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WaFd Reports Second Quarter Fiscal 2024 Results Following Completion of Merger of Luther Burbank Corporation

WaFd, Inc. (Nasdaq: WAFD) (the "Company"), parent company of Washington Federal Bank ("WaFd Bank" or the "Bank"), today announced quarterly earnings after successfully completing the merger of California-based Luther Burbank Corporation ("LBC").

Earnings for the quarter ended March 31, 2024 were $15,888,000, a decrease of 73% from net earnings of $58,453,000 for the quarter ended December 31, 2023 and a decrease of 76% from net earnings of $65,934,000 for the quarter ended March 31, 2023. After the effect of dividends on preferred stock, net income available for common shareholders was $0.17 per diluted share for the quarter ended March 31, 2024, compared to $0.85 per diluted share for the quarter ended December 31, 2023, a $0.68 or 80% decrease, and $0.95 per diluted share for the quarter ended March 31, 2023, a $0.78 or 82% decrease in fully diluted earnings per common share. For the quarter ended March 31, 2024, return on common shareholders' equity was 2.09% and return on assets was 0.26%. These results reflect merger-related costs and certain non-operating expenses of $51.1 million for the quarter. Adjusted for these expenses, return on common shareholders' equity for the quarter ended March 31, 2024 was 8.7% compared to 10.21% for the quarter ended December 31, 2023 and 12.01% for the quarter ended March 31, 2023. Adjusted, return on assets for the quarter ended March 31, 2024 was 0.9% compared to 1.0% for the previous quarter and 1.2% for the same quarter in the prior year. For a reconciliation, see the Non-GAAP Financial Measures section below.

President and CEO Brent Beardall commented, "In the future, when we look back at the acquisition of Luther Burbank, we will see the addition of this $8 billion asset franchise in California as a transformational event for WaFd Bank. As expected, there is a lot of noise in the quarter so we have provided disclosures showing what earnings would have been without the merger costs and certain non-operating income and expenses. Absent these items, net income would have been $54.8 million, a 6% decrease from the December quarter. While the continuation of the challenging interest rate environment has made strategic execution more difficult, we remain excited by the potential of this purchase.

"I am especially proud of how quickly we were able to complete this acquisition once regulatory approval was granted. We closed on the acquisition of LBC on February 29, 2024. The next day, Friday March 1st, we started the systems conversions and branch re-branding and completed the work just two days later, opening our doors March 4th as WaFd branches operating on WaFd's core systems. To my knowledge this was one of, if not the fastest close-to-conversion in modern history for U.S. banking for transactions over $1 billion. Speed only matters if you are able to execute with quality and our teams, especially our front-line bankers in the California branches and the support teams in operations and technology, were remarkably successful executing the conversion plan. The best indicator of this success is the behavior of the impacted clients. From conversion until quarter end, deposit accounts are down only 1.1%.

"A lot has changed since we announced the acquisition of LBC in November 2022. Importantly, we have identified a portion of the LBC multifamily loan portfolio (up to $3.2 billion) that would be attractive to potential buyers and have initiated a program to sell these loans. We have engaged a third party to facilitate this process. There has been a lot of interest in these loans, we are working through the bidding process and expect to execute on the sale in the next few months. We are mindful of the benefits of selling these loans, the resulting liquidity and the options going forward, whether to pay down debt, originate new loans or a combination of both. Ultimately, the amount of loans sold is dependent on price and certainty for execution.

"An acquisition of the size of LBC is meaningful for WaFd; their assets were 34% of standalone WaFd assets. Why did we do it? Why take the risk? We believe this acquisition will accrue to the benefit of our clients, our communities, our shareholders and our employees. Now that it is substantially complete, we believe common shareholders will experience earnings per share accretion of 8% in fiscal 2025 and 16% in fiscal 2026. These estimates factor in the redeployment of the funds received in the potential loan sale into higher yielding assets. Projections that lead to those returns are contained in the Non-GAAP Financial Measures section below.

"We are grateful to be one of the strongest regional banks in the now nine western states in which we operate. Our value proposition is straightforward, we provide relationship banking to our clients through a platform that is large enough to be meaningful but small enough to be nimble and responsive to our clients. We are more optimistic today about our future prospects than any time in my 24 years at WaFd.

"There have been significant changes in interest rates and market values of assets since the merger announcement and the table below calls out what we were expecting in November of 2022 compared to what we are expecting today."

 

At Announcement Nov 2022

Estimate as of March 31, 2024

EPS Accretion

7.9% accretion subsequent full fiscal year

8% accretion for FY 2025, subsequent full fiscal year

Cost savings

25% of LBC's 2023 non-interest expense. Phased in 50% in the first year.

45% or $31 million immediate savings

Merger costs - pre tax

$37 million

Under $30 million

Discount on LBC loans

$202 million

$472 million

Merger consideration value

$654 million

$466 million

Goodwill

$108 million

$106 million

 

 

 

 

December 31, 2023

March 31, 2024

Tangible Common Equity Per Share*

$28.05

$26.64

*Metric is a non-GAAP Financial Measure. See page 13 for additional information on our use of Non-GAAP Financial Measures.

As a result of the merger on February 29, 2024, the Company's balances as of March 31, 2024 reflect the newly combined entity and the activity for the quarter then ended include one month of LBC-related activity. Given this, the Company's financial results are not directly comparable to prior reported periods. Total assets were $30.1 billion as of March 31, 2024, compared to $22.5 billion at September 30, 2023, primarily due to the addition of $7.7 billion of LBC assets at fair value on February 29, 2024.

