Axos Financial, Inc. Q2 FY2026 earnings call

• Strong net loan growth: Generated $1 billion of net loan growth linked quarter with broad-based growth across several asset-based lending areas, commercial specialty, and equity finance verticals.
• Net interest margin improvement: Net interest margin was 4.94% for the quarter, up 19 basis points from the prior quarter. Excluding certain impacts, net interest margin was 4.72% roughly flat from the prior quarter.
• Impact of Verdant acquisition: Closed Verdant acquisition on September 30, adding loans and leases, and non-interest income from Verdant was approximately $18.9 million in the quarter. Verdant contributed approximately $130 million of net new loans and operating leases in December.
• AI deployment: Deploying artificial intelligence across the firm to increase operating leverage, used in software development, credit underwriting, and compliance monitoring.
• Credit quality: Total nonperforming assets improved by approximately $19 million linked quarter, nonaccrual loans to total loans ratio improved, and net charge-offs to total assets were down.
• Loan pipeline: Loan pipeline remains healthy at approximately $2.2 billion as of January 23, 2026, with various categories including single-family, multifamily, auto, consumer, and commercial.

Axos Financial had an outstanding second quarter. Net interest income was $331.6 million for the three months ended December 31, 2025, increasing by approximately $41 million linked quarter or 14%. Net interest margin was 4.94% for the quarter, up 19 basis points from the prior quarter. Non-interest income increased by approximately $21 million quarter over quarter due to higher banking service fees, broker-dealer fee income, and prepayment penalty fees. Ending deposit balances of $23.2 billion were up 44.3% linked quarter and up 16.5% year over year. Net income was approximately $128.4 million in the quarter, up 22.6% from the prior year second quarter. Diluted earnings per share was $2.22, a 23.3% year-over-year increase. The company generated $1 billion of net loan growth linked quarter with broad-based growth across several asset-based lending areas. Total originations for investments excluding single-family warehouse lending were $5.6 billion for the three months ended December 31, 2025, representing a 35% linked quarter increase.

• Loan growth outlook: Confident in generating loan growth by low to mid-teens on an annual basis this year. Entered January with approximately $800 million higher starting loan balances than the prior quarter and expect to grow loans in the $600 to $800 million range this quarter.
• FDIC loan impact: Level of regular accretion expected going forward per quarter on the FDIC loan purchase is approximately $6.5 million, with forward-looking reduction in scheduled accretion due to prepayments and maturities.
• Net interest margin: Potential five to six basis point reduction in signature adjusted margin in March relative to December due to rate cut, but some reduction may be offset by non-renewals of lower margin loans and higher average margin of new originations.
• Verdant EPS accretion: Expect Verdant to achieve EPS accretion at the mid to high end of initial projection of 2% to 3% accretion in fiscal 2026 and 5% to 6% accretion in fiscal 2027.

• Impact of rate changes: Potential five to six basis point reduction in signature adjusted margin in March relative to December due to rate cut, although some reduction may be offset by non-renewals of lower margin loans and higher average margin of new originations.
• Loan prepayments: Strong prepayments and scheduled maturities in FDIC purchase loans affecting net interest margin accretion.

Q: Could you confirm the net interest margin outlook and talk about the average remaining life of the FDIC purchase loans?

A: The normalized level was 4.72% and there's expected a six basis point decline, implying 4.66%. The average remaining life of the FDIC purchase loans is about three or four more years.

Q: Can you talk about the pipeline for team lift-outs and portfolio acquisitions?

A: Made investments in teams and see them come to fruition, but on portfolio acquisition, organic growth through own channels is robust and small deals may come up but not massive.

Q: On the growth outlook, should we expect more of the same or additional opportunities?

A: Growth should be pretty balanced with different segments like fund finance, non-real estate lender finance, floor plan kicking in, and Verdant being a bit seasonal but expected to have growth.

Q: On the Verdant impact on fees and expenses, was there a greater percentage of their existing assets as operating leases?

A: The $200 million plus classified as operating leases, with depreciation and fee income having a net impact, and the 30% refers to salaries and professional services combined.

Q: On the Qualia partnership, characterize the opportunity?

A: Significant partnership with Qualia, an innovative financial technology company in the escrow space, helpful on the deposit side.