WaFd Q1 Earnings Call Highlights
WaFd NASDAQ: WAFD reported fiscal first-quarter 2026 net income available to common shareholders of $60.5 million, or $0.79 per diluted share, for the quarter ended December 31, 2025. The result compared with $0.54 per share in the year-ago quarter and $0.72 per share in the prior quarter.
Management attributed the linked-quarter earnings improvement to both higher income and lower expenses, including a modest increase in net interest income, higher non-interest income, and a decrease in total non-interest expense. The company also highlighted share repurchases during the quarter as a contributor to per-share results.
Balance sheet shifts: loan runoff offset by securities growth
Chief Financial Officer Kelli Holz said loans receivable decreased $240 million during the quarter, primarily driven by runoff in what the company calls its “inactive” loan types—single-family residential (SFR), custom construction, and consumer lot loans—which declined by $256 million combined. In the “active” portfolio categories (multifamily, commercial real estate, C&I, construction, land A&D, and consumer loans), originations and advances totaled $1.1 billion while repayments and payoffs were $1.0 billion.
WaFd increased investments and mortgage-backed securities (MBS) by $728 million, funded primarily through a $671 million increase in borrowings. Holz said purchases were mainly discount-priced agency MBS with an effective yield of 4.93%, describing the move as part of a strategy to replace single-family loan balance runoff. In response to a later analyst question, Holz added the company “accelerate[d] some” MBS purchases this quarter in excess of runoff “to get a head start,” and said that absent meaningful loan growth, WaFd could use borrowings and deposit growth to continue adding investments “if they make sense for us.”
Deposits decreased $21 million for the quarter. Non-interest-bearing deposits increased $125 million (up 4.9%), interest-bearing deposits increased $434 million (up 4.5%), and time deposits declined $580 million (down 6.4%). Core deposits ended the quarter at 79.7% of total deposits, up from 77.9% in the prior quarter, while non-interest-bearing deposits were 12.6% of total deposits. The loan-to-deposit ratio was 92.7%, which management contrasted with a level “north of 110%” two years earlier.
Net interest margin held near 2.7%, but non-accruals weighed
Net interest income rose $1.2 million from the prior quarter, and WaFd’s net interest margin was 2.7% versus 2.71% in the September quarter. Holz provided additional “spot rate” context at period end: the yield on interest-earning assets was 5.05%, the cost of interest-bearing liabilities was 2.76%, and the resulting margin was 2.77%.
However, Holz said the difference between the prior quarter spot rate margin (2.82%) and the December quarter reported margin (2.7%) included a nine-basis-point impact from non-accrual interest and one-time reversals when loans move to non-accrual status. In the Q&A session, she quantified non-accrual interest for the quarter at “just over $5 million.” The remaining three basis points of the margin difference were attributed to MBS purchases with a 4.93% net yield.
Looking ahead, Holz said she would expect “more pressure on the margin from additional mortgage-backed securities purchases,” while also pointing to higher net interest income from the added balances. CEO Brent Beardall, asked about $800 million of borrowings that comes due or reprices within three months, said the company plans to replace those borrowings rather than shrink the balance sheet, and noted that if the Federal Reserve continues to cut rates, the rate on those borrowings would come down.
Fees, expenses, and capital return
Non-interest income increased $1.9 million to $20.3 million, helped by a $3.2 million gain on sale of a branch property. That was partially offset by $408,000 of losses on certain equity method investments, compared with $815,000 of gains in the prior quarter.
Non-interest expense declined $1.3 million, or 1.2%, driven by lower compensation and technology costs, partially offset by increases in other expense. The efficiency ratio improved to 55.3% from 56.8% in the prior quarter. Beardall said he was “very pleased” to see the efficiency ratio “down to the top end of our target range at 55% this quarter.”
During the quarter, WaFd repurchased 1.95 million shares at a weighted average price of $29.75, which management said added $0.02 to earnings per share. The company said it had 6.3 million shares remaining on its repurchase authorization. Beardall said the company has repurchased 5.8 million shares over the last seven quarters at a weighted price of $29.45, representing 7% of shares outstanding as of March 31, 2024. He characterized repurchases as the best use of capital when the share price is depressed, while also noting the company is not looking to “meaningfully shift” its capital ratios.
