has done a good job on the securities side of growing out of the negative impact that hits their P&L when they -- when rates go down. So that -- there's only some of that's off balance sheet like $500 million or whatever, but that's still out there. It's not massive, but you just should think about it. I mean I think they're going to be able to grow out of it. They did grow out of it. But that's out there. So that's one element that you -- and then obviously, mortgage banking picks up, but there's probably a dead zone in there where somewhere mortgage bank has not picked up, but you end up with lower benefit from the 0 cost deposits through the sweeps.

And moving next to Gary Tenner with D.A. Davidson.

I had a follow-up on VCC. It was my assumption at least that the funding for the loans put on -- or the assets put on balance sheet wasn't to come from your excess cash, but you flagged the secured financing at quarter end. Is there a period of time that you have to keep that? Is it attractive price for you? Can you kind of walk us through that?

Yes. So we would love to take all that out and utilize the excess cash, and it would be a very wonderful day for us and our shareholders. But these are term securitizations. They were done to match fund particular leases. There is -- there are cleanup calls that I think are all at 10%, right Derrick? Yes, they're all at 10%. So they -- as soon as we can clean these up, we will because it would be cheaper to use our own deposits. But yes, they're on balance sheet, they're term financing. We can't do anything with them. I mean, obviously...

We'll monitor them and see if any pricing comes in kind of through Bloomberg and through the markets in the same way that we picked up some of our sub debt at a cheaper rate. We'll do the same thing with the secured financings. If they're trading out there at a discount, we'll be jumping on that.

I don't think that's going to happen. Just frankly, look, it's possible that the performance of the leases have been very, very strong. So there's no credit component to kind of get anyone excited about that. But you never know. I mean maybe somebody owns a small piece and they want to get rid of it or something like that. So we can always look at that. But unfortunately, but they're going to be out.

But I do think that Verdant has a nice pipeline. They're going to be growing. We put that $150 million to $200 million growth target out there. I think they can exceed that and I think they might this quarter. So that also means that there'll be the opportunity to fund those loans with our deposits. And we kind of -- deposits just ended up overshooting this quarter, not only from operational activity, but we were -- we obviously had a big quarter of growth coming. And there was another component is that the timing of the acquisition sort of got delayed, and so they did another securitization. It was a pretty nice and tight spreads. So we talked about it and I said, well, I don't really have an objection to it because there was a bunch of moving pieces to get the deal done.

But so yes, but the good news is we're well set up for strong loan growth. And I think with this deal and everything else we've done, we raised our guidance on loan growth because we had that. Even though we are certainly not hoping to be there that high single digits to low teens, and now we have low teens to mid-single digits or something, but it's mid-teens, right? But in any event, it's better.

Got it. And just to go back to the secured financing, what's the -- just for modeling purposes, kind of what's the carrying cost of this?

Do you have that?

It's a little north or about 5.5%, and they have a 3.7% weighted average in years.

Okay. Great. And then I just did have a follow-up in terms of the purchase loans. It looks like a pretty steep drop in the balance of average purchase loans in the quarter, but it didn't look like any kind of real outsized interest income or accretion benefit. So could you just comment on that? And then if you have it available, what the period end FDIC purchase loans are?

Yes. The -- it was really from the prior quarter. So if you recall, we had a big bump of $12 million in the gain on sale in the mortgage banking last quarter. So that sale occurred in the latter half of June. And so that's why the average balance was much higher for your purchase loans in the June quarter.

And so I think that was the only big one that we've had to pay off during the September -- or I mean, in the June and September quarter. But that loan was a little over $100 million. So I think this quarter's average is relatively reflective of what the ending period figure is.

[Operator Instructions] We'll go next to Kelly Motta with KBW.

The balance sheet growth was remarkable, both organically as well as with the deal that you got. It looks like capital ratios have come down a bit. Greg, can you refresh us on how you're thinking about capital and your comfort here with being able to support potentially mid-teens loan growth, where those capital ratios you're comfortable with letting them go?

Yes. And we've been accumulating capital and discussing that we believe we have excess relative to what we need. So we feel very good about the capital ratios where they are and even having them go down a bit. But the reality for us is we're making over a 15% ROE. So any loan growth that's sub that essentially allows us to stay roughly equal. I mean, obviously, there's some dividends to the holding company, things like that. But within that range, I feel very good about the profitability. And I think just given if you look at the linked quarter income benefit that didn't even include the $1 billion of the Verdant loans, that was nice growth.

So I think that strong income growth and the strong capital accretion is going to work well there. And I think we've done a really good job of bringing our loan loss reserve to a very strong place, including even with Verdant, where I think it was a prudent but conservative decision to bring it to 1.5% given that they've been averaging 25 and 30 basis points of loss over their period. And they've been around 5 years. So that doesn't mean you can guarantee that, but certainly bringing that to 150 is good.

So we feel very good about where we are in loan loss. I feel good about where we're seeing the NPL sort of stuff shake out. I feel like the commercial real estate thing, which everybody had their -- was sort of agitated about has certainly not come to fruition in any respect with respect to us. So yes, I think it's good. And we had much higher capital ratios than, frankly, we've ever had. And so it was built for doing just what we did. And so we felt good about that deal and our ability to do it.

