Axos Financial (AX) Q1 2026 Earnings: Growth Engine Acceleration Amid Integration Challenges

Axos Financial beat earnings expectations, reporting diluted EPS of $1.94 against estimates and $2.06 on an adjusted basis, up 7.3% year-over-year according to the earnings transcript. However, this performance came with some pressure on profitability, as net interest margin slipped 9 basis points to 4.75% due to excess liquidity and costs related to the Verdant acquisition, including approximately $1 billion in new loans from that deal as reported by financial analysis. Net loan growth reached $1.6 billion overall, with management projecting Verdant will add $150–$200 million in quarterly loans, though integration costs are expected to rise about $8.5 million per quarter. Total deposits surged 27.6% annually to $22.3 billion, but a significant portion stemmed from the acquisition, with organic growth being more modest at $565 million according to the official earnings release. Despite these positive asset and funding trends, the efficiency ratio rose to 48.32% as the bank focused on integration expenses. Credit quality, however, showed improvement across metrics, with net charge-offs falling to 11 basis points and nonaccrual loans declining to 74 basis points.

Verdant-Driven Expansion Engine

Axos Financial's recent acquisition of Verdant delivered a substantial $1 billion boost to its loan portfolio in Q1 2026, forming the core of its $1.6 billion total net loan growth as detailed in the earnings transcript.

This acquisition-driven surge is expected to continue, with management projecting Verdant will contribute an additional $150 million to $200 million in quarterly loans moving forward. Complementing this, Axos also achieved $565 million in organic loan growth during the quarter as reported in the earnings release, demonstrating activity beyond just integration.

While loan growth accelerated significantly, this expansion pressure impacted profitability metrics. Net interest income (NII) rose strongly by 15.6% annually to $291 million, but the net interest margin (NIM) slipped slightly to 4.75% due to excess liquidity and lower income from both loans and deposits. Further complicating margin management, Axos faces ongoing integration costs, estimated at approximately $8.5 million per quarter, which weigh on expense control efforts as it aims to keep non-interest expenses below 30% of combined income growth. These factors highlight the trade-offs inherent in aggressive acquisition-led expansion.

Profitability Pressures and Funding Trade-offs

Axos Financial's aggressive loan growth in Q1 2026, including $1.0 billion from the Verdant acquisition, came with clear profitability trade-offs. Net interest margin (NIM) compressed to 4.75% as excess liquidity and lower loan/deposit interest income pressured earnings, though the company expects stabilization near 4.35% according to financial modeling. This margin pressure was compounded by significant integration costs, including $8.5 million per quarter attributed to Verdant, contributing to a worsened efficiency ratio as expenses rose amid the expansion. While net interest income reached $291 million as reported by financial data sources, the path to sustained profitability faces headwinds from the current margin environment.

The acquisition strategy bolstered funding, with total deposits reaching $22.3 billion, including a notable $3.4 billion in non-interest-bearing deposits. This client cash base, driven by treasury management services, provides a relatively low-cost funding advantage that supports lending activities as detailed in the earnings release. However, this positive funding profile exists alongside the challenge of managing excess liquidity, which remains a key factor compressing NIM. Liquidity management remains challenging; while deposits grew strongly year-over-year, the cost structure associated with maintaining this liquidity and integrating new assets continues to weigh on efficiency.

Control over operating costs proved difficult to maintain, with expenses increasing 5.6% year-over-year to $156.2 million. This rise was fueled by professional services and operational costs linked to integration and growth initiatives. Management emphasized the need for expense discipline, capping personnel and professional services growth at 30% of income growth, but the pressure from integration costs and the need to invest in scaling operations persists. The balance between funding growth and controlling costs will be critical for future profitability as the company navigates the Verdant integration and sustains loan expansion.