What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-11-20 compared with 2023-11-17 · 497 added, 204 removed, 1632 unchanged (30% of the section changed)

29 unchanged sentences

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Loan Losses - Refer to Notes A and E to the financial statements

Critical Audit Matter Description

The estimates of the Company's expected credit losses under the CECL methodology is based on relevant information about current conditions, past events, and reasonable and supportable forecasts regarding collectability of the reported amounts.

The estimate of the Company’s expected credit losses under the CECL methodology is based on relevant information about current conditions, past events, and reasonable and supportable forecasts regarding collectability of the reported amounts.

In order to estimate the allowance for loan losses (“ALL”), the Company used either a cohort or weighted average remaining maturities methodology to determine the historical loss rate, by loan portfolio class, then considered whether qualitative adjustments to those historical loss rates were warranted.

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• We tested the underlying data and mathematical accuracy of the cohort methodology used to determine most loan portfolio class historical loss rates.

We also evaluated the reasonableness and conceptual soundness of the methodology.

• We involved credit specialists to assist us in evaluating the reasonableness and conceptual soundness of the methodologies applied in the credit loss estimation model.

• To test the qualitative adjustments, we performed analysis to evaluate management’s determination of the qualitative adjustments made to account for specific risk characteristics or current conditions that differ from the period over which the historical loss rate was determined.

1 unchanged sentence

In addition, we performed procedures on the overall ALL amount, inclusive of the qualitative adjustments, by evaluating the Company’s analysis of peers’ estimated current expected credit losses for loans to the Company’s recorded ALL.

Goodwill - Refer to Note A to the financial statements

Fair Value of Acquired Loans Receivable and Core Deposit Intangible Assets - Refer to Note B to the financial statements

Critical Audit Matter Description

The Company’s goodwill balance as of September 30, 2023, included within Intangible Assets, is related to the Company’s single reporting unit.

Goodwill is evaluated for potential impairment on an annual basis and between tests if circumstances such as material adverse changes in legal, business, regulatory and economic factors exist.

The Company performed its annual impairment test as of August 31, 2023, using a quantitative impairment approach, and concluded the fair value of the single reporting unit exceeded its respective carrying value and did not result in an impairment for the reporting unit.

When performing the quantitative assessment of goodwill impairment, the Company estimated fair value of its reporting unit using the market capitalization approach, based on its stock price, adjusted for the effect of a control premium.

Given the significant judgments made by management to estimate the fair value of its reporting unit, including the selection of a control premium, performing audit procedures to evaluate goodwill for impairment required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

On February 29, 2024, WaFd, Inc.

closed its previously announced merger with Luther Burbank Corporation ("Luther Burbank" or "LBC") a California corporation, effective as of March 1, 2024 (the “Merger Date”).

Pursuant to the Merger Agreement, Luther Burbank merged with and into the Company (the “Corporate Merger”), with the Company surviving the Corporate Merger.

Promptly following the Corporate Merger, Luther Burbank’s wholly-owned bank subsidiary, Luther Burbank Savings, merged with and into WaFd Bank with WaFd Bank as the surviving institution.

The Corporate Merger has been accounted for as a business combination.

Under the acquisition method, the acquiring entity recognizes the assets acquired and liabilities assumed at their acquisition date fair values.

Management utilizes prevailing valuation techniques appropriate for the asset or liability being measured in determining these fair values.

This method often involves estimates based on third party valuations based on discounted cash flow analyses or other valuation techniques, all of which are inherently subjective.

Any excess of the purchase price over the fair value of net assets and other identifiable intangible assets acquired is recorded as goodwill.

The allocation of the total purchase consideration to the estimated fair values of the acquired loans receivable (“acquired loans”) and core deposit intangible assets acquired was $3.2 billion and $37 million at the Merger Date, respectively.

A valuation of the acquired loans was performed by a third party, as of the Merger Date, to assess the fair value.

The loans were valued at the pool level, based on loan type and interest rate terms, using a discounted cash flow methodology.

The methodology included projecting cash flows based on the contractual terms of the loans and the cash flows were adjusted to reflect credit loss expectations along with prepayments.

Discount rates were developed based on the relative risk of the cash

flows, taking into consideration the loan type, market rates as of the valuation date, recent originations in the portfolio, credit loss expectations, and liquidity expectations.

Lastly, cash flows adjusted for credit loss expectations were discounted to present value and summed to arrive at the fair value of the loans.

The fair value of the core deposit intangible assets was estimated based on a cost savings methodology as of the Merger Date that gave consideration to expected customer attrition rates, net maintenance cost of the deposit base, interest costs associated with customer deposits, and the alternative cost of funds.

We identified the fair value of the acquired loans and the core deposit intangible assets as part of the Corporate Merger as a critical audit matter because a high degree of auditor judgement and an increased extent of effort, including the involvement of our valuation specialists, was required to evaluate the reasonableness of the methodologies and certain assumptions used by management to determine the fair values.

Specifically, the (i) credit assumptions, (ii) discount rate, and (iii) prepayment rate used for acquired loans, and the (iv) discount rate, (v) attrition assumptions, (vi) maintenance expense assumptions, and (vii) the alternative cost of funds for the core deposit intangible assets.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the fair value of the reporting unit and selected control premium included the following procedures, among others:

• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of fair value of the reporting unit and selection of the control premium.

• With the assistance of our fair value specialists we:

◦ Evaluated the appropriateness of using the market capitalization approach to estimate the fair value of the reporting unit.

◦ Evaluated certain inputs and assumptions, within management’s impairment analysis, including assessing including peer company transaction data, to determine applicability.

◦ Performed procedures to assess the reasonableness of the control premium assumption used in the Company’s market capitalization approach.

◦ Assessed the mathematical accuracy of the valuation used in the impairment test.

Our audit procedures related to the methodologies and certain assumptions used by management to determine the fair values of the acquired loans and the core deposit intangible assets as part of the Corporate Merger included the following, among others:

• We tested the effectiveness of controls over the purchase accounting allocation, including those over the valuation methodologies and assumptions utilized.

• We evaluated, with the assistance of our fair value specialists, the appropriateness of the (i) valuation methodologies, (ii) credit assumptions, discount rate, and prepayment rate assumptions used for acquired loans, and the discount rate, attrition, maintenance expense, and the alternative cost of funds assumptions for core deposit intangible assets, as well as the (iii) mathematical accuracy of the valuation calculations.

• We tested the completeness and accuracy of certain underlying loan and deposit information used in the valuation of the acquired loans and the core deposit intangible assets, respectively.

/s/ Deloitte & Touche LLP

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Borrowings 3,267,589 3,650,000

Junior subordinated debentures 50,718 —

Advance payments by borrowers for taxes and insurance 61,330 52,550

Federal and state income tax liabilities, net — 3,306

Accrued expenses and other liabilities 306,423 275,370

25,060,030 20,048,249

Commitments and contingencies (see Note M)

Commitments and contingencies (see Note N)

Shareholders’ equity

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154,007 136,467

Paid-in capital 1,687,634 1,686,975

Accumulated other comprehensive income (loss), net of taxes 46,921 52,481

Additional paid-in capital 2,150,675 1,687,634

Accumulated other comprehensive income, net of taxes 55,851 46,921

Treasury stock, at cost;

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Customer accounts 532,434 237,233 43,041

Borrowings 115,488 28,729 44,188

Borrowings, senior debt and junior subordinated debentures 178,444 115,488 28,729

710,878 352,721 71,770

Net interest income 660,832 690,234 594,589

Provision (release) for credit losses 41,500 3,000 500

Net interest income after provision (release) 648,734 591,589 504,609

Provision for credit losses 17,500 41,500 3,000

Net interest income after provision 643,332 648,734 591,589

NON-INTEREST INCOME

Gain (loss) on sale of investment securities 342 33 99

Gain (loss) on termination of hedging derivatives 241 ( 867 ) —

Prepayment penalty on long-term debt — — ( 13,788 )

Loan fee income 2,745 3,885 7,168

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Other income 29,857 23,100 33,163

52,201 66,372 60,561

OTHER EXPENSE

Total non-interest income 60,692 52,201 66,372

NON-INTEREST EXPENSE

Compensation and benefits 234,148 196,534 193,917

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Other expense 65,926 47,477 45,890

