WaFd (WAFD) Q3 FY26 earnings call: guidance and Q&A

Given active portfolio growth and inactive portfolio attrition, is low single-digit net loan growth a fair assumption for the near term?

Yes, low single-digit net growth is a fair assumption for loans themselves, but the bank also considers its securities portfolio, which can augment growth.

“Yes, Jeff, thanks for joining us. I think that's a fair assumption, but as I've talked about before, we kind of think about our single-family portfolio almost like on portfolio. So you almost have to take into account what's happened with the securities in that. So if you just look at themselves, all in net single digits would be reasonable. We can augment that with mortgage-backed purchases if you would use to reiterate is inclined to do that.”

asked by Jeff Rulis · answered by Brent Beardall

Does the stable margin outlook include bank accretion and tailwinds from securities reinvestment?

Yes, the stable margin outlook is all-inclusive. However, an acceleration in repayments on the Luher portfolio's deferred income would be an additional positive.

“Yes. It is all oppositive in that stable margin outlook that is not imposed if we have a pickup in the repayments on the rent portfolio, right now, of the $160 million that we have sitting on the balance sheet, we're only taking in, I think, $6 million to $7 million per quarter. So those picked up, that would be the positive side on our margin.”

asked by Jeff Rulis · answered by Brent Beardall

Are there specific reserves for the large C&I nonperformer, and did the recent reserve build contribute to it?

No specific reserves are assigned, but the general reserve build was partly due to this loan, which has been downgraded to doubtful and is expected to be resolved by sale.

“Yes, Matt, good question on this. We do not have any specific reserves assigned to that relationship. Generally speaking, we do not apply specific reserves. What we do have in this is general reserves and the increase in our general reserve was in part because of this the loan itself. Obviously, it will be resolved by the end of the quarter through a sale. And yes so at this point, that's driving the increase in orders.”

asked by Matthew Clark · answered by Ryan Mauer

What is the outlook on the marginal cost of deposits, especially if the Fed remains on hold?

The marginal cost of deposits is increasing due to intense competition, with some competitors offering 5% for 3-month deposits, requiring WaFd to increase rates to maintain deposits.

“Clearly, there's an expectation in the marketplace in terms of Fed rates. And on the client section at JPMorgan is offering 3 months at 5%. So that's unusual that or the added marketplace that shows what that position is ferocious for deposits right now. And we're seeing that in terms of having to increase our rates to maintain positive.”

asked by Matthew Clark · answered by Brent Beardall

Can you discuss new loan pricing, competition, and any pressure on yields?

New loan originations averaged 6.31%. Competition remains difficult, especially from private credit, but spreads (SOFR +175-225 bps) haven't worsened and may have slightly improved recently.

“Yes. You can see that the overall loan originations of $1.5 billion, a 6.31%, and so we're very pleased with that. The compassion remains difficult. I want to say that competition has changed at all in terms of new lending spreads, but clearly a change over the last 10 years has been private credit private, credit coming after deals used to be ranked. So all kind of the A credits that we're looking at, you're looking at the spreads of SOFR plus to $175 million to $225 million depending on the deal. But I wouldn't say it's gotten any worse in fact, I'd say it's probably gotten better just over the last few months in terms of what we're seeing from a competitive standpoint.”

asked by Kelly Motta · answered by Brent Beardall

Is the previously discussed 3% NIM target more challenging now, and what would it take to achieve it?

The 3% NIM target is more challenging given current market expectations for rates and deposit costs. Achieving it would likely require the Fed to start raising rates, benefiting the bank's asset-sensitive balance sheet.

“Yes. So we're not driving through in the past, so I think that was with the expectation that rates were going to continue to which the market expectation was and we're going to have continued relief on the deposit side. But that appears to have changed at least for now. And so what gets us back there in terms of a 3% plus margin as I mentioned, it actually do end up piling up, see the short-term benefit of that. And then longer term, if that equates to a steeper slope in the yield curve, that's positive for us. So we were going to benefit from the lag in the pricing of deposits as we're coming down to have those deposit rates come down. That's no longer appears to be the case, but rates are going up. So if -- in fact, we do get the Fed starting move rates up, that's the best way for us to get to 3% right now.”

asked by Kelly Motta · answered by Brent Beardall

What are WaFd's M&A interests, parameters, and what is the bank waiting for?

M&A is considered from strategic and financial perspectives. Strategic deals would help with lower-cost funding but are expensive (1.7x-2x TBV), making them difficult at WaFd's current valuation. Financial deals are also considered, but the bank prioritizes its own game plan and will only pursue M&A that is not overly dilutive and meets a less than 3-year tangible book value earn-back.

“Yes. No, we always keep our figure on the use of what's happening in the market. And as I mentioned, our #1 goal is to be disciplined to protect our shareholders to not be overly dilutive. If we look at M&A relating to perspectives, 1 strategic and 1 just financial, and strategic what we would help us with our goals to try to get lower cost funding base and riding assets. And to do that in today's market in all likelihood, you're going to have to pay something in the 1.7x to 2x tangible book value range. And when we're sitting pain today, at 1x, 2.53x tangible book value, that makes it pretty difficult.”

asked by Kelly Motta · answered by Brent Beardall

How would WaFd use the incremental capital relief from the revised Basel III framework?

The priorities for using incremental capital are: first, organic growth; second, M&A (strategic then financial, with a less than 3-year TBV earn-back target); and third, share repurchases.

“Yes. No, good question. And we've tried to lay that out in the prepared comments. It's really first highest in beds would be organic growth, what we're doing today. So we continue to do that and hopefully more of that. Number 2 would be to look at M&A. And our first priority of M&A would be strategic and it's not a strategic tenet financial transaction potentially. But if we can't find one that meets our metrics, the things I didn't share with Kellegshould have is what we look for is the tangible book value dilution earn back and we want to earn back in less than 3 years, which I think is pretty the expectation of the marketplace. So M&A and absent further organic growth, then we would look forward to share repurchases. So those would be the 3 priorities for our use of capital going forward.”

asked by Unknown Analyst · answered by Brent Beardall