WAFD INC

WAFD Inc.'s 2023 annual report is crucial for investors as it reveals a mixed financial picture with significant implications for future profitability and risk. While revenue grew a modest 5% and deposits/loans expanded, profit declined 3% due to soaring interest costs, a 44% crash in mortgage fees, and increased FDIC insurance expenses. This signals persistent pressure on the bank's net interest margin and overall earnings power, directly impacting shareholder returns.

A major red flag for investors is the 435% surge in provisions for bad loans, totaling $41.5 million. This substantial increase indicates management's heightened concern about potential loan defaults in the current economic climate, suggesting a more cautious outlook on credit quality. Such provisions directly reduce reported profits and can signal future write-offs, eroding asset value and investor confidence.

On the strategic front, WAFD's $60 million tech upgrade and expansion into new markets like Texas and Arizona represent significant investments. Investors need to assess if these initiatives will effectively drive future growth and attract new customers, particularly younger demographics, to justify the substantial capital outlay and rising employee costs. The report underscores that WAFD is a 'hold' for stability-seeking investors, but with clear risks that demand close monitoring.

Following the 10-K filing, investors will now shift their focus to WAFD Inc.'s upcoming quarterly earnings reports, starting with Q1 2024. These 10-Q filings will provide more frequent updates on the trends highlighted in the annual report. Key metrics to watch include the net interest margin, which will indicate how effectively the bank is managing its borrowing and lending costs, and the trajectory of loan loss provisions to see if the credit quality concerns are stabilizing or worsening.

Investors should also closely monitor the performance of WAFD's strategic initiatives. This includes tracking digital banking user growth and engagement to determine if the $60 million tech investment is yielding tangible results. Additionally, the profitability and deposit growth in the newly opened branches in Texas and Arizona will be crucial indicators of the success of their geographic expansion strategy. Any commentary from CEO Brent Beardall on these areas during earnings calls will be vital.

Beyond internal metrics, external economic factors will play a significant role. The trajectory of interest rates will heavily influence WAFD's mortgage business and overall interest income and expense. Investors should also pay attention to regional economic health in the Western U.S., particularly in their growth markets, as this directly impacts loan demand and credit quality. Any signs of an economic downturn could exacerbate the concerns raised by the increased bad loan provisions.