376,035 358,575 332,459

Total non-interest expense 448,272 376,035 358,575

Gain on real estate owned, net 304 176 651

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( 52,556 ) 3,774 105,697

Reclassification adjustment of net (gain) loss included in net income during the period from hedging derivatives, net of tax of $ 0 , $ 0 and $ 3,245

— — ( 10,865 )

Net unrealized gain (loss) in cash flow hedging instruments, net of reclassification adjustment ( 52,556 ) 3,774 105,697

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Other comprehensive income (loss) — — — — ( 17,304 ) — ( 17,304 )

Issuance of preferred stock, net 300,000 — ( 6,675 ) — — — 293,325

Dividends on common stock ($ 0.95 per share)

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Stock-based compensation expense — 154 ( 565 ) — — — ( 411 )

Repurchase of stock warrants — — — — — 8325 8,325

Treasury stock purchased — — — — — ( 30,463 ) ( 30,463 )

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— — — ( 14,625 ) — — ( 14,625 )

Stock issued in merger — 17,089 448,415 — — — 465,504

Proceeds from stock issuances

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Loss (gain) on sale of investment securities ( 342 ) ( 33 ) ( 99 )

Prepayment penalty on early extinguishment of debt — — 13,788

Gain on early termination of long term borrowing hedge — — ( 14,110 )

Gain on settlements of bank owned life insurance — ( 821 ) ( 1,385 )

7 unchanged sentences

Increase (decrease) in accrued expenses and other liabilities ( 88,387 ) ( 7,447 ) 65,774

Net cash provided (used) by operating activities 213,957 268,465 314,454

Net cash provided by (used in) operating activities 439,233 213,957 268,465

CASH FLOWS FROM INVESTING ACTIVITIES

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Proceeds from settlements of bank owned life insurance — 1,809 2,266

Purchase of strategic investments ( 12,500 ) — —

Equity method investments purchased ( 4,197 ) ( 12,500 ) —

Net cash received (paid) in business combinations 623,583 ( 2,590 ) —

Proceeds from sales of loans 2,956,856 — —

Proceeds from sales of premises and equipment 1,341 1,090 41

Premises and equipment purchased and REO improvements ( 24,681 ) ( 15,063 ) ( 11,790 )

Net cash provided (used) by investing activities ( 1,377,917 ) ( 2,493,164 ) ( 579,745 )

Net cash provided by (used in) investing activities 3,287,218 ( 1,377,917 ) ( 2,493,164 )

CASH FLOWS FROM FINANCING ACTIVITIES

2 unchanged sentences

Repayments of borrowings ( 18,842,525 ) ( 15,650,000 ) ( 6,940,000 )

Proceeds from the early termination of long term borrowing hedge — — 14,110

Principal payments and maturities of senior debt ( 95,000 ) — —

Proceeds from stock-based awards 5,187 1,089 1,823

Proceeds from issuance of preferred stock, net — — 293,325

Dividends paid on common stock ( 74,267 ) ( 63,792 ) ( 61,576 )

3 unchanged sentences

Increase (decrease) in advance payments by borrowers for taxes and insurance 8,780 2,499 3,035

Net cash provided (used) by financing activities 1,460,644 817,855 653,123

Net cash provided by (used by) financing activities ( 2,325,998 ) 1,460,644 817,855

Increase (decrease) in cash and cash equivalents 1,400,453 296,684 ( 1,406,844 )

15 unchanged sentences

Income taxes 20,283 61,245 35,098

Summary of non-cash activities related to acquisitions

Fair value of assets and intangibles acquired $ 7,677,177 $ — $ —

Fair value of liabilities assumed ( 7,316,380 ) — —

Net fair value of acquired assets (liabilities) $ 360,797 $ — $ —

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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Washington Federal Bank, a federally-insured Washington state chartered commercial bank dba WaFd Bank (the "Bank" or "WaFd Bank"), was founded on April 24, 1917 in Ballard, Washington and is engaged primarily in providing lending, depository, insurance and other banking services to consumers, mid-sized to large businesses, and owners and developers of commercial real estate.

WaFd, Inc., a Washington corporation was formed as the Bank’s holding company in November, 1994 under the name Washington Federal, Inc.

Washington Federal, Inc.

changed its name effective September 29, 2023 to Wafd, Inc.

As used throughout this document, the terms “WaFd,” the “Company” or "we" or "us" and "our" refer to the WaFd, Inc.

and its consolidated subsidiaries, and the term “Bank” refers to the operating subsidiary, Washington Federal Bank.

Washington Federal, Inc., a Washington corporation was formed as the Bank’s holding company in November, 1994.

On September 27, 2023, Articles of Amendment were filed with the Washington Secretary of State to change the name of Washington Federal, Inc.

to WaFd, Inc.

This change was effective on September 29, 2023.

As used throughout this document, the terms “WaFd” or the “Company” or “we” or “us” and “our” refer to WaFd, Inc.

and its consolidated subsidiaries, and the term “Bank” refers to the operating subsidiary, Washington Federal Bank dba WaFd Bank.

The Company is headquartered in Seattle, Washington.

The Bank conducts its activities through a network of 198 bank branches located in Washington, Oregon, Idaho, Utah, Arizona, Nevada, New Mexico and Texas.

The Bank conducts its activities through a network of 210 bank branches located in Washington, Oregon, Idaho, Utah, Arizona, Nevada, New Mexico, California and Texas.

Basis of presentation and use of estimates.

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In certain instances, amounts in text are presented by rounding to the nearest thousand.

On February 29, 2024, WaFd, Inc.

closed its previously announced merger with Luther Burbank Corporation ("Luther Burbank" or "LBC"), a California corporation, effective as of 12:00am Pacific Time on March 1, 2024 (the "Effective Time").

Pursuant to the Merger Agreement, at the Effective Time Luther Burbank merged with and into the Company (the “Corporate Merger”), with the Company surviving the Corporate Merger.

Promptly following the Corporate Merger, Luther Burbank’s wholly-owned bank subsidiary, Luther Burbank Savings, merged with and into WaFd Bank with WaFd Bank as the surviving institution (the “Bank Merger”).

The Corporate Merger and the Bank Merger are collectively referred to in this Annual Report on Form 10-K as the “Merger.”

The Merger was accounted for using the acquisition method of accounting and was effectively an all-stock transaction accounted for as a business combination.

The Company's financial results for any periods ended on and prior to February 29, 2024 reflect WaFd results only on a standalone basis.

As a result, financial results for the year ended September 30, 2024 may not be directly comparable to prior reported periods.

Refer to Note B - Business Combination for further details.

The Company's fiscal year end is September 30.

All references to 2024, 2023 and 2022 represent balances as of September 30, 2024, September 30, 2023, and September 30, 2022, or activity for the fiscal years then ended.

Business Combinations.

The Company applies the acquisition method of accounting for business combinations.

Under the acquisition method, the acquiring entity recognizes the assets acquired and liabilities assumed at their acquisition date fair values.

Management utilizes prevailing valuation techniques appropriate for the asset or liability being measured in determining these fair values.

This method often involves estimates based on third party valuations based on discounted cash flow analyses or other valuation techniques, all of which are inherently subjective.

Any excess of the purchase price over the fair value of net assets and other identifiable intangible assets acquired is recorded as goodwill.

Assets acquired and liabilities assumed from contingencies must also be recognized at fair value if the fair value can be determined during the measurement period.

Acquisition-related costs, including conversion and restructuring charges, are expensed as incurred.

Fair values are subject to refinement over the measurement period, not to exceed one year after the closing date.

Preferred stock.

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Net proceeds, after underwriting discounts and expenses, were $ 293,325,000 .

The public offering consisted of the issuance and sale of 12,000,000 depositary shares, each representing a 1/40 th interest in a share of the Series A Preferred Stock, at a public offering price of $ 25.00 per depositary share.

The public offering consisted of the issuance and sale of 12,000,000 depositary

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022

shares, each representing a 1/40 th interest in a share of the Series A Preferred Stock, at a public offering price of $ 25.00 per depositary share.

