Axos Financial, Inc. (AX) Earnings Call Transcript & Summary

Greetings, and welcome to the Axos Fourth Quarter 2026 Earnings Conference Call Webcast. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Johnny Lai, SVP, Corporate Development and IR. Thank you, Johnny. You may begin.

Thanks, Alicia. Good afternoon, everyone, and welcome to our fourth quarter 2026 earnings conference call. Joining us today are the company's President and Chief Executive Officer, Greg Garrabrants; and Executive Vice President and Chief Financial Officer, Derrick Walsh. Greg and Derrick will review and comment on the financial and operational results for the quarter and fiscal year ended June 30, 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. This call is being webcast, and there will be an audio replay available in the IR 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. Now, I'd like to turn it over to Greg for opening remarks.

Thank you, Johnny. Good afternoon, everyone, and thank you for joining us. I'd like to welcome everyone to Axos Financial's fiscal 2026 Earnings Conference Call for the quarter ended June 30, 2026. I thank you for your interest in Axos Financial. We closed our fiscal 2026 with positive momentum with double-digit year-over-year growth in net interest income, noninterest income, ending loan and deposits, EPS and book value per share. We generated approximately $638 million of net loan growth linked quarter, resulting in a 15% annualized growth in net income. Excluding single-family mortgage warehouse, ending net loan balances increased by $750 million from March 31, 2026 to June 30, 2026. Otherwise highlights in the quarter include noninterest income was $61.9 million for the quarter ended June 30, 2026, up from $41.3 million in the corresponding quarter a year ago. For the 12 months ended June 30, 2026, noninterest income was $233.6 million compared to $131.1 million in fiscal year 2025. The primary contributor to the year-over-year growth in noninterest income for the 3- and 12-month period were Verdant, prepayment fees and the additional rental income from the commercial office building we purchased in January 2026 to be used as our future headquarters. Net interest margin was 4.54% for the quarter ended June 30, 2026, roughly flat compared to 4.57% in the prior quarter. Excluding the impact from holding higher average cash balances and the addition of deposits acquired from Jenius Bank, our net interest margin was up slightly quarter-over-quarter. Noninterest expenses were $205.9 million for the 3 months ended June 30, 2026, up by $20 million linked quarter. Excluding the $21 million accrual related to a legal matter in our clearing business, noninterest expenses were down $1 million linked quarter due to lower advertising, promotion, professional services and other G&A expenses. We continue to maintain a low operating efficiency ratio despite ongoing investments in product, technology and people. Our bank efficiency ratio was 42.2% for the 12 months ended June 30, 2026, compared to 40.8% in the fiscal year 2025. Nonperforming assets were $159 million at June 30, 2026, down from $180 million at March 31, 2026, and $175 million at June 30, 2025. We remain well reserved relative to our low current and historic level of net charge-offs with an allowance for credit losses to total loans of 1.34% at June 30, 2026. Net income was approximately $124.9 million in the quarter ended June 30, 2026, up 12.9% from the $110.7 million in the prior year's fourth quarter. Diluted EPS was $2.16 per share for the quarter ended June 30, 2026, compared to $1.92 per share in the fourth quarter of fiscal 2025, representing a 12.5% year-over-year increase. Excluding the $21 million legal accrual, net income was $141.8 million and diluted earnings per share was $2.46 for the three months ended June 30, 2026, up 28% from the prior year's comparable quarter. We repurchased $22 million of common stock during the 3 months ended June 30, 2026, at an average price of $87.95 per share. We have approximately $126 million remaining in our current share repurchase authorization. Total originations for investment, excluding single-family warehouse lending, increased 22% on a linked-quarter basis, resulting in ending net loan growth of approximately $750 million. Loan growth was strong in capital call, real estate lender finance, floor plan lending and equipment finance. Jumbo single-family, multifamily and small balance commercial loan balances were roughly flat linked quarter. Average loan yields for the 3 months ended June 30, 2026, were 7.4%, stable compared to the prior quarter. Average loan yields for nonpurchased loans were 7.2% and average yields for purchased loans was 13%, which includes the accretion of our purchase price discount. The FDIC purchased loans continue to perform and all loans in that portfolio remain current. New loan rates for the June quarter were 6.9% in our single-family mortgage business, 6.8% in multifamily, 6.6% in C&I lending and 7.8% in our auto portfolio. Ending deposit balances of $24.6 billion were up 17.9% year-over-year. Demand, money market and savings accounts represent 98% of total deposits as of June 30, 2026, increasing by 22% year-over-year. We have a diverse mix of funding across a variety of business verticals with consumer and small business representing 57% of total deposits, commercial cash, treasury management and institutional representing 20%, commercial specialty representing 14%, Axos Fiduciary Services representing 5% and Axos Securities also representing 5%. We closed the Jenius deposit acquisition in early May 2026, adding approximately $2.3 billion of deposit balances and over 56,000 consumer savings accounts. We have been successful in cross-selling checking accounts to Jenius customers so far, adding over 3,400 new Axos consumer checking accounts in the few months since we onboarded these Jenius customers to UDB. Ending noninterest-bearing deposits increased by $439 million linked quarter and $788 million year-over-year to over $3.8 billion as of June 30, 2026. The linked quarter and year-over-year increase in noninterest-bearing deposits is a result of growth in Axos Clearing and Axos Advisory Services cash suite deposits, increased cross-sell from certain commercial lending businesses and growth in our small business deposits. Client cash sorting deposits ended the quarter around $1.2 billion, up from $1.1 billion at March 31, 2026. In addition to our securities deposits on balance sheet, we had approximately $475 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 and treasury cash management verticals. Our fund finance business had another strong quarter, contributing over $600 million of net new loan growth in the June quarter. We continue to identify opportunities to deepen our relationships with existing fund finance