WaFd, Inc. (WAFD) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary reveals several concerning factors: increased nonperforming assets and delinquent loans, further margin pressure expected, and management's vague responses in the Q&A. Despite some positive aspects like noninterest income growth and strategic investments, the overall negative sentiment is driven by financial health concerns and unclear guidance, leading to a likely negative stock price reaction.
Key Financial Performance
Net Income $60.5 million or $0.79 per diluted share for the quarter ended December 31, 2025. This compares to $0.54 per share for the first quarter of fiscal 2025 and $0.72 per share for the September '25 quarter. The $0.07 increase in earnings per share for the quarter was a result of improvements in both income and expense, a modest increase in net interest income and increased noninterest income as well as an overall decrease in total noninterest expense.
Loans Receivable Decreased $240 million during the quarter, primarily due to a decrease in inactive loan types (SFR, custom construction, and consumer lot loans), which combined decreased by $256 million. Active loan types saw originations of $1.1 billion and repayments and payoffs of $1 billion.
Investments and Mortgage-Backed Securities Increased $728 million during the quarter, funded primarily by an increase in borrowings of $671 million. Investment purchases were primarily discount-priced agency mortgage-backed securities with an effective yield of 4.93%. This increase is part of the overall investment strategy replacing the single-family mortgage loan balance runoff.
Total Deposits Decreased by $21 million during the quarter. Noninterest-bearing deposits increased $125 million or 4.9%, interest-bearing deposits increased $434 million or 4.5%, while time deposits decreased $580 million or 6.4%. Core deposits ended the quarter at 79.7% of total deposits, up from 77.9% in the September quarter.
Net Interest Income Increased $1.2 million from the prior quarter due to a reduction in interest paid on liabilities outpacing the reduction in interest earned on assets by 2 basis points. The net interest margin was 2.7% in the December quarter compared to 2.71% for the September quarter.
Noninterest Income Increased $1.9 million compared to the prior quarter, reaching $20.3 million. This includes a $3.2 million gain on the sale of a branch property, offset by losses of $408,000 on certain equity method investments.
Noninterest Expense Decreased $1.3 million or 1.2% from the prior quarter due to reduced compensation and technology expenses, offset by increases in other expenses. This resulted in a decrease in the efficiency ratio to 55.3% compared to 56.8% in the prior quarter.
Nonperforming Assets Increased to $203 million or 0.75% of total assets from $143 million or 0.54% at September 30, 2025. The change is due to nonaccrual loans increasing by $62.7 million or 49% since September 30, 2025, offset by a decrease in REO of $2.3 million.
Delinquent Loans Increased to 1.07% of total loans at December 31, 2025, compared to 0.6% at September 30, 2025, and 0.3% at December 31, 2024. The increase was largely impacted by two commercial relationships over 90 days past due, amounting to $58 million collectively.
Net Loan Charge-Offs $3.7 million during the quarter, representing 7 basis points of total loans annualized at December 2025. This was driven by a relationship in the C&I energy sector due to depressed oil prices and diminished working capital.
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Operating Highlights
Wealth Management Launch: WaFd launched WaFd Wealth Management on August 31, 2025, with experienced professionals from a wirehouse firm in Seattle. The goal is to grow wealth management to $1 billion in assets under management in the first 2 years. As of December 31, 2025, assets under management reached $400 million.
Business Banking Expansion: WaFd reorganized its frontline bankers into three segments to focus on business banking, corporate banking, and commercial real estate banking. The bank became a preferred SBA lender, and 98% of branch managers passed the small business credit certification process.
Loan Portfolio Management: Active loan types saw originations of $1.1 billion, outpacing repayments and payoffs of $1 billion. Inactive loan types decreased by $256 million. The lending pipeline increased by $697 million (28%) over the last quarter, reaching $3.2 billion.
Deposit Management: Total deposits decreased by $21 million, but noninterest-bearing deposits increased by $125 million (4.9%). Core deposits now represent 79.7% of total deposits, up from 77.9% in the previous quarter.
Efficiency Improvements: The efficiency ratio improved to 55.3% from 56.8% in the prior quarter, driven by reduced compensation and technology expenses.
Build 2030 Strategic Plan: WaFd's Build 2030 plan focuses on increasing noninterest-bearing deposits to 20% of total deposits by 2030 (currently at 12.6%) and growing C&I loans and deposits. The plan also includes expanding business banking and improving branch utilization.
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Risk or Challenges
Nonaccrual Loans: Increase in nonaccrual loans by $62.7 million or 49% since September 30, 2025, impacting net interest margin and income.
Criticized Loans: Increase in criticized loans by $30 million to 4.6% of net loans, reflecting financial stress among borrowers due to elevated interest rates and economic uncertainty.
Delinquent Loans: Delinquent loans increased to 1.07% of total loans at December 31, 2025, compared to 0.6% at September 30, 2025, and 0.3% at December 31, 2024.
Nonperforming Assets: Nonperforming assets increased to $203 million or 0.75% of total assets, up from $143 million or 0.54% at September 30, 2025.
Economic Uncertainty and Tariffs: Economic uncertainty and tariffs continue to impact borrowers' revenue and material costs, posing headwinds for credit quality.
