WaFd Holds Margin as Credit Provision Climbs
Net interest income rose 2% QoQ to $181.3 million as funding costs eased.
WaFd (WAFD), the regional commercial-banking franchise, held its net interest margin at 2.81% in the June quarter after an 11-bps expansion in March. Net interest income rose 2% QoQ and 7.9% YoY to $181.3 million, as a small increase in earning-asset yields combined with a modest decline in interest-bearing liability rates. The margin stood 12 bps above its year-earlier level.
Loan growth remained concentrated in the bank’s active commercial portfolios. Period-end net loans rose $50.9 million QoQ to $20.02 billion, though they remained $259.3 million below the prior-year level as inactive residential loans continued to run off. Active portfolios grew at a 10.4% annualized pace.
Originations held at $1.5 billion, with commercial loans supplying 96% of the volume, while repayments eased to $0.9 billion. The growth was partly offset by $299 million of runoff in inactive residential portfolios, leaving the balance sheet increasingly oriented toward commercial borrowers.
Deposits declined $192.1 million QoQ to $20.93 billion, while borrowings increased $201.1 million to $3.32 billion and the loans-to-deposits ratio rose 111 bps to 95.63%. Funding mix continued to improve: transaction accounts reached 60.9% of deposits as time deposits fell $190.9 million QoQ, and the all-in deposit rate declined 2 bps to 2.39%. The effective borrowing rate, however, increased 7 bps to 3.08%.
Noninterest income rose to $24.2 million, driven primarily by a $3.2 million gain on branch property. Excluding identified nonoperating items, fee income was essentially flat at $20.7 million. Expenses held nearly steady at $110.3 million, and the adjusted efficiency ratio improved 80 bps to 54.6%, a more measured gain than the 197-bps improvement in the reported ratio.
Capital remained above the bank’s operating requirements, with WaFd expecting its CET1 ratio to stay near March’s 11.4% and total risk-based capital near 14.4%. Tangible equity to tangible assets increased 15 bps QoQ to 9.50%. Repurchases slowed to 8,806 shares from 2.74 million in March, leaving 8.0 million shares authorized.
Credit costs provided the quarter’s main counterweight. The provision for credit losses rose to $11.0 million from $4.0 million QoQ as WaFd added reserves for C&I and construction growth and possible losses on adversely classified credits. Net charge-offs increased to $1.6 million, while the allowance rose $9.4 million to $233.8 million, or 1.08% of gross loans.
Criticized loans climbed to 4.93% of net loans from 4.24%, though adversely classified loans were nearly unchanged at 2.59%. Nonperforming assets edged up 1 bp to 0.49% of assets, while delinquencies improved 3 bps to 0.75% of loans. Continued commercial production and lower deposit costs support revenue momentum, with the higher reserve build placing credit migration at the center of coming quarters.