Greetings and welcome to the Axos Financial Second Quarter 2026 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Johnny Lai, Senior Vice President of Corporate Development and Investor Relations. Thank you, Johnny. You may begin.

Thanks, Alicia. Good afternoon, everyone and thanks for your interest in Axos Financial, Inc. Joining us today for Axos Financial, Inc. Second Quarter 2026 Financial Results Conference Call are the company's President and Chief Executive Officer, Gregory Garrabrants, and Executive Vice President and Chief Financial Officer, Derrick Walsh. Gregory Garrabrants and Derrick Walsh 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 thirty 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 Gregory Garrabrants, 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 Gregory Garrabrants.

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. 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 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 three months ended December 31, 2025. Other highlights in the quarter include net interest income was $331.6 million for the three 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 the 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…

Thanks, Gregory. 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 filing for additional details. Non-interest expenses were approximately $184.6 million for the three months ended December 31, 2025, compared to $156.3 million in the three 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 one-time accrual, non-interest 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 on as on-balance sheet securitizations. For the quarter ended December 31, 2025, we recorded $24.3 million of interest income from loans and leases and $14.1 million of non-interest income from the operating leases. Turning to the consolidated entity, total non-interest income for the three 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 non-interest income from Verdant, we saw growth in both broker-dealer and advisory fee income compared to the quarter. Provisions for credit losses were $25.25 million in the quarter ended…

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

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. For participants using speaker equipment, key. One moment please while we poll for questions. Our first question comes from the line of David Bernini with Jefferies. Please proceed.

Hi. Thanks for taking the questions. 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 six 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 kinda push up average spreads a little bit. But I think a good conservative approach would be to assume that you're gonna have that five to six basis point decline in the adjusted margin just based on the robust growth we had. We did well on the deposit side, but we, you know, we did, I think, pretty well on the down beta. But that's, that's where that is. And then with respect to the signature side, it's almost like three or four more years. Right? Correct. Yeah. About three or about three or four more years. You know? So that's, you know, that's six and a half. You know, it's it's it's relatively steady. Right? It's a little more it's it's because of just the way the accounting is. So obviously, we could have you know, 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 what the otherwise then you know, new level of accretion would be per quarter.

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

Well, you know, I think we've we've done a number of team lift-outs. And in a lot of cases, teams are now adding people where they see opportunities on a more individual basis. So although, you know, 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, you know, the floor plan team, the tech team, some other geographic teams. And and 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, wanna see them kind of come to fruition, 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 we'll see we'll see small ones, but I I don't really think that's gonna 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 you know, there's always interesting deals that we're across the spectrum going on, and we, you know, are always spending our time thinking about those and and making sure we're in a deal flow.

Great. Thank you.

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

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

Yes. I think that, obviously, Crestle was having 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 that little bit better quarter. Floor plan will kick in. Floor plan will start to kick in. Yeah, I think I think it's gonna 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 I we still expect that they're gonna, you know, be one fifty, 200 growth. Including all their segments. At least that's what their current projection is. So I think it's gonna be pretty balanced. I I feel really good about the balance we have, across the groups now.

Got it. You know, that's really helpful. And then, you know, as a as a follow-up, one to, you know, touch on on fee income. I know there's some pieces moving around. You know, with Verdant. So I think there's some seasonality from, you know, some paper statements and stuff. But I guess stripping out that seasonality from that is is this a good run rate moving forward for for fee income with Verdant in the fold. Obviously, I know there can be some 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 million this past quarter. So impactful, but not overly impactful by any means. And but as the as the Verdant income, we expect to be generally consistent through that non-interest income line item. And maybe some small growth there as they they grow originations. But it's 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 there's nuances to that with the accounting and as far as the classification as to what hits operating and what hits the the net interest income line item. But I think you're this is a good jumping off point.

Okay. That's really helpful. Thanks for taking my questions, and nice quarter, guys.

Thank you. Thank you.

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

Hey. Good morning, everybody. Or good afternoon, I guess. Hey, David. How are you? Yeah. Long night for you.

I know.

I Greg, I 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 got a ton of growth engines. You got a lot of irons in the fire. If you will, that you're you're developing, businesses that you're incubating. I'm like, from your standpoint, what are you most excited about today that you're working on that you think could be maybe most impactful to the business?

Yeah. It's an interesting question. I mean, I'll dodge it then I'll answer it. I think I think one of the reasons that we have continued to do 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 rushed growth in anything. So if you really look at the underlying businesses, any one of those businesses, isn't growing at a a crazy speed usually, but the combination of all of those businesses together end up generating, you know, a reasonable level of growth. So in a lot of respects, a lot of the infrastructure that's necessary for for those businesses. To succeed and to grow and to get operating leverage. You know, really rely on a common data infrastructure you know, common, you know, Salesforce platform that allows us to track 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, you know, 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 when, you know, we would be measured by oh my gosh, a penny here and a penny there. That right? And and then and then now with what I'm seeing with the with the 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 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 the on those platforms. I think, are just gonna be really impactful. And it's not it's I can 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 I what will be the biggest change and the most exciting change because then you know, you really can innovate in in interesting and unique ways, and that's, that's something that really a lot of that innovation has not been limited by our ideas, but it's more been limited by you know, just kind of attempting to balance all the different cost structure factors with the other growth in the businesses.

Okay. That's helpful. Yeah. And I also wanted to touch on on the expansion in Crestle this quarter. Obviously, growth was massive. You alluded to don't run rate this this level of growth this next quarter. I I 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 just kinda curious if you could talk about what what drove the strength.

