WaFd (NASDAQ:WAFD) reported fourth-quarter fiscal 2026 net income available to common shareholders of $56.3 million, or $0.76 per diluted share, as loan-sale gains and modest net interest income growth were offset by higher credit provisions and merger-related expenses.
For the full fiscal year ended Sept. 30, the bank earned $241.2 million, or $3.21 per diluted share, compared with $2.63 per diluted share in fiscal 2025. President and CEO Brent Beardall said earnings per share increased 22% from the prior year. Excluding $6.2 million in fourth-quarter merger expenses, he said adjusted EPS would have risen 5% from the prior quarter and 10% from a year earlier.
Beardall characterized fiscal 2026 as WaFd’s second-best year for after-tax net income, while the company prepares for its proposed merger with EverBank.
Loan Sales Reshape Balance Sheet
Loans receivable declined by $977 million during the quarter, primarily due to loan-sale activity. WaFd sold $543 million of single-family residential loans in the quarter and entered an agreement to sell $429 million of multifamily loans during the first quarter of fiscal 2027. The multifamily portfolio was reclassified as held for sale as of Sept. 30, and the company expects the transaction to generate a net gain of about $7 million when completed.
CFO Kelli Holz said the single-family sale closed near the end of September and carried average loan yields in the 4.25% to 4.40% range. The multifamily loans being sold had a yield of about 4.8%, and management expects that sale to close in December.
Excluding loan sales, WaFd’s active loan categories increased by $237 million in the quarter, while inactive categories declined by $267 million. Active categories include commercial real estate, multifamily, construction, land acquisition and development, commercial and industrial lending, and consumer loans.
Originations and advances in active loan categories totaled $1.4 billion during the quarter, exceeding $1 billion in repayments and payoffs. For fiscal 2026, active-portfolio production rose 56.6% to $5.5 billion.
The company’s deposits increased $389 million during the quarter. Core deposits represented 81.8% of total deposits at quarter-end, up from 80.6% in June and 77.9% a year earlier. The loan-to-deposit ratio declined to 89.3%, largely because of the loan sales.
Margin Holds Steady as Management Sees Potential Expansion
Net interest income increased by $1 million from the prior quarter, while net interest margin remained unchanged at 2.81%. Holz said a four-basis-point improvement in asset yields was offset by a seven-basis-point increase in the cost of interest-bearing liabilities.
At Sept. 30, the yield on interest-earning assets was 5.21%, while the cost of interest-bearing liabilities was 2.87%. Management expects modest margin expansion over the next quarter or two if interest rates remain unchanged, citing loan-sale-related reductions in earning assets and faster near-term asset repricing relative to liabilities in a rising-rate environment.
Non-interest income rose to $38.1 million from $24.2 million in the previous quarter, driven mainly by a $16.4 million gain on the single-family loan sale. The company also recognized about $17 million of deferred income related to the Luther Burbank interest-rate mark through non-interest income during the sale.
Non-interest expense rose to $121.5 million from $110.3 million, reflecting investments in personnel and technology as well as the $6.2 million of merger costs. Beardall told analysts that quarterly expenses excluding merger costs were elevated by year-end cleanup items and could be flat to modestly lower next quarter, although the company remains open to hiring opportunities.
Large C&I Charge-Off Drives Higher Provision
Credit costs increased during the quarter after WaFd resolved a $54 million commercial and industrial problem relationship involving a private equity-owned manufacturer. Chief Credit Officer Ryan Mauer said the borrower had demonstrated strong underwriting metrics when the loans were issued in 2021, but operating results deteriorated materially in 2023 and 2024. The borrower was ultimately sold to new ownership, resulting in a large impairment for WaFd.
The bank recorded $39.2 million of net charge-offs in the fourth quarter, including the C&I relationship, and a $20 million provision for credit losses, compared with an $11 million provision in the prior quarter.
Mauer said the fiscal 2026 loss rate was 22 basis points including the loss, but would have been 4 basis points excluding it. He said management expects loss rates to return toward historical norms.
- Adversely classified loans declined to 2.56% of net loans from 2.59% in June.
- Criticized loans fell by $99 million to 4.7% of net loans.
- Nonperforming assets declined to $86 million, or 0.32% of total assets, from $136 million, or 0.49%, in the prior quarter.
- Delinquent loans decreased to 0.5% of total loans from 0.75% in June.
Mauer said economic uncertainty, inflationary pressures, energy supply shocks related to the war in the Middle East, tariffs, and elevated borrowing costs remain headwinds for borrowers and industry credit quality.
EverBank Merger Remains Targeted for First Quarter of 2027
Beardall said WaFd filed regulatory applications for its merger with EverBank earlier in October and expects to file its proxy statement within two weeks. The anticipated closing timeframe of the first calendar quarter of 2027 remains on track, subject to shareholder and regulatory approvals.
He said the transaction would make the combined company about three times WaFd’s current size by assets and provide greater capacity to invest in technology. Beardall also said the combination would diversify WaFd’s commercial real estate concentration and add EverBank’s capabilities in serving non-depository financial institutions.
According to Beardall, the transaction is expected to result in a 9.8% pro forma common equity tier 1 ratio at closing, 8% dilution for existing WaFd shareholders, and 29% EPS accretion once projected cost savings are fully realized.
“We look forward to the opportunity to execute on our plan and demonstrate that we are part of the one-third of bank deals that are accretive to shareholder value,” Beardall said.
About WaFd (NASDAQ:WAFD)
WaFd, Inc is a bank holding company headquartered in Seattle, Washington, and the parent company of WaFd Bank. Founded in 1917 as Washington Federal, the company adopted the WaFd name in 2024. WaFd Bank provides banking and financial services to individuals, families, businesses and nonprofit organizations.
The bank offers deposit accounts, residential mortgage lending, home equity financing, commercial real estate loans, commercial and industrial lending, construction financing and consumer banking products.
