KBRA Affirms Ratings for WaFd, Inc.

KBRA affirms the senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, the preferred stock rating of BBB-, and the short-term debt rating of K2 for Seattle, Washington-based WaFd, Inc. (NASDAQ: WAFD) ("the company"). In addition, KBRA affirms the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and short-term deposit and debt ratings of K2 for its main subsidiary, Washington Federal Bank ("WaFd Bank" or "the bank"). The Outlook for all long-term ratings is Stable.

Key Credit Considerations

WAFD’s ratings are supported by consistently strong operating performance over an extended period, underpinned by a high-quality, long-tenured management team. Senior leadership has fostered a disciplined credit culture that has contributed to strong asset quality metrics, even as the franchise has navigated less favorable economic and interest rate environments over the years. The company has continued to demonstrate sound earnings and credit performance in recent years, with a core ROA averaging ~0.9% in 2024 and 1H25. Earnings have come under some pressure due to elevated funding costs, driven by a concentration in higher-cost time deposits (43% of deposits) and a somewhat longer-duration loan portfolio with a meaningful exposure to residential mortgage and multifamily lending (64% of loans). As part of its Build 2030 strategic plan, management has exited the single-family residential (SFR) lending business to focus on commercial lending and deposit opportunities. While this strategic pivot will take several years to fully realize, we believe it should ultimately provide better diversification, an improved deposit mix, and higher-yielding loan segments, which, in turn, should enhance NIM and returns. In the interim, profitability should remain stable to modestly better, supported by a right-sized expense base following the SFR exit. NIM is also expected to improve as loan repricing and incremental growth lift yields while deposit costs (2.78% in 2Q25) continue to decline following the Fed rate cuts in 2H24. WAFD remains modestly asset sensitive in the short term, but fairly neutral over the medium term, and we expect limited margin impacts assuming a measured rate-cutting cycle.

Credit quality has remained strong despite sector headwinds, including emerging pressures in multifamily. NPA and NCO ratios remain below peers, and although criticized and classified loans have risen, risk ratings remain manageable. We note that investor CRE exposure equals 344% of total risk-based capital, though also note that over half is concentrated in multifamily lending, which has reflected pristine performance for WAFD over a long period of time. The current construction of these portfolios includes conservative LTVs, and combined with the lack of affordable housing in a majority of the footprint, should facilitate continued outperformance for the company. This concentration risk in the loan portfolio is partly offset by the company's broad operating footprint across nine states, which provides geographic diversification compared to most peers. Lastly, exposure to the troubled office sector is well-contained at just 4% of loans and primarily consists of smaller properties in suburban markets, which have been more resilient than high-rises in central business districts.

Capital is another supportive ratings factor. The CET1 ratio stood at 11.7% as of 2Q25, reflecting a more conservative stance following the post-pandemic period of robust loan growth and aggressive share repurchases. While many peers have absorbed significant AOCI-related capital erosion, WAFD reports a positive AOCI position due to its liability hedging strategy, including $1.0 billion of cash flow swaps on wholesale borrowings that currently carry a $107 million unrealized gain. Management has resumed share buybacks in 2025, aided by balance sheet contraction, and continues to view the stock as undervalued.

Liquidity is also adequate, supported by loan sales following the Luther Burbank Corporation acquisition in 2024. The loan-to-deposit ratio has has moved below 100% (95% as of 2Q25), and while on-balance sheet liquidity lags peers, the shorter-duration securities portfolio (average duration under 3 years, with yields above 4.0%) provides flexibility and monetization potential if needed, unlike many peers with heavily underwater portfolios. Liquidity management should remain stable, as tepid loan demand and commercial lending buildout are expected to be largely offset by runoff in the SFR segment.

Rating Sensitivities

Given the Stable Outlook, a rating upgrade is not expected over the medium term; however execution of its strategic plan, including funding and revenue diversification, while maintaining a strong capital, credit, and earnings profile could support positive momentum over the longer term. Conversely, a rating downgrade is not anticipated, but any material degradation in the credit quality of the earnings profile, or a more aggressive capital management strategy could place pressure on the ratings.

To access ratings and relevant documents, click here.

Methodologies