Awesome. You guys certainly make a lot to help replenish those. So in terms of -- Greg, we got the Verdant deal. And in your prepared remarks, it sounds like there might be some more opportunities on the acquisition side. Is there anything you can share with us in terms of types of deals that look attractive, how that's shaping up and kind of the outlook from here?

Yes. Obviously, as I'm sure you well know and have to cover as these banks get together like kids at a frat party. There's a lot of talk about all those things. I mean we're always active in looking and trying to understand what works and what doesn't. We -- in the case of Verdant, for example, it filled this particular niche. It was a good national specialty vertical with bank quality management in an area that we didn't have. So there's a few other of those type of verticals that we always continue to look for and find the right partners.

On the bank side, there's a lot of different ways to look at bank acquisitions and see what works and what doesn't. It has to be obviously the right cultural strategic fit or it has to be an incredible financial bargain. So we're very active in looking, and we'll continue to do that and see what makes sense.

And moving on to David Feaster with Raymond James.

I wanted to talk on this NDFI issue. I mean this has now become a dirty word. And I appreciate your commentary a bit talking about it. But I was just hoping you could elaborate maybe a bit on where -- obviously, there's been some fraud, but where are you seeing the pressure points in the industry, maybe compare and contrast a bit with what you do, the exposures that you've got and how you monitor and manage collateral and the cash flows just to protect yourself because that seems like an incredibly important part about that.

Right, right. Well, so yes, it's a broad category. So if you just sort of go through this logically, single-family mortgage warehouse, right? You have MERS for that. So there was some pretty I mean, obviously, you've been around a long time. I'm not calling you old. I'm just saying you've been around a really, really, really, really long time, David. But you remember like Taylor, Bean & Whitaker and all those kind of things and Colonial and all that sort of stuff where essentially you showed up one day and your loans are pledged to someone else, right?

So that issue, I think, is more solved with MERS than others with respect to the types of loans that go through there. That's the single-family warehouse side now. Then if you think about real estate lender finance, where you have facilities that have crossed assets, what happened with respect to those other institutions was that essentially they were told they had first mortgages because they receive title policies from the borrower themselves and essentially 3 different banks, I think, thought they all had first liens or the first liens that were created by the NDFI, 3 different banks thought they had first liens on those first liens, right?

So there's some pretty clear ways that you can figure that out. One way is not to get the information from the NDFI, right? So at a fundamental level, there's always this question of what do you trust? What do you don't trust? How do you get it? How do you check it, right? And so that is -- there's some pretty clear ways to do that. I'm not going to paint them all out for all my competitors, but just to say that there's ways of making sure that doesn't happen.

Now there's obviously an element of how you monitor that and how you think about that with respect to the timing of it because some lenders cloud title like we do by recording a notice of assignment. So if somebody else tries to lien that particular property, then there's a notice of assignment there, title company won't work through that. Others take the word of their partners for that, right? So you always have these kind of things depending on how you think about it. But frankly, I think it's always interesting to me in banking because it's kind of beautiful to some extent because you get like one thing that happens that's idiosyncratic in a particular problem. And I remember what it was like single-family lending after 2008, '09, and all these people comes to me and say, "Well, I can't believe you're doing single-family mortgages in Florida." And I'm like, "Yes, we weren't doing them when the prices were super high, but now that they've fallen by -- the prices have fallen by 60%, we're now doing it at 40% LTVs." And of course, no, we never lost a single penny on that, and we got higher rates, right?

So I think you have to just ask yourself what specifically are you talking about, right? So there's -- so that collateral is there. Now the type of "NDFI" type of risk associated with non-real estate lender finance, if you actually think about it for even a small amount of time, is a very similar risk to a regular straight ABL deal, right? Like somebody can make up invoices or a factoring. They can make up invoices, they can do all that kind of stuff. And whether you have an NDFI involved or not, if a borrower is committing fraud, the borrower can be committing fraud on the NDFI and on you, right? By like there's banks that finance factor receivable companies, right? So there's an NDFI that's a factor receivable and you're financing that factor receivable. Well, you could have the NDFI to fraud you, you could also have end clients to fraud you.

So we had a small client, a direct borrower where we had a full banking relationship typical middle market [indiscernible] like small business style. And one of the guys made up an invoice, right? And there's different ways to catch them doing that. So I don't -- if you're thinking about capital call lines, then there's a whole different array of risks associated with that because often the LPs are very large funds. And so you're getting them -- the question is how many of those do you get to sign waivers of defenses, right? So there's all kinds of different things like that. I mean I think if you step back and you say, is -- each of these areas have obviously their own benefits and disadvantages. On one hand, you could -- if you put an NDFI between you and a client, if the NDFI is full of bad actors, which by far, the vast majority of them are not, they're highly professional individuals who've worked at some of the biggest and most prestigious institutions in country, their whole life.

