WAFD

Please be advised that today's conference is being recorded. I would like to hand the call over to Brad Goode, Chief Marketing Officer and Investor Relations Manager. Please go ahead.

Thank you, Michelle. Good morning, everybody. Thanks for joining us. Let's dive into our 2026 third quarter earnings report. You can find our earnings press release, along with our detailed fact sheet and investor scorecard on our website at wafdbank.com. During today's call, we will make 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 Form 10-K for the fiscal year ended September 30, 2025. Forward-looking statements are effective only as of the date they are made, WaFd assumes no obligation to update information concerning its expectations. We will also reference non-GAAP financial measures. I encourage you to review the non-GAAP reconciliations provided in our earnings materials.

With us this morning are President and CEO, Brent Beardall, Chief Financial Officer, Kelli Holz, and Chief Credit Officer, Ryan Mauer. I'd now like to hand the call over to Mr. Beardall.

Thank you, Mr. Goode. Good morning, and thank you for joining us this morning. I am pleased to report on our third quarter results. It's also nice to see that the market has started to reward our shareholders with a significant uptick in our stock price over the last few months. This morning, we will cover four areas. First, Kelli Holz, our CFO, will provide you with a detailed review of our balance sheet and income statement for the quarter and all of the fluctuations. Second, Ryan Mauer, our Chief Credit Officer, will provide comments on the current status of our loan portfolio and credit quality trends. I will provide my insight on the quarter, potential for growth, capital management strategies, and regulatory developments. Finally, we will be happy to answer any questions you have. Kelli, please walk us through the third quarter results we published yesterday.

Thank you, Brent. As announced, WaFd Inc. reported net income available to common shareholders of $62.5 million or $0.84 per diluted share for the quarter ended June 30, 2026. This compares to net income to common shareholders of $0.73 per share for the third quarter of fiscal 2025 and $0.82 per share for the March 2026 quarter. The $0.02 increase in earnings per share for the quarter was a result of a modest increase in net interest income and non-interest income, as well as controlled expenses, offset by an increased loan loss provision. For the balance sheet, loans receivable increased $51 million during the quarter, primarily due to an increase in our active loan types, which are commercial real estate, multifamily, construction, land A&D, C&I, and consumer, which combined increased by $315 million.

Loan originations and advances for the quarter outpaced repayments and payoffs in our active loan types, with originations of $1.5 billion and repayments and payoffs of $1 billion. For the inactive loan types, advances were $23 million, with repayments and maturities at $299 million. The weighted average rate on originations was 6.31% for the quarter, and the weighted average rate on repayments and payoffs was 6.06%. Please see the tables in our fact sheet that provide a breakdown between active and inactive loan types. Total investments and mortgage-backed securities decreased $50 million during the quarter, a result of shifting our strategy of replacing single-family loan runoff from mortgage-backed securities to funding our higher-yielding loan origination pipeline.

Also during the quarter, we sold $77 million of securities from our available-for-sale portfolio at a net gain of $110,000. The gains realized on the cost to roll legacy ARMs were offset partially by losses on low coupon CMOs. The proceeds were reinvested into current coupon ARMs and mortgage-backed securities at a similar mix with limited impact on portfolio duration and will result in a go-forward pickup in yield on the trade of 1.75% or $1.3 million annually. Total deposits decreased by $192 million during the quarter, with non-interest-bearing deposits increasing $69 million or 2.7%. Interest-bearing deposits decreased slightly by $70 million or just under 1%, and time deposits decreased $191 million or 2.3%.

Deposit outflows in the second calendar quarter are an expected result of tax-related and public fund municipal deposit dynamics. Core deposits ended the quarter at 80.6% compared to the March quarter at 80.4% of total deposits and up from December 2025 at 77.9%. Non-interest-bearing deposits ended the quarter at 12.6% of total deposits. The loan-to-deposit ratio ended the quarter at 95.6%. WaFd's capital profile remains strong. We estimate our CET1 ratio at quarter end to be 11.4% and our total risk-based capital ratio to be 14.4%, in line with the prior quarter ratios. In March 2026, federal banking regulators reproposed revisions to the Basel III endgame capital framework, which remains subject to finalization following the close of the industry comment period in June 2026.