partners as well as add new fund relationships. Our diverse product and service offerings in commercial cash and treasury management have enabled us to capture low-cost deposits through the fund finance vertical. The growth in our vendor ecosystem continues to gain momentum. The Verdant Equipment Finance and non-marine floor plan lending teams actively collaborate on a variety of retail and wholesale lending opportunities. Both teams are leveraging their expertise and relationships across their vendor and dealer networks to gain share of wallet and to provide a more seamless and differentiated set of lending solutions to our vendor partners. The floor plan lending business had its strongest quarter to date, growing outstanding loans by over $100 million in the 3 months ended June 30, 2026. Demand in our commercial specialty real estate fund finance, real estate lender finance and asset-based lending businesses remained 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 this year. The credit quality of our loan book remains strong, and our historical and current net charge-offs remain low. Net charge-offs were 25 basis points in the quarter ended June 30, 2026, compared to 31 basis points in the prior quarter. We charged off the remaining $10 million of our principal balance in the syndicated C&I cash loan that was put on nonaccrual over a year ago. Excluding the credit charge-off related to that loan, total net charge-offs were $5.9 million in the 3 months ended June 30, 2026, or 9 basis points of net annualized charge-offs to average loans. Total nonperforming assets were $159 million at June 30, 2026, down approximately $23 million from $180 million at March 31, 2026. Nonperforming assets declined by approximately $21 million in C&I lending and held roughly flat across most other lending categories. Nonaccruals and classified assets remain low across the majority of our real estate backed and structured credits. Total nonperforming assets to total assets was 53 basis points, down 9 basis points from March 31, 2026, and down 18 basis points from June 30, 2025. We remain well reserved for our low level of credit losses with our allowance for credit loss to nonaccrual loans equal to 221% at June 30, 2026. We had another quarter of double-digit year-over-year growth in noninterest income. Total noninterest income for the 3 months ended June 30, 2026, was $61.9 million, up 50% year-over-year. Banking and service fees in Q4 of 2026 were $36.8 million compared to $9.5 million in the year ago quarter. Verdant was the primary contributor to the year-over-year increase in banking and service fees. Prepayment penalty fees were $4.2 million compared to $0.2 million in Q4 2025. In Axos Clearing, advisory and broker fees were up year-over-year due to higher asset and transaction-based income. Total assets under custody administration increased by $8.4 billion year-over-year to $47.8 billion. Net new assets were approximately $85 million in the quarter ended June 30, 2026, bringing the net new asset totaled to $2.2 billion for fiscal year 2026. Cash sorting deposits on and off balance sheet increased by over $100 million linked quarter to $1.67 billion. Ending margin balances were up 36% from the prior fiscal year. Pretax income in fiscal 2026 was $15.4 million on a reported basis and $36.4 million, excluding the $21 million legal accrual in the 12 months ended June 30, 2026, versus $32 million in fiscal year 2025. We continue to manage our noninterest expense while making investments across existing and new businesses as well as technology and other infrastructure to support future growth across our 3 business segments. Total noninterest expense for the 3 months ended June 30, 2026, were $205.9 million, representing an efficiency ratio of 54.2%. Excluding the $21 million legal accrual and depreciation and amortization expenses, noninterest expenses were $158.1 million, equating to an efficiency ratio of 41.6%, down by 283 basis points from 44.5% in Q4 2025. We continue to evaluate and execute opportunistic and strategic mergers and acquisitions transactions. So far in calendar 2026, we've announced 3 separate deposit-related acquisitions, including Jenius Bank in February, Capital One in April and Arc Technologies in July. Jenius Bank closed in May, adding approximately $2.3 billion of online savings in over 56,000 accounts. We received regulatory approval for the Capital One IRA savings and CD acquisition in May and are actively working with Capital One on a conversion and a close date in calendar -- in Q3 2026. We closed the Arc Technologies transaction a few weeks ago. Arc Technologies is a fintech that developed a cash management and debt marketplace technology for businesses. We believe Arc service offers a gap -- offering fills a gap for a segment of businesses previously underserved by Axos that value an AI-enabled digital treasury management solution and access to a wide range of potential lenders. Furthermore, we believe we can leverage the technology and third-party integrations and entitlements Arc has built as a foundation for other consumer and commercial banking services to accelerate our strategic road map. We are adding a team of talented product, sales and software engineers who will help us accelerate these development efforts. The initial focus will be to integrate Arc into our banking platform to serve our tens of thousands of existing small business clients. We see tremendous opportunities to better serve our existing clients, cross-sell consumer clients with small businesses and accelerate growth in new business banking segments such as early-stage start-ups. By leveraging one set of technologies and entitlements across the full spectrum of the client's life cycles from start-up to a mature small business to a middle market company and beyond, we believe we'll be able to attract, retain and grow with our clients. Our ability to generate above-industry returns and growth provide us with multiple opportunities to deploy excess capital. In the past 12 months, we funded over $3.5 billion of organic loan growth, added roughly $1.2 billion in leases and on-balance sheet securitizations from Verdant, closed the Jenius Bank and Arc Technologies acquisition and repurchased approximately $22 million of Axos common stock. We remain highly profitable, generating a return on assets of 1.76% and a return on average common stockholders' equity of 16.32% in the 12 months ended June 30, 2026. Excluding the $21 million legal accrual, our return on assets and return on equity would have been 1.92% and 17.82% this quarter and 1.82% and 16.86% for the fiscal year. We continue to be nimble and opportunistic in deploying our excess capital where we see superior risk-adjusted returns. Now I'll turn the call over to Derrick, who will provide additional details on our financial results.

