WaFd Inc (WAFDP) 2025 Q4 法說會逐字稿

Good day and thank you for standing by. Welcome to the WaFd 4th quarter and fiscal year 2025 results call. (operator instructions) I would like to end this conference over to your speaker today, Brad Good. Please go ahead.

Thank you, Kevin. Good morning, everybody. We are excited to have you all attending our first ever earnings conference call. We have listened to the feedback from many of you requesting that we hold a call like this. We've heard you, and so here we are.

Let's dive into our 2025 4th quarter and full year earnings report. You can find our earnings press release along with our detailed fact sheet and investor scorecard on our website. I'm sure you all know where that is, swaedbank.com.

During today's call, we will make some forward-looking statements which are subject to risks and uncertainties and are intended to be covered by the safe harbor provisions of Federal securities law.

Information on risk factors that could cause actual results to differ are available from the earnings press release that was released yesterday, and the recently filed Form 10 for the quarter ended June 30, 2025. Forward-looking statements are effective only as of the date that they are made, and that assumes no obligation to update information concerning its expectations. We'll also reference non-GAAP financial measures, and I encourage you to review the non-GAAP reconciliation provided in our earnings materials. With us this morning, our President and CEO Brent Beardall, Chief Financial Officer Kelli Holz, Chief Credit Officer Ryan Mauer, and Chief Experience Officer Cathy Cooper. I'd now like to hand the call over to Mr. Beardall.

Thank you, Mr. Goode. Good morning, everyone.

Today we will cover 5 primary items with you. First, Kelli Holz, our CFO, will provide you with a detailed review of our balance sheet and income statement for the quarter and year ended 2025.

Second, Ryan Mauer, our Chief Credit Officer, will provide comments on the current status of our loan portfolio and credit quality trends.

Third, I will provide you my insight in terms of our future prospects, capital management, strategies, and macro developments that impact WaFd.

Fourth, Cathy Cooper, our client experience officer, will discuss the progress we are making to improve banking for our clients. Finally, we will be happy to answer any questions you have at that point.

Kelli, please walk us through the quarter and year-end results.

Thank you, Brent. As announced, WaFd Inc. Reported net income available to common shareholders of $56.9 million or $0.72 per diluted share for the quarter ended September 30th.

This compares to net income to common shareholders of $0.71 per share for the fourth quarter of fiscal 2024 and $0.73 per share for the third quarter of fiscal 2025.

The 1% decrease in earnings per share for the quarter was primarily due to modest increases in non-interest expense offset by modest increases in net interest income and non-interest income.

For the full year ended September 30, 2025.WaFd reported net income available to common shareholders of $211.4 billion or $2.63 per diluted share. This compares to fiscal 2024 net income to common shareholders of $2.50 per share.

For the balance sheet, loans receivable decreased 188 million during the quarter, primarily due to a decrease in our inactive loan types, which are single-family mortgage, custom construction, which combined decreased by 216 million.

Loan originations for the quarter outpaced repayments and payoffs in our active loan types for the first time this fiscal year, with originations of 1.4 billion compared to $700 million in the June quarter, and repayments and payoffs of 1.2 billion in both those quarters.

Active loan types include multi-family, commercial real estate, C&I, construction, land A&D, and consumer. As announced earlier this year, we have exited the single-family mortgage lending market, which also includes custom construction, consumer lot loans, and he locks. Please see the updated table on our fact sheet that provides a breakdown between our active and inactive loan types.

Deposits increased by $51 million during the quarter, with non-interest-bearing deposits increasing $80 million or 3.2%, while time deposits decreased $286 million or 3%. For the fiscal year, total deposits increased by $64 million a result of the efforts of our teams across the entire footprint. The former Luther Burbank deposits decreased by $1 billion over the fiscal year.

Which was an intentional effort on our part to lower the cost of funds for these higher cost, mostly CDs, deposits. Those decreased 4.5% decreased from 4.25% at September 2024 to 3.36% of total deposits today.

Core deposits ended the quarter at 78% of total deposits, similar to the June quarter and increased from 75% as of the prior year end. Non-interest-bearing deposits ended the quarter at 12% of total deposits. The net loan to deposit ratio ended the quarter at 93.7%. Total cash decreased $152 million in the September quarter, and total investments and mortgage-backed securities increased $279 million. Cash balances were used to pay down borrowings, which decreased $174 million during the quarter. The increase in mortgage backed securities is part of our overall investment strategy currently replacing the single family mortgage loan balance runoff.

