Axos Financial First Quarter 2027 Earnings Conference Call and Webcast - AXOS FINANCIAL INC

Explicit Guidance:

• Loan Growth: Targeting "low-to-mid-teens" organic loan growth annually for Fiscal 2027 (ending June 30, 2027), excluding acquisitions.
• Net Interest Margin (NIM): Expect NIM to remain "flat" over the next few quarters.
• Q4 2026 Impact: Anticipate a drag on NIM in the quarter ending December 31, 2026, due to the "lag in deposit repricing" of the Capital One deposits (approx. $700 million excess liquidity) offsetting the benefit of the full quarter of the 25 bps Fed rate hike.
• Q1 2027 & Beyond: Anticipate margin benefits from higher rates in Q1 2027 and beyond, partially counteracted by deposit repricing lag; expect margin expansion to resume as lower-rate legacy loans are replaced with higher-yielding originations.
• Expense Growth: Maintaining a cap on personnel and professional fee growth at 30% of revenue growth; expecting expense growth to normalize as AI efficiencies are realized.
• Loan Loss Reserves: Expect to maintain loan loss reserves at 1.1% to 1.2% of total loans and leases.
• Share Buybacks: $112 million remaining in share repurchase authorization (as of Oct 23, 2026); executed $7 billion in buybacks from Oct 1–23, 2026.
• Prepayment Penalties: Expect prepayment penalty fee income (currently $6.8 million) to decline in Q2 2027 compared to Q1 2027 levels.

Business-Segment Outlook:

• Capital Calls: Capital call balances are expected to resume growth in the December quarter; several large anticipated loans will fund/close in Q1 2027.
• Commercial & Specialty Lending: Loan demand remains strong with pipelines up across multiple categories; targeting broad-based growth in commercial real estate, equipment finance, auto, and real estate lender finance.
• Single-Family & Multifamily: 30-year mortgage securitization market gaps have created a "larger pipeline" for Jumbo SFR business; multifamily small-balance loan growth remains constrained by buyer-seller valuation disagreements but expected to resolve.
• Securities Business: Expect continued fee income growth from syndications and securitizations leveraging Verdant's expertise; cash sorting deposits on and off balance sheet to increase as advisors deploy excess cash.
• Banking/Deposit: Expect to migrate approximately $700 million of ARK client deposits from partner banks to Axos over the "next few quarters"; ARK integration expected to add low-cost operating deposits.
• Verdant: Integration expected to deepen vendor/dealer relationships and improve efficiency in equipment leasing; synergy identified with floor plan finance.
• Genius Bank: Early-stage evaluation of cross-selling brokerage and digital wealth products to IRA/CD customers.
• Crypto Roadmap: Beta launch of Bitcoin purchasing within self-directed trading accounts expected in "March 2027-ish," followed shortly by a Bitcoin lending program.

Market and Competitive Outlook:

• Interest Rate Environment: Management remains positioned for a "higher for longer" rate environment; loan portfolio is 75% floating with repricing within 30 days, providing flexibility to adjust to rate changes.
• Competitive Landscape: Noting "disruption" in equipment leasing and floor plan finance due to competitor repositioning/sales, creating client acquisition opportunities.
• Deposit Competition: Acknowledges a "highly competitive deposit environment" requiring elevated marketing spend to remain competitive, particularly in consumer segments.
• SFR Conduit Market: Securitization market gaps due to 30-year rate increases have improved Axos's competitive positioning against traditional competitors.
• Venture/Tech Lending: Strategy to avoid direct venture/SaaS lending exposure due to AI-induced market dynamics; leveraging ARK platform to act as a broker for third-party lenders to capture deposits without balance sheet credit risk.

Macro / Industry Outlook:

• Rates: Full benefit of the September 25 bps Fed rate hike expected to be largely offset in Q4 2026 by the yield drag from Capital One excess liquidity; margin benefits anticipated as loans repricing outperforms deposit repricing lag in March 2027 quarters.
• Economic Conditions: Expectation that loan growth will be affected by discretionary leverage decisions if rates rise; monitoring "irrational competitors" in multifamily and "valuation disagreements" in CRE.
• Regulatory/Political: Identified specific credit deterioration drivers including "regulatory factors" and "tariff-related issues" (noting a ~$1 billion loan impacted by tariffs) within the syndicated cash flow portfolio.
• AI Adoption: Expects "speed and scale and productivity improvements" from AI deployment to exceed expectations, driving efficiency and value delivery.

Strategic Initiatives:

• Ark Technologies Integration: Targeting completion of platform integration to migrate deposits from partner banks to Axos Bank; leveraging ARK's AI-built debt marketplace for fee income without incremental credit risk.
• Acquisition Integration: Closing integration of Capital One IRA deposits to reduce high-cost wholesale funding; evaluating cross-sell of wealth products to Capital One and Genius Bank clients.
• Capital Deployment: Funding over $3 billion of organic loan growth in the last 12 months; deploying Capital One excess liquidity to fund future loan growth.
• Product Launches: Finalizing beta testing for Bitcoin purchase and lending programs for Q1 2027 launch.

Risks and Headwinds to Outlook:

• Net Interest Margin: The "lag in deposit repricing" in late 2026 is a specific headwind that could flatten NIM despite asset sensitivity and potential rate hikes.
• Credit Quality: Isolated charge-offs in the syndicated cash flow portfolio due to idiosyncratic regulatory and tariff impacts; risk of higher loss content in specific operating business loans.
• Loan Growth Volatility: Elevated prepayments and payoff levels in single-family, warehouse, and CRE segments currently offsetting originations; "irrational competitors" delaying multifamily transaction volumes.
• Rate Sensitivity: Discretionary nature of client leverage decisions if rates remain high; potential for pipeline "falling out" in mortgage segments if escrow cancellations occur.
• Expense Pressure: Advertising and marketing costs expected to remain elevated to compete for deposits; personnel costs to see full impact of merit reviews starting Q4 2026.

Management Tone on the Future:

• Confidence: High confidence in generating "double-digit loan growth" and maintaining "industry-leading returns" (ROA 1.72%, ROE 15.66% in Q1 2027).
• NIM Outlook: Cautiously optimistic; expects NIM flattening in Q4 2026 but durability and expansion in subsequent quarters as liquidity is deployed and margins stabilize.
• Strategic Position: Emphasizes "nimbleness" and "flexibility" to pivot across asset classes and leverage acquisitions for incremental growth; views current market disruption as an opportunity rather than a threat.
• Credit Discipline: Reiterates conservative approach to credit, noting "de minimis" unrealized losses and strong reserves (196% coverage of non-accruals).