Axos Financial, Inc. Q1 FY2027 earnings call

• Growth & Margins: Core fundamentals remain strong with double-digit YoY growth in key metrics. The company maintains an asset-sensitive balance sheet, benefiting from a 'higher for longer' rate environment despite excess liquidity from recent deposit acquisitions.
• Acquisition Integration: Four acquisitions closed over the past 12 months (Capital One, Genius Bank, Verdant, ARC Technologies). Capital One added ~$1.8B in deposits; Verdant contributed $1.2B in leases and syndication expertise; ARC provides a robust tech platform for small business treasury management and digital debt marketplace opportunities.
• Loan Portfolio Dynamics: Ending loan balances stood at $25.9 billion. While capital call originations declined due to strategic syndication ($290M sold), net loan balances excluding syndications grew by over $600M. Strong pipelines exist across commercial real estate specialty lending, equipment finance, and auto. Single-family mortgage demand remains resilient despite rate hikes due to competitor gaps in securitization markets.
• Deposit Strategy: Total deposits grew 14% YoY to $25.4 billion. The company is actively deploying Capital One deposits to reduce higher-cost wholesale funding. Approximately $700M in ARC partner bank deposits are expected to migrate to Axos in coming quarters, offering significant low-cost funding opportunities.
• Technology & AI: Significant investments in AI governance and deployment are yielding productivity improvements exceeding expectations. AI is being integrated into various organizational functions to enhance client value and operational efficiency.
• Shareholder Returns: The company repurchased $7M in stock during the quarter and has $112M remaining in its authorization plan. Return on average assets was 1.72%, and return on average common equity was 15.66%.

Axos Financial reported strong financial performance for the quarter ended September 30, 2026. Net interest income increased 4.2% sequentially and 13.8% year-over-year, driven by a 10 basis point expansion in net interest margin to 4.64%. Non-interest income rose 97% year-over-year to $63.8 million, significantly boosted by banking and service fees from acquisitions (primarily Verdant) and prepayment penalty fees which surged to $6.8 million from $0.7 million in the prior year. Total non-interest expenses were $195.4 million, down approximately $10.5 million sequentially due to lower legal costs, though efficiency ratio remained at 49.46%. Net income reached $129.6 million, up 15.4% year-over-year, resulting in diluted earnings per share of $2.25, a 16% increase from the prior year period.

• Loan Growth: Management targets low-to-mid-teens organic loan growth for fiscal 2027, expecting acceleration in the December quarter as delayed closings from Q1 materialize and pipeline strength persists.
• Net Interest Margin (NIM): NIM is expected to remain flat over the next few quarters. The benefit of the September Fed rate hike will be largely offset by excess liquidity from Capital One deposits in Q2 FY2027. Margin benefits may lag in March 2027 as deposit repricing catches up.
• Expense Management: Expense growth is expected to normalize as AI efficiencies are realized. Personnel plus professional fees are capped at 30% of revenue growth. Run-rate expense growth is estimated at $3-$5 million per quarter absent acquisitions or anomalies.
• Credit Losses: Loan loss reserves are expected to remain stable at 1.1%-1.2% of total loans and leases.

• Credit Quality: Two isolated charge-offs occurred in the C&I portfolio due to specific industry/regulatory factors affecting borrowers. These were reserved for in prior quarters, limiting surprise impact. Non-performing assets decreased slightly to $157.5 million, with real estate representing >50% of non-accruals.
• Interest Rate Sensitivity: While currently asset-sensitive, future rate hikes face headwinds from deposit repricing lags and excess low-yielding liquidity from acquisitions.
• Market Disruption: Rising rates create discretionary pressure on leverage decisions for clients. Specific segments like 5/1 ARM multifamily face valuation mismatches between buyers and sellers.
• Operational Execution: Integration risks associated with multiple recent acquisitions (ARC, Verdant, etc.) require careful technology migration and cross-selling execution to realize projected synergies.

Q: Analyst asked about the durability of NIM expansion given asset sensitivity and potential deposit repricing lags.

A: CFO explained that excess liquidity from Capital One (~$700M average) acts as a drag on NIM percentage in the December quarter, offsetting the benefit of the Fed rate hike. However, beyond this timeframe, as deposits begin to reprice upwards in a competitive environment, the drag will diminish, allowing NIM to recover. Net interest income is still expected to expand, even if the margin percentage remains flattish short-term.

Q: Analyst queried credit quality trends, specifically regarding the timing and nature of the C&I charge-offs.

A: CEO clarified that both charged-off loans had been reserved for several quarters ago based on known deterioration. The decision to charge off rather than reserve further was driven by the specific performance trajectory of the borrowers. This indicates proactive risk management rather than sudden surprises, with the portfolio generally showing strong health aside from these idiosyncratic issues.

Q: Analyst sought details on loan demand shifts amid rising rates and integration progress of recent acquisitions.

A: CEO noted that while general SFR demand is down, Jumbo mortgage pipelines are strong due to competitors gapping out in securitizations. Syndication activity impacted end-of-period loan balances but supports long-term capacity. Regarding integrations, Genius Bank checking cross-sell is progressing well, Verdant shows synergy with floor plan finance, and ARC’s platform offers significant opportunities for small business treasury management and deposit migration, though full benefits take time.

Q: Analyst asked about the company's exposure to tech/venture lending bubbles and AI disruption.

A: CEO distinguished Axos’s direct lending from venture lending. Axos does not directly lend to early-stage software companies due to AI-driven market volatility. Instead, it uses ARC’s platform primarily for deposits and acts as a broker for third-party lenders in the venture space, avoiding direct credit risk. Direct exposure is limited to established companies with positive EBITDA or back-leverage facilities to large venture lenders, mitigating bubble risks.

Q: Analyst inquired about the roadmap for crypto/blockchain integration.

A: CEO outlined plans to launch Bitcoin trading capabilities via a self-directed account addendum by March 2027, using a third-party custodian. This will be followed by a Bitcoin lending/margin program. The strategy leverages Axos’s integrated checking and brokerage accounts to offer seamless money movement, starting with Bitcoin before assessing other coins, with beta testing underway.