Greetings. Welcome to the Axos [Financial] Third Quarter 2026 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Johnny Lai, Senior Vice President, Corporate Development and Investor Relations. Thank you. You may begin.
Thank you, Diego. Good afternoon, everyone, and thank you for your interest in Axos. Joining us today for Axos Financial, Inc's third quarter 2026 financial results conference call are the company's President and Chief Executive Officer, Greg Garrabrants, and Executive Vice President and Chief Financial Officer, Derrick Walsh. Greg and Derek will provide prepared remarks on the financial and operational results for the quarter ended March 31, 2026, then open up the call to a Q&A. 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 30 days. Details for this call were provided on the conference call announcement and in today's earnings press release. Before handing over the call to Greg, I'd like to remind listeners that in addition to the earnings press release, we also issued an earnings supplement and 10- Q for this call. All of these documents can be found on axosfinancial.com. With that, I'd like to turn the call over to Greg.
Thank you, Johnny. Good afternoon, everyone, and thank you for joining us. I'd like to welcome everyone to Axos Financial's conference call for the third quarter of fiscal 2026, ended March 31st, 2026. I thank you for your interest in Axos Financial. We generated another quarter of double-digit year-over-year growth in net interest income, ending loan and deposit balances, earnings per share, and book value. We generated almost $700 million in net loan growth linked quarter, resulting in an 11.2% year-over-year increase in net interest income. Excluding the interest income impact of FDIC-purchased loans and two fewer days in the March 31st, 2026 quarter compared to the December 31st, 2025 quarter, net interest income increased by $5.7 million on that linked-quarter basis.
We continue to generate higher returns as evidenced by the over 16% return on average common equity and 1.8% return on assets in the three months ended March 31st, 2026. Other highlights in the quarter include: Non-interest income was $86 million for the quarter ended March 31st, 2026, up from $53 million in the prior quarter and $33.4 million in the corresponding quarter a year ago. Excluding the benefit of a $22 million legal settlement this quarter, non-interest income was up approximately $10 million linked quarter due to higher mortgage banking income, advisory fee, and the addition of rental income from the commercial office building we purchased in January 2026 that will be used as our future headquarters.
Net interest margin was 4.57% for the quarter ended March 31st, 2026, compared to 4.94% in the prior quarter. Excluding the impact from the prepayments of FDIC-purchased loans and 2 fewer days in the quarter ended March 31, our net interest margin was down in line with last quarter's guidance of around 10 basis points. We continue to maintain a strong net interest margin with and without the benefit of the accretion from loans purchased from the FDIC, which has now dwindled to around 5 basis points of positive impact. Non-interest expenses were up $1.4 million linked quarter to $186 million. We are seeing some of the benefits from our operational efficiency initiatives and artificial intelligence on our salaries and benefits, data processing, and other G&A expenses.
The pending completion of the Jenius Bank deposit acquisition also allowed us to moderate growth in advertising and promotional expenses in the March quarter. Net income was approximately $124.7 million in the quarter ended March 31st, up 18.5% from the $105.2 million in the prior- year's third quarter. Diluted EPS was $2.15 for the quarter ended March 31st, compared to $1.81 in the third quarter of 2024, representing an 18.7% year-over-year increase. Total originations for investment, excluding single-family warehouse lending, were $5.1 billion for the three months ended March 31st. Loan growth was strong across a number of lending businesses, including capital calls, real estate lender finance, and equipment finance.
Jumbo single-family loan balances were up slightly, while single-family warehouse had a seasonal decline of approximately $123 million. Ending loan balances grew by approximately $800 million linked quarter, excluding single-family warehouse. Average loan yields from non-purchased loans for the three months ended March 31st were 7.23%, down from 7.63% in the prior quarter. The sequential decline was driven primarily by the full impact from the two 25 basis point rate cuts in the calendar Q4, 2025. Average loan yields for purchased loans were 12.39% compared to 23.32% in the December 31st quarter. Purchased loan yields from the quarter ended December 31st benefited from one FDIC- purchased loan paying approximately—paying off and paying and resulting in approximately $17 million of purchase discount accretion that was recognized in interest income.
