Net Loan Growth: Over $700 million linked quarter. Net Interest Income: $275 million, up 5.3% from the prior-year period. Net Interest Margin: 4.78%, down 5 basis points from the previous year. Book Value Per Share: Increased by 19% year-over-year. Return on Average Common Equity: 16% for the quarter. Return on Average Assets: 1.8% for the quarter. Common Stock Repurchase: Approximately $28 million in the quarter, plus 517,000 shares for $30.3 million post-quarter. Total Deposits: Increased 5.4% year-over-year to $20.1 billion. Net Income: Approximately $105.2 million for the quarter. Diluted EPS: $1.81 for the quarter. Noninterest Expense: Approximately $146 million, up by $900,000 from the previous quarter. Net Annualized Charge-offs: 9 basis points, compared to 7 basis points last year. Nonaccrual Loans: Declined by $66.5 million linked quarter. Average Loan Yields: 7.99% for the quarter. Ending Deposit Balances: $20.1 billion, up 1% linked quarter. Client Margin Balances: Grew by 2.9% to $282.4 million. Pretax Income for Securities Business: Increased by 23.6% year-over-year to $9.1 million. Income Tax Rate: 29% for the quarter. Loan Pipeline: $2.1 billion as of April 25, 2025.

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Release Date: April 30, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Axos Financial Inc (NYSE:AX) reported a 19% year-over-year increase in book value per share. The company achieved a 16% return on average common equity and a 1.8% return on average assets. Net interest income increased by 5.3% year-over-year to $275 million. Total on-balance sheet deposits grew by 5.4% year-over-year, reaching $20.1 billion. Axos Financial Inc (NYSE:AX) successfully reduced nonaccrual loans, improving the nonaccrual loans to total loan ratio from 1.26% to 0.89%.

Negative Points

Net interest margin decreased slightly from 4.83% to 4.78% compared to the previous quarter. Average loan yields declined from 8.37% to 7.99% quarter-over-quarter. Net annualized charge-offs to average loans increased from 7 basis points to 9 basis points year-over-year. The company experienced a decline in average loan yields for non-purchased loans, which stood at 7.66%. There was a noted increase in operating expenses, with noninterest expenses rising by $900,000 from the previous quarter.

Q & A Highlights

Q: Can you discuss the areas where Axos Financial is being cautious or sees opportunities for growth in the current volatile environment? A: Gregory Garrabrants, President and CEO, mentioned that Axos is cautious about certain C&I segments due to potential administrative changes. They are avoiding logistical deals and have seen some spread compression. However, the loan pipelines are strong, and they are optimistic about loan growth, particularly in single-family and multifamily sectors, despite previous headwinds.

Story Continues

Q: There was a noticeable increase in fee income this quarter. Is this a new trend or a one-time occurrence? A: Derrick Walsh, CFO, explained that the increase in fee income was due to several factors, including mortgage banking impacts from the prior quarter, auto insurance recoveries, and additional loan fees. There was also a $750,000 fair value mark on DTC stock, which is a once-a-year occurrence.

Q: How does Axos plan to manage its efficiency ratio with ongoing investments in technology and AI? A: Gregory Garrabrants emphasized the importance of maintaining the efficiency ratio at current levels. He highlighted the use of AI to improve operational efficiencies and reduce costs. The goal is to ensure personnel expenses do not exceed 30% of the combination of net interest and noninterest income.

Q: Can you provide insights into the improvement in special mention and substandard loans this quarter? A: Gregory Garrabrants noted that some loans classified as substandard were paid off or sold at par. He emphasized that many of these loans still have strong borrowing bases and are performing well, indicating minimal loss content.

Q: What is Axos Financial's approach to capital management, particularly regarding stock buybacks and potential M&A activities? A: Gregory Garrabrants stated that Axos has excess capital and sees the current stock price as an opportunity for buybacks. They are also open to M&A opportunities, particularly in wealth and custody businesses, but remain cautious about overpaying for acquisitions.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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