Net loans held for investment increased by $3.3 billion, or 19.0%, from September 30, 2023 to March 31, 2024 reflecting the addition of LBC loans with a fair value of $3.2 billion. The fair value of total loans obtained in the merger was $6.2 billion. The Company has identified approximately $3.2 billion of the acquired multifamily loans to sell and has classified these as Loans Held for Sale at fair value.

Cash and cash equivalents as of March 31, 2024 increased by $525.1 million, or 53.5%, since September 30, 2023. Investment securities increased by $477.3 million during the quarter due to the addition of $529.2 million in securities obtained in the merger.

Customer deposits totaled $21.3 billion as of March 31, 2024, an increase of 32.8% since September 30, 2023 due to $5.6 billion in deposits obtained in the merger. Transaction accounts increased by $1.6 billion or 14.6% during that period, while time deposits increased $3.7 billion or 69.7% as 66% of the LBC deposit portfolio was time deposits. As a result of this mix, the percentage of the Company’s transaction accounts at March 31, 2024 decreased to 57.8% compared to 67.0% at September 30, 2023. Core deposits, defined as all transaction accounts and time deposits less than $250,000, totaled 82.1% of deposits at March 31, 2024. Deposits that are uninsured or not collateralized were 25.5% as of March 31, 2024, a slight decrease from 25.7% as of September 30, 2023.

Borrowings totaled $5.3 billion as of March 31, 2024, up from $3.7 billion at September 30, 2023 with $1.4 billion attributable to the merger. The Company also assumed additional debt in connection with the merger in the form of approximately $50 million in floating rate junior subordinated debentures, due June 2036 and June 2037, and $94 million in 6.5% senior unsecured term notes maturing September 30, 2024. The effective weighted average interest rate of the combined borrowings and debt was 4.48% as of March 31, 2024, compared to 3.98% at September 30, 2023 as a result of adding the LBC borrowings.

The Company had loan originations of $0.8 billion for the second fiscal quarter of 2024, compared to $1.0 billion of originations in the same quarter one year ago. Offsetting loan originations in each of these quarters were loan repayments of $1.0 billion and $1.1 billion, respectively. The Bank has intentionally slowed new loan production to temper net loan growth. Commercial loans represented 77% of all loan originations during the second fiscal quarter of 2024 and consumer loans accounted for the remaining 23%. Commercial loans are viewed by the Bank as preferable; they generally have floating interest rates and shorter durations. The weighted average interest rate on the loan portfolio was 5.02% as of March 31, 2024, a decrease from 5.22% as of September 30, 2023, due primarily to adding the lower yielding LBC portfolio.

Credit quality continues to be monitored closely in light of the shifting economic and monetary environment. As of March 31, 2024, non-performing assets were $68 million, or 0.2% of total assets, from $58 million, or 0.3%, at September 30, 2023. The percentage of delinquent loans was 0.4% of total loans for both March 31, 2024 and September 30, 2023 as a result of the increased loan balance. The following table shows the effect the merger had on the change in non-performing assets and delinquencies.

 

Non-Performing Assets

 

Delinquencies

 

(In thousands)

Balance at September 30, 2023

$

57,924

 

 

$

63,315

 

Decrease in balance

 

(2,536

)

 

 

(5,258

)

Balance at December 31, 2023

 

55,388

 

 

 

58,057

 

Merger-related additions

 

13,487

 

 

 

23,258

 

Decrease in balance

 

(514

)

 

 

(5,267

)

Balance at March 31, 2024

$

68,361

 

 

$

76,048

 

The allowance for credit losses including the reserve for unfunded commitments ("ACL") totaled $225 million as of March 31, 2024, and was 1.00% of gross loans outstanding, as compared to $202 million, or 1.04% of gross loans outstanding, as of September 30, 2023. The increase in the ACL reflects the $16.0 million provision recorded on LBC loans held for investment that are not credit deteriorated and the $7.4 million estimated lifetime credit losses for those that are considered purchased credit deteriorated ("PCD"). Net charge-offs were $146,000 for the second fiscal quarter of 2024, compared to net charge-offs of $6 million for the prior year same quarter.

The Company paid quarterly dividends on Series A preferred stock on January 15, 2024 and April 15, 2024. On March 8, 2024, the Company paid a regular cash dividend on common stock of $0.26 per share, which represented the 164th consecutive quarterly cash dividend. During the quarter, the Company repurchased 7,837 shares of common stock at a weighted average price of $30.38 per share and has authorization to repurchase 1,853,453 additional shares. Tangible common shareholders' equity per share decreased by $1.41, or 5.0%, to $26.64 since September 30, 2023. Over the past 12 months, tangible book value decreased per share by $0.21 or 0.8%. The ratio of total tangible shareholders' equity to tangible assets decreased to 8.31% as of March 31, 2024. See the reconciliation for these non-GAAP measures starting on page 13.

Net interest income was $159 million for the second fiscal quarter of 2024, a decrease of $16.4 million or 9.4% from the same quarter in the prior year. The decrease in net interest income was primarily due to the 129 basis point increase in the average rate paid on interest-bearing liabilities outpacing the 38 basis point increase in the average rate earned on interest-earning assets. Net interest income also increased by $6.4 million compared to the quarter ended December 31, 2023 due to a larger increase in the average interest earning assets than the increase in interest bearing liabilities as a result of the merger. Net interest margin was 2.73% in the second fiscal quarter of 2024 compared to 2.91% for the quarter ended December 31, 2023 and 3.51% for the prior year quarter.

