Axos Financial(AX) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company generated over $700 million in net loan growth linked quarter, with a stable net interest margin of 4.78%, down five basis points from the previous year [5][6][7] - Book value per share increased by 19% year over year, with a return on average common equity of 16% and a return on average assets of 1.8% for the quarter [5][6] - Net interest income was $275 million for the quarter, up 5.3% from $262 million in the prior year period [6][7] - Net income was approximately $105.2 million, compared to $104.7 million in the previous quarter, with diluted EPS of $1.81 [9] Business Line Data and Key Metrics Changes - Fund finance, equipment leasing, and lender finance showed strong originations and net loan growth, while net growth in non-purchased loans for investment was $700 million, an increase of 3.6% linked quarter [9][10] - Total non-accrual loans declined by $66.5 million linked quarter, improving the non-accrual loans to total loan ratio from 1.26% to 0.89% [9][16] - Average loan yields for the quarter were 7.99%, down from 8.37% in the prior quarter, with non-purchased loans yielding 7.66% and purchased loans yielding 14.32% [10][11] Market Data and Key Metrics Changes - Total on-balance sheet deposits increased by 5.4% year over year to $20.1 billion, with demand money market and savings accounts representing 96% of total deposits [7][11] - Client cash sorting deposit balances were volatile, peaking at over $1.2 billion during market sell-offs before ending the quarter around $900 million [12] - Non-interest bearing deposits remained approximately $3 billion, consistent with the prior quarter [11] Company Strategy and Development Direction - The company is focused on maintaining a high net interest margin and is targeting a range of 4.25% to 4.35% for the consolidated net interest margin excluding FDIC loan purchase accretion [14] - There is an emphasis on growing lower-cost deposits and cross-selling across selected lending businesses [14][15] - The company is actively investing in technology and AI to enhance operational efficiency and reduce costs, with a focus on developing proprietary platforms for client services [20][21][86] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in loan growth despite headwinds from high repayment levels in the jumbo single-family and multifamily mortgage business, expecting loan growth to be in the high single digits to low teens range annually [15][26] - The credit quality of the loan book remains solid, with no significant deterioration observed across lending categories [16][17] - Management is cautious about certain C&I segments due to anticipated economic changes but remains optimistic about overall loan growth [30][32] Other Important Information - The company repurchased approximately $28 million of common stock in the quarter and continued to buy back shares post-quarter [6][65] - Non-interest expenses were approximately $146 million, with a focus on managing expenses to maintain operating efficiency [22][24] - The effective tax rate for the quarter was 29%, with potential changes in California tax laws that could impact future tax liabilities [24][25] Q&A Session Summary Question: Insights on loan growth and areas of caution - Management indicated caution in certain C&I segments due to potential economic changes but sees good opportunities in other areas [30][32] Question: Clarification on fee income increase - The increase in fee income was attributed to mortgage banking impacts and additional loan fees, with no significant one-time items affecting the results [34] Question: Future efficiency and cost management - Management aims to keep the efficiency ratio stable and is focused on leveraging technology and AI to control costs [40][41] Question: Expectations for net interest income and margin - Management expects net interest income to increase in the next quarter, with some margin compression anticipated due to lower loan spreads [42][44] Question: Credit quality and allowance for loan losses - Management noted that the allowance for loan losses is influenced by external economic factors and models, not solely by current loan performance [81][82] Question: IT and data processing spending - The company is investing in IT and AI to enhance operational efficiency, with specific projects aimed at improving software development processes [86]