It's been a while since I've updated my thoughts on Washington Federal (NASDAQ:WAFD), a Seattle-based bank with over 230 branches across eight states. I wasn't all that bullish on the bank back in 2016, as I was concerned about the ongoing deposit share loss and scale challenges competing with larger banks as the company looked to diversify its loan book into commercial lending. Since then, the shares have lagged regional bank indices by about 5% to 10%, depending upon which index you use.
I remain concerned about share loss in the core Seattle and Washington markets, but the core deposit mix has improved, and management has made real progress in diversifying the loan book without material erosion in credit quality. Management has also been aggressive in returning capital to shareholders, with meaningful share buybacks and dividend payments. This isn't a bad bank, but the return potential still strikes me as pretty pedestrian today, and I don't really see the sort of sticky, low-cost deposit franchise that would make this a high-priority acquisition target, though expense synergies could certainly appeal to a bank with a meaningful existing franchise in the Western U.S.
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Washington Federal May Be A Little Undervalued, But There's Not A Lot To Argue For It As A Buy
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