Axos (AX) Q3 2026 Earnings Call Transcript

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Date

April 30, 2026, 5 p.m. ET

Call participants

• President and Chief Executive Officer — Gregory Garrabrants
• Executive Vice President and Chief Financial Officer — Derrick K. Walsh
• Senior Vice President, Corporate Development and Investor Relations — Johnny Y. Lai

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Takeaways

• Net interest income -- $700 million in net loan growth contributed to an 11.2% increase in net interest income year over year.
• Noninterest income -- $86 million for the quarter, up from $53 million in the prior quarter, and $33.4 million a year ago; excluding a $22 million legal settlement, increased approximately $10 million linked quarter.
• Return on equity -- Over 16% return on average common equity reported for the quarter.
• Return on assets -- 1.8% achieved for the three months ended March 31.
• Net income -- $127 million, reflecting an 18.5% increase compared to $105.2 million in the prior-year quarter.
• Diluted EPS -- $2.50, up 18.7% from $1.81 in the prior-year quarter.
• Net interest margin (NIM) -- 4.57% for the quarter, compared with 4.94% in the previous quarter; declined in line with guidance due to lower loan yields and fewer FDIC-purchased loan prepayments.
• Loan originations -- $5.1 billion originated for investment, excluding single-family warehouse lending, with strong growth in capital calls, real estate lender finance, and equipment finance.
• Ending loan balances -- Increased by $800 million, excluding single-family warehouse, compared to prior quarter.
• Average loan yields -- 7.23% for non-purchased loans, down from 7.63% in the prior quarter, driven mainly by two 25 basis point rate cuts in late 2025.
• Deposit balances -- $22.4 billion, up 11.2% year over year; demand, money market, and savings accounts comprised 97% of deposits, up 13% year over year.
• Noninterest expenses -- $186 million, up by $1.4 million from the prior quarter; salaries and benefits declined by $600,000, while professional services and FDIC fees each increased by $1.6 million.
• Provision for credit losses -- $41 million, up from $25 million sequentially, primarily driven by a $20 million reserve for a C&I loan.
• Net charge-offs -- 31 basis points annualized, including a $14 million principal charge-off for a previously reserved C&I cash flow loan; excluding this, net charge-offs were $5.1 million, or eight basis points.
• Nonperforming assets -- $180.4 million, down from $185 million a year earlier, representing 62 basis points versus 71 basis points at June 30, 2025.
• Allowance for credit losses -- Equal to 192.2% of nonaccrual loans as of March 31.
• Verdant acquisition -- Contributed $200 million of new loans and operating leases, and $23.7 million in noninterest income during March; demonstrated progress in strategic integration.
• Genius Bank deposit acquisition -- Regulatory approval obtained to acquire approximately $2.3 billion in online savings deposits, with completion and client onboarding expected next month.
• Capital One IRA/deposit transaction -- Announced acquisition of $3.2 billion in IRA savings and CDs, application submitted, timing dependent on regulatory processes and organic growth factors.
• Artificial intelligence usage -- More than 500 employees use Cloud Enterprise AI tools, with technical user count up by 37% since the start of 2026.
• Loan growth outlook -- Management expects annualized loan growth in the low to mid teens, citing robust loan pipelines and diversified business verticals.

Summary

Axos Financial (NYSE:AX) management detailed two significant deposit acquisitions, with the $2.3 billion Genius Bank deal slated for June close and a pending $3.2 billion IRA/CD portfolio from Capital One (NYSE:COF), both expected to reinforce liquidity and support future organic loan growth. Management indicated intention to maintain current pricing on acquired Genius Bank deposits to ensure a stable customer transition, with a stated goal for net interest margin to remain roughly flat, excluding a minor amortization impact. Executives confirmed credit quality remained sound despite a notable C&I charge-off, and underscored investments in artificial intelligence and productivity tools to curb expense growth and boost operational leverage.