Total other income was $13.4 million for the second fiscal quarter of 2024 compared to $10.1 million in the prior year same quarter. The increase is primarily due to recording $1.8 million less unrealized losses for certain equity method investments in the current quarter compared to the quarter ended March 31, 2023. Small increases in insurance agency commissions recognized by the WAFD Insurance Group and increased fees earned as a result of the merger account for the remaining change.

Total other expense was $133.7 million in the second fiscal quarter of 2024, an increase of $36.8 million, or 38.0%, from the prior year's quarter. Compensation expense increased as a result of $19 million in merger-related retention, severance and change-in-control expenses combined with a larger post-merger workforce. FDIC premiums increased $3.9 million compared to the same period last year and included a $1.8 million expense for an FDIC special assessment. Total other expense also increased by $10.9 million compared to the same quarter in the prior year. This is largely due to $5.9 million in merger related expenses in the quarter as well as $5 million in non-operating expenses including a $2 million charitable donation and $3 million in accruals related to legal and compliance related items.

The Company recorded a provision for credit losses of $16.0 million in the second fiscal quarter of 2024, compared to a provision for credit losses of $3.5 million in the same quarter of fiscal 2023. The provision for loan losses in the quarter ended March 31, 2024 represents the preliminary lifetime loss estimate for the non-PCD loans obtained in the merger.

The Company’s efficiency ratio in the second fiscal quarter of 2024 was 58.5% (as adjusted, see Non-GAAP Financial Measures below), compared to 58.0% in the prior quarter and 52.3% for the same period one year ago.

Income tax expense totaled $5.1 million for the second fiscal quarter of 2024, as compared to $18.6 million for the prior year same quarter. The effective tax rate for the quarter ended March 31, 2024 was 24.21% compared to 20.81% for the year ended September 30, 2023. Although the Company’s effective tax rate may vary from the statutory rate mainly due to state taxes, tax-exempt income and tax-credit investments, much of the change in the current quarter resulted specifically from the merger and consideration of California State and Local taxes.

WaFd Bank is headquartered in Seattle, Washington, and has 210 branches in nine western states. To find out more about WaFd Bank, please visit our website www.wafdbank.com. The Company uses its website to distribute financial and other material information about the Company.

WAFD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)

 

March 31, 2024

 

September 30, 2023

 

(In thousands, except share and ratio data)

ASSETS

 

 

 

Cash and cash equivalents

$

1,505,771

 

 

$

980,649

 

Available-for-sale securities, at fair value

 

2,438,114

 

 

 

1,995,097

 

Held-to-maturity securities, at amortized cost

 

457,882

 

 

 

423,586

 

Loans receivable, net of allowance for loan losses of $201,577 and $177,207

 

20,795,259

 

 

 

17,476,550

 

Loans held for sale

 

2,993,658

 

 

 

 

Interest receivable

 

115,484

 

 

 

87,003

 

Premises and equipment, net

 

243,465

 

 

 

237,011

 

Real estate owned

 

4,245

 

 

 

4,149

 

FHLB stock

 

160,817

 

 

 

126,820

 

Bank owned life insurance

 

264,043

 

 

 

242,919

 

Intangible assets, including goodwill of $411,401 and $304,750

 

453,539

 

 

 

310,619

 

Federal and state income tax assets, net

 

146,833

 

 

 

8,479

 

Other assets

 

561,178

 

 

 

581,793

 

 

$

30,140,288

 

 

$

22,474,675

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

Liabilities

 

 

 

Transaction deposits

$

12,338,862

 

 

$

10,765,313

 

Time deposits

 

9,000,911

 

 

 

5,305,016

 

Total customer deposits

 

21,339,773

 

 

 

16,070,329

 

Borrowings

 

5,345,518

 

 

 

3,650,000

 

Junior subordinated deferrable debentures

 

50,254

 

 

 

 

Senior debt

 

 

 

$95,000 face amount, 6.5% interest rate, due September 30, 2024

 

93,729

 

 

 

 

Advance payments by borrowers for taxes and insurance

 

49,350

 

 

 

52,550

 

Accrued expenses and other liabilities

 

339,758

 

 

 

275,370

 

 

 

27,218,382

 

 

 

20,048,249

 

Shareholders’ equity

 

 

 

Preferred stock, $1.00 par value, 5,000,000 shares authorized; 300,000 and 300,000 shares issued; 300,000 and 300,000 shares outstanding

 

300,000

 

 

 

300,000

 

Common stock, $1.00 par value, 300,000,000 shares authorized; 153,834,612 and 136,466,579 shares issued; 81,405,391 and 64,736,916 shares outstanding

 

153,835

 

 

 

136,467

 

Additional paid-in capital

 

2,143,343

 

 

 

1,687,634

 

Accumulated other comprehensive income (loss), net of taxes

 

51,935

 

 

 

46,921

 

Treasury stock, at cost; 72,429,221 and 71,729,663 shares

 

(1,629,512

)

 

 

(1,612,345

)

Retained earnings

 

1,902,305

 

 

 

1,867,749

 

 

 

2,921,906

 

 

 

2,426,426

 

 

$

30,140,288

 

 

$

22,474,675

 

CONSOLIDATED FINANCIAL HIGHLIGHTS

 

 

 

Common shareholders' equity per share

$

32.21

 

 

$

32.85

 

Tangible common shareholders' equity per share1

 

26.64

 

 

 

28.05

 

Shareholders' equity to total assets

 

9.69

%

 

 

10.80

%

Tangible shareholders' equity to tangible assets1

 

8.31

%

 

 

9.55

%

Tangible shareholders' equity + allowance for credit losses to tangible assets1

 

8.99

%

 

 

10.35

%

 

 

 

 

1Metric is a non-GAAP Financial Measure. See page 13 for additional information on our use of Non-GAAP Financial Measures.

