Axos Financial (AX) Q3 FY26 earnings call: guidance and Q&A

Why did securities balances increase significantly, and is this a temporary measure for Jenius Bank deposits or a higher long-term securities book?

The increase was a strategic, temporary move of $750 million from cash into 3-7 year treasuries hedged with SOFR swaps. This capitalized on a market dislocation, generating 30 basis points more than holding cash at the Fed, and was part of liquidity management.

“So that was something. It was the widest that spread had gotten in -- other than on the liberation day. And so there are -- that was a pretty rare dislocation in the marketplace. So we took that opportunity and acquired some of those treasuries.”

asked by Kyle Peterson · answered by Derrick Walsh

Is the strong capital call growth due to bigger draws from existing customers or new accounts, and is this growth sustainable?

The strong growth in capital call loans is primarily driven by bringing on many new clients. While capital call growth might not be as significant next quarter, it is expected to remain decent, and the overall diverse loan book allows different segments to outperform at various times.

“Quite a few new clients. I wouldn't say there's any significantly greater drawdowns... but bringing on a lot of new clients mostly.”

asked by Kyle Peterson · answered by Gregory Garrabrants

Was the increase in allowance for credit losses exclusively due to the C&I nonaccrual, or were other factors at play?

The C&I loan addition was the biggest aspect driving the increase in the allowance for credit losses. There was also a minor impact from broader economic and geopolitical events influencing the quantitative model, but the C&I loan was the primary factor.

“The C&I was the biggest aspect of it. There is maybe a little bit tied to obviously the broader economic events or the geopolitical events that obviously flow through the Moody's variables and into the quantitative model, but that C&I addition was the biggest piece of it.”

asked by Gary Tenner · answered by Derrick Walsh

How will the Jenius and Capital One deposit acquisitions affect deposit pricing and NIM, and will they allow for further funding cost reductions?

The deposit acquisitions ensure funding for loan growth and reduce the need for aggressive marketing or pricing increases. While helpful, management does not anticipate a significant NIM increase from immediately pricing down other deposits, especially for Jenius clients. The guidance for flat organic NIM already incorporates these acquisitions.

“I wouldn't really model in any significant sort of increase in NIM from our ability to say, well, now we're going to try to price down other deposits just based on having that excess.”

asked by Kelly Motta · answered by Gregory Garrabrants

Are there cross-selling opportunities for securities products with Capital One clients, similar to Jenius, and what offerings would be attractive?

Yes, there are opportunities for securities cross-sell with Capital One clients, particularly because these are retirement accounts with currently limited product types. Over time, these clients could also evolve into more general banking clients, expanding the scope of potential offerings.

“I do think that there would be opportunities there on the Capital One clients with respect to some of those offerings just because these are retirement accounts. Right now, they're very limited in their product types that they have offered and we'll obviously offer them greater product types.”

asked by Liam Coohill · answered by Gregory Garrabrants

How is competition in the loan market, are spreads holding up, and what is the direction of loan yields from here?

Loan spreads are stable, and prior compression has ceased. While some private credit outflows have created a slightly positive competitive dynamic, it's not enough to reverse past compression. Management feels confident about current spreads and does not predict further compression, supported by a diversified loan mix including higher-spread Verdant lending.

“I feel that spreads are stable, I'd say, from where we are. I think that there was -- to the extent that there was compression, I feel like that I'd say that compression has stopped.”

asked by Kelly Motta · answered by Gregory Garrabrants