Axos Financial Q4 2025 Earnings Call Transcript

Quartr
Provided by Quartr
July 30, 2025

Key Takeaways

  • Positive Sentiment: We delivered strong Q4 results with $856 M net loan growth, a 4.84% net interest margin (up 6 bps), 17% ROAE and 18% year-over-year book value per share growth.
  • Positive Sentiment: Total on-balance sheet deposits rose 7.6% year over year to $21 B, driven by a diverse mix of consumer, commercial and securities accounts, supporting our organic loan growth.
  • Positive Sentiment: Asset quality improved as non-accrual loans declined by $15 M and non-performing assets dropped to 71 bps of total assets, reflecting disciplined credit management.
  • Neutral Sentiment: We recorded a $12 M pre-tax gain on multifamily loan sales and a $5.5 M one-time deferred tax impairment, which adjusted Q4 EPS to $1.87 excluding these items.
  • Positive Sentiment: Looking ahead, we expect net interest margin (ex-FDIC accretion) to target the top of our 4.25%–4.35% range, organic loan growth in the mid-high single digits to low teens, and a 3 pp reduction in our tax rate beginning Q1 FY26.
AI Generated. May Contain Errors.
Earnings Conference Call
AXOS FINANCIAL Q4 2025
00:00 / 00:00

There are 8 speakers on the call.

Operator

Good afternoon, everyone, and thanks for your interest in Axos. Joining us today for Axos Financial Inc. Fourth quarter and fiscal twenty twenty five financial results conference call are the company's President and Chief Executive Officer, Greg Garibrandt 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 and fiscal year ended 06/30/2025, and we will be available to answer questions after the prepared remarks.

Operator

Before I 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 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 thirty 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 eight ks with additional financial schedules.

Operator

All of these documents can be found on axosfinancial.com. With that, I'd like to turn the call over to Greg.

Speaker 1

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 2025 ended 06/30/2025. I thank you for your interest in Axos Financial and Axos Bank. We delivered strong results this quarter generating $856,000,000 of net loan growth linked quarter, six basis points of net interest margin expansion and an 18% year over year increase in book value per share.

Speaker 1

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 three months ended 06/30/2025. Other highlights in the quarter include net interest income was $280,000,000 for the three months ended 06/30/2025, up 7.7% from the $260,000,000 in the prior year period. Net interest margin was 4.84% for the quarter ended 06/30/2025, up six basis points from the 4.78% in the quarter ended 03/31/2025. 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 $21,000,000 Our diverse and granular deposit base across consumer and commercial banking and our securities businesses continue to support our organic loan growth.

Speaker 1

We managed our operating expenses well this quarter. Total non interest expenses for the quarter ended 06/30/2025 were up by 3% from the prior quarter. Excluding the reversal of a legal accrual in the prior quarter, which reduced other G and A expenses by approximately $2,000,000 total non interest expenses were up $2,500,000 from March to June. Total non accrual loans declined by $15,000,000 linked quarter, resulting in our non accrual loans to total loans ratio improving by 89 basis points in the quarter ended 03/31/2025 to 79 basis points as of 06/30/2025. Net income was approximately $110,700,000 in the quarter ended 06/30/2025 compared to $105,200,000 in the quarter ended March 31.

Speaker 1

Diluted EPS was $1.92 for the quarter ended 06/30/2025 compared to $1.81 in the March quarter. We had a few non recurring items this quarter that impacted our net income and EPS. We recognized a $12,000,000 pre tax gain from the sale of multifamily loans that were included in mortgage banking income. We also recognized a one time non cash deferred tax impairment that increased our net income tax by $5,500,000 Excluding the impact from those two non reoccurring items, our adjusted net income and adjusted earnings per diluted share would have been $1,077,000,000 dollars and $1.87 per share respectively. We took advantage of the temporary market downturn in April to repurchase approximately $31,000,000 of common stock at an average price of $59 per share.

Speaker 1

Total originations for investment excluding single family warehouse lending increased 5% on a linked quarter basis, resulting in net loan growth in loans for investment of approximately $856,000,000 for the three months ended 06/30/2025, representing an increase of 4.2% linked quarter or 16% annualized. Asset based lending, commercial real estate, specialty lending, equipment leasing, lender finance and single family warehouse had strong originations and net loan growth this quarter. Additionally, we grew ending loan balances in single family mortgage for the second consecutive quarter. Average loan yields for the three months ended 06/30/2025 were 8% flat compared to the prior quarter. Average loan yields for non purchased loans were 7.66% and average yields for purchased loans were 14.9%, which includes the accretion of our purchase price discount.