Based on management's review and analysis using our March 31st, 2026 data, we estimate the revised framework, once finalized, could reduce risk-weighted assets by approximately 12.5%, representing an estimated $300 million of total risk-based capital relief. We will continue to evaluate this opportunity as the rule is finalized. Our understanding is that timing for implementation could be as soon as the end of this calendar year. By comparison, WaFd should benefit more than peer banks with this proposed capital rule change because of our large concentration of single-family loans. Liquidity is strong with $4.8 billion of on-balance sheet liquidity, a robust core funding base, and significant off-balance sheet borrowing capacity. For the income statement, net interest income increased $3.8 million from the prior quarter, the effect of a basis point improvement in both the interest paid on liabilities and interest earned on assets.

As a result, the net interest margin held steady at 2.81%, no change from the March 31st quarter. On a linked quarter comparison, we realized a four basis improvement with deposit rates, three basis point improvement with loan rates, a two basis point decrease with borrowing rates, and a three basis point decrease for the day count quarter-over-quarter at 91 days this quarter, compared to 90 days in March. A reminder, about 50% of our loans and 75% of our securities are on a 30/360 accrual basis. For the spot rate as of the June quarter end, the yield on interest-earning assets was 5.12%, while the cost of interest-bearing liabilities was 2.77%, and the margin at 2.82%.

Absent any changes in interest rates, we expect our margin to be relatively flat for the next quarter, acknowledging day count as well as the funding of loan growth and deposit activity. As of June 30th, the balance of the deferred income on the interest rate mark for the Luther Burbank portfolio was $160 million. Currently, this is being accreted into income at a rate of $6 million to $7 million per quarter. We expect this to accelerate as these loans begin to adjust or repay. For the adjustable rate hybrid loans in this portfolio, which represent 85% of the outstanding balance and 66% of the remaining discount, the months to first reset is just under 11. Total non-interest income increased $4.4 million compared to the prior quarter to $24.2 million.

Contributing to non-interest income was $3.2 million gain on sale of a branch property, net gains of $48,000 for certain equity method investments in the quarter, compared to losses of $1.1 million realized in the prior quarter for these investments. Total non-interest expense was stable at $110 million compared to the March quarter. The company's efficiency ratio for the June quarter was 53.7%, compared to 55.7% in the prior quarter. Income tax expense totaled $18.2 million for the June quarter, compared to $18.3 million for the linked March quarter. The effective tax rate for the June quarter was 21.6%, compared to 21.8% for the quarter ended March 31st. During the quarter, we purchased $9.2 million of federal energy tax credits and have committed to a four-year investment in similar tax credits, which reduces our tax expense and effective tax rate.

We expect our effective tax rate to be approximately 21.8% for fiscal year 2026. I will now turn the call over to Ryan to share his comments on WaFd's credit quality.

Thank you, Kelly, and good morning, everyone. As reflected in our earnings release, we had a solid quarter of new loan production along multiple business lines. As Kelly indicated, total production in our active portfolio was $1.5 billion for the June quarter. This loan production was centered in commercial and industrial of 49%, commercial real estate of 10%, and construction of 27%. We were able to achieve this level of loan production utilizing a consistent approach to underwriting and managing to a moderate risk profile. Adversely classified loans increased nominally during the quarter and now represents 2.59% of net loans, compared to 2.6% as of the March 2026 quarter and 3.54% as of June 2025. Total criticized loans increased by $139 million to 4.9% of net loans, compared to 4.2% as of the March quarter and 4.1% as of June 2025.

The increase in criticized loans is not concentrated in any one business line or industry and is reflective of the economic environment where elevated interest rates and economic uncertainty impacted both commercial and consumer borrowers. In addition, an asset being criticized does not imply that loss exposure exists. Rather, it is a representation that the borrower is experiencing some level of financial stress that needs to be addressed. Non-performing assets increased slightly to $136 million, or 0.49% of total assets from $132 million or 0.48% at March 31, 2026. The change is the result of increased non-accrual loans, largely in the C&I segment. Delinquent loans decreased to 0.75% of total loans on June 30, 2026, compared to 0.78% at March 31, 2026, and increased from 0.36% at June 30, 2025.

