Axos Financial, Inc. (AX) Q1 2026 Earnings Call Transcript
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Overview
The earnings call reflects a positive outlook with strong financial performance, including a 44% annualized growth, reduced nonperforming assets, and increased assets under custody. The Q&A session highlights a cautious but strategic approach to risk management and capital allocation, supporting growth. The company's focus on technology and operational investments, along with a healthy loan pipeline, further bolsters confidence. Despite some lack of detail on acquisitions, the overall sentiment is positive, suggesting a likely stock price increase of 2% to 8% in the next two weeks.
Key Financial Performance
Net Loan Growth $1.6 billion net loan growth linked quarter, including $1 billion of loans and leases and on-balance sheet securitizations acquired in the Verdant acquisition. This growth was driven by the acquisition and operational performance.
Net Interest Income $291 million for the 3 months ended September 30, 2025, increasing by approximately $11 million linked quarter or 15.6% annualized. Year-over-year, excluding a one-time benefit of $17 million in the prior year, net interest income was up $16 million or 5.8%. Growth was attributed to balanced growth across single-family mortgage warehouse, commercial specialty real estate, and auto lending.
Net Interest Margin 4.75% for the quarter ended September 30, 2025, down 9 basis points from 4.84% in the prior quarter. The decline was due to holding excess liquidity and the issuance of subordinated debt.
Noninterest Income Increased by approximately 13% year-over-year due to higher banking service fees, mortgage banking income, and prepayment penalty fees.
Total Deposits $22.3 billion, up 6.9% linked quarter and 11.5% year-over-year. Growth was supported by a diverse and granular deposit base across consumer and commercial banking and securities businesses.
Net Income Approximately $112.4 million for the quarter ended September 30, 2025, up from $110.7 million in the prior quarter. Adjusted net income was $119 million, a 7.3% increase from the linked quarter and almost 30% annually.
Diluted EPS $1.94 for the quarter ended September 30, 2025, compared to $1.92 in the prior quarter. Adjusted EPS was $2.06, reflecting a 7.3% increase from the linked quarter and almost 30% annually.
Total Originations for Investment Over $4.2 billion for the 3 months ended September 30, 2025, representing an increase of 11% linked quarter or 44% annualized. Growth was driven by commercial real estate specialty lending, auto lending, and single-family warehouse.
Average Loan Yields 7.99% for the 3 months ended September 30, 2025, in line with the prior quarter. Non-purchased loans had yields of 7.66%, while purchased loans had yields of 15.81%.
Nonperforming Assets Represented 64 basis points of total assets, down from 71 basis points in the prior quarter. Declines were seen in multifamily and commercial mortgages, partially offset by increases in single-family mortgages.
Net Charge-Offs Down 5 basis points linked quarter and 6 basis points year-over-year to 11 basis points for the 3 months ended September 30, 2025. This reflects low historical and current net charge-offs.
Assets Under Custody or Administration Increased from $39.4 billion at June 30, 2025, to $43 billion at September 30, 2025. Net new assets for the custody business were $1.1 billion in the September quarter.
Noninterest Expenses Approximately $156 million for the 3 months ended September 30, 2025, up by $5.6 million from the prior quarter. Excluding $1.3 million of deal-related expenses, the increase was $4.3 million, driven by salaries, benefits, and data processing expenses.
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Operating Highlights
AI Implementation: Axos has rapidly expanded the use of AI across various departments, including risk, compliance, credit, operations, technology, legal, marketing, finance, and accounting. This is expected to improve operational efficiency, software development speed, and new product development.
Axos Professional Workstation: The company has begun rolling out a new Axos Professional Workstation to broker-dealer clients, which integrates banking products for RIAs and brokers, offering a modern and flexible system.
Verdant Acquisition: Axos completed the acquisition of Verdant Commercial Capital, adding $1.2 billion in loans and leases. This acquisition is expected to contribute $150-$200 million in net new loans and operating leases per quarter starting Q2 FY2026.
Loan Growth: Axos expects loan growth in the low to mid-teens annually for the remaining nine months of FY2026, supported by the Verdant acquisition and expanded distribution channels.
