Axos Financial, Inc. (AX) Q2 2026 Earnings Call Transcript
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Overview
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.
Key Financial Performance
Net Loan Growth $1.6 billion of net loan growth for the quarter ended December 31, 2025, with a 19% basis point linked quarter increase in net interest margin. Growth was broad-based across several asset-based lending areas, commercial specialty, and equity finance verticals.
Earnings Per Share (EPS) 23.3% year-over-year increase in EPS, attributed to strong financial performance and operational efficiency.
Net Interest Income $331.6 million for the quarter ended December 31, 2025, increasing by approximately $41 million linked quarter or 14%. Growth was driven by balanced growth across single-family mortgage warehouse, commercial specialty real estate, equipment finance, and fund finance. Excluding a $17 million benefit from an FDIC loan prepayment, net interest income was up $23 million or 8% from fiscal Q1 2026 to fiscal Q2 2026.
Net Interest Margin 4.94% for the quarter ended December 31, 2025, up 19 basis points from 4.75% in the prior quarter. Excluding the impact of an FDIC loan prepayment and Verdant balance sheet securitization, the margin was 4.72%, roughly flat from the prior quarter.
Noninterest Income Increased by approximately $21 million quarter-over-quarter due to higher banking service fees, broker-dealer fee income, and prepayment penalty fees. Verdant contributed $18.9 million to noninterest income in the quarter.
Net Income Approximately $128.4 million for the quarter ended December 31, 2025, up 22.6% from $104.7 million in the prior year second quarter. Growth attributed to strong loan growth and operational efficiency.
Total Originations for Investments $5.6 billion for the quarter ended December 31, 2025, representing a 35% linked quarter increase or nearly 140% annualized. Growth was driven by strong organic originations in commercial real estate specialty lending, equipment leasing, asset-based lending, and single-family warehouse.
Ending Deposit Balances $23.2 billion as of December 31, 2025, up 44.3% linked quarter and 16.5% year-over-year. Demand market, money market, and savings accounts represented 96% of total deposits, increasing by 17% year-over-year.
Nonperforming Assets Declined by approximately $19 million linked quarter, representing 56 basis points of total assets compared to 64 basis points in the prior quarter. Improvement was seen in single-family mortgage, multifamily, and commercial mortgage categories.
Noninterest Expenses Approximately $184.6 million for the quarter ended December 31, 2025, compared to $156.3 million in the prior quarter. Verdant added $7.8 million in salaries and benefits expenses and $14.8 million in depreciation and amortization expenses. Excluding Verdant-related expenses and a $7 million onetime accrual, expenses were roughly flat quarter-over-quarter.
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Operating Highlights
Verdant Acquisition: Axos completed the acquisition of Verdant Commercial Capital, a vendor-based equipment leasing company, which added $430 million of loans and leases and $780 million of on-balance sheet securitizations. Verdant contributed $130 million of net new loans and operating leases in the December quarter.
Loan Growth: Axos achieved $1.6 billion in net loan growth for the quarter, with strong performance in commercial specialty real estate, equipment finance, and fund finance. Total originations for investments were $5.6 billion, representing a 35% linked quarter increase.
Deposit Growth: Ending deposit balances reached $23.2 billion, up 44.3% linked quarter and 16.5% year-over-year. Demand, money market, and savings accounts represented 96% of total deposits.
Artificial Intelligence Deployment: Axos expanded the use of AI across various business functions, including software development, credit underwriting, and compliance, to improve efficiency and reduce costs.
Net Interest Margin: Net interest margin increased to 4.94% for the quarter, up 19 basis points from the prior quarter, driven by balanced growth across lending areas and the early payoff of an FDIC loan.
Strategic Integration of Verdant: Axos is integrating Verdant's team and systems, identifying cross-sell opportunities, and expects Verdant to contribute 2%-3% EPS accretion in fiscal 2026 and 5%-6% in fiscal 2027.
M&A Opportunities: Axos continues to evaluate mergers and acquisitions to augment growth in existing businesses and expand its operational capabilities.
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Risk or Challenges
FDIC Loan Prepayments: The early payoff of an FDIC purchased loan resulted in a one-time interest income benefit of $17 million. However, the company expects a reduction in net interest margin accretion from FDIC purchased loans going forward, which could impact future earnings.
Verdant Acquisition Costs: The Verdant acquisition added $7.8 million in salaries and benefits expenses and $14.8 million in depreciation and amortization expenses. These additional costs could pressure noninterest expenses if not offset by revenue growth.
Provision for Credit Losses: Provisions for credit losses increased to $25 million, driven by robust loan growth in commercial lending categories, which carry higher credit risk. This could impact profitability if credit quality deteriorates.
Net Interest Margin Sensitivity: The company expects a potential 5 to 6 basis point reduction in net interest margin in the March quarter due to rate cuts and other factors, which could affect profitability.
Noninterest Expense Growth: Noninterest expenses increased significantly, partly due to Verdant-related costs and a $7 million accrual for the core Clearing acquisition. If expense growth outpaces revenue growth, it could impact operating leverage.
Economic and Market Conditions: Demand in commercial specialty real estate and other lending verticals remains strong, but any economic downturn or market volatility could adversely affect loan growth and credit performance.
Integration Risks: The integration of Verdant Commercial Capital involves operational and strategic initiatives. Any delays or inefficiencies in integration could impact expected revenue growth and profitability.