I mean, I'm not saying that doesn't mean they can't turn out to be a bad guy and be willing to commit to a life in San Quentin or something, but it's not -- that's not really what happens normally. I think, frankly, you're more likely to -- much more likely to have fraud in small business and direct borrower loans on things like factoring and ABL, potentially than you are in these large cross facilities. And those large cross facilities protect you because any individual idiosyncrasies is there as well as the NDFI capital also protects you from those sorts of things.

So life banking, it's full of trade-offs, right? And you just have to understand the nuances. So that's what it is.

Yes. That's helpful. And I wanted to get a sense on the expansion in that floor plan space with the new team. Just kind of how that build-out and integration has been? It sounds like they've got a nice pipeline. I know we're still in the early stages there, but was just hoping to kind of get an update on that business line and any expectations you might have.

Yes. So they've got some accepted term sheets for some nice lines with some really strong borrowers. The nature of that business requires that for any of the floor plan lines, you have to go out and get MBRAs, which are essentially repurchase obligations of the manufacturers, which is obviously an awesome thing because if somehow the asset doesn't sell, then you can have the manufacturer take it back and pay you off. So we have a lot of those executed in these areas, facilitated by those things.

And so I think we'll -- I think we'll have several hundred million dollars, let's say, by March 31, I would guess. Maybe that's a little aggressive of assets and lines funded in that business.

That's great. And then just last one for me. Just wanted to get an update on the securities business and the white labeling within there of some banking products. I know this is still in the early stages, I believe, still in beta testing. But just kind of curious, maybe the build-out of the tech infrastructure in the securities segment broadly. And then when do you think we can roll out some of that white labeling of the banking products across the platform?

Right, right. So there's really 2 main components to our tech modernization effort in the custody and clearing business. And the team has named it Axos Complete, which is their marketing name for it. What it is, is it's an Axos Professional Workstation. So right now, the workstations that are utilized by the -- particularly the clearing team are truly antiquated FIS and those sort of things. And they're just -- they're not flexible. They're not modern so that they can integrate through API, everything or do they have all the bank's products that we want to be able to have through there.

So that has been a really big push in the development side. It's benefited from AI. It is out now to multiple test, broker-dealers, and we're getting feedback and we have a rollout schedule there. So what's the benefit of that, just specifically with respect to banking, there are a lot of other benefits is that the banking products can be proxy enrolled, enrolled by the RIA. The RIA can get access to SBLOC lending products, secured credit cards, all those kind of things that would be available as they become available at the bank, they can be made available to the RIA and the client and sold through to that client with recommendations to do that, right?

So that's one piece of it. That piece is being rolled out. It will be a 6- to 7-month rollout because we have to train a bunch of folks, and this is really the core system that they were using internally to do all their trading and everything else. And so -- and then the other component of it is really it's one tech build with different ways of looking at it. But essentially, there's the retail platform, which used to call Universal Digital Bank, but as it becomes more and more available to doing a lot of other things besides banking. We're calling it the Axos Client Portal now, and that will allow the end clients of the RIAs and broker-dealers to be able not only to have access to a bunch of workflow to enhance their operations, but also access to products.

So that actually does work and the RIAs are adopting it. The platform that the RIAs use is actually something different. And so over time, we'll bring all of them together on it. There's a few things we have to develop on Axos Professional Workstation to make it be the one workstation for everything, and so that's ongoing.

But I think at the end of all of this, I think we're really going to have an extremely modern tech stack that will be able to be quickly modified and flexible for our institutional and end clients, and really allow a very seamless way of interacting to cross-sell banking products or crypto or whatever we decide to do there. So I think it's really exciting. Everybody is excited about it. And I really -- I do see it even if it's an outsourcing bid or what we're doing internally, how much faster it is to develop. So it's a pretty big project, but it's also going well.

And we'll go next to Tim Coffey with Janney Montgomery Scott.

I'm trying to get my arms around expenses going forward. Obviously, a lot of moving pieces. None of it was...

So am I. Tim, so am I. So am I, Tim.

Okay. Let’s figure this out then. Is my North Star an efficiency ratio? Or is it expenses to average assets?

Well, so what we've been saying as a hard cap, which I am sticking to and I have stuck to, and the Verdant deal throws it a little bit into a little bit into we'll readjust to that with Verdant, rebaseline it. But that our personnel expense and professional services growth will be -- the growth will be below 30% of the net interest income and noninterest income growth. So in other words, if we grow $1 in net interest and noninterest income, we will not grow more than $0.30 in our personnel and our professional services expense.

Now there might be onetime things every now and then or something, but that's a pretty strong rail that we're managing to. And we've been able to do that well. I think AI is helping. We would expect to be able to do that with Verdant too. But we've given you the cost. I mean, Derrick gave you the cost directly of what Verdant is going to add. And then you should just model that in and then expect that, that growth is going to be underneath that. That doesn't give it to you perfectly because obviously, there's other categories of growth besides professional services and personnel, but that's 70-plus percent of it, there's not like there's going to be a ton of occupancy and other things.

And so we're -- we believe we're managing it pretty well. But it's a little bit tough to do it on an efficiency ratio basis because there's obviously movements around margin and onetime payoffs of FDIC loans and all that kind of stuff. I think that's kind of more a way. So if you model in that kind of growth because everybody is watching their Ps and Qs and trying to figure out what they can afford to get to that number, then that's not a bad way to do it.