The FDIC- purchased loans continue to perform, and all the loans in that portfolio remain current. New loan interest rates for the March quarter were 6.9% in both the single-family and C&I portfolios, 6.7% in the multifamily portfolio, and 7.8% in our auto portfolio. Ending deposit balances were $22.4 billion, up 11.2% year-over-year. Demand, money market and savings accounts represent 97% of total deposits in March 31st, increased by 13% year-over-year. We have a diverse mix of funding across a variety of business verticals, with consumer and small business representing 52% of total deposits. Commercial cash, treasury management and institutional representing 22%. Commercial specialty representing 14%. Axos Fiduciary Services representing 5%. Axos Securities, 5%, and distribution partners representing 1%.
Ending non-interest-bearing deposits were approximately $3.4 billion in the quarter ended March 31st, an increase of $143 million from the $3.25 billion in the prior quarter. We deliberately reduced higher cost savings and time deposits and temporarily increased Federal Home Loan Bank advances in anticipation of the roughly $2.3 billion of Jenius Bank deposits coming in the June quarter. Client cash sorting deposits ended the quarter around $1.1 billion. In addition to our Axos Securities deposits on our balance sheet, we had approximately $450 million of deposits off balance sheet at partner banks. We remain focused on adding non-interest-bearing deposits from small business, custody, Clearing, Fiduciary Services, and commercial and cash and treasury management verticals.
Our consolidated net interest margin was 4.57% for the quarter ended March 31st, compared to 4.94% in the quarter ended December 31st. The early payoff of an FDIC- purchased loan in that second quarter increased net interest margin by approximately 25 basis points. Excluding the early loan payoffs, the purchase loan yield was 14.2% in the quarter ended December 31st, compared to 12.4% in the quarter ended March 31st. With the diminishing impact of the FDIC- purchased loans, we expect reported net interest margin to stay roughly flat on an organic basis, excluding the impact of the deposit purchase premium from the acquired deposits, which we estimate to be around 5 basis points. The diversity of our lending channels provide us with flexibility to maintain strong loan and deposit growth while maintaining our net interest margin.
Verdant had another strong quarter, contributing approximately $200 million of new loans and operating leases in the March quarter. We continued to identify opportunities to deepen our relationships with existing Verdant vendors and dealers, as well as accelerate growth in a few existing verticals that were previously constrained by capital and size limitations when Verdant was under private ownership. The synergy between the Verdant and non-marine floor plan lending teams is starting to gain traction. We believe that our ability to provide a comprehensive retail and wholesale lending solution to top-tier original equipment manufacturers is a strategic advantage that we can leverage to win more deals. Demand in our commercial specialty real estate, fund finance, real estate lender finance, and asset-based lending programs remain strong. Pipelines in the jumbo single-family and multifamily areas are rebounding.
We are making steady progress growing our loan pipelines in newer lending verticals such as floor plan and retail marine lending. Taking all these factors into consideration, we are confident that we will generate loan growth in the low to mid-teens on an annual basis this year. We had a strong increase in non-interest income as a result of several recurring and one non-recurring item. Mortgage banking income was $3.7 million in the quarter ended March 31st, up $2.2 million year-over-year due to a favorable s ervicing rights fair value adjustment. Advisory fee income was $9.4 million, up $1.3 million year-over-year.
Banking and service fees in the quarter included a $22 million one-time favorable legal settlement and the addition of rental income from commercial office properties we purchased in January. Verdant contributed approximately $23.7 million in non-interest income in the March quarter, compared to $18.9 million in the December quarter. The credit quality of our loan book remains strong, and our historic and current charge-offs remain low. Net charge-offs were 31 basis points in the quarter ended March 31st, compared to 9 basis points in the year ago quarter. We charged off $14 million of our principal balance in a C&I cash flow loan that was put on non-accrual over a year ago when we allocated a specific loan loss reserve.