WaFd 's liquidity and capital profile remains strong, with a robust core funding base, a low reliance on wholesale borrowings, and a significant off-balance sheet borrowing capacity. In addition, all of our capital ratios are in excess of regulatory wealth capital levels.

For the income statement, net interest income increased 1.9 million from the prior quarter. The net effect of the reduction in interest paid on liabilities outpacing the reduction on interest earned on assets by 3 basis points.

The net interest margin was 2.71% for the September quarter compared to 2.69% in June. As of the September, the yield on interest earning assets was 5.23%, while the cost of interest-bearing liabilities was 2.91%, with the resulting margin at period end of 2.82%. Total non-interest income increased slightly compared to the prior quarter to 18.4 million. Contributing to non-interest income is $4.6 million in revenue for the quarter from our insurance subsidiary of WaFd Insurance. For the fiscal year, WaFd insurance revenue was 19.5 million, an increase of 12.5% over the prior year.

Total non-interest expense increased 2.7 million, or 2.6% from the prior quarter as a result of strategic investments in our talent and technologies. Increases in compensation and information technology spend resulted in a small increase to the company's efficiency ratio for the fourth fiscal quarter to 56.82% compared to 56.01% as of June.

Let me now turn the call over to Ryan to share his comments on WaFd 's credit quality.

Thank you, Kelli, and good morning everyone.

As reflected in our earnings release, we had a solid quarter of new loan production along multiple product lines. As Kelli indicated, total production on a quarter over quarter basis increased from 700 million to 1.4 billion.

Increase in production we're seeing in the majority of our active loan portfolio types. On a quarter over quarter basis, commercial real estate production increased by 380% from 44million to 211 million.

Commercial and industrial increased by 56% from 325million to 507 million.

Commercial construction increased by 142% from 206 to 499 million, and land A&D increased by 132% from 19million to 44 million.

Importantly, we were able to achieve the increase in loan production with a consistent approach to underwriting that maintained a moderate risk profile. Delinquent loans ended the quarter at 0.6%, up 34 basis points when compared to the June quarter, and 35 basis points when compared to September of 2024.

Adversely classified loans decreased by 84 million in the quarter and now represent 3.1% of net loans compared to 3.5% as of the June quarter and 2% as of September of 24. Total criticized loans increased 57 million to 4.4% of net loans compared to 4.1% as of the June quarter and 2.4% as of September of 2024.

It should be noted that the increase in criticized loans is not concentrated in any one business line or industry, and similar to the rise in delinquencies is reflective of the economic environment where elevated interest rates and economic uncertainty impacted both commercial and consumer borrowers.

Non-performing assets increased 46 million in the quarter and represent 0.54% of total assets consisting of 129 million in non-performing loans, 11.1 million in REO, and 3 million in other repossessed assets. While elevated in comparison to recent period, these credit metrics remain modest in light of WaFd 's loan loss reserve and capital position. And are indicative of our culture of early and proactive portfolio management.

It is important to note here that the increases in delinquencies and non-performing assets were largely impacted by a single commercial real estate loan over 90 days past due.

Although this loan was appropriately placed on non accrual per policy, there was no charge off taken upon revaluation, and we are actively collaborating with the borrower, and recent developments are indicating positive momentum.

If nonperforming assets and delinquencies were adjusted for this one loan, MPAs would be 0.36% of total assets, which represents no change from the June quarter end, and delinquencies would be 0.38% of total loans, which is up from 0.26% from June quarter end.

The net provision for credit losses for the quarter was $3 million including a $2 million provision for loan losses and a provision of $1 million related to unfunded loan commitments.

The provision is the result of growth in commercial loan balances, including C&I and CRE. In addition to mixed credit metrics and negative trends in the migration of criticized, non-performing, and delinquent loans.

Net loan charge-offs for the quarter totaled 1 million for the year. Net charge-offs totaled 11.8 million and represented a nominal 6 basis points of average net loans. For reference, over the last 10 years, net charge-offs have averaged a recovery of 2 basis points per year, and over the last 3 years, net charge-offs have averaged 10 basis points per year.

