Axos Financial First Quarter 2027 Earnings Conference Call and Webcast - AXOS FINANCIAL INC

Greetings and welcome to the Axos First Quarter 2027 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to Johnny Lai, Senior Vice President of Corporate Development and Investor Relations at Axos. Thank you, Johnny. You may begin. Great. Thank you. And good afternoon, everyone. Thanks for your interest in Axos, joining us today for Axos Financial Inc.'s first quarter 2027 Financial Results Conference Call are the company's President and Chief Executive Officer, Greg Gerbrandt, and Executive Vice President and chief financial officer, Derek Walsh. Greg and Derek will review and comment on the financial and operational results for the quarter ended September 30th, 2026, and we will be available to answer questions after the prepared remarks. Before I begin, I would like to remind listeners that prepared remarks made on this call may contain forward-looking statements that are subject to risks and uncertainties, and that management may make additional forward- looking statements in response to your questions. Please refer to the safe harbor statement found in today's earnings press release and in our investor presentation for additional details. This call has been webcast and there will be an audio replay available in the investor relations section of the company's website located at AxiosFinancial.com for 30 days. Details for this call were provided on the conference call announcement and in today's earnings press release. Before handing this call over to Greg, I'd like to remind listeners that in addition to the earnings press release, we also issued an earnings supplement. All of these documents can be found on our investor relations website. With that, I like to turn the call over to Greg. Thank you, John, and good afternoon, everyone, and thank you for joining us. I'd like to welcome everyone to Axios Financial's first quarter fiscal 2027 earnings conference call for the quarter-ended September 30th, 2026. I thank you for interest in Axios financial. Our core business fundamentals remain strong with double-digit year-over-year growth in our net interest income, non-interest income, ending loan and deposit balances, earnings per share, and book value per share. We continue to manage our interest rate risk well with net interest margins expanding by 10 basis points linked quarter to 4.64%. We remain well positioned for a higher for longer interest rate environment with de minimis unrealized losses in our securities portfolio and a $50 million unrealized gain in our loans held for investment. We closed the Capital One deposit acquisition in September, adding approximately $1.8 billion in IRA savings and CDs. Additionally, our non-interest income growth has been broad-based with contributions from our banking and lending businesses driving a 3.1% sequential increase to $63.8 million in the quarter ended September 30, 2026. Other highlights in the quarter include net interest income increased 4.2% link quarter and 13.8% year-over-year, driven primarily by a sequential improvement in our net interest margin and the verdant acquisition that closed in September 2025, respectively. Ending loan balances were $25.9 billion at September 30th, up by $316.6 million quarter over quarter. Strong originations were offset by higher levels of payoffs in single-family mortgage and warehouse, multifamily, and small-balance commercial real estate. We syndicated approximately $290 million of our capital call originations prior to the end of the quarter as we continue to build our capacity to agent a wider variety of deals. Excluding capital call syndications, our net loan balances were up by over $600 million this quarter. Elevated levels of prepayments resulted in prepayment penalty fee income increasing from $650,000 in Q1 of 2026 to $6.8 million in Q2 of 2027. Banking and service fee income was also up significantly year over year due to the addition of non-interest income from Verdant and rental income from our future corporate office building. Non-interest expenses were $195.4 million for the three months ended September 30th, 2026, down by approximately $10.5 million linked quarter. Our efficiency ratio was 49.46% in the quarter ended September 30, 2026, up slightly from the corresponding period a year ago, primarily due to higher depreciation and amortization expense from the four acquisitions we closed in the past year. Our securities business had a solid quarter. Advisory fee income increased by approximately 10% year-over-year and contributed over $10 million in broker-dealer fee income in the current quarter. Net income was approximately $129.6 million in the quarter ended September 30, 2026, up 15.4% from the $112.4 million in prior year's first quarter. Diluted earnings per share were $2.25 for the quarter that ended September 20, 2026 compared to $1.94 in the corresponding prior year quarter, representing a 16% year-over-year increase. We repurchased $7 million of common stock during the three months ended September 30 of 2026 at an average price of $86.92 per share. From October 1st through October 23rd, we repurchase an additional $7 billion of Axios common stock. We have approximately $112 million remaining in our current share repurchASE authorization. Total originations for investment excluding single-family warehouse lending were $5.7 billion for the three months ended September 30th, 2026, compared to $4.2 billion in the first quarter of fiscal 2026. Loan growth was strong in commercial real estate specialty lending, real estate lender finance, equipment finance, and auto. Jumbo single-family, multifamily, and small-balance