WaFd, Inc. Common Stock 2026 Q4 Earnings Call

Please go ahead. Victor, thank you.

Good morning, everybody. Happy Friday. Let's dive into our 2026 fourth quarter and full year earnings report. You can find that earnings press release, along with our detailed fact sheet and investor scorecard on our website at wafdbank.com. During today's call, we'll make forward-looking statements which are subject to risks and uncertainties and are intended to be covered by the safe harbor provisions of Federal securities law. Information on risk factors that could cause actual results to differ are available from the earnings press release that was released yesterday and the Form 10-K for the fiscal year ended September 30, 2025. Forward-looking statements are effective only as of the date they are made, and WaFd assumes no obligation to update information concerning its expectations. We will also reference non-GAAP financial measures, and I encourage you to review the non-GAAP reconciliations provided in our earnings materials.

Joining us this morning are President and CEO, Brent Beardall, Chief Financial Officer, Kelli Holz, and Chief Credit Officer, Ryan Mauer. I'd now like to hand the call over to Mr. Beardall.

Good morning and thank you for joining us. It has certainly been an eventful quarter and year for WaFd. During this call, we will focus primarily on the WaFd standalone results, and at the end of the call, I will provide my comments on the merger with EverBank that we announced on September 7 of this year. We closed out our fiscal year 2026 on a high note with earnings per share up 22% over the prior year. Adjusting for non-operating items, specifically the $6.2 million of merger expenses in the quarter, EPS would have been up by 5% on a linked quarter basis and up by 10% on the same quarter one year ago. In what is likely to be our final fiscal year before we merge with EverBank, we are proud to deliver our second-best year ever in terms of after-tax net income of $241 million.

This morning, we will cover four areas. First, Kelli Holz, our CFO, will provide you with a detailed review of the balance sheet and income statement for the quarter and year-end. Next, Ryan Mauer, our Chief Credit Officer, will provide comments on the current status of our loan portfolio and credit quality trends, including a detailed discussion of the large charge-off incurred this quarter. Then I will provide my thoughts on the quarter, the short-term outlook on earnings, and our long-term prospects partnering with EverBank. Finally, we will answer any questions you have. Kelly, please walk us through the quarter and fiscal year-end results we published yesterday.

Thank you, Brent. As announced, WaFd, Inc. reported net income available to common shareholders of $56.3 million or $0.76 per diluted share for the quarter ended September 30, 2026. This compares to net income to common shareholders of $0.72 per share for the fourth quarter of fiscal 2025 and $0.84 per share for the June 2026 quarter. The decrease in EPS for the quarter was a result of a modest increase in net interest income, increased non-interest income from the loan sale activity, offset by an increased provision for loan losses and merger-related expenses. For the full year ended September 30, 2026, WaFd reported net income available to common shareholders of $241.2 million or $3.21 per diluted share. This compares to net income to common shareholders of $2.63 per diluted share for fiscal year 2025.

For the balance sheet, loans receivable decreased $977 million during the quarter as a result of the loan sale-related activity. The company sold $543 million of single-family residential loans during the quarter and has entered into an agreement to sell $429 million of multifamily loans in the first quarter of fiscal 2027. These multifamily loans have been reclassified as held for sale at September 30, 2026. We expect to realize a net gain of approximately $7 million when this sale is finalized. Outside of the loan sale, active loan types, commercial real estate, multifamily, construction, land A&D, C&I, and consumer combined increased by $237 million for the quarter, while our inactive loan types decreased by $267 million. Loan originations and advances for the quarter outpaced repayments and payoffs for our active loan types, with originations of $1.4 billion and repayments and payoffs of $1 billion.

For the inactive loan types, advances were $24 million, and repayments and payoffs were $249 million. The weighted average rate at origination was 6.87% for the quarter, and the weighted average rate on repayments and payoffs was 6.35%. Please see the tables in our fact sheet that provide a breakdown between our active and inactive loan types. Total investments and mortgage-backed securities decreased $113 million during the quarter, a result of our shifting strategy, replacing the single family runoff in the loan portfolio from mortgage-backed securities to funding our higher yielding loan origination pipeline. Total deposits increased by $389 million during the quarter, with non-interest bearing deposits increasing $39 million or 1.5%, interest-bearing deposits increasing $91 million or 0.9%, and time deposits increasing $259 million or 3.2%.

Core deposits ended the quarter at 81.8%, compared to the June quarter at 80.6% of total deposits, and up from September 2025 at 77.9%. Non-interest bearing deposits ended the quarter at 12.6% of total deposits. The loan to deposit ratio decreased for the quarter ended September 2026 to 89.3%, primarily as a result of the loan sale activity. WaFd's capital profile remains strong. We expect our capital ratios to be in line with the prior quarter ratios, which was 11.4% for CET1, and 14.4% for the total risk-based capital ratio. Liquidity is strong with $4.2 billion of on-balance sheet liquidity, a robust core funding base, and significant off-balance sheet borrowing capacity. For the income statement, net interest income increased $1 million from the prior quarter.

The effect of a 4 basis point improvement on the interest earned on assets, offset by a 7-point increase in the cost of interest paid on liabilities. As a result, the net interest margin held steady at 2.81%, no change from the June 30, 2026 quarter. On a linked quarter comparison, the margin was benefited from a 2 basis point improvement with loan rates, a 3 basis point improvement with investment yields, a 1 basis point decrease with borrowing rates, and then impacted by a 6 basis point increase in the cost of deposits and 3 basis points for day count. The 92-day quarter compared to 91 days in June. 50% of our loans and 75% of our securities are on a 30/360 basis.

For the spot rate as of the September quarter end, the yield on interest earning assets was 5.21%, while the cost of interest-bearing liabilities was 2.87%, and the margin ended at 2.81%, the same as the margin for the September quarter. Absent any changes in interest rates, we expect our margin to expand modestly over the next quarter or two with the reduction in earning assets due to the loan sales, in addition to our earning assets repricing more quickly than our liabilities in the short term in a rising rate environment. As of September 30, the balance of deferred income on the interest rate mark for the Luther Burbank portfolio was $137 million. During the September quarter, we recognized approximately $17 million of the discount through non-interest income with the sale of the single-family loan portfolio pool.

Total non-interest income was $38.1 million for the September 2026 quarter, compared to $24.2 million for the prior quarter. This increase was primarily driven by a $16.4 million gain on the sale of single family loans during the quarter. This gain was partially offset by the quarter-over-quarter reduction in non-interest income attributable to the $3 million gain on the sale of bank real estate we recognized in the third quarter. Total non-interest expense was $121.5 million compared to $110.3 million for the June quarter. This was the result of continued investments in our people and technologies, combined with $6.2 million in merger related costs incurred in the fourth quarter. The company's efficiency ratio for the September quarter was 55.12%, compared to 53.7% in the prior quarter. Income tax expense totaled $17.1 million for the September 2026 quarter, compared to $18.2 million for the June quarter.

The effective tax rate for the September quarter was 22.17%, compared to 21.6% for the quarter ended June 30, 2026. The increase in the effective tax rate from the prior quarter was the result of merger related expenses incurred, which are not deductible for tax and create a discrete tax expense. The effective tax rate for the fiscal year 2026 was 21.88%. I will now turn the call over to Ryan to share his comments on WaFd's credit quality.