The allowance for credit losses, including the reserve for unfunded commitments, provides coverage of 1.04% of gross loans at fiscal year end compared to 1.01% in September of 2024. For the commercial loan portion of the portfolio, the allowance represents 1.3% of net loans compared to 1.26% as of September of 2024.

Credit metrics at fiscal year end, while elevated from prior quarters remain at healthy levels overall and have been impacted by two primary drivers. First, the elevated interest rate environment has impacted loan demand and borrowers' expense structures. Second, the economic uncertainty driven by tariffs continues to impact borrowers' top-line revenue results as well as material costs. Looking forward, these factors remain headwinds for quality.

While the uncertainty related to tariffs remains elevated, the interest rate environment appears to be easing in the near term. With that, I will hand the microphone over to Brent for his comments.

Excellent. I wanted to let Kelly and Ryan start this call so everyone can appreciate what I think is a very solid year that we just completed. Change is hard, especially for an organization that has been around for 108 years. But I am incredibly proud of our team.

All 2000 of us have embraced what needed to be done, taking the next step in moving WaFd to be a true commercial bank. You are seeing part of the change with this earnings call. We recognize that change takes time, but believe that this is the best course of action for all of our constituents.

Let me discuss our evolution from a thrift to a commercial bank. Most of you on this call will remember our previous strategic plan, which we set out in 2018, was called Vision 2025, and it focused on becoming a digital first bank.

Growing our transaction deposits and building our reputation as the bank of choice for top tier talent in the Western United States. How did we do in executing that strategic plan?

I would give us a 7 out of 10. Before the 500 basis point increase in interest rates, my score would have been a 9 out of 10, but certainly rising deposit costs and reduced loan demand negatively impacted us. There is no question in my mind we are better off today for having aimed high with Vision 2025.

I would now take our tech stack over any mid-sized bank peer as we now have a phenomenal digital offering with a combination of strong vendor relationships and control via in-house developed software.

We have also learned that technology is a journey with no destination. There is no finish line to cross. As soon as you have implemented a new technology, you have to work on what comes next and iterate on what you just launched.

The key is to be nimble, and we believe we have the technology and the teams to do exactly that. Leveraging technology for the benefit of our clients and colleagues is foundational to who we are today and for our future.

What is next?

We took a hard look at where our stock was trading even after the events of the last couple of days. We typically traded just above tangible book value, as you're aware, right now we're below tangible book value.

While most of our peers have been trading in a range of about 1.35 times tangible book value. Why is that? The market may be wrong over the short-term, but generally speaking, the market proves right over the long-term.

Our stock trades at a relative discount because our profitability lags compared to our peers. By peers, I refer to the 62 publicly traded banks between 10 and $50 billion in assets.

And let me just give you some comparisons that most of you are aware of in terms of profitability. Our peers return on assets typically 1.22%. WaFd was 0.91%. lag.

In return, in terms of return on tangible common equity, our peers are at 13%. WaFd is at 10%. In terms of efficiency ratio, our peers are at 55%, WaFd and 57%.

So, we lag in terms of profitability.

The biggest single driver for wire profitability behind our peers is because of our margin.

Our peers have a margin of 3.42% and you can see WaFd has a margin this quarter of 2.71%. That is made up of course in terms of yield on loans. Our peers had a yield of 6% on their loans, and WAE was 5.38%, which is brought down by the significant balance of single family mortgages that I'll address, as well as the cost of deposits. Our P/E cost of deposits is just about 2% and we're at 2.6%.

However, we remained stronger than our peers in terms of TCE ratio with our peers at 9.3% and WaFd at 9.8%, and our net charge-offs have remained very low relative to our peers for this last quarter. Our peers are at 16 basis points of off ed at just two basic points of charge-offs.

There is no silver bullet. The reason for our relative underperformance lies in our Thrift heritage. We historically focused on attracting higher cost time deposits to fund mortgage loans, effectively accepting a higher degree of interest rate risk.

Our solution is summed up by our next business plan, which we call Build 2030, a plan designed to fully shift our focus to where we can add the most value to our clients and shareholders, serving the banking needs of businesses.

This shift takes time, discipline, and effort and comes with specific goals. The most important goal in my mind is increasing our non-interest-bearing deposits to total deposits from 11% in January when we launched this plan up to 20% by the end of fiscal 2030. Today we sit at 12%.