Holders of the depositary shares are entitled to all proportional rights and preferences of the Series A Preferred Stock (including, dividend, voting, redemption and liquidation rights).

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Cash and cash equivalents include cash on hand, amounts due from banks, overnight investments and repurchase agreements with an initial maturity of three months or less.

Restricted cash balances - Based on the level of vault cash on hand, the Company was not required to maintain cash reserve balances with the Federal Reserve Bank as of September 30, 2023.

As of September 30, 2023 and September 30, 2022, the Company held counterparty cash collateral of $ 326,750,000 and $ 284,400,000 , respectively, related to derivative contracts.

Equity securities - The Company records equity securities within Other assets in its Consolidated Statements of Financial Condition.

Restricted cash balances.

As of September 30, 2024 and September 30, 2023, the Bank held counterparty cash collateral of $ 168,200,000 and $ 326,750,000 , respectively, related to derivative contracts.

Equity investments.

The Company records equity investments within Other assets in its Consolidated Statements of Financial Condition.

These equity investments are accounted for under different methods.

2 unchanged sentences

Any adjustments to the fair value of these investments are recorded in Other income in the Consolidated Statements of Operations.

• For investments in certain nonmarketable equity securities investments where the equity method of accounting is not applicable, the Company applies the fair value method.

• For certain nonmarketable equity investments where the equity method of accounting is not applicable, the Company applies the fair value method.

Any adjustments to the fair value of these investments are recorded in Other income in the Consolidated Statements of Operations.

Fair value is determined by reference to readily determinable market values, if applicable.

As these investments do not have readily determinable fair values, they are generally accounted for at cost minus impairment, if any, plus or minus changes resulting from observable

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021

transactions involving the same or similar investments from the same issuer.

As these investments do not have readily determinable fair values, they are generally accounted for at cost minus impairment, if any, plus or minus changes resulting from observable transactions involving the same or similar investments from the same issuer.

This practice is referred to as the measurement alternative.

• Equity investments in qualified real estate funds can use the NAV expedient for fair value measurement.

Under this method, the net asset value (NAV) is determined by the fund as fair value for the investment.

• Equity investments in qualified real estate funds can use the net asset value ("NAV") expedient for fair value measurement.

Under this method, the NAV is determined by the fund as fair value for the investment.

At September 30, 2024, equity investments held by the Company and recorded at NAV had a carrying amount of $ 36,317,000 and a remaining unfunded commitment of $ 3,280,000 .

These NAV based investments cannot be transferred without consent and we do not have redemption rights.

These NAV based investments cannot be transferred without consent and we do not have redemption rights except in certain transformational events.

Equity investments measured at NAV are not classified in the fair value hierarchy.

1 unchanged sentence

The Company accounts for debt securities in two categories:

held-to-maturity and available-for-sale.

held-to-maturity ("HTM") and available-for-sale ("AFS").

Premiums and discounts on debt securities are deferred and recognized into income over the contractual life of the asset using the effective interest method.

Held-to-maturity securities are accounted for at amortized cost, but the Company must have both the positive intent and the ability to hold those securities to maturity.

There are very limited circumstances under which securities in the held-to-maturity category can be sold without jeopardizing the cost basis of accounting for the remainder of the securities in this category.

HTM securities are accounted for at amortized cost, but the Company must have both the positive intent and the ability to hold those securities to maturity.

There are very limited circumstances under which securities in the HTM category can be sold without jeopardizing the cost basis of accounting for the remainder of the securities in this category.

Available-for-sale securities are accounted for at fair value.

Gains and losses realized on the sale of these securities are accounted for based on the specific identification method.

Unrealized gains and losses for available-for-sale securities are excluded from earnings and reported net of the related tax effect in the accumulated other comprehensive income component of shareholders' equity.

Allowance for Credit Losses (Held-to-Maturity Debt Securities).

For held-to-maturity (“HTM”) debt securities, the Company is required to utilize a CECL methodology to estimate expected credit losses.

All of the Company’s HTM debt securities are issued by U.S.

Unrealized gains and losses for AFS securities are excluded from earnings and reported net of the related tax effect in the accumulated other comprehensive income component of shareholders' equity.

Allowance for Credit Losses (HTM Debt Securities).

For HTM debt securities, the Company is required to utilize the current expected credit loss methodology ("CECL") to estimate expected credit losses.

Substantially all of the Company’s HTM debt securities are issued by U.S.

government agencies or U.S.

3 unchanged sentences

Therefore, the Company did not record an allowance for credit losses for these securities.

As September 30, 2023, the Company determined that the expected credit loss on its corporate and municipal bonds was immaterial, and therefore, an allowance for credit losses was not recorded.

As of September 30, 2024, the Company determined that the expected credit loss on its corporate and municipal bonds was immaterial, and therefore, an allowance for credit losses was not recorded.

See Note C "Investment Securities" and Note F "Fair Value Measurements" for more information about HTM debt securities.

Allowance for Credit Losses (Available-for-Sale Debt Securities).

The impairment model for available-for-sale (“AFS”) debt securities differs from the CECL methodology applied for HTM debt securities because AFS debt securities are measured at fair value rather than amortized cost.

The impairment model for AFS debt securities differs from the CECL methodology applied for HTM debt securities because AFS debt securities are measured at fair value rather

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022

than amortized cost.

For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis.

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In addition to fees and costs for originating loans, various other fees and charges related to existing loans may occur, including prepayment charges, late charges and assumption fees.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021

When a borrower fails to make a required payment on a loan, the Bank attempts to cure the deficiency by contacting the borrower.

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The amount of ACL is based on ongoing, quarterly assessments by management.

The current expected credit loss methodology ("CECL") requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures).

CECL requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures).

See Note E "Allowance for Losses on Loans" for details.

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Each commercial and consumer loan portfolio class may also be further segmented based on risk characteristics.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022

For most of our loan portfolio classes, the historical loss experience is determined using a cohort methodology.

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The overlay adjustment for the reasonable and supportable forecast assumes an immediate reversion after the one-year forecast period to historical loss rates for the remaining life of the respective loan pool.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021

When management deems it to be appropriate, the Company establishes a specific reserve for individually evaluated loans that do not share similar risk characteristics with the loans included in each respective loan pool.

These individually evaluated loans are removed from their respective pools and typically represent collateral dependent loans but may also include other non-performing loans or troubled debt restructurings (“TDRs”).

In addition, the Company individually evaluates “reasonably expected” TDRs, which are identified by the Company as a loan expected to be classified as a TDR within the next six months.

Management judgment is utilized to make this determination.

Troubled debt restructured loans ("TDRs").

The Company may establish a specific reserve for individually evaluated loans that do not share similar risk characteristics with the loans included in each respective loan pool if management deems it appropriate.

If this occurs, these individually evaluated loans are removed from their respective pools.

These loans typically represent collateral dependent loans, but may also include other non-performing loans.

Collateral-Dependent Loans.

A financial asset is considered collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral.

For all classes of loans and leases deemed collateral-dependent, the Company elected the practical expedient to estimate expected credit losses based on the collateral’s fair value less cost to sell.

In most cases, the Company records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less cost to sell.

Substantially all of the collateral consists of various types of real estate including residential properties;

commercial properties such as retail centers, office buildings, and lodging;

agricultural land;

and vacant land.

Modifications to Borrowers Experiencing Financial Difficulties.

The Company will consider modifying the interest rates and terms of a loan if it determines that a modification is a better alternative to foreclosure.

Most TDRs are accruing and performing loans where the borrower has proactively approached the Company about modifications due to temporary financial difficulties.

Most loan modifications to borrowers experiencing financial difficulty are accruing and performing loans where the borrower has approached the Company about modifications due to temporary financial difficulties.

Each request is individually evaluated for merit and likelihood of success.

The concession for these loans is typically a payment reduction through a rate reduction of 100 to 200 bps for a specific term, usually six to 12 months.

Interest-only payments may also be approved during the modification period.

Principal forgiveness is generally not an available option for restructured loans.

Before granting approval to modify a loan in a TDR, the borrower’s ability to repay is evaluated, including:

current income levels and debt to income ratio, borrower’s credit score, payment history of the loan and updated evaluation of the secondary repayment source.