commercial loans were down by approximately $150 million quarter over quarter combined due to elevated levels of payoffs. Capital calls, which had been a strong growth area over the prior three quarters, saw ending loan balances declined by $345 million in the first quarter of fiscal 2027, with over $290 million of that decline resulting from our decision to sell down several deals that we agent. We expect capital call balances to resume growth in the December quarter. The closing of a few large loans we anticipated in the September quarter are expected to fund and close in the December quarter this year. Loan demand remains strong. Pipelines are up across several lending categories, making us confident that we will generate loan growth in the low to mid-teens on an annual basis in fiscal 2027. Average loan yields for the three months ended September 30, 2026, were 7.48%, up by 11 basis points from the prior quarter. Average loan yields for non-purchase loans were 7.38%, and average yields for purchase loans were 11.5%, which includes the accretion of our purchase price discount. The FDIC purchase loans continue to perform, and all loans in that portfolio remain current. New loan interest rates for the September quarter were 7% in single-family residential mortgage, 6.6% in multifamily, 7% in C&I lending, and 7.8% in our auto portfolio. Ending deposit balances were up 14% year-over-year to $25.4 billion as of September 30th. Demand, money market, and savings accounts represent approximately 94% of total deposits, increased by 14.5% year-over-year. We have a diverse mix of funding across a variety of business verticals, with consumer and small business representing 61% of total deposits, commercial cash, treasury management, and institutional representing 15%, commercial specialty representing 15% Axos fiduciary services representing 5% and Axos securities at 4%. The Capital One IRA deposit acquisition closed September 21st, adding approximately $900 million of savings deposits and $900 million of time deposits. We deployed some of the Capital One deposits by proactively reducing wholesale and other non-core deposits in the September quarter. With a strong loan pipeline, we expect to deploy the majority of the excess liquidity from the Capital One deposits at the end of calendar 2026. Ending non-interest-bearing deposits were approximately $3.6 billion on September 30, 2026, down slightly from $3,8 billion as of June. The linked quarter change in non-interest-beary deposits was primarily due to the decline in AXO Securities cash sorting deposits. Client cash sorting deficits ended the quarter at $1.5 billion, down from $1,7 billion at June 30. In addition to our AXOs Securities deposits on our balance sheet, we had approximately $450 million of deposits off balance sheet at partner banks. We continue to add new clients in our small business, cash, treasury management, and specialty deposit businesses. Total non-interest-bearing deposits accounts increased from approximately $58,000 as of June to over $60,000 as of September. Our lending and deposit businesses are well-positioned for continued profitable growth. Approximately 75% of our loans are floating and repriced in 30 days or less with any change in the index rate. Given the dynamic nature of our loan portfolio, we have more flexibility than most other banks to quickly adjust to changes in the macroeconomic, competitive, and interest rate environment. Our diverse sources of funding provide granular deposits across a variety of consumer, small business, commercial, and specialty accounts. We continue to make incremental progress on deposit cross-sell across a variety of our lending channels. Our recent deposit acquisitions provide us with incremental liquidity to support our double-digit loan growth aspirations. We expect to migrate approximately $700 million of deposit balances from ARCs clients held at partner banks to Axos over the next few quarters. We expect our net interest margin to stay flat over the Next Few Quarters. Our balance sheet remains asset sensitive, and we expect the benefit from a full quarter of the 25 basis point September Fed rate hike to be largely offset by a full corner of excess liquidity from the Capital One deposits in the quarter ended December 31st, 2026. We also expect some of the incremental margin benefits as the remaining lower rate single-family and multifamily mortgages originated prior to the Fed rate hikes are replaced with higher yielding loans. In March 2027, quarter and beyond, we anticipate the lag in deposit repricing to counter a significant component of the margin benefits from the next few potential rate hikes. The quality of our loan book remains strong, despite two isolated charge-offs we took this quarter. Net charge-off were 109 basis points compared to 25 basis points in the prior quarter. The increase in the quarter reflected two non-performing CNI loans we had allocated specific reserves for in the prior quarters, so these losses were largely covered by existing loan loss reserves. The borrowers of the two cash flow loans were in different industries, with fundamental and regulatory factors specific to each being the primary contributor to the deterioration in their underlying businesses. Excluding those two charge-offs, annualized net charge-off to average total loans and leases were eight basis points in line with nine basis points last quarter, which excluded a specific credit charge off last quarter. 