It is an ambitious goal, but it is what we need to do, and it will drive increased loan demand and branch utilization. The way our peers have achieved their lower cost of funds is to focus on serving small businesses, which is exactly what we are doing.

Here's what we've accomplished so far. In January, we reorganized our frontline bankers into 3 teams to kick off Bill 2030. Our business bank, handling commercial credit needs up to $10 million and all small business and consumer deposits. This includes our 208 branches. A corporate bank which handles all large commercial credits and clients with treasury needs.

Lastly, our commercial real estate bank, recognizing our historical strength and expertise in commercial real estate, we have a dedicated team to serve the credit and treasury needs of real estate investors and operators.

We have also expanded our product offerings. We now originate SBA 504 loans and 7A loans. Over the last six months, WaFd has earned SBA delegated authority and has been approved as a preferred SBA lender.

Being great at serving treasury management needs with all of its requisite tools and controls. Is our long-term solution for achieving low cost deposits. We've all heard about the hype that what AI can do.

And we too are excited about the potential, but AI is also being used extensively by bad actors to commit fraud. Robust treasury management controls and automation are a must for all businesses. We are very pleased with our Treasury management offering for both small and large businesses that allows our clients to mitigate risk and easily manage their banking.

We're now 9 months since we announced Bill 2030. And here are some of the results. Our gross loan pipelines have increased 24% in just the last quarter. Gross new money potential is up to $2.5 billion up from just $2 billion a quarter ago.

And we have a deposit pipeline of almost $250 million of net new deposits we anticipate. With the branches focused on attracting small businesses, we are seeing more customer traffic, client growth, and still have significant capacity to grow without adding staff levels.

We are seeing growth in the number of accounts, which is exactly what we want. Specifically, non-interest-bearing accounts are up by 5,000 over the year, a 2.5% increase, which is modest but important because it reverses the trend of declining numbers of non-interest rate deposits that we have seen over the last several years.

C&I loans. After opening up business lending to our branch teams in the last year, we have more than doubled the number of C&I loans we have on our books to 3,000. With each of these new business relationships, we are planting the seed for additional growth going forward.

Having studied many thrifts that failed in their journey to become commercial banks, I believe the most important differentiator is being disciplined, especially around credit. We don't want to get in a hurry and take undue credit risk for the sake of faster growth. We will err on the side of quality over growth.

Looking at the composition of our balance sheet, let me highlight our plan for handling the SFR loans, the single family residential loans we have on our balance sheet, currently $8.1 billion earning only 4.2%. Which is about 40% of our total loans.

Given the rate environment, our plan is to replace runoff in this portfolio with agency mortgage backed security. Currently, we picked up about 100 basis points with zero credit risk. Last quarter, we had $226 million of single family loans pay off.

On the on the deposit side, we have largely been treading water over the last 18 months. But that does not tell the whole story nor give credit to our team for what we have accomplished. As you recall, on March 1st of 2024, we closed the Luther Burbank acquisition, knowing they had a high cost deposit base.

Since that time, we have allowed their deposits to decline by $1.8 billion or 32%. But importantly, in doing so, we have decreased the weighted rate on the remaining deposits by 90 basis points.

We are very pleased to point out that organic growth at WaFd deposit franchise over that time more than offsets the $1.8 billion of Luther runoff. Another way to look at it is WaFd would have grown its deposits by 8.5% over the last 18 months, absent the impact of the Luther deposit runoff.

That leads to an obvious question.

Are we pleased with the results of the Luther Burbank acquisition? The answer is yes. We got into California at the right price and now have a solid foundation to build the franchise in the state.

I want to also mention that we still have $170 million in our rate mark related to the Luther Burbank loans that will accrete into income over the life of those loans, and with rates coming down, I would expect that to accelerate.

It's also important to note that this last quarter we finally came to the end of our HMDA consent orders. Working with the CFPB, they have now closed out the two HMDA consent orders, so that is now closed and behind us, which is timely, considering we are completely out of the mortgage business.

Changing topics, we are very pleased to announce that on August 29th of this year, we launched WaFd Wealth Management with the hiring of experienced professionals from the wirehouse here in Seattle. Our goal is to organically grow wealth management to 1 billion and assets under management in the first two years and then go from there.

Early indications are very positive and it is nice to fill a hole that we've had in our product offering. We see wealth as an essential element in growing our non-interest income going forward.

