Axos Financial(AX) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics - Net interest income for Q2 2025 was $280 million, up 22.5$228.6 million in the prior period [7][8] - Net interest margin was 4.83% for Q2 2025, up 28 basis points YoY but down from 5.17% in Q1 2025 [9] - Tangible book value per share grew 21% YoY [7] - Return on average common equity was 17%, and return on assets was 1.7% for Q2 2025 [7] - Net income was $104 million, compared to$152.8 million in the same period last year [13] - Non-GAAP adjusted EPS was $1.82 for Q2 2025 [14] Business Line Performance - Loan originations were strong at$3.5 billion, with growth in single-family mortgage warehouse and C&I loan balances [15] - Auto loan portfolio saw its first sequential increase since Q1 2023 [16] - Average loan yields for non-purchased loans were 8.08%, while purchased loans yielded 13.92% [17] - Lender finance, fund finance, and equipment leasing had strong originations and net loan growth [16] - Single-family jumbo mortgage pipeline increased from $345 million to$496 million due to competitive exits and rate reductions [15] Market Performance - Total on-balance sheet deposits increased 9.5% YoY to $19.9 billion [10] - Demand, money market, and savings accounts represented 96$1.36 billion, up $104 million from the prior quarter [36] Strategy and Industry Competition - The company is focused on reducing headwinds in single-family jumbo mortgages and expects flat to slightly up growth in multifamily hybrid ARMs [15] - The company is leveraging low-code software development and AI to enhance operational efficiency [39] - The company is exploring inorganic growth opportunities, including potential acquisitions in specialty finance businesses [44][101] - The company is actively engaging with private credit partners to leverage the growth of the ecosystem [43] Management Commentary on Operating Environment and Future Outlook - Management expects the consolidated net interest margin to remain at the high end or slightly exceed the 4.25$150 million at-the-market shelf offering to capitalize on potential strategic opportunities [45] - The company is actively working on AI use cases to enhance efficiency and reduce project timelines [39] - The company is realigning back-office servicing functions in its clearing and custody business to improve efficiency [38] Q&A Summary Question: Deposit Cost Trends - The company has successfully repriced higher-cost deposits and expects further opportunities to improve deposit mix over time [55][56] - Management believes the company can offset declines in interest income by repricing deposits, as demonstrated in Q2 2025 [57] Question: Net Interest Margin Drivers - The company attributes the strong net interest margin to a combination of asset-side growth (e.g., competitive exits in mortgage lending) and deposit repricing [58][59] - Excess liquidity has been a drag on net interest margin, but the company expects to grow into this liquidity with improved loan growth [62] Question: Crypto Engagement - The company is awaiting clearer regulatory guidance before reengaging in the crypto space [66][67] - Management emphasized the need for comprehensive regulatory clarity from both the SEC and primary regulators [67] Question: Non-Performing Assets (NPAs) - The increase in NPAs was attributed to specific idiosyncratic circumstances, particularly in real estate-backed loans [70][71] - Management is confident in the credit quality of the loan book and does not anticipate material losses from current non-performing loans [30][74] Question: Loan Demand and Growth Opportunities - The company sees strong demand in cap call, real estate lender finance, and other segments, with a 2.1 billion loan pipeline as of January 22, 2025 [50][83] - Management expects to stem runoff in single-family jumbo and multifamily loans, with potential for growth in these areas [81][89] Question: Expense Management and Operating Leverage - The company is focused on maintaining expense discipline while investing in technology and operational efficiency [92][93] - Management highlighted the use of AI and low-code platforms to drive productivity and reduce project timelines [94] Question: Capital Deployment and M&A - The company is exploring inorganic growth opportunities, particularly in specialty finance businesses [101] - The 150 million ATM offering is a proactive step to position the company for potential strategic acquisitions [102] Question: Provision for Credit Losses - The provision for credit losses was $12 million in Q2 2025, down from$13.5 million YoY, driven by lower net loan growth [48] - The company's allowance for credit losses to total loans held for investment was 1.37%, up slightly from 1.34% in Q1 2025 [49] Question: Fee Income Growth - The company expects fee income growth to be driven by its securities business, particularly Axos Advisory Services [123] - Management is optimistic about net new asset growth in the custody and clearing businesses [124] Question: Share Repurchases - The company remains disciplined in capital deployment, prioritizing organic growth and opportunistic share repurchases [133] - Management is optimistic about loan growth but remains cautious about capital allocation [131]