KBRA has assigned ratings to WaFd, Inc., a company based in Seattle, Washington. The senior unsecured debt rating is BBB+, while the subordinated debt rating is BBB and the preferred shares rating is BBB-. The short-term debt rating is K2. Additionally, KBRA has assigned deposit and senior unsecured debt ratings of A-, a subordinated debt rating of BBB+, and short-term deposit and debt ratings of K2 to its main subsidiary, Washington Federal Bank.
The company's operating results have been favorable over a long period of time, supported by a high-quality and long-tenured management team that has implemented a conservative credit culture. Recent asset quality trends indicate that WAFD is currently positioned with a minimal level of problem loans, despite negative risk rating migration observed over the past year.
The company experienced a creep-up in NCO activity during 2023 due to idiosyncratic events in its modest C&I energy portfolio, but the loss content remained manageable and did not materially impact multiyear loss rates. The sale of $2.8 billion of multifamily loans during 1Q24 further provided comfort around the credit risk of the multifamily portfolio.
WAFD continues to reflect a somewhat concentrated loan portfolio, notably in residential mortgage and investor CRE, representing nearly two-thirds of the overall loan book as of 2Q24. However, multifamily accounts for a majority of the investor CRE exposure, which has historically been a lower risk asset class within the company's footprint.
The company's liquidity, as measured by the loan-to-deposit ratio, has tracked modestly higher than peers historically, with ample on-balance sheet liquidity, including $2.5 billion in cash. The excess liquidity position is expected to normalize throughout 2024 and will likely be deployed into loan growth.
The higher interest rate environment has put pressure on margins and earnings across the industry, resulting in a decrease in NIM since the start of the Fed’s rate hikes. However, recent margin headwinds have largely been offset by cost-savings from the merger, resulting in a lower level of core operating expenses to average assets that track well below peers.
Capital management has varied over the years, including a conservative positioning pre-pandemic. However, capital bounced back in 2Q24 following loan sales and de-levering, with a CET1 ratio of 11.0%. Management plans to be opportunistic with buybacks prospectively.
Today the company's shares have moved 5.2% to a price of $36.78. Check out the company's full 8-K submission here.