Two macro items I would address. Number 1, thank M&A. We are all aware of the 2 large deals announced this last quarter. 5th 3rd, acquiring America and PNC acquiring First Bank.

I think we will see a big pickup in M&A over the next 2 years as bank valuations improve and management teams look for scale in light of banking's unlevel playing field today.

I thought it was very interesting to hear that the TNC CEO said about wanting to get to 1 trillion size in order to stay relevant. There are only 200 banks in the United States greater than $3 billion in assets.

Crazy to think about only 200 banks, greater than $3 billion in assets. I think by the end of this administration, it could be significantly less than that.

Will we be a buyer? Of course, we would love to be a buyer of the right franchise at the right price, but given our CRA needs to improve rating, which we continue to appeal, and we hope to have resolution on that appeal this quarter, and our relatively low valuation, I don't see us participating at a significant level.

That may not be a bad thing considering most M&A has been destructive to capital for the acquiring institution.

Number 2, deposit insurance reform. I'm a board member of the Midsize Bank Coalition, and we have been leading the charge on reforming deposit insurance coverage.

I think it's evident to everyone since the 2023 runs on the banks, Silicon Valley and First Republic and other mid-sized banks, it is an unlevel playing field, and it appears we are gaining momentum with the latest proposed legislation which would provide $10 million of insurance for non-interest-bearing transaction deposits on all banks except the GSIS and foreign banks.

The banking system is strong today, but the system is broken in my opinion, as too many deposits are concentrated in the too big to fail banks.

For example, the largest bank in the US grew by 18% in assets on an annualized basis in the second quarter, while the economy grew at only 2.5%. That bank now holds 14% of the deposits in the United States.

There is something wrong with the perception that deposits are safe, they're too big to fail banks, but less so at the rest of them. Now is the time to begin addressing this issue if we want a broad, robust, and diverse banking system, and I'm pleased to see the momentum gaining.

We are certainly living in interesting times. But I'm grateful to be part of the WaFd team in what we are building.

Next, it is my pleasure to introduce Cathy Cooper, our client experience officer, to talk about some of the progress in improving our client's banking experience.

Thank you. Brett asked me to take a few moments to describe the ways that we're differentiating WaFd from the competition.

First, our bankers are expected and empowered to be active members of their local communities, be it chamber, rotary, or non-profit boards. Showing up consistently builds credibility at a grassroots level, as evidenced by the improvement in our net promoter score from a low of 17 8 years ago to a high of 58 this past year.

We have also won Best Bank awards from both Newsweek and Forbes and are currently named Best Bank in 4 out of our 9 states.

Second, it's having control over our client facing technology instead of being held hostage by vendors. Next week we launch Release 2.8 of our digital banking platform developed in-house by Pike Street Labs, our Pike Street Labs team.

The mobile app release adds direct deposit switching, debit card controls, and consumer wire transfers. Our customers can send a wire verified by the phone's device ID plus the client's voice print, all from a mobile phone for $10.

Pike Street Labs also built our own consumer deposit account portal that allows you to open a checking account online in as little as 10 minutes.

We continue to optimize the flow to reduce customer friction while leveraging a robust enterprise solution for identification of clients and fraud risk scoring. We have to be able to block synthetic identities and fraudsters without creating undue hurdles for legitimate customers.

Today we auto approve 44% of online deposit account applications and have opened over 4,700 consumer accounts online in the past year. One of the most powerful tools under development is a client data platform that recognizes visitors to our website and to our online banking.

Checks to see which badges they earned during prior visits and adjusts or personalizes the experience. Maybe you clicked on the small business lending page the last time you visited, so we gave you a small business loan badge, and if you logged in while you were on our website, we can now stitch that badge to your login identity. This allows us to follow-up and target activities like emails and other outreach to improve service and enhance conversion.

And finally, we are focused on solving the pain of small business owners who, according to studies, spend as much as 18 hours a week managing their finances. 18 hours is too much, so we are creating banking that bridges the GAAP between commercial and consumer solutions. We use Encino for origination of all small business loans and deposit accounts. We offer Treasury Express a small business digital banking solution. That connects to light versions of our treasury services, and we are one of the earliest adopters of cash flow Central from Fiserv designed to support payables and receivables for small businesses without having to rely on a separate third-party service.

With that, we'll close for Q&A.