The Company also modifies some loans that are not classified as TDRs as the modification is due to a restructuring where the effective interest rate on the debt is reduced to reflect a decrease in market interest rates.

The Company's ACL reflects the effects of a TDR when management reasonably expects at the reporting date that a TDR will be executed with an individual borrower.

Often a term extension is needed in the short term in order to evaluate the need for further action.

Payment delays and interest-only payments may also be approved during the modification period.

Principal forgiveness is not an available option for restructured loans.

For commercial loans, modifications could be any of the above-listed modification types available or a mix thereof.

Modifications to extend the term, lower the payment amount or delay payment could be offered for the purposes of providing borrowers additional time to return to compliance with the terms of their loans.

Renewals of commercial lines to borrowers experiencing financial difficulty are disclosed within Note D - Loans Receivable though many of these modifications are made in the normal course of business and not as a result of the borrower's difficulties.

For consumer loans, modifications typically consist of minor payment delays or deferrals and may include a modification of the existing contractual rate or extension of the maturity date, or both, when it is determined the borrowers are likely to successfully maintain compliance with these modified loan terms.

Non-accrual loans.

Loans are placed on nonaccrual status when, in the judgment of management, the probability of collection of interest is deemed to be insufficient to warrant further accrual.

When a loan is placed on nonaccrual status, previously accrued but unpaid interest is deducted from interest income.

Loans are placed on non-accrual status when, in the judgment of management, the probability of collection of interest is deemed to be insufficient to warrant further accrual.

When a loan is placed on non-accrual status, previously

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022

accrued but unpaid interest is deducted from interest income.

The Company does not accrue interest on loans 90 days or more past due.

2 unchanged sentences

A loan is charged-off when the loss is estimable, and it is confirmed that the borrower is not expected to be able to meet contractual obligations.

If a consumer loan is on non-accrual status before becoming a TDR it will stay on non-accrual status following restructuring until it has been performing for at least six months, at which point it may be moved to accrual status.

If a loan is on accrual status before it becomes a TDR, and management concludes that full repayment is probable based on internal evaluation, it will remain on accrual status following restructuring.

If the restructured consumer loan does not perform, it is placed on non-accrual status when it is 90 days delinquent.

If a consumer loan is on non-accrual status before being modified, it will stay on non-accrual status following restructuring until it has been performing for at least six months, at which point it may be moved to accrual status.

For commercial loans, six consecutive payments on newly restructured loan terms are required prior to returning the loan to accrual status.

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Off-balance-sheet credit exposures.

The only material off-balance-sheet credit exposures are loans in process and unused lines of credit.

Off-balance-sheet credit exposures for the Company include unfunded loan commitments and letters of credit from the Federal Home Loan Banks of both Des Moines and San Francisco, which are used as collateral for public funds deposits.

The reserve for unfunded commitments is recognized as a liability (other liabilities in the consolidated statements of financial condition), with adjustments to the reserve recognized through provision for credit losses in the consolidated statements of income.

1 unchanged sentence

However, a liability is not recognized for commitments that are unconditionally cancellable by the Company.

The reserve for unfunded commitments is determined by estimating future draws, including the effects of risk mitigation actions, and applying the expected loss rates on

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021

The reserve for unfunded commitments is determined by estimating future draws, including the effects of risk mitigation actions, and applying the expected loss rates on those draws.

Loss rates are estimated by utilizing the same loss rates calculated for the allowance for credit losses related to the respective loan portfolio class.

See Note M "Commitments and Contingencies" for details.

See Note N "Commitments and Contingencies" for details.

Client swap program hedges.

2 unchanged sentences

As the interest rate swap agreements with the customers and third parties are not designated as accounting hedges under FASB ASC 815, the instruments are marked to market in earnings.

The change in fair value of the offsetting swaps are included in other noninterest income and there is minimal impact on net income.

The change in fair value of the offsetting swaps are included in other non-interest income and there is minimal impact on net income.

There is fee income earned on the swaps that is included in loan fee income.

6 unchanged sentences

These hedges qualify as last-of-layer hedges under ASC 815 and provide for matching of the recognition of the gains and losses on the interest rate swap and the related hedged item.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022

Commercial loan fair value hedges.

22 unchanged sentences

While the Company believes the judgments and assumptions used in the goodwill impairment test is reasonable, different assumptions or changes in general industry, market and macro-economic conditions could change the estimated fair values and, therefore, future impairment charges could be required, which could be material to the consolidated financial statements.

As a result of the Merger, the Company recorded $ 104,707,000 in goodwill and $ 37,022,000 in core deposit intangible assets.

Additional information on the Merger and purchase price allocation is provided in Note B "Business Combination".

The core deposit intangible asset value was determined by an analysis of the cost differential between the core deposits acquired, inclusive of estimated servicing costs, and alternative funding sources for those deposits.

The core deposit intangible asset recorded is amortized on an accelerated basis over 6 years.

In addition to the effects of the Merger, the Company added a small amount of intangibles during fiscal 2024 as the result of acquisitions made by subsidiary WAFD Insurance Group, Inc.

No impairment losses separate from the scheduled amortization have been recognized in the periods presented.

AND SUBSIDIARIES

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Compensation expense is recognized over the service period to the extent restricted stock awards are expected to vest.

See Note P "Stock Award Plans" for additional information.

See Note Q "Stock Award Plans" for additional information.

Business segments.

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Both HMDA Consent Orders remain in place.

NOTE B - NEW ACCOUNTING PRONOUNCEMENTS

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815) .

The amendments in this ASU clarify the guidance on ASC 815 on fair value hedge accounting of interest rate risk for portfolios and financial assets.

Among other things, the amended guidance establishes the "last-of-layer" method for making the fair value hedge accounting for these portfolios more accessible and renames that method the "portfolio layer" method.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

We do not expect the amendments to have a material effect on our consolidated financial statements.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) .

The amendments in this ASU eliminate the guidance on troubled debt restructurings while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors made to borrowers experiencing financial difficulties.

The ASU also requires that entities disclose current-period gross charge-offs by year of origination for loans and leases.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

We do not expect the amendments to have a material effect on our consolidated financial statements.

In March 2023, the FASB issued ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323) .

The amendments in this ASU expand the population of tax credit investments for which an investor may elect to apply the proportional amortization method ("PAM") and require certain disclosures for tax credit investments.

For public companies amendments in this ASU are effective for fiscal years beginning after December 15, 2023, with early adoption permitted.

The Company has utilized PAM for low income housing tax credit investments.

We do not expect this ASU to have a material effect on our consolidated financial statements.

In August 2023, the FASB affirmed ASU 2023-ED100 , Income Tax - Improvements to Income Tax Disclosures (Topic 740) which will require reporting companies to break out their income tax expense and tax rate reconciliation in more details.

For public companies, the requirements will become effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

We do not expect this ASU to have a material effect on our consolidated financial statements.

New Accounting Pronouncements.

In October 2023, the FASB issued ASU 2023-06 Disclosure Improvements:

Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative to clarify or improve disclosure and presentation requirements on a variety of topics and align the requirements in the FASB accounting standard codification with the Securities and Exchange Commission regulations.

This guidance is effective for the Company no later than June 30, 2027.

We do not expect the amendments in this update to have a material impact on our consolidated financial statements.

The amendments will be effective for the Company only if the SEC removes the related disclosure requirement from its existing regulations no later than June 30, 2027.

If the SEC timely removes such a related requirement from its existing regulations, the corresponding amendments within the ASU will become effective for the Company on the same date with early adoption permitted.

The Company does not expect the amendments in this update to have a material impact on our consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting - Improvements to Reportable Segment Disclosures (Topic 280) to improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses.

The ASU applies to all public entities that are required to report segment information in accordance with ASC 280.

For public companies, amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 with early adoption permitted.

The Company does not expect this ASU to have a material effect on our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Tax - Improvements to Income Tax Disclosures (Topic 740) which requires reporting companies to break out their income tax expense and tax rate reconciliation in more detail.

For public companies, the requirements will become effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company does not expect this ASU to have a material effect on our consolidated financial statements.

In March 2024, the FASB issued ASU 2024-02, Codification Improvements – Amendments to Remove References to the Concepts Statements .