Credit trends: NPAs rose, with two relationships driving much of the change
Chief Credit Officer Ryan Mauer said adversely classified loans decreased $51 million and represented 2.94% of net loans, down from 3.16% in the prior quarter but above 1.97% a year earlier. Total criticized loans increased $30 million to 4.6% of net loans. Mauer said the increase was not concentrated in one category and reflected an environment in which elevated interest rates and economic uncertainty affected both commercial and consumer borrowers.
Non-performing assets increased to $203 million, or 0.75% of total assets, from $143 million, or 0.54%, at September 30, 2025. Mauer attributed the change to non-accrual loans rising $62.7 million (up 49%) since September 30, partially offset by a $2.3 million decline in real estate owned (REO). Delinquent loans rose to 1.07% of total loans from 0.6% in the prior quarter and 0.3% a year earlier.
Mauer said the increases in delinquencies and NPAs were “largely impacted by two commercial relationships” that were more than 90 days past due, with $58 million in balances collectively. He said the loans were placed on non-accrual “per policy,” no charge-off was taken upon revaluation, and the bank was working with both borrowers to resolve issues. Excluding those relationships, he said NPAs would have been 0.67% of total assets and delinquencies 0.78% of total loans at quarter end. In general terms, management described one relationship as manufacturing affected by market conditions and tariffs, and the other as a commercial real estate-related entity.
The company recorded a $3.5 million provision for credit losses, which Mauer said reflected decreased loan balances, mixed credit metrics including negative migration trends, and $3.7 million of net charge-offs. Net charge-offs were seven basis points of total loans annualized, driven by a C&I energy-sector relationship tied to depressed oil prices and diminished working capital. The allowance for credit losses, including unfunded commitments, provided coverage of 1.05% of gross loans.
Strategy updates: BUILD 2030, wealth management, and CRA appeal
Beardall emphasized WaFd’s BUILD 2030 strategic plan, which he said is designed to shift focus toward business banking. A key goal is raising non-interest-bearing deposits as a percentage of total deposits to 20% by 2030, from 11% last year; the company reported 12.6% at quarter end.
Beardall highlighted steps taken over the past year, including becoming a preferred SBA lender and having “98%” of branch managers who formerly specialized in mortgage lending pass a small business credit certification process. He also pointed to momentum in business lending: the company has increased the number of C&I loans on its books by 97% after opening business lending to branch teams.
On growth outlook, Beardall said WaFd believes it can grow its active loan portfolios 8% to 12% over the next one to two years, and later clarified he expects roughly 6% to 10% growth in fiscal 2026, with fiscal 2027 toward the higher end of that range, citing an expanding pipeline. He said the lending pipeline increased $697 million, or 28%, from $2.5 billion at September 30, 2025 to $3.2 billion at quarter end, while deposits “remain fairly flat.”
Beardall also discussed the launch of WaFd Wealth Management on August 31, noting a goal to organically reach $1 billion in assets under management within two years. He said assets under management were “just over $400 million” as of December 31, and described wealth management as a way to grow non-interest income over time.
Finally, Beardall addressed the company’s appeal related to an FDIC Community Reinvestment Act (CRA) “needs to improve” rating. He said WaFd made its case to the Supervisory Appeals Review Committee in early December, acknowledged it is “a long shot,” and said the company expected to hear a final conclusion within about a week while “anticipating moving forward with the needs to improve rating.” Beardall said the rating mainly affects branching logistics and can make mergers and acquisitions more difficult, though it does not prohibit deals.
About WaFd NASDAQ: WAFD
Washington Federal, Inc, doing business as WaFd Bank, is a publicly traded bank holding company headquartered in Seattle, Washington. Through its subsidiary, WaFd Bank, the company provides a range of banking and financial services to individuals, small-to-medium enterprises, and commercial clients. Established in 1917 as Ballard Savings & Loan in Seattle, the institution expanded over decades to serve customers across the Western United States under the Washington Federal name and has operated as a public company since the early 1980s.
WaFd Bank's core offerings encompass deposit accounts such as checking, savings, money market, and certificates of deposit, alongside consumer and commercial lending products.
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