Jeff Rules, DA Davidson.

Thanks, good morning. Appreciate the for hosting the call and Brent, I, again appreciate the strategic overview. That was great. .

I guess moving to the loan pipeline, you mentioned that's been building for three quarters and Kelly outlined the, kind of the undertow of the you know some of the originations in the active portfolio are starting to outpace that, I guess. More simply just looking at kind of your budgeting for fiscal '26 on net growth. What could you tell us on your expectations?

Yes, so thank you, Jeff, and good to be with you this morning, and you'll notice we're now kind of breaking the loan segment into two parts the active and the inactive. We're, breaking out the single family loans and the inactive segment and really we think about that inactive is really an equivalent to a bond portfolio. So if the single family goes away. We can replace that bond, with mortgage backed securities. So we think about the active portfolio, we truly believe that we can see, 8% to 12% growth in the next year in the active portfolio.

And the pace of runoff in the inactive. I understood that you're redeploying it into MBS, but your expectation for net runoff in the inactive.

Yes, the inactive will run off about $200million to $300 million a quarter is our expectation.

Great thank you and then on the margin, Kelly, you mentioned, I forget that that 282 number you was that a September average or just where you spot right at the end of the quarter.

So go ahead, Kelli.

Certainly, good morning, Jeff 282 is the ad of the end of the quarter spot rate, so which we also we like to see because it gives an indication absent, any unexpected, events or actions that, that's where we would have our starting point for the first quarter of fiscal '26.

Got it. And I guess just if you wouldn't mind sharing kind of an update on your rate sensitivity, a quarter cut in September and expectations for a couple more by the end of the year, and, mindful of that spot rate indicating upward, your expectations as we kind of manage the margin into the into the new year.

I think it's reasonable to say that you could see the margin expand, a bit, with future cuts. Just recognize that we have always said in the past and do think that, we lag about a quarter for full effectiveness on, rate cuts. So if we see one in October, we would benefit from that in the December quarter, but a December cut might take us to March or June to fully recognize the benefit there, and that really is just the repricing on our liabilities.

Got it. Okay, well, thank you. I'll step back.

Yes, thank you, Jeff, and I think from my perspective, it's good news on the margins, as you point out, the spot rate on the margin is at the end of the quarter is 282, so that Would bode well for the coming quarter, but it all depends on what happens with rates and I think everybody on this call knows the short-term impact of rates has been negative for us just slightly in terms of margin, but then as the Deposit pricing catches up with the asset repricing, then it's a net benefit. The most important thing for us in terms of rates is to have a positive slope of the yield curve and it appears that that will be the case for the foreseeable future, which is very positive.

We'll go to the next question,

Matthew Clark, Piper Sandler.

Hey, good morning. Thanks for the questions.

I wanted to get a little more color on the core loan yields. I think they were down about 8 basis points this quarter based on our calculation, just the drivers there and then. Maybe remind us how much of your loan portfolio reprices, with each rate cut, overnight or within the month.

Yes, I'll let Kelly take that, but that's a function of both moving rates and also the increase in economic loans. It has an impact, but I'll let Kelly talk about that a little bit more.

Correct, I mean, the big driver quarter over quarter would be the increase in our non-accrual loans, which was primarily as Ryan mentioned 1 loan.

I would say that had in round numbers, 3 basis point impact on our margin. We've got about 50%, we're about 55% of our earning assets, 45% are fixed, and we have about 40% and that's about the same on the loan book too because that's the majority of our assets.

You're going to see our yield on our loan book, Matt, vary depending on how much of our fair value mark recognized during the quarter on our Luther Burbank loans, and it was it was slightly lower this quarter than it was last quarter, and that's simply a function of repayments in that book, so.

Okay, and is that 55, 45. Does the variable piece include in does that include arms or I'm assuming it's not all truly floating.

It includes our hybrid loans, yes, correct, and it includes the impact of any swaps we have on the books as well.

Okay.

We've got just over 40% of our earning assets we'll reprice in the next 6 months.

Okay, got it, thank you. And then on the step up in production, pretty big increase anything chunky in there maybe just if there's maybe what was the largest kind of new commitment or new. New loan origination. In that $1.4 billion that you put on just trying to get a sense of kind of if there was anything sizable that drove part of that increase and what type of what type of credit it might be.