WAFD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)

 

As of

SUMMARY FINANCIAL DATA

March 31, 2024

 

December 31, 2023

 

September 30, 2023

 

June 30, 2023

 

March 31, 2023

 

(In thousands, except share and ratio data)

Cash

$

1,505,771

 

 

$

1,144,774

 

 

$

980,649

 

 

$

1,139,643

 

 

$

1,118,544

 

Loans receivable, net

 

20,795,259

 

 

 

17,584,622

 

 

 

17,476,550

 

 

 

17,384,188

 

 

 

17,271,906

 

Allowance for credit losses ("ACL")

 

225,077

 

 

 

201,820

 

 

 

201,707

 

 

 

204,569

 

 

 

205,920

 

Loans held for sale

 

2,993,658

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities, at fair value

 

2,438,114

 

 

 

2,018,445

 

 

 

1,995,097

 

 

 

2,036,233

 

 

 

2,006,286

 

Held-to-maturity securities, at amortized cost

 

457,882

 

 

 

415,079

 

 

 

423,586

 

 

 

434,172

 

 

 

445,222

 

Total assets

 

30,140,288

 

 

 

22,640,122

 

 

 

22,474,675

 

 

 

22,552,588

 

 

 

22,325,211

 

Transaction deposits

 

12,338,862

 

 

 

10,658,064

 

 

 

10,765,313

 

 

 

11,256,575

 

 

 

11,880,343

 

Time deposits

 

9,000,911

 

 

 

5,380,723

 

 

 

5,305,016

 

 

 

4,863,849

 

 

 

3,980,605

 

Borrowings

 

5,489,501

 

 

 

3,875,000

 

 

 

3,650,000

 

 

 

3,750,000

 

 

 

3,800,000

 

Total shareholders' equity

 

2,921,906

 

 

 

2,452,004

 

 

 

2,426,426

 

 

 

2,394,066

 

 

 

2,375,117

 

 

 

 

 

 

 

 

 

 

 

FINANCIAL HIGHLIGHTS

 

 

 

 

 

 

 

 

 

Common shareholders' equity per share

$

32.21

 

 

$

33.49

 

 

$

32.85

 

 

$

32.36

 

 

$

31.54

 

Tangible common shareholders' equity per share2

$

26.64

 

 

$

28.65

 

 

$

28.05

 

 

$

27.58

 

 

$

26.85

 

Shareholders' equity to total assets

 

9.69

%

 

 

10.83

%

 

 

10.80

%

 

 

10.62

%

 

 

10.64

%

Tangible shareholders' equity to tangible assets2

 

8.31

%

 

 

9.59

%

 

 

9.55

%

 

 

9.37

%

 

 

9.39

%

Tangible shareholders' equity + ACL to tangible assets2

 

8.99

%

 

 

10.39

%

 

 

10.35

%

 

 

10.17

%

 

 

10.19

%

Common shares outstanding

 

81,405,391

 

 

 

64,254,700

 

 

 

64,736,916

 

 

 

64,721,190

 

 

 

65,793,099

 

Preferred shares outstanding

 

300,000

 

 

 

300,000

 

 

 

300,000

 

 

 

300,000

 

 

 

300,000

 

Loans to customer deposits 1

 

97.45

%

 

 

109.64

%

 

 

108.75

%

 

 

107.84

%

 

 

108.90

%

 

 

 

 

 

 

 

 

 

 

CREDIT QUALITY1

 

 

 

 

 

 

 

 

 

ACL to gross loans

 

1.00

%

 

 

1.04

%

 

 

1.03

%

 

 

1.03

%

 

 

1.02

%

ACL to non-accrual loans

 

370.16

%

 

 

445.93

%

 

 

400.04

%

 

 

370.09

%

 

 

595.04

%

Non-accrual loans to net loans

 

0.29

%

 

 

0.26

%

 

 

0.29

%

 

 

0.32

%

 

 

0.20

%

Non-accrual loans

$

60,806

 

 

$

45,258

 

 

$

50,422

 

 

$

55,276

 

 

$

34,606

 

Non-performing assets to total assets

 

0.23

%

 

 

0.24

%

 

 

0.26

%

 

 

0.30

%

 

 

0.21

%

Non-performing assets

$

68,361

 

 

$

55,388

 

 

$

57,924

 

 

$

67,000

 

 

$

46,785

 

Criticized loans to net loans

 

2.59

%

 

 

2.27

%

 

 

2.33

%

 

 

2.42

%

 

 

2.46

%

Criticized loans

$

537,802

 

 

$

399,895

 

 

$

407,086

 

 

$

421,507

 

 

$

424,539

 

Substandard loans to net loans

 

1.48

%

 

 

1.74

%

 

 

1.75

%

 

 

1.71

%

 

 

1.67

%

Substandard loans

$

307,412

 

 

$

305,606

 

 

$

305,179

 

 

$

296,541

 

 

$

289,259

 

 

 

 

 

 

 

 

 

 

 

1Metrics include only loans held for investment. Loans held for sale are not included.

2Metric is a non-GAAP Measure. See page 13 for additional information on our use of Non-GAAP Financial Measures.