• Gregory Garrabrants stated, "We believe that our ability to provide comprehensive retail and wholesale lending solutions to top-tier original equipment manufacturers is a strategic advantage," highlighting differentiation in the equipment finance vertical.
• Derrick K. Walsh explained that moving $750 million into Treasuries hedged with SOFR swaps could generate approximately 30 basis points improvement over holding that cash at the Federal Reserve.
• Management described the $3.7 million in mortgage banking income as driven by a favorable servicing rights fair value adjustment.
• The executive team expects broad-based growth across several lending businesses to drive low to mid teens organic loan growth in the next year, excluding any potential acquisitions.
• Garrabrants commented, "We probably would have had to increase marketing expense somewhat otherwise or be a little more aggressive on pricing. It will help on balance, but our guidance on NIM incorporates those acquisitions and how we are thinking about pricing with respect to them."
• For future M&A, management outlined an active pipeline spanning fintechs, lending teams, and banks, emphasizing a patient and disciplined approach.

Industry glossary

• FDIC-purchased loans: Loan assets acquired through transactions with the Federal Deposit Insurance Corporation, often reflected with accelerated accretion or prepayments affecting margin calculations.
• SOFR swap: A financial derivative that exchanges fixed or floating interest linked to the Secured Overnight Financing Rate, typically used to hedge interest rate exposure of debt securities.
• Capital call: A lending facility for private investment funds, secured by investors’ commitments, funding investments prior to full investor funding.
• MSRs (Mortgage Servicing Rights): The contractual right to service a mortgage loan and receive servicing revenue; fair value changes impact noninterest income.

Full Conference Call Transcript

Operator: Greetings, and welcome to the Axos Financial, Inc. Third Quarter 2026 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Johnny Y. Lai, Senior Vice President, Corporate Development and Investor Relations. Thank you. You may begin.

Johnny Y. Lai: Thank you, Diego. Good afternoon, everyone, and thank you for your interest in Axos Financial, Inc. Joining us today for Axos Financial, Inc.’s third 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 K. Walsh. Gregory Garrabrants and Derrick K. Walsh will provide prepared remarks on the financial and operational results for the quarter ended 03/31/2026, then open up the call to a 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. 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 and 10-Q for this call. All of these documents can be found on axosfinancial.com. With that, I would like to turn the call over to Gregory.

Thank you.

Gregory Garrabrants: Thank you, Johnny. Good afternoon, everyone, and thank you for joining us. I would like to welcome everyone to Axos Financial, Inc.’s conference call for the quarter ended 03/31/2026. Thank you for your interest in Axos Financial, Inc. We generated another quarter of double-digit year-over-year growth in net interest income, ending loan and deposit balances, earnings per share, and book value. We generated almost $700 million in net loan growth linked quarter, resulting in an 11.2% year-over-year increase in net interest income. Excluding the interest income impact of FDIC-purchased loans and two fewer days in the 03/31/2026 quarter compared to the 12/31/2025 quarter, net interest income increased by $5.7 million on that linked-quarter basis.

We continue to generate high returns as evidenced by the over 16% return on average common equity and 1.8% return on assets in the three months ended 03/31/2026. Other highlights in the quarter include noninterest income of $86 million for the quarter ended 03/31/2026, up from $53 million in the prior quarter and $33.4 million in the corresponding quarter a year ago. Excluding the benefit of a $22 million legal settlement this quarter, noninterest income was up approximately $10 million linked quarter due to higher mortgage banking income, advisory fees, and the addition of rental income from the commercial office building we purchased in January 2026 that will be used as our future headquarters.

Net interest margin was 4.57% for the quarter ended March 31, 2026, compared to 4.94% in the prior quarter. Excluding the impact from the prepayments of FDIC-purchased loans and two fewer days in the quarter ended March 31, our net interest margin was down in line with last quarter’s guidance of around 10 basis points. We continue to maintain a strong net interest margin, with and without the benefit of the accretion from loans purchased from the FDIC, which has now dwindled to around five basis points of positive impact. Noninterest expenses were up $1.4 million linked quarter to $186 million.

