WaFd Bank's Q4: The Miss Was Priced In, But the Pivot Wasn't

The numbers for WaFd's fourth quarter were a clear miss. The bank posted an earnings per share of $0.72, falling short of the widely anticipated $0.77. Revenue also came in below forecast at $188.3 million against a $191.04 million target. In isolation, this is a negative surprise. The whisper number for the quarter was almost certainly around the $0.76 to $0.77 range, making the actual print a disappointment on both key metrics.

Yet the market's reaction was telling. Instead of a sell-off, the stock saw a modest increase of 0.68% following the report. That muted move is the first clue that the earnings miss itself was largely priced in. Investors had likely already discounted the quarter's performance, focusing instead on what management had to say about the future. The real story wasn't the past quarter's numbers; it was the strategic pivot that accompanied them. The expectation gap here wasn't about the miss-it was about what came next.

The Strategic Reset: Exiting Mortgages and Focusing on Business

The muted market reaction to the Q4 miss points to a clear shift in focus. Investors weren't looking at the past quarter's numbers; they were listening for the future. That future, as laid out by management, involves a deliberate strategic reset. The most significant move is the exit from single-family mortgage lending. This is a direct response to the volatility that plagued the quarter, where mortgage-related fee income is a known swing factor. By stepping away, WaFd is resetting expectations for that unpredictable revenue stream, aiming for a more stable and predictable earnings profile.

This pivot isn't about cutting back; it's about changing the growth story. The bank is launching WaFd Wealth Management and expanding SBA loan offerings. These are relationship-driven businesses. Wealth management builds sticky, recurring fee income, while SBA lending is a more consistent, government-backed commercial activity. The goal is clear: to build a franchise that earns money not from volatile trading, but from deeper client relationships and higher-quality loans.

This is a classic "quality over growth" play. CEO Brent Beardall's directive to "err on the side of quality over growth" frames the move as a long-term bet on durability. The forward-looking narrative here is stronger than the prior mortgage-heavy model. It targets higher-margin, more stable revenue that can support the bank's "Build 2030" strategic plan to increase non-interest-bearing deposits and grow its active loan portfolio. For the market, this pivot may be the real catalyst that overshadows a quarterly miss.

The Forward-Looking Catalyst: Pipeline Growth vs. Margin Pressure

The expectation gap now hinges on the future, not the past. While the Q4 miss was priced in, the forward signals from the loan pipeline and net interest margin offer a clearer picture of the bank's trajectory. The most compelling growth signal is the 103% increase in new loan originations over the third quarter. This surge is a tangible sign that clients are starting to come off the sidelines, validating the strategic pivot into business lending. Management explicitly tied this to the changing mix of deposits, with checking accounts rising to 35% of the total. This isn't just a one-quarter pop; the loan pipeline has been building for three consecutive quarters, setting up a promising growth runway for the coming year.

Yet, the margin story presents a more complex picture. On a five-year annualized basis, WaFd's net interest income has grown at a 6.9% rate, which is notably weaker than the broader banking industry. This underperformance has been a persistent headwind, with the net interest margin contracting over the past two years. However, the sequential improvement in the latest quarter is a potential turning point. The net interest margin ticked up to 2.71% from 2.69% in the prior quarter, driven by a decrease in the cost of deposits and borrowings. This modest gain, while small, suggests the bank's balance sheet is beginning to reposition favorably.

Viewed through the lens of the "quality over growth" theme, these forward signals are telling. The explosive loan growth is the catalyst for future revenue, but it comes with the risk of margin pressure if not managed carefully. The sequential NIM improvement is a positive signal that cost management is working, but it must be sustained to offset the natural compression from a growing loan book. The market is now weighing these competing forces: the promise of a stronger, more stable business model against the near-term execution risk of navigating margin pressure during a growth ramp. The strategic pivot has reset the narrative, but the stock's path will be dictated by whether the bank can deliver on both fronts.

Valuation and the Dividend Anchor

With the Q4 miss already in the rearview, the valuation story now centers on whether the stock's price reflects the new strategic reality. WaFd trades at a P/E ratio of 10.57, a figure that looks low relative to the market's own forecast for its earnings power. Analysts expect earnings per share to grow from $2.56 to $2.91 per share next year, a projected increase of 13.67%. In other words, the market is pricing the stock as if it will grow at a rate that is already above its current valuation multiple. This setup creates a classic expectation gap: the stock appears cheap on a forward basis, but only if the bank can successfully execute its pivot to deliver that higher growth.

The dividend acts as a tangible floor for expectations. The company has paid a dividend for 43 consecutive years, a streak that underscores its financial discipline and commitment to returning capital. For income-focused investors, this provides a steady anchor amid the strategic uncertainty. It signals that even during a transition, the bank's core operations remain robust enough to fund a payout. This history of consistency likely contributed to the stock's modest gain after the earnings miss, as investors weighed the immediate disappointment against the long-term stability of the dividend.

The next catalyst is the Q1 2026 earnings call scheduled for January 15, 2026. This will be the first major test of the new strategy in the market's eyes. Management will need to provide clear guidance on the trajectory of the loan pipeline, the progress of the wealth management launch, and the outlook for the net interest margin. The valuation gap hinges entirely on this forward view. If the guidance confirms the growth story and shows a path to sustaining margins, the current low P/E could be a buying opportunity. If it signals that the pivot is taking longer or is more costly than expected, the stock could re-rate lower. For now, the numbers suggest the market is giving WaFd the benefit of the doubt, but the next call will determine if that faith is justified.