Net Interest Income: Net interest income increased to $291 million for Q1 FY2026, up $11 million from the previous quarter, driven by growth in single-family mortgage warehouse, commercial specialty real estate, and auto lending.
Deposit Growth: Total deposits increased 6.9% year-over-year to $22.3 billion, with noninterest-bearing deposits growing by $350 million from the prior quarter.
M&A Strategy: Axos is actively evaluating M&A opportunities to augment growth, focusing on accretive and strategic transactions.
Operational Improvements: The company is focused on increasing productivity and operational efficiency through AI and other technological advancements.
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Risk or Challenges
Net Interest Margin: The net interest margin decreased from 4.84% to 4.75% due to excess liquidity and the issuance of subordinated debt, which could impact profitability.
Loan Yields: New loan yields are slightly lower in certain lending categories due to recent Federal Reserve actions, potentially affecting revenue growth.
Nonperforming Assets: Nonperforming assets remain flat but include increases in single-family mortgages, which could pose risks if economic conditions worsen.
Verdant Acquisition Costs: The Verdant acquisition added $1.3 million in deal-related expenses and $7.8 million to allowances for loan loss, increasing operational costs.
Regulatory Environment: The regulatory environment is favorable for M&A but could pose challenges if conditions change, impacting strategic growth plans.
Operational Costs: Noninterest expenses increased by $5.6 million, including $8.5 million expected quarterly from the Verdant acquisition, which could pressure margins.
Economic Conditions: Economic uncertainties, including Federal Reserve actions, could impact loan yields and prepayment levels, affecting financial performance.
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Guidance & Outlook
Loan Growth: The company expects loan growth to be in the low to mid-teens range on an annual basis for the remaining 9 months of fiscal year 2026, driven by strong originations, contributions from new business lines, and the Verdant acquisition.
Net Interest Margin: The consolidated net interest margin is expected to remain at the high end of the 4.25% to 4.35% range, excluding FDIC loan purchase accretion.
Verdant Acquisition Impact: The Verdant acquisition is projected to add $150 million to $200 million of net new loans and operating leases per quarter starting in the second quarter of fiscal 2026. It is expected to be accretive to earnings per share by 2%-3% in fiscal 2026 and 5%-6% in fiscal 2027.
Operational Efficiency: The company plans to leverage artificial intelligence to improve operational efficiency, enhance productivity, and accelerate new product development.
M&A Opportunities: The company is actively evaluating additional M&A opportunities to augment growth and enhance its business portfolio.
Tax Rate: The corporate tax rate is expected to remain approximately 26%-27% going forward.
Loan Pipeline: The loan pipeline as of October 24, 2025, is approximately $2.2 billion, with significant contributions expected from commercial verticals and new business lines.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What is the company's approach to credit in light of recent high-profile headlines?
A:The company has turned down certain deals due to problematic structures and potential fraud risks. They are cautious about lender-on-lender violence language in syndicated deals and ensure thorough checks to prevent fraud, such as obtaining documents directly from title insurers.
Q:Were there any one-time items in the fee income this quarter?
A:No, there were no one-time items in the fee income this quarter. Verdant is expected to contribute a few million dollars per quarter to noninterest income going forward.
Q:What is the funding strategy for loans put on balance sheet, and what is the carrying cost of secured financing?
A:The loans are funded through term securitizations with cleanup calls at 10%. The carrying cost of secured financing is slightly above 5.5%, with a 3.7% weighted average in years. The company plans to use excess cash to fund loans when possible.
Q:Why was there a steep drop in the balance of average purchase loans this quarter?
A:The drop was due to a $100 million loan sale in the prior quarter, which significantly impacted the average balance. The current quarter's average balance reflects the ending period figure.
Q:How is the company thinking about capital and supporting mid-teens loan growth?
A:The company is comfortable with its current capital ratios and believes they can support mid-teens loan growth. They are generating over a 15% ROE and have strong income growth and capital accretion. Loan loss reserves are at a prudent level, and commercial real estate concerns have not materialized.