Yes, I would just, I'll let Ryan talk a little bit about that, but it's really a function of how low our production had come and we're still coming up. I recall just a couple of years ago, we were doing $8 billion of production a year. And so we're typically keeping our largest. Loans, it's just under $50 million but the requests are picking up and as projects get larger in size, they're picking up but if we go over that $50 million in terms of loan requests, we're trying to find a participant to mitigate our risk. Brian, I'll let you talk a little bit about the production and the largest loans you saw.

Yes, thanks, Brent, and thanks Matthew as well for the question.

I think Brent adequately or accurately described really what we're seeing here. We are maintaining our largest loans under 50 million. I think the biggest impact of this is we have seen a number of commercial real estate loans, particularly multi-family loans that with the movement with the downward movement in the rate, we have a number of clients where these projects are now penciling.

So, we've seen renewed interest for a lot of borrowers that have, during the first part of the year really been sitting on the sidelines waiting for some more stability, but it's not, we're seeing, commercial real estate, we're seeing C&I opportunities. There's a number of C&I borrowers also that, we're not moving forward with larger cap X projects and things like that because of economic uncertainty. So as things are stabilizing we're just seeing an increase really across the board, but nothing that is particularly lumpy within that group.

Okay, thanks for the color and then on the expense run rate, it looked pretty clean, just any comments on the outlook, and knowing there's some I think there's some seasonality in the March quarter.

Yes, it's a pretty clean quarter. Some of the health insurance expenses were up with just we're self-insured, so we had some larger claims come through. We'll have from time to time, nothing predictable about the seasonality there, but I think we're at a pretty good run rate from an expense standpoint, at least until we get to next year, and then we'll have the increases, the annual increases.

Okay, and then just big picture question because we're getting it from clients, but any thoughts on stablecoin, anything you might be doing, any kind of partnerships, and just your view on that potential that potential threat?

Yes, we're paying a lot. We're paying a lot of attention to it, obviously, and it's moving quickly. We haven't announced any partnerships, but we're certainly looking into it, and I think there will be demand in the marketplace from it. I don't, we don't get a lot of questions or demands from our clients today, so I don't feel like our deposit base is at risk, but I do believe it could be an opportunity if we do it right. So it's something we're looking at.

Okay, thanks again for all the color and appreciate the call.

Andrew Terrell, Stephens & Co.

Hey, good morning.

Good morning Andrew.

Morning, thanks for hosting this call. I appreciate it. Just a couple of quick ones for me, Brent, on kind of a balance sheet size question I guess on the targets for 20% non-interest-bearing deposits by 2030.

I guess you can kind of get there two ways, right? You could shrink the time deposit composition or just on an absolute basis. Close to double the NIB dollars. I'm curious, should we expect continued declines in the time deposit book?

Which do you see being the more of the driving factor on that getting to that 20% non sparing mix?

I see the biggest driving factor is overall growth. We don't want to shrink our way to it at all. We want to bring on new clients and become more relevant in our communities we serve, so it's overall growth and most. The time deposit runoff has come from the Luther franchise and so we think we're at the tail end of that runoff. So I would hope to be able to break even, maybe even slight growth on time deposits, but the outside growth and non-inter interest-bearing and checking accounts.

Yes, got it. Okay. And then just on deposit cost, I mean the spot margin at the end of the period, I guess kind of implies that there was some good progress on deposit moves post the Fed cut, and I heard your comments about generally lagging and.

I just wanted to, want to talk about maybe the client reaction to rate cuts so far and what you've seen, or what you've heard from your clients, pushback wise or maybe lack thereof and just how you're approaching.

The most recent rate cut as well as, any expected incremental rate cuts, how your approach compares to, the most recent round of 100 basis points, whether you'd like to be more aggressive or less aggressive.

Yes, no, I think to answer your question directly, we'll be more aggressive in terms of our cuts, and we can do that now that our loan to deposit ratio is down in low 90s, as you'll recall, we were up about 110% not too long ago. So we've gotten that loan to deposit ratio will be more aggressive with the rate cuts. And it's been telegraphed enough by the Fed.

The clients expect it to happen, so we're not getting very much pushback. So your observation is spot on. We were very aggressive with this latest for rate cut, and we'll get the benefit of that this next quarter, but I think it's expected. The real question for all of us is what the rates do in this, last quarter of the year, and I think if you look at the futures, it's going for a couple more decreases.