WAFD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

Three Months Ended March 31,

 

Six Months Ended March 31,

 

 

2024

 

 

 

2023

 

 

 

2024

 

 

 

2023

 

 

(In thousands, except share and ratio data)

INTEREST INCOME

 

 

 

 

 

 

 

Loans receivable

$

274,341

 

 

$

222,957

 

 

$

520,133

 

 

$

426,903

 

Mortgage-backed securities

 

12,905

 

 

 

10,422

 

 

 

24,171

 

 

 

21,035

 

Investment securities and cash equivalents

 

31,580

 

 

 

21,967

 

 

 

61,368

 

 

 

40,827

 

 

 

318,826

 

 

 

255,346

 

 

 

605,672

 

 

 

488,765

 

INTEREST EXPENSE

 

 

 

 

 

 

 

Customer accounts

 

116,164

 

 

 

52,123

 

 

 

212,835

 

 

 

83,769

 

Borrowings, senior debt and junior subordinated debentures

 

44,065

 

 

 

28,185

 

 

 

82,003

 

 

 

47,159

 

 

 

160,229

 

 

 

80,308

 

 

 

294,838

 

 

 

130,928

 

Net interest income

 

158,597

 

 

 

175,038

 

 

 

310,834

 

 

 

357,837

 

Provision (release) for credit losses

 

16,000

 

 

 

3,500

 

 

 

16,000

 

 

 

6,000

 

Net interest income after provision (release)

 

142,597

 

 

 

171,538

 

 

 

294,834

 

 

 

351,837

 

OTHER INCOME

 

 

 

 

 

 

 

Gain (loss) on sale of investment securities

 

90

 

 

 

 

 

 

171

 

 

 

 

Gain (loss) on termination of hedging derivatives

 

6

 

 

 

26

 

 

 

115

 

 

 

26

 

Loan fee income

 

550

 

 

 

652

 

 

 

1,394

 

 

 

2,154

 

Deposit fee income

 

6,698

 

 

 

6,188

 

 

 

13,500

 

 

 

12,541

 

Other income

 

6,048

 

 

 

3,206

 

 

 

12,379

 

 

 

9,375

 

 

 

13,392

 

 

 

10,072

 

 

 

27,559

 

 

 

24,096

 

OTHER EXPENSE

 

 

 

 

 

 

 

Compensation and benefits

 

73,155

 

 

 

51,444

 

 

 

122,996

 

 

 

100,514

 

Occupancy

 

10,918

 

 

 

10,918

 

 

 

20,289

 

 

 

21,020

 

FDIC insurance premiums

 

7,900

 

 

 

4,000

 

 

 

14,470

 

 

 

7,675

 

Product delivery

 

5,581

 

 

 

5,316

 

 

 

11,590

 

 

 

9,937

 

Information technology

 

12,883

 

 

 

12,785

 

 

 

25,749

 

 

 

25,114

 

Other expense

 

23,275

 

 

 

12,418

 

 

 

35,158

 

 

 

24,899

 

 

 

133,712

 

 

 

96,881

 

 

 

230,252

 

 

 

189,159

 

Gain (loss) on real estate owned, net

 

(1,315

)

 

 

(199

)

 

 

511

 

 

 

(311

)

Income before income taxes

 

20,962

 

 

 

84,530

 

 

 

92,652

 

 

 

186,463

 

Income tax provision

 

5,074

 

 

 

18,596

 

 

 

18,311

 

 

 

41,020

 

Net income

 

15,888

 

 

 

65,934

 

 

 

74,341

 

 

 

145,443

 

Dividends on preferred stock

 

3,656

 

 

 

3,656

 

 

 

7,312

 

 

 

7,312

 

Net income available to common shareholders

$

12,232

 

 

$

62,278

 

 

$

67,029

 

 

$

138,131

 

PER SHARE DATA

 

 

 

 

 

 

 

Basic earnings per common share

$

0.17

 

 

$

0.95

 

 

$

1.00

 

 

$

2.11

 

Diluted earnings per common share

 

0.17

 

 

 

0.95

 

 

 

1.00

 

 

 

2.11

 

Cash dividends per common share

 

0.26

 

 

 

0.25

 

 

 

0.51

 

 

 

0.49

 

Basic weighted average shares outstanding

 

70,129,072

 

 

 

65,511,131

 

 

 

67,197,352

 

 

 

65,425,623

 

Diluted weighted average shares outstanding

 

70,164,558

 

 

 

65,551,185

 

 

 

67,225,099

 

 

 

65,510,275

 

PERFORMANCE RATIOS

 

 

 

 

 

 

 

Return on average assets

 

0.26

%

 

 

1.21

%

 

 

0.63

%

 

 

1.36

%

Return on average common equity

 

2.09

 

 

 

12.01

 

 

 

5.98

 

 

 

13.55

 

Net interest margin

 

2.73

 

 

 

3.51

 

 

 

2.82

 

 

 

3.60

 

Efficiency ratio

 

77.74

 

 

 

52.34

 

 

 

68.04

 

 

 

49.53

 

WAFD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

Three Months Ended

 

March 31, 2024

 

December 31, 2023

 

September 30, 2023

 

June 30, 2023

 

March 31, 2023

 

(In thousands, except share and ratio data)

INTEREST INCOME

 

 

 

 

 

 

 

 

 

Loans receivable

$

274,341

 

 

$

245,792

 

 

$

240,998

 

 

$

232,167

 

 

$

222,957

 

Mortgage-backed securities

 

12,905

 

 

 

11,266

 

 

 

11,695

 

 

 

10,454

 

 

 

10,422

 

Investment securities and cash equivalents

 

31,580

 

 

 

29,788

 

 

 

29,017

 

 

 

29,859

 

 

 

21,967

 

 

 

318,826

 

 

 

286,846

 

 

 

281,710

 

 

 

272,480

 

 

 

255,346

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

Customer accounts

 