While criticized assets are elevated in comparison to recent periods, the overall 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 delinquencies in non-performing assets remain impacted by a large commercial and industrial relationship over 90 days past due. Outstanding balances for this relationship amounts to $54 million. This relationship remains on non-accrual per policy. There has been no charge-off taken at this time, but the relationship has been downgraded to doubtful with anticipated sale of the business to occur prior to quarter ending September 30 of 2026.

If non-performing assets and delinquencies were adjusted for this relationship, NPAs would be 0.3% of total assets compared to 0.6% at September 30, 2025, and delinquencies would be 0.48% of total loans, compared to 0.6% at September 2025. The net provision for credit losses in the quarter was $11 million. The provision was a result in growth in the active loan portfolio, specifically C&I and construction loans, in addition to concerns related to possible losses on adversely classified loans. $1.6 million of net charge-offs were taken during the quarter. Net loan charge-offs for the June 2026 quarter represented a nominal three basis points annualized. The allowance for credit losses, including the reserve for unfunded commitments, provides coverage of 1.08% of gross loans at June 30, 2026, compared to 1.03% in June 2025.

For the commercial loan portion of the portfolio, the allowance represents 1.41% of net loans, compared to 1.26% as of June 2025. Overall, while still elevated from prior quarters, credit metrics at June quarter remain at moderate levels overall and continue to be impacted by two primary drivers. First, the elevated interest rate environment has impacted borrowers' expense structures. Second, the economic uncertainty originally driven by tariffs and inflation with further impact by war in the Middle East and energy supply shocks will continue to impact borrowers' top-line revenue as well as increased operating costs. Looking forward, these factors remain headwinds for credit quality. With that, I will turn the call over to Brent for his comments.

Thank you, Ryan. For years, we have said that we try not to pay too much attention to the stock price, knowing we cannot control the market, but we instead focus on what we can control, our profitability and the resultant increase in book value per share. That being said, the stock price is the most visible indicator for employees and customers to look at and see how is the bank doing. We were pleased to see the stock provide a 23% total shareholder return for the quarter. It is important to note that we still believe the stock is trading at a relative discount to peers. We are trading at 11.7 times estimated forward earnings and 1.25 times tangible book value. By comparison, the S&P Regional Bank Index is at 12 times earnings and 1.7 times tangible book value.

Having not only survived but thrived in the banking business for 109 years now, we tend to focus on the long term. It is amazing to see the power of consistency and compounding. WaFd went public on November 9, 1982, and since that time, the total shareholder return, if dividends were reinvested in the stock along the way, has been over 39,000%. To put it another way, a $10,000 investment in 1982 is now worth $3.9 million. Not bad for a bank that simply works every day to be there for our clients, believing it is not mutually exclusive to add value for our clients and to deliver a reasonable return for our shareholders. Now looking at the fundamentals of this last quarter, the headline news for this quarter is again loan growth.

After over a year of seeing our loan portfolio contract, these past two quarters saw growth in the net overall loan portfolio. More impressive, in my opinion, we saw 10% net linked quarter growth in the active loan portfolio, which followed 12% growth in the March quarter. If you include yet to be funded loans, gross active loans outstanding increased by 14% on a linked quarter basis. I am pleased to report that the biggest contributor to that growth from a percentage standpoint is C&I lending. This quarter, C&I originations were $741 million or 49% of total originations for the quarter. Bottom-line results for the quarter, as Kelli mentioned, improved with EPS growth of 2.4% on a linked quarter basis and a very nice 15% year-over-year growth in EPS.

