Axos makes first deal since 2019, acquiring specialty lender-brfastnews

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2025-09-23

Axos makes first deal since 2019, acquiring specialty lender

Key Insight: The deal will give Axos access to a new segment of the niche lending business.
What’s at Stake: The bank has been aiming to expand its non-real estate loan growth opportunities.
Supporting data: The deal is Axos’ first acquisition since 2019.

Axos Financial is making its first acquisition in six years as the bank looks for routes to diversify its lending streams.

The digital bank said Monday it would buy the equipment leasing company Verdant Commercial Capital for $43.5 million, though the price tag could go up over time based on the business’ performance.

The nonbank acquisition, which Axos expects to close at the end of the month, expands the buyer’s existing equipment leasing business, and will add $1.1 billion of loans to its non-real estate commercial lending portfolio.

Axos, a $25 billion-asset bank with about two-thirds of its loan book tied to real estate, has been making moves over the past couple of years to increase its lending operations in sectors like fund finance and middle market. Earlier this year, CEO Greg Garrabrants said that Axos had been assessing acquisition opportunities to bolster the bank’s “good organic growth pipeline” in its specialty finance business.

“The pace and quality of M&A opportunities have increased over the past few months, and seller expectations have become more reasonable,” Garrabrants said on a July earnings call. “We are evaluating specialty lending and nonbanking businesses that generate asset and transaction-based income and low-cost deposits.”

Garrabrants said in an interview Monday that the Verdant deal is significant enough that “if we can grow it, it’ll be a nice complement” to Axos’ asset base.

The CEO said the San Diego-based bank will be able to scale the business profitably by remixing its funding base. Axos can replace the warehouse lines and subordinated debt that Verdant had been using to fund its loans with a lower cost of funds, Garrabrants explained. Additionally, the bank plans to cut Verdant’s operational expenses by integrating Axos’ technology.

Verdant has six verticals, including industrial, specialty vehicle and sports vendor-based equipment leasing. Garrabrants said that Axos can also tap those customers to cross-sell commercial deposits and floorplan lending.

The price tag includes a 10% premium, and Axos is expecting to pay another $35 million-$40 million earn-out after four years, or up to $50 million, if Verdant achieves at least a 15% target return on equity consistently. But the bank also projects the portfolio will reel in some $155 million of net income in the same time period.

Verdant originates small to mid-ticket leases between $50,000 and $5 million across products, primarily via equipment finance agreements and fair market value leases, while Axos’ existing equipment finance business is focused on larger corporate clients.

The deal is Axos’ first acquisition since 2019, when it bought a digital wealth management fintech.

Axos isn’t the only bank that has recently jumped on equipment finance opportunities, though other banks have pursued routes such as partnering with independent companies or private credit firms, or buying portfolios directly.

Earlier this year, First Citizens BancShares linked with Sixth Street to launch a capital equipment financing platform for middle-market companies, initially funded with a $300 million warehouse finance facility.

Other banks with equipment finance businesses, like First Horizon, Huntington Bancshares and Customers Bancorp, mentioned loan-growth momentum in the niche during their most recent quarterly reports.

Peapack Private Bank and Trust said earlier this month that it had bulked up its equipment finance and leasing subsidiary, Peapack Capital, by hiring a team from Flagstar Financial.

According to a June report from Morningstar DBRS, equipment leasing showed some volatility in the first half of 2025, likely due to tariff uncertainty and the lack of interest rate cuts.

“Volatile trade tensions and an uncertain economic environment may influence firms to postpone investments, while at the same time are also disrupting operations, particularly in the transportation sector,” the Morningstar DBRS analysts wrote, citing publicly rated transactions.

Garrabrants said that Axos has been in the market for a business like Verdant for a while, but the timing of certain policies and economic factors should now be tailwinds to growth. He said that he thinks that there’s going to be a need for “reindustrialization” in the United States, as businesses look to avoid tariffs and other restrictions.

The federal tax legislation passed this summer allows businesses to expense the cost of assets like equipment and vehicles for tax deductions, a policy from the first Trump administration that was set to be phased out before the latest tax law.

“I think that the tariffs provide an opportunity for individuals that want to invest in domestic capacity to be able to put capital to work,” Garrabrants said. “And so I think obviously there’s some nice depreciation benefits that accrue to operating leases in the ‘Big, Beautiful Bill’ that recently passed.”