AX — Axos Financial, Inc.

Summary of Axos Financial Q1 2026 Earnings Call

1. Key Financial Results and Metrics

• Net Loan Growth: $1.6 billion linked quarter, including $1 billion from the Verdant acquisition.
• Net Interest Income: $291 million, up $11 million linked quarter (15.6% annualized). Excluding a prior year's one-time benefit, it increased by $16 million (5.8% year-over-year).
• Net Interest Margin: 4.75%, down from 4.84% in the previous quarter.
• Noninterest Income: Increased by 13% year-over-year due to higher banking service fees and mortgage banking income.
• Net Income: Approximately $112.4 million, up from $110.7 million linked quarter; diluted EPS was $1.94, compared to $1.92.
• Adjusted Net Income: $119 million; adjusted EPS was $2.06, a 7.3% increase linked quarter.
• Total Deposits: Increased by 6.9% year-over-year to $22.3 billion.
• Credit Quality: Nonaccrual loans to total loans improved to 74 basis points, with net charge-offs down to 11 basis points.

2. Strategic Updates and Business Highlights

• Verdant Acquisition: Closed on September 30, 2025, adding $1.2 billion in loans and leases. Expected to contribute $150 million to $200 million in net new loans per quarter.
• AI Implementation: Ongoing expansion of AI across various business functions to enhance efficiency and operational leverage.
• Custody and Clearing Business: Total assets under custody rose to $43 billion, with net new assets of $1.1 billion in the quarter.
• Floor Plan Lending: New team showing strong pipeline potential, with expectations of several hundred million dollars funded by March 31, 2026.

3. Forward Guidance and Outlook

• Loan Growth: Expected to be in the low to mid-teens range annually for the remainder of fiscal 2026.
• Net Interest Margin: Anticipated to remain in the high end of the 4.25% to 4.35% range, excluding FDIC loan purchase accretion.
• Expense Management: Noninterest expenses expected to grow below 30% of net interest and noninterest income growth.

4. Bad News, Challenges, or Points of Concern

• Net Interest Margin Decline: Decreased from the previous quarter due to excess liquidity and new subordinated debt issuance.
• Increased Expenses: Noninterest expenses rose to $156 million, with expectations of $8.5 million added quarterly from the Verdant acquisition.
• Credit Risks: Concerns about potential fraud in the industry, particularly related to NDFI structures, though Axos maintains a cautious approach to credit quality.
• Market Competition: Ongoing pressure from competitors in the lending space, particularly in structuring deals and maintaining credit standards.

5. Notable Q&A Insights

• Credit Quality Concerns: Management expressed vigilance regarding credit structures and potential fraud in the industry, noting they have turned down risky deals.
• Fee Income Clarification: No one-time items in fee income this quarter; expected contributions from Verdant to be a few million dollars per quarter.
• Securitization and Funding: Clarified that the funding for Verdant's assets came from term securitizations, which they plan to optimize when possible.
• Capital Ratios: Management is comfortable with current capital ratios, even with a slight decline, given strong ROE and loan growth potential.

Overall, Axos Financial reported a solid quarter with strong loan growth and strategic acquisitions, although challenges in net interest margin and expense management remain areas to watch. The company is optimistic about future growth driven by the Verdant acquisition and ongoing operational improvements.