99.2% of our loans are current as of September 30, 2026. Total non-performing assets were $157.5 million, down slightly from June 30. Non-accrual loans declined $1.7 million, including a $5.2 million decline in CNI, and held roughly flat elsewhere. Real estate loans represent more than half of our total non-accruals as of September 30th. Non-accurals and classified assets remain low across the majority of our real estate-backed and structured credits, and the weighted average loan-to-value of our Real Estate Loans is 50%. We continue to actively monitor and manage loans and take conservative approaches with respect to downgraded charge-offs. Loans 90 or more days past due declined 17% to 0.51% of loans, and classified loans declined approximately 19% since June 30, 2026. Non-performing assets, the total assets, was 51 basis points, down 2 basis points from June 30 and 13 basis points from September 30, 2025. We believe we are well-reserved overall with specific reserves for the small number of loans that are classified as non-accrual and substandard. Our allowance for credit loss covers 196% of non- accrual loans as of September 30, 2026. We had another quarter of double-digit year-over-year growth in non-interest income. Our sources of asset and transaction-based fees have expanded over time. Total non- interest income for the three months ended September 30th, 2026 was $63.8 million, up 97% year-over-year. Banking and service fees in Q1 2027 were $35.2 million compared to $10.8 billion in the year-ago quarter. Verdant was the primary contributor to the year over year increase in banking and service. Prepayment penalty fees were $6.8 million compared $0.7 million in Q 1 2026, reflecting higher prepayments in our commercial lending businesses. In our securities business segment, advisor fees were up year over year due to higher asset and transaction-based income. Total assets under custody or administration increased $5 billion year overyear to $48 billion. Net new assets were approximately $195 million in the quarter end September 30th, 2026, bringing the net new assets to $1.3 billion in the last four quarters. Cash sorting deposits on and off balance sheet decreased by approximately $200 million linked quarter due to the advisors deploying excess cash. Securities borrowed and securities lending volumes were up in Q1 2027 compared to Q4 2026 due to increased market volatility. Pre-tax income was $10.3 million in the three months ended September 30th, 2026, up approximately 24% from $8.3 billion in the corresponding year-ago period. We successfully closed four acquisitions over the past 12 months. Each acquisition provided tactical and strategic benefits across different Axos businesses. The Capital One and Genius Bank deposit acquisitions added over $4 billion of consumer deposits and 132,000 new accounts in the demographic that closely resembles our existing consumer client base. We have generated incremental checking relationships with Genius Bank customers, and we are evaluating ways to cross-sell brokerage and digital wealth management products to Capital One's IRA Savings and CD customers. Verdin added $1.2 billion in leases and a seasoned credit sales and operations team with deep expertise and relationships across six targeted verticals when the acquisition closed in September 2025. In the first 12 months since Verdin joined Axos, we have been able to deepen our relationships with key vendors, dealers, and distributors, and improve the overall efficiency and profitability in our equipment leasing business. Additionally, the Verdant team added expertise in syndications and securitizations, which will allow us to generate incremental fee income in the equipment leasing and other commercial lending businesses. ARK is a modern technology platform that serves small businesses nationwide. We are focused on integrating their platform into our banking infrastructure to provide clients with seamless technology and banking experience. Once the integration is complete, we'll be able to migrate deposits from new and existing customers at Axos Bank to AxosBank, adding another source of low-cost deposits. We are actively looking at ways to leverage Axos Banks' deal flow and lending relationships to drive higher volume into ARC's digital debt marketplace. We see the debt marketplace as another way to deepen our relationships with small business clients and generate fee income without taking incremental credit risk. Furthermore, we believe we can leverage the technology and third-party integrations and entitlements ARK has built as a foundation for other consumer and commercial banking services to accelerate our strategic roadmap. ARK brings a talented team of product, sales, and software engineers who will help us enhance these development efforts. Our ability to generate above-average returns and growth provides us with multiple opportunities to deploy excess capital. In the last 12 months, ending September 30th, 2026, we funded over $3 billion of organic loan growth, added roughly $1.2 billion in leases and on-balance sheet securitizations from Verdant, closed the Genius Bank Capital One and Arc Technologies acquisition, and repurchased approximately $29 million of Axos common stock. We remain highly profitable, generating a return on average assets of 1.72% and a return on average common stockholders' equity of 15.66% in the three months ended September 30th, 2026. We have consistently achieved industry-leading returns through a variety of interest rate cycles while investing prudently in product, technology, marketing, risk, and people across each of our businesses. We've invested significant time and resources to establish and refine our AI governance, training, and deployment. The speed and scale and productivity improvements we have seen in various AI projects continue to exceed our expectations. As we deploy AI deeper into every part of our organization, we see exciting opportunities to deliver more value to our clients, business partners, and team members. Now I'll turn the call over to Derek, who will provide additional details on our financial results. Thanks, Greg. A quick reminder that in addition to our press release, a 10-Q was filed with the SEC today and is available online through EDGAR or through our website at accessfinancial.