Axos Financial(AX) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported net loan growth of $856 million linked quarter, with a net interest margin expansion of six basis points and an 18% year-over-year increase in book value per share [4][5] - Net interest income for the quarter was $280 million, up 7.7% from $260 million in the prior year period, with a net interest margin of 4.84% for the quarter, up from 4.78% in the previous quarter [5][10] - Net income was approximately $110.7 million for the quarter, compared to $105.2 million in the prior quarter, with diluted EPS of $1.92 compared to $1.81 in the previous quarter [6][7] Business Line Data and Key Metrics Changes - Total originations for investment, excluding single-family warehouse lending, increased by 5% linked quarter, resulting in net loan growth of approximately $856 million, representing a 4.2% linked quarter increase or 16% annualized [8] - Average loan yields for the quarter were 8% flat, with non-purchased loans at 7.66% and purchased loans at 14.9% [8] - Total non-accrual loans declined by $15 million linked quarter, improving the non-accrual loans to total loans ratio from 79 basis points to 71 basis points [6][12] Market Data and Key Metrics Changes - Ending deposit balances were $20.8 billion, up 3.4% linked quarter and 7.6% year over year, with demand money market and savings accounts representing 95% of total deposits [9][10] - Total assets under custody increased from $37.1 billion to $39.4 billion, with net new assets for the custody business increasing by $215 million [14][15] Company Strategy and Development Direction - The company is focused on executing strategic and operational initiatives, including investments in technology and operations to scale businesses and roll out new products faster [19] - The implementation of artificial intelligence is expected to improve operating efficiency and accelerate new product delivery [19] - The company is evaluating M&A opportunities to augment growth from existing businesses and team lift-outs, with a focus on specialty lending and non-banking businesses [17][20] Management Comments on Operating Environment and Future Outlook - Management expects organic loan growth to come in toward the mid to high end of the single-digit to low teens range on an annual basis in fiscal 2026 [12] - The credit quality of the loan book remains solid, with historic and current net charge-offs remaining low [12] - The change in income tax calculation methodology in California is expected to reduce the income tax rate by three percentage points starting in Q4 2025, boosting net income and EPS in fiscal 2026 and beyond [18][24] Other Important Information - The company repurchased approximately $31 million of common stock at an average price of $59 per share during a temporary market downturn [7] - The company has a healthy loan pipeline of approximately $2 billion as of July 25, 2025, with various categories contributing to growth [26] Q&A Session Summary Question: Loan yields and net interest margin outlook - Management indicated that while loan yields might be tighter, there are offsetting benefits on the funding side, resulting in a consistent net interest margin outlook [30][31] Question: Expense growth relative to revenue - Management targets that personnel and professional services cost growth should not exceed 30% of net interest income and non-interest income growth, while leveraging AI to improve efficiency [34][39] Question: Funding side opportunities and pricing competition - Management noted that funding costs may increase with accelerated loan growth, but the Axos One product is performing well, potentially mitigating some pressure [48] Question: Capital priorities and M&A opportunities - Management is looking at various M&A opportunities, particularly in fee income and specialty finance businesses, while maintaining a focus on organic loan growth [56][57] Question: Multifamily loan sale reasoning - The sale was driven by favorable credit perspectives and interest from good buyers, resulting in a gain [61] Question: Asset quality and areas of concern - Management expressed confidence in the commercial real estate and C&I sides, with no significant material concerns noted [80]