We are seeing some of the benefits from our operational efficiency initiatives and artificial intelligence on our salaries and benefits, data processing, and other G&A expenses. The pending completion of the Genius Bank deposit acquisition also allowed us to moderate growth in advertising and promotional expenses in March. Net income was approximately $127.1247 billion in the quarter ended March 31, up 18.5% from the $105.2 million in the prior year’s third quarter. Diluted EPS was $2.50 for the quarter ended March 31 compared to $1.81 in 2025, representing an 18.7% year-over-year increase. Total originations for investment, excluding single-family warehouse lending, were $5.1 billion for the three months ended March 31.

Loan growth was strong across a number of lending areas including capital calls, real estate lender finance, and equipment finance. Jumbo single-family loan balances were up slightly while single-family warehouse had a seasonal decline of approximately $123 million. Ending loan balances grew by approximately $800 million linked quarter excluding single-family warehouse. Average loan yields from non-purchased loans for the three months ended March 31 were 7.23%, down from 7.63% in the prior quarter. The sequential decline was driven primarily by the full impact from the two 25 basis point rate cuts in calendar Q4 2025. Average loan yields for purchased loans were 12.39% compared to 23.32% in December.

Purchased loan yields for the quarter ended December 31 benefited from one FDIC-purchased loan paying off and resulting in approximately $17 million of purchase accretion that was recognized in interest income. The FDIC-purchased loans continue to perform, as all the loans in that portfolio remain current. New loan interest rates for March were 6.9% in both the single-family and C&I portfolios, 6.7% in the multifamily portfolio, and 7.8% in our auto portfolio. Ending deposit balances were $22.4 billion, up 11.2% year over year. Demand, money market, and savings accounts represent 97% of total deposits at March 31, increasing by 13% year over year.

We have a diverse mix of funding across a variety of business verticals with consumer and small business representing 52% of total deposits, commercial cash, treasury management and institutional representing 22%, commercial specialty representing 14%, Axos Fiduciary Services representing 5%, Axos Securities 5%, and Distribution Partners representing 1%. Ending noninterest-bearing deposits were approximately $34 billion in the quarter ended March 31, an increase of $143 million from the $3.25 billion in the prior quarter. We deliberately reduced higher-cost savings and time deposits and temporarily increased Federal Home Loan Bank advances in anticipation of roughly $2.3 billion of Genius Bank deposits coming in June. Client cash sorting deposits ended the quarter around $1.1 billion.

In addition to our Axos Securities deposits on our balance sheet, we had approximately $4 million of deposits off balance sheet at partner banks. We remain focused on adding noninterest-bearing deposits from small business, custody clearing, fiduciary services, and commercial cash and treasury management verticals. Our consolidated net interest margin was 4.57% for the quarter ended March 31 compared to 4.94% in the quarter ended December 31. The early payoff of an FDIC-purchased loan in the second quarter increased net interest margin by approximately 25 basis points. Excluding the early loan payoffs, the purchased loan yield was 14.2% in the quarter ended December 31 compared to 12.4% in the quarter ended March 31.

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

We continue to identify opportunities to deepen our relationships with existing Verdant vendors and dealers as well as accelerate growth in a few existing verticals that were previously constrained by capital and size limitations when Verdant was under private ownership. The synergy between the Verdant and non-marine floor plan lending teams is starting to gain traction. We believe that our ability to provide comprehensive retail and wholesale lending solutions to top-tier original equipment manufacturers is a strategic advantage that we can leverage to win more deals. Demand in our commercial specialty real estate, fund finance, real estate lender finance, and asset-based lending programs remains strong. Pipelines in the jumbo single-family and multifamily areas are rebounding.

