Axos Financial (AX) Q4 2025 Earnings Call Transcript

DATE

Thursday, July 30, 2025 at 5:00 p.m. ET

CALL PARTICIPANTS

• SVP, corporate development and IR – Johnny Y. Lai
• President and Chief Executive Officer – Gregory Garrabrants
• Executive Vice President, and Chief Financial Officer – Derrick Walsh

TAKEAWAYS

• Net Loan Growth — $856 million for the quarter ended June 30, 2025, driven by originations in asset-based lending, commercial real estate specialty, and equipment leasing.
• Net Interest Margin — 4.84% for the quarter, an increase of 6 basis points from the prior quarter reflecting accelerated accretion from the FDIC purchase pool.
• Book Value Per Share — growing 18% year over year, supported by earnings retention and high capital returns.
• Return on Average Common Equity — 17% for the three months ended June 30, 2025, compared to 16.26% in the prior year period.
• Net Interest Income — $280 million for the quarter, up 7.7% from $260 million in the prior year period.
• Total Deposits — $20.8 billion as of June 30, 2025, representing a 7.6% increase year over year driven by consumer and commercial banking verticals.
• Noninterest Expense — $151 million, representing a 3% linked quarter increase after excluding a reversal of a legal accrual in the prior period.
• Nonaccrual Loans — $15 million decrease linked quarter, resulting in a nonaccrual to total loans ratio of 0.79% as of June 30, 2025.
• Adjusted Net Income — $107.7 million for the quarter, excluding a $12 million pretax gain from multifamily loan sales and a $5.5 million noncash deferred tax impairment.
• Adjusted Diluted EPS — $1.87 for the quarter, compared to the reported diluted EPS of $1.92.
• Stock Repurchases — $31 million of common stock at an average price of $59 per share during the market downturn in April 2025.
• Average Loan Yield — 8.0% for the quarter, which remained flat compared to the quarter ended March 31, 2025.
• New Loan Yields — 7.2% for single family mortgages and 7.1% for multifamily originations during the three months ended June 30, 2025.
• Commercial Loan Yields — 7.8% for new C&I originations and 8.3% for auto loans during the final quarter of fiscal 2025.
• Non-interest Bearing Deposits — $3 billion at the end of the quarter, increasing slightly from the prior three-month period.
• Assets Under Custody — $39.4 billion as of June 30, 2025, up from $37.1 billion at the end of the prior quarter due to market rebounding and asset growth.
• Net New Assets — $215 million in the custody business, continuing positive momentum in the securities segment.
• Cash Sorting Deposits — $980 million at the end of the quarter, an increase from $900 million as of March 31, 2025.
• Loan Pipeline — $2 billion as of July 25, 2025, with $1.1 billion concentrated in commercial lending and $532 million in jumbo mortgages.
• Projected Loan Growth — mid-to-high single digits to low teens for fiscal 2026, excluding impacts from FDIC loan purchases or acquisitions.
• Future Tax Rate — 26% to 27% starting in the September 2025 quarter, a reduction of 3 percentage points due to California tax methodology changes.
• Professional Services Expense — $10.4 million for the quarter, an increase from $8.2 million in the prior period attributed to multiple business units.

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RISKS

• Garrabrants stated, “If our loan growth has accelerated, it is reasonable to think that there might be a slightly higher funding cost associated with that,” indicating potential pressure on margins if originations exceed target ranges.

SUMMARY

Management of Axos Financial (AX +0.31%) reported double-digit year-over-year growth in book value and maintained a net interest margin above long-term targets for the fiscal year ended June 30, 2025. The company successfully expanded its commercial lending distribution channels while managing a diversified deposit base across consumer, commercial, and securities business verticals. Management indicated that credit quality remains stable with declining nonperforming assets and low net charge-offs. Strategic initiatives for fiscal 2026 focus on deploying capital toward organic loan growth, implementing artificial intelligence to enhance operational efficiency, and evaluating acquisition opportunities in specialty lending and fee-based businesses.

• CEO Garrabrants stated that artificial intelligence implementation is expected to “bend the cost curve in the operations side” by automating routine tasks and accelerating software development.
• Management integrated a new floor plan lending team that is expected to add $1 million of incremental expense per quarter while supporting the scale of the automotive lending vertical.
• The Axos 1 consumer bundle continues to drive account and balance growth, providing a source of funding for organic loan originations.
• CEO Garrabrants noted that the quality of M&A opportunities has increased as “seller expectations have become more reasonable” for specialty lending and nonbanking businesses.
• The company expects to offset pricing pressure on new originations by refinancing lower-yielding single-family and multifamily loans that were originated two to three years ago.
• Management believes client cash sorting has potentially bottomed as advisors and clients become less focused on maximizing sweep account yields.
• A change in the California income tax calculation is expected to boost net income starting in the first quarter of fiscal 2026 by reducing the corporate tax rate.

