Core Insights - WaFd, Inc. (WAFD) shares have declined 7.8% over the past three months, underperforming the industry decline of 9.9% and the S&P 500 Index drop of 2% [1][2] - The decline in investor interest is attributed to heightened geopolitical tensions, particularly in the Middle East, leading to a risk-off environment [3] - Despite the recent share price drop, there are potential buying opportunities based on the company's fundamentals [3] Performance Overview - WaFd's loan portfolio has shown a compound annual growth rate (CAGR) of 7.6% from 2022 to 2025, although recent strategic exits from single-family mortgage lending have led to a decline in loan balances [4] - The company's revenues have also experienced a CAGR of 3.2% over the last three fiscal years [4] - WaFd's net interest margin (NIM) expanded by 31 basis points to 2.70% in Q1 of fiscal 2026, rebounding from previous contractions due to elevated funding costs [5] - A lower interest rate environment and a focus on increasing non-interest-bearing deposits are expected to support further NIM expansion [6] Revenue Streams - WaFd is actively expanding its fee-based operations, with non-interest income growing at a CAGR of 2.4% and a 29% increase to $20.3 million in Q1 of fiscal 2026 [9] - The company has a stable liquidity position with total borrowings of $2.44 billion and cash and cash equivalents of $734.9 million as of December 31, 2025 [10] - WaFd has consistently rewarded shareholders with dividends, maintaining a payout ratio of 38% and a dividend yield of 3.49% [11] Challenges - Operating expenses have seen a CAGR of 6% from 2022 to 2025, driven by higher compensation and technology costs, which may continue to pressure profitability [14] - The company's net charge-offs rose sharply to $11.8 million in fiscal 2025 from $1.4 million the previous year, indicating deteriorating asset quality [15] - WaFd's significant reliance on commercial loans, which accounted for 57.6% of total net loans as of December 31, 2025, adds to its risk exposure [18] Valuation and Outlook - The Zacks Consensus Estimate for fiscal 2026 and fiscal 2027 earnings indicates growth of 13.6% and 4.1%, respectively [19] - WaFd's forward 12-month price-to-earnings (P/E) ratio is 9.83X, higher than the industry average of 9.27X, suggesting the stock may be expensive [20] - The company is trading at a discount to Bank of Hawaii Corporation (BOH) but at a premium to Columbia Banking System, Inc. (COLB) [23] - Overall, steady loan growth, improving NIM, and rising non-interest income are expected to support WaFd's performance, despite challenges from rising expenses and asset quality concerns [24][25]

My next guest says there is some reason for concern here. Let's bring in Brent Beardall. He's the CEO of WFED Bank.Welcome to you and tell you at the RBC Financial Services conference yesterday. Was there a lot of talk about private credit. >> There was a lot of talk about private credit.And the reality is in the whole banking sector, we talk about cycles. There's credit cycles and it's really been 15 years since we've seen a credit cycle. And a number of the investors I was talking with said literally I ha ...

Core Insights - The discussion highlights concerns regarding the private credit market and its implications for the banking sector, particularly in the context of an impending credit cycle [1][2][3][4] Group 1: Private Credit Market - There has been significant dialogue about private credit at recent financial conferences, indicating its growing importance in the banking sector [1] - The banking industry has not experienced a credit cycle for 15 years, leading to a lack of experience among many investors in navigating such cycles [2] - Private credit is seen as a key area where risks may manifest as banks have shifted away from riskier loans, creating opportunities for private credit lenders [3][4] Group 2: Banking Sector Stability - Despite concerns about potential losses in private credit, the overall health of banks is viewed positively, with a belief that they are well-prepared for losses [4][5] - The underwriting practices of private credit loans are under scrutiny, with banks that previously avoided such loans now lending to private credit firms [5][6] - The banking sector is expected to experience adjustments, but the situation is not anticipated to lead to widespread financial instability [7] Group 3: Investment Opportunities - Financial stocks are perceived as presenting significant investment opportunities, especially as some banks are trading at tangible book value [7][8] - The focus on growing book value per share is emphasized as a key strategy for banks, with share buybacks being a priority to enhance shareholder value [8][9] - The competitive landscape is shifting, with banks needing to maintain discipline in lending practices amidst irrational competition in the market [10][11] Group 4: Emerging Competition - The introduction of new financial products, such as Elon Musk's X Money, is seen as a potential disruptor in the banking industry, offering high interest rates on deposits [12][13] - The competitive strategy against such products will not solely rely on interest rates but will also emphasize the importance of relationships and technology in banking [14][15] - The potential market share taken by new entrants like X Money could be unprecedented, challenging traditional banking models [15]

