WaFd, Inc. (WAFD) — FY2023 Form 10-K
Reporting period: Fiscal year ended September 30, 2023; this is an annual filing, not a standalone fourth-quarter report. WaFd operates WaFd Bank, a Seattle-based commercial bank with 198 branches across eight western states, focused on real-estate, commercial and consumer lending and deposit services. The company changed its name from Washington Federal, Inc. to WaFd, Inc. effective September 29, 2023.
Financial performance and position
| Metric | FY2023 / September 30, 2023 | Comparison |
|---|---|---|
| Net interest income | $690.2 million | Up 16.1% from $594.6 million |
| Net interest margin | 3.40% | Up from 3.16% |
| Net income | $257.4 million; diluted EPS $3.72 | Net income up 8.9%; EPS was $3.39 |
| Noninterest income | $52.2 million | Down 21.4% from $66.4 million |
| Operating expenses | $376.0 million | Up 4.9%; efficiency ratio improved to 50.7% from 54.3% |
| Loans, net | $17.48 billion | Up 8.5% year over year |
| Deposits | $16.07 billion | Up 0.3%; time deposits rose 58.9% while transaction accounts fell 15.2% |
| Borrowings | $3.65 billion | Up from $2.13 billion; weighted-average rate was 3.98% |
| Cash and cash equivalents | $980.6 million | Up from $684.0 million |
| Assets / shareholders’ equity | $22.47 billion / $2.43 billion | Equity was 10.80% of assets, versus 10.95% |
Cash flow: Operating activities provided $214.0 million; investing activities used $1.38 billion, chiefly reflecting net loan funding and securities activity; financing activities provided $1.46 billion, including $1.525 billion net borrowing proceeds and $40.8 million net deposit inflows. Cash increased $296.7 million.
Capital and liquidity: Company CET1 and total risk-based capital ratios were 10.37% and 13.31%; Bank ratios were 11.63% and 12.81%. The Bank exceeded “well-capitalized” thresholds. Management reported $2.36 billion of additional FHLB borrowing capacity and $1.12 billion of additional Bank Term Funding Program capacity, subject to collateral and program terms. The filing states 74% of deposits were insured or collateralized.
Material changes and credit quality
- Higher rates lifted interest income, but funding costs rose sharply: annual interest expense increased to $352.7 million from $71.8 million. Period-end interest-rate spread narrowed to 2.61% from 3.36%.
- Credit costs rose materially. Provision for credit losses was $41.5 million versus $3.0 million; net charge-offs were $45.1 million versus net recoveries of $3.5 million. The filing attributes much of the provision to one large charge-off, including a $45.9 million commercial-and-industrial charge-off.
- Total allowance for credit losses, including unfunded commitments, was $201.7 million. Nonperforming assets increased to $57.9 million, or 0.26% of assets, from $44.6 million, or 0.21%. Commercial real estate nonaccrual loans rose to $23.4 million from $4.7 million.
- Loans remained concentrated in real estate: commercial loans were 61.6% of gross loans, and single-family residential loans were 32.8%. Loans grew overall, although construction and land-development balances declined.
- Available-for-sale securities had a $123.5 million net unrealized loss, and held-to-maturity securities had a $68.4 million unrealized loss, primarily associated with higher interest rates. Management reported no credit-loss impairment and said it did not expect to need to sell the securities before recovery.
Outlook, risks and unusual items
- Management identified rising rates, inflation, deposit competition, economic weakness and real-estate-market deterioration as material risks. Its filing discussed anticipated further Federal Reserve rate increases in 2024, while cautioning that actual rate decisions and results were uncertain. It provided no earnings or revenue guidance.
- The proposed all-stock Luther Burbank acquisition, valued at approximately $654 million when announced, remained pending Federal Reserve and FDIC approval. Washington State had approved it subject to those approvals. Completion would expand WaFd into California; integration, execution, approval and dilution risks remain.
- The Bank remains subject to 2013 and 2020 CFPB consent orders concerning HMDA reporting. The 2020 order included a $200,000 penalty and a 10-year compliance plan. The OCC terminated the Bank’s 2018 BSA consent order in 2021.
- FDIC premiums increased by $10.5 million year over year. Management did not expect the announced special FDIC assessment to be material to WaFd.
- Management reported effective disclosure controls and internal control over financial reporting. The auditor issued unqualified opinions on the financial statements and internal controls; allowance for loan losses and goodwill valuation were identified as critical audit matters.
Investor verification priorities
- Track deposit mix, deposit pricing and retention of the $5.31 billion time-deposit balance, including large time deposits and uninsured or uncollateralized funding.
- Review the large commercial-and-industrial charge-off, subsequent loan performance, criticized commercial real-estate exposures and adequacy of the allowance.
- Assess interest-rate sensitivity: the model estimated a 2.0% decline in next-year net interest income under an immediate 200-basis-point rate increase; estimated net portfolio value fell 27.4% under that scenario.
- Confirm the timing, regulatory conditions, financing and integration progress of the Luther Burbank merger.
- Monitor HMDA consent-order compliance, future regulatory costs, and any updates to litigation or FDIC assessment estimates.