INDUSTRY GLOSSARY

• AUC: Assets Under Custody, representing the total market value of assets for which a financial institution provides safekeeping and administrative services.
• C&I: Commercial and Industrial loans, typically made to businesses for working capital or capital expenditures rather than for real estate.
• CRESL: Commercial Real Estate Specialty Lending, a division focused on specialized property-backed financing.
• Floor Plan Lending: A form of inventory financing where loans are made to dealers to purchase high-cost items like vehicles, with the inventory serving as collateral.
• NIM: Net Interest Margin, the difference between the interest income generated by a bank and the interest paid to its lenders and depositors, divided by its interest-earning assets.
• RIA: Registered Investment Advisor, a person or firm that advises high-net-worth individuals on investments and manages their portfolios.

Full Conference Call Transcript

Operator: Greetings, and welcome to the Axos Financial 4 Quarter 25 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Johnny Y. Lai, SVP, corporate development and IR. Thank you, John. You may begin.

Johnny Y. Lai: Thanks, Alicia. Good afternoon, everyone, and thanks for your interest in Axos. Joining us today for Axos Financial Inc. Fourth quarter and fiscal 25 financial results conference call are the company’s President and Chief Executive Officer, Gregory Garrabrants and Executive Vice President, and Chief Financial Officer, Derrick Walsh. Gregory and Derrick will review and comment on the financial and operational results for the quarter and fiscal year ended 06/30/2025. 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 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 Gregory, I would like to remind listeners that in addition to the earnings press release, we also issued an earnings supplement in an 8-K with additional financial schedules. All of these documents can be found on Axos Financial.com. With that, I would like to turn the call over to Gregory.

Gregory Garrabrants: Thank you, John. Good afternoon, everyone, and thank you for joining us. I would like to welcome everyone to Axos Financial’s conference call for the fourth quarter of fiscal 25. Ended 06/30/2025. 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 06/30/2025.

Other highlights in the quarter include net interest income was $280 million for the 3 months ended 06/30/2025, up 7.7% from the $260 million in the prior year period. Net interest margin was 4.84% for the quarter ended 06/30/2025, up 6 basis points from the 4.78% in the quarter ended 03/31/2025. 1 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 thousand We continue to maintain a best in class net interest margin 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 non interest expenses for the quarter ended 06/30/2025 were up by 3% from the prior quarter. Excluding the reversal of a legal accrual in the prior quarter, we reduced other G&A expenses by approximately $2 million Total non interest expenses were up $2.5 million from March to June. Total nonaccrual loans declined $15 million linked-quarter resulting in our nonaccrual loans to total loans ratio improving by 89 basis points in the quarter ended 03/31/2025 to 79 basis points as of 06/30/2025.

Net income was approximately $1.107 billion in the quarter ended 06/30/2025, compared to $105.2 million in the quarter ended March 31. Diluted EPS was $1.92 for the quarter ended 06/30/2025, compared to $1.81 in the March quarter. We had a few non recurring items this quarter that impacted our net income and EPS. We recognized a $12 million pre tax 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 06/30/2025, representing an increase of 4.2% linked quarter or 16% annualized. Asset based lending, commercial real estate specialty 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 2nd consecutive quarter.

Average loan yields for the 3 months ended 06/30/2025 were 8.0% flat compared to the prior quarter. Average loan yields for non purchased loans were 7.66% and average yields for purchased loans were 14.9% which includes the accretion of our purchase price discount. The FDIC purchase 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 06/30/2025 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 Security which is our custody and clearing business representing 5%. Total non interest 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 03/31/2025. We remain focused on adding new assets from existing and new advisors to grow our assets under custody and cash balances.

In addition, our excess 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 06/30/2025, compared to 4.78% in the quarter ended 03/31/2025. We are seeing strong growth in accounts and balances from our Axos 1 consumer bundle deposit product, which includes a checking and a savings account. Growth in Axos 1 and other deposit businesses, including our commercial cash and treasury management 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 lower 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 had 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 toward the mid to high end of our single digit and low teens range on an annual basis in fiscal 26. The credit quality of our loan book continues to be solid and our historic and current net charge offs remained low. Total nonperforming assets declined $13.4 million linked quarter representing 71 basis points of total assets compared to 79 basis points in the quarter ended 03/31/2025.