Thanks, Doug. A quick reminder that in addition to our press release, an 8-K with supplemental schedules was filed with the SEC today and is available online through EDGAR or through our website at axosfinancial.com. I will provide some brief comments on a few topics. Please refer to our press release and our SEC filings for additional details. Noninterest expenses were approximately $206 million for the 3 months ended June 30, 2026, up by $20 million from $186 million in the 3 months ended March 31, 2026. Salaries and benefit expenses were up $1.1 million linked quarter and professional service fees were down $1.5 million. FDIC and regulatory fees were also down $1.3 million quarter-over-quarter. Excluding the $21 million legal accrual, noninterest expenses in the 3 months ended June 30, 2026, were down by approximately $1 million linked quarter. Across our noninterest expense categories, we continue to see some of the benefits from operational productivity initiatives, including the increased leverage of AI tools that we have implemented over the past 12 months. Looking ahead, as we integrate Arc Technologies, we expect our noninterest expense run rate to increase by approximately $1 million per month. Turning to income taxes. Our income tax rate was 19.9% in the 3 months ended June 30, 2026, compared to 24.6% in the prior quarter. The primary reason for the sequential decline in our income tax rate was benefits from restricted stock unit vestings and a favorable change in state taxes and certain discrete items. 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 such potential benefits. Provision for credit losses was $17.8 million in Q4 2026 compared to $41 million in Q3 2026. The primary driver for the quarter-over-quarter decrease in provision for credit losses was a less severe economic outlook and a minor shift of credit model scenario weightings towards baseline. We expect to maintain a loan loss reserve of approximately 1.3% to 1.4% of total loans and leases going forward. I'll wrap up with our loan pipeline and growth outlook. Our loan pipeline is robust at approximately $2.4 billion as of June 30, 2026, consisting of $637 million of SFR jumbo mortgage, $50 million of gain on sale mortgage, $92 million of multifamily and small business commercial, $68 million of auto and consumer and $1.6 billion across the commercial business lines. We expect broad-based growth across several lending businesses to drive low to mid-teen organic loan growth in the next year, excluding any potential acquisitions. We deployed some of the Jenius Bank deposits to reduce temporary increases in FHLB borrowings this past quarter and plan to use the remaining Jenius Bank deposits in combination with growth in our consumer and commercial banking deposits to fund our strong loan growth. With that, I'll turn the call back over to Johnny.