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 $195 million for the three-month sentence September 30, 2026. down by $10.5 million from $206 million in the three months ended June 30th, 2026. Salaries and benefit expenses were up by approximately $2 million in a linked quarter due to the addition of ARC technologies and one additional payday in the September quarter. Data and operational processing expenses were at $1.5 billion quarter over quarter on increased investment in technology, including the continued deployment of AI across the enterprise. Depreciation and amortization expenses increased by $2.4 million linked quarter, reflecting the amortization of newly acquired intangibles from our acquisitions and depreciation of an infrastructure refresh and expansion. Including the $21 million legal, excluding the $29 million legal accrual in the prior quarter, non-interest expenses in the three months ended September 30, 2026, were up by approximately $10 million linked quarter due to the items I referenced above. As a reminder, we conduct our annual merit-based compensation reviews in September and see the full quarter impact starting in the December quarter. Overall, we expect our expense growth to normalize as efficiencies are gained through AI, and we maintain our 30% cap on personnel plus professional fees growth as a percentage of revenue growth. Provision for credit losses was $24.5 million in Q1 2027 compared to $17.9 million in Q4 2026. The provision for credit loss is in the quarter was primarily driven by specific reserves in the CNI portfolio, partially offset by a less severe economic outlook. Going forward, we expect to maintain the loan loss reserve where we are currently in the 1.1% to 1.2% of total loans and leases. Turning to capital, over the last few months we repurchased approximately 160,000 shares of common stock for $14 million and currently have $112 million remaining in our share repurchase authorization plan. At 9.30, our Tier 1 leverage ratio increased 21 basis points to 10.15%, and our total ratio increased 42 basis points to 14.81%. I'll wrap up with our loan pipeline and growth outlook. Our loan pipeline is robust at approximately $2.8 billion, consisting of $782 million of single-family residential jumbo mortgage, $30 million of SFR gain on sale, $195 million of multifamily and small-balance commercial, $71 million of auto and consumer, $1.7 billion of commercial loans. We expect loan growth to accelerate from the Q1 2027 levels as a result of growth across several lending businesses. We continue to target low- to mid-teen organic loan growth in our fiscal year ending June 30, 2027, excluding any potential acquisitions. We deployed some of the Capital One deposits to reduce higher-cost funding and plan to use the remaining, in combination with growth in consumer and commercial banking deposits to fund our future loan growth. With that, I'll turn the call back over to Joni. Thanks, Derek. Operator, 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 star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Start 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Start keys. One moment please while we poll for questions. Our first question is from David Ciaverini with Jefferies LLC. proceed with your question. Hi, thanks for taking the questions. On the net interest margin, nice expansion in the quarter. Sounds like there's some durability to it in coming quarters. I guess in terms of the puts and takes, you mentioned about asset sensitivity, but the lag in deposit repricing could counter the benefits of the asset sensitivity. And then there's the dynamic around the Capital One deposits and the excess liquidity. Can you talk through some of those puts and takes? And if we don't get rate hikes that the forward curve is implying, what would that end up doing to the outlook? Hey, David. Yeah. So for the excess cash and deposits from Capital One, so that'll add approximately a $700 million average asset or excess cash, which is obviously a lower earning asset than our loan yields. And so that's the primary drag for this December quarter. And then what the prepared remarks were saying was that as you look forward, while that drag will be on the NIM this coming quarter, as you get beyond that, that kind of covers that timeframe where deposits start to catch up. And it's a highly competitive deposit environment right now in the industry. So I think that's fairly consistent with maybe what you've heard on other calls. But on a net interest income standpoint, we are expecting some of that expansion for this coming quarter. It's just that from the NIM perspective, when looking at that percentage ratio, that will be what will be more flattish. Got it. Thanks for that. And then I wanted to ask on credit quality about the loans, the CNI loans that were charged off. How long had you been kind of working out those loans? I'm wondering whether this was kind of a sudden change in the performance of these borrowers or if this had been in the works for a while? With respect to one, we had charged off that. That was the large charge-off as it occurred, was it two quarters ago or last quarter? That was a couple quarters ago. Right, so we hadcharged that off. We had