Axos Loan Growth Slows, Deposits Jump on Jenius Deal, Credit Costs Ease
Net interest income rose 13.5% to $317.9 million at Axos Financial (AX) even as loan growth decelerated for a third straight quarter and CET1 slipped to 11.76%.
Axos Financial (AX), the branchless bank known for its diversified commercial and consumer lending platforms, grew net interest income 13.5% year-over-year to $317.9 million in its fiscal fourth quarter, driven by higher loan interest income and partially offset by lower interest earned on deposits at other institutions and higher FHLB advance and secured financing costs. The growth rate has been decelerating from a peak of 18.4% in the December quarter, easing to 11.2% in the March quarter and then ticking back up to 13.5% in the June quarter, a pattern that tracks the bank's underlying loan production more than any shift in funding costs.
That production itself is cooling. Ending net loans grew $637.9 million quarter-over-quarter to $25.6 billion, versus $685.0 million of growth in the prior quarter and $1.6 billion in the December quarter — a clear step-down across three consecutive periods. Deposits moved the other direction, jumping $3.7 billion year-over-year, or 17.9%, to $24.6 billion at June 30, with roughly $2.3 billion of that tied to the Jenius Bank acquisition that closed during the quarter. The March-quarter deposit gain had been a comparatively modest $2.3 billion, or 11.2%, so the acquisition close visibly reaccelerated funding growth even as loan growth slowed.
Credit costs swung sharply lower after a March-quarter spike. Provision for credit losses came in at $17.9 million, up 19% from $15.0 million a year earlier on loan growth and higher specific reserves on individually assessed loans, but down from $41.0 million in the prior quarter, when management had pointed to a specific commercial-and-industrial loan reserve. Asset quality improved on several measures: non-performing assets to total assets fell to 0.53% from 0.71% a year earlier and 0.62% in March, while the allowance for credit losses covered 221.1% of non-accrual loans, up from 195.2% in March and 170.2% a year earlier. Axos took a $10.0 million net charge-off on a previously reserved C&I cash-flow loan in the quarter; excluding it, annualized net charge-offs to average loans would have been 0.09%, an improvement from a year earlier.
Non-interest income rose 49.9% year-over-year to $61.9 million, helped by Verdant-related operating lease rental income and higher prepayment penalty income, offset by the absence of a $12.0 million loan-sale gain booked in the year-ago quarter. The prior quarter's 157.7% jump to $86.0 million had been inflated by a one-time $22.0 million legal settlement; stripped of that item, the March-quarter base was $64.0 million, making the anchor quarter's growth a cleaner read on the underlying fee trend.
Expenses told a more mixed story. Non-interest expense rose $55.3 million year-over-year to $205.9 million, largely on a $21.0 million FINRA arbitration accrual plus higher depreciation and amortization tied to the Verdant and deposit acquisitions and higher salaries. Excluding the legal accrual, expenses were actually down about $1.0 million quarter-over-quarter, pointing to underlying cost discipline beneath the one-time charge.
That FINRA accrual landed almost entirely in the Securities Business Segment, which swung to an $11.5 million pre-tax loss from $6.9 million of pre-tax income a year earlier. The Banking Business Segment, by contrast, grew pre-tax income 13.1% to $182.8 million from $161.6 million, a divergence between the two segments not visible in prior quarters.
Capital ratios thinned as the bank funded both organic growth and acquisitions. Holding-company CET1 fell to 11.76% from 12.52% a year earlier, and Axos Bank's CET1 dropped to 10.93% from 12.42%, reflecting capital consumption from strong loan growth alongside the Jenius and Arc deals. Axos still repurchased $22.0 million of stock in the quarter at an average price of $87.95 a share, signaling management's willingness to return capital even as ratios compressed.
Management's tone on margin shifted markedly between quarters. In the March release, net interest margin pressure was framed as being offset by dynamics in the bank's FDIC-purchased loan pool, with NIM at 4.57% versus 4.78% a year earlier — roughly flat when those loans were excluded. In the anchor release, management instead described NIM as "best-in-class" and pointed to loan-growth-fueled strength, though it did not disclose a specific NIM figure for the June quarter. With loan growth slowing and deposit costs still a swing factor, the next several quarters should show whether that margin strength holds without the volume tailwind that has driven it so far.