Axos Financial: A Tax Windfall and a Culture Shift

A strong Q4 FY25 hides a fundamental re-rating catalyst — California's tax reform — while AI and digital asset ambitions reshape the growth narrative.

AX · Earnings Call · 2026-07-30

A Quiet Quarter, a Big Tax Win

Axos Financial delivered another quarter of solid execution — $856M of net loan growth, a 6bp expansion in net interest margin to 4.84%, and a 17% ROE. But the real headline is buried in the tax line. CFO Derrick Walsh clarified that a California budget proposal that went into effect on 06/30/2025 will cut the forward tax rate to approximately 26–27%, a 3 percentage-point improvement from the previously guided 29–30%. This is not just a one-time benefit; it's a permanent step-up in earnings power, and management was explicit that it "goes to the bottom line."

Starting in the quarter ending 09/30/2025 and going forward, we expect our corporate tax rate to be approximately 26% to 27%, an improvement of 3 percentage points from the previously guided 29% to 30%.
Derrick K. Walsh, Chief Accounting Officer · 2026-07-30

The change stems from a reassessment of deferred tax assets, which triggered a $5.6M non-cash impairment in the quarter. But the forward benefit is enormous — for a company earning over $1.1B in net income this fiscal year, 3 points of tax rate cuts to the bottom line. This is a genuine company-unique catalyst, not sector boilerplate, and it deserves attention from investors.

Organic Growth with Leverage

Beyond the tax tailwind, Axos continues to demonstrate that it can fund its own growth. Organic loan growth of 4.2% linked-quarter was led by asset-based lending, commercial real estate, and the newly onboarded floor plan team. Management expects to stay at the mid-to-high end of its high-single-digit to low-teens growth range for fiscal 2026, underpinned by a $2B loan pipeline. Meanwhile, deposit growth of 7.6% YoY, with 95% in operating accounts, funded the expansion — and deposits from Axos Clearing reached $1.4B. This balance sheet momentum is reflected in the fundamentals: $564M in effective revenue, up 21% YoY, even as non-interest expense grew just 1% linked-quarter. Management reiterated its commitment to discipline on Professional service expenses</keyward> — maintaining a target that personnel and professional services cost growth stays below 30% of revenue growth. Gregory Garrabrants again emphasized AI as the key to bending the cost curve: <span class="quote">“"…it is going to bend the cost curve in the operations side. And then on the software development side, obviously, we have so many cool and interesting things we wanna do."”</span> He described concrete AI use cases — extracting covenants from legal agreements, auto-learning from attorney corrections, and cutting the time to build product screens by more than 10x. This isn't just talk; the company's efficiency ratio is already at 33%, and AI should push it lower. The <keyword id="01b3feff3e">operating efficiency theme is consistent with prior quarters, but the specificity of execution is new.

A Second Act in Digital Assets and M&A

Another notable shift is Axos's cautious pivot toward digital assets. In response to a question about the GENIUS Act, Garrabrants acknowledged the bank is "focused on it and thinking through it and looking at exactly how it should integrate into everything we're doing." He also noted that the company has become "more willing to look at those accounts" since the administration changed, referencing crypto banking. This is a strategic opening, even if no formal plans were disclosed. crypto side is a keyword that has resurfaced after being dormant — see the spike in Q4 momentum. On the capital deployment front, Axos repurchased ~$31M of stock in April at an average price of $59, and management continues to evaluate M&A across specialty lending and fee-income businesses. The tone suggests a more active pipeline than in prior quarters: “I'm not going to have a lot of public comments on that now. But we are focused on it and thinking through it.” — Gregory Garrabrants, President and Chief Executive Officer · 2026-07-30 What changed? The company is no longer just a high-growth regional lender; it's using its capital and technology to create optionality. The multi-family loan sale for a $12M pre-tax gain illustrates opportunistic portfolio management, while the California tax cut adds permanent EPS accretion.

Valuation and Risk

The market seems to be pricing in this progress. Axos trades at 10.2x trailing net income and 1.6x book — a slight re-rating from earlier this year but still reasonable for a bank with 17% ROE. The stock is about 8% off its early-August peak, and the 90-day trend shows a gentle uptrend despite the pullback. The key risk is whether the growth rate can be sustained as competition intensifies in C&I and commercial real estate. But with the tax tailwind and AI-driven expense discipline, consensus may need to raise estimates. In prior quarters, management had already flagged the 30% cost-growth target and the opportunity in AI. The new elements — the tax rate cut, the multi-family loan sale, and a more concrete stablecoin investigation — are the fresh signals that should move the story forward.