The remaining principal balance is approximately $17 million at March 31st on that loan, and we maintain a $10 million specific loan reserve on this balance. Excluding the charge-off related to that loan, total net charge-offs were $5.1 million in the three months ended March 31st, or 8 basis points of annualized net charge-offs to average loans. Total non-performing assets were $180.4 million at the end of the quarter, down approximately $5 million from $185 million at the March 31st, 2025 quarter. Non-performing assets declined by approximately $27 million in the multifamily group, and commercial mortgages down by $19 million.
One syndicated C&I share of national credit became delinquent this quarter, accounting for a $33 million sequential increase in our non-performing assets in the C&I loan area. We have taken over his agent in the syndicated loan and are actively working to resolve this non-performing loan. Total non-performing assets was 62 basis points at the March 31st, 2026 time, down from 71 basis points at June 30th, 2025. We remain well reserved for our low levels of credit losses, with our allowance for credit losses to non-accrual loans equal to 192.2% at March 31st, 2026. In Axos Clearing, advisory and broker-dealer fees were up sequentially due to higher asset and transaction-based income. Total assets under custody administration were flat at $44 billion.
Net new asset growth of approximately $140 million were offset by a decline in the stock market in the first three months of 2026. Cash sorting deposit balances were roughly flat quarter-over-quarter despite significant market volatility. We continue to expand the scope and scale of artificial intelligence across the firm to a wide range of businesses and functional units. Having established the governance framework and infrastructure to educate, train, and deploy AI tools to all Axos team members, we are now focused on scaling the usage of artificial intelligence across more use cases. We have over 500 team members using Claude Enterprise to improve the speed, quality, and productivity of various workflows. Since the beginning of calendar 2026, the number of technical uses of artificial intelligence tools has increased by 37%, increasing artificial intelligence's share of committed code to 90%.
We are adding specialization to test, automate, and QC various work product. We continue to evaluate M&A opportunities to augment growth from existing businesses and team lift-outs. Verdant equipment leasing acquisition continues to perform well with good progress across a variety of strategic and operational initiatives. Loan growth remains healthy and profitability continues to improve. We announced the acquisition of approximately $2.3 billion of online saving deposits from Jenius Bank in February 2026. These deposits are a perfect fit for us, and we're excited to offer additional banking, lending, and securities products to the roughly 60,000 individual Jenius Bank digital banking clients. We received regulatory approval last month and expect to complete the deposit conversion and client onboarding next month. Last week, we announced a separate deposit acquisition of approximately $3.2 billion of IRA savings and CDs from Capital One.
These are granular retirement savings accounts sourced through digital channels. We submitted our bank merger application for this transaction last week and are actively working with Capital One to determine the exact timing and mechanisms of a conversion and close in the second half of calendar 2026. These two opportunistic acquisitions help us with incremental liquidity and funding for future organic and inorganic loan growth opportunities. Our disciplined growth and strong capital allows us to capitalize on organic and inorganic growth. The regulatory environment and dynamics within the banking and fintech landscape have created a wealth of M&A opportunities that we intend to fully review. We continue to invest capital in areas where we see the best risk-adjusted returns and in tools, people, and processes that will help us scale.
Now I'll turn the call over to Derrick, who will have additional details on our financial results.
Thanks, Greg. Quick reminder that in addition to our press release, our Form 10-Q 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 filing for additional details. Non-interest expenses were approximately $186 million for the three months ended March 31st, 2026, up by $1.4 million from the $184.6 million in the three months ended December 31st, 2025. Salaries and benefit expenses were down $0.6 million on the linked quarter basis, and professional services fees were up $1.6 million.
FDIC and regulatory fees increased $1.6 million quarter-over-quarter, driven primarily by the fiscal year-to-date loan and deposit growth. Across our non-interest expense categories, we are seeing some of the benefits from operational productivity initiatives, including the increased leverage of our AI tools that we have implemented over the past 12 months. Our income tax rate was 24.6% in the three months ended March 31st, 2026, compared to the 26.8% in the prior quarter. The primary reason for the sequential decline in our income tax rate was the benefit of RSU vestings and benefits derived from certain tax credits in the current quarter.