We are making steady progress growing our loan pipeline in newer lending verticals such as floor plan and retail marine lending. Taking all these factors into consideration, we are confident that we will generate loan growth in the low to mid teens on an annual basis this year. We had a strong increase in noninterest income as a result of several recurring and one nonrecurring item. Mortgage banking income was $3.7 million in the quarter ended March 31, up $2.2 million year over year due to a favorable servicing rights fair value adjustment. Advisory fee income was $9.4 million, up $1.3 million year over year.

Banking and service fees in the quarter included a $22 million one-time favorable legal settlement and the addition of rental income from commercial office properties we purchased in January. Verdant contributed approximately $23.7 million in noninterest income in the March quarter compared to $18.9 million in December. The credit quality of our loan book remains strong and our historic and current charge-offs remain low. Net charge-offs were 31 basis points in the quarter ended March 31, compared to nine basis points in the year-ago quarter. We charged off $14 million of principal balance in the C&I cash flow loan that was put on nonaccrual over a year ago when we allocated a specific loan loss reserve.

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

Nonperforming assets declined by approximately $27 million in the multifamily group and commercial mortgages, down by $19 million, once a syndicated C&I Shared National Credit became delinquent this quarter, accounting for a $33 million sequential increase in our nonperforming assets in the C&I loan area. We have taken over as agent in the syndicated loan and are actively working to resolve this nonperforming loan. Total nonperforming assets were 62 basis points at 03/31/2026, down from 71 basis points at 06/30/2025. We remain well reserved for our low levels of credit losses, with our allowance for credit losses to nonaccrual loans equal to 192.2% at 03/31/2026.

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

Having established the governance framework and infrastructure to educate, train, and deploy AI tools to all Axos team members, we are now focused on scaling the usage of artificial intelligence across more use cases. We have over 500 team members using Cloud Enterprise to improve speed, quality, and productivity of various workflows. Since the beginning of calendar 2026, the number of technical users of artificial intelligence tools has increased by 37%, increasing artificial intelligence’s share of committed code to 90%. We are adding specialized agents to test, automate, and QC various work product. We continue to evaluate M&A opportunities to augment growth from existing business and team lift-outs.

The Verdant Equipment Leasing acquisition continues to perform well, with good progress across a variety of strategic and operational initiatives. Loan growth remains healthy and profitability continues to improve. We announced the acquisition of approximately $2.3 billion of online savings deposits from Genius Bank in February 2026. These deposits are a perfect fit for us, and we are excited to offer additional banking, lending, and securities products to the roughly 60,000 individual Genius Bank digital banking clients. We received regulatory approval last month and expect to complete the deposit conversion and client onboarding next month. Last week, we announced a separate deposit acquisition of approximately $3.2 billion of IRA savings and CDs from Capital One.

These are granular retirement savings accounts sourced through digital channels. We submitted our bank merger application for this transaction last week, and are actively working with Capital One to determine the exact timing and mechanisms of a conversion and close in 2026. These two opportunistic acquisitions help us with incremental liquidity and funding for future organic and inorganic loan growth opportunities. Our disciplined growth and strong capital allow us to capitalize on organic and inorganic growth. The regulatory environment and dynamics within the banking and fintech landscape have created a wealth of M&A opportunities that we intend to fully review.

We continue to invest capital in areas where we see the best risk-adjusted returns and in tools, people, and processes that will help us scale. Now I will turn the call over to Derrick, who will have additional details on our financial results. Thanks.

Derrick K. Walsh: A quick reminder that in addition to our press release, our 10-Q was filed with the SEC today and is available online via 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 $186 million for the three months ended 03/31/2026. Up by $1.4 million from the $184.6 million in the three months ended 12/31/2025. Salaries and benefits expenses were down $600,000 on a linked-quarter basis, and professional services fees were up $1.6 million. FDIC and regulatory fees increased $1.6 million quarter over quarter, driven primarily by fiscal year-to-date loan and deposit growth.

