Axos Financial, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights:

• Delivered solid results with double-digit year-over-year growth in net interest income and book value per share.
• Ending loan balances up 6.7% year-over-year to $19.5 billion.
• Generated strong returns with 17% return on average common equity and 1.7% return on assets.
• Managed operating expenses well, with total non-interest expenses down 1.5% quarter-over-quarter.
• Total on-balance sheet deposits increased 9.5% year-over-year.
• Loan originations of $3.5 billion, with growth in single-family mortgage warehouse and C&I loan balances, offset by declines in certain mortgage loan balances.
• Axos Clearing had good quarter with increased deposits, client margin balances, and net new assets from custody business.
• Focused on scaling existing teams, exploring private credit partnerships, and having a $150 million at-the-market shelf for potential acquisitions.

Segment Performance: Ending loan balances were $19.5 billion, up 6.7% year-over-year. Net interest income was $280 million for the quarter ended December 31, 2024, up 22.5% from the prior period. Net interest margin was 4.83%, up 28 basis points from the prior year. Total on-balance sheet deposits increased 9.5% year-over-year to $19.9 billion. Total non-interest expenses for the quarter ended December 31, 2024 were down by 1.5% from the prior quarter. Net income was approximately $104 million in the quarter, down from $152.8 million in the corresponding period a year ago.

Guidance: Derrick Walsh stated the expectation of organic loan growth of high single digits year-over-year in the remaining two quarters of fiscal 2025, excluding impact from FDIC loans or other acquisitions. Greg Garrabrants mentioned expecting the consolidated net interest margin ex FDIC loan purchases to stay at the high end or slightly exceed the 4.25% to 4.35% range targeted.

Risks:

• Credit quality issues in certain loan segments, such as idiosyncratic circumstances leading to uptick in nonreforming assets.
• Competition from banks and nonbanks in certain lending categories.
• Economic and regulatory uncertainties affecting potential inorganic asset and business acquisitions.

Question and Answer: Q: Kyle Peterson asked about deposit costs and potential for further repricing if rates stabilize.

A: Gregory Garrabrants responded that they took rate-sensitive deposits down prior quarter, and there may be margin for further repricing if reference rates drop, focusing on improving deposit mix.

Q: Gary Tenner inquired about crypto reengagement and NPAs.

A: Gregory Garrabrants said crypto reengagement needs specific regulatory clarity; on NPAs, discussed judgment calls in classifying nonaccrual loans and proactive work on resolving issues.

Q: David Feaster asked about expense growth and capital deployment.

A: Gregory Garrabrants mentioned being thoughtful about expense growth, leveraging technology and low-code platforms, and finding specialty finance businesses as appealing for capital deployment.

Q: Andrew Liesch asked about provision and reserve ratio.

A: Derrick Walsh explained provision factors including long-term unemployment and economic modeling, with reserve ratio influenced by loan-to-value support and economic scenarios.

Q: Kelly Motta asked about fee income from Axos Advisory services and buybacks.

A: Gregory Garrabrants discussed fee income growth potential from securities business and optimistic outlook on loan growth, with buybacks tied to capital management and organic growth priorities.

Q: Gary Tenner followed up on CRESL segments.

A: Gregory Garrabrants mentioned CRESL activity in multi and condo bridge/construction, metro market weighted, with partnerships in private credit space.