We work hard to originate good, high-quality loans, but we recognize that C&I loans, commercial and industrial loans carries with them more credit risk than our traditional single-family residential lending. We set aside more in our allowance for credit losses this quarter, taking our overall coverage ratio from 105 basis points to 108 basis points. Big picture, we are hearing from our clients that most projects still are not penciling, given the current cost and projected cash flows. We applaud this kind of discipline, and we think it speaks to our client selection. As you can see, we are growing our construction loans, with loans in process increasing 12% on a linked-quarter basis. It is still just a fraction, only 38% of the LIP we had just four years ago.

Our strategic plan, called Build 2030, is 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 is increasing our non-interest-bearing deposits to total deposits from 11% last year up to 20% by 2030, and we are sitting here today at 12.6%. It is an ambitious goal, but it is what we need to do. It will also 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. For deposits, we are swimming into a current. We have two macro trends that are moving against us.

First, the amount of non-interest-bearing deposits in the market overall are decreasing. Per the FDIC, after peaking at just over 30% of all U.S. commercial banking deposits in 2021, as rates increased, the percentage of non-interest-bearing deposits in the market has decreased to 22%. A decrease from 30% down to 22% in overall non-interest-bearing deposits. In my opinion, this is reflective of the intense competition and pervasive technology that makes it easier for customers to move their deposits to higher-yielding alternatives. Additionally, with the incredible run the U.S. equity market has had over the last few years, more and more customers are willing to take equity risk. Second, aggregate deposits in the U.S. are growing for the largest 25 banks and are flat to down for all other banks.

Per the Federal Reserve's H.8 data, which was just released, year to date, the 25 largest banks' net deposit growth now stands at 5.85%, while all other bank deposits have posted a 0.78% contraction. This is the most concerning trend from my perspective and demonstrates the unlevel playing field in the United States as it comes to the perception of safety. Our regulatory complex has failed to rid our system of too-big-to-fail, and in fact, it has only gotten worse over the last 20 years post the GFC. Now, too-big-to-fail is seen by some as a badge of honor for deposits that have large balances in excess of FDIC coverages. This is a problem for all banks, in my opinion, and I applaud the members of Congress that are attempting to address this flaw. If we want a broad and diverse banking system, something needs to change.

If not, the consequences will be large-scale consolidation in the banking industry. None of that is an excuse. It is just our current reality. We can and will do hard things. We believe pursuing a strategy of attracting low-cost deposits is the right thing for our shareholders and our clients. The key from my perspective is growth in direct C&I loans, specifically from small businesses supported by growth in CRE loans and large corporate loans while running an efficient bank. I'm very pleased to see our efficiency ratio improve nicely this quarter to 53.7% from 55.6% last quarter and 56% the same quarter last year. This comes as a result of controlled investments in our operating expenses and growth in our net interest income. Our objective is to deliver an efficiency ratio in the 50%-55% range.

We believe that this allows us to continue to make the necessary investments in our products and our teams to deliver for our clients while striking the balance needed to deliver a reasonable return to our shareholders. Looking forward, our lending pipeline continues to be robust, building on a very strong third quarter of $1.5 billion of originations. Looking at our pipeline for lending, our Business Banking segment is up 9.3% from the prior quarter to $280 million. Our Commercial Real Estate segment is down 9.6%, down to $2.4 billion in lending pipeline. Our Corporate Banking is down 19% to $314 million, given the large fundings they had at the end of last quarter. Overall, our lending pipeline is strong at $2.9 billion, which is down 9%.

On the deposit side, our new deposit pipeline is actually up 250% with a deposit pipeline of $103 million for the Business Banking segment. The Commercial Real Estate Banking segment has new deposits in the pipeline of $22.3 million, and the Corporate Bank has $131 million in our deposit pipeline. Likewise, we see strong fees coming with fee income in our pipeline for new loans at $11.1 million, up 29%. We believe that we have the products and the teams in place to continue to grow our active loan portfolio by 8%-12% going forward. Now looking at the margin. As Kelli mentioned, based on the current interest rate environment, we would expect our margin to be fairly stable over the next couple of quarters. We have clearly seen a change in terms of the market expectation for interest rates over the last couple of months.