The sequential decrease in non accrual 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 non performing 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 06/30/2025 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 had a good quarter. Total assets under custody increased from $37.1 billion at 03/31/2025, to $39.4 billion at 06/30/2025. Net new assets for our custody business increased $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 $4 million were held at partner banks. The slight sequential increase in deposits is encouraging given the strong rally in the stock market.

While it is difficult to be absolute that cash sorting has bottomed, we believe that clients and advisors becoming less focused on maximizing yield in 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 past few quarters are now producing nicely and contributing to loan and commercial deposit growth. We on boarded a new floor plan lending team that will help us scale our floor plan lending 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 25 with positive momentum. Loan growth accelerated in the back half of the year Our credit quality was strong. Our net interest margin remained above our long term target.

We expect a 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 09/30/2025 quarter, boosting our net income and EPS in fiscal 26 and beyond. With this being the 20 fifth anniversary of Axos Bank, we are proud of delivering consistent performance through a variety of economic, geopolitical and regulatory environments. I am 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 the 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. I feel confident that our teams and our leaders will deliver the results that our shareholders have come to expect from us.

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

Derrick K. Walsh: Thanks, Gregory. Quick reminder that in addition to our press release, an 8 ks with supplemental schedules was filed with the SEC today, 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 06/30/2025, up $4.4 million from the 3 months ended 03/31/2025. Excluding approximately $1.9 million reversal of a legal accrual in the March 31st quarter, total non interest expenses were up by approximately $2.5 million in the linked quarter.

Salaries and benefit expenses of $74.9 million was roughly flat from the prior quarter ended March 31. Professional services expenses were $10.4 million compared to $8.2 million in fiscal Q3 25. 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%. 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 06/30/2025, 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 06/30/2025. 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 06/30/2025. Our income tax expense for the quarter ended 06/30/2025 benefited from the increase in our stock price from June 30, 2024 to June 30, 2025.

Which is 1 factor used to calculate our CEO stock based incentive compensation. 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 25. Starting in the quarter ending 09/30/2025 and going forward, we expect our corporate tax rate to be approximately 26% to 27%, an improvement of 3 percentage points from the previously guided 29% to 30%. I will wrap up with our loan pipeline and growth outlook. Our loan pipeline remains healthy at $2 billion as of 07/25/2025.

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 will turn the call back over to John.

Johnny Y. Lai: Thank you, Derrick. Alicia, we are ready to take questions.

Operator: Will now be conducting a question and answer session. You would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. 1 moment, please, while we poll for questions. Thank you. Our first question comes from the line of Kyle Peterson with Needham & Company. Please proceed.

Kyle Peterson: Great. Good afternoon. Thanks, guys. I want to start off on loan yields and that kind of the net interest margin.

Gregory Garrabrants: It sounds like maybe there might be a little more pricing pressure in 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, do you guys view, like, the net impact of those? And I guess, the NIM outlook, it sounds fairly consistent with last quarter? Are those kind of a rough wash? Or how are you guys looking at different pieces there? I think they are fairly consistent. For a lot of these businesses like the CapCall side and whatnot, they have a lot deposits that come with them, and the middle market business also has that too.

So loan yields might be a little tighter, there is an offsetting benefit on the funding side. Which results in a decent net. I think if I were to take a guess, I would say that I think that the credit spread side is been more consistent this quarter with the last quarter. So I would not say there is that much incremental pressure, but it is just it is very different than it was a year ago just with respect to you know, particularly in some of the C and I club deals and some of the syndicated deals, there is just a lot of banks that are kind of pushing into that space.

I think if they do not maybe want to grow as much in commercial real estate and that is pushed it down a bit. I think this is somewhat of obviously, a forecast, but I think it is we are going to be able to keep it pretty consistent, I think. But it could be a basis point or 2 either way, sure. it is–you know, it is not that much of a science.

Kyle Peterson: Okay. that is helpful. And then Gregory, I know we have, kind of chatted in the past, and you have mentioned different dynamics and kinda how you are kind of leveraging AI to longer term kind of press on margins and cap on 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 is tech and AI in your day to day. I think that would be really helpful for everyone on the call.

Gregory Garrabrants: Right. What we had previously said is 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 is definitely a target over the year. We added a fairly expensive floor plan team. They are 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 is just so much opportunity and we are taking advantage of that opportunity now.