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Guidance & Outlook
Loan Growth Projections: Axos Financial expects to generate loan growth in the low to mid-teens on an annual basis for fiscal 2026. The company anticipates growing loans by $600 million to $800 million in the upcoming quarter.
Net Interest Margin (NIM) Outlook: The company projects net interest margin accretion from FDIC purchased loans to be 10 to 15 basis points going forward. A potential 5 to 6 basis point reduction in Signature adjusted margin is expected in the March quarter due to rate cuts and other factors.
Verdant Acquisition Impact: Verdant is expected to achieve EPS accretion at the mid- to high end of the initial projection of 2% to 3% in fiscal 2026 and 5% to 6% in fiscal 2027. Verdant loan balance growth is projected at approximately $150 million per quarter.
Credit Quality and Risk Management: The company does not anticipate material losses from loans currently classified as nonperforming. Credit quality remains strong, with low net charge-offs and improved nonperforming asset ratios.
Pipeline and Lending Expansion: The loan pipeline is approximately $2.2 billion as of January 2026, with significant contributions expected from commercial lending, floor plan, and middle market lending. The company is confident in its ability to drive loan growth year-over-year.
Artificial Intelligence Deployment: Axos Financial plans to expand the use of AI across various business functions to improve productivity, compliance, and risk monitoring while reducing costs.
M&A and Strategic Growth: The company continues to evaluate M&A opportunities and expects to develop cross-sell opportunities for deposits and floor plan lending with Verdant clients over the next 6 to 12 months.
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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 net interest margin outlook and the average remaining life of the FDIC purchase loans?
A:The normalized net interest margin level is 4.72%, with an expected 6 basis point decline to 4.66%. The average remaining life of the FDIC purchase loans is about 3 to 4 years.
Q:What is the pipeline for team lift-outs?
A:The company has done a significant number of team lift-outs in the past year and is now focusing on developing and maturing those teams, adding individuals where necessary.
Q:Is there a pipeline for portfolio acquisitions?
A:The company has robust organic growth and does not see portfolio acquisitions as a major part of its strategy. Most available portfolios are low-rate multifamily loans, which are not attractive.
Q:What is the growth outlook for the next quarters?
A:Growth is expected to be balanced across various segments, including CRE specialty, warehouse, leasing, and others. Verdant is expected to contribute $150 million to $200 million in growth, with seasonal variations.
Q:What is the outlook for fee income with Verdant in the fold?
A:Fee income is expected to remain consistent, with some small growth as Verdant grows originations. The paper statement fee contributed $1.5 million in the past quarter.
Q:What is the most exciting development for the company?
A:The company is excited about leveraging AI and technological advancements to innovate and respond to customer needs more rapidly, which could significantly impact their operations.
Q:What drove the massive growth in CRESL this quarter?
A:The growth was driven by a slowdown in paydowns and some larger deals that were pushed into the quarter. The company does not expect this level of growth to continue in the next quarter.
Q:How is the company funding its loan growth?
A:The company is funding growth primarily through specialty deposits and commercial deposits, with a balanced contribution from various segments like HOA, title, escrow, and operating deposits.
Q:What is the impact of Verdant on fees and expenses?
A:The impact is consistent with expectations, with depreciation and fee income growth aligning. The $7 million increase in G&A was a one-time expense related to a subordinated loan claim.
Q:What is the opportunity with the Qualia partnership?
A:The partnership with Qualia is expected to enhance the company's deposit side, particularly in the escrow space, and offers potential for innovative collaborations.
Q:Does the loan growth guidance imply a slowdown in the second half of the year?
A:The guidance of $600 million to $800 million in loan growth per quarter includes Verdant and reflects a balanced approach to growth, not necessarily a slowdown.
Q:What is the outlook for Verdant's growth?
A:Verdant is expected to continue its strong growth, supported by its ability to serve larger clients and its integration with the company's resources. The business is somewhat cyclical, with stronger fourth quarters.
Q:Review of Unclear Management Responses
A:Management avoided directly answering the question about what they are most excited about, initially dodging the question before discussing the balance and diversity of their growth engines. The response lacked specificity and focused on generalities about technological advancements and AI.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI
CI lending
FDIC purchase
Noninterest
Signature FDIC
accretion FDIC
asset lending
basis loan
broker dealer
business contribution
commercial
credit loss
dealer fee
family warehouse
financing basis
floor plan
fund finance
income interest
increase income
lease loan
level accretion
loan balance
loan lease
loan level
market lending
maturity
mid
mortgage balance
mortgage family
noninterest deposit
payoff
plan market
prepayment
profitability
progress
provision
purchase discount
purchase loan
reduction
relationship
sheet securitizations
AX Transcript
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.
Axos Financial Inc. (AX) Q3 2025 Earnings Call Transcript
Positive4-30
The earnings call summary and Q&A reveal a mixed but overall positive sentiment. Financial performance is strong with net loan growth and net interest income up. However, net interest margin slightly declined. Product development and market strategy are promising, with AI and tech investments. Shareholder returns are boosted by a repurchase program. Despite economic uncertainties and competitive pressures, guidance remains optimistic. The market cap suggests moderate sensitivity. Thus, a positive stock price movement (2% to 8%) is expected over the next two weeks.
AX Report
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