reserved it several quarters ago, but the nature of the performance, was such that we felt like it was the right thing to do to just go ahead and take that charge off rather than just simply reserve for it. The other was also reserved for a while, and the performance there had been known to us for several quarters. We feel like we have a pretty good read on the portfolio and then we're reserving as we see deterioration in those credits. And so we had created the reserves when we saw any weakness several quarters ago. Got it. Very helpful. Thank you. Our next question is from David Feaster with Raymond James. Hey, good afternoon, everybody. Hey, David. I wanted to touch on the lending side. I'm just curious, you know, you've got such a broad reach and are in so many different asset classes. You talked about the ability to flex certain ones up when things are, you now, doing better and vice versa. You know, how's demand from your perspective as rates are rising? Have you seen any shifts in your pipelines or are even things starting to fall out of the pipeline? I know there's some risk in the mortgage, you know, segment from, you know, rising rates, but curious what you're hearing from clients and what segments you're seeing the best opportunities right now. Yeah. As you said, because we have such a broad array of lending businesses, I'll have to go through each one. Interestingly, although clearly single-family mortgage demand is generally down, the securitizations for 30-year mortgages, which are our primary competitor in the jumbo space have actually gapped out pretty decently. And with the rise in the 10 year, that's actually made our business a little more competitive. So we have a larger pipeline there than we've had in a really long time. Now, how much of that pulls through is an interesting question because there's escrow cancellations, things like that on the purchase side. But that pipeline is actually pretty decent. You know, I think that in some cases, some of the lenders that use us for back leverage, when rates go up, they look at it and they see if they have a prep rate that they feel like it's not that much of a difference in the carry between calling capital, let's say, and utilizing a line. There might be some pressure there. You know, frankly, what happened in this quarter with the relatively lower loan growth is we had several, well, quite a few, a few more payoffs than we thought. We had several loans that we expected to close that got pushed to this quarter where we expect growth to be better. And then we have been trying to develop our syndication business in the cap call area specifically, because as those lines get bigger, they get more efficiently priced. And we've been having a lot of luck keeping those clients. And so the syndication partners that we have wanted to get their assets level increases prior to the quarter end. So we syndicated almost $300 million of our capital call production in the quarter, which also impacted the end of period loan growth. But in general, we feel pretty good about loan growth getting back to where, you know, we hope to be this quarter. It'll be pretty broad-based. And, you Know, we Feel like there's even some upside there based on the fact that some of these assets rolled. But I don't want to get ahead of ourselves because, you know, I do think that when rates rise, sometimes a lot of these folks, the decision to put leverage on something is somewhat discretionary. And so, on the margin, they may think differently about it. Okay. That's helpful. And then, look, you've closed a couple deals. I know it's still early days, right? I mean, they haven't been closed that long, but we've talked about some of the cross-selling opportunities that you've identified across really all three of them. I guess, first off, how has retention been as these have closed, and how is cross-selling, and kind of where are we at in the integration and the timeline for cross-sellings, and where do you see the most opportunities? Yeah. Well, I think on the Genius side that the checking account across sales has been going well. The CAP1 deal is a little too early to tell. We do think over time that because most of those accounts were kind of interesting in the sense that they were IRA kind of checking and savings accounts, that some of the, you know, managed portfolio robo-style products will be interesting to them. That's a little early to tell. On the ARC side, you know, we think that the main benefit there is that the platform is so much more robust than our current small business platform, which is adding, you know, quite a few customers every month and quarter, that there'll be a lot more opportunity there was we provide that platform to our small business clients to help them grow. And then with Verdant, there's been a lot of synergy between that business and the floor plan finance business, because obviously the front side of vendor leasing is a vendor who has inventory on a floor plan. So that's been really nice synergistic opportunity there. okay that's helpful um and then you know just with arc maybe a high level question you know with arc and some of the tech lending i know there's a lot of folks in the industry that are worried about you know a bubble in tech just given the amount of capital being thrown at it and the significant build out you know as well as the ripple impacts that ai could have on on some of their tech companies i just wanted to get your thoughts on that at a high label um you know where you play in venture lending and tech lending and what you're seeing in that space at this point. Yeah, right. So ARK really, what ARK's platform is specifically, and then