Axos Financial's Q1 2026 Earnings Call Reveals Contradictions in Fraud Risk, Loan Growth, and Expansion Plans

Date of Call: October 24, 2025

Financials Results

• Revenue: $291.0M net interest income for Q1 FY2026 (three months ended Sept 30, 2025), up ~$11M linked quarter (15.6% annualized); excluding a ~$17M prior-year FDIC prepayment benefit, NII was up $16M or 5.8% YOY.
• EPS: Diluted EPS $1.94, up from $1.92 sequentially; adjusted EPS $2.06 excluding one-time Verdant deal expenses and ACL adjustments, a 7.3% linked-quarter increase (≈30% annualized).
• Gross Margin: Net interest margin 4.75% for the quarter, down 9 bps from 4.84% in prior quarter; excluding excess liquidity impact, NIM was roughly flat Q/Q.

Guidance:

• Loan growth expected low- to mid-teens on an annual basis for the remaining nine months of fiscal 2026 (excludes FDIC purchases).
• Verdant expected to add ~$150M–$200M net new loans/leases per quarter starting in the quarter ending Dec 31, 2025; EPS accretion ~2%–3% in FY2026 and ~5%–6% in FY2027.
• Expect FDIC purchase accretion to remain at the high end of the 4.25%–4.35% target; management aims to offset lower new-loan yields by lowering cost of funds.
• Corporate tax rate expected ~26%–27% going forward.
• Personnel and professional services expense growth to remain below 30% of combined NII and non-interest income growth.

Business Commentary:

• Strong Loan Growth and Acquisition Impact:
• Axos Financial reported $1.6 billion of net loan growth in Q1 of fiscal 2026, including $1 billion of loans and leases from the Verdant Commercial Capital acquisition.

• The growth was driven by the Verdant acquisition, which added significant loans and leases to their portfolio.

• Net Interest Income and Margin:

• Net interest income was $291 million for Q1, representing a 15.6% annualized increase, while the net interest margin was 4.75%.

• The increase in net interest income benefited from balanced growth across various segments, with single-family mortgage warehouse, commercial specialty real estate, and auto lending contributing to growth.

• Deposit Growth and Diverse Funding Sources:

• Total on-balance sheet deposits increased by 6.9% year-over-year to $22.3 billion.

• The growth was attributed to a diverse and granular deposit base across consumer and commercial banking and securities businesses, supporting Axos's growth strategy.

• Credit Quality and Allowance for Credit Loss:

• The non-accrual loans to total loans ratio improved from 79 basis points in Q2 to 74 basis points in Q3.
• Axos maintained strong credit quality and added an allowance for credit loss of 1.5% for Verdant's loans despite their historically low loss rates.

Sentiment Analysis:

Overall Tone: Positive

• Management: "We had a strong start... $1.6 billion of net loan growth... 17% year-over-year increase in book value per share... nearly 16% return on average common equity." Reported net income ~$112.4M, adjusted EPS $2.06 (up 7.3% linked quarter), and reiterated low- to mid-teens loan growth guidance and Verdant accretion, indicating constructive outlook.

Q&A:

• Question from Kyle Peterson (Needham & Company): Credit environment and what you’re seeing on pipeline/deal quality given recent headlines; any concerns about deals you’re turning down? And a follow-up on fee income: any one-timers this quarter and expected fee-income contribution from Verdant (operating leases) going forward?
  Response: Management emphasized vigilance—they turned down problematic syndicated deals, highlighted controls (direct title insurer docs/notice of assignment) to limit fraud, said fee income had no one-timers this quarter, and Verdant should contribute a few million dollars of non-interest income per quarter going forward.

• Question from Gary Tenner (DA Davidson): How were Verdant on‑balance assets funded (securitizations vs. excess cash), is there a required period to keep securitized financing, and what is the carrying cost for those financings?
  Response: Verdant assets were funded with term on‑balance securitizations (cleanup calls at 10%); management will replace with deposits when economical; carrying cost ~5.5% with ~3.7 years weighted average life.

• Question from Kelly Motta (KBW): Capital positioning given balance-sheet growth and comfort with capital ratios while pursuing mid‑teens loan growth; any commentary on further M&A appetite?
  Response: Management is comfortable with current capital levels even if ratios decline modestly because of >15% ROE; they remain disciplined but opportunistic on M&A, pursuing strategic cultural fits or exceptional financial bargains.

