KBRA Assigns Ratings to WaFd, Inc.
The ratings are supported by WAFD’s consistently favorable operating results over a long period of time; performance that has benefitted from its high quality and long-tenured management team that has implemented a conservative credit culture historically, which has facilitated mostly pristine asset quality measures over the years as the franchise has evolved. In this regard, operating performance has been generated through various economic and interest rate cycles, which further illustrates the durability of its business model. With respect to recent asset quality trends, WAFD is currently positioned with a minimal level of problem loans, and while risk rating migration has been negative over the past year, a trend that has been observed across the industry as credit quality normalizes post-pandemic, the level of criticized and classified loans still remains below peers. NCO activity crept up during 2023, which was due to idiosyncratic events in the company's modest C&I energy portfolio (
Liquidity as measured by the loan-to-deposit ratio has tracked modestly higher than peers historically, though following the recent sale of multifamily loans, there is ample on-balance sheet liquidity (
The higher interest rate environment has put pressure on margins and earnings across the industry, though WAFD has endured the volatility, in our view, with NIM decreasing a modest amount since the start of the Fed’s rate hikes, which has been somewhat due to the acquisition of LBC in 1Q24. We also acknowledge that the company's NIM generally tracks below peers due to its lower risk/lower yielding loan portfolio. Additionally, despite WAFD's well-established presence and strong deposit market share in footprint, most notably, in the Pacific Northwest (#2 among locally headquartered banks), as well as the evolution into a commercial bank that has brought in a higher level of transaction accounts, the deposit composition remains more concentrated in price-sensitive maturity deposits, especially following the LBC acquisition. As such, WAFD has reflected a higher-beta thus far throughout this interest rate cycle. With that said, recent margin headwinds have largely been offset by cost-savings from the merger, which have resulted in a lower level of core operating expenses to average assets that track well below peers despite its expansive retail branch network. As such, profitability has remained solid (core ROA just under
Capital management has varied over the years, including a conservative positioning pre-pandemic, though, since that time, ratios have decreased considerably from stronger loan growth, a significant amount of share buybacks, and the closing of the LBC acquisition. However, capital bounced back in 2Q24 following the loan sales and de-levering, including a CET1 ratio of
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Methodologies
- Financial Institutions: Bank & Bank Holding Company Global Rating Methodology
- ESG Global Rating Methodology
Disclosures
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
About KBRA
Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the
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Analytical Contacts
John Rempe, Senior Director (Lead Analyst)
+1 301-969-3045
john.rempe@kbra.com
Brian Ropp, Managing Director
+1 301-969-3244
brian.ropp@kbra.com
Ian Jaffe, Senior Managing Director
+1 646-731-3302
ian.jaffe@kbra.com
Ashley Phillips, Managing Director (Rating Committee Chair)
+1 301-969-3185
ashley.phillips@kbra.com
Business Development Contact
Justin Fuller, Managing Director
+1 312-680-4163
justin.fuller@kbra.com
Source: Kroll Bond Rating Agency, LLC