Across our noninterest expense categories, we are seeing some of the benefits from operational productivity initiatives, including the increased leverage of our AI tools that we have implemented over the past twelve months. Our income tax rate was 24.6% for the three months ended 03/31/2026, compared to 26.8% in the prior quarter. The primary reason for the sequential decline in our income tax rate was the benefit of RSU vestings and benefits derived from certain tax credits in the current quarter. While we continue to explore tax credit opportunities that could provide future tax rate benefits, our expectation is to maintain an annual tax rate of approximately 26% to 27% excluding these potential benefits.

Provision for credit losses was $41 million in Q3 ’26, compared to $25 million in Q2 ’26. The primary driver of the quarter-over-quarter increase in the provision for credit losses was a specific reserve of approximately $20 million for a C&I loan. We expect to maintain a loan loss reserve of approximately 1.3% to 1.4% of total loans and leases going forward. I will wrap up with our loan pipeline and growth outlook.

Our loan pipeline is robust at approximately $2.6 billion as of 04/24/2026, consisting of $611 million of SFR jumbo mortgage, $82 million of gain-on-sale agency mortgage, $103 million of multifamily and small balance commercial, $83 million of auto and consumer loans, and $1.7 billion across the commercial portfolio. We expect broad-based growth across several lending businesses to drive low to mid teens organic loan growth in the next year, excluding any potential acquisitions. We will deploy some of the Genius Bank deposits to reduce the temporary increase in borrowings in March and plan to use the remaining Genius Bank deposits in combination with growth in our consumer and commercial banking deposits to fund our strong loan growth.

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

Johnny Y. Lai: Thanks, Derrick. Diego, we are ready to take questions.

Operator: Thank you. We will now open the call for questions. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press 2 if you would like to remove your question from the queue. Your first question comes from Kyle Peterson with Needham & Company. Please state your question.

Kyle Peterson: Great. Good afternoon. Thank you for taking the questions. I want to start off on some of the balance sheet moving pieces. I know there is a decent amount going on with FHLB and Genius coming on board. I noticed the securities balances also went up a decent amount this quarter. How much of that is managing some of the liquidity before the Genius deal closes, and do you anticipate running a bit higher securities book in the near term? How should we think about the mix over the next few quarters?

Derrick K. Walsh: Yes. If you notice, cash went down as well. We have internal policy minimums for the level of cash or liquid assets that we hold. What we identified in the marketplace back in October and November was a dislocation where if we bought some Treasuries in three-, five-, and seven-year tenors and hedged them with a SOFR swap, we could generate approximately 30 basis points improvement over holding that cash at the Federal Reserve, which is what we would be doing anyway as part of that liquidity requirement. That spread was as wide as it had gotten other than on the liquidity stress day, so we took that opportunity and acquired some of those Treasuries.

We still can pledge them and borrow against them, and they remain rate-beneficial since they are swapped. That is why you see that increase in the securities portfolio and the decrease in cash. That was around $750 million that we moved into those securities.

Kyle Peterson: That is helpful. Appreciate all the color. As a follow-up, particularly on capital call, it had a really nice quarter on the growth front. Can you give more color on whether that was bigger draws with existing customers or adding new accounts and teams? How should we think about new accounts versus bigger drawdowns and utilization, and how sustainable this kind of growth can be in the near term?

Gregory Garrabrants: Quite a few new clients. I would not say there are significantly greater drawdowns. These facilities tend to take a few quarters to reach where they tend to be, but we are bringing on a lot of new clients mostly.

Kyle Peterson: With respect to sustainability—

Gregory Garrabrants: Given the diversity of the loan book, it is often the case that different segments will outperform in any one quarter. I do not expect that the capital call side growth will be as big as it was next quarter, but I still think it will be pretty decent.

Kyle Peterson: Great. Thank you.