• Question from David Feaster (Raymond James): On industry fraud/NDFI (Indifi) issues—where are pressure points, how does Axos protect itself and monitor collateral/cash flows; plus update on floor‑plan team build-out and timing/rollout for white‑label banking in the securities business?
  Response: Primary takeaway: Axos uses direct third‑party confirmations (title insurers, notices of assignment), rigorous documentation and monitoring to mitigate fraud/NDFI risks; floor‑plan team has accepted term sheets and could reach several hundred million by March 31; the Axos Professional Workstation (Axos Complete) is in testing and will roll out over ~6–7 months to enable integrated white‑label banking products.

• Question from Tim Coffey (Janney Montgomery Scott): How should we model expenses going forward given Verdant and other hires—any guardrails on expense growth or efficiency targets?
  Response: Management's hard rail: growth in personnel and professional services will remain below 30% of combined net interest and non‑interest income growth; Verdant adds ~$8.5M per quarter in non‑interest expenses and AI initiatives are expected to drive further efficiency.

Contradiction Point 1

Fraud Risk and Credit Management

It highlights a change in the emphasis regarding fraud risk management in lending, which could impact the company's credit quality and risk profile.

Can you elaborate on the credit situation considering recent high-profile credit issues and how you manage credit, deals, and structure? - Kyle Peterson (Needham & Company)

2026Q1: Fraud is a significant risk in lending, and we have measures to prevent it, such as direct communication with title insurers. - Greg Garrabrants(CEO)

How will pricing pressure and prepayment trends affect your NIM? Is your NIM outlook consistent? - Kyle David Peterson (Needham & Company)

2025Q4: We have a comprehensive process of enhancing the underwriting, strengthening the credit process, enhanced data, analytics and fundamentally changing the culture to focus on credit. - Gregory Garrabrants(CEO)

Contradiction Point 2

Loan Growth Expectations

It involves changes in the company's financial forecasts, specifically regarding loan growth expectations, which are critical indicators for investors.

How do you view your capital position with mid-teens loan growth, and are current capital ratios adequate? - Kelly Motta (KBW)

2026Q1: We expect loan growth to be in the mid-teens. - Greg Garrabrants(CEO)

How are you managing loan growth amid current volatility and uncertainty? Which sectors are you cautious about or see growth opportunities in? - Kyle Peterson (Needham & Company)

2025Q3: We expect loan growth to be in the high single-digit to low teens range. - Gregory Garrabrants(CEO)

Contradiction Point 3

Expenses and Efficiency Management

It involves changes in the company's approach to expenses and efficiency management, which are crucial for operational effectiveness and cost control.

How will you manage expenses post-Verdant acquisition, and will AI play a role? - Tim Coffey (Janney Montgomery Scott)

2026Q1: We plan to manage expenses so that we grow below 30% of net interest and non-interest income growth. - Greg Garrabrants(CEO)

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2025Q3: I am committed to keeping the efficiency ratio low, aiming for personnel expenses to rise no more than 30% of the combination of net interest and noninterest income. - Gregory Garrabrants(CEO)

Contradiction Point 4

Deposit Growth and Pricing Competition

It involves differing perspectives on the deposit growth strategy and competitive pricing environment, which could impact the company's funding and cost of funds.

How did the interest income or accretion benefits from FDIC purchase loans change as average purchase loan balances decreased? - Gary Tenner (DA Davidson)

2026Q1: Our deposit growth will be driven by our customer experience, with strong integration and cross-selling and expect that to grow above the industry average. - Greg Garrabrants(CEO)

Can you discuss deposit growth opportunities and pricing competition? - David Pipkin Feaster (Raymond James & Associates)

2025Q4: As industries loan growth picks up, competition in deposit pricing may increase. However, we expect our deposit growth to continue, supported by the Axos ONE product and other initiatives. - Gregory Garrabrants(CEO)

Contradiction Point 5

Expansion in Floor Plan Lending

It involves differing perspectives on the company's expansion plans in the floor plan lending business line, which is a key growth area for the company.

How is the floor plan lending expansion progressing? - David Feaster (Raymond James)

2026Q1: We have several hundred million dollars lined up with strong borrowers. The business is progressing well, with term sheets accepted and repurchase agreements executed. - Greg Garrabrants(CEO)

What are the key opportunities for growth, specifically in non-lender finance and ABL segments? - David Feaster (Raymond James)

2025Q2: We continue to be cautious about new business. We're still in the phase of testing some of those new business initiatives. We want to be very careful about the potential for early Defaults and the quality of the loans. - Gregory Garrabrants(CEO)