Core Viewpoint - WaFd, Inc. has appointed Erin Hill to its Board of Directors, enhancing its leadership with her extensive experience in financial services and corporate governance [1] Company Summary - Erin Hill brings over 30 years of executive leadership experience in financial services, corporate governance, audit, and risk management to the Board [1] - Currently, Ms. Hill serves as the Executive Director of the Financial Accounting Foundation, which oversees the Financial Accounting Standards Board (FASB) [1]

Core Viewpoint - The company reported a net profit of $60.5 million for the first quarter of fiscal year 2026, with diluted earnings per share of $0.79, reflecting an increase from the previous year. The company is executing its "BUILD2030" strategy, focusing on shifting its business emphasis towards commercial banking [1][2]. Financial Performance - For the first quarter of fiscal year 2026 (ending December 31, 2025), the net profit attributable to common shareholders was $60.5 million, with diluted earnings per share at $0.79, up from $0.54 in the same period last year. The profit growth was primarily driven by moderate increases in net interest income and non-interest income, a decrease in non-interest expenses, and stock buybacks boosting earnings per share [2]. - As of the end of the first quarter of fiscal year 2026, non-performing assets rose to $203 million, accounting for 0.75% of total assets, an increase from 0.54% in the previous quarter. This change was mainly influenced by two commercial relationships totaling approximately $58 million; excluding these, the non-performing asset ratio would be 0.67%. The company set aside $3.5 million for credit loss provisions, with a coverage ratio of 1.05% of total loans [3]. Business Development - Management anticipates an annual growth rate of 8% to 12% for the "active" loan portfolio over the next one to two years, with a growth expectation of approximately 6% to 10% for fiscal year 2026. As of the end of the quarter, the loan channel increased from $2.5 billion on September 30, 2025, to $3.2 billion, representing a growth of 28%. In terms of capital returns, the company repurchased 1.95 million shares at a weighted average price of $29.75 during the quarter, with a total of 5.8 million shares repurchased over the past seven quarters, accounting for 7% of the shares outstanding as of March 31, 2024. There remains an authorization for the repurchase of 6.3 million shares [4]. - The company launched its wealth management business on August 31, 2025, aiming to achieve an organic management asset scale of $1 billion within two years; as of December 31, 2025, the managed asset scale slightly exceeded $400 million. Additionally, the company is appealing a "needs improvement" rating under the FDIC Community Reinvestment Act, which primarily affects branch layout logic and may complicate merger and acquisition activities [5].

Group 1 - WaFd (WAFD) is a large regional bank located in the western United States, offering both common and preferred shares [1] - The preferred share issuance (WAFDP) has been trading at a discount [1] Group 2 - The focus of the analysis is on income investing through common shares, preferred shares, or bonds [1] - The author has a background in history/political science and an MBA with a specialization in Finance and Economics [1]