Personally, I would be surprised if that happened. I think there's more strength in the economy than Maybe the futures are giving it credit for, and if you look at the Fed dual mandate, unemployment remains very strong and unemployment remains low and the employment market is strong and inflation is still well above their target. So if I were a Fed board member, I don't know how quickly I would want to move into decreasing rates further, but obviously I'm not, and the market is telling us it's going to happen, but we see.

Great, well thanks again for the call and I appreciate the thoughts.

Thank you, Andrew.

Kelly Motta, KBW.

Hey, good morning, thanks for the question and thanks for holding the call today. I really appreciate it.

Yes, you're welcome, Kelly. Good to speak to you and I've never had so much love for holding a phone call, so this is wonderful.

Well, fair enough, I guess speak to over time it sounds like you want to improve the profitability you're looking.

Over time to do so, and you mentioned, you guys as far as vision 2025 we're trying to become digital first and have continued to invest in technologies, can you just from a high level provide kind of the what's left to be done and the types of things what is interested in in order to get that client growth and engagement that's going to. You to that profitability level over time. Thanks.

Yes, so there's no one thing, right? I think we have offerings across the board. It's just constantly improving those offerings and getting them better. I think Cathy spoke to a couple of the improvements that we're going to have, rolling out a direct deposit switchover feature to make it really easy for people to switch over direct deposit. We are looking at, giving people credit for their paychecks a couple of days earlier like some others do, right?

It's just, doing tweaks here and there on what we offer. There's no single technology. I'm really pleased with how our mobile offering is going and specifically with the wire transfers, that's a differentiator for us, but it's really Almost impossible to differentiate with technology if you find something good, others will copy it and vice versa, but we have to be great. We have to have people that just, they love our technology and in fact, recently, we just reached out to our clients and said, okay, what about our technology do you want us to improve?

So we're giving away, I think a big screen TV for the first thing gives us the best feedback, but that's one of the Phenomenal things about having Pike Street labs is we can develop based on what our clients ask and get it done quickly with releases and we're doing typically 1 or 2 releases per quarter. So there's nothing specific other than to continue. Improving everything we offer. But the most important thing, how are we going to improve that profitability.

We're going to focus on the business accounts, which has not been our historical focus. And we recognize that our peers that we're comparing ourselves that I guess have been doing this for decades, and, we're relatively new to that game, but as I mentioned in my comments, the most important thing from my perspective is that we're conservative with our underwriting so we don't take undue risks, and we will get there.

Got it. That's really helpful. Maybe a lasting a question for me, for Kelly.

I, you guys have hit on the fact that your EOP margin is higher than the average. I do believe looking at the EOP margin from the prior quarter, that was a few basis points higher than what it, what ended up popping out at for, your fiscal 4th quarter average. I'm just wondering if there's any like.

End of period liquidity or anything like that that could be skewing the EOP margin higher that we should be taking into account or if that was just kind of the three key dynamics and fluctuations thanks.

Yes, certainly, I think, the end of period margin at June, did come in higher than what we ended June with, and that was primarily resolved as Brent mentioned some reversal of interest for the large non-accrual loan that went no accrual during the quarter, absent that we've seen our margin expand of our end of quote at June so it really is a, it's really a function of the reason not accrual.

That that's really helpful thanks for that. I'll set that.

And I'm not showing any further questions at this time. I turned the call back over to Brad for any further remarks.

Brad, before you give our parting comments, let me just say thank you to everyone for joining this morning. We appreciate it very much. And at one point we did not cover was capital management and obviously with the stock trading today at 2,786, below tangible book value, we believe it's one of the best investments we can make and I would say we would. Be likely to exercise our share repurchase program that the board has given us. So it's not always a bad thing when the stock price goes down. It does provide opportunities and I think as CNBC headline said this morning with regard to regional banks by the dip, and I truly believe that's the case With WaFd .

So thank you very much and Brad, I'll let you take it from there.

Okay, yes, thanks, Brent, and really appreciate everybody joining the call this morning.

Thank you. I hope you found it valuable for your time this morning. You can contact me if you've got any further questions. Have a great rest of the day and enjoy your weekend.

Thanks.

Thank you ladies and gentlemen, that's conclude today's presentation. You may now disconnect and have a wonderful day.