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

[Operator Instructions] Our first question comes from the line of David Chiaverini with Jefferies.

I wanted to start on the net interest margin. How should we think about the NIM outlook from here? And can you also touch upon your expectations on deposit costs going forward?

Yes. So we believe we'll have a fairly stable net interest margin outlook. And we also think that, that's going to be with fairly stable deposit costs. Now, we obviously have the acquisition from Capital One coming, and there are some deposits that will eventually flow over from Arc because those deposits are controlled by Arc, but are placed at other financial institutions. So we just -- I think the best forecast is relative stability there. And I think that's a reasonable outlook for that.

Got it. And are you observing any increase because you guys are one of the highest growth banks in my coverage, which is great to see. Are you seeing increased competitiveness on the deposit side as you go to market?

I don't know if I'd say increased competitiveness from recent periods. I do think that what you're seeing is that other banks are more willing to adopt a model where they, let's say, bring a companion high-cost savings account and a small business checking account together where that might not have been something you'd see a branch-based bank do, you might see some of them doing that now. So I do think, obviously, that we've been able to raise the deposits we need to continue to grow our business, but we continue to be focused on it across a variety of different verticals that we continue to add and products we continue to develop. So I don't know if I'd say there's broad-based increase in competition. I just think we are seeing a few folks that it appears that they're having trouble raising deposits, and so they are being maybe a little more aggressive.

Our next question comes from the line of Kyle Peterson with Needham & Company.

I want to start off on loan growth. Great to see the outlook for another strong year. Just wanted to get a sense or any more color if you guys have it on kind of where you guys see the most opportunity or if there's any areas that are giving you maybe a sense of pause just if there's structural issues or competition or people getting too aggressive. So I guess like maybe areas on the asset side where you're more or less excited in the coming year would be helpful.

Yes, it's a good question. I think that given the diversity of our lending businesses, in any one quarter, just the timing of getting deals closed, the pipelines may move around a little bit. But I think we'll have relatively balanced growth across our C&I platform. And I feel like there's -- there may be -- maybe there's some pullback in private credit in certain areas, but I don't really think that's going to translate into a lot of new opportunity for us because I think those credits were sort of outside the box and they may have to adjust more. But that might be something that's a positive in certain cases because I do think that there is some pullback in private credit in certain areas. We've seen a few deals in our lender finance book that people were threatening maybe to leave because they were going to get higher advance rates from a private credit shop, and then that didn't come to fruition. So there's a little bit there that I think in some cases, maybe private credit will be less likely to be able to take some of our assets because we have great originations. For us, it's always the prepay side that we really have to pay attention to. So I think it's really pretty balanced growth. We -- I think the most credit-sensitive segment that we're in, which we have to be very thoughtful about is just the direct lending to sponsor-backed companies. And to the extent we've had any kind of losses at Axos, which have been relatively rare, it has been in syndicated loans to -- single asset syndicated loans to companies that go through some sort of issue that there's not diversity in a pool and that kind of thing or hard collateral like we have with most of our loans. So that might be an area. I think it is an area that you have to just be cautious about and think through, make sure the documents are in good shape with respect to LME transactions, things like that.

