WaFd, Inc. Fourth Quarter 2026 Results - WAFD INC

Financial Performance:

• Q4 2026 Net Income: $56.3 million ($0.76 per diluted share); Full Year 2026 Net Income: $241.2 million ($3.21 per diluted share), up 22% YoY.
• Adjusted Full Year EPS (excluding $6.2M merger expenses) would have been 10% higher YoY and 5% higher QoQ.
• Net Interest Income (NII) increased $1M QoQ; Net Interest Margin (NIM) held steady at 2.81%.
• Non-interest income surged to $38.1M (QoQ) driven by a $16.4M gain on single-family loan sales; Total non-interest expense rose to $121.5M due to $6.2M merger costs and strategic investments.
• Balance Sheet: Loans receivable decreased $977M due to $543M single-family loan sales; Total deposits increased $389M to $11.4B (implied) with core deposits rising to 81.8%.
• Liquidity: Strong with $4.2B on-balance sheet liquidity; Capital ratios remain robust with CET1 at 11.4% and Total Capital at 14.4%.
• Effective Tax Rate: 22.17% for Q4 (elevated due to non-deductible merger expenses); Full-year effective rate 21.88%.

Guidance and Future Outlook:

• Full-year 2026 loan production grew 56.6% YoY to $5.5B.
• Expected NIM expansion in near term as earning assets reprice faster than liabilities in a rising rate environment; 75% of securities and 50% of loans are fixed-rate on $33.6B of the portfolio.
• Merger with EverBank expected to close Q1 2027; Pro forma metrics include 9.8% CET1 at close, 29% EPS accretion post-synergies, and only 8% dilution to existing shareholders.
• Future strategy involves shifting from reliance on non-interest-bearing deposits to a model leveraging higher asset yields and operational efficiency (top quartile efficiency).
• Anticipate moderate loan growth in the near term, with potential offsetting investment purchases to defend NII following the multifamily loan sale.

Business Segments and Product Lines:

• Active Loan Growth: Commercial & Industrial (44% of production), Construction (23%), and Commercial Real Estate (20%).
• Loan Sales: Completed $543M single-family residential sale (YTD rates 4.30-4.40%) and signed agreement to sell $429M multifamily loans (held for sale, ~4.8% yield) closing in Q1 2027.
• Credit Quality: Adversely classified loans decreased to 2.56%; Criticized loans down to 4.7% following resolution of a $54M problem relationship.
• Non-Performing Assets (NPA): Decreased to $86M (0.32% of assets) from $136M; Delinquencies down to 0.5% of total loans.
• Investment Strategy: Reduced mortgage-backed securities to fund higher-yielding origination pipeline; $137M deferred income from Luther Burbank portfolio marked to market.

Market and Competitive Landscape:

• Hyper-competitive deposit market where top 25 banks grew 6.8% organically while ~4,300 other banks saw stagnant net deposits; non-interest-bearing deposits declining industry-wide.
• Scale is critical for technology investment; merger with EverBank creates an entity ~3x larger in assets to compete effectively.
• Shift in banking activity toward Non-Depository Financial Institutions (NDFIs); EverBank's existing NDFI team will complement WAFED's traditional strengths.
• Management notes that 66% of bank M&A destroys capital; WAFED aims to be part of the 33% accretive to shareholders.

Risks and Challenges:

• Significant one-time charge-off of $54M on a private equity-backed manufacturer loan, resulting in $39.2M net charge-offs for the quarter; loss rate was 22bps (normalized would be 4bps).
• Economic headwinds including inflation, energy supply shocks, and tariffs impacting borrower revenue and operating costs.
• Interest rate environment challenges: Front-loaded CD repricing (special rates at 4.1% for 13 months) has temporarily squeezed margins.
• Regulatory risk regarding merger approvals; stock price declined 18.9% post-announcement vs. 8.3% decline in NASDAQ Regional Bank Index.

Management Commentary and Tone:

• CEO Brent Beardall expressed high confidence and optimism regarding the EverBank merger, viewing it as a necessary evolution to counter market imbalances and scale.
• Management highlighted a "bold move" analogy to 1982 balance sheet restructuring, framing the current merger as a strategic realignment to fair value assets and improve long-term returns.
• Tone remains proud of operational results despite the one-time credit loss, emphasizing the strength of the loan pipeline ($3B) and deposit pipeline ($240M).
• Acknowledged that while the deal faces market skepticism, the synergy of offsetting CRE concentration with NDFI expertise creates a formidable combined entity.

Analyst Questions and Answers:

• Loan Sales Timing/Yields: Single-family sale closed late September (~4.30-4.40% yield); Multifamily sale ($429M) signed Sept 30, closing Dec 2026, with ~4.8% yield.
• Expense Run Rate: Excluding merger costs, Q4 run rate was ~$115M; management expects this to remain relatively flat despite opportunistic talent additions.
• Margin/Asset Mix: 7.1B in loans repriced within a quarter; management expects margin expansion as assets reprice faster than liabilities.
• Credit Quality: Remaining adversely classified assets include a $40M real estate loan to be sold; no other significant lump-sum losses anticipated.
• Buybacks: No immediate share buyback activity planned pending proxy filing and merger finalization.
• Deposit Repricing: CD special rates at 4.1%; assuming 1-2 rate hikes, 50% beta on interest-bearing deposits is assumed.

Other Key Points:

• The $54M impairment was attributed to a private equity-owned manufacturer where operating results declined despite strong initial underwriting metrics (leverage < 1:1), exacerbated by the inability to raise additional capital.
• WAFED will retain approximately $119M of accretable yield from the Luther Burbank portfolio post-sales, decreasing by ~$0.5M per quarter.
• Management emphasized that the merger will allow for fair value marking of the $6.6B single-family portfolio (currently at 4.25%) to market rates, turning a historical weakness into a strength.
• Regulatory applications filed; proxy statement expected within two weeks.