While we continue to explore tax credit opportunities that could provide future tax rate benefits, our expectation is to maintain an annual tax rate of approximately 26%-27% excluding these potential benefits. Provision for credit losses was $41 million in Q3 2026, compared to $25 million in Q2 2026. The primary driver of the quarter-over-quarter increase in the provision for credit losses was a specific reserve of approximately $20 million for a C&I loan. We expect to maintain a loan loss reserve of approximately 1.3%-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 $2.6 billion as of April 24, 2026, consisting of $611 million of SFR jumbo mortgage, $82 million of gain on sale agency mortgage, $103 million of multifamily and small balance commercial, $83 million of auto and consumer loans, and $1.7 billion across the commercial portfolio. We expect broad-based growth across several lending businesses to drive low-to-mid teens organic loan growth in the next year, excluding any potential acquisitions. We will deploy some of the Jenius Bank deposits to reduce the temporary increase in borrowings in the March 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. Diego, we're ready to take questions.
Thank you. At this time, we'll conduct our question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two 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 keys. Once again, to ask a question, press star one on your telephone keypad. Your first question comes from Kyle Peterson with Needham & Company. Please state your question.
Great. Good afternoon, t hank you for taking the questions. I wanted to start off on, you know, some of the balance sheet moving pieces. I know there's a decent amount of stuff going on with, you know, the FHLB stuff and Jenius coming on board. I guess, noticed the securities balances also went up a decent amount this quarter. I guess, like, how much of that is managing some of the liquidity before the Jenius deal closes? I guess, do you guys anticipate running at a bit higher, you know, securities book in the near term? Just want to think about how we should think about the mix over the next few quarters here.
Yeah. The, if you'll notice, cash went down as well. We have internal policy minimums for the level of cash or liquid assets that we hold. And what we identified in the marketplace back in October, November was kind of a dislocation where if we bought some treasuries in three, five, seven- year tenures and we're able to hedge them with a SOFR swap, we could actually generate 30 basis points improvement over holding that cash at the Federal Reserve, which is what we would be doing anyway as part of that liquidity requirement. That was something; i t was the widest that spread had gotten in a other than on the Liberation day. There are, that was a pretty rare dislocation in the marketplace.
We took that opportunity and acquired some of those treasuries. We still can actually flip them and borrow against them. They remain liquid since they're or remain rate beneficial from a standpoint since they're swap. That's why you see that increase in the securities portfolio and that decrease in the cash. That was around $750 million that we moved into those securities.
Okay. That's helpful. Appreciate all the color there. You know, maybe just to follow up, you know, particularly on capital call, looks like it had a really nice quarter on the growth front there. Wanted to see if you guys could give any more color, you know, what is either on, you know, bigger draws with existing customers or how much are you adding new accounts and kind of teams adding to the pipeline? Just wanted to think more about like new accounts and clients versus, you know, bigger drawdowns and utilization and, you know, how sustainable this kind of growth can be at least in the near term?
Yeah. Quite a few new clients. I wouldn't say there's any significantly greater drawdowns, although, you know, these, they tend to take a few quarters. The lines we bring on tend to take a few quarters to reach, you know, their— where they, where they tend to be. Bringing on a lot of new clients mostly.
Okay.
With respect to—
That's helpful. Thank you.
Yes, with respect to sustainability, you know, I think that, you know, given the diversity of the loan book, it's often the case that different segments will outperform in any one quarter. I don't expect the [capital] call side growth will be as big as it was in the next quarter, but I still think it'll be pretty decent.
Okay. Great. Thank you.
Thank you. Your next question comes from Gary Tenner with D.A. Davidson. Please state your question.
Thanks. Good afternoon. Just wanted to ask, on the credit front, you know, just looking at the allowance quarter-over-quarter and the increase there, was that pretty exclusively driven by the C&I non-accrual add in the quarter, or what other dynamics were at play in terms of the model on the allowance?
The C&I was the biggest aspect of it. There was maybe a little bit tied to obviously the broader economic events or the geopolitical events that obviously flow through the Moody's variables and into the quantitative model. That C&I addition was the biggest piece of it.
Okay. I appreciate that. Just in terms of that credit in particular, could you provide any additional color on the type of credit and, you know, timing of resolution, et cetera?