Interest Rate Environment: Elevated interest rates are impacting loan demand and borrowers' expense structures, contributing to financial stress.
Loan-to-Deposit Ratio: Loan-to-deposit ratio at 92.7%, though improved from prior years, still indicates reliance on deposits for funding.
Provision for Credit Losses: Net provision for credit losses in the quarter was $3.5 million, driven by increased criticized and nonperforming loans.
Charge-offs: Net charge-offs of $3.7 million during the quarter, including a significant charge-off in the C&I energy sector due to depressed oil prices and diminished working capital.
Deposit Challenges: Deposits remain flat, with challenges in growing noninterest-bearing deposits, which are critical for reducing funding costs.
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Guidance & Outlook
Net Interest Margin: The company expects more pressure on the margin from additional mortgage-backed securities purchases, which will also increase net interest income.
Noninterest-Bearing Deposits: The company aims to increase noninterest-bearing deposits to 20% of total deposits by 2030, up from 12.6% currently.
Loan Portfolio Growth: The company plans to grow its active loan portfolios by 8% to 12% over the next 1 to 2 years.
Lending Pipeline: The lending pipeline has increased by 28% over the last quarter, reaching $3.2 billion, indicating potential future loan growth.
Wealth Management: The company aims to grow WaFd Wealth Management to $1 billion in assets under management within the first 2 years of operation.
Return on Tangible Common Equity: The company has a short-term goal to increase its margin to 3% within the next 2 years, which would result in a return on tangible common equity of 12.9%.
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Shareholder Return Plan
Share Repurchase: During the quarter, 1.95 million shares of common stock were repurchased at a weighted average price of $29.75. The impact on earnings per share for these repurchases was $0.02 for the quarter. The share repurchase plan currently has a remaining authorization of 6.3 million shares, which provides a compelling investment alternative depending on share price.
Capital Allocation for Share Repurchase: Over the last 7 quarters, the company has repurchased 5.8 million shares at a weighted price of $29.45, representing 7% of the shares outstanding as of March 31, 2024. The company continues to believe that share repurchase is the best use of capital when the stock price is depressed.
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Key Q&A
Q:What is the plan for the $800 million of borrowings that come due or reprice within the next 3 months?
A:The borrowings will be replaced with current borrowers, and if the Fed continues to cut rates, the rate will come down.
Q:What was the dollar amount of interest income reversal this quarter?
A:Nonaccrual interest amounted to just over $5 million for the quarter.
Q:Can you provide details on the two new C&I nonaccruals and the plan for resolution?
A:One is a manufacturing business impacted by market tariffs, labor costs, etc., and the other is a real estate-related entity. The company is working with clients and is optimistic about resolution.
Q:What is the outlook for expense growth this year, including the build-out of the SBA platform and hiring of C&I lenders?
A:Annual merit increases will take effect in March, but there are no significant plans for large team increases. Investments will continue strategically in technology, and bonus compensation will increase with production growth.
Q:What is the expectation for further margin pressure and growth in NII dollars in calendar Q1?
A:Further margin pressure is expected, but growth in NII dollars is anticipated due to the strategy of replacing single-family runoff with mortgage-backed securities.
Q:What is the trajectory for achieving a 3% margin?
A:The company is optimistic about achieving a 3% margin over the short term, driven by factors like lower-cost deposits and potential positive impacts from nonaccruals.
Q:What is the expected inactive runoff in the loan portfolio, and what is the growth target?
A:Inactive runoff is expected to be around $200 million to $250 million per quarter, with a growth target of 8% to 10%.
Q:How price-sensitive is the company regarding share buybacks, and what are the capital levels they are comfortable with?
A:The company is more aggressive with buybacks closer to tangible book value and does not plan to meaningfully shift capital ratios.
Q:What is the target mix of the balance sheet, particularly for securities?
A:The company sees room to grow the bond portfolio, with a longer-term target of 25% to 30% of the balance sheet.
Q:What drove the strong transactional deposit growth this quarter?
A:The growth was attributed to momentum from business and treasury management shifts, as well as seasonality towards year-end.
Q:What is the strategy for MBS purchases and the use of borrowings?
A:The company accelerated MBS purchases this quarter and may use borrowings and deposit growth for future investments if they make sense.
Q:What is the growth expectation for the active portfolio in fiscal years 2026 and 2027?
A:Growth is expected to be 6% to 10% in fiscal 2026 and higher in fiscal 2027, supported by a strong pipeline.
Q:What are the implications of the CRA 'Needs to Improve' rating?
A:The rating impacts branching activities and mergers/acquisitions, making them more difficult but not impossible.
Q:What is the company's approach to achieving a 3% margin trajectory?
A:The company is factoring in 1 to 2 rate cuts this year and is focused on reducing higher-cost funding.
Q:Review of Unclear Management Responses
A:Management avoided providing specific guidance on the trajectory to achieve a 3% margin, using vague language and general optimism without detailed data or timelines.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Chief
addition
asset
balance sheet
basis point
borrower
borrowing
capital
charge offs
comment
construction
consumer
credit quality
decrease
deposit
expense
increase
interest income
investment
level
liability
loan type
loss
margin
mortgage security
portfolio
production
purchase
rate
ratio
relationship
share
statement
table
uncertainty
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WAFDP Report
Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
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Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