And this now concludes our question-and-answer session. I would like to turn the floor back over to Johnny Lai for closing comments.

Great. Thanks for everyone's time, and we will talk to you next quarter. Thank you.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.

Greetings and welcome to the Axos Financial Fourth Quarter 2025 Earnings Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce you to your host, Johnny Lai, SVP, Corporate Development and IR. Thank you, Johnny, You may begin.

Thanks, Alicia. Good afternoon, everyone and thanks for your interest in Axos. Joining us today for Axos Financial, Inc.'s Fourth Quarter and Fiscal 2025 Financial Results Conference Call are the company's President and Chief Executive Officer, Greg Garrabrants; and Executive Vice President and Chief Financial Officer, Derrick Walsh. Greg and Derrick will review and comment on the financial and operational results for the quarter and fiscal year ended June 30, 2025 and we will be available to answer questions after the prepared remarks.

Before we begin, I'd like to remind listeners that prepared remarks made on this call may contain forward-looking statements that are subject to risks and uncertainties and that management may make additional forward-looking statements in response to your questions. Please refer to the safe harbor statements found in today's earnings press release and in our investor presentation for additional details. This call is being webcast and there will be an audio replay available in the Investor Relations section of the company's website located at axosfinancial.com for 30 days. Details for this call were provided on the conference call announcement and in today's earnings press release. Before handing over the call to Greg, I'd like to remind listeners that in addition to the earnings press release, we also issued an earnings supplement and 8-K with additional financial schedules. All of these documents can be found on axosfinancial.com.

With that, I'd like to turn the call over to Greg.

Thank you, Johnny. Good afternoon, everyone and thank you for joining us. I'd like to welcome everyone to Axos Financial's conference call for the fourth quarter of fiscal 2025 ended June 30, 2025. I thank you for your interest in Axos Financial and Axos Bank.

We delivered strong results this quarter, generating $856 million of net loan growth linked quarter, 6 basis points of net interest margin expansion and an 18% year-over-year increase in book value per share. We continue to generate high returns as evidenced by the 17% return on average common equity and a 1.9% return on assets in the 3 months ended June 30, 2025. Other highlights in the quarter include, net interest income was $280 million for the 3 months ended June 30, 2025, up 7.7% from the $260 million in the prior year period. Net interest margin was 4.84% for the quarter ended June 30, 2025, up 6 basis points from the 4.78% in the quarter ended March 31, 2025. One loan from the FDIC purchase pool paid off this quarter and that accelerated accretion of the purchase price discount, increased our net interest income by approximately $450,000. We continue to maintain a best-in-class net interest margin with or without the benefit of the accretion from loans purchased from the FDIC.

Total on-balance sheet deposits increased 7.6% year-over-year to $21 million. Our diverse and granular deposit base across consumer and commercial banking and our securities businesses continue to support our organic loan growth. We managed our operating expenses well this quarter. Total noninterest expenses for the quarter ended June 30, 2025, were up by 3% from the prior quarter. Excluding the reversal of the legal accrual in the prior quarter, which reduced other G&A expenses by approximately $2 million, total noninterest expenses were up $2.5 million from March to June. Total nonaccrual loans declined by $15 million linked quarter, resulting in our nonaccrual loans to total loans ratio improving by 89 basis points in the quarter ended March 31, 2025 to 79 basis points as of June 30, 2025. Net income was approximately $110.7 million in the quarter ended June 30, 2025, compared to $105.2 million in the quarter ended March 31.

Diluted EPS was $1.92 for the quarter ended June 30, 2025, compared to $1.81 in the March quarter. We had a few nonrecurring items this quarter that impacted our net income and EPS. We recognized a $12 million pretax gain from the sale of multifamily loans that were included in mortgage banking income. We also recognized a onetime noncash deferred tax impairment that increased our net income tax by $5.5 million. Excluding the impact from those 2 nonrecurring items, our adjusted net income and adjusted earnings per diluted share would have been $107.7 million and $1.87 per share, respectively. We took advantage of the temporary market downturn in April to repurchase approximately $31 million of common stock at an average price of $59 per share. Total originations for investment, excluding single-family warehouse lending increased 5% on a linked-quarter basis, resulting in net loan growth in loans for investment of approximately $856 million for the 3 months ended June 30, 2025, representing an increase of 4.2% linked quarter or 16% annualized.

Asset-based lending, commercial real estate specialty lending, equipment leasing, lender finance and single-family warehouse had strong originations and net loan growth this quarter. Additionally, we grew ending loan balances in single-family mortgage for the second consecutive quarter. Average loan yields for the 3 months ended June 30, 2025, were 8%, flat compared to the prior quarter. Average loan yields for nonpurchased loans were 7.66% and average yields for purchased loans were 14.9%, which includes the accretion of our purchase price discount. The FDIC purchased loans continue to perform and all loans in the portfolio remain current.

