WAFD INC (WAFD) stock intrinsic value fair value estimate & owner earnings analysis

WaFd (formerly Washington Federal) is a savings bank founded in 1917 in Ballard, Washington. It takes deposits through 210 branches in Washington, Oregon, Idaho, Utah, Arizona, Nevada, New Mexico, California and Texas and lends them out, mostly against real estate. At June 30, 2026 it had $27.6 billion of assets, $20.0 billion of net loans and $20.9 billion of deposits. The loan book has been moving away from home mortgages: in January 2025 the bank stopped originating consumer single-family loans, and single-family loans fell to 34% of loans by June 2026, with multifamily at 22%, commercial real estate 17%, business loans 14% and construction 10%. In March 2024 it absorbed Luther Burbank Corporation of California, which added a large book of California multifamily loans. The merger that changes everything. On September 6, 2026 WaFd agreed to a reverse merger with EverBank Financial Corp, a privately held bank of about $46.7 billion of assets based in Jacksonville, Florida. Although WaFd is the legal survivor, EverBank is the real acquirer: its owners will hold a fixed 59.2% of the combined company and WaFd's current shareholders 40.8%, a split that does not change with the share price. The company will be renamed EverBank Financial Corp, trade as EVBK, and be run by EverBank's chief executive with EverBank holding seven of thirteen board seats and the chairmanship. EverBank's owners are mostly private-equity funds (Stone Point Capital, Warburg Pincus, Reverence Capital Partners, Sixth Street and Bayview Asset Management) plus TIAA. Five of them get the right to nominate directors for four years, and their shares become free to sell in stages over the first twelve months after closing. WaFd's balance sheet, not EverBank's, will be marked to market in the accounting. EverBank's owners have already approved the deal; it still needs WaFd shareholders, the Federal Reserve and the Comptroller of the Currency, and either side can walk away if it has not closed by September 6, 2027. In certain circumstances WaFd would owe EverBank a $101 million termination fee, about $1.36 a share. What this means for this analysis. If the merger closes, a WaFd share becomes a minority stake in a different, larger bank controlled by other owners, and the values below no longer describe what a shareholder owns. EverBank's audited financial statements have not yet been published, so the combined company cannot be valued on the standard we hold ourselves to; it will need its own analysis once the merger proxy is filed. The values below are therefore WaFd as a stand-alone bank, which is what shareholders keep if the merger does not happen, and our margin-of-safety price applies only in that event. How we measure earnings. We start from operating cash flow and remove working-capital timing swings, stock compensation, actual loan charge-offs (the real credit cost, rather than the accounting provision) and the spending needed to keep the branch network running. This also strips out non-cash income from unwinding the Luther Burbank purchase-accounting marks. We measure in total dollars and then divide by today's share count, because the bank has retired many shares and per-share figures from earlier years describe a smaller share base. Cash earnings were $196 million in fiscal 2025, the first full year after the Luther Burbank merger. In the first nine months of fiscal 2026 they were $184 million, about $246 million at an annual rate, helped by deposit costs falling from 2.69% to 2.39% and three consecutive quarters of steady results. We take $225 million a year, between those two figures, as the normal earning power of the bank as it stands today, with about $240 million in the first year. That first-year figure is below the current run rate, so we are not assuming the recent improvement accelerates. There are about 74.0 million diluted shares. Base case. Earnings of about $240 million next year, then $225 million a year. We credit no growth: the bank's growth has come from acquisitions and share repurchases, neither of which is something we can count on, and loan balances were essentially flat over the past nine months. We expect that earning power to persist beyond ten years because it rests on a deposit franchise that has operated continuously since 1917 and renews itself from its own earnings. The business is worth about $3,764 million. Ranking ahead of common shareholders is $300 million of 4.875% perpetual preferred stock, whose dividends we value at about $244 million because they cost less than our standard rate. That leaves about $3,520 million, or $47.54 a share. Bear case. A real-estate credit downturn of the kind banks went through in 2008 to 2010. WaFd itself came through that period profitably, with returns on assets of 0.55% in fiscal 2008 and 0.33% in fiscal 2009, but its loan book was then about 72% single-family mortgages; its 2009 charge-offs of 1.18% of loans were concentrated in land and construction lending. Today's book is two-thirds commercial, which is where losses ran deepest in that cycle. We assume cumulative losses of 3.5% of the $21.6 billion loan book over three years, about $757 million before tax and $591 million after tax. Cash earnings fall to about $23 million, then a loss of about $66 million, then $52 million, before recovering to $160 million in year four and settling at $185 million a year, below today's level because a bank emerging from such a cycle lends more cautiously. Over those three years earnings roughly cover the losses, so we assume existing capital absorbs them with the dividend reduced rather than new shares issued. The business is worth about $2,576 million; after the preferred stock about $2,332 million, or $31.50 a share. That is slightly above tangible book value of about $30.80 a share. A 109-year-old deposit franchise that stayed profitable through the last severe property downturn should be worth at least its capital after one it can survive without dilution. Bull case. The bank holds the earning power of its most recent quarter, about $255 million a year, with no further growth credited. The business is worth about $4,250 million; after the preferred stock about $4,006 million, or $54.10 a share. Debt. Deposits and the $3.3 billion of Federal Home Loan Bank borrowings are the raw material of a bank rather than debt to subtract, and their interest cost is already charged in the earnings above. Only the preferred stock is deducted. What could make this wrong. First, the earnings level: if fiscal 2026 was flattered by falling deposit costs that reverse, normal earnings are closer to the fiscal 2025 figure of $196 million, which would take roughly $6 a share off the base case. Second, credit: multifamily and commercial property loans are the largest concentration, and nonaccrual business loans rose from $11 million to $66 million over the nine months to June 2026. Third, and most important for a shareholder today, the merger itself, which this valuation deliberately sets aside. Margin-of-safety price. We are reasonably confident in an earnings level between $196 million and $246 million a year: it rests on a full post-merger year and three steady quarters, with accounting effects of the 2024 merger removed. The worst plausible outcome for the stand-alone bank is a severe property-credit downturn concentrated in its California multifamily and commercial loans; its capital, granular deposit base and profitable record through 2009 suggest it would survive that without wiping out shareholders, and in that case the shares are worth roughly $31.50. If we are wrong on both the earnings level and credit together, value falls to around tangible book. Over the holding period, the bank pays $0.27 a quarter, $1.08 a year, and has done so without interruption for 173 consecutive quarters. At $31 a share the price is roughly tangible book and the bear-case value, the dividend yield is about 3.5% a year, and if the shares move toward the base value of about $47.54 within two and a half years the base case implies about 21% a year. The margin-of-safety price is $31, and it applies only once the EverBank merger has been called off. If the merger closes, this price no longer applies and the combined company needs its own analysis.