There was the the pay down issue was significant, and what had really happened there is we're still you think about these deals as three-year kind of average lives. There was still we had, we had just done some kind of you know, pulling back in certain areas around that time. And so there were some gaps, and you could see it and you could kind of predict the enhanced, prepays. Right? And so 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, you know, sometimes this just happens There were some deals that got pushed in different quarters, and some went early and it ended up being you know, larger than it was. Derrick, if you have anything you wanna mention.

No. I think, yeah, the the repayments that headwind that we had talked about for the last year slowing is basically the the one word answer of repayment. Yeah. Yeah.

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

Sure. Well, we did have a good deposit growth quarter and we we're a little sensitive about being maybe as aggressive with the rate reductions. That we would normally drive because we've been we've been driving not all too not only to a 100% beta but to an actual neutral NII we were able to achieve that pretty much on every rate decline to date. And we I think we did a pretty good job here on that side too, but I did advise you know, on that. I think that when we look forward, you know, a a seven, 800, even maybe little bit more, you know, growth number, that number feels good for us from what the organic side looks like. And probably comes sixty sixty ish percent from consumer and then you know, the rest of it from the commercial and security side with really balance across a lot of different areas. You know? Everything from HOA and title and escrow and just regular operating deposits and all those things, they're all you know, 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, you know, prior neutralization of NII ish difference and then 100% plus betas that are associated with that. That does make growth a little harder but I think, you know, having a little bit of stability there even if it's for a few quarters, know, will be helpful. I don't think it's absolutely necessary. We could still handle rate declines, but that'll be helpful. And obviously, growth this quarter was above what we expect to achieve. We given numbers that it's going to be half that roughly or something or around that. So that obviously, is much more in line with what our our organic capabilities are on the on the funding side.

Okay. That's helpful. Thanks, everybody. Great quarter.

Thank you. Thanks, David. Thank you, Dave.

Thank you. Our next question comes from the line of Gary Tenner with D. A. Davidson. Please proceed with your question.

Thanks. Good afternoon. Just wanted to ask a follow-up on the Verdant impact on the fees and expenses. It sounds like the addition on the fee side, was there a greater percentage of their existing assets over Class as operating leases than maybe expected? That 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 that we classified as operating leases last quarter. I think the if 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've done a better job breaking that gross impact in those line items out for for everyone. So that might be I'm not sure if that's what you're referring to, Gary. Yeah. Yeah. That might be a third. So then as we're I know you gave kind of the the expectation that you're kinda looking to hold expense growth to about 30% of revenue growth. But as we're thinking about the interplay Verdant 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 to be thinking about on how that'll 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 two segments of the non-interest 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 maybe a small amount of growth just from new assets that are originated and that 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.

Got it. And and then one other expense question, Derrick. You mentioned a $7 million increase to G and A. What was that related to? I missed the comment there. That was related to the we'd have subordinated loans that we made a claim on back to the clearing matter about seven years ago, and our claim on that was denied And so that's where the the additional seven is is our estimate of of expense that we expect to incur as a relation to that. And that's a one-time item that was, you know, related back to that issue we had all those years ago.

Okay. Sorry. I appreciate the color there. And then Gregory, just in terms of the Qualia partnership that you announced a short while ago, either kinda characterize the opportunity that you see through that partnership.

Yeah. 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 they obviously are a leader in the escrow space. Which helps us And they they have a financial technology and that's utilized by a significant part of the industry. And so we have a couple of territories that are exclusive right now to that. And I couldn't get too much into that. But you know, I think it'll, it'll be helpful on the deposit side, and that's an interesting specialty deposit vertical. And they're quite an innovative company. And got some ideas of stuff to do with them.

Appreciate it. Thank you.

Yeah. Thank you.

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

Hi. Good afternoon. Thanks for the question. Maybe circling back to the loan growth guidance I appreciate that this is particularly strong and to not run rate this Crestle. Strength. But with your low low mid-teens guidance reiterated, I just I just wanted to clarify that I think that was supposed to be for the the balance of the year ex Verdant, you know, off of this very high level of growth. In your second quarter. Just does your guidance imply a slowdown in the second half? Seems like pipelines are strong. So just trying to square that thing out.

No. That's you know, I understand where you're going with that. I mean, I think we we also said, just try to be a little more clarity. You know, we think it's around $608,100 this quarter. Could it be a little higher? Yeah. I think I think lower is unlikely. But that would be not a bad you know, number range. And I, you know, I don't really think we'd think that's gonna change in the next quarter after that. But you know, 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 you know, 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 you know, that 800 ish, you know, kind of range, a little lower. Or more. You know, around where we think we can be.

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

Yes. Thank you, Kelly. Yes. Well, I do believe that for some of their clients, really great clients they have. Mean, there's 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. There it is a little bit of a cyclical business just from a standpoint of the fourth quarter tends to be a little heavier. And, you know, in general, I think that sentiment is right. You know? The the teams are 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 you know, more tech support and help, but you know, they were able to become immediately profitable based on the refinancing of of their sub subordinated debt and of of their lines of credit, which were, you know, from JPMorgan, other big banks. So and to get deposit funding is obviously really helpful. So yeah, 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 kinda surprised by, which is cool. I, you know, thought that but, you know, you know, that I I think they're not only going full bore first, but it helps to add it to the comp plan, I guess. And then, and then, yeah, then, I think that, obviously, the floor plan business, they've introduced some floor plan transactions because 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 a supply chain side with you know, 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 you know, exactly how that works and how we bring that together, we're working through, but but it is I think it's a it's a there are a couple of cool synergistic businesses there.

Got it. Thanks for the color. I'll step back.

Yeah. Thank you, Kelly. 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 will see you at the upcoming conferences. Take care.

Thanks, everybody.

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