Yes. It was a, it was a syndicated, shared national credit. We were not, you know, bank-syndicated credit; w e were not the agent. You know, a lot of times with these agents, I think they've made concessions early on that they probably should have been a little bit tougher on. We're now the agent, and we're working with the sponsor and, you know, we'll see where it goes. We felt it was obviously, well, it was prudent to put it on non-accrual and also to take a significant reserve against it. You know, I think, you know, over the next several quarters we'll know exactly how that's gonna turn out.
Okay. Just related to Derrick, was there any material impact in terms of reversing interest on that in the quarter?
Not significant.
Okay. All right. Thank you.
Your next question comes from David Chiaverini with Jefferies. Please state your question.
Hey, guys. Brooks Dutton on for Dave this afternoon. Can you guys help us quantify the impact that temporary borrowings had on NIM this quarter, and whether that pressure should reverse as these borrowings roll off given the pending Jenius acquisition? Thanks.
Sure. We it was maybe a basis point or two, but for the most part it was, we swapped out or allowed a lot of our higher cost deposits to outflow and replaced those with deposits. It really wasn't anything too meaningful from an impact upon NIM.
On the Jenius side, you know, they've priced it at a higher price to some extent than we've priced some of our deposits. We're probably not going to adjust pricing immediately. I think that although the Jenius acquisition is super helpful from a volume perspective, we don't really intend to try to optimize, you know, a few basis points here or there on NIM. You know, we feel pretty good about where NIM is being, you know, flattish going forward other than the, you know, that 5 basis points of amortization of the premium. I think eventually we'll kind of be able to normalize that. I don't wanna introduce all those clients to the bank with a rate cut. We'll probably keep it there but, y ou know, t hat's kind of the dynamic.
Great. Thank you very much.
Thank you.
Your next question comes from Kelly Motta with KBW. Please state your question.
Hey, good afternoon.
Hey, Kelly.
Thanks for the question. Maybe— it's really nice how these two deposit acquisitions help provide avenues to fuel what's been really outstanding growth on your part. I'm wondering as we've seen with the Jenius deposits, I apologize, allowing you to maybe be a little more aggressive with repricing your own deposits. I'm wondering how you're viewing the Capital One deposits, maybe an average cost of those, and if similarly that's, you know, going to help you further price down funding or it should be kind of a net add to deposits, just as we think through both the margin and overall—
Yeah
size of the balance sheet?
Yeah. No. Those are great questions, Kelly. Thank you. I think that we're kind of looking at these as absolutely ensuring that we're able to have the funding for the level of loan growth that we're looking forward to having it. I think certainly it does ensure that we don't have to price up deposits or to, you know, increase marketing budgets in order to fund ourselves, which I think is obviously very helpful. I wouldn't really model in any, you know, significant sort of increase in NIM from our ability to say, "Well, now we're gonna try to price down other deposits just based on having that excess." You know, I think we feel pretty good.
I know I do, and I think Derrick does too, feel pretty good about the fact that we've been able to manage this rate cycle really well, and that we were able to have almost a, you know, 100 or, you know, better than, you know, we had NIM expansion on the way up and essentially, for the most part, maintain our net interest margin on the way down. That, you know, that is obviously assisted by this. We probably would have had to increase marketing expense, you know, somewhat otherwise or be a little more aggressive on pricing. I think it'll help on balance, but I think that, you know, our guidance on NIM incorporates those acquisitions and how we're thinking about pricing with respect to them.
Got it. As those come on, just as we kind of like think through, the balance sheet then in order to fund your growth, could we see a build in liquidity just as you kind of get to have the dry powder to deploy? Just trying to properly handicap if there's, you know, a bigger balance sheet, but a little pressure from the liquidity build there.
I think we've strategically positioned the balance sheet for this quarter and this coming quarter's growth. I mean, might there be a little overhang potentially for this fiscal Q4 with relation to the Jenius deposits? I think that generally speaking, I think we've lined ourselves up well there not to have much that's worth kind of modeling out. From the Capital One, it will somewhat depend on the timing of that and of course, on some of our own organic growth and opportunities there. I would expect that there might be a little bit more of a balance sheet gross up in that kind of later portion of the calendar year 2026 that might roll over into early 2027. Again, at that point, with the expectations being greater than $30 billion of assets, and it won't be anything that will be overly significant.