Speaker 1

The FDIC purchase loans continue to perform and all loans in the portfolio remain current. New loan interest rates were the following single family mortgage 7.2%, multifamily 7.1%, C and I 7.8% and auto 8.3%. Ending deposit balances were $20,800,000,000 and they were up 3.4% linked quarter and up 7.6% year over year. Demand money market and savings accounts representing 95% of total deposits at 06/30/2025 increased by 7% year over year. We have a diverse mix of funding across a variety of business verticals with consumer and small business representing 59% of total deposits, commercial cash, treasury management and institutional representing 20%, commercial specialty representing 11%, Axos Fiduciary Services representing 5% and Axos Securities, which is our custody and clearing business representing 5%.

Speaker 1

Total non interest bearing deposits were approximately $3,000,000,000 at the end of the quarter, up slightly from the prior quarter. Client cash sorting deposits ended the quarter around $980,000,000 up from $900,000,000 at 03/31/2025. We remain focused on adding new assets from existing and new advisors to grow our assets under custody and cash balances. In addition, our excess securities deposits on our balance sheet, we had approximately $450,000,000 of deposits off balance sheet at partner banks. Our consolidated net interest margin was 4.84% for the quarter ended 06/30/2025 compared to 4.78% in the quarter ended 03/31/2025.

Speaker 1

We are seeing strong growth in accounts and balances from our Axos One consumer bundle deposit product, which includes a checking and a savings account. Growth in Axos One and other deposit businesses including our commercial cash and treasury management specialty businesses has provided us with sufficient funding to support our strong organic loan growth. We are also making excellent progress cross selling deposits across our lending businesses. We expect our consolidated net interest margin ex FDIC loan purchase accretion to stay at the high or slightly above the 4.25% to 4.35% range we have targeted over the past year. While new loan yields are coming in slightly lower in many lending categories we compete in, we continue to offset some of that pressure through refinancing or paying off lower yielding single family and multifamily loans originated two to three years ago.

Speaker 1

Our loan pipelines have improved over the past few quarters as a result of successfully expanding our distribution channels across certain commercial lending categories and contributions from teams we have on boarded over the past twelve months. We also believe we have moved past our peak level of prepayments in our commercial specialty real estate portfolio, which had been a significant headwind to net loan growth for the past several quarters. Taking all of these factors into consideration, we expect organic loan growth to come in toward the mid to high end of our single digit and low teens range on an annual basis in fiscal twenty twenty six. The credit quality of our loan book continues to be solid and our historic and current net charge offs remain low. Total non performing assets declined by $13,400,000 linked quarter, representing 71 basis points of total assets compared to 79 basis points in the quarter ended 03/31/2025.

Speaker 1

The sequential decrease in non accrual loans were primarily driven by $9,400,000 in our C and I portfolio and $4,900,000 in our commercial real estate lending business. We did not anticipate a material loss from loans currently classified as non performing in our single family, multifamily or commercial real estate loan portfolio. Our commercial real estate specialty portfolio continues to perform very well and in line with expectations. Non accrual C and I loan balances at 06/30/2025 were down by approximately 9,400,000 from the prior quarter. The two largest C and I loans we have on non accrual continue to be up to date on their payments and no new C and I loans were placed on non accrual in the quarter.

Speaker 1

We continue to monitor the credit trends across all loan portfolios and have not seen any broad based deterioration in any individual lending category. Axos Clearing, which includes our correspondent clearing and RIA custody business had a good quarter. Total assets under custody increased from $37,100,000,000 at 03/31/2025 to $39,400,000,000 at 06/30/2025. Net new assets for our custody business increased by $215,000,000 in the June, extending the positive net new asset momentum we have experienced over the past several quarters. The stock market has rebounded off its year to date lows and many of our custody clients continue to generate positive assets under management growth.

Speaker 1

The pipeline for new custody clients remains healthy for small and large RIA firms underpinning our optimism and continued net positive net new asset growth in our securities business. Total deposits at Axos Clearing were $1,400,000,000 at the end of the quarter, up $90,000,000 from where they were in the prior quarter. Of the $1,400,000,000 of deposits from Axos Clearing approximately $990,000,000 were on the balance sheet and $450,000,000 were held at partner banks. The slight sequential increase in deposits is encouraging given the strong rally in the stock market. While it's difficult to be absolutely certain that cash sorting has bottomed, we believe that clients and advisors are becoming less focused on maximizing yield in their sweep accounts compared to a year ago.

