WaFd, Inc.’s 2026 Q1 Earnings Call: NIM Outlook and Bond Portfolio Targets Split on Rate Cuts, Growth Plans

Date of Call: Jan 16, 2026

Financials Results

• EPS: $0.79 per diluted share, compared to $0.54 per share in the first quarter of fiscal 2025 and $0.72 per share in the September '25 quarter
• Operating Margin: 2.7%, compared to 2.71% for the September quarter

Business Commentary:

Earnings and Financial Performance:

• WaFd, Inc. reported net income available to common shareholders of $60.5 million or $0.79 per diluted share for the quarter ended December 31, 2025, compared to $0.54 per share for Q1 fiscal 2025 and $0.72 per share for the September 2025 quarter.
• The increase in earnings per share was due to improvements in both income and expense, a modest increase in net interest income, increased noninterest income, and an overall decrease in total noninterest expense.

Loan Portfolio and Credit Quality:

• Loans receivable decreased by $240 million during the quarter, primarily due to a decrease in inactive loan types, while originations for active loan types outpaced repayments.
• Nonperforming assets increased to $203 million or 0.75% of total assets, mainly due to an increase in nonaccrual loans, impacted by two commercial relationships.
• Adversely classified loans decreased by $51 million, representing 2.94% of net loans, reflecting a moderate risk profile despite an increase in criticized loans.

Balance Sheet and Investment Strategy:

• Total investments and mortgage-backed securities increased by $728 million, funded primarily by an increase in borrowings of $671 million.
• This increase is part of an overall investment strategy to replace the single-family mortgage loan balance runoff with discount-priced agency mortgage-backed securities.

Deposit Trends and Core Funding:

• Total deposits decreased by $21 million, with noninterest-bearing deposits increasing by 4.9% and interest-bearing deposits by 4.5%.
• Core deposits ended the quarter at 79.7% of total deposits, showing progress from a loan-to-deposit ratio of over 110% two years ago to 92.7% currently.

Sentiment Analysis:

Overall Tone: Positive

• CEO states 'We've started off the year well with a 10% linked quarter EPS growth and a 40% year-over-year growth, and importantly, 18% growth in transaction deposits on a linked quarter basis.' and 'Our lending pipeline is up $697 million or 28% over the last quarter.'

Q&A:

• Question from Matthew Clark (Piper Sandler): First one was around the margin outlook at least in the near term. What's your plan for that $800 million of borrowings that comes due or reprices within the next 3 months?
  Response: They will replace it with current borrowers and expect rates to fall if the Fed continues to cut.

• Question from Matthew Clark (Piper Sandler): And then the interest income reversal, I just want to double check the dollar amount... Okay. And then the 2 new C&I nonaccruals, can you just give us some color on the types of businesses those relate to and the plan for resolution?
  Response: One is in manufacturing impacted by tariffs, the other is a real estate-related entity; they are working with the clients and are optimistic about resolution.

• Question from Matthew Clark (Piper Sandler): And then last one for me, just on expense growth this year, kind of where you stand on the build-out of the SBA platform and whether or not you plan to hire more C&I lenders?
  Response: No significant plans for large team increases; they are opportunistic on merit increases and strategic tech investments but at a solid run rate.

• Question from Jeff Rulis (D.A. Davidson): Kelli, you mentioned... the expectation is that you would expect further margin pressure, but yet growth in NII dollars, is that at least in calendar 1Q?
  Response: Yes, with the strategy to replace single-family runoff with mortgage-backed securities, expecting further margin pressure but growth in NII dollars.

• Question from Jeff Rulis (D.A. Davidson): And I guess kind of sinking that... Brent sort of mentioned the short-term goal to get to a 3% margin... Any color on the trajectory?
  Response: Not providing guidance, but the current quarter was impacted by nonaccruals; future potential cuts in rates and shift to lower cost deposits support optimism for reaching 3% margin.