And it is making people more efficient, it is taking a lot of routine tasks and, automating them. And so the ability to take, unstructured data out of documents. You know, for example, we obviously you know, we have let’s say you get a you have a big, a big, legal agreement for a 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 originations system. Now, AI can read that It can present it to the attorney, make sure that it is correct. When the attorney makes corrections, it will auto learn off that.

And then, you know, allow that process to be just a lot faster. Does not mean that we are 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 is lots of examples like that. That are going on. We have 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 on the software development side, obviously, we have so many cool and interesting things we wanna do.

And previously, we have been limited by the speed at which the, the coders can code And, there is just so many really incredible breakthroughs that are occurring at such a rapid pace in the software development process. 1 recent example is we use a software that essentially creates the screens and called the FIGMAs, right, which are just the sort of what the user experience supposed to look like and that sort of thing.

And they rolled out their AI product just, this month, and I 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, you know, ready to be shown and reviewed by the folks that are going to review it. So that is just 1 example. But there is just a lot of stuff going on that I am I am pretty excited about. So yeah.

And I think it is going to bend the cost curve, and it also, I do not think, will be successful unless we can say that we are able to deliver more and better products faster and cheaper. On the software side. Awesome. Thank you very much, and nice quarter.

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

David Feaster: Hi. Good afternoon, everybody.

Gregory Garrabrants: Hi, David.

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

Gregory Garrabrants: Yeah. Well, I think I think it really depends on the vertical. And some of the new verticals we have 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. ‘ve seen some of the competitors try to retain those clients by getting aggressive on the deposit rates.

So you know, I think if our loan growth has accelerated, it is reasonable to think that there might be a slightly higher funding cost associated with that if the loan growth is let’s say, you know, we said we are 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, then I think that might put a little pressure on funding costs. Of course, it is hard to say because, the Axos 1 product is doing very well.

The funding cost there is you know, it is it could be reasonable depending upon the maximum checking and savings accounts that come in. And a variety of factors there. So But I think it is not a bad modeling exercise to say if we are 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 the funding side for a little while.

David Feaster: Got it. But, you know, with that, I mean, even if you did have outside growth and maybe a little margin pressure, it is not hard to still see a really strong NII growth profile. You know, you are you are obviously having a lot of success on the fee side and gaining share with the security side. Sounds like pipeline is doing pretty good. You think that the you can keep the fee income growth in line with NII, or what initiatives maybe that you have to help support fee revenue growth maybe, hopefully, keeping that proportion relatively stable?

Gregory Garrabrants: Yeah. I think I mean, remember, there was yes, look, we did have did have good growth from the market and then decent growth on, net new assets. it is 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. I think Which should boost that new asset growth number. But that you know, we are we are 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 is 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 is going to increase at the same level I think we have got you know, we have got goals for that, and some of the technology is gonna have to come in place. And get some adoption there to make that happen. So I am I think we can do it, but it will be it will be a little difficult, I think. It will not be it is not impossible, but it will not be easy.

David Feaster: Okay. Then lastly, just touching on the capital front. I mean, you are still accreting capital. Extremely profitable even with accreting capital in excess of your organic growth. I just kinda wanted to touch on your capital priorities here. You know, stocks moved, which is great. You know, makes buybacks a little less attractive, though. And I know the excess capital is not burning a hole in your pocket. Just wanted to get a sense of your capital priorities. It sounds like M&A might be more in the cards today. Like conversations are pretty good, but just kinda curious some of the types of things you are considering.

Gregory Garrabrants: Yes. Well, we have a good organic growth pipeline. We are 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 are a good fit. So, you know, that is always a good place to deploy capital if it is synergistic. And yeah, then, you know, we will just we will continue to monitor that. We obviously bought back some stock this quarter, but there is 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, yeah, mean, I think I think it is all in play and, you know, but organic loan growth remains a priority, for us.

Operator: Perfect. Thanks, everybody. Thank you, David. Thank you. Our next question comes from the line of Gary Tenner with D. A. David. Please proceed.

Gary Tenner: Thanks. Good afternoon. Question on the multifamily loan sale. Just curious about kind of the 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 you know, any color?

Gregory Garrabrants: Yes. 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.

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

Gregory Garrabrants: It was a few others. Yeah. there is a handful of loans that were sold.

Gary Tenner: Okay. Alright. Great. And then as you think about 2026, and I know that you have Gregory, you mentioned you know, expectations of being towards the mid to higher part of your loan growth range.

Gregory Garrabrants: Obviously, C and I has been pretty strong throughout fiscal 25, 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. 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 and non real estate can as well. You know, jumbo mortgage started to grow again. it is not gonna be massive, but the pipeline there is pretty good. So I think we can have pretty balanced loan growth. Across. But those are probably the biggest categories.