New loan interest rates were the following: Single-family mortgage, 7.2%; multifamily, 7.1%; C&I, 7.8%; and auto, 8.3%. Ending deposit balances were $20.8 billion and they were up 3.4% linked quarter and up 7.6% year-over-year. Demand money market and savings accounts representing 95% of total deposits at June 30, 2025, increased by 7% year-over-year. We have a diverse mix of funding across a variety of business verticals with consumer and small business representing 59% of total deposits, commercial cash, treasury management and institutional representing 20%, commercial specialty representing 11%, Axos Fiduciary Services representing 5%, and Axos Securities, which is our custody and clearing business representing 5%. Total noninterest-bearing deposits were approximately $3 billion at the end of the quarter, up slightly from the prior quarter. Client cash sorting deposits ended the quarter around $980 million, up from $900 million at March 31, 2025. We remain focused on adding new assets from existing and new advisers to grow our assets under custody and cash balances.

In addition, our Axos Securities deposits on our balance sheet, we had approximately $450 million of deposits off balance sheet at partner banks. Our consolidated net interest margin was 4.84% for the quarter ended June 30, 2025, compared to 4.78% in the quarter ended March 31, 2025. We are seeing strong growth in accounts and balances from our Axos ONE consumer bundle deposit product, which includes a checking and a savings account. Growth in Axos ONE and other deposit businesses, including our commercial, cash and treasury management and specialty businesses has provided us with sufficient funding to support our strong organic loan growth. We are also making excellent progress cross-selling deposits across our lending businesses.

We expect our consolidated net interest margin ex FDIC loan purchase accretion to stay at the high or slightly above the 4.25% to 4.35% range we have targeted over the past year. While new loan yields are coming in slightly lower in many lending categories we compete in, we continue to offset some of that pressure through refinancing or paying off low-yielding single-family and multifamily loans originated 2 to 3 years ago. Our loan pipelines have improved over the past few quarters as a result of successfully expanding our distribution channels across certain commercial lending categories and contributions from teams we have onboarded over the past 12 months.

We also believe we have moved past our peak level of prepayments in our commercial specialty real estate portfolio, which has been a significant headwind to net loan growth for the past several quarters. Taking all of these factors into consideration, we expect organic loan growth to come in towards the mid- to high end of our single-digit and low teens range on an annual basis in fiscal 2026.

The credit quality of our loan book continues to be solid and our historic and current net charge-offs remain low. Total nonperforming assets declined by $13.4 million linked quarter, representing 71 basis points of total assets compared to 79 basis points in the quarter ended March 31, 2025. The sequential decrease in nonaccrual loans were primarily driven by $9.4 million in our C&I portfolio and $4.9 million in our commercial real estate lending business. We did not anticipate a material loss from loans currently classified as nonperforming in our single-family, multifamily or commercial real estate loan portfolio. Our commercial real estate specialty portfolio continues to perform very well and in line with expectations.

Nonaccrual C&I loan balances at June 30, 2025, were down by approximately $9.4 million from the prior quarter. The 2 largest C&I loans we have on nonaccrual continue to be up-to-date on their payments and no new C&I loans were placed on nonaccrual in the quarter. We continue to monitor the credit trends across all loan portfolios and have not seen any broad-based deterioration in any individual lending category.

Axos Clearing, which includes our correspondent clearing and RIA custody business had a good quarter. Total assets under custody increased from $37.1 billion at March 31, 2025, to $39.4 billion at June 30, 2025. Net new assets for our custody business increased by $215 million in the June quarter, extending the positive net new asset momentum we have experienced over the past several quarters. The stock market has rebounded off its year-to-date lows and many of our custody clients continue to generate positive assets under management growth. The pipeline for new custody clients remains healthy for small and large RIA firms, underpinning our optimism and continued net positive net new asset growth in our securities business. Total deposits at Axos Clearing were $1.4 billion at the end of the quarter, up $90 million from where they were in the prior quarter.

Of the $1.4 billion of deposits from Axos Clearing, approximately $990 million were on the balance sheet and $450 million were held at partner banks. The slight sequential increase in deposits is encouraging given the strong rally in the stock market. While it's difficult to be absolutely certain that cash sorting has bottomed, we believe that clients and advisers are becoming less focused on maximizing yields on their sweep accounts compared to a year ago. Many of our commercial lending and deposit teams, including our life science and technology business and our middle market banking teams that we have added over the prior few quarters are now producing nicely and contributing to loan and commercial deposit growth. We onboarded a new floor plan lending team that will help us scale our floor plan lending business.

We continue to evaluate M&A opportunities to augment growth from our existing businesses and team lift-outs. The pace and quality of M&A opportunities have increased over the past few months and seller expectations have become more reasonable. We are evaluating specialty lending and nonbanking businesses that generate asset and transaction-based income and low-cost deposits. Our strong capital liquidity and profitability allow us to be disciplined in how and where we deploy capital to ensure the investments meet our strategic and valuation hurdles.

We ended fiscal 2025 with positive momentum. Loan growth accelerated in the back half of the year. Our credit quality was strong and our net interest margin remained above our long-term target. We expect the change in the income tax calculation methodology for the state of California will reduce our income tax rate by 3 percentage points starting in the September 30, 2025 quarter, boosting our net income and EPS in fiscal 2026 and beyond.