Financial Performance - The Company recorded net income of $64,196,000 for the three months ended December 31, 2025, compared to $47,267,000 for the prior year quarter, reflecting a significant increase in profitability[252]. - For the three months ended December 31, 2025, net interest income was $171,111,000, an increase of $15,680,000 from the same quarter of the prior year[253]. - Total non-interest income for the three months ended December 31, 2025, was $20,255,000, a $4,553,000 increase from $15,702,000 in the prior year[258]. - Non-interest expense decreased to $105,721,000 for the three months ended December 31, 2025, from $111,311,000 in the prior year, representing a decrease of $5,590,000[259]. - Income tax expense totaled $18,105,000 for the three months ended December 31, 2025, compared to $12,984,000 for the prior year quarter, with an effective tax rate of 22.00%[261]. Asset and Liability Management - Total assets increased by $586,045,000 to $27,285,744,000 from $26,699,699,000 at September 30, 2025, primarily due to investment purchases[211]. - The Company's cash and cash equivalents totaled $734,915,000 at December 31, 2025, up from $657,310,000 at September 30, 2025[218]. - Customer account balances decreased by $20,666,000, or 0.1%, to $21,416,970,000 at December 31, 2025 compared to $21,437,636,000 at September 30, 2025[217]. - The Company has $4,142,285,000 of available-for-sale (AFS) securities carried at fair value, with a net unrealized loss of $667,000 as of December 31, 2025[199]. - The Company executed interest rate swaps to hedge interest rate risk, resulting in an unrealized gain of $94,529,000 as of December 31, 2025[199]. Capital Ratios and Equity - Shareholders' equity at December 31, 2025 was $3,029,407,000, or 11.10% of total assets, a decrease of $10,168,000 from the previous quarter[219]. - As of December 31, 2025, the Company reported a Common Equity Tier I risk-based capital ratio of 11.69%, exceeding the minimum requirement of 4.50%[226]. - The Tier 1 leverage ratio for the Company was reported at 9.44%, significantly above the minimum requirement of 4.00%[226]. - The total risk-based capital ratio for the Company was 14.72%, well above the minimum requirement of 8.00%[226]. Loan and Credit Quality - Loans receivable decreased by $240,462,000 to $19,848,156,000, primarily due to loan principal repayments of $1,343,635,000 outpacing originations of $1,118,549,000[230]. - The allowance for credit losses was $221,039,000, or 1.05% of gross loans, deemed sufficient to absorb estimated losses in the loan portfolio[246]. - Non-performing assets increased by $60,374,000 during the three months ended December 31, 2025, totaling $203,396,000, with non-accrual loans rising by $62,720,000[239]. - Total non-performing assets as a percentage of total assets rose to 0.75% at December 31, 2025, up from 0.54% at September 30, 2025[239]. - The provision for credit losses was $3,500,000 for the three months ended December 31, 2025, compared to no provision for the same period in 2024, increasing the reserve to 1.05% of gross loans[257]. Market and Investment Insights - The Company believes there have been no material changes in its quantitative and qualitative information about market risk since September 30, 2025[266]. - The Company expects to recognize approximately $20.0 million in tax benefits from its Low-Income Housing Tax Credit (LIHTC) investment portfolio during the fiscal year[263]. - The total amount of amortization expense related to LIHTC investments expected to be recognized during this fiscal year is about $15.9 million[265]. - Intangible assets increased to $443,085,000 as of December 31, 2025, due to small acquisitions made by the Company's insurance subsidiary[247]. Interest Rates and Margins - As of December 31, 2025, the net interest margin was 2.70%, an increase from 2.39% for the same period in 2024[207]. - The weighted average effective rate for borrowings increased to 2.74% as of December 31, 2025, from 2.50% at September 30, 2025[250]. - Cash and cash equivalents increased by $77,605,000, or 11.8%, to $734,915,000 from September 30, 2025[227]. - Available-for-sale (AFS) securities rose by $609,084,000, or 17.2%, due to purchases of $724,749,000 and unrealized gains of $9,924,000[228]. - The Company continues to focus on commercial lending, with commercial loan originations accounting for 94% of total originations during the quarter[230].

