WAFD Q4 Deep Dive: Margin Pressure, Deposit Shifts, and Credit Quality Outlook

Regional banking company WaFd (NASDAQ:WAFD) missed Wall Street’s revenue expectations in Q4 CY2025, but sales rose 7.5% year on year to $187.9 million. Its non-GAAP profit of $0.75 per share was in line with analysts’ consensus estimates.

Is now the time to buy WAFD? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

WaFd Bank’s fourth quarter results were met with a negative market reaction, as revenue growth was offset by persistent margin pressure and rising nonperforming loans. Management attributed the year-on-year sales increase to stronger performance in commercial and industrial lending, as well as disciplined expense control. However, CEO Brent Beardall noted that elevated nonaccrual loans and a shift towards lower-yielding mortgage-backed securities put additional strain on the bank’s net interest margin. CFO Kelli Holz pointed out, “The net interest margin was 2.7% in the December quarter, with margin pressure largely tied to nonaccrual interest and investment purchases.”

Looking forward, WaFd Bank’s strategy focuses on expanding commercial banking and building core, low-cost deposits as a foundation for improved margins and loan growth. Management outlined goals to grow noninterest-bearing deposits to 20% of the deposit base by 2030, while near-term headwinds include continued pressure on net interest margin from investment mix changes and economic uncertainty impacting credit quality. CEO Brent Beardall described the outlook as contingent on increasing commercial and industrial lending and further improving efficiency, stating, “The key from my perspective is growth in C&I loans and deposits, supported by growth in CRE loans while running an efficient bank.”

Key Insights from Management’s Remarks

Management identified the shift in loan mix, margin compression, and changing deposit dynamics as central themes for the quarter, while highlighting progress in business banking and noninterest income diversification.

• Active loan portfolio growth: Management emphasized that new loan production was concentrated in commercial and industrial (C&I), commercial real estate (CRE), and construction segments, reflecting a strategic move away from lower-yield, inactive loan types such as single-family residential and consumer lots.
• Deposit mix improvement: The bank reported a notable increase in noninterest-bearing deposits, which rose to 12.6% of total deposits, as part of a multi-year effort to reduce funding costs and improve overall profitability. Beardall highlighted a 2.5% increase in noninterest-bearing accounts, reversing a previous downward trend.
• Margin pressure from investment strategy: The decision to replace runoff single-family mortgage balances with agency mortgage-backed securities led to incremental net interest income but added pressure on the net interest margin due to lower yields. Holz indicated that further purchases could continue to weigh on margins in the near term.
• Noninterest income and cost control: Noninterest income benefited from gains on property sales but was tempered by losses on certain equity investments. Total noninterest expense declined due to lower compensation and technology costs, helping to reduce the efficiency ratio to the high end of management’s target range.
• Credit quality trends: Credit metrics showed both improvement and emerging risk, with a decrease in adversely classified loans but a rise in criticized and nonperforming assets, partly due to two commercial relationships. Chief Credit Officer Ryan Mauer noted that these increases were not concentrated in one industry and reflected broader economic headwinds, including elevated rates and tariffs.

Drivers of Future Performance

WaFd Bank’s forward guidance is shaped by anticipated growth in commercial lending, deposit initiatives, and ongoing margin headwinds from investment decisions and credit trends.

• Commercial lending expansion: Management expects that the ongoing emphasis on business banking, including growth in C&I and CRE loans, will be a primary driver of top-line growth, with loan pipelines up 28% quarter-over-quarter. Success here is seen as pivotal to achieving the bank’s goal of 8-12% active portfolio growth over the next two years.
• Deposit and margin strategy: Efforts to increase noninterest-bearing deposits are intended to lower funding costs and support margin recovery. However, near-term net interest margin is expected to remain under pressure as the bank increases its investment in mortgage-backed securities, which have lower yields than traditional lending.
• Credit and macroeconomic risks: Management pointed to continued economic uncertainty, lingering effects of tariffs, and elevated interest rates as ongoing risks to credit quality. Rising nonperforming assets and criticized loans highlight the need for proactive portfolio management, though management sees some improvement if rate cuts materialize.

Catalysts in Upcoming Quarters

Looking ahead, our analysts will focus on (1) sustained growth in business banking and the active loan portfolio, (2) the ability to expand noninterest-bearing deposits against a competitive funding landscape, and (3) stabilization or improvement in credit quality metrics amid ongoing economic uncertainty. The rollout and scaling of WaFd’s wealth management initiative and progress toward the Build 2030 strategic goals will also be critical signposts.

WaFd Bank currently trades at $32.49, down from $33.73 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free).

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