Great. That's super helpful. And then I wanted to switch over and maybe ask a higher-level question on Arc. It seems like a really interesting acquisition and a good fit. But I wanted to see if you could give us a little more color. I know you guys have said kind of immaterial to results, but just how it expands the product offering, monetization and whether that is helping with deposit growth and fee income, I guess like how do you see that playing out over the long term once it's integrated and onboarded onto the broader platform?

Yes. Kyle, I'm glad to get a chance to talk about that because I wanted to do that. So if you think about where we currently sit right now technologically, we've been opening thousands of small business accounts a month. But the reality of that small business platform is its capacity is limited. It sort of was derived from the consumer platform, and then we added the ability to have checks and debit cards and have essentially an account that is a small business account, but it has features that are similar to the consumer business. On the other side, we have a very sophisticated treasury management platform with a service offering where folks go through an extensive onboarding process, entitlements process for all their employees, all these other kind of things, and you can do whatever you need to do there even if you're quite a large company. We bank some large companies as their primary bank, and they're able to do a lot. We benchmark ourselves not without any gap, but those gaps are relatively limited even with the larger money center banks. But in that really squishy middle, there's a lot of small businesses that outgrow us, and they tell us when they leave. They say, look, we really like you guys, but I've got 3 employees now. I need each of them to have a debit card. I need some form of positive pay because I want to let those employees write checks, but I don't want those employees to have access to an unlimited amount of the account. I need incremental fraud protections, things like that. And that's where Arc comes in. I want an expense management platform, something like a ramp has or something like that. So that's really where Arc comes in. Arc has essentially created a very sophisticated digital platform for start-up businesses and even businesses that are middle market that might have a very specific set of use cases that are maybe -- you might call them TM Lite. But frankly, Arc, it's even better than TM Lite. It's full TM. It doesn't -- it may not have certain features and functionality that our broadest platform has. So we believe that by taking our existing small business clients -- and I'm sorry, there seems to be some noise on here, I don't know. Taking some small business clients and bringing those clients on to Arc, we're going to be able to expand the offering to those clients because they often have other banks that they're using for their more sophisticated services and keep those clients longer. Now Arc does have an existing client base of Y combinator companies that we're excited to serve, and we think we have other opportunities to serve those clients and grow with them through our technology business. But -- so that's one area. Arc also has been a leader in thinking through how the front-facing, consumer-facing or client-facing side of AI works. And we've done a lot on the AI front internally focused on improving internal operations and all those sorts of things. But we haven't yet had a product that we roll out to clients that will allow them to use artificial intelligence. And Arc has really figured that out and has done it really well for small business clients. And they've done that through a set of very interesting integrations and then creation of specific agents that are very useful for a small business to run themselves. So that is a broader capability set that we believe we have to really start thinking about for our consumer, small business clients and even our larger commercial clients. So -- and then the final element is that one of the things that's really helped us grow and scale without having to add a lot of costs on the consumer side is that we control the entire user experience. And that user experience control allows us to really analyze all kinds of inbound calls, allows us to just create workflows that automate certain processes and things. And it's allowed us to really, if we look at it, more than grow our deposit base more than 7x and barely add any new people to that consumer deposit operations process. We don't have the ability to do that on the commercial side because right now, we don't own all that technology. So although we use great technology there, and it's working, we just switched to a new platform that was top upper right, Gartner Group and whatnot. It's all third party. And so here, this will gradually allow us to develop and utilize a lot of the services that we have in our consumer business. For example, we're rolling out crypto payments, right, in consumer. But that same set of rails may be useful for commercial clients, but Arc can just sort of incorporate that into their platform over time, utilizing all the services that Axos has. So I think it's a really good fit. And we have so much traction on the small business side that it really is difficult to get that really digital TM style lite experience and get it at a reasonable cost in an automated way. So I think there's a lot here. We've got to get on it. And there are some fees that are generated from it. I think Derrick is being a CFO and sandbagging a little bit. But I think right now, they weren't profitable. So although they are generating fees. And when we move the deposits over, they'll be more benefit than there is cost, but that's going to take a little time because we actually have to integrate their platform into all our APIs. And so we just closed them a couple of weeks ago. We're working on the time frame for that, but we don't quite have it ironed out yet. They believe it's going to be relatively easy, but we want to just make sure that it is, in fact, as fast as the team thinks they can do it.