This accounting standards update removes references to various FASB Concept Statements in the codified accounting standards in order to avoid reliance or interpretations based on such Concept Statements, which are not authoritative.

For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company does not expect this ASU to have a material effect on our consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses .

This accounting standards update will require public companies to disclose, in the notes to financial statements, specified information about certain costs and expenses at each interim and annual reporting period.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2026, with early adoption permitted.

The Company does not expect this ASU to have a material effect on our consolidated financial statements.

NOTE B - BUSINESS COMBINATION

At the Effective Time on March 1, 2024 ("the Merger Date"), WaFd, Inc.

acquired Luther Burbank, headquartered in Santa Rosa, California.

The Merger was effectively an all-stock transaction and has been accounted for as a business combination.

Pursuant to the Merger Agreement, on the Merger Date, each holder of LBC common stock received 0.3353 of a share of WaFd common stock for each share of LBC common stock held.

As of the Merger Date, WaFd had 64,311,764 shares of common stock outstanding and issued 17,088,886 shares of WaFd common stock to the LBC shareholders which represents approximately 21 % of the voting interests in WaFd, Inc.

upon completion of the Merger.

The purchase price for purposes of the transaction accounting adjustments is calculated based on the number of shares of WaFd stock issued to LBC shareholders and the closing share price on the Merger Date as shown in the following table (amounts in thousands except share and per share data).

AND SUBSIDIARIES

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YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022

Number of WaFd shares issued to LBC shareholders

WaFd market price per share on February 29, 2024

Purchase price of shares issued to LBC shareholders

Cash in lieu of fractional shares

Purchase price consideration

The Merger was accounted for under the acquisition method of accounting.

Assets acquired and liabilities assumed in the Merger were recorded at their respective acquisition date estimated fair values and have been adjusted subsequent to the Merger Date based on new information.

These estimates were recorded based on initial valuations available at the Merger Date, and these estimates, including initial accounting for deferred taxes, are considered preliminary as of September 30, 2024.

In many cases, the determination of fair value required management to make estimates about discount rates, expected future cash flows, market conditions and other future events that are highly subjective in nature and subject to change.

While the Company believes that the information available on the Merger Date provided a reasonable basis for estimating fair value, additional information may be obtained during the measurement period that would result in changes to the estimated fair value amounts.

The measurement period ends on the earlier of one year after the Merger Date or the date the Company concludes that all necessary information about the facts and circumstances that existed as of the Merger Date have been obtained.

Management anticipates that facts obtained during the measurement period could result in adjustments to the Merger Date valuation amounts presented herein.

The table below displays the amounts recognized as of the Merger Date for each major class of assets acquired and liabilities assumed:

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022

March 1, 2024

(in thousands)

Total merger consideration

Fair value of assets acquired

Cash and cash equivalents

Investment securities

Loans receivable

Loans held for sale

Interest receivable

Premises and equipment

Bank owned life insurance

Intangible assets

Deferred tax asset, net

Total assets acquired

Fair value of liabilities assumed

Customer accounts

Junior subordinated deferrable interest debentures

Accrued expenses and other liabilities

Total liabilities assumed

Net Assets Acquired

In connection with the Merger, the Company recorded approximately $ 104,707,000 of goodwill.

Goodwill represents the excess of the purchase price over the fair value of the assets acquired net of fair value of liabilities assumed.

Information regarding goodwill and the carrying amount and amortization of intangible assets are provided in Note A.

The following is a description of the methods used to determine the fair values of significant assets and liabilities presented above.

Cash and cash equivalents – The carrying amount of these items is a reasonable estimate of their fair value based on the short-term nature of these assets.

Investment securities – Fair values for investment securities are based on quoted market prices.

The actual sales prices of securities were used for those securities sold in March 2024, shortly after the Merger, rather than the quoted market price as sales prices were determined to be the best indicator of fair value.

Loans receivable – A valuation of the loans held for investment portfolio was performed by a third party as of the Merger Date to assess the fair value.

The loans held for investment portfolio was segmented into three groups, including performing purchased credit deteriorated ("PCD") loans, non-performing PCD loans and non-PCD loans.

The loans were further pooled based on loan type and interest rate terms.

The loans were valued at the pool level using a discounted cash flow methodology.

The methodology included projecting cash flows based on the contractual terms of the loans and the cash flows were adjusted to reflect credit loss expectations along with prepayments.

Discount rates were developed based on the relative risk of the cash

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022

flows, taking into consideration the loan type, market rates as of the valuation date, recent originations in the portfolio, credit loss expectations, and liquidity expectations.

Lastly, cash flows adjusted for credit loss expectations were discounted to present value and summed to arrive at the fair value of the loans.

The Company is required to record PCD assets, defined as a more-than-insignificant deterioration in credit quality since origination or issuance, at the purchase price plus the allowance for credit losses expected at the time of acquisition.

Under this method, there is no credit loss expense affecting net income on acquisition of PCD assets.

Changes in estimates of expected credit losses after acquisition are recognized in subsequent periods as provision for credit losses (or recapture of credit losses) arises.

Any non-credit discount or premium resulting from acquiring a pool of purchased financial assets with credit deterioration is allocated to each individual asset.

At the Merger Date, the initial allowance for credit losses, determined on a collective basis, is allocated to individual assets to appropriately allocate any non-credit discount or premium.

The non-credit discount or premium, after the adjustment for the allowance for credit losses, is accreted to interest income using the interest method based on the effective interest rate determined at the Merger Date.

Of the $ 3.2 billion net loans held for investment acquired, $ 293 million were identified as PCD loans on the Merger Date.

The following table provides a summary of these PCD loans at acquisition:

March 1, 2024

(In thousands)

Principal of PCD loans acquired

PCD ACL at acquisition

Non-credit discount on PCD loans

Fair value of PCD loans

Loans held for sale – The loans held for sale portfolio was recorded at fair value based on quotes or bids from third parties.

Premises and equipment - The fair values of premises are based on a market approach by obtaining third-party appraisals and broker opinions of value for land, office and branch space.

Core deposit intangible – The core deposit intangible represents the low cost of funding acquired core deposits provide relative to the Company’s marginal cost of funds.

The fair value was estimated based on a cost savings methodology that gave consideration to expected customer attrition rates, net maintenance cost of the deposit base, interest costs associated with customer deposits, and the alternative cost of funds.

The estimated fair value was grossed-up for the expected tax amortization benefit.

The intangible asset is being amortized over 6 years using an accelerated method, based upon the period over which estimated economic benefits are estimated to be received.

Customer Accounts – The fair values used for the demand and savings deposits equal the amount payable on demand at the Merger Date.

The fair value of time deposits is estimated by discounting the estimated future cash flows using current rates offered for deposits with similar remaining maturities.

Borrowings – The fair value of Federal Home Loan Bank ("FHLB") advances and Federal Reserve Bank ("FRB") borrowings is estimated by discounting the estimated future cash flows using rates currently available to the Company for debt with similar remaining maturities.

The operating results of the Company include the operating results produced by the acquired assets and assumed liabilities in the Merger for the period March 1, 2024 to September 30, 2024.

The following table shows the impact of merger-related expenses for the years ended September 30, 2024 and September 30, 2023.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022

Merger-Related Expenses

September 30, 2024 September 30, 2023

(in thousands)

Severance and employee-related

Legal and Professional

Charitable contributions

System conversion and integration

$ 26,319 $ 3,015

The following table presents unaudited pro forma information as if the Merger had occurred on October 1, 2022.

The pro forma adjustments give effect to any change in interest income due to the accretion of the discount (premium) associated with the fair value adjustments to acquired loans, any change in interest expense due to estimated premium amortization/discount accretion associated with the fair value adjustment to acquired interest-bearing deposits, borrowings and long-term debt and the amortization of the core deposit intangible that would have resulted had the deposits been acquired as of October 1, 2022.

The pro forma information is not indicative of what would have occurred had the Merger occurred as of the beginning of the year prior to the Merger Date.

The pro forma amounts below do not reflect the Company's expectations as of the date of the pro forma information of further operating cost savings and other business synergies expected to be achieved, including revenue growth as a result of the Merger.