Speaker 1

Many of our commercial lending and deposit teams, including our life science and technology business and our middle market banking teams that we have added over the prior few quarters are now producing nicely and contributing to loan and commercial deposit growth. We on boarded a new floor plan lending team that will help us scale our floor plan lending business. We continue to evaluate M and A opportunities to augment growth from our existing businesses and team lift outs. The pace and quality of M and A opportunities have increased over the past few months and seller expectations have become more reasonable. We are evaluating specialty lending and non banking businesses that generate asset and transaction based income and low cost deposits.

Speaker 1

Our strong capital liquidity and profitability allow us to be disciplined in how and where we deploy capital to ensure the investments meet our strategic and valuation hurdles. We ended fiscal twenty twenty five with positive momentum. Loan growth accelerated in the back half of the year. Our credit quality was strong and our net interest margin remained above our long term target. We expect the change in the income tax calculation methodology for the State of California will reduce our income tax rate by three percentage points starting on the 09/30/2025 quarter, boosting our net income and EPS in fiscal twenty twenty six and beyond.

Speaker 1

With this being the twenty fifth anniversary of Axos Bank, we are proud of delivering consistent performance through a variety of economic, geopolitical and regulatory environments. I'm even more excited about the opportunities that we have in each of businesses. We remain hyper focused on executing our strategic and operational initiatives. These include investments in technology and operations to scale businesses and roll out new products faster, while maintaining a best in class operating efficiency ratio. We believe we will see benefits in our operating efficiency from the implementation of artificial intelligence across the organization and believe that its implementation will enable us to create greater operating leverage and improve the speed, quality and cost of software development projects and accelerate new product delivery.

Speaker 1

We believe that we can deploy our capital in a disciplined manner in our existing and new businesses to further diversify our lending, funding and fee based income. We have a lot of runway in each of our businesses and I feel confident that our teams and our leaders will deliver the results that our shareholders have come to expect from us. Now I'll turn

Speaker 2

the call

Speaker 1

over to Derek, who will provide additional details on our financial results.

Speaker 3

Thanks, Greg. Quick reminder that in addition to our press release, an eight ks 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. Non interest expenses were approximately $151,000,000 for the three months ended 06/30/2025, up by $4,400,000 from the three months ended 03/31/2025.

Speaker 3

Excluding approximately 1,900,000 reversal of a legal accrual in the March 31 quarter, total non interest expenses were up by approximately $2,500,000 in the linked quarter. Salaries and benefit expenses were $74,900,000 roughly flat from the prior quarter ended March 31. Professional services expenses were $10,400,000 compared to $8,200,000 in fiscal Q3 twenty twenty five. The sequential increase in professional services expense was attributed to a handful of services across different business units. Looking ahead to the September, we recently added a floor plan financing team that adds an incremental $1,000,000 of expense per quarter.

Speaker 3

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 three months ended 06/30/2025 compared to 27.4% in the corresponding year ago period. Our income tax expense in Q4 twenty twenty five included a one time non cash deferred tax impairment related to the change in the taxation of financial institutions that I mentioned on last quarter's call. The California budget proposal went into effect on 06/30/2025, which required us to reassess the value of our deferred tax assets.

Speaker 3

That resulted in a $5,600,000 one time non cash impairment charge in the quarter ended 06/30/2025. Our income tax expense for the quarter ended 06/30/2025 benefited from the increase in our stock price from June 3024 to June 3025, which is one factor used to calculate our CEO stock basing incentive compensation. The net impact of the deferred tax asset re measurement and stock based incentive compensation calculation combined with higher pre tax income was a $2,300,000 increase in our income tax expense in Q4 twenty twenty five. Starting in the quarter ending 09/30/2025 and going forward, we expect our corporate tax rate to be approximately 26% to 27%, an improvement of three percentage points from the previously 29% to 30%. I'll wrap up with our loan pipeline and growth outlook.