Got it. That's helpful. Maybe a last question from me in regards to the Verdant acquisition. You've had, you know, some really nice boosts in your fee income related to that. As you kind of think ahead, you know, given your really strong pipelines across your businesses, how are you thinking through the operating leases versus on balance sheet? Fair to say some additional fee income growth from that, or should we see more of that added to the loan portfolio here, just as we think through, you know, your appetite for that? Thank you.
Yeah, it's kind of tough to tell. I think I referenced last quarter that the operating leases are about one of every six or 1/6 of all the originations, roughly. That could flux up or down depending on just opportunities and the nuances of the accounting around specific leases. The obviously, the objective, both the management team from a incentive standpoint and our business operations back office support are incented to help support and grow that business. I think the overall and it will be in line with our forecasted loan growth and is incorporated into that. I guess in summary, I can't give you a specific number or reference as to how that fee income will grow, but it should generally grow. I think I wouldn't, I guess, model it too significantly from that standpoint, given it's only 1/6 of the origination volume.
Understood. Thank you so much. I'll step back.
Thanks, Kelly.
Thank you and reminder to the audience to ask a question, press two on your phone, star one on your phone to ask your question. Press star two to remove your question. Your next question comes from Liam Coohill with Raymond James. Please state your question.
Hey, guys. Good afternoon. Liam on for David.
Hey, Liam.
On your securities business, you know, it sounds like client acquisition trends remain pretty positive despite the market volatility in the quarter. you know, we've talked about the opportunity to cross-sell potentially to Jenius customers, but do you maybe see similar opportunity with those Capital One clients? Could you maybe talk about some offerings that could be attractive to them?
Yeah. You know, I think over time, the Capital One clients, they were a little sensitive in some periods to certain kinds of cross-sell. They were not sensitive to securities cross-sell. I do think that there would be opportunities there on the Capital One clients with respect to some of those offerings, just because, you know, these are retirement accounts. Right now they're very limited in their product types that they have offered and we'll obviously offer them greater product types. We have no restrictions on our ability to cross-sell securities products to those clients. I think over time, you know, as that develops, they can become more general banking clients as well. I do think there's those opportunities.
No, it's helpful. Thank you. Kelly touched on the operating leases a minute ago, but I was also curious here about other core non-interest income trends. I mean, could you discuss where you're seeing success and maybe how you expect core fees to move going forward?
Sure. I think one of the other things that in there, and Greg referenced it in his quotes or in his prepared remarks, was that there was roughly $4 million of rental income from our future headquarters as that building's larger than what we would plan to move in. So that there's a good amount of space there that is, we, when we acquired it, that is already leased out, so we have some rental income, and then there's corresponding depreciation and other expense. That was roughly $2 million-$3 million in the non-interest expense this quarter. Staying on the fee income side, that's probably one of the other major items that impacted the fee income this quarter, besides obviously the Verdant piece and the one-time legal settlement.
Otherwise, the growth across that category was driven predominantly by the mortgage banking increase. There was a positive movement on the valuation of the MSRs at the end of the quarter, and then some of the other fees, advisory, broker-dealer, and some of the other just general banking service fees and other income all had more kind of stepstone, more increases that weren't overly significant, but obviously, as we grow each of these businesses, we expect those fees to also increase.
Understood. Thank you. Last one from me. Where do you think there is the most opportunity for M&A today? You know, where are you seeing valuations that are rational? Is that tending to be more lending teams or larger portfolios?
You know, we're really looking at some of each. If you looked at our portfolio, we've got team acquisitions, we've got FinTechs that have some kind of element of their business model that they were really good at something, but they need, you know, components that we have. We have banks that we're talking with, large and small, so i t's, a nd, you know, and there, and there's always a specialty finance side too, that we continue to look at. There it's teams and businesses. You know, we're very disciplined. We, you know, we talk to people for a long time. We don't rush into things; w e, you know, we make sure that it's gonna fit and that we're able to digest it.