Core Viewpoint - WaFd, Inc. announced a regular cash dividend of 27 cents per share, marking its 172nd consecutive quarterly cash dividend [1] Group 1: Dividend Announcement - The cash dividend will be paid on February 27, 2026, to common shareholders of record as of February 13, 2026 [1] - This dividend reflects the company's ongoing commitment to returning value to its shareholders [1] Group 2: Share Repurchase Program - The Board of Directors increased the number of shares authorized for repurchase by 4.5 million, bringing the total authorized amount to 10 million shares [1] - This increase in share repurchase authorization indicates the company's confidence in its financial position and future prospects [1]

Core Viewpoint - The focus is on producing objective, data-driven research primarily about small- to mid-cap companies, which are often overlooked by many investors, while also occasionally analyzing large-cap companies to provide a broader perspective on equity markets [1] Group 1 - The research emphasizes the importance of small- to mid-cap companies in investment analysis due to their potential for growth and the lack of attention they receive from larger investors [1] - The analyst aims to provide insights that can help identify investment opportunities and risks within these smaller companies [1]

Loan Originations - Multi-Family loan originations for Q4 2025 reached $131,805, while total originations for the year-to-date (YTD) were $131,805[2] - Commercial & Industrial loan originations for Q4 2025 were $502,134, with YTD originations totaling $1,667,064[2] - The weighted average rate on originations decreased to 5.99% in Q4 2025 from 6.87% in Q3 2025[2] Loan Portfolio - Net Loans as of December 31, 2025, amounted to $20,277,164, a slight increase from $20,088,618 as of September 30, 2025[4] - Single-Family Residential loans accounted for 38.5% of the total loan portfolio as of June 30, 2025, decreasing to 37.2% by December 31, 2025[4] - Total loans receivable reached $21,367,832 as of June 30, 2025, with a slight decline to $21,037,080 by December 31, 2025[4] Loan Performance - Non-performing assets increased to $203,396 as of December 25, 2025, up from $143,022 as of September 25, 2025[6] - Non-accrual loans as a percentage of total net loans rose to 0.96% as of December 25, 2025, compared to 0.64% as of September 25, 2025[6] - The delinquency rate for total loans was 0.83% as of December 31, 2025, with $214,390 in delinquent loans[17] Financial Metrics - Efficiency ratio improved to 55.25% for the quarter ending December 25, 2025, down from 58.92% for the previous quarter[8] - Tangible common shareholders' book value per share increased to $29.91 as of December 25, 2025, from $29.38 as of September 25, 2025[8] - Total net charge-offs for the quarter ending December 25, 2025, were $3,681, representing a charge-off rate of 0.07%[6] Deposits - Total deposits as of December 31, 2025, amounted to $21,416,970,000, with a slight decrease from $21,437,636,000 as of September 30, 2025[10] - Non-interest checking deposits increased to $2,692,680,000, representing 12.6% of total deposits, up from 12.0% in September 2025[10] - Time deposits decreased to $8,550,996,000, accounting for 39.8% of total deposits, down from 42.6% in September 2025[10] Interest Income and Rates - The net interest income (NII) change after a 100 bps shock is projected to decrease by 0.2% as of December 31, 2025[13] - Net interest income for the quarter ended December 31, 2025, was $171,110, reflecting a net interest margin of 2.70%[15] - The average interest rate on mortgage-backed securities increased to 4.23% by December 31, 2025[15] Company Operations - The company repurchased 1,950,013 shares at an average price of $29.75 during the year[8] - The number of employees remained stable at approximately 1,980 as of December 25, 2025[8] - The company plans to continue expanding its market presence and developing new products in the upcoming quarters[15] Asset Management - The company reported a total asset balance of $25,689,689,000, with loans comprising 48% of total assets[14] - Total assets as of December 31, 2025, were $26,852,389, with a slight increase from $26,540,782 in the previous quarter[15] - The company maintained a cash balance of $734,915,000, representing 100% of its cash assets[14]