8-K: Axos Financial Reports Strong Q1 FY26 Growth, Verdant Boosts Loans

Axos Financial, Inc. announced its first fiscal quarter 2026 results, reporting increased adjusted earnings and significant loan growth driven by the Verdant acquisition.

Summary

• Net income for the quarter ended September 30, 2025, was $112.4 million, a slight increase from $112.3 million in the prior year.
• Diluted earnings per share (EPS) was $1.94, up from $1.93 in the same period last year.
• Adjusted earnings, a non-GAAP measure, increased 5.5% to $120.4 million, and Adjusted EPS rose 5.6% to $2.07.
• Net interest income decreased 0.3% to $291.050 million; however, excluding a $17 million interest income benefit from FDIC-purchased loans in Q1 FY25, net interest income increased by $16 million.
• Net loan growth totaled $1.6 billion, including $1.0 billion from the Verdant Commercial Capital, LLC acquisition and $565.2 million in organic growth.
• Non-interest income increased 13.0% to $32.3 million, primarily due to higher banking and service fee income and mortgage banking and servicing rights.
• Credit quality improved, with net charge-offs to average loans decreasing to 0.11% and non-performing assets to total assets falling to 0.64%.
• Total deposits grew by over $1.4 billion, or 27.6% annualized, to $22.3 billion.
• Total assets increased 10.7% to $27.4 billion, and stockholders' equity rose 4.2% to $2.8 billion.
• Net interest margin was 4.75%, down from 4.84% in the prior quarter, with excess liquidity negatively impacting NIM by approximately 7 basis points.

Sentiment

Score: 8

Explanation: The overall sentiment is positive, driven by strong adjusted earnings growth, significant loan expansion (both organic and through acquisition), and notable improvements in credit quality. While net interest margin compression and a slight decrease in capital ratios are noted, the strategic acquisition and robust deposit growth underpin a strong operational quarter.

Positives

• Adjusted earnings increased 5.5% to $120.4 million, and Adjusted EPS grew 5.6% to $2.07.
• Net loan growth of $1.6 billion, including $565.2 million in strong organic growth.
• Non-interest income increased 13.0% to $32.3 million, driven by higher banking and service fees and mortgage banking.
• Credit quality improved significantly, with net charge-offs to average loans decreasing to 0.11% (from 0.17% a year ago) and non-performing assets to total assets decreasing to 0.64% (from 0.75% a year ago).
• Total deposits increased by over $1.4 billion, or 27.6% annualized, demonstrating strong funding growth.
• Assets under custody and/or administration grew by $1.1 billion net new assets to $43.0 billion.
• Book value per share increased 17.0% to $49.31 from $42.14 a year ago.
• Allowance for credit losses to non-accrual loans and leases increased to 180.4% from 149.3% a year ago, indicating stronger coverage.

Negatives

• Net interest income decreased 0.3% to $291.050 million compared to the prior year, primarily due to lower interest income on deposits in other financial institutions and lower interest income earned on loans.
• Net interest margin decreased to 4.75% from 4.84% in the prior quarter, partially due to excess liquidity impacting it by approximately 7 basis points.
• Non-interest expense increased $8.8 million to $156.2 million, primarily due to higher professional services, data and operational processing expense, and salaries and related costs.
• Capital ratios (Equity to assets, Tier 1 leverage, Common equity tier 1 capital, Total capital) all decreased linked quarter for both Axos Financial, Inc. and Axos Bank.

Risks

• Ability to successfully integrate acquisitions and realize anticipated benefits.
• Changes in the interest rate environment and monetary policy.
• Impact of inflation, tariffs, and government regulation.
• General economic conditions and changes in the competitive marketplace.
• Conditions in the real estate markets where operations occur.
• Risks associated with credit quality.
• Ability to attract and retain deposits and access other sources of liquidity.
• Outcome and effects of litigation and other factors beyond control.

Future Outlook

The company's forward-looking statements indicate expectations for continued profitable growth, increased business, and diversification of lending and deposit franchises. They also anticipate successful integration of acquisitions and realization of associated benefits, while acknowledging potential impacts from interest rate changes, economic conditions, and regulatory factors.

Management Comments

• Greg Garrabrants, President and CEO, stated, "Net interest income increased 15.5% linked quarter annualized due to strong organic loan growth. Excluding the Verdant equipment leasing acquisition, net loans increased by approximately $565 million this quarter. Our credit remains strong, with net charge-offs to average loans decreasing by five basis points linked-quarter and six basis points versus a year ago to 11 basis points in the quarter ended September 30, 2025."
• Derrick Walsh, Chief Financial Officer, noted, "Loan loss provision was approximately $17.3 million for the quarter ended September 30, 2025, including $7.8 million related to the Verdant acquisition, compared to $15.0 million in the prior quarter. Our allowance for credit losses to non-accrual loans and leases was 180.4% at September 30, 2025, up from 149.3% at September 30, 2024."

Industry Context

Axos Financial's results reflect a dynamic environment in the banking and financial services sector. The strong organic loan growth and successful integration of the Verdant acquisition highlight a strategic focus on diversification, particularly into equipment leasing, which can offer higher yields and different risk profiles compared to traditional banking. The improvement in credit quality metrics, despite an increase in loan loss provision due to acquisition and growth, suggests effective risk management in a potentially challenging economic climate. The decrease in net interest margin, while partially attributed to excess liquidity, is a common trend across the banking industry as interest rate environments fluctuate and competition for deposits remains high. The growth in digital banking and assets under custody also aligns with broader industry shifts towards technology-driven financial solutions and wealth management services.

Stakeholder Impact

• Shareholders: Positive impact due to increased adjusted earnings, diluted EPS, book value per share, and strategic growth through acquisition. However, capital ratios saw a slight decline.
• Customers: Expanded product offerings and services, particularly in equipment leasing through the Verdant acquisition.
• Employees: Potential for growth and opportunities stemming from the company's expansion and acquisition.
• Creditors: Capital ratios remain strong, though slightly lower than the previous quarter, indicating continued financial stability.

Next Steps

• A conference call and webcast were held on October 30, 2025, to discuss the results.
• A replay of the conference call will be available until November 30, 2025, on Axos' website and telephonically.

Key Dates

Recommendation

Axos Financial demonstrated strong operational performance in Q1 FY26, marked by robust adjusted earnings growth, significant organic loan expansion, and the successful integration of the Verdant acquisition. The company's credit quality metrics improved, and deposit growth was substantial. While net interest margin saw some compression and capital ratios slightly decreased, these are manageable in the context of overall growth and strategic diversification. The positive trajectory, strategic moves, and solid financial health suggest a favorable outlook for long-term investors.

Keywords

Axos Financial, Banking, Financial Services, SEC Filing, Earnings Report, Loan Growth, Verdant Acquisition, Net Interest Income, EPS, Credit Quality, Deposits, Assets Under Management, Capital Ratios, Digital Banking, Equipment Leasing