Whether that is attributable to the stubbornly high inflation, geopolitical risk, or the new Fed chair, there is now a clear market bias toward higher rates, and that is reflected in the increased long-term rates we are seeing. What does that mean for WaFd margin going forward? As you know, we endeavor to run a neutral interest rate risk position in our balance sheet, but we are asset sensitive over the short run as our assets contractually reprice faster than our liabilities. All else being equal, I would expect increasing short-term interest rates to be a positive for the margin over the short term. Turning to capital. With a nice uptick in our stock price over the last quarter, we paused our stock repurchases. This is in recognition of the significant amount of repurchases completed earlier in the year.

For the fiscal year, we've repurchased 4.7 million shares at a price of $30.99, or 101% of tangible book value. With the stock trading today in the $38-$39 range, this has proven to be an excellent investment. We will continue to be opportunistic with our share repurchases, knowing we have plenty of capital for both share repurchases and organic growth. Turning to M&A. Within the last week, as many of you have seen, we saw the purchase of a $10 billion asset, West Coast Bank, at what I would describe as a full price for a high-quality franchise. It sold at almost two times tangible book value. I think there will be an increasing amount of M&A over the next two years, which is in recognition of the benefits of scale and also the difficult operating environment I described earlier.

We are always looking at opportunities. We will be proactive and protective of our current shareholders, not wanting to overly dilute existing shareholders just to do a deal. We would prefer not to do any deal rather than overpay relative to our own currency. Big picture, I'm very pleased with the progress our team is making in growing loans and changing the mix of our deposits while becoming more efficient and delivering an 11% return on tangible common equity. Not knowing what the future holds, I am pleased with how WaFd is positioned to capitalize on the opportunities going forward. We've had a strong track record. Our job is to continue to deliver for all of our constituents. Finally, I want to acknowledge and thank all of the incredible bankers that call WaFd home and make these results possible. Our most valuable asset is our team.

We have bankers that care and want to serve our clients. With that, we are happy to answer your questions.

Thank you. As a reminder, to ask a question, please press *11. If your question has been answered and you'd like to remove yourself from the queue, please press *11 again. Our first question comes from Jeff Rulis with D.A. Davidson. Your line is open.

Thanks. Good morning. Appreciate the comments on the growth outlook. Just wanted to kind of narrow in on the maybe net growth expectations through FY 2027. I guess if you think about the active portfolio in the 10% growth area or range, if inactive continues at the pace of attrition, I guess on net is a low single-digit growth for the near term. Is that a fair assumption?

Good morning, Jeff, and thanks for joining us. I think that's a fair assumption, as I've talked about before, we kind of think about our single-family portfolio almost like a bond portfolio. You almost have to take into account what's happening with the securities in that. If you just look at loans by themselves all in net, low single digits would be reasonable. We can augment that with mortgage-backed purchases if we choose to, if the rate environment is inclined to do that.

Got it. Thanks. On the margin, got the outlook of stable. Is the Luther Burbank accretion included in that? Also, does that incorporate maybe some of the tailwinds? I think Kelli walked through some of the securities moves, I just wanted to see if that accretion and the securities, maybe the tailwinds there, if that's all inclusive in that stable margin outlook.

Yeah. It is all inclusive in that stable margin outlook. What is that? That is not inclusive of if we have a pickup in the repayments on the Luther Burbank portfolio. Right now, of the $160 million that we have sitting on the balance sheet, we're only taking in, I think, $6 million-$7 million per quarter. If those picked up, that would be to the positive side on our margin.

Brent, sounds like if rate hikes, that's also an added positive should that play out.

That's correct. Our stable margin is not making a prediction on rates. Clearly, the market seems to be calling for rates going up, but we're not smart enough to be able to predict what's going to happen with interest rates.

Fair enough. Thanks.

Thank you. Our next question comes from Matthew Clark with Piper Sandler. Your line is open.

Hey, good morning, everyone. Thank you. Wanted to start on that large C&I non-performer that's been on the books and expected to sell this coming quarter. Do you have any reserves set aside on that credit or relationship? Was any of the reserve build this quarter assigned to that? If not, what were you adding reserves to, I guess, within the C&I portfolio that looked like the reserve went up about 15 basis points there?

