WaFd, Inc. (WAFD) — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2024. Unaudited results are for WaFd, Inc. and subsidiaries. Unless stated otherwise, amounts below are in U.S. dollars. The quarter includes Luther Burbank results only from the March 1, 2024 merger date, limiting comparability with prior periods.
Financial performance and position
| Metric | Three months ended March 31, 2024 | Six months ended March 31, 2024 |
|---|---|---|
| Net interest income | $158.6 million, down 9.4% year over year | $310.8 million, down $47.0 million year over year |
| Net interest margin | 2.73%, versus 3.51% | 2.81%, versus 3.60% |
| Provision for credit losses | $16.0 million, versus $3.5 million | $16.0 million, versus $6.0 million |
| Net income | $15.9 million, versus $65.9 million | $74.3 million, versus $145.4 million |
| Net income available to common shareholders | $12.2 million; diluted EPS $0.17 | $67.0 million; diluted EPS $1.00 |
| Other income / other expense | $13.4 million / $133.7 million | $27.6 million / $230.3 million |
Management attributed lower net interest income primarily to deposit costs: the quarterly yield on interest-earning assets rose 38 basis points to 5.50%, while the cost of interest-bearing liabilities rose 129 basis points to 3.32%.
- Balance sheet: Total assets were $30.14 billion at March 31, up $7.67 billion since September 30, 2023, primarily reflecting the merger. Net loans were $20.80 billion; customer accounts were $21.34 billion.
- Liquidity and cash flow: Cash and cash equivalents were $1.51 billion, up $525 million since September 30. Six-month operating cash flow was $279.5 million. The bank reported access to FHLB and Federal Reserve borrowing facilities and had pledged loans for contingent liquidity; no borrowings were outstanding under the FRB Borrower-in-Custody program.
- Funding and debt: Borrowings were $5.35 billion, versus $3.65 billion at September 30. The merger added $1.43 billion of borrowings, $50.2 million of floating-rate junior subordinated debentures due in 2036 and 2037, and $93.5 million of 6.5% senior notes due September 30, 2024. Combined borrowings and debt carried a 4.48% weighted-average rate.
- Capital: Shareholders’ equity was $2.92 billion, or 9.69% of assets; tangible capital to tangible assets was 8.31%. The company and bank met regulatory capital requirements, and the bank was categorized as well capitalized.
- Credit quality: Allowance for loan losses was $201.6 million; total allowance including unfunded commitments was $225.1 million, or 1.00% of gross loans. Nonperforming assets were $68.4 million, or 0.23% of assets. Delinquencies were 0.36% of loans. Net charge-offs were $33,000 for the six-month period.
Material changes and unusual items
- WaFd closed its all-stock Luther Burbank merger on March 1, issuing approximately 17.1 million shares for consideration of $465.5 million. The acquired assets and liabilities were recorded at preliminary fair values; purchase accounting remains subject to adjustment during the measurement period, up to one year after closing.
- The merger added approximately $7.7 billion of assets at fair value, including $3.0 billion of loans held for sale and $3.2 billion of loans held for investment. WaFd recorded $105.8 million of goodwill and $37.0 million of core deposit intangible assets. The acquired California operations expanded the bank’s footprint to nine western states.
- Merger-related expenses were $25.1 million for the quarter and $25.6 million for the six months, including severance, professional fees, charitable contributions, and integration costs. Quarterly compensation expense also reflected merger-related costs and a larger workforce. FDIC expense included a $1.8 million special assessment.
- The company is marketing a portion of the acquired multifamily portfolio as held for sale. It was working through the bidding process; proceeds are expected to provide liquidity that could be used to reduce debt or originate loans. Completion, timing, and sale price are uncertain.
- Available-for-sale securities had an $85.0 million net unrealized loss and held-to-maturity securities had a $50.4 million net unrealized loss at March 31. Management attributed the declines principally to interest rates and reported no credit impairment. Securities valuations and any eventual recovery remain exposed to market-rate movements.
Outlook, commentary, and risks
The filing provides no specific earnings or revenue guidance. Management’s interest-rate models estimate that an immediate parallel 200-basis-point increase would raise next-year net interest income by 9.3%, while an immediate 100-basis-point decrease would reduce it by 0.16%. These estimates assume a constant balance sheet and depend on modeling assumptions; management cautions that actual results may differ. In the +200-basis-point scenario, modeled net portfolio value falls 19.14%.
Key risks include successful integration of Luther Burbank and realization of expected benefits; the ability to sell the held-for-sale loans at acceptable prices; deposit repricing and interest-rate changes; borrower financial stress and real estate market deterioration; entry into California; and operational, regulatory, cyber, and litigation risks. The filing also notes $3.86 billion of unfunded loan commitments and letters of credit. Management considers ordinary-course legal proceedings immaterial, and reports effective disclosure controls.
Investor verification points
- Track integration costs, cost savings, and whether merger benefits materialize; distinguish acquired results from WaFd’s standalone performance.
- Verify completion, timing, and pricing of the planned held-for-sale loan portfolio sale, and assess effects on liquidity, debt, and earnings.
- Monitor deposit mix and funding costs, NIM, and the maturity or refinancing of the $93.5 million senior notes due September 30, 2024.
- Review changes in nonperforming and criticized loans, allowance adequacy, and credit exposure in commercial real estate and acquired loans.
- Assess capital and liquidity alongside unrealized securities losses and the sensitivity of modeled earnings and net portfolio value to rate changes.