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

Rhea-AI Summary

WaFd, Inc. (Nasdaq: WAFD) reported its second-quarter fiscal 2024 results following the successful completion of the merger with Luther Burbank Despite a decrease in net earnings compared to previous quarters, the company's president and CEO remains optimistic about the strategic acquisition and the potential benefits it will bring in the future.

Positive

• Successful completion of the merger with Luther Burbank
• Net earnings for the quarter ended March 31, 2024, were $15,888,000, a decrease of 73% from the previous quarter.
• Adjusted net earnings without merger costs would have been $54.8 million, a 6% decrease from the December quarter.
• Return on common shareholders' equity was 2.09% and return on assets was 0.26%.
• The acquisition of Luther Burbank is expected to result in earnings per share accretion of 8% in fiscal 2025 and 16% in fiscal 2026.
• Initiated a program to sell a portion of the LBC multifamily loan portfolio to potential buyers, up to $3.2 billion.
• Front-line bankers in the California branches and support teams successfully executed the conversion plan with minimal impact on deposit accounts.

Negative

• Net earnings decreased by 73% from the previous quarter and 76% from the same quarter last year.
• Return on common shareholders' equity and return on assets declined compared to previous quarters.
• Merger-related costs and non-operating expenses of $51.1 million impacted the quarter's financial results.
• Challenging interest rate environment made strategic execution more difficult.

Insights

Financial Analyst

The reported decrease in net earnings following the merger with Luther Burbank Corporation is a clear indicator of initial costs associated with such transactions. A decline from $58,453,000 to $15,888,000 in net earnings represents a sharp decline of 73% on a quarterly basis. This is a significant drop and highlights the immediate financial impact of the merger. However, investors should be aware of the typical nature of these expenses; they are one-time and may not reflect the ongoing financial health of the company.

The reported adjusted figures, excluding the merger-related costs, are key to understanding the underlying performance. An adjusted return on equity of 8.7% still reflects a downturn from the previous year's 12.01%, suggesting there may be operational challenges beyond merger costs affecting profitability. Furthermore, a slight 6% decrease in net income when excluding non-operating items indicates that the core business may be experiencing pressure, possibly from the broader challenging interest rate environment.

On a strategic note, the rapid integration of LBC and the minimal decrease in deposit accounts post-merger (1.1%) is a positive sign of customer retention and operational efficiency. The planned sale of up to $3.2 billion of the LBC multifamily loan portfolio could provide a significant liquidity event. The proposed redeployment of these funds into higher yielding assets is anticipated to drive earnings per share growth, with projections of 8% in fiscal 2025 and 16% in fiscal 2026, which if realized, could offset the initial costs of the merger and eventually lead to increased profitability.

Market Research Analyst

The strategic rationale behind the acquisition of Luther Burbank Corporation centers around the increase in market presence and asset size, with LBC's assets constituting 34% of WaFd's standalone assets. This move represents a significant expansion, particularly in the California market, which could enhance WaFd's competitive stance in the region. The long-term strategy to strengthen the bank's footprint in key markets should be evaluated by stakeholders for the potential to generate greater market share and customer base growth.

While the short-term financial impact of the merger appears steep, President and CEO Brent Beardall's comments underline a vision for transformational growth. Investors should consider the historical performance of similar banking acquisitions when assessing long-term outcomes. It's also important to acknowledge that the banking sector operates on thin margins, where strategic acquisitions can lead to economies of scale and potentially better long-term earnings through expanded operations. However, the emphasis on the 'noise' of the quarter may suggest there are more variables at play than presented and investors would be prudent to look for further clarity in future earnings reports and operational updates.

SEATTLE--(BUSINESS WIRE)-- 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 164^th 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240422283697/en/

WaFd, Inc.

425 Pike Street, Seattle, WA 98101

Brad Goode, SVP, Chief Marketing Officer

206-626-8178

brad.goode@wafd.com

Source: WaFd, Inc.

FAQ

What were WaFd's net earnings for the quarter ended March 31, 2024?

WaFd reported net earnings of $15,888,000 for the quarter ended March 31, 2024, representing a 73% decrease from the previous quarter.

What was the return on common shareholders' equity for the quarter ended March 31, 2024?

The return on common shareholders' equity for the quarter ended March 31, 2024, was 2.09%.

What is the expected earnings per share accretion from the Luther Burbank acquisition in fiscal 2025?

Common shareholders are projected to experience earnings per share accretion of 8% in fiscal 2025.

What action has WaFd taken regarding the LBC multifamily loan portfolio?

WaFd has initiated a program to sell a portion of the LBC multifamily loan portfolio, up to $3.2 billion, to potential buyers.

How did the challenging interest rate environment impact WaFd's strategic execution?

The challenging interest rate environment made strategic execution more difficult for WaFd.