Speaker 3

Our loan pipeline remains healthy at approximately $2,000,000,000 as of 07/25/2025 consisting of $532,000,000 of single family residential jumbo mortgage, dollars 49,000,000 of gain on sale mortgage, dollars $3.00 2,000,000 of multifamily and small business commercial, dollars 73,000,000 of auto and consumer, and $1,100,000,000 in commercial lending. We are not seeing any material impacts from imposed or proposed tariffs on loan demand so far. And we believe that we will be able to grow loan balances organically at the midpoint to high end of our high single digits to low teens year over year growth target over the next twelve months, excluding the impact of the loan portfolio purchase from the FDIC or any other potential loan or asset acquisitions. With that, I'll turn the call back over to Johnny.

Operator

Thank you, Derek. Alicia, we're ready to take questions.

Speaker 4

A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Thank you. Our first question comes from the line of Kyle Peterson with Needham and Company.

Speaker 4

Please proceed.

Speaker 2

Great. Good afternoon. Thanks, guys. 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 and yields on new loans might be lower, but then it could be a partial offset on prepays being a little slower.

Speaker 2

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 different pieces there?

Speaker 1

I think they're fairly consistent. For a lot of these businesses like the CapCall 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 this 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 and I club deals and some of the syndicated deals, there's just a lot of banks that are kind of pushing into that space.

Speaker 1

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 it could be a basis point or two either way, sure. It's not that much of a science.

Speaker 2

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. 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 that would be really helpful for everyone on the call.

Speaker 1

Right. What we had previously said is a target that we wanted to ensure that our personnel and professional services cost growth did not exceed 30% of our net interest income and non interest 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.

Speaker 1

They're great folks. We expect them to be able to produce, but it'll 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.

Speaker 1

For example, we obviously we have let's say you get a you have a big legal agreement for a commercial loan And previously 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. 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.

Speaker 1

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 do really believe that it is going to bend the cost curve in the operations side. And then on the software development side, obviously, we have so many cool interesting things we want to do. And previously, we've been limited by the speed at which the coders can code.

Speaker 1

And there's just so many really incredible breakthroughs that are occurring at such a rapid pace in the software development process. One recent example is we use a software that essentially creates the screens and called the Figma's, right, which are just the sort of what the user experience is supposed to look like and that sort of thing. And they rolled out their AI product just this month. And the team is telling me it takes less than 10% of the time now to basically take a product from conceptualization and get that all organized and get the field validations done and get the user experience ready to be shown and reviewed by the folks that are going to review it. So I mean that's just one example, but there's just a lot of stuff going on that I'm pretty excited about.

Speaker 1

So yes, I think it is going to bend the cost curve and also I don't think we'll be successful unless we can say that we're able to deliver more better product faster and cheaper on the software side.

Speaker 2

Awesome. Thank you very much and nice quarter.

Speaker 1

Thank you.

Speaker 4

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

Speaker 5

Hi. Good afternoon, everybody.

Speaker 2

Hey, David. Hi, David.

Speaker 5

Maybe just you know, we touched on the loan side a bit. Let's 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. You had some nice tailwinds in the specialty deposits and the commercial and treasury management too.

Speaker 5

I was 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?

Speaker 1

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.

Speaker 1

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, then I think that that might put a little pressure on funding cost. Of course, it's hard to say because the Axos One product is doing very well. The funding cost there is it could be reasonable depending upon the mix of checking and savings accounts that come and a variety of factors there. So but I think it's not a bad modeling exercise to say if growing a lot faster than there might be a little pressure on funding costs.

Speaker 1

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.

Speaker 5

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 know, you're you're obviously having a lot of success on the fee side and gaining share with the security side. Sounds like pipeline is doing pretty good. Do you think that the you can keep the fee income growth in line with NII, or or or what initiatives maybe that you have to help support fee revenue growth, maybe hopefully keeping that proportion relatively stable?

Speaker 1

Yes. I think I mean, you remember there was yes, look, we did 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 new asset growth number.

Speaker 1

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 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.

Speaker 1

So I think we can do it, but it'll be a little difficult, I think. It won't be it's not impossible, but it won't be easy.

Speaker 5

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 the organic growth. I just kind of wanted to touch on your capital priorities here. You know, stocks moved, which is great.

Speaker 5

You know, it 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 and a might might be more in the cards today. Sounds like conversations are pretty good, but just kind of curious some of the types of things you're considering.

Speaker 1

Yes. Well, we have a good organic growth pipeline. We're still looking at different M and 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.

Speaker 1

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, think it's all in play and but organic loan growth remains a priority for for us.

Speaker 5

Terrific. Thanks everybody.

Speaker 1

Thank you, David.