I'll answer the question more broadly, ARK'S platform was specifically a deposit competitor to a Brex and a Mercury, and it was really about a future-rich treasury management style platform that would enable treasury management for smaller and mid-tier clients that maybe aren't well-suited for larger treasury management platforms. So that had the $700 million in deposits. They're in partner banks now. They're going to migrate over when we get that platform integrated into our core and into our ecosystem. ARK also had, I think, a pretty unique platform that they built, which was essentially using AI. And they have quite a few lenders, well over 150 lenders who have signed up to that platform. Some are bank lenders. But most are non-bank across a pretty wide spectrum. It does skew a little bit into the venture lending side. And ARK effectively acts simply as a broker and as a deposit taker. So if a venture client comes to ARK, the client will get the deposit services through the ARC platform, and then they will, if they want debt, they would have that debt provided by a third party with ARC acting on a brokerage capacity. So, in that case, you get the benefit of the deposits and you don't have the loan risk. Now, what we specifically do on balance sheet in venture lending is essentially nothing. We don't really do venture lending. The only real exposure there would be in back leverage facilities to the types of clients, to the large venture lenders where you have 50 assets in a pool, and you're looking at their performance in that pool, you have borrowing bases and percentage advance rates and concentration limits and those kind of things. So, you know, with respect to software lending, which I would classify, let's say, as non-venture-based, let'S say, established, positive EBITDA companies, you Know, we have relatively little of that. We don't have absolutely zero, but it's not very common. And I think the reason why is that, Although, you know, there certainly are areas where the SaaS apocalypse and whatever you want to call it are overstated, AI really is changing the dynamic in a lot of these products. And so, you know, many of them will take advantage of that. Others will be threatened by it. And so we don't really do a lot of direct, you know, software lending where, you know, SaaS-oriented software lending. All right. That's terrific. Thanks, everybody. Thank you. Our next question is from Gary Tenner with D.A. Davidson. Please proceed with your question. Thank you. Good afternoon. I wanted to ask a follow-up on the asset quality bit. It looks like non-accruals in the C&I segment, they went down like $5 million. So could you talk about inflows into non-acquire there, you know, following the charge-offs in the quarter? Yes. We have a couple other credits that we also have specific reserves on. that were placed on non-accrual this quarter. One of them is backed. It is a CNI loan, technically, but it's mostly backed by real estate. And we have the real estate value on a recent appraisal at the loan balance, so we don't think there'll be much in loss there. And then we have another cash flow loan that we have reserves on, but it is on non-accrual for this period. So that loan has placed on non accrual this quarter. Okay. And is that loan potentially greater loss content than the commercial than the other one, the first one? Yeah, I think it has higher, definitely higher potential loss content there. It's an operating business, and it has asset value. It's doing things that they need to do to right the ship, but I wouldn't say it's riskless for sure, and we've put a decent-sized reserve on it. Okay, thank you. And then just on the prepayment penalty fee income, the last two quarters highest, you know, it's been since what fiscal 22 probably. So any I know there's not massive visibility here, but any thoughts kind of on that trend continuing for any period of time? Yeah, I don't think it's going to I think it'S going to fall this quarter. I think that it's obviously a little bit difficult because the book is so relatively large but I don't think it will repeat this quarter and I think loan growth will be better this quarter and those two things are related of course Thank you and just if I could sneak in a last question here the deposits, the ARC partnered or the ARCs related deposits that will come over, what kind of rate would those be ascribed? There's several hundred million that are zero cost and then there are others that are more, you know, more saving style deposits, which, you know, think of them as 80% of Fed funds kind of thing. But there's a couple hundred million of zero cost operating there. Great. Thank you. Our next question is from Kyle Peterson with Needham and Company. Please proceed with your question. Great. Good afternoon and nice results, guys. I wanted to start off a bit, Greg, in your prepared remarks. At least you mentioned that you guys are pretty nimble and can move around to where the attractive growth opportunities and pricing and spreads and everything are. So I guess like what are kind of as you look over these next few quarters with, you know, this current rate macro environment, what are some of those areas that you think are particularly interesting and that you see opportunities to lean into for loan growth? Yeah. You know, right now what's interesting is there's definitely some disruption in a variety of areas. Neither that disruption is kind of macro-level disruption like I mentioned with the single-family conduit, 30-year mortgage kind of gap outs because of the securitization kind of market just requiring higher spreads. to there's been specific both equipment leasing and