Yeah.

Was any of that specific? Thanks.

Good question. I'll let Ryan kick off on that. Go ahead, Ryan.

Yes, Matt, good question on this. We do not have any specific reserves assigned to that relationship. Generally speaking, we do not apply specific reserves. What we do have in this is general reserves. Any increase in our general reserve was in part because of this. The loan itself obviously we believe it'll be resolved by the end of the quarter through a sale. Yeah. At this point, that's driving the increase in the reserves.

Yeah. Also associated with that, we obviously moved the loan from

To doubtful

substandard to doubtful. It's on our minds. Yes, that was a portion of the reserve build in C&I, no question about it. Overall, we believe we are well reserved with over $230 million of allowance for loan loss today.

Okay, great. On the C&I production this quarter, the $741 million, can you give us the average size of that production and where your club and SNC outstanding stood at the end of June? I think there was $725 million at the end of March.

Yeah. I don't know if we have that today. We're happy to follow up with you on that. Kelli, do you have the average size of our production today? It's fairly low because of the number of small business loans we're originating. If we don't have it, we can follow up. Kelli, do you have that today?

I don't have a specific number, it hasn't changed materially since what we provided for the March quarter. I can follow up with an update for you.

Great. The spot rate on deposits at the end of June was at two basis points, I think, above the 2Q average. Just want to get your thoughts on where the marginal cost of deposits is coming in and what your outlook is for deposit costs, assuming the Fed remains on hold.

Yeah. Clearly, there is an expectation in the marketplace in terms of increasing Federal Reserve rates. A client sent me last night that JPMorgan Chase is offering a three-month CD at 5%. That is unusual, and that is a high net worth. To see that activity in the marketplace, it shows what is happening out there. The competition is ferocious for deposits right now, and we are seeing that in terms of having to increase our rates to maintain deposits. The good news is as loans are paying off or putting those on at higher rates, and we think we will be able to offset those higher pressures on deposits. The trend on deposit rates is clearly higher today.

Okay. Last one from me, just on the buyback. Is it fair to assume that we will not see any repurchase activity with where the stock is trading? Or is there any interest to increase the price at which you are willing to repurchase at?

Yeah. We do not have any hard and fast repurchase program in place. We are opportunistic, and I think our results kind of speak for themselves. Whenever the stock makes a pretty meaningful move, we typically let it sit and make sure it maintains there. Overall, for the year, you have seen we have been very active in the repurchase program. We want to keep that option open to us. In all likelihood, we will not be nearly as aggressive as we were in the past, given where we are trading today.

Okay. Thanks again.

Thank you.

Thank you. Our next question comes from Kelly Motta with KBW. Your line is open.

Hey, good morning. Thanks for the question. Maybe to kick it off here on loan yields in the margin. It looks like stated loan yields were flattish with a greater % of accretable yield, which I was a little surprised to see given the growth in the active portfolio. Can you just speak to where new loan pricing is coming in, the competition, and any pressure on spreads? That would be helpful. Thank you.

Yeah. You can see the overall loan originations of $1.5 billion at 6.31%. We're very pleased with that. The competition remains difficult. I wouldn't say that competition has changed at all in terms of new lending spreads. Clearly, a change over the last 10 years has been private credit. Private credit coming after deals that used to be bankable deals. Overall, in terms of the A credits that we're looking at, you're looking at spreads of SOFR plus 175 to 225, depending on the deal. I wouldn't say it's gotten any worse. In fact, I'd say it's probably gotten better just over the last few months in terms of what we're seeing from the competitive standpoint.

Got it. That's helpful. It just seems like between that and maybe your cited pressure on deposit costs, absent a change in the landscape or rates to shape things up, it seems like maybe that 3% margin you've spoken about in the past might be more challenging near-term. Is that the right way to think about it? I guess, what do you think are the elements that gets you making your way back to making that progress?