Q:Are there any acquisition opportunities on the horizon?
A:The company is actively looking for acquisitions that fit strategically or offer financial benefits. They are particularly interested in national specialty verticals with bank-quality management.
Q:What is the company's approach to managing risks in the NDFI space?
A:The company employs measures to prevent fraud, such as obtaining information directly from reliable sources and monitoring collateral and cash flows. They believe the risks in NDFI are comparable to those in direct borrower loans and are manageable with proper oversight.
Q:What is the progress in the floor plan lending business?
A:The floor plan lending business is progressing well, with accepted term sheets for strong borrowers and executed repurchase obligations from manufacturers. The company expects several hundred million dollars in assets and lines funded by March 31.
Q:What is the status of the securities business and white labeling of banking products?
A:The company is modernizing its tech stack with Axos Complete, which includes the Axos Professional Workstation and Axos Client Portal. These platforms will enable seamless integration of banking products and are being rolled out over the next 6-7 months.
Q:What is the company's approach to managing expenses?
A:The company aims to keep personnel and professional services expense growth below 30% of net interest and noninterest income growth. Verdant's costs have been disclosed, and overall expense growth is being carefully managed.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the types of acquisitions they are pursuing, stating only that they are looking for strategic fits or financial bargains. Additionally, while discussing the NDFI space, management did not fully elaborate on all measures taken to prevent fraud, citing competitive reasons.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI implementation
CI loan
Financial Inc
Noninterest
Professional Workstation
acquisition loan
allowance credit
allowance loan
asset basis
contribution
credit loss
deal allowance
dealer
debt interest
equipment lease
family warehouse
floor plan
history
increase processing
lease asset
lease balance
lease equipment
lease loan
loan lease
loan loss
loan low
low teen
margin acquisition
noninterest deposit
plan lending
prepayment
sheet securitizations
specialty lending
tax rate
transaction
AX Transcript
Axos Financial, Inc. (AX) Q3 2026 Earnings Call Transcript
Positive4-30
The earnings call summary and Q&A indicate solid financial performance and strategic growth plans. Loan growth projections, AI deployment, and M&A opportunities signal optimism. The Q&A reveals minimal negative sentiment, with stable NIM and strategic deposit growth. Despite some uncertainties in fee income growth and NIM impact, the overall sentiment remains positive. The market cap suggests moderate stock price movement, likely resulting in a 2% to 8% increase over the next two weeks.
Axos Financial, Inc. (AX) Q2 2026 Earnings Call Transcript
Positive1-29
The earnings call presents strong financial performance, with significant growth in net income, originations, and deposits. Although expenses rose, they were mainly due to one-time factors. The Verdant acquisition is positively impacting growth and earnings. While the Q&A revealed some management evasiveness, the overall sentiment remains positive due to strong financial metrics, optimistic guidance, and strategic partnerships like Qualia. The market cap suggests moderate sensitivity, leading to a positive stock price prediction (2% to 8%) over the next two weeks.
Axos Financial, Inc. (AX) Q1 2026 Earnings Call Transcript
Positive10-30
The earnings call reflects a positive outlook with strong financial performance, including a 44% annualized growth, reduced nonperforming assets, and increased assets under custody. The Q&A session highlights a cautious but strategic approach to risk management and capital allocation, supporting growth. The company's focus on technology and operational investments, along with a healthy loan pipeline, further bolsters confidence. Despite some lack of detail on acquisitions, the overall sentiment is positive, suggesting a likely stock price increase of 2% to 8% in the next two weeks.
Axos Financial Inc. (AX) Q4 2025 Earnings Call Transcript
Positive7-31
The earnings call suggests a generally positive outlook with strong net loan growth, effective cost management through AI, and a stable net interest margin. The Q&A section confirms stable credit quality and growth opportunities, despite some pricing pressures. The stock repurchase and strategic investment in technology further bolster the positive sentiment. The market cap indicates a moderate reaction, leading to a 'Positive' prediction of 2% to 8% stock price increase.
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