With this being the 25th anniversary of Axos Bank, we are proud of delivering consistent performance through a variety of economic, geopolitical and regulatory environments. I'm even more excited about the opportunities that we have in each of our businesses. We remain hyper-focused on executing our strategic and operational initiatives. These include investments in technology and operations to scale businesses and roll out new products faster, while maintaining a best-in-class operating efficiency ratio. We believe we will see benefits in our operating efficiency from the implementation of artificial intelligence across the organization and believe that its implementation will enable us to create greater operating leverage and improve the speed, quality and cost of software development projects and accelerate new product delivery.

We believe that we can deploy our capital in a disciplined manner in our existing and new businesses to further diversify our lending, funding and fee-based income. We have a lot of runway in each of our businesses and I feel confident that our teams and our leaders will deliver the results that our shareholders have come to expect from us.

Now I'll turn the call over to Derrick, who will provide additional details on our financial results.

Thanks, Greg. Quick reminder that in addition to our press release, an 8-K with supplemental schedules was filed with the SEC today and are available online through EDGAR or through our website at axosfinancial.com. I will provide some brief comments on a few topics. Please refer to our press release and our SEC filing for additional details.

Noninterest expenses were approximately $151 million for the 3 months ended June 30, 2025, up by $4.4 million from the 3 months ended March 31, 2025. Excluding approximately $1.9 million reversal of a legal accrual in the March 31 quarter, total noninterest expenses were up by approximately $2.5 million in the linked quarter. Salaries and benefit expenses were $74.9 million, roughly flat from the prior quarter ended March 31. Professional services expenses were $10.4 million compared to $8.2 million in fiscal Q3 2025. The sequential increase in professional services expense was attributed to a handful of services across different business units.

Looking ahead to the September quarter, we recently added a floor plan financing team that adds an incremental $1 million of expense per quarter. And as a reminder, September is when we have our annual merit compensation increase, which we estimate to be about 4%. We remain focused on managing our expenses while making strategic investments in a controlled manner in order to maintain our operating efficiency ratio.

Next, our income tax rate was 29% for the 3 months ended June 30, 2025, compared to 27.4% in the corresponding year-ago period. Our income tax expense in Q4 '25 included a onetime noncash deferred tax impairment related to the change in the taxation of financial institutions that I mentioned on last quarter's call. The California budget proposal went into effect on June 30, 2025, which required us to reassess the value of our deferred tax assets. That resulted in a $5.6 million onetime noncash impairment charge in the quarter ended June 30, 2025.

Our income tax expense for the quarter ended June 30, 2025, benefited from the increase in our stock price from June 30, '24 to June 30, '25, which is one factor used to calculate our CEO's stock-based incentive compensation. The net impact of the deferred tax asset remeasurement and stock-based incentive compensation calculation combined with higher pretax income was a $2.3 million increase in our income tax expense in Q4 2025. Starting in the quarter ending September 30, 2025 and going forward, we expect our corporate tax rate to be approximately 26% to 27%, an improvement of 3 percentage points from the previously 29% to 30%.

I'll wrap up with our loan pipeline and growth outlook. Our loan pipeline remains healthy at approximately $2 billion as of July 25, 2025, consisting of $532 million of single-family residential jumbo mortgage, $49 million of gain on sale mortgage, $302 million of multifamily and small business commercial, $73 million of auto and consumer and $1.1 billion in commercial lending.

We are not seeing any material impacts from imposed or proposed tariffs on loan demand so far and we believe that we will be able to grow loan balances organically at the midpoint to high end of our high single digits to low teens year-over-year growth target over the next 12 months, excluding the impact of the loan portfolio purchased from the FDIC or any other potential loan or asset acquisitions.

With that, I'll turn the call back over to Johnny.

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

[Operator Instructions] Our first question comes from the line of Kyle Peterson with Needham & Company.

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

I think they're fairly consistent. For a lot of these businesses like the cap call side and whatnot, they have a lot of deposits that come with them and the middle market business also has that, too. So while loan yields might be a little tighter, there's an offsetting benefit on the funding side, which results in a decent net. I think there -- if I were to take a guess, I'd say that I think that the credit spread side has more -- been more consistent this quarter with the last quarter. So I wouldn't say there's that much incremental pressure but it's just -- it is very different than it was a year ago, just with respect to -- particularly in some of the C&I club deals and some of the syndicated deals, there's just a lot of banks that are kind of pushing into that space, I think if they don't maybe want to grow as much in commercial real estate and that's pushed it down a bit. I think this is somewhat of obviously a forecast. But I think it's -- we're going to be able to keep it pretty consistent. I think. But it'd be now -- it could be 1 basis point or 2 either way, sure. It's not that much of a science.

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

Right. What we had previously set as a target that we wanted to ensure that our personnel and professional services cost growth did not exceed 30% of our net interest income and noninterest income growth. Now we are adding -- we just added a team there. So that's definitely a target over the year. We added a fairly expensive floor plan team. They're great folks. We expect them to be able to produce but it will take a couple of quarters to really get that running. But just in general with respect to artificial intelligence, there's just so much opportunity and we are taking advantage of that opportunity now. And it's making -- it's just making people more efficient and it's taking a lot of routine tasks and automating them. And so the ability to take unstructured data out of documents.