As a result, actual amounts differed from the unaudited pro forma information presented.

Unaudited Pro Forma for the

September 30, 2024 September 30, 2023

(in thousands)

Net-interest income

$ 710,644 $ 833,957

Non-interest income

63,371 56,331

207,689 291,832

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022

NOTE C - INVESTMENT SECURITIES

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Corporate debt securities due

Within 1 year 45,024 — ( 367 ) 44,657 4.61

1 to 5 years 99,244 977 — 100,221 5.39

5 to 10 years 112,029 — ( 10,625 ) 101,404 3.87

Over 10 years 50,000 — — 50,000 6.85

Municipal bonds due

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government and agency securities due

Within 1 year $ 3,501 $ — $ ( 36 ) $ 3,465 6.06 %

1 to 5 years 18,894 — ( 563 ) 18,331 4.70

5 to 10 years 87,922 177 — 88,099 5.76

Over 10 years 106,340 831 ( 13 ) 107,158 5.84

Asset-backed securities due

17 unchanged sentences

$ 2,542,202 $ 2,910 $ ( 194,827 ) $ 2,350,285 4.35 %

The Company purchased $ 376,481,000 of available-for-sale investment securities and no held-to-maturity investment securities during 2023.

The Company purchased $ 549,159,000 of available-for-sale investment securities and $ 47,092,000 held-to-maturity investment securities during 2024.

Sales of available-for-sale securities totaled $ 182,682,000 and there were no sales of held-to-maturity investment securities in 2024.

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Therefore, the Company did not record an allowance for credit losses for these securities as of September 30, 2024 or September 30, 2023.

The Company does not consider HTM investments to have any credit impairment.

The Company does not believe that the available-for-sale debt securities that were in an unrealized loss position have any credit loss impairment as of September 30, 2024 or September 30, 2023.

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As of September 30, 2024 and September 30, 2023, AIR for loans totaled $ 92,362,000 and $ 77,349,000 , respectively, and is included in the “ accrued interest receivable ” line item on the Company’s consolidated statements of financial condition.

Loans in the amount of $ 8,941,201,000 and $ 8,224,951,000 at September 30, 2023 and September 30, 2022, respectively, were pledged to secure borrowings from the FHLB as part of our liquidity management strategy.

The FHLB does not have the right to sell or re-pledge these loans.

Loans in the amount of $ 16,957,014,000 and $ 8,941,201,000 at September 30, 2024 and September 30, 2023, respectively, were pledged to secure borrowings and available lines of credit.

None of the agencies to which we have pledged loans have the right to sell or re-pledge them.

AND SUBSIDIARIES

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The following summary breaks down the Company's fixed rate and adjustable rate loans by time to maturity or to rate adjustment.

The table below does not account for fixed rate loans that are swapped to floating using derivatives.

See Note G for details regarding fair value hedges of individual fixed rate commercial loans and also hedges of a specified portion of pools of prepayable fixed rate mortgage loans under the "last of layer" method.

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Delinquency % 99.64 % 0.06 % 0.07 % 0.24 % 0.36 %

Most loans classified as TDRs are accruing and performing loans where the borrower has proactively approached the Company about modifications due to temporary financial difficulties.

Each request is individually evaluated for merit and likelihood of success.

The concession for these loans is typically a payment reduction through a rate reduction of 100 to 200 bps for a specific term, usually six to 12 months.

Interest-only payments may also be approved during the modification period.

Principal forgiveness is not an available option for restructured loans.

As of September 30, 2023, the outstanding balance of TDRs was $ 46,117,000 as compared to $ 56,817,000 as of September 30, 2022.

As of September 30, 2023, 97.9 % of the restructured loans were performing.

Single-family

Loans are considered collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral.

The following table presents the amortized basis of collateral-dependent loans by loan class and collateral type as of September 30, 2024.

AND SUBSIDIARIES

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YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022

residential loans comprised 84.7 % of TDRs as of September 30, 2023.

The Company's ACL methodology takes into account the following performance indicators for restructured loans:

1) time since modification, 2) current payment status and 3) geographic area.

Loan type Residential Real Estate Commercial Real Estate

($ in thousands)

Commercial loans

Multi-Family $ — $ 18,641

Commercial Real Estate — 32,790

Commercial & Industrial — —

Construction 1,120 —

Land - Acquisition & Development 74 —

Total commercial loans 1,194 51,431

Consumer loans

Single-Family Residential 5,678 —

Construction - Custom 88 —

Land - Consumer Lot Loans — —

Total consumer loans 5,963 —

Total Loans $ 7,157 $ 51,431

On October 1, 2023, the Company adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures , which eliminated the accounting guidance on troubled debt restructurings ("TDRs") and requires enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

This guidance was applied on a prospective basis.

These modified balances are included in their segment cohort based on loan type for the purpose of calculating historical loss rates as described in Note A.

The following table presents the amortized basis of loans that were modified to borrowers experiencing financial difficulty during the period by loan class and modification type.

All such modifications during the year were term extensions.

Twelve Months Ended September 30, 2024

Term Extension

% of Total Loan Class Balance

Term Extension

Commercial loans ( in thousands)

Commercial real estate

$ 23,449 0.63 % 36

Commercial & industrial

61,074 2.62 4

19,087 1.34 12

Total commercial loans

Consumer loans

Single-family residential

Total consumer loans

$ 104,492 0.49 % 13

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022

The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of modification efforts.

The following table presents the performance of such loans that have been modified for the twelve months ended September 30, 2024.

September 30, 2024 Days Delinquent

Loan type Current 30 60 90 Total

Commercial loans

Commercial real estate

$ 23,449 $ — $ — $ — $ 23,449

Commercial & industrial

58,999 — 992 1,083 61,074

19,087 — — — 19,087

Total commercial loans

101,535 — 992 1,083 103,610

Consumer loans

Single-family residential

882 — — — 882

Total consumer loans

882 — — — 882

$ 102,417 $ — $ 992 $ 1,083 $ 104,492

None of the loans modified in the twelve months ended September 30, 2024 defaulted after modification.

We evaluate the credit quality of our commercial loans based on regulatory risk ratings and also consider other factors.

It is important to note, just because a loan is risk-rated below a "pass" rating, it does not necessarily indicate there will be future charge-offs on that loan.

Loans are downgraded because of either borrower specific or industry-wide financial or operating stresses.

Based on this evaluation, the loans are assigned a grade and classified as follows:

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This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset even though partial recovery may be affected in the future.

Losses should be taken in the period in which they are identified as uncollectible.

Partial charge-off versus full charge-off may be taken if the collateral offers some identifiable protection.

Losses should

AND SUBSIDIARIES

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YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022

be taken in the period in which they are identified as uncollectible.

Partial charge-off versus full charge-off may be taken if the collateral offers some identifiable protection.

The following tables present by credit quality indicator, loan class, and year of origination, the amortized cost basis of loans receivable as of September 30, 2024 and September 30, 2023.

September 30, 2024 Term Loans Amortized Cost Basis by Origination Year

(In thousands) 2023 2022 2021 2020 2019 Prior to 2019

Revolving Loans Revolving to Term Loans Total Loans

(In thousands) 2024 2023 2022 2021 2020 Prior to 2020 Revolving Loans Revolving to Term Loans Total Loans

Commercial loans

8 unchanged sentences

Total $ 216,520 $ 252,923 $ 1,094,886 $ 748,076 $ 509,314 $ 875,187 $ 35,249 $ — $ 3,732,155

Gross Charge-offs — — — — — 203 — — 203

Commercial & industrial

3 unchanged sentences

Total $ 44,374 $ 167,877 $ 266,932 $ 284,432 $ 102,446 $ 201,536 $ 1,223,174 $ 41,961 $ 2,332,732

Gross Charge-offs 175 42 10 15 — 7 2,331 31 2,611

Pass $ 146,154 $ 421,334 $ 532,310 $ 233,200 $ — $ — $ 59,334 $ — $ 1,392,332

Special Mention — — — 3,221 — — — — 3,221

Substandard 82 8,622 6,060 13,699 — — — — 28,463

4 unchanged sentences

Total $ 23,475 $ 12,976 $ 56,292 $ 46,635 $ 2,848 $ 18,091 $ — $ — $ 160,317

Gross Charge-offs — — — — — 149 — — 149

Total commercial loans

3 unchanged sentences

Total $ 492,643 $ 1,062,522 $ 3,617,204 $ 2,540,773 $ 1,201,276 $ 1,857,904 $ 1,374,384 $ 58,714 $ 12,205,420