floor plan competitors who have either sold or are just repositioning their balance sheet in a way that's been providing opportunities just for uh, client acquisition. Um, you know, I don't really, frankly, you know, obviously we, we've decided, you know, on the cap call side, uh, obviously I think there's, there's still a lot of opportunity, but in some cases when we get a rate compression there, we'll sell down those loans so that, you Know, creates obviously a good deposit dynamic, uh, with, uh with a good loan, with a good deposit-to-loan ratio there, but it does reduce volumes. You know, I really feel like our loan growth, each segment, I don't feel like there's any segment that is really not capable of growth. And I think there's enough kind of, there's just an air of disruption that, and I think a lot of other banks are having a little trouble with deposit raising too. So I feel like the loan opportunities are pretty good. You know, you've got to sort it through and make sure that the businesses and the companies can stand high rates, which obviously puts pressure on things. But, you know, I don't really feel like any of the businesses that we have are not capable of growth, with maybe the exception that that 5-1 arm multifamily business is still suffering from a couple of irrational competitors, and there really hasn't been the adjustment in the cap rates that I think are necessary to get transaction volume going. So I think that, you know, that permanent kind of multifamily loan is the smaller balance multifamily loan is a little bit caught up in a buyer seller disagreement about value where the buyer is right and the seller is wrong and they just can't figure that out eventually. So that may be one area that's a little bit disrupted there. Great. That's really a helpful color. And then, you know, maybe a follow-up. You know, I know whether, you know, crypto and blockchain has kind of been an area that you guys have, you know, expressed interest in in the past. Obviously, we're getting more regulatory clarity there. But, you know, maybe if you could give some more color on what the roadmap looks like, whether it be on the the uh you know deposit side lending um you know advisory just like how that all fits into um you Know your product roadmap right so we have been building um the front end for um and it would be an addendum to our self-directed trading account uh for the uh the purchase of Bitcoin. That should be live probably in the March 2027-ish timeframe. And we're going to put it in beta just to make sure everything is buttoned up and working properly. We're using a third-party custodian for that, where the custodians are actually, you know, and we're piping through APIs for that with them. And then we will roll out a Bitcoin lending program that will be like the margin program that will follow shortly after that. And then we're going to assess what other coins we want to add for trading within the platform. And we think that, you know, given the ability to have such a tight linkage between the money movement capabilities of having, you know, checking accounts and brokerage accounts in one place, that there'll be some benefit there. We're starting with Bitcoin, we're going to roll it out slowly, make sure that we have everything straight from an operating perspective. But that's been in the works. It's pretty close to being done. It's working in, not to give too much details, working in the test environment. We're about to bring it into prod in the next two to three weeks and then go through all the testing there. Excellent. Thank you. Thank you, Al. Our next question is from Andrew Leish with StoneX Financial. Please proceed with your question. Good afternoon, guys. Just one more follow-up question on the non-performers or the charge-offs. For any of these, the sort of A-B note structures that you'll do with other lenders or non-bank lenders, or are they just actual originated loans? No, they were both syndicated cash flow loans, and they were the only two loans in the entire syndicated cash loan book that had non-bank agents. Got it. And we were small parts of, in one case, it was quite a large loan, and then the other, Well, the loan, yeah, they're both very large loans in both cases. One was really a regulatory issue, health care company, and the other was a tariff-related issue from a very large, I think the loan total loan size was almost a billion dollars. So they were big loans that had a lot of sponsor equity behind them. We were small pieces of them, and those were both non-bank agent deals. Got it. Did this come out of the annual SNCC exam, these two credits? You know, they did, you know, it wasn't, there was nothing related to our decision to charge them off related to any kind of regulatory exam. It was our view and decision that based on where those credits were at that time and based on developments that occurred that it was instead of having the reserves, they should be charged off. Scott Pestricko. Got it. Okay. And then, Derek, on the expenses, you know, advertising costs were up a little bit. I don't know if maybe I missed you mentioned that one. I'm just curious if there's anything unique there. And then I guess more normalized expense growth going forward. Is that more of a comment just to the 30 percent number that you mentioned? Or is there a certain growth rate that you mean? Yeah, on the marketing, advertising, I referenced the competitive nature of deposits, especially around consumer. And so we expect to continue to spend in that arena to remain competitive and as we look forward to fund our growth. So the advertising marketing line item will stay elevated into the future from