Operator: Thank you. Your next question comes from Gary Tenner with D.A. Davidson. Please state your question.

Gary Peter Tenner: Thanks. Good afternoon. On the credit front, looking at the allowance quarter over quarter and the increase there, was that pretty exclusively driven by the C&I nonaccrual added in the quarter, or what other dynamics were at play in terms of the model on the allowance?

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

Gary Peter Tenner: In terms of that credit in particular, could you provide any additional color on the type of credit and timing of resolution, etc.?

Gregory Garrabrants: It was a syndicated Shared National Credit. We were not the agent. A lot of times with these agents, they made decisions early on that they probably should have been a little bit tougher on. We are now the agent, and we are working with the sponsor and we will see where it goes. We felt it was prudent to put it on nonaccrual and also to take a significant reserve against it, and over the next several quarters we will know exactly how that is going to turn out.

Gary Peter Tenner: And just related to that, Derrick, was there any material impact in terms of reversing interest on that in the quarter?

Derrick K. Walsh: Not significant.

Gary Peter Tenner: Okay. Thank you.

Operator: Your next question comes from David Chiaverini with Jefferies. Please state your question.

Brooks Dutton: Hey, guys. Brooks Dutton on for Dave this afternoon. Help us quantify the impact that temporary borrowings had on NIM this quarter and whether that pressure should reverse as these borrowings roll off given the pending Genius acquisition?

Brooks Dutton: Thanks.

Derrick K. Walsh: Sure. It was maybe a basis point or two. For the most part, we allowed a lot of our higher-cost deposits to outflow and replaced those with borrowings, so it really was not anything too meaningful from an impact on NIM.

Gregory Garrabrants: On the Genius side, that book has been priced at a higher rate than we have priced some of our deposits. We are probably not going to adjust pricing immediately. Although the Genius acquisition is helpful from a volume perspective, we do not intend to try to optimize a few basis points here or there on NIM. We feel pretty good about NIM being flattish going forward, other than the five basis points of amortization of the premium. We will normalize that, but I do not want to introduce all those clients to the bank with a rate cut, so we will probably keep it there. That is the dynamic.

Brooks Dutton: Great. Thank you very much.

Gregory Garrabrants: Thank you.

Operator: Your next question comes from Kelly Motta with KBW. Please state your question.

Kelly Ann Motta: Good afternoon. These two deposit acquisitions provide avenues to fuel what has been really outstanding growth on your part. With the Genius deposits allowing you to be a little more aggressive with repricing your own deposits, how are you viewing the Capital One deposits’ average cost? Will those help you further price down funding, or should we think of them as a net add to deposits as we think through both the margin and overall size of the balance sheet?

Gregory Garrabrants: Great questions, Kelly. We are looking at these as ensuring that we have the funding for the level of loan growth we are looking forward to having. It ensures that we do not have to price up deposits or increase marketing budgets in order to fund ourselves, which is helpful. I would not model any significant increase in NIM from our ability to price down other deposits just based on having that excess. We feel pretty good that we have managed this rate cycle really well, with NIM expansion on the way up and, for the most part, maintaining our net interest margin on the way down. That is assisted by this.

We probably would have had to increase marketing expense somewhat otherwise or be a little more aggressive on pricing. It will help on balance, but our guidance on NIM incorporates those acquisitions and how we are thinking about pricing with respect to them.

Kelly Ann Motta: As those come on, to fund your growth, could we see a build in liquidity as you have dry powder to deploy? Trying to handicap if there is a bigger balance sheet but a little pressure from the liquidity build.

Derrick K. Walsh: We have strategically positioned the balance sheet for this quarter and the coming quarter’s growth. There might be a little overhang for this fiscal Q4 related to the Genius deposits, but generally we have lined ourselves up well, not much worth modeling out. For Capital One, it will depend on timing and on our own organic growth and opportunities. I would expect a little more of a balance sheet gross-up in the later portion of calendar year 2026 that might roll over into early 2027. At that point, with expectations of greater than $30 billion of assets, it will not be overly significant.