Gross Charge-offs $ 175 $ 42 $ 10 $ 15 $ — $ 359 $ 2,331 $ 31 $ 2,963

AND SUBSIDIARIES

2 unchanged sentences

September 30, 2024 Term Loans Amortized Cost Basis by Origination Year

(In thousands) 2023 2022 2021 2020 2019 Prior to 2019

Revolving Loans Revolving to Term Loans Total Loans

(In thousands) 2024 2023 2022 2021 2020 Prior to 2020 Revolving Loans Revolving to Term Loans Total Loans

Consumer loans

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Total $ 384,516 $ 769,730 $ 2,289,825 $ 2,063,897 $ 800,338 $ 1,971,994 $ — $ — $ 8,280,300

Gross Charge-offs — — 13 — — 131 — — 144

Construction - custom

1 unchanged sentence

90+ days past due — — 848 — — — — — 848

60 days past due — — — 2,617 — — — — 2,617

90+ days past due — 87 — — — — — — 87

Total $ 54,649 $ 108,941 $ 17,930 $ 537 $ — $ 358 $ — $ — $ 182,415

1 unchanged sentence

Current $ 19,672 $ 14,809 $ 26,839 $ 23,804 $ 9,223 $ 13,713 $ — $ — $ 108,060

30 days past due — — 358 — — — — — 358

60 days past due — — 245 — — — — — 245

90+ days past due — — — — — 8 — — 8

Total $ 19,672 $ 14,809 $ 26,839 $ 23,804 $ 9,223 $ 13,713 $ — $ — $ 108,060

9 unchanged sentences

Total $ 1,515 $ 33 $ ( 19 ) $ 9,440 $ 8,000 $ 18,512 $ 36,574 $ — $ 74,055

Gross Charge-offs — — — — — 139 379 — 518

Total consumer loans

4 unchanged sentences

Total $ 460,352 $ 893,513 $ 2,334,575 $ 2,097,678 $ 817,561 $ 2,009,369 $ 300,523 $ 1,116 $ 8,914,687

Gross Charge-offs $ — $ — $ 13 $ — $ — $ 270 $ 379 $ — $ 662

AND SUBSIDIARIES

5 unchanged sentences

Pass $ 135,859 $ 658,126 $ 850,998 $ 541,655 $ 135,965 $ 400,412 $ 49,523 $ — $ 2,772,538

Special Mention — 90,428 — — — — — — 90,428

Substandard — 5,711 2,309 2,422 7,583 5,603 — — 23,628

15 unchanged sentences

Pass $ 20,593 $ 69,414 $ 39,276 $ 6,280 $ 351 $ 17,876 $ 2,600 $ — $ 156,390

Substandard — 271 — — — — — — 271

Total $ 20,593 $ 69,685 $ 39,276 $ 6,280 $ 351 $ 17,876 $ 2,600 $ — $ 156,661

19 unchanged sentences

30 days past due — 760 — — — — — — 760

60 days past due — — — 2,617 — — — — 2,617

90+ days past due — 87 — — — — — — 87

Total $ 92,081 $ 219,835 $ 8,838 $ 2,860 $ 358 $ 479 $ — $ — $ 324,451

3 unchanged sentences

60 days past due — — 245 — — — — — 245

90+ days past due — — — — — 8 — — 8

Total $ 19,128 $ 41,658 $ 35,651 $ 11,517 $ 4,166 $ 12,722 $ — $ — $ 124,842

19 unchanged sentences

NOTE E - ALLOWANCE FOR LOAN LOSSES

For a detailed discussion of loans and credit quality, including accounting policies and the CECL methodology used to estimate the allowance for credit losses, see Note A, "Summary of Significant Accounting Policies." The following tables summarize the activity in the allowance for loan losses by loan portfolio segment and class.

The following tables summarize the activity in the allowance for loan losses by loan portfolio segment and class.

Twelve Months Ended September 30, 2024 Beginning

Allowance Charge-offs Recoveries Provision &

Transfers Ending Allowance

Ending Allowance

(In thousands)

14 unchanged sentences

$ 177,207 $ ( 3,625 ) $ 2,269 $ 27,902 $ 203,753

1 Provision & transfer amounts within the table include the $ 16,000,000 initial provision related to non-PCD loans acquired during the year and the $ 7,403,000 PCD ACL amount included in the Merger purchase price allocation but do not reflect a provision recapture from unfunded commitments of $ 3,000,000 .

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022

Twelve Months Ended September 30, 2023 Beginning Allowance Charge-offs Recoveries Provision &

16 unchanged sentences

$ 172,808 $ ( 46,470 ) $ 1,369 $ 49,500 $ 177,207

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021

1 Provision & transfer amounts within the table do not reflect a provision recapture from unfunded commitments of $ 8,000,000 .

The Company recorded a provision for credit losses of $ 17,500,000 in 2024, compared to a provision of $ 41,500,000 for 2023.

In 2023, provisioning was largely due to adjustments for one large charge-off taken, offset by reduced unfunded commitment balances.

For the year ended September 30, 2023, net charge-offs were $ 45,101,000 , compared to recoveries of $ 3,508,000 in the prior year.

In 2024, the provision included the initial reserves for acquired non-PCD loans.

The increase in the overall ACL in 2024 was a combination of the provision recorded and the reserve for LBC PCD loans booked in purchase accounting.

For the year ended September 30, 2024, net charge-offs were $ 1,356,000 , compared to $ 45,101,000 in the prior year.

A loan is charged-off when the loss is estimable and it is confirmed that the borrower is not expected to be able to meet its contractual obligations.

5 unchanged sentences

The construction, land, multi-family, commercial real estate and commercial and industrial loans are risk rated on a loan by loan basis to determine the relative risk inherent in specific borrowers or loans.

Based on that risk rating, the loans are assigned a grade and classified as described in Note D "Loans Receivable."

Based on that risk rating, the loans are assigned a grade and classified as described in Note D "Loans Receivable." It is important to note, just because a loan is risk-rated below a "pass" rating, it does not necessarily indicate there will be future charge-offs on that loan.

Loans are downgraded because of either borrower specific or industry-wide financial or operating stresses.

The following tables provide the amortized cost of loans receivable based on risk rating categories (as previously defined).

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022

September 30, 2024 Internally Assigned Grade

17 unchanged sentences

Total grade as a % of total loans 97.6 % 0.4 % 2.0 % — % — %

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021

September 30, 2023 Internally Assigned Grade

76 unchanged sentences

Securities that are traded on active exchanges, including the Company's equity securities, are measured using the closing price in an active market and are considered a Level 1 input method.

Certain loans acquired in the Merger which were designated as held for sale were recorded at fair value to be remeasured on a recurring basis until sold.

The fair value of these loans was based on observable market data including dealer quotes and bids from third parties.

These were considered a Level 2 input method.

The Company offers interest rate swaps to its variable rate borrowers who want to manage their interest rate risk.

20 unchanged sentences

Commercial loan hedges — 1,595 — 1,595

Mortgage loan fair value hedges — 46,396 — 46,396

Borrowings cash flow hedges — 117,271 — 117,271

2 unchanged sentences

Client swap program hedges $ — $ 47,388 $ — $ 47,388

Mortgage loan fair value hedges — 667 — 667

Total Financial Liabilities $ — $ 48,055 $ — $ 48,055

41 unchanged sentences

(In thousands)

Impaired loans (1) $ — $ — $ 7,912 $ 7,912 $ ( 1,286 )

Loans receivable (1) $ — $ — $ 35,627 $ 35,627 $ ( 46,079 )

Real estate owned (2) — — 3,857 3,857 ( 181 )

41 unchanged sentences

2 3,267,589 3,276,122 3,650,000 3,653,229

Junior subordinated deferrable interest debentures 3 50,718 50,240 — —

Other liabilities - client swap program hedges 2 47,388 47,388 79,668 79,668

Other liabilities - mortgage loan fair value hedges 2 667 667 — —

The following methods and assumptions were used to estimate the fair value of financial instruments:

13 unchanged sentences

Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific borrower information.

