Axos projects low to mid-teens annual loan growth in FY26 as Verdant acquisition lifts guidance

Earnings Call Insights: Axos Financial (AX) Q1 2026

MANAGEMENT VIEW

* CEO Gregory Garrabrants reported "a strong start to our fiscal 2026, generating $1.6 billion of net loan growth linked quarter, including $1 billion of loans and leases and on-balance sheet securitizations acquired in the Verdant acquisition, which closed on September 30, 2025." Garrabrants highlighted a 17% year-over-year increase in book value per share and noted "nearly 16% return on average common equity and the 1.8% return on average assets in the 3 months ended September 30, 2025."
* Garrabrants emphasized the completion of the Verdant Commercial Capital acquisition, stating "we paid a modest 10% premium on the roughly $40 million of book value of Verdant at September 30. The seller will also have an opportunity to earn up to $50 million over the next 4 years if the business generates a greater than 15% return on equity on an annual and cumulative basis."
* CFO Derrick Walsh stated, "Noninterest expenses were approximately $156 million for the 3 months ended September 30, 2025, up by $5.6 million from the 3 months ended June 30, 2025. Excluding approximately $1.3 million of deal-related expenses from the Verdant acquisition in September, total noninterest expenses were up by approximately $4.3 million on the linked quarter."

OUTLOOK

* Garrabrants stated, "We expect the Verdant acquisition to add an incremental $150 million to $200 million of net new loans and operating leases per quarter at attractive spreads starting in the second quarter of this fiscal year ending December 31."
* Management expects loan growth "to come in at the low to mid-teens range on an annual basis in the remaining 9 months of our fiscal year 2026."
* Walsh provided further guidance: "We expect the combination of strong originations from our commercial lending businesses, growing contributions from incubator businesses such as floor plan lending, slowing prepayments in our multifamily lending business and incremental contributions from the Verdant equipment finance business to drive loan growth in the low to mid-teens year-over-year growth over the next 12 months."

FINANCIAL RESULTS

* Net interest income was $291 million for the three months ended September 30, 2025, representing an increase of approximately $11 million linked quarter. Net interest margin was 4.75% for the quarter, down 9 basis points from 4.84% in the previous quarter. Excluding excess liquidity, net interest margin was approximately flat quarter-over-quarter.
* Noninterest income increased by approximately 13% year-over-year due to higher banking service fees, mortgage banking income and prepayment penalty fees.
* Net income was approximately $112.4 million in the quarter, up from $110.7 million in the quarter ended June 30, 2025. Diluted EPS was $1.94 for the quarter compared to $1.92 in the June quarter.
* Adjusted net income and adjusted EPS, excluding deal-related expenses and allowance for credit loss adjustment for the Verdant acquisition, were $119 million and $2.06 per share, respectively, for the quarter ended September 30.
* Total originations for investment, excluding single-family warehouse lending, were over $4.2 billion for the three months ended September 30, representing an 11% linked quarter increase.
* Total on-balance sheet deposits increased 6.9% year-over-year to $22.3 billion.

Q&A

* Kyle Peterson, Needham & Company: Questioned credit quality and emerging risks. Garrabrants responded that Axos turned down problematic deals, stating "in late stages of credit cycles, people sometimes get pretty sloppy on structure."
* Peterson asked about fee income sustainability. Walsh clarified, "nothing from the fee income that was a one-timer in this past quarter from the Verdant profile. The expectation is a few million dollars will come through in that noninterest income line item as we look forward."
* Gary Tenner, D.A. Davidson, inquired about funding costs relating to the Verdant acquisition. Walsh answered, "It's a little north or about 5.5%, and they have a 3.7% weighted average in years."
* Tenner also asked about the balance of average purchase loans. Walsh explained, "we had a big bump of $12 million in the gain on sale in the mortgage banking last quarter...so that's why the average balance was much higher for your purchase loans in the June quarter."
* Kelly Motta, KBW, raised questions about capital ratios and acquisition appetite. Garrabrants said, "we feel very good about the capital ratios where they are and even having them go down a bit."
* David Feaster, Raymond James, requested an update on NDFI risk management. Garrabrants provided a detailed breakdown of risk controls and monitoring practices, particularly in relation to fraud and collateral verification.
* Timothy Coffey, Janney Montgomery Scott, asked about expense modeling. Garrabrants replied, "our personnel expense and professional services growth will be -- the growth will be below 30% of the net interest income and noninterest income growth."

SENTIMENT ANALYSIS

* Analysts pressed on credit risk, capital levels, and acquisition integration, reflecting a slightly cautious tone with detailed requests for risk management explanations and capital planning.
* Management displayed confidence, particularly in addressing credit quality and integration of the Verdant acquisition. Garrabrants repeatedly emphasized a disciplined approach and low risk tolerance, stating, "we feel very good about the capital ratios where they are," and highlighting risk mitigation strategies.
* Compared to the previous quarter, both analysts and management were more focused on acquisition impacts and risk controls, with less emphasis on margin pressure.

QUARTER-OVER-QUARTER COMPARISON

* Management increased its loan growth guidance from "mid- to high end of our single-digit and low teens range" to "low to mid-teens range" annually following the Verdant acquisition.
* The completion of the Verdant acquisition represents a significant strategic shift from the prior quarter, with new contributions to loan and lease growth.
* Net interest margin declined from 4.84% to 4.75%, while net interest income and deposits continued to rise.
* Analyst questions shifted from margin and deposit growth to credit risk, capital adequacy, and acquisition integration, reflecting the increased scale and complexity of operations.
* Management confidence remained steady, with increased emphasis on risk management and capital sufficiency.

RISKS AND CONCERNS

* Management identified potential risks in credit cycle deterioration, loan structure slippage, and fraud, particularly referencing "lender-on-lender violence language" and document forgery risks.
* Garrabrants detailed ongoing vigilance and controls, stating, "we do a good job with it, but we're continually on guard because people come up with new and interesting ways of doing bad things."
* Analysts raised concerns regarding funding costs, capital ratios, and acquisition integration, all of which management addressed with detailed explanations and reaffirmed confidence in mitigation strategies.

FINAL TAKEAWAY

Axos Financial entered fiscal 2026 with robust loan growth, driven by the strategic Verdant acquisition and continued expansion in commercial lending and deposit gathering. Management projects loan growth in the low to mid-teens annually for the remainder of the year, supported by enhanced distribution channels and a disciplined approach to risk and expenses. The company remains focused on operational leverage, capital strength, and further strategic opportunities, positioning itself for sustained profitability and growth.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/ax/earnings/transcripts]

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