where it was over the past year. With regards to expenses overall, I think when you carve out some of the different acquisitions and look at some of that run rate in the past, We've kind of been in that $3 to $5 million a quarter on an average across a year, right? Certainly some quarters are lower, some quarters a little higher, but as a kind of run rate average, that's been the ballpark, absent any other acquisitions or one-time anomalies. So that's kind of the range that I would guide towards. Got it. Very helpful. All right. Thanks, guys. Thank you. Our next question is from Kelly Mota with KBW. Please proceed with your question. Hi. Thanks for the question. Most of mine have been answered at this point, but I guess just to close the loop on the credit, you guys have been obviously very strong at managing credit. Can you remind us how big the SNCC book is within your loan book? The cash flow syndicated deals total $459 million of our total loans. So that's the kind of area, but the vast majority of those are pass-rated and are well-performing. Got it. Thanks, Derek. And then, you know, you guys have multiple channels for funding. You noted, you Know, one area other banks are struggling with is the funding. And you guys, you noted the tailwinds from ARK, as well as you just have the Capital One deal. Just wondering if you could maybe touch on some other channels where you see as kind of good sources of funding as you look towards that low-to-mid-teens loan growth you're looking for this year? Thank you. Yeah, well, on the consumer side, our XS1 product is doing very well. The small business accounts are doing well. You know, some of the saving side stuff depends on, you know, where you go from a pricing perspective. So that can be either flat, up, or tailwind, depending on, or a headwind, depending on how you price that. But the commercial side, broadly for us, is doing very well. We have really good growth expectations there, and that's comprised of a variety of segments. And, you know, each of those segments can contribute, you now, $50, $100 million a quarter. So, you kno, we really have a lot of growth opportunities there. You know, our treasury management platform is very strong. The API connectivity there is strong. All the specialty businesses are continuing to grow. So, you know, I think that, you're really the deposit side is a very multi-faceted, you now, platform that has a lot of areas that are continuing to do well. And Cross-Sell in our accounts are also continuing to grow. We continue to win complex treasury management relationships that require a lot of API and IT support from an integration perspective. And we can provide some fairly customized services there that I think are differentiated for an institution of our size. Great. Thanks so much. Thank you. our next question is from tim colfee with brain capital please proceed with your question okay thanks for that question there um you're kind of poking through the queue and i noticed that your substandard loans are down almost 100 million dollars quarter over quarter can you kind of talk about some of the things you're doing behind the scenes to you know improve credit quality? Yeah. I mean, you know, I think that the, you know, the relatively de minimis, you know, issues that we've had have been confined to the cash flow, the cash flow book. I think, you know, a lot of those loans were made in, you know, very low interest rate environments. And although we did stress test them for, you increases in interest rates. Those interest rate increases have obviously been pretty large. We, in some cases, don't have a lot of control of those deals. Certainly with the two that we did have losses on were non-bank agents. So that's something easy to control as you watch. The non- bank agents are just probably more willing to provide accommodations to sponsors without maybe, you know, being as, you know, taking the required action earlier, so that's something that can happen. But, look, I think these have been some deals that have been hanging around, and, you know, a lot of the changes in some of these areas have been either regulatory or tariff related that for some of these businesses that have been more concentrated have really put, you know, increased pressure on them. And so, you know, I think there's always refinements that you make and you always learn something with respect to those elements. And obviously, to be highly skeptical of EBITDA adjustments and to really look through and think about supply chains and regulatory pressures and regulatory changes that might be possible are obviously important. But they're really very idiosyncratic to a very specific sub-segment of deals. And all the real estate side stuff across the board and all the structured credit continues to perform extraordinarily well, even with rate increases where we don't expect any losses. And even in the non-accrual portfolio, A significant part of that is single-family lending, which we don't have losses on those loans, either cure or they're paid off or sold as they get going. So I think we clearly have become more thoughtful about taking smaller positions in syndicated cash flow deals. But, you know, there has been a lot of change from some of those loans, which, again, isn't a big book, but, you know, when something's originated at a very low interest rate, there can be incremental pressure in the current rate environment there. Great. That was great, Tyler. That was my only question. Thank you. Thank you, Tyler, for that. Thank you for that question. Okay. Well, thanks, everybody. We'll talk to you next quarter. This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.