AX Q1 Deep Dive: Loan Pipeline Growth, Deposit Cost Control, and Competitive Pricing Pressure
Digital banking company Axos Financial (NYSE:AX) reported Q1 CY2025 results exceeding the market's revenue expectations , with sales up 4.8% year on year to $308.8 million. Its non-GAAP profit of $1.81 per share was 4.3% above analysts' consensus estimates.
Is now the time to buy AX? Find out in our full research report (it's free).
Revenue: $308.8 million vs analyst estimates of $305.7 million (4.8% year-on-year growth, 1% beat)
Adjusted EPS: $1.81 vs analyst estimates of $1.74 (4.3% beat)
Adjusted Operating Income: $147.8 million vs analyst estimates of $158.1 million (47.9% margin, 6.5% miss)
Market Capitalization: $4.2 billion
Axos Financial's first quarter results modestly exceeded Wall Street's top-line and bottom-line expectations, with management pointing to robust deposit growth and continued expansion in key lending verticals as major drivers. CEO Gregory Garrabrants cited 'double-digit year-over-year growth in earnings per share and book value per share for the 10th consecutive quarter,' highlighting strong performance in the company's core banking operations. Executives also acknowledged some competitive pressures in loan pricing, particularly in commercial and industrial lending, which partially offset gains from higher net interest margins and targeted cost reductions.
Looking ahead, management is focused on maintaining disciplined loan growth, managing deposit costs, and navigating increased competition in select lending markets. Garrabrants noted that Axos is 'optimistic' about returning to its targeted loan growth range, supported by new team hires in commercial and specialty verticals and continued enhancements to its product suite. However, the company remains cautious about external headwinds, including prepayment trends in certain loan categories and ongoing pressure on loan spreads, suggesting that margin management and balanced growth will be key themes in the coming quarters.
Management emphasized several factors shaping Q1 performance, including strategic deposit growth, margin management, and competitive dynamics in lending.
Deposit Growth Across Verticals: Axos achieved $614 million in deposit growth, primarily from interest-bearing demand and savings accounts. Growth was diversified across consumer, small business, treasury management, and specialty verticals, supporting funding stability and flexibility in loan origination.
Loan Book Expansion and Mix: Overall loan balances grew slightly, with strength in commercial and industrial (C&I) lending and single-family mortgage warehouse activity offsetting declines in multifamily and auto loans. Elevated prepayments in certain categories continued to weigh on net loan growth.
Net Interest Margin Tailwinds: Net interest margin (NIM) rose to 5.17%, boosted by early payoff of FDIC-acquired loans. Excluding this, NIM was 4.87%. Management expects future NIM to stabilize within a 4.25%–4.35% range, with further benefit from deposit repricing initiatives.
Competitive Loan Pricing: CEO Garrabrants acknowledged increased competition and pricing pressure, especially in club and syndicate lending deals. The company anticipates needing to make minor pricing concessions to maintain loan growth targets.
Operational Investments and Expense Discipline: Recent hiring in commercial and specialty banking contributed to higher operating expenses, but management is focused on cost control as these new teams ramp up productivity. Technology investments, such as the white-label banking platform for advisors, are expected to streamline operations and support scalable growth.
Management's outlook centers on disciplined loan growth, margin preservation, and continued expansion in deposit verticals amid a competitive lending environment.
Loan Growth Pipeline: Axos expects organic loan growth in the high single digits to low teens, driven by new hires in commercial lending and a healthy pipeline across multifamily, C&I, and specialty verticals. Management cautioned that prepayment trends and pricing pressure could moderate net growth.
Deposit Cost Management: The company is proactively repricing consumer deposits and leveraging business banking relationships to control funding costs. Management believes deposit cost discipline is critical for sustaining net interest margin if interest rates decline.
Competitive Dynamics and Risk: Increased competition for quality lending opportunities may continue to compress spreads, particularly in syndicated and club deals. Management also highlighted potential headwinds from loan payoffs and the need to balance growth against prudent credit risk management.
In future quarters, the StockStory team will watch (1) Axos's ability to deliver consistent loan growth despite intensified pricing competition, (2) the effectiveness of deposit repricing and expansion into new verticals in managing funding costs, and (3) the operational scaling of recently launched platforms like the white-label advisor offering. Execution in C&I and specialty lending, as well as cost discipline, will also be key performance indicators.
Axos Financial currently trades at $75.48, up from $72.43 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it's free).
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