116,164

 

 

 

96,671

 

 

 

83,402

 

 

 

70,062

 

 

 

52,123

 

Borrowings, senior debt and jr. subordinated debentures

 

44,065

 

 

 

37,938

 

 

 

34,611

 

 

 

33,718

 

 

 

28,185

 

 

 

160,229

 

 

 

134,609

 

 

 

118,013

 

 

 

103,780

 

 

 

80,308

 

Net interest income

 

158,597

 

 

 

152,237

 

 

 

163,697

 

 

 

168,700

 

 

 

175,038

 

Provision (release) for credit losses

 

16,000

 

 

 

 

 

 

26,500

 

 

 

9,000

 

 

 

3,500

 

Net interest income after provision (release)

 

142,597

 

 

 

152,237

 

 

 

137,197

 

 

 

159,700

 

 

 

171,538

 

OTHER INCOME

 

 

 

 

 

 

 

 

 

Gain (loss) on sale of investment securities

 

90

 

 

 

81

 

 

 

33

 

 

 

 

 

 

 

Gain (loss) on termination of hedging derivatives

 

6

 

 

 

109

 

 

 

33

 

 

 

(926

)

 

 

26

 

Loan fee income

 

550

 

 

 

844

 

 

 

731

 

 

 

1,000

 

 

 

652

 

Deposit fee income

 

6,698

 

 

 

6,802

 

 

 

6,849

 

 

 

6,660

 

 

 

6,188

 

Other income

 

6,048

 

 

 

6,331

 

 

 

6,688

 

 

 

7,037

 

 

 

3,206

 

 

 

13,392

 

 

 

14,167

 

 

 

14,334

 

 

 

13,771

 

 

 

10,072

 

OTHER EXPENSE

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

73,155

 

 

 

49,841

 

 

 

45,564

 

 

 

50,456

 

 

 

51,444

 

Occupancy

 

10,918

 

 

 

9,371

 

 

 

10,115

 

 

 

10,444

 

 

 

10,918

 

FDIC insurance premiums

 

7,900

 

 

 

6,570

 

 

 

7,000

 

 

 

5,350

 

 

 

4,000

 

Product delivery

 

5,581

 

 

 

6,009

 

 

 

5,819

 

 

 

5,217

 

 

 

5,316

 

Information technology

 

12,883

 

 

 

12,866

 

 

 

12,672

 

 

 

11,661

 

 

 

12,785

 

Other expense

 

23,275

 

 

 

11,883

 

 

 

11,007

 

 

 

11,571

 

 

 

12,418

 

 

 

133,712

 

 

 

96,540

 

 

 

92,177

 

 

 

94,699

 

 

 

96,881

 

Gain (loss) on real estate owned, net

 

(1,315

)

 

 

1,826

 

 

 

(235

)

 

 

722

 

 

 

(199

)

Income before income taxes

 

20,962

 

 

 

71,690

 

 

 

59,119

 

 

 

79,494

 

 

 

84,530

 

Income tax provision

 

5,074

 

 

 

13,237

 

 

 

8,911

 

 

 

17,719

 

 

 

18,596

 

Net income

 

15,888

 

 

 

58,453

 

 

 

50,208

 

 

 

61,775

 

 

 

65,934

 

Dividends on preferred stock

 

3,656

 

 

 

3,656

 

 

 

3,656

 

 

 

3,656

 

 

 

3,656

 

Net income available to common shareholders

$

12,232

 

 

$

54,797

 

 

$

46,552

 

 

$

58,119

 

 

$

62,278

 

PER SHARE DATA

 

 

 

 

 

 

 

 

 

Basic earnings per common share

$

0.17

 

 

$

0.85

 

 

$

0.72

 

 

$

0.89

 

 

$

0.95

 

Diluted earnings per common share

 

0.17

 

 

 

0.85

 

 

 

0.72

 

 

 

0.89

 

 

 

0.95

 

Cash dividends per common share

 

0.26

 

 

 

0.25

 

 

 

0.25

 

 

 

0.25

 

 

 

0.25

 

Basic weighted average shares outstanding

 

70,129,072

 

 

 

64,297,499

 

 

 

64,729,006

 

 

 

65,194,880

 

 

 

65,511,131

 

Diluted weighted average shares outstanding

 

70,164,558

 

 

 

64,312,110

 

 

 

64,736,864

 

 

 

65,212,846

 

 

 

65,551,185

 

PERFORMANCE RATIOS

 

 

 

 

 

 

 

 

 

Return on average assets

 

0.26

%

 

 

1.04

%

 

 

0.90

%

 

 

1.12

%

 

 

1.21

%

Return on average common equity

 

2.09

 

 

 

10.21

 

 

 

8.73

 

 

 

11.09

 

 

 

12.01

 

Net interest margin

 

2.73

 

 

 

2.91

 

 

 

3.13

 

 

 

3.27

 

 

 

3.51

 

Efficiency ratio

 

77.74

 

 

 

58.02

 

 

 

51.78

 

 

 

51.90

 

 

 

52.34

 

Non-GAAP Financial Measures and Management Projections

The Company has presented certain non-GAAP measures within this document to remove the effect of certain income and expenses to provide investors with information useful in understanding our financial performance. The Company considers these items to be non-operating in nature as they are items that Management does not consider indicative of the Company's on-going financial performance. We believe that the tables presented reflect our on-going performance in the periods presented and, accordingly, are useful to consider in addition to our GAAP financial results. These measures should not be considered a substitution for GAAP basis disclosures.

Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way they are calculated herein. Because of this, our non-GAAP financial measures may not be comparable to similar measures used by others. We caution investors not to place undue reliance on such measures. See the following unaudited tables for reconciliations of our non-GAAP measures to the most directly comparable GAAP financial measures.

Tangible Measures

March 31, 2024

 

September 30, 2023

 

(Unaudited - In thousands, except for ratio data)

Shareholders equity - GAAP

$

2,921,906

 

 

$

2,426,426

 

Less intangible assets - GAAP

 

453,539

 

 

 

310,619

 

Tangible shareholders' equity

$

2,468,367

 

 

$

2,115,807

 

Less preferred stock - GAAP

 

300,000

 

 

 

300,000

 

Tangible common shareholders' equity

$

2,168,367

 

 

$

1,815,807

 

 

 

 

 

Total assets - GAAP

$

30,140,288

 

 

$

22,474,675

 

Less intangible assets - GAAP

 

453,539

 

 

 

310,619

 

Tangible assets

$

29,686,749

 

 

$

22,164,056

 

 

 

 

 

Tangible Metrics

 

 

 

Common shares outstanding - GAAP

 

81,405,391

 

 

 

64,736,916

 

Tangible common equity per share

$

26.64

 

 

$

28.05

 

Tangible equity to tangible assets

 

8.31

%

 

 

9.55

%

Allowance for credit losses

$

201,577

 

 

$

179,320

 

Tangible shareholders' equity + allowance for credit losses to tangible assets

 

8.99

%

 

 

10.35

%

Net Income Adjusted for Merger Expenses and Other Non-Operating Items

Three Months

Ended March 31, 2024

 

Three Months

Ended December 31, 2023

 

(Unaudited - In thousands, except for ratio data)

Other income adjustments

 

 

 

Distribution received on LBC equity method investment

$

(287

)

 

$

 

Loss on WaFd Bank equity method investment

 

2,195

 

 

 

693

 

Total other income adjustments

$

1,908

 

 

$

693

 

 

 

 

 

Other Expense adjustments

 

 

 

Merger related expenses

$

25,120

 

 

$

516

 

Select non-operating expenses:

 

 

 

FDIC Special Assessment

 

1,800

 

 

 

500

 

Legal and Compliance Accruals

 

3,000

 

 

 

 

Charitable Donation

 

2,000

 

 

 

 

 

 

6,800

 

 

 

500

 

Total other expense adjustments

$

31,920

 

 

$

1,016

 

 

 

 

 

Net Income - GAAP

$

15,888

 

 

$

58,453

 

Preliminary ACL provision on LBC loans

 

16,000

 

 

 

 

Other income adjustments

 

1,908

 

 

 

693

 

Other expense adjustments

 

31,920

 

 

 

1,016

 

REO adjustments

 

1,315

 

 

 

(1,826

)

Income tax adjustment

 

(12,274

)

 

 

22

 

Net Income - non-GAAP

$

54,757

 

 

$

58,358

 

 

 

 

 

Dividend on preferred stock

$

3,656

 

 

$

3,656

 

 

 

 

 

Net Income available to common shareholders - non-GAAP

$

51,101

 

 

$

54,702

 

 

 

 

 

Basic weighted average number of shares outstanding - GAAP

 

70,129,072

 

 

 

64,297,499

 

Diluted weighted average number of shares outstanding - GAAP

 

70,164,558

 

 

 

64,312,110

 

 

 

 

 

Basic EPS - non-GAAP

 

0.73

 

 

 

0.84

 

Diluted EPS - non-GAAP

 

0.73

 

 

 

0.84

 

 

 

 

 

 

Adjusted Efficiency Ratio

Three Months Ended March 31, 2024

 

Three Months

Ended December 31, 2023

 

(Unaudited - In thousands, except for ratio data)

Efficiency ratio - GAAP

 

77.7

%

 

 

58.0

%

 

 

 

 

Other expense - GAAP

$

133,712

 

 

$

96,540

 

Deduct merger related expenses

 

25,120

 

 

 

516

 

Deduct select non-operating expenses

 

6,800

 

 

 

500

 

Other Expenses - non-GAAP

$

101,792

 

 

$

95,524

 

 

 

 

 

Other income - GAAP

$

13,392

 

 

$

14,167

 

Total other income adjustments

 

1,908

 

 

 

693

 

Other income - non-GAAP

$

15,300

 

 

$

14,860

 

 

 

 

 

Net Interest Income - GAAP

$

158,597

 

 

$

152,237

 

Other income - non-GAAP

 

15,300

 

 

 

14,860

 

Total Income - non-GAAP

$

173,897

 

 

$

167,097

 

 

 

 

 

Adjusted Efficiency Ratio

 

58.5

%

 

 

57.2

%

Adjusted ROA and ROE

Three Months Ended March 31, 2024

 

Three Months

Ended December 31, 2023

 

(Unaudited - In thousands, except for ratio data)

Net Income - GAAP

$

15,888

 

 

$

58,453

 

Net income available to common shareholders - GAAP

$

12,232

 

 

$

54,797

 

 

 

 

 

Average Assets

 

24,907,376

 

 

 

22,381,459

 

Return on Assets

 

0.26

%

 

 

1.04

%

 

 

 

 

Average Common Equity

 

2,338,483

 

 

 

2,147,580

 

Return on common equity

 

2.09

%

 

 

10.21

%

 

 

 

 

 

 

 

 

Net Income - non-GAAP

$

54,756

 

 

$

58,358

 

Net income available to common shareholders - non-GAAP

$

51,100

 

 

$

54,702

 

 

 

 

 

Average Assets

 

24,907,376

 

 

 

22,381,459

 

Adjusted Return on Assets

 

0.88

%

 

 

1.04

%

 

 

 

 

Average Common Equity

 

2,338,483

 

 

 

2,147,580

 

Adjusted Return on common equity

 

8.74

%

 

 

10.19

%

The Company has presented certain forward-looking statements above. The following unaudited table describes how the Company arrived at estimates for the accretive effect of LBC on the combined entity in fiscal 2025.

