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…

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…

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…

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.