For example, we obviously -- we have -- let's say, you get a -- you have a big legal agreement for a commercial loan and previously it would take an attorney quite a bit of time to go through and make sure all the covenants were extracted and placed into the commercial origination system. Now AI can read that, it can present it to the attorney, make sure that it's correct, when the attorney makes corrections, it will auto-learn off that and then allow that process to be just a lot faster. It doesn't mean that we're relying entirely on that agent but it makes that process a lot faster. That agent can then auto upload those covenants into the system for tracking. So I mean, there's lots of examples like that, that are going on. We've got a pretty active task force pushing on the tools and then on the processes we want to work through. But I do really believe that it is going to bend the cost curve in the operations side.

And then on the software development side, obviously, we have so many cool and interesting things we want to do. And previously, we have been limited by the speed at which the coders can code. And there's just so many really incredible breakthroughs that are occurring at such a rapid pace in the software development process but one recent example is we use a software that essentially creates the screens and call it the Figma, right, which are just the sort of what the user experience is supposed to look like and that sort of thing. And they rolled out their AI product just this month, and the team is telling me it takes less than 10% of the time now to basically take a product from conceptualization and get that all organized and get the field validations done and get the user experience ready to be shown and reviewed by the folks that are going to review it.

So I mean that's just one example but there's just a lot of stuff going on that I'm pretty excited about. So yes, I think it is going to bend the cost curve and also, I don't think we'll be successful unless we can say that we're able to deliver a more better product faster and cheaper on the software side.

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

Maybe just -- we touched on the loan side a bit, let's touch on the funding side. Obviously, you've had a lot of success driving deposit growth. I mean, notable success in the consumer direct side, had some nice tailwinds in the specialty deposits and the commercial and treasury management, too. Just where do you see the most opportunity on the funding side today? How is pricing competition there as industry loan growth picking up? And just your thoughts on your ability to continue to manage deposit costs lower and still grow.

Yes. Well, I think it really depends on the vertical and some of the new verticals we've added do come with some pretty nice compensating deposit balances. And so those are going to be more favorably priced in general. But I do think that as industry loan growth picks up, we might see even some of these middle market clients as we sort of start to take clients and things like that. We've seen some of the competitors try to retain those clients by getting aggressive on the deposit rates. So I think if our loan growth has accelerated, it's reasonable that there might be a slightly higher funding cost associated with that. If the loan growth is, let's say, we said we're at the higher end of our high single digits, low double digits. But if we had loan growth similar to what we had this quarter, every quarter in the next fiscal year that I think that, that might put a little pressure on funding costs.

Of course, it's hard to say because the Axos ONE product is doing very well. The funding cost there is -- it's -- it could be reasonable depending upon the mix of checking and savings accounts that come in and a variety of factors there. So -- but I think it's not a bad modeling exercise to say if we're growing a lot faster, then there might be a little pressure on funding costs. Or if we do a big acquisition or even a moderately-sized acquisition of an asset pool or a specialty lending business, then that might put a little pressure on growth on the funding side for a little while.

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

Yes. I think -- I mean, remember there was -- look, we do have a good growth from the market and then decent growth on net new assets. It's not quite where we want to be. There is a nice pipeline though. There are some wins that are coming through and getting onboarded that are decent size this coming quarter and the next quarter, which should boost that net new asset growth number. But I think that we're doing a lot of development on the software technology to be able to have an extremely compelling product. And I think we have a good product but it needs to get better to be best-in-class.

And I think there's -- I think that the biggest part of our growth in the fee income side is clearly going to be on the security side in this rate environment. And we are making good progress there. But to say that, that is going to increase at the same level, I think we've got we've got goals for that and some of the technology is going to have to come in place and get some adoption there to make that happen. So I think we can do it but it will be a little difficult, I think. It won't be -- it's not impossible but it won't be easy.

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

Yes. Well, we have a good organic growth pipeline. We're still looking at different M&A opportunities in a variety of places. We look at fee income businesses. We look at specialty finance businesses if they're a good fit. So those -- that's always a good place to deploy capital if it's synergistic. And yes, and then we'll just -- we'll continue to monitor that. We obviously bought back some stock this quarter but there's been obviously a big move in the stock price, too. We still like where we are and feel good about being able to generate earnings that are supportive of that share price. But yes, I mean I think it's all in play and -- but organic loan growth remains a priority for us.

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

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

Yes. No, it was -- I think when we look at loans and we see what we think about them from a standpoint of where they are from a credit perspective and look at what we think about them and so there was some good buyers that were interested in some loans. And so we decided to sell that particular loan.

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

It was a few others.

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

Okay. All right. Great. And then as you think about 2026 and I know that you -- Greg, you mentioned expectations of being towards the mid- to higher part of your loan growth range. Obviously, C&I has been pretty strong throughout fiscal 2025 and now you saw CRESL this current quarter really pick up. So those 2, I would imagine, are the largest drivers, probably the vast majority of loan growth for the year, or is there anything else that you think could accelerate?