2025 Post Merger Projections

LBC

 

WAFD

 

 

 

Estimated

Balance

Estimated Yield

Projected Interest

 

Estimated

Balance

Estimated Yield

Projected

Interest

 

Combined

Earnings

 

(Unaudited - In thousands, except for per share and ratio data)

Interest Earning Assets

$

7,147,280

6.04

%

$

431,435

 

$

21,204,221

5.45

%

$

1,155,981

 

$

1,587,416

 

Interest Bearing Liabilities

 

6,963,185

4.42

%

 

307,911

 

 

17,384,079

3.14

%

 

545,615

 

 

853,526

 

Total estimated net interest income

 

184,095

 

 

123,524

 

 

3,820,142

 

 

610,366

 

 

733,890

 

 

 

 

 

 

 

 

 

 

 

Estimated net noninterest income/expense/provision

 

 

 

40,000

 

 

 

 

360,000

 

 

400,000

 

Pre Tax Income

 

 

 

83,524

 

 

 

 

250,366

 

 

333,890

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

 

 

20,046

 

 

 

 

60,088

 

 

80,134

 

Net income

 

 

 

63,478

 

 

 

 

190,278

 

 

253,756

 

 

 

 

 

 

 

 

 

 

 

Dividends on preferred stock

 

 

 

 

 

 

 

14,624

 

 

14,624

 

Net income available to common shareholders

 

 

$

63,478

 

 

 

$

175,654

 

$

239,132

 

 

 

 

 

 

 

 

 

 

 

WAFD shares outstanding

 

 

 

17,089

 

 

 

 

64,317

 

 

81,406

 

 

 

 

 

 

 

 

 

 

 

Projected EPS

 

 

 

 

 

 

$

2.73

 

$

2.94

 

 

 

 

 

 

 

 

 

 

 

Change in EPS

 

 

 

 

 

 

 

 

$

0.21

 

EPS Accretion

 

 

 

 

 

 

 

 

 

8

%

Important Cautionary Statements

The foregoing information should be read in conjunction with the financial statements, notes and other information contained in the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

This press release contains statements about the Company’s future that are not statements of historical or current fact. These statements are “forward looking statements” for purposes of applicable securities laws and are based on current information and/or management's good faith belief as to future events. Words such as “expects,” “anticipates,” “believes,” “estimates,” “intends,” “forecasts,” “may,” “potential,” “projects,” and other similar expressions or future or conditional verbs such as “will,” “should,” “would,” and “could” are intended to help identify such forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements include, without limitation, statements related to the potential sale of approximately $3.2 billion of commercial real estate loans categorized as Held for Sale, and statements relating to the benefits to the Company and our shareholders of the LBC merger, including its anticipated effect on earnings per share. Although the Company believes any such statements are based on reasonable assumptions, forward-looking statements should not be read as a guarantee of future performance, and you are cautioned not to place undue reliance on any forward-looking statements. The Company undertakes no obligation to update or revise any forward-looking statement.

By their nature, forward-looking statements involve inherent risk and uncertainties including the following risks and uncertainties, and those risks and uncertainties more fully discussed under “Risk Factors” in the Company’s September 30, 2023 10-K, and Quarterly Reports on Form 10-Q which could cause actual performance to differ materially from that anticipated by any forward-looking statements. In particular, forward-looking statements relating to the potential sale of approximately $3.2 billion of commercial real estate loans categorized as Held for Sale are subject to risks and uncertainties that affect our ability to sell the loans, the anticipated timing of the sale, and the final purchase price for the assets, including, without limitation continued fluctuations in interest rates, deteriorating economic conditions or declines in the real estate market, and regulatory limitations. Other forward-looking statements relating to our financial condition or operations are subject to risks and uncertainties related to (i) fluctuations in interest rate risk and market interest rates, including the effect on our net interest income and net interest margin; (ii) current and future economic conditions, including the effects of declines in the real estate market, high unemployment rates, inflationary pressures, a potential recession, the monetary policies of the Federal Reserve, and slowdowns in economic growth; (iii) risks related to the integration of the operations of Luther Burbank Corporation; (iv) financial stress on borrowers (consumers and businesses) as a result of higher interest rates or an uncertain economic environment; (v) changes in deposit flows or loan demands; (vi) the impact of bank failures or adverse developments at other banks and related negative press about regional banks and the banking industry in general; (vii) the effects of natural or man-made disasters, calamities, or conflicts, including terrorist events and pandemics (such as the COVID-19 pandemic) and the resulting governmental and societal responses; (viii) global economic trends, including developments related to Ukraine and Russia, and the evolving conflict in Israel and Gaza, and related negative financial impacts on our borrowers; (ix) litigation risks resulting in significant expenses, losses and reputational damage; (x) our ability to identify and address cyber-security risks, including security breaches, “denial of service attacks,” “hacking” and identity theft; and (ix) other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services.

WaFd Reports Second Quarter Fiscal 2024 Results Following Completion of Merger of Luther Burbank Corporation

Contacts

WaFd, Inc.

425 Pike Street, Seattle, WA 98101

Brad Goode, SVP, Chief Marketing Officer

206-626-8178

brad.goode@wafd.com

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