Yeah. When we contracted the 3% in the past, I think that was with the expectation that rates were going to continue to fall, which was what the market expectation was, and we were going to have continued relief on the deposit side. That appears to have changed, at least for now. What gets us back there in terms of talking a 3% plus margin is, I mentioned if rates actually do end up going up, we'll see the short-term benefit of that, and then longer term, if that equates to a steeper slope in the yield curve, that's positive for us. We were going to benefit from the lag in the pricing on deposits as rates were coming down to have those deposit rates come down. That no longer appears to be the case.

Rates are going up, if, in fact, we do get the Fed starting to move rates up, that's the best way for us to get to 3% right now.

Got it. That's helpful. Since in your prepared remarks given, it sounds like you opened the door here a bit for M&A. It's obviously been a couple of years since Luther. Can you remind us any thoughts on, since you opened the door, what would be of interest to WaFd and kind of parameters and what you're looking for? Thank you.

Yeah, no. We always keep our finger on the pulse of what's happening in the market. As I mentioned, our number one goal is to be disciplined and to protect our shareholders, not be overly dilutive. We looked at M&A really in two perspectives, one strategic and one just financial. A strategic would be something that would help us with our goals to try to get lower cost funding base and higher-yielding assets. To do that in today's market, in all likelihood, you're going to have to pay something in the 1.7 to 2 times tangible book value range. When we're sitting here trading today at 1.25 to 3 times tangible book value, that makes it incredibly difficult and, in fact, probably prohibitive for us to do one of those transactions.

That's why we're so focused on Build 2030 and improving our cost of funds ourselves and improving our margin and our profitability so we can get our multiple up there so our currency is more attractive to be able to use in a deal. The other alternative is, of course, looking at just a financial, and that's what we have historically done, and that's not bad. We look at those opportunities, but we also don't want it to distract from what we're doing and the good progress and momentum we have today. We keep our eyes and ears open, always active in those conversations. I would say it's a challenging environment and if in doubt, we're going to be disciplined and execute on our game plan that we have today.

Great. Thank you so much for the color. I'll step back.

Thank you, Kelly.

Thank you. Our next question comes from Andrew Terrell with Stephens. Your line is open.

Hey, good morning. This is Jackson Laurent on for Andrew.

Jackson, thank you for joining. Talk about an upgrade.

Just on the revised endgame framework. Obviously very beneficial to capital. I guess assuming it gets finalized, was just wondering if you could lay out some use cases for that incremental capital, whether that's a pickup in the buyback or maybe potentially accelerating the exit of some of the transactional loan runoff.

Yeah. No, good question. We tried to lay that out in the prepared comments. It's really first, highest and best use would be organic growth, which we're doing today. Continue to do that and hopefully more of that. Number two would be to look at M&A. Our first priority of M&A would be strategic, and if not strategic, then look at a financial transaction potentially. If we can't find one that meets our metrics. One of the things I didn't share with Kelly that I should have is what we look for is the tangible book value dilution earn back, and we want earn back to be less than three years, which I think is pretty much the expectation of the marketplace. Absent M&A and absent further organic growth, we would look for share repurchases.

Those would be the three priorities for our use of capital going forward.

Got it. That's helpful. Thank you. Just last one for me on expenses. Pretty flat in the quarter. Wondering if there's anything to think about the remainder of the year or is this a good level to build off of?

No, I think it's pretty much a good level to build off of. We want to continue to make investments as I talked about, but having that efficiency ratio in that 50%-55% range and nice to see the tick down. Obviously, you can control that efficiency ratio by the numerator or the denominator. Our preference is to grow the numerator but grow the denominator more, which is exactly what we've been able to do.

Got it. Thanks for taking the questions.

Thanks, Jackson.

Thank you. This concludes the question and answer session. I'd like to turn the call back over to Brad for closing remarks.

Thank you, Michelle. Hey, thanks, everybody, for joining us this morning's call. Happy Friday. Have a great weekend. Please contact me if you have any questions. Enjoy the rest of the day.

Thank you for your participation. You may now disconnect.