I think cap call can do something. I think the lender finance businesses, both real estate, non-real estate can as well. Jumbo mortgage started to grow again. It's not going to be massive but the pipeline there is pretty good. So I think we can have a pretty balanced loan growth across but those are probably the biggest categories.

I mean, I think that we have a lot of -- the good part of our business is it's just so diverse that you may have some movements within quarters but we could look across the board and look at the pipelines and see where we are there. I mean CRESL is a little tough because sometimes our prepayments can come there that are relatively unexpected and move that number around. So I think we can be much more certain about the aggregate number than about the individual categories.

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

No, that goes to the bottom line.

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

No, it's a disciplined measure. And to my knowledge, nobody was actually involved with the lobbying of the California legislature to give us such a -- that beneficence and basically pound other banks that are not located in California. So in all seriousness, I think that's a pretax. It's a very simple number. It's -- if you take the revenue growth from noninterest revenue and interest revenue, you add it up, you look at the difference, obviously, there could be some onetime items in there and you don't have compensation or professional service expenses additively grow that and that's a pretax ratio. So that's what it is.

And I think, obviously, look at any one quarter, we hired this floor plan team. Derrick said, that's going to cost about $1 million a quarter. But I mean, over the year, we intend to hit that number and make sure that, that happens. And that's not saying that we can't do better with AI and whatever it is but that's a public goal that the team is going to hit.

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

Congrats on 25 years. Very, very cool, you get to celebrate on the Fourth of July. Greg, maybe with the GENIUS Act coming out, I believe before the Silvergate blowup, you were potentially looking into stablecoin and digital assets. Can you refresh us now that there's additional color as to the more conducive regulatory environment, how -- if there's any update as to how you're thinking about it and interest in pursuing it?

Yes, sure. And there are still some things that I may be -- that are in process, so I'll give you some preliminary thoughts and then there will be others to come. In our self-directed business, we've been allowing the crypto trading side. We haven't really pushed it very much with allowing the ETFs and those sort of things on the crypto side. We've been allowing that for a while that our self-directed business is pretty -- it needs to have some technological sort of upgrades just from a standpoint of the user experience and stuff. It's not really as competitive as it should be and hasn't been a big focus for us. But I think given that the crypto side could become more important, that might be a vehicle for some of those -- some of the transactional related and payment-related activities that are there because we're already doing that. And this -- we can expand that a little bit or make the user experience better.

We did not -- when the administration changed, we've -- with respect to what we've done on the crypto banking side, there was a -- it was a complex set of sort of rules around what we would accept and what we wouldn't, based on sort of a risk profile around what different companies were doing and whether or not there was regulatory clarity around how those companies are being treated. And so when the administration changed, we've been more willing to look at those accounts and those sort of things and kind of do that.

With respect to how I'm thinking and how we're thinking broadly about stablecoin, I'd say that I'm not going to have a lot of public comments on that now. But we are focused on it and thinking through it and looking at exactly how it should, how it should integrate into everything we're doing. So obviously, a lot of change in movement recently and we're thinking hard about it and paying attention to it.

Got it. That's helpful. Maybe switching to the funding side. You had some nice [indiscernible] growth in noninterest-bearing this quarter. Wondering if there was any end-of-period flows that impacted that? And just more broadly speaking, where -- which areas of the business are seeing the best growth in core operating accounts because you did have very nice deposit growth this quarter.

Yes. The specialty -- the commercial specialty side has some real bright spots and continues to grow there. The tech business that we brought on through that team is doing well and bringing on a lot of core deposits there. So it's nice to see some success with that team and that's been steady. And then the middle market team as well is doing the same thing. And then a lot of cross-sell across all the lending verticals. I think we do a really good job on the payment side and with the API infrastructure we have on the commercial side that leads a lot of clients who have some pretty sophisticated payment needs to choose us. And that -- those are nice clients because when they integrate with us from a software perspective, they tend to be pretty sticky. So there really hasn't been any one thing but it's been a lot across the board in those categories that I just talked about.

Got it. That's helpful. Maybe last question for me. It seems like asset quality held in really strong. Just wondering, Greg, any areas that you're -- any update as to what you're looking at and watching more carefully, just to round out the questions on credit, that would be.

Sure. Sure. Yes, I think the commercial real estate side looks really, really good. The -- and then on the C&I side, as we're -- as we continue to work with different banks and do club stuff and things like that and do some syndications, I expect that they'll -- we'll always have a handful of stuff rattling around. But in most cases, I think those things will work out reasonably well just given the enterprise value of the businesses. But I think -- on the C&I side, I think we've had -- if you look at our -- I think our CRESL losses are I think -- I don't think we've really had any -- of any, right? And then I think in all our time in multifamily, a couple of basis points maybe in 25 years in single family, the same way. I think I think that the C&I side as we're doing more sort of average bank stuff, we'll probably have -- hopefully, we'll do better than average but there'll always be, I think, something there but nothing of any significant materiality. So...

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

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