WaFd, Inc. Fourth Quarter 2026 Results - WAFD INC

Explicit Guidance:

• Fiscal 2027 Q1 Earnings Impact: Anticipate a "significant bump" in risk-based capital ratios once new Basel rules are approved.
• Capital Ratios: Pro forma CET1 ratio of 9.8% expected at merger close.
• Shareholder Impact: Deal expected to result in 8% dilution to existing WAFED shareholders and 29% EPS accretion once cost synergies are fully realized.
• Efficiency/Operating Model: Pro forma entity targets top quartile efficiency and 15% return on tangible common equity (ROTE) even with a conservative 3% net interest margin.
• Expense Run Rate: Excluding $6.2M one-time merger expenses, core expenses are expected to remain flat to modestly increase in the next quarter due to year-end cleanup items and strategic talent investments; no definitive expense reduction plans announced for the immediate term.
• Dividends/Buybacks: No share buybacks in current position due to pending proxy and merger timeline; management notes "appetite" exists given current valuation but is paused until deal completion.

Business-Segment Outlook:

• Loan Portfolio & Sales: $429M multifamily loan portfolio reclassified as "held for sale" with expected closing in December 2026 (Fiscal 2027 Q1) for a net gain of ~$7M. Remaining 76% of previously noted charge-off reserve remains; one $40M adversely classified real estate loan anticipated to sell/pay off.
• Asset Reinvestment: Earning asset levels expected to be "relatively flat to modest growth" year-end; loan sales ($1B+ total) expected to be offset by reinvestment into higher-yielding investment securities or loan originations to defend Net Interest Income (NII).
• Yield Trends: Portfolio yields on sold single-family loans averaged 4.30–4.40%; multifamily assets held for sale yield ~4.80%. Accretable yield from purchase accounting to be recognized over loan lives; ~$119M accretable yield remains on balance sheet post-sales, reducing accretion by ~$0.5M/quarter.
• Active vs. Inactive Loans: Active loan types (CRE, multifamily, construction, C&I, consumer) expected to grow organically; inactive loans (run-off) continue to decrease as loans are sold or mature.
• Non-Depository Financial Institutions (NDFI): Strategic pivot to serve NDFI clients, leveraging EverBank's established underwriting and control framework to convert former competition into clients.

Market and Competitive Outlook:

• Deposit Competition: Sector characterized as "hyper-competitive" with an imbalanced playing field favoring the largest 25 banks; smaller regional banks (including WAFED) struggling to grow net organic deposits or retain non-interest-bearing deposits.
• Scale Dynamics: Market trends favor larger institutions due to ability to invest disproportionately in technology and spread costs over a larger base.
• Competitive Positioning: Partnership with EverBank expected to create a pro forma entity 3x the size (asset perspective), enabling enhanced technology investment and competitive pricing power.
• Technology & Digital: Commitment to improving digital offerings through scale, acknowledging current strength but targeting further improvements post-merger.

Macro / Industry Outlook:

• Interest Rates: Expect Net Interest Margin (NIM) to expand over the next 1–2 quarters as assets (floating rate) reprice faster than liabilities in a rising rate environment; spot rate on interest-earning assets is 5.21% vs. 2.87% cost of liabilities.
• CD Repricing: Deposit beta assumed at ~50% for subsequent 1–2 rate hikes; recent market "front-running" of Fed hikes has compressed margins, but actual rate increases are expected to benefit assets sooner than costs.
• Economic Headwinds: Credit quality face ongoing pressure from inflation, energy supply shocks (Middle East war), and tariffs affecting borrower top-line revenue and operating costs.
• Credit Cycle: Anticipates loss rates returning to historical norms (approx. 4 bps) after the current fiscal year's anomaly (22 bps inclusive of large charge-off); non-performing assets and criticized loans trending down.
• Regulatory: New Basel rules expected to approve soon, providing a significant boost to risk-based capital ratios.

Strategic Initiatives:

• EverBank Merger: Regulatory applications filed; proxy filing expected within two weeks. Target closing in First Calendar Quarter 2027.
• Balance Sheet Restructuring: Strategic shift away from sole reliance on non-interest-bearing deposit growth to a model utilizing fair value adjustments on assets and NDFI relationships.
• Asset Mark-to-Market: Expectation to "mark to market" $6.6B in single-family residential loans (currently yielding 4.25%) post-merger to improve portfolio quality and earnings visibility.
• Synergies: Focus on cost savings to realize 29% EPS accretion; combining WAFED's CRE focus with EverBank's NDFI expertise to de-risk the combined portfolio.

Risks and Headwinds to Outlook:

• Merger Execution: Deal success dependent on shareholder and regulatory approvals; market skepticism noted (WAFED stock down 18.9% since announcement vs. NASDAQ Regional Bank Index down 8.3%).
• Credit Quality: Large impairment ($54M) from a private equity-owned manufacturer exposed vulnerabilities in borrower cash flows and operating conditions; potential for other "lumpy" credits in the adverse classification bucket.
• Macro Volatility: Continued inflation, energy shocks, and tariffs could drive further borrower delinquencies and credit losses.
• Interest Rate Risk: Risk that deposit costs lag behind asset repricing or that rate hikes do not materialize as expected, though current outlook favors margin expansion.
• Regulatory Delays: Closing timeline could slip if regulatory approvals or proxy voting are delayed.

Management Tone on the Future:

• Confidence: High confidence in the strategic necessity of the merger; management expresses being "more excited about the deal today than when we announced it."
• Narrative: Framed as a proactive adaptation to a "fundamentally changed" banking landscape, emphasizing the transition from "hubris" to necessary scale and technology investment.
• Stakeholder Sentiment: Internal and external stakeholders (employees, clients) reportedly reacting with "optimism" once the strategic fit and risk offset (CRE vs. NDFI) are understood.
• Historical Precedent: Management draws parallels to 1982 balance sheet restructuring, framing the merger as a bold, long-term play to outperform peers despite short-term market skepticism.

Miscellaneous:

• Q&A Specifics: No immediate plans for additional loan sales beyond the announced multifamily transaction; expense run rate models should assume ~$115M core quarterly spend excluding merger items.
• Pricing Metrics: Current special CD rates at 4.1% for 13-month terms; 50% of loans and 75% of securities priced on $33.60 basis.