Axos, rivals ride AI wave as acquisitions fuel bank growth

Axos Financial’s aggressive acquisition strategy, marked by four deals within a year including the recent purchase of Arc Technologies, underscores its commitment to building a differentiated digital banking platform tailored for businesses throughout their lifecycle. By integrating Arc’s AI-powered financial software and 'agentic finance tools,' Axos aims to automate workflows and expand its product suite, specifically targeting the millions of underserved U.S. small businesses with enhanced digital and AI-driven banking solutions.

The acquisition of Verdant Commercial Capital has proven pivotal in Axos’s recent outperformance, significantly boosting both revenue and loan growth by expanding its commercial specialty and equipment finance capabilities. Management highlights that Verdant not only contributes to net loan and non-interest income growth but also generates operational synergies and cross-sell opportunities expected to accelerate loan growth in the low to mid-teens, positioning Axos for sustained profitability and market expansion in specialty lending sectors.

Mid-tier banks like Axos Financial and Valley National Bank are harnessing AI-driven automation to transform operational efficiency and client service. Axos’s 2026 acquisition of Arc Technologies equips it with advanced 'financial intelligence infrastructure' and 'agentic finance tools' that automate workflows and expand AI-powered product offerings tailored to underserved small businesses. Meanwhile, Valley National is strategically investing in AI and operational technologies to slash its efficiency ratio by about 500 basis points, aiming for a sub-50% ratio that would boost returns. These efforts reflect a broader industry trend where AI not only streamlines internal processes but also enhances risk management and customer experience.

Customers Bancorp exemplifies the tangible financial benefits of AI integration, reporting $30 million in annual cost savings alongside markedly faster loan processing times. This concrete outcome underscores how AI-driven operational efficiencies are not just theoretical improvements but deliver measurable margin enhancements and support robust growth trajectories. By embedding AI tools deeply into their workflows, mid-tier banks are effectively controlling expense growth while accelerating service delivery, positioning themselves competitively in an evolving financial landscape.

Mid-tier banks showcased robust loan and deposit growth in Q2 2026, driven largely by strategic focus on commercial and consumer lending. Associated Banc-Corp reported a 19% year-over-year increase in total loans to $36.5 billion and a 17% rise in deposits to $39.9 billion, fueled by core customer deposits and diverse lending segments. Similarly, Valley National Bank experienced broad-based commercial loan growth across key markets like New York and Florida, alongside nearly $1.4 billion in core deposit expansion, emphasizing relationship-driven banking over rate competition to sustain growth.

Net interest income and margins reflected effective management amid growth pressures, though outlooks varied across institutions. Associated Banc-Corp achieved a 23% increase in net interest income to $370 million with margin improvement to 3.17%, while Axos Financial maintained a steady 4.5% margin despite anticipating a slight decline due to lower FDIC loan accretion. Valley National Bank projects further margin expansion by shifting loan mix toward commercial real estate and replacing $2 billion in brokered deposits with lower-cost core deposits, underscoring funding cost optimization as a priority.

Operational efficiency gains, particularly through AI and technology investments, are increasingly integral to sustaining loan and deposit growth. Customers Bancorp reported $30 million in annual savings and faster loan processing times due to AI-driven productivity, while Valley National Bank aims to reduce its efficiency ratio by approximately 500 basis points over time through workflow automation. However, Axos Financial’s efficiency ratio worsened to 54.2%, highlighting the challenge of balancing rising operational costs with growth ambitions.

While loan and deposit growth momentum remains strong, sustainability concerns linger among analysts, prompting banks to emphasize relationship banking and disciplined lending. Origin Bancorp’s 12.6% revenue growth was driven by market share gains and targeted hiring, yet analysts questioned the durability of its loan and deposit growth. Management’s strategic focus on deepening customer relationships and investing in technology aims to enhance fee income streams and stabilize balance sheets amid ongoing industry disruption.

By mid-2026, credit quality among mid-tier banks presented a mixed picture, with Associated Banc-Corp experiencing some deterioration marked by rising nonaccrual loans and net charge-offs, signaling emerging challenges amid its growth trajectory. In contrast, Customers Bancorp reported robust credit performance alongside record loan and deposit growth, illustrating that strong underwriting standards and strategic capital deployment can sustain credit quality even during rapid expansion.

Despite pockets of credit stress, both Associated Banc-Corp and Customers Bancorp maintained strong capital positions that underpin their risk management frameworks; Associated’s CET1 ratio of 10.47% notably exceeded regulatory benchmarks, while Customers Bancorp leveraged strong capital metrics and a strategic deposit base to balance growth ambitions with prudent risk controls. This capital strength provides a crucial buffer that supports ongoing loan growth without compromising financial stability.

Origin Bancorp’s Q2 2026 commentary further underscores the sector’s focus on disciplined lending and risk management amid expansion, with management emphasizing strong credit metrics and relationship banking as pillars of their strategy. However, analyst concerns about the sustainability of loan growth and the robustness of the loan pipeline highlight the tension banks face in pursuing growth while managing credit risk, especially as regulatory oversight remains a profitability factor. This dynamic illustrates that regulatory management and compliance continue to be critical considerations in balancing aggressive growth with sound risk controls.

Origin Bancorp is strategically navigating the fintech disruption by doubling down on its core strength in relationship banking while simultaneously investing heavily in technology and new markets. As highlighted during its Q2 2026 earnings call, the bank's management underscored the importance of maintaining strong credit metrics and leveraging technology to enhance customer engagement and operational efficiency. This dual approach enables Origin to differentiate itself from fintech competitors by combining personalized service with digital innovation.

A critical element of Origin Bancorp’s competitive positioning lies in its targeted hiring strategy, particularly the addition of experienced bankers who can deepen client relationships and drive deposit growth. Alongside monitoring noninterest-bearing deposit trends and the impact of technology investments, this talent infusion is viewed as a catalyst for sustaining profitability amid regulatory challenges. By proactively managing these factors, Origin aims to fortify its market stance and ensure long-term growth despite the pressures from agile fintech entrants.

Investor sentiment distinctly favors mid-tier banks that demonstrate robust revenue and earnings growth, as evidenced by Axos Financial's impressive 18.1% annual EPS compound growth and a premium forward P/B ratio of 1.7x. In contrast, Byline Bancorp’s more modest 4.6% EPS growth and 7.1% sales increase have translated into cautious investor enthusiasm, reflected in its lower 1.2x forward P/B multiple. This divergence underscores how sustained top-line momentum and earnings expansion remain critical drivers of valuation premiums in the mid-tier banking sector.

Market confidence also hinges on banks’ ability to capture market share and grow net interest income, with Old Second Bancorp exemplifying this trend through its remarkable 27.4% annual net interest income growth. Despite trading at a slightly lower 1.2x forward P/B than Axos, Old Second’s strong positioning signals investor trust in its sustainable growth strategy. This nuanced valuation landscape suggests that while growth metrics command attention, investors weigh the quality and sustainability of earnings streams when assigning multiples.

However, even strong top-line beats do not guarantee bullish investor reactions, as seen in Axos Financial’s Q2 2026 results where a 20.9% revenue jump and a 17.4% EPS beat were tempered by concerns over rising costs and slower tangible book value per share growth. The efficiency ratio’s deterioration to 54.2% from an expected 49.4% further dampened enthusiasm, illustrating how operational efficiency and balance sheet metrics remain critical to investor valuation judgments despite solid net interest income and margin performance.