WAFD, INC. 10-Q Summary: Quarter Ended March 31, 2025
Business Context and Reporting Period
This report covers the quarterly period ended March 31, 2025 (Q2 Fiscal 2025) for WAFD, Inc. (WaFd), a Washington state-chartered commercial bank holding company headquartered in Seattle. The Company operates through its subsidiary, WaFd Bank, with branches across nine states. A significant strategic shift occurred in January 2025 when the Company announced its exit from the single-family mortgage lending market to reduce interest rate risk and improve profitability. The financial results for the prior year period (ended March 31, 2024) were impacted by the March 1, 2024, merger with Luther Burbank Corporation.
Key Financial Metrics
| Metric | Q2 2025 (3 Months) | Q2 2024 (3 Months) | YTD 2025 (6 Months) | YTD 2024 (6 Months) |
|---|---|---|---|---|
| Net Interest Income | $160.91 million | $158.60 million | $316.34 million | $310.83 million |
| Net Income | $56.25 million | $15.89 million | $103.52 million | $74.34 million |
| Diluted EPS | $0.65 | $0.17 | $1.18 | $1.00 |
| Net Interest Margin (NIM) | 2.55% | 2.73% | 2.47% | 2.81% |
| Provision for Credit Losses | $2.75 million | $16.00 million | $2.75 million | $16.00 million |
| Non-Interest Expense | $104.83 million | $133.71 million | $216.14 million | $230.25 million |
| Total Assets | $27.64 billion | $24.91 billion (Avg) | $27.64 billion | $23.64 billion (Avg) |
| Shareholders' Equity | $3.03 billion | $2.64 billion (Avg) | $3.03 billion | $2.54 billion (Avg) |
| Cash & Equivalents | $1.23 billion | $2.38 billion (Prior Q) | $1.23 billion | $2.38 billion (Prior Q) |
Material Changes vs. Prior Period
- Profitability Surge: Net income increased 254% year-over-year for the quarter, driven by a significant reduction in merger-related expenses and restructuring costs compared to the prior year, alongside higher non-interest income.
- Expense Reduction: Non-interest expenses decreased by $28.88 million ($21.6% reduction) compared to the prior year quarter. This was primarily due to the absence of significant merger integration costs incurred in 2024 and cost savings from exiting the single-family mortgage market.
- Provision Normalization: The provision for credit losses dropped to $2.75 million from $16.00 million in the prior year. The prior year figure included a one-time initial provision for loans acquired in the Luther Burbank merger.
- Balance Sheet Shifts: Cash and cash equivalents decreased by $1.15 billion from the prior quarter to fund investment securities purchases and pay down borrowings. Total borrowings decreased by $503.8 million to $2.76 billion.
- Asset Quality: Non-performing assets (NPAs) decreased to $70.9 million (0.26% of total assets) from $77.4 million (0.28%) at the prior fiscal year-end. Non-accrual loans declined to $59.9 million.
Outlook, Risks, and Management Commentary
- Strategic Pivot: Management is actively executing an exit from the single-family mortgage lending market. While this is expected to yield approximately $17 million in annual expense savings, it introduces risks regarding revenue loss and customer relationship impacts. A $5.4 million restructuring charge was associated with this decision.
- Interest Rate Risk: The Company maintains a liability-sensitive position. NIM compressed to 2.55% as yields on earning assets fell faster than the cost of liabilities. Management utilizes interest rate swaps to hedge fair value risk on the investment portfolio and cash flow risk on borrowings.
- Regulatory Risk (CRA): The Bank received a "Needs to Improve" rating under the Community Reinvestment Act (CRA) in December 2024. The Company has appealed this rating. If unsuccessful, the rating could restrict expansionary activities, including mergers and acquisitions, and limit branch establishment until the next examination (likely 2026).
- Capital Position: The Company remains well-capitalized, with a Common Equity Tier 1 ratio of 11.51% and a Tier 1 Leverage ratio of 9.24%, significantly exceeding regulatory minimums.
- Dividends and Buybacks: The Company paid a quarterly common dividend of $0.27 per share (168th consecutive quarter) and repurchased 726,082 shares during the quarter. Approximately 10.78 million shares remain authorized for repurchase.
Investor Verification Checklist
- CRA Appeal Status: Monitor the outcome of the appeal regarding the "Needs to Improve" CRA rating, as a negative outcome could materially restrict strategic M&A options.
- Single-Family Exit Execution: Verify the realization of the projected $17 million in annual expense savings against the actual decline in revenue from the exited mortgage business.
- Net Interest Margin Trajectory: Track NIM trends as the Company adjusts its asset mix away from single-family mortgages and manages the impact of falling interest rates on adjustable-rate loans.
- Asset Quality Trends: Review the composition of non-accrual loans, specifically the concentration in Commercial Real Estate (49.0% of non-accruals) and Multi-family (17.5%) sectors.
- Unrealized Losses: Note the net unrealized loss of $44.5 million on Available-for-Sale (AFS) securities and $41.9 million on Held-to-Maturity (HTM) securities, which impacts equity but is not realized unless sold.