WaFd Q3 Earnings Call Highlights

WaFd (NASDAQ:WAFD) reported higher fiscal third-quarter earnings as loan growth resumed across its active portfolios, expenses remained stable and credit costs increased amid continued pressure from elevated interest rates and economic uncertainty.

The Seattle-based bank reported net income available to common shareholders of $62.5 million, or $0.84 per diluted share, for the quarter ended June 30, 2026. That compared with $0.73 per share in the same quarter a year earlier and $0.82 per share in the linked March quarter, Chief Financial Officer Kelli Holz said on the company’s earnings call.

Holz said the sequential increase in earnings per share reflected “a modest increase in net interest income and non-interest income, as well as controlled expenses,” partly offset by a higher loan loss provision.

Loan Growth Returns as Active Portfolio Expands

Loans receivable increased by $51 million during the quarter, driven by growth in what WaFd defines as its active loan categories: commercial real estate, multifamily, construction, land acquisition and development, commercial and industrial, and consumer loans. Those categories increased by a combined $315 million, Holz said.

Loan originations and advances in active loan types totaled $1.5 billion, outpacing $1 billion of repayments and payoffs. The weighted average rate on originations was 6.31%, while the weighted average rate on repayments and payoffs was 6.06%.

President and Chief Executive Officer Brent Beardall said the “headline news” for the quarter was again loan growth. After more than a year of contraction in the loan portfolio, WaFd has posted net overall loan growth for two consecutive quarters, he said. Beardall said the active loan portfolio grew 10% on a linked-quarter basis, following 12% growth in the March quarter.

“I am pleased to report that the biggest contributor to that growth from a percentage standpoint is C lending,” Beardall said. Commercial and industrial originations were $741 million, or 49% of total originations for the quarter, he said.

Chief Credit Officer Ryan Mauer said loan production was centered in commercial and industrial at 49%, construction at 27% and commercial real estate at 10%. He said the bank achieved that production while maintaining “a consistent approach to underwriting and managing to a moderate risk profile.”

Margin Holds Steady, Deposit Competition Remains Intense

Net interest income increased $3.8 million from the prior quarter, while the net interest margin held steady at 2.81%, Holz said. She said the margin reflected a one-basis-point improvement in both the yield on assets and the cost paid on liabilities. As of June 30, the spot yield on interest-earning assets was 5.12%, the cost of interest-bearing liabilities was 2.77% and the margin was 2.82%.

Holz said that, absent changes in interest rates, WaFd expects its margin to be “relatively flat” in the next quarter, taking into account day count, loan growth funding and deposit activity.

Total deposits decreased by $192 million during the quarter. Non-interest-bearing deposits increased by $69 million, or 2.7%, while interest-bearing deposits decreased by $70 million and time deposits declined by $191 million. Holz said deposit outflows in the second calendar quarter were expected due to tax-related and municipal public fund deposit dynamics. Core deposits ended the quarter at 80.6% of Total deposits, and non-interest-bearing deposits were 12.6%.

During the question-and-answer session, Beardall said competition for deposits remains “ferocious,” adding that WaFd is seeing pressure to raise rates to maintain deposits. He said the trend in deposit rates is “clearly higher today,” though higher loan yields are expected to help offset that pressure.

Credit Metrics Remain Moderate but Show Stress

Mauer said adversely classified loans were 2.59% of net loans, compared with 2.6% in the March quarter and 3.54% a year earlier. Total criticized loans rose by $139 million to 4.9% of net loans, up from 4.2% in the prior quarter and 4.1% a year earlier.

Mauer said the increase in criticized loans was not concentrated in any single business line or industry and reflected the broader economic environment, where elevated rates and uncertainty are affecting commercial and consumer borrowers. He emphasized that a criticized loan designation does not necessarily mean a loss is expected.

Non-performing assets increased slightly to $136 million, or 0.49% of total assets, from $132 million, or 0.48%, at March 31. Delinquent loans decreased to 0.75% of total loans from 0.78% in the prior quarter, though they were up from 0.36% a year earlier.

Mauer said non-performing assets and delinquencies continue to be affected by one large commercial and industrial relationship that is more than 90 days past due, with $54 million outstanding. The relationship remains on non-accrual, has been downgraded to doubtful and is expected to be resolved through an anticipated sale of the business before the quarter ending Sept. 30, 2026. No charge-off has been taken on that relationship, he said.

The net provision for credit losses was $11 million, driven by growth in the active loan portfolio, particularly C and construction loans, as well as concerns about possible losses on adversely classified loans. Net charge-offs were $1.6 million, or 3 basis points annualized. The allowance for credit losses, including unfunded commitments, covered 1.08% of gross loans at quarter-end.

Capital, Buybacks and Strategic Priorities

Holz said WaFd’s capital position remained strong, with an estimated common equity Tier 1 ratio of 11.4% and total risk-based capital ratio of 14.4%. She said proposed revisions to the Basel III endgame capital framework could reduce WaFd’s risk-weighted assets by about 12.5%, representing an estimated $300 million of total risk-based capital relief, based on management’s review of March 31 data.

Beardall said the bank paused share repurchases after a significant increase in the stock price. For the fiscal year, WaFd repurchased 4.7 million shares at an average price of $30.99, or 101% of tangible book value. He said the company will remain opportunistic but likely will not be “nearly as aggressive” with repurchases at current trading levels.

Beardall also discussed WaFd’s Build 2030 strategic plan, which is focused on shifting the bank toward serving businesses and increasing non-interest-bearing deposits to 20% of total deposits by 2030. The bank ended the quarter at 12.6%.

Looking ahead, Beardall said WaFd’s lending pipeline remains strong at $2.9 billion, down 9% from the prior quarter, while its new deposit pipeline increased sharply. He said management believes the bank has the products and teams in place to grow the active loan portfolio by 8% to 12% going forward.

On mergers and acquisitions, Beardall said WaFd is monitoring opportunities but remains disciplined. He said the company would prefer not to do a deal rather than overpay or overly dilute current shareholders.

About WaFd (NASDAQ:WAFD)

Washington Federal, Inc, doing business as WaFd Bank, is a publicly traded bank holding company headquartered in Seattle, Washington. Through its subsidiary, WaFd Bank, the company provides a range of banking and financial services to individuals, small-to-medium enterprises, and commercial clients. Established in 1917 as Ballard Savings Loan in Seattle, the institution expanded over decades to serve customers across the Western United States under the Washington Federal name and has operated as a public company since the early 1980s.

WaFd Bank's core offerings encompass deposit accounts such as checking, savings, money market, and certificates of deposit, alongside consumer and commercial lending products.

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