Axos Financial(AX) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics - Net income for Q1 2025 was $112 million, up 36% YoY from$ 82.7 million [10] - Earnings per share grew 40% YoY to $1.93 [10] - Return on average common equity was 19.1% for the quarter [7] - Tangible book value per share grew 28% YoY [7] - Net interest margin increased to 5.17%, up 81 bps YoY and 52 bps QoQ [8] - Loan balances grew 0.3% QoQ and 13.7% YoY to$ 19.3 billion [6] - Deposits grew by $614 million QoQ, with 96% coming from interest-bearing demand and savings accounts [6][19] Business Line Performance - Single-family mortgage warehouse and C&I loan balances grew, offset by declines in single-family jumbo mortgage, multifamily, and auto loans [10] - Average loan yields increased to 9.01%, up 47 bps QoQ and 116 bps YoY [11] - Non-performing assets increased in single-family jumbo mortgages ($ 13.3 million) and commercial real estate ( $14.5 million) [13][14] - C&I asset-based and cash flow lending saw a$ 40 million increase in non-performing assets [16] - Axos Clearing deposits remained flat at $1.3 billion, with$ 800 million on the balance sheet and $450 million at partner banks [30] Market and Geographic Performance - Consumer and small business deposits represented 60% of total deposits, while treasury management accounted for 20% [20] - Axos Fiduciary Services and Axos Security (custody and clearing) represented 6% and 4% of deposits, respectively [20] - Client cash sorting stabilized at 3% of assets under custody, down from the historic range of 6%-7% [21] Strategy and Industry Competition - The company is focused on growing assets under custody and cash balances by adding new assets from existing and new advisors [21] - Axos is managing interest rate risk by adjusting deposit pricing and extending the duration of liabilities [22][23] - The company is optimistic about returning to high single-digit to low-teens loan growth, driven by strong demand in fund finance, ABL, and select C&I lending businesses [29] - Axos is leveraging its white-label banking platform to attract new clients and enhance deposit and lending product offerings [33] Management Commentary on Operating Environment and Outlook - Management highlighted strong demand in C&I lending but noted increased pricing pressure and competition [43] - The company expects to maintain its net interest margin within the 4.25%-4.35% range, excluding the FDIC loan benefit [24] - Management remains confident in the credit quality of the loan book, despite some idiosyncratic increases in non-performing assets [15][17] Other Important Information - The company allocated a$ 10 million specific loan provision for a C&I loan classified as nonaccrual [17] - Non-interest expenses increased by $6.9 million QoQ, driven by higher salaries and benefits related to new hires [39] - The loan pipeline remains strong at$ 1.9 billion, with growth expected in SFR jumbo mortgages, multifamily, and commercial loans [40] Q&A Session Summary Question: Competition and Loan Pricing - Management noted increased pricing pressure in certain verticals, particularly in C&I lending, but remains confident in achieving loan growth [43] Question: Fee Income and Rate Sensitivity - Fee income was impacted by prepayment penalty fees and a mark on the servicing book due to rate declines [44][45] - Management expects fee income growth in the securities business as net new assets increase [46] Question: Deposit Repricing and Growth Opportunities - The company has successfully repriced deposits ahead of rate cuts and sees growth opportunities in C&I verticals and middle-market lending [65][66] Question: Commercial Real Estate Exposure - Axos remains interested in growing its commercial real estate book but faces challenges due to fewer deals and early repayments by bridge lenders [84] Question: Loan Pricing and Margin Outlook - Management expects some pricing concessions to maintain loan growth but remains optimistic about the margin outlook, supported by loan repricing and deposit cost management [81][98] Question: Loan Underwriting and Participation - The company emphasized its strong underwriting standards, particularly in commercial real estate, and noted variations in loan participation across different business lines [89][92]