• Question from Jeff Rulis (D.A. Davidson): On that buyback, your sub tangible book... How price sensitive are you? And then maybe balance that with capital?
  Response: They are aggressive when close to tangible book value; share repurchase is the best use of capital while maintaining robust capital ratios.

• Question from Andrew Terrell (Stephens): If I could just start and just clarify on the margin... So I guess, is it -- is the margin expected to decline from the reported amount or from the spot rate that you gave?
  Response: They are referring to the spot rate, not the reported amount.

• Question from Andrew Terrell (Stephens): And if I just think about mix of the balance sheet, securities roughly around that 18% of assets today. Is there a target mix of the balance sheet?
  Response: They are relatively light in bonds compared to peers; short term growth expected, with longer term potential up to 25-30%.

• Question from Andrew Terrell (Stephens): I mean the transactional deposit growth was really strong this quarter... Just wanted to maybe unpack the core deposit growth this quarter.
  Response: Attributed to shift towards C&I/treasury management and calendar year-end seasonality; offset CD runoff with increased transaction deposits.

• Question from Kelly Motta (KBW): I did want to ask a follow-up maybe, Kelli, on the MBS purchases. Is my understanding last quarter, that the inactive runoff would be in part to fuel those purchases... As you look ahead, is that still a fair way to think about the growth in the securities portfolio?
  Response: They accelerated MBS purchases beyond single-family runoff intentionally; may use borrowings and deposit growth to continue investing if opportunities arise.

• Question from Kelly Motta (KBW): And then I did want to get a point of clarification, Brent, on your expectations for growth in the active portfolio. Is that the right way to think about it? So maybe a slower run up to that 8% to 12% as that pipeline pulls through?
  Response: Expecting 6-10% growth in fiscal 2026, with higher end of range in fiscal 2027 as pipeline suggests a good quarter ahead.

• Question from Kelly Motta (KBW): And you noted your CRA, you Needs to Improve, your fight... Is there anything that getting that lifted would unlock...?
  Response: Would make branching moves and mergers & acquisitions easier; currently not actively looking for deals but options are welcome.

• Question from Kelly Motta (KBW): And then just maybe one more high-level question for me on that 3% margin trajectory... Are you baking in any additional rate assumptions?
  Response: Baking in 1-2 rate cuts this year, based on forward curve and internal assumptions.

Contradiction Point 1

Net Interest Margin (NIM) Outlook with Rate Cuts

Contradiction on whether NIM will expand or contract following rate cuts, impacting financial forecasts and investor expectations.

Will the expected margin pressure and NII growth in Q1 represent a short-term headwind, with improvement anticipated by mid-2026? - Jeff Rulis (D.A. Davidson)

2026Q1: This quarter was impacted by the increase in nonaccruals... it can go the other way... optimism to get to 3% margin. - Brent Beardall(CEO)

How will upcoming rate cuts impact margins? - Jeff Rulis (D.A. Davidson & Co.)

2025Q4: With future rate cuts, the margin is expected to expand, but it lags about a quarter for full benefit due to liability repricing. - Brent Beardall(CEO)

Contradiction Point 2

Bond Portfolio Target Mix

Contradiction on the long-term target size for the bond portfolio, affecting asset-liability management strategy.

Is there a target balance sheet mix or a threshold beyond which expanding the bond book is no longer desired? - Andrew Terrell (Stephens)

2026Q1: There's certainly room for us to grow the bond portfolio. Over the longer term, 25% to 30% wouldn't be out of the question. - Brent Beardall(CEO)

How will the 20% noninterest-bearing deposits target by 2030 be achieved—through shrinking time deposits or absolute growth? - Andrew Terrell (Stephens Inc.)

2025Q4: The primary driver is overall deposit growth from new clients... The Luther Burbank acquisition's high-cost deposits are at the tail end of runoff, allowing for potential stability or slight growth in time deposits... - Brent Beardall(CEO)