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

Let's start on -- I mean, look, you guys have been extremely active, right? You got 3 deposit-focused deals in the past 6 months. How -- like how has the integration and conversion been of all these? I mean that's a lot at one time. And I guess, like how have you been able to maybe deploy AI to help you with the integration and conversion? And then what's your appetite for additional deals given all that you've already got going on?

Yes. Well, these deals -- well, there are deals different, but let's just talk about the Jenius and Cap One deals. We've done so many of these just straight raw, no asset deposit deals that the team really has a playbook down. So I have to say that I expected them to do well on Jenius side, but they just did fabulously. I mean, like the number of accounts that were lost, they actually were essentially de minimis. They were next to nothing. There was almost no client complaints. Most -- everybody pretty much stayed. We grew the deposit balances subsequent to that. We got great penetration on -- we had a checking account offer that we -- because Jenius didn't have that, that we had as a companion. So as clients first logged in, they could click a button and get a checking account. Many of them did do that, and we're still seeing traction there. So that was really smooth. And then given that scalability that we had talked about previously through the platform, there really wasn't -- we were able to -- we did deploy some additional folks in our offshore locations and staff those up like we had done previously, but the calls quickly dissipated because the onboarding was smooth, and it really was very easy and almost kind of a nonevent, frankly. All with a lot of accounts, we're growing a lot every month anyway. So it wasn't -- it was obviously a little bit of a shock, but not much. I think similarly, Capital One should be similar because it's straightforward in the sense it's just a deposit-only acquisition. And then obviously, we didn't get any people although we hired a few Jenius bank people who were floating around the market who wanted to come to us, and they are good folks, and we're happy to have them. But we didn't have any people come with that. Arc was different in the sense that it was a fintech that we hired teams. They have a unique capability, and that capability now has to be integrated into our UDB platform essentially. And so there's a little trickiness associated with that because we were like this thing like we're putting in a slider, so you could be on your consumer and small business and you just pull it over like Uber Eats and Uber Ride and then you'd be able to have everything. And we've got to think about how all that works. And so there's some tech stuff. But the team is great. They're super entrepreneurial. And we just have so much stuff going on in the tech side that we need that we had a bunch of recs open for people that we were going to essentially hire who were like that. Like we needed somebody who was going to do consumer and client-facing AI work, and now we have somebody. So that was really good. I think the tech there is going to put us ahead in our goal of building the platform and building up our small business platform. And then there is -- there are deposits that come with that, but they also did something where they took some of those excess deposits and pushed them into treasuries, and we're charging a fee. So we have to kind of work that. So there's a little bit of integration there. But I don't think it's not going to be overwhelming, particularly given all the tech stuff we have going on here. So essentially, we believe we're still open for acquisition business. We did Verdant, of course, too, which was a little bit later, but that also has gone very well. So I think if you get the right fit with the teams, then it really works pretty well. So yes, so we're very open. We continue to look. And we think there's a lot of opportunity. We've done a lot of -- I think we -- I sort of feel like we're trying to -- we punch above our weight given our size with the diversity of what we do and the amount of time and effort we spend on building our own technology. And there's lots of banks that are bigger than ours that don't do that, but the technology is very scalable. So the ability to integrate like we did with Jenius and what we'll do with the Cap One side, really doesn't move the needle much on cost. And I think we've seen that from a standpoint of just some of that noninterest expense being more flat. It's AI, but it's also just scalability across platforms because we have a certain number of platforms. We're spending money on them, and they can take a lot more volume through them without too much incremental cost. I don't know if that's what you're getting at, but there's any follow-up you want...

No, that's super helpful. And then just based on your prepared remarks, it sounds like Verdant and the Marine business really starting to hit stride, collaborating. I was hoping you could elaborate a bit on what you're seeing from those 2 lines and whether any of these new businesses can help with the expansion or cross-sell. Just based on your comments, it sounds like Arc might be an opportunity to help those business lines, but just kind of curious what you're seeing there.

