Axos Financial, Inc. 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended December 31, 2025 (Q2 Fiscal 2026). Axos Financial, Inc. operates as a technology-driven financial services company with two primary segments: the Banking Business Segment (Axos Bank) and the Securities Business Segment (Axos Clearing, Axos Advisor Services, and Axos Invest). A significant event during the period was the acquisition of Verdant Commercial Capital, LLC on September 30, 2025, which expanded the company's equipment leasing and commercial lending capabilities.
Key Financial Metrics
| Metric | Q2 2025 (3 Months) | Q2 2024 (3 Months) | YTD 2025 (6 Months) | YTD 2024 (6 Months) |
|---|---|---|---|---|
| Net Income | $128.4 million | $104.7 million | $240.7 million | $217.0 million |
| Diluted EPS | $2.22 | $1.80 | $4.17 | $3.72 |
| Net Interest Income | $331.7 million | $280.1 million | $622.8 million | $572.1 million |
| Non-Interest Income | $53.4 million | $27.8 million | $85.7 million | $56.4 million |
| Non-Interest Expense | $184.6 million | $145.3 million | $340.8 million | $292.8 million |
| Provision for Credit Losses | $25.0 million | $12.2 million | $42.3 million | $26.2 million |
| Total Assets (Period End) | $28.2 billion | $23.7 billion | $28.2 billion | $23.7 billion |
| Total Deposits (Period End) | $23.2 billion | $19.9 billion | $23.2 billion | $19.9 billion |
| Net Interest Margin | 4.94% | 4.83% | 4.85% | 5.00% |
| Efficiency Ratio | 47.93% | 47.20% | 48.11% | 46.58% |
Material Changes vs. Prior Period
- Revenue Growth: Net income increased 22.6% year-over-year for the quarter and 11.0% year-over-year for the six-month period. Non-interest income surged 92.0% in the quarter, primarily driven by operating lease rental income from the Verdant acquisition and improved mortgage banking results.
- Expense Increases: Non-interest expenses rose 27.0% in the quarter. This was largely due to a $16.2 million increase in depreciation and amortization (Verdant equipment leases) and a $9.9 million increase in general and administrative expenses, which included a $7.0 million accrual related to a 2019 acquisition matter (COR Securities).
- Balance Sheet Expansion: Total assets grew 13.8% to $28.2 billion, driven by a $3.2 billion increase in loans (net) and a significant increase in available-for-sale securities ($758.8 million purchased YTD). Deposits increased 11.5% to $23.2 billion.
- Asset Quality: Non-performing assets decreased to $156.7 million (0.56% of total assets) from $175.4 million in the prior period. The allowance for credit losses increased to $327.0 million, reflecting loan growth and the Verdant acquisition.
Guidance, Outlook, and Risks
- Acquisition Integration: Management expects to realize synergies from the Verdant acquisition, though integration costs and amortization of intangible assets are impacting current earnings.
- Capital Management: The company issued $200 million in 7.00% Subordinated Notes (2035 Notes) in September 2025 and redeemed $160.5 million of 2030 Notes in October 2025. Both the Company and the Bank remain "well capitalized" under regulatory requirements.
- Liquidity: Liquidity is described as stable and adequate. The Bank has significant borrowing capacity available through the Federal Home Loan Bank ($2.6 billion immediately available) and the Federal Reserve Discount Window ($8.9 billion available).
- Legal Contingencies:
- Derivative Action: A consolidated derivative action regarding a former employee's employment dispute was dismissed with prejudice in September 2025, but the plaintiff has appealed.
- UFB Actions: Three putative class actions regarding rate representations for UFB products are pending. While arbitration was compelled in some instances, the company intends to vigorously defend these claims and does not expect a material adverse effect.
- COR Securities Matter: A $7.0 million accrual was recorded in Q2 2025 related to indemnification obligations from a 2019 acquisition following a declaratory judgment.
Investor Verification Checklist
- Verdant Acquisition Impact: Verify the specific contribution of Verdant to loan growth and the timeline for realizing cost synergies versus ongoing amortization expenses.
- COR Securities Accrual: Confirm the status of the $7.0 million accrual and whether further legal developments could impact future earnings.
- Deposit Composition: Review the breakdown of brokered deposits ($1.8 billion) and uninsured deposits ($3.6 billion) to assess funding stability.
- Interest Rate Sensitivity: Note the negative interest rate sensitivity gap in the first six months (-7.71%), indicating potential earnings pressure if rates fall, though the company models a positive response to rising rates.
- Non-GAAP Reconciliations: Review the reconciliation of Adjusted EPS ($2.25) to GAAP EPS ($2.22) to understand the magnitude of acquisition-related costs and the COR Securities accrual.