Axos Financial Inc (AX) stock plummeted 5.24% in pre-market trading on Wednesday, driven by concerns over slowing loan growth and rising non-performing assets. The company reported its second-quarter fiscal 2025 earnings, which revealed a temporary slowdown in loan originations, particularly in single-family mortgages and hybrid adjustable-rate mortgages.
However, the company expressed optimism about improving conditions in the coming quarters. According to CEO Gregory Garrabrants, Axos Financial expects to stem the runoff in single-family and multifamily lending, aided by a steeper yield curve and more favorable market conditions. The company's pipelines for these products have improved significantly in recent months.
While non-performing assets increased during the quarter, the company believes losses will be limited. Garrabrants stated that the majority of non-performing assets are in the real estate-backed loan area, where loan-to-value ratios are conservative, and historical losses have been low. The company remains well-reserved for potential credit losses, with an allowance for credit losses to total loans held for investment of 1.37%.
On a positive note, Axos Financial demonstrated its ability to reprice higher-cost deposits lower, contributing to a strong net interest margin of 4.83%. The company's diverse and granular deposit base across consumer and commercial banking supported organic loan growth.
Analysts at KBW maintained their "Hold" rating on Axos Financial but lowered their price target to $90, citing the slowing loan growth. However, the company's optimism about future growth prospects and solid deposit base have led to an