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WaFd Bank Completes Sale of $2.8 Billion in Multi-Family Loans

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WaFd Bank has completed the sale of approximately $2.8 billion in multifamily commercial real estate loans to Bank of America, which is reselling the loans to funds managed by Pacific Investment Management Company (PIMCO). This transaction is one of the largest non-FDIC assisted CRE loan sales in history and was executed at 92% of the principal balance.

Importantly, the sale was conducted without incurring any losses for WaFd, enhancing its liquidity. These loans originated from Luther Burbank Savings, which WaFd acquired in March 2023. This sale was also not a merger condition. The bank now has options to buy down debt, originate new loans, or buy back stock.

Positive
  • Sale of $2.8 billion in multifamily CRE loans completed with no losses.
  • Sale executed at 92% of the principal balance, indicating high loan quality.
  • Provides immediate liquidity for WaFd Bank.
  • Sale offers options for debt reduction, new loan origination, or stock buyback.
Negative
  • Discount on loan sale attributed to changes in interest rates.

Insights

The sale of $2.8 billion in multi-family commercial real estate loans is a significant move by WaFd Bank. This transaction not only provides immediate liquidity, which is advantageous for the bank's cash flow, but also demonstrates the bank's ability to manage its portfolio strategically. The sale executed at 92% of the principal balance indicates a slight discount due to interest rate changes, not credit quality. This is a positive signal to investors about the strength of the bank's loan portfolio and its proactive stance in a volatile interest rate environment.

From a financial health perspective, the liquidity gained from this sale can be used to pay down debt, originate new loans, or buy back stock. Each of these actions can have different implications for shareholders. For instance, buying back stock can increase the share value by reducing the number of outstanding shares, while originating new loans can drive future revenue growth. The strategic flexibility this liquidity provides is a notable advantage.

It is also important to observe that this transaction was not a condition of the recent merger with Luther Burbank Savings, hinting at WaFd's strong operational position. Investors should see this as a sign of WaFd's robust risk management practices and its ability to execute large transactions smoothly, even in a challenging market.

This sale can be viewed through the lens of market positioning. By divesting a portion of their multifamily CRE loans, WaFd Bank is effectively reducing its exposure to this specific sector. This can be seen as a cautious approach in light of potential market uncertainties in commercial real estate, particularly in the multifamily segment, which can be sensitive to economic cycles and changes in interest rates.

The fact that the loans were sold at a discount mainly due to interest rate fluctuations rather than credit risk reflects the broader market conditions. Multifamily CRE loans are generally considered less risky compared to other CRE segments, such as office spaces, which have been under pressure due to remote work trends. Therefore, this transaction likely reflects a strategic rebalancing rather than a retreat from perceived risk.

Moreover, the involvement of a major player like Bank of America and funds managed by PIMCO underscores the high quality of these loans. It also suggests confidence from these institutions in the underlying assets. For retail investors, this deal can be seen as a sign of WaFd's prudent management approach, ensuring that they maintain a healthy balance sheet while adapting to market conditions.

SEATTLE--(BUSINESS WIRE)-- Washington Federal Bank ("WaFd Bank" or the "Bank"), the wholly owned subsidiary of WaFd, Inc. (Nasdaq: WAFD) (the "Company"), today announced the consummation of the sale of approximately $2.8 billion of multifamily commercial real estate loans (“CRE”) to Bank of America, which in turn is selling the loans to funds managed by Pacific Investment Management Company LLC (“PIMCO”). To our knowledge, this represents the largest non-FDIC assisted CRE loan sale ever. The sale of the multi-family loans was executed at no loss to WaFd and provides immediate liquidity going forward.

WaFd Bank President and CEO Brent Beardall stated, “This should prove to the investment community that the sky is not falling when it comes to CRE loans. These are high quality loans and we believe the purchase price is reflective of the low amount of credit risk in the portfolio. Further, this sale was executed at 92-percent of principal balance. That discount is almost entirely attributable to changes in interest rates not the quality of these CRE loans. CRE is a broad category which includes: multifamily, owner occupied, industrial, hospitality, storage and office. When evaluating CRE risk it is very important to understand the type of CRE, the location and sponsor equity.”

Mr. Beardall continued, “These packaged loans all came from Luther Burbank Savings in the acquisition by WaFd Bank in March of this year. The sale of CRE loans was not a condition of the merger. WaFd Bank has previously disclosed this loan sale gives the Bank several immediate options including the option to either buy down debt, originate new loans, buyback stock or a combination of all three.”

Washington Federal Bank, a Washington state-chartered bank with headquarters in Seattle, Washington, 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.

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. 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 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 (xi) other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services.

Brad Goode

WaFd, Inc.

425 Pike Street, Seattle, WA 98101

Brad.Goode@wfd.com

(206) 626-8178

Source: Washington Federal Bank

FAQ

What recent financial transaction did WaFd Bank complete?

WaFd Bank sold approximately $2.8 billion in multifamily commercial real estate loans.

Who purchased the multifamily CRE loans from WaFd Bank?

The loans were sold to Bank of America, which is reselling them to funds managed by PIMCO.

Was the sale of multifamily CRE loans a result of any financial loss for WaFd Bank?

No, the sale was completed at no loss to WaFd Bank.

At what percentage of the principal balance were the multifamily CRE loans sold?

The loans were sold at 92% of the principal balance.

What options does WaFd Bank have after the sale of the multifamily CRE loans?

WaFd Bank can opt to buy down debt, originate new loans, buy back stock, or a combination of these options.

Did the sale of multifamily CRE loans come from a recent acquisition?

Yes, the loans came from Luther Burbank Savings, acquired by WaFd Bank in March 2023.

WaFd, Inc.

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United States of America
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