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

Gary Tenner: Okay. And like, ask 1 more question. You kinda 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 are getting from the California change, you know, I guess the question would be, does that free up any additional resource for investment or that goes to bottom line?

Derrick K. Walsh: No, that goes to bottom line.

Gregory Garrabrants: I think the executives wish it was, but Gregory told the nuts tight. No, it is a it is a discipline measure and to my knowledge, nobody was actually involved with the lobbying of California legislature to give us such a beneficence and basically pound other banks that are not located in California. So know I mean, in all seriousness, I think that is a that is a pretax. it is just a very simple number. it is 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, do not have compensation or professional services expenses additively grow that, and it is a pretax ratio. So that is what it is. And I think, obviously, look, at any 1 quarter, we hired this floor plan team, Derrick said that is going to cost about $1 million a quarter. But I mean, over the year, we intend to hit that number and make sure that happens. And that is that is not saying that we cannot do better with AI and whatever it is, but that is that is a public goal that the team you know, is gonna hit.

Operator: Got it. Thank you. Thank you. The next question comes from the line of Kelly Moda with KBW. Please proceed.

Kelly Motta: Hey, good afternoon. Thanks for the question and congrats on 25 years. Very cool you get to celebrate on fourth of July. Gregory, 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 is additional color as to a more conducive regulatory environment, how if there is any update as to how you are thinking about it and interest in, pursuing it?

Gregory Garrabrants: Yes, sure. And there is still some things that I may be that are in process. So I will give you some preliminary thoughts. And then there will be others to come. In our self directed business, we have been allowing you know, the crypto trading side. We have not really pushed it very much with allowing the ETFs and sorts of things on the crypto side. We have been allowing that for a while.

Our self directed business is pretty it needs to you know, have some technological sort of upgrades just from a standpoint of the user experience and stuff. it is not really as competitive as it should be and has not been a big focus for us. But I think given that, you know, that the crypto side could you know, become more important, that might be a vehicle for some of those, you know, some of the transactional related and payment related activities that are there because we are already doing that. And thus, we can expand that a little bit or make the user experience better.

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

With respect to you know, how I am thinking and how we are thinking broadly about you know, stablecoin, I would say that I am 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 you know, how it should how it should integrate into, everything we are doing. So obviously a lot of change and movement recently and know, we are thinking hard about it and paying attention to it.

Kelly Motta: Got it. Thanks for the color. that is helpful. Maybe switching to the funding side. You had some nice EOP growth that is not interest bearing this quarter. Wondering if there was any end of period flows that impacted that and just more broadly speaking, where’s which areas of the business are seeing the best growth in just core operating accounts? Because you did have very positive growth this quarter?

Gregory Garrabrants: Yes. Specialty the commercial specialty side has some real bright spots and continues to grow there. The tech business that we, that we brought on through that team is doing well and bringing on a lot of core deposits there. it is nice to see some success with that team, and that is 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.

Those are nice clients because when they integrate with us from a software perspective, they tend to be pretty sticky. So, you know, there really has not been any 1 thing, but it is been a lot, you know, across the board in those, categories that I just talked about.

Kelly Motta: Got it. that is helpful. Maybe last question for me. It seems like asset quality held in really strong just wondering, Gregory, any areas that you are–any update as to what you are looking at and watching more carefully? Just to round out the questions on credit.

Gregory Garrabrants: That would be Sure. Sure. Yes, I think the commercial real estate side looks really, really good. And then on the C&I side, as we continue to work with different banks and do club stuff and things like that and do some syndications. You know, I expect that–you know, we will 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 it will you know, we have had–if you look at our I mean, I think our you know, our CRESL losses are I think I do not think we have really had any–you know, of any And then I think in all our time in multifamily, you know, a couple of basis points maybe in 25 years, single family, the same way. You know, I think that on the C&I side, as we are doing more sort of like average bank stuff.

We will probably have you know, hopefully, we will do better than average, but, you know, there will always be, you know, I think, something there, but nothing of any significant materiality. So Great.

Kelly Motta: Thank you for the time. I will step back. Nice quarter.

Gregory Garrabrants: Okay. Thank you. Thanks, Kelly. Thank you, Kelly.

Operator: Thank you. There are no further questions at this time. I would like to pass the callback over to Johnny Lai for any closing remarks.

Johnny Y. Lai: Great. Thanks for everyone’s participation, and we will talk to you next quarter.

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