WaFd Bank's preferred shares, symbol WAFDP, are currently yielding an attractive 7.3%, making them a compelling option for investors seeking steady income. This appeal has been amplified by recent price declines, which have made these shares even more accessible. The financial institution has demonstrated a consistent upward trend in its net interest income over the past four quarters, a positive development attributed to enhanced net interest spreads and the successful integration of the Luther Burbank merger. Despite these strengths, the bank faces challenges such as a decline in loan balances and an elevated loan-to-deposit ratio, though this ratio has seen some improvement. While the common shares of WaFd may be subject to risks stemming from increasing nonperforming assets and limited allowance coverage, the preferred shares offer a degree of insulation, positioning them as a potentially stable component for income-oriented investment portfolios.
WaFd Bank, a significant regional banking entity operating in the western United States, offers both common shares and a preferred share issuance, WAFDP. Historically, the preferred shares have traded at a discount, offering a more attractive yield. The bank's financial performance shows a pattern of increasing net interest income, which has steadily climbed over the last four consecutive quarters. This growth can be largely attributed to two key factors: an improvement in net interest spreads and the strategic advantages gained from its merger with Luther Burbank. However, a closer look at the bank's balance sheet reveals some areas of concern. Loan balances experienced a 5.8% decrease in 2025, and deposits remained largely unchanged during the same period. Although the loan-to-deposit ratio has improved, it still stands at an elevated 93%, indicating a substantial reliance on deposits to fund loans. Additionally, there has been an increase in nonperforming assets and the allowance coverage for potential loan losses is rather thin. These factors introduce risks primarily for the common shares, suggesting that while the preferred shares offer a steady income stream, investors should be aware of the underlying financial health of the institution.
The current landscape presents a mixed picture for WaFd Bank. On one hand, the preferred shares continue to be an appealing investment for those prioritizing income, particularly given their robust yield and relative stability compared to common stock. On the other hand, the bank's operational metrics, such as the high loan-to-deposit ratio and the rise in nonperforming assets, warrant careful consideration. The strategic benefits derived from the Luther Burbank merger and the consistent improvement in net interest income underscore the bank's efforts to enhance profitability. However, the decline in loan balances suggests a cautious lending environment or possibly reduced demand for loans, which could impact future growth. For income investors, the key lies in the insulated nature of preferred shares, which typically have a higher claim on assets and earnings than common shares, offering a buffer against some of the risks associated with the bank's core lending activities.
In summary, WaFd Bank's preferred shares represent an attractive proposition for income-focused investors, buoyed by a significant yield and steady improvements in net interest income. While certain balance sheet metrics, such as decreasing loan balances and an elevated loan-to-deposit ratio, alongside growing nonperforming assets, present potential headwinds for the bank's common stock, the preferred shares offer a relatively secure income stream due to their structural priority. The bank's prudent management of net interest spreads and the successful integration of its merger activities further bolster the appeal of these preferred shares, making them a noteworthy consideration for diversifying an income-generating portfolio.