You know, I think there's a lot of idiosyncrasy and a lot of times the individual circumstances with respect to, you know, people funding, just where different individuals and companies are in their life cycle help fuel different opportunities. You know, we're always very active. We talk to a lot of people. We have conversations over long periods of time. We try to build relationships. Sometimes it looks like an accident or just something happens quickly, but it isn't really that. It's really a pretty deliberate strategy of staying with a lot of different opportunities over time and then building those relationships. When they're ready to transact, we're there for them.
Great. Thank you for all the color. I'll step back.
Thank you.
Thanks, Liam.
Your next question comes from Edward Hemmelgarn with Shaker Investments. Please state your question.
Hey, Ed.
Yeah. How are you doing, Greg Garrabrants? Could you maybe walk me through just the balance of loans throughout the quarter? I mean, your, if I'm looking at it correctly, your average balances barely grew from, if at all, from the ending balance at December 31st. Was there something else going on?
There were some early prepays during the quarter, so that's what kind of counteracted some of the, obviously, ending quarter growth. January, we were down at the end of that quarter from that prior month of December. I think that had the biggest impact from that standpoint. We did grow on the average balance by $1.15 billion of loans. I'm not sure if maybe there's something else; m aybe you're looking at the assets. The assets did stay relatively flat, and that was as we basically, we've been sitting on some level of excess cash. We did reduce that excess cash. As touched on earlier, some of it went into those investment securities, but it still came down about $800 million on an average balance as we had some surplus in cash previously.
Yeah, we're converting Jenius this weekend, so on Monday, those balances will be at the bank. Yeah, no, I think you may be comparing. I don't know if you're comparing end of period to average.
Average. Right.
Yeah.
Well, it's kind of just surprising because it's the first time I'd really noticed that there was this much of an adjustment within the quarter. I mean, generally, you have a unless something obviously is explaining you know your average balances grow similar to what the or in excess of what your ending balance were the prior quarter.
Yeah. There was a number of prepays, some of which, I don't think we were expecting. I think it was in January. Yeah, I think average balance is still good. That is important, right? Because you only earn—
Right.
net interest income on what you're putting out. If you're growing only at the end of the quarter, then that gets reflected next quarter, but not in the current quarter. Yeah, no, I agree. I think everybody should should stop using the quarter end as a mechanism of governing the speed at which they get things done. I agree with you 100%. I'm gonna convey that message to everyone in the organization immediately. It'll be the first time they've heard it, so.
Understandable.
Yeah.
That's my question. Thanks.
Yeah. All right. Give the 5 to Ed. See you.
Your next question comes from Kelly Motta with KBW. Please state your question.
Hey, thank you so much for letting me on for a follow-up. I just had a real quick one. Just wondering, given the really strong loan growth we're seeing, just wondering how competition is faring and spreads are holding up. I understand there's quite a bit of difference between businesses, but just trying to get a sense of the direction of loan yields from here. Thank you.
Yeah. You know, I feel that spreads are stable, I'd say, from where we are. I think that to the extent that there was compression, I'd say that compression has stopped. I do think that in some instances there's been, you know, some of the outflows in private credit and things like that have resulted in just a little bit of a different positive competitive dynamic. It's not enough to say that you're taking back any of that compression that kind of happened over the prior year. I feel pretty good about where we are now in general. I don't predict that we're gonna have further spread compression.
You know, there'll be a credit here and there that, you know, they're gonna be bargaining and fighting about, but I think we've done a pretty good job and have a pretty good max and, you know. I think also with respect to, you know, some of the, like, the Verdant lending is a little bit higher spreads. I think we've got a pretty good max that allows us to keep spreads where they are.
Great. Thank you so much.
Thank you.
Thank you. There appears to be no additional questions at this time, so I'll hand the floor back to Johnny Lai for closing remarks.
Great. Thanks for everyone for joining us, and we'll talk to you next quarter.
This concludes today's call. All parties may disconnect. Have a good day.