Kelly Ann Motta: That is helpful. Lastly, regarding the Verdant acquisition, you have had a nice boost in fee income related to that. As you think ahead, given your really strong pipelines, how are you thinking through operating leases versus on-balance-sheet, and is it fair to say some additional fee income growth from that, or should we see more added to the loan portfolio?

Derrick K. Walsh: It is tough to tell. Last quarter, operating leases were about one of every six originations, and that could fluctuate up or down depending on opportunities and the nuances of accounting around specific leases. The objective—both for management and our operations—is to support and grow that business. Overall, it will be in line with our forecasted loan growth and is incorporated into that. I cannot give a specific number for fee income growth. It should generally grow, but I would not model it too significantly given it is only one-sixth of origination volume.

Kelly Ann Motta: Understood. Thank you so much. I will step back.

Derrick K. Walsh: Thanks, Kelly.

Operator: To ask a question, press 1 on your phone. To remove your question, press 2. Your next question comes from Liam Coohill with Raymond James. Please state your question.

Liam Coohill: Hey, guys. Good afternoon. It is Liam on for David. On your securities business, client acquisition trends remain pretty positive despite the market volatility in the quarter, and we have talked about the opportunity to cross-sell to Genius customers. Do you see a similar opportunity with the Capital One clients, and can you discuss offerings that could be attractive to them?

Gregory Garrabrants: The Capital One clients were a little sensitive in some periods to certain kinds of cross-sell. They were not sensitive to securities cross-sell. I think there would be opportunities with those clients for some of those offerings, because these are retirement accounts. Right now, they are very limited in product types offered, and we will offer greater product types. We have no restrictions on our ability to cross-sell securities products to those clients. Over time, as that develops, they can become more general banking clients as well. So I do think there are opportunities.

Liam Coohill: That is helpful. Kelly touched on operating leases, but I was also curious about other core noninterest income trends. Where are you seeing success, and how do you expect core fees to move going forward?

Derrick K. Walsh: One other item Gregory referenced in his prepared remarks was roughly $4 million of rental income from our future headquarters. That building is larger than what we plan to occupy, and a good amount of space is already leased out, so we have some rental income. There is corresponding depreciation and other expense of roughly $2 million to $3 million in noninterest expense this quarter. Staying on fee income, besides Verdant and the one-time legal settlement, the growth was driven predominantly by the mortgage banking increase—there was a positive movement on the valuation of the MSRs at quarter end. Other fees—advisory, broker-dealer, and general banking service fees and other income—had smaller, stepwise increases.

As we grow each of these businesses, we expect those fees to also increase.

Liam Coohill: Understood. Last one: where do you think there is the most opportunity for M&A today, and where are you seeing valuations that are rational? Is that tending to be more lending teams or larger portfolios?

Gregory Garrabrants: We are looking at some of each. In our portfolio we have team acquisitions, fintechs that are really good at something but need components we have, and banks—large and small. There is also the specialty finance side, teams and businesses. We are very disciplined. We talk to people for a long time. We do not rush. We make sure it fits and that we can digest it. There is idiosyncrasy in individual circumstances—people, funding, where companies are in their life cycles—that fuel opportunities. We are always very active. We build relationships over time.

Sometimes it looks like something happens quickly, but it is the result of a deliberate strategy of staying with opportunities over time so when they are ready to transact, we are there for them.

Liam Coohill: Great. Thank you for all the color. I will step back.

Gregory Garrabrants: Thank you. Thanks, Liam.

Operator: Thank you. There appear to be no additional questions at this time. I will hand the floor back to Johnny Y. Lai for closing remarks.

Johnny Y. Lai: Great. Thanks, everyone, for joining us, and we will talk to you next quarter.

Operator: This concludes today’s call. All parties may disconnect. Have a good day.

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