Yes. That's -- yes, it's a very interesting question. Let's start with the lending side first. So the Verdant side, obviously, you're financing individual clients, businesses of vendors that come in and buy equipment. And so those tend to be smaller ticket, but they're very valuable for the vendor because obviously, if they can't sell their product, that's a problem to them. Verdant has a nice white label platform that allows the vendors to have their name on the paper and things like that, which is not completely unique, but if you do it well. And then also, there's a capital markets test that also allows us to sell paper to nonbank lenders. So that allows Verdant to have a higher approval rate, which is important, obviously, for vendors who are trying to sell to clients that are not going to be happy if they get turned down to be able to buy something. So then conversely, we brought that floor plan team on. And the Verdant team because they have so many salespeople, I mean, they're the biggest sales force we have by far. They're out there talking to all these vendors who also need floor plan because they're going to sell their switches, but they also need floor plan them. So that is generating good results because there's a pipeline for the floor plan side driven by what Verdant does. Now on the deposit side, we have seen some success there with just working with some of these vendors on their banking arrangements. Certainly, if you've got their floor plan, you're often getting their operating accounts. But I do think there is an opportunity there. We've put some metrics in the Verdant sales team's plans to cross-sell and that sort of thing. But it's much easier to sell the actual vendor themselves on banking if you're doing that floor plan than if -- than trying to actually say that you're going to cross-sell deposits to the end client who buys that equipment. Now that might be something we can do, but I think that's a little more pioneering. But if what happens is when that client logs in and they're logging in from a servicing perspective, which isn't the way it's happening now into, let's say, the Arc platform that is then providing them AI-oriented information and things like that, and they could just sort of click to open the deposit account with some special offer, I think I could eventually see that working. Frankly, right now, Verdant stuff is serviced to a third party. So there's a lot of work that has to be done there. So that's not as a near term an opportunity as some of the other stuff we're doing. But I do see it as like you touch us, we can bring you into a platform and cross-sell you. I do think there's an opportunity there. But I think this historic platform integrated is special. I mean it does some really neat stuff, and they just didn't have the funding to be able to get it out to as many folks as we are going to be able to do.

That's helpful. And then you talked about most of the credit issues that you've had in the past have been really related to SNCs. Philosophically, I guess, how do you think about SNCs just given that experience? What's your appetite for those today? And is there a need for you to continue to do those? Or is there opportunity for you to maybe agent more of those deals just given a more active approach to managing the relationship and credit?

Yes, we're trying to do that. And we're definitely being more careful about the agents that we choose and looking for philosophical alignment, maybe looking for some more club deals. I think it's interesting because there's a -- I think broadly syndicated stuff, I think, definitely is becoming much and much less interesting. As you get smaller because we do have a syndication desk now, and we have folks that are willing to allow us to agent deals, but there is something around this question of if you get a company that's of a small enough size that you're holding the entire loan and it still is a -- whether it's sponsor-backed or family-owned or whatnot, and it's still a single enterprise that is subject to the faith of the economy and obsolescence of product and customer concentration and all the things that exist, it still might be a good loan, but it is a smaller company. Whereas sometimes as you get to the club and you get to bigger, you have more resiliency because the company is bigger, but then you end up more under the control of agents or other types of wins that like sometimes the terms are a little bit looser or those bigger companies can throw their weight around a little bit more on the docks or something like that. So -- but yes, no, look, I think it's always an ongoing discussion, and we're not stopping that, but I think we're definitely looking at it and saying, okay, let's make sure that we're really thinking through which agents we want to work with.

Our next question comes from the line of Andrew Liesch with StoneX.

Just want to talk about the deposits that are going to come on from Capital One. I understand that the $2.3 billion from Jenius, you're going to -- you've already used some of that to pay down some of those borrowings. But you had this $3.2 billion coming on with Capital One. Is that all going to fund loan growth? I mean what's your initial thoughts on that? Do you hold that in cash for a little bit until the loan growth comes? How should we think about that new influx?

Right. Yes. I mean I think we're going to look and we're going to see -- I think in general, we'll probably look to -- look at any kind of higher cost, more sort of institutional style deposit relationships and see if we can scale those back without just on a volume basis, maybe not the relationship itself and then allow that to fill back in. So that will be one way to do that. But in general, I would say that, that is the right way to think about it that it will just fund loan growth and allow us to be maybe less aggressive than we would have to be in marketing expense or things like that. We'll have to look. We kind of -- whether we can -- whether that impacts some of the pricing on some of the other portfolio. But yes, that's basically it. So it would be looking first at institutional type stuff that maybe we don't feel like there's a lot of cross-sell value or things like that. And then from there, it will end up on the balance sheet and to fund loan growth.

We should have at least a quarter overhang of that...