Speaker 4

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

Speaker 6

Thanks. Good afternoon. Question on the multifamily loan sale. Just curious about kind of, you know, the kind of reasoning behind it. Obviously, yields must have been pretty good there given the gain that you picked up.

Speaker 6

So just curious about the thought process around that. Obviously, you had great net loan growth regardless, but any color?

Speaker 1

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.

Speaker 6

Was that a single loan? Just just single large loan or a basket of loans?

Speaker 1

It was a few others. Yeah.

Speaker 3

There's a handful of loans that that were sold.

Speaker 6

Okay. Alright. Great. And then as you think about 2026, and I know that you've Greg, you mentioned expectations of being towards the mid to higher part of your loan growth range. Obviously, C and I has been pretty strong throughout fiscal twenty twenty five, and now you saw Crestle this current quarter really pick up.

Speaker 6

So those two, I would imagine, are the largest drivers, probably the vast majority of loan growth for the year? Is there anything else that you think could accelerate?

Speaker 1

I think cap call can do something. I think the lender finance businesses both real estate and 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 could have pretty balanced loan growth across, but those are probably the biggest categories.

Speaker 1

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 can look across the board and look at the pipelines and see where we are there. I mean, Crestle is a little tough because sometimes our prepayments can come there that are relatively unexpected and move that number around. So I think we can be much more certain about the aggregate numbers than about the individual categories.

Speaker 6

Okay. And if I could ask one more question. You kind of reiterated the goal on the kinda 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, you know, I guess the question would be, does that free up any additional for investment or that goes to the bottom line?

Speaker 1

No, that goes to the bottom line. I think the executives wish it would, but Greg No, is holding us it's a disciplined measure. And to my knowledge, nobody was actually involved with the lobbying of the California legislature to give us such beneficence and basically pound other banks that are not located in California. So I know in all seriousness, I think that is a that's a pretax. It's just a very simple number.

Speaker 1

You take the revenue growth from non interest revenue and interest revenue, you add it up, you look at the difference. Obviously, could be some one time items in there and you don't have compensation or professional services expenses additively grow that and it'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. Derek said that's going to cost about $1,000,000 a quarter.

Speaker 1

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.

Speaker 2

Got it. Thank you.

Speaker 4

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

Speaker 7

Hey. Good afternoon. Thanks for the question, and congrats on twenty five years. Very, very cool year to celebrate on the July 4. Greg, maybe maybe with the Genius Act coming out, I believe before the Silvergate blow up, you were potentially looking into Stablecoin and and digital assets.

Speaker 7

Can you refresh us now that, there's additional color as to and a more conducive regulatory environment, if there's any update as to how you're thinking about it and interest in pursuing it?

Speaker 1

Yes, sure. And there's 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.

Speaker 1

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 thus we can expand that a little bit or make the user experience better. We did not when the administration changed, 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.

Speaker 1

And 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 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 integrate into everything we're doing. So obviously a lot of change and movement recently and we're thinking hard about it and paying attention to it.

Speaker 7

Got it. Thanks for the color. That's helpful. Maybe switching to the funding side, you had some nice EOP growth in non interest bearing this quarter. Wondering if there was any end of period flows that impacted that.

Speaker 7

And just more broadly speaking, where which areas of the business are seeing the best growth in just core operating accounts because you did have very

Speaker 1

nice deposit growth 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.

Speaker 1

And then the middle market team as well is doing the same thing. And then a lot of cross sell across all the lending verticals. I think we do a really good job on the payment side and with the API infrastructure we have on the commercial side that leads a lot of clients who have some pretty sophisticated payment needs to choose us. Those are nice clients because when they integrate with us from a software perspective, they tend to be pretty sticky. So it really hasn't been any one thing, but it's been a lot across the board in those categories that I just talked about.

Speaker 7

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?

Speaker 7

Just to round up questions

Speaker 1

helpful. Sure. Yes, I think the commercial real estate side looks really, really good. The and then on the C and I side, 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.

Speaker 1

But I think on the C and I side, I think it will we've had if you look at our I think our Cressle 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 twenty five years in single family, the same way. I think that the C and I side is 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.

Speaker 7

Thank you for the time. I'll step back. Nice quarter.

Speaker 1

Thank Thanks, you, Kelly.

Speaker 4

Thank you. There are no further questions at this time. I'd like to pass the call back over to Donny Lai for any closing remarks.

Operator

Great. Thanks for everyone's participation, and we'll talk to you next quarter.

Speaker 4

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

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