FHLB and FRB stock – The fair value is based upon the par value of the stock which equates to its carrying value.

FHLB stock – The fair value is based upon the par value of the stock which equates to its carrying value.

Time deposits – The fair value of fixed-maturity time deposits is estimated by discounting the estimated future cash flows using the rates currently offered for deposits with similar remaining maturities.

Borrowings – The fair value of FHLB advances and FRB borrowings is estimated by discounting the estimated future cash flows using rates currently available to the Company for debt with similar remaining maturities.

Junior subordinated deferrable interest debentures - The fair value of junior subordinated debentures is estimated using an income approach valuation technique.

The significant unobservable input utilized in the estimation of fair value of these instruments is the credit risk adjusted spread.

The credit risk adjusted spread represents the nonperformance risk of the liability, contemplating the inherent risk of the obligation.

The ending carrying (fair) value of the junior subordinated debentures measured at fair value represents the estimated amount that would be paid to transfer these liabilities in an orderly transaction amongst market participants.

Due to credit concerns in the capital markets and inactivity in the trust preferred markets that have limited the observability of market spreads, the Company has classified this as a Level 3 fair value measurement.

Interest rate swaps – The Company offers interest rate swaps to its variable rate borrowers who want to manage their interest rate risk.

12 unchanged sentences

$ 1,981,554 $ 165,624 $ 3,614,512 $ 48,055

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022

September 30, 2023 Derivative Assets Derivative Liabilities

6 unchanged sentences

$ 2,516,405 $ 312,971 $ 806,744 $ 79,668

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021

The Company enters into interest rate swaps to hedge interest rate risk.

11 unchanged sentences

At September 30, 2024, the amortized cost basis of the closed loan portfolios used in the hedging relationships was $ 7,252,017,000 , the cumulative basis adjustment associated with the hedging relationships was $ 21,476,000 , and the amount of the designated hedged items was $ 2,570,000,000 .

During the year, hedge accounting was discontinued on a $ 300,000,000 last of layer hedge.

A basis adjustment of $ 1,232,211 associated with the terminated portion of the hedge was deferred and is being accreted over the remaining life of the associated pool of loans.

(2) Includes the amortized cost basis of commercial loans designated in fair value hedging relationships.

4 unchanged sentences

$ 1,816,870 $ ( 48,865 )

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022

(1) Includes the amortized cost basis of the closed mortgage loan portfolios used to designate the hedging relationships in which the hedged items are the last layer expected to be remaining at the end of the hedging relationships.

4 unchanged sentences

The primary purpose of these hedges is to mitigate the risk of changes in future cash flows resulting from increasing interest rates.

For qualifying cash flow hedges under ASC 815, gains and losses on the interest rate swaps are recorded in accumulated other comprehensive income ("AOCI") and then reclassified into earnings in the same period the hedged cash flows affect earnings and within the same

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021

income statement line item as the hedged cash flows.

As of September 30, 2023, the maturities for hedges of adjustable rate borrowings ranged from less than one year to seven years , with the weighted average being 5.5 years.

As of September 30, 2024, the maturities for hedges of adjustable rate borrowings ranged from less than one year to five years , with the weighted average being 5.1 years.

The following table presents the impact of derivative instruments (cash flow hedges on borrowings) on AOCI for the periods presented.

4 unchanged sentences

Total pre-tax gain/(loss) recognized in AOCI $ ( 67,102 ) $ 4,428

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022

The following table presents the gains/(losses) on derivative instruments in fair value and cash flow accounting hedging relationships under ASC 815 for the period presented.

19 unchanged sentences

The interest rate swaps are derivatives under ASC 815, with changes in fair value recorded in earnings.

The net impact to the statement of operations for the year ended September 30, 2023 was a decrease in other income of $ 870,000 .

There was no net income to the statement of operations for the year ended September 30, 2022 as the changes in fair value of the receive fixed swap and pay fixed swap offset each other.

The net impact to the statement of operations for the year ended September 30, 2024 was an increase in other income of $ 241,000 .

The net impact for the year ended September 30, 2023 was a decrease in other income of $ 870,000 .

As of September 30, 2024, none of the outstanding notional balance is associated with related party loans.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021

The following table presents the impact of derivative instruments (client swap program) that are not designated in accounting hedges under ASC 815 for the periods presented.

5 unchanged sentences

$ 241 $ ( 870 )

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022

NOTE H – REVENUE FROM CONTRACTS WITH CUSTOMERS

37 unchanged sentences

September 30, 2024 September 30, 2023

Useful Life (In thousands)

in Years (In thousands)

Land — $ 88,055 $ 90,726

62 unchanged sentences

1 to 3 years 93,354 —

3 to 5 years 167 —

$ 2,192,874 $ 2,900,000

12 unchanged sentences

Interest expense during the year (including swap interest income and expense) $ 111,574 $ 99,631 $ 28,729

The Bank has a credit line with the FHLB equal to 45 % of total assets, subject to collateral requirements.

The Bank has entered into borrowing agreements with the FHLB to borrow funds under a short-term floating rate cash management advance program and a fixed-rate term loan agreements.

All borrowings are secured by stock of the FHLB, deposits with the FHLB and a blanket pledge of qualifying loans receivable as provided in the agreements with the FHLB.

During fiscal 2023, the Company borrowed $ 750,000,000 from the FRB's BTFP.

This program offers up to 1 year fixed-rate term borrowings that are prepayable without penalty.

The Bank has a credit line with the FHLB - DM equal to 45 % of total assets depending on specific collateral eligibility.

The Bank has entered into borrowing agreements with the FHLB - DM to borrow funds under a short-term floating rate cash management advance program and fixed-rate term loan agreements.

All borrowings are secured by stock of the FHLB - DM, deposits with the FHLB - DM, and a blanket pledge of qualifying loans receivable.

The Bank also has a credit line with the FHLB - SF in support of LBC borrowings from the FHLB - SF, but the Bank is unable to take down new advances against this line.

The FHLB - SF credit line is secured by a line-item pledge of single-family residential mortgages that are specifically identified.

The Bank participates in the FRB of San Francisco Borrower-in-Custody program which collateralizes primary credit borrowings.

The Company also elected to utilize the Federal Reserve's Bank Term Funding Program ("BTFP") to leverage its highly favorable terms to fortify the Bank's liquidity position.

These borrowings are repayable at any time without penalty and were the lowest cost funding source available at the time.

The Federal Reserve ceased making new BTFP loans on March 11, 2024.

During fiscal 2024, the Company obtained in the Merger an additional balances of $ 325,000,000 from the FRB's BTFP in addition to the $ 750,000,000 borrowed the previous year.

This program offered up to 1 year fixed-rate term borrowings that are prepayable without penalty.

These borrowings are not callable by the FRB and have contractual maturity dates within 1 year.

NOTE M - JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES

The Company acquired in the Merger two wholly-owned trust companies (the "Trusts") formed by LBC which issued guaranteed preferred beneficial interests (the "Trust Securities") in the LBC’s junior subordinated deferrable interest debentures (the "Notes").

The Company is not considered the primary beneficiary of the Trusts and therefore, the Trusts are not consolidated in the Company’s financial statements, but rather the junior subordinated debentures are shown as a liability.

The Company’s investment in the common securities of the Trusts, totaling $ 1.9 million, is included in other assets in the consolidated statements of financial condition.

The sole asset of the Trusts are the Notes that they hold.

The Trusts have invested the proceeds of such Trust Securities in the Notes.

Each of the Notes has an interest rate equal to the corresponding Trust Securities distribution rate.

The Company has the right to defer payment of interest on the Notes at any time or from time to time for a period not exceeding five years provided that no extension period may extend beyond the stated maturity of the relevant Notes.

During any such extension period, distributions on the Trust Securities will also be deferred, and the Company’s ability to pay dividends on its common stock will be restricted.

The Company has assumed LBC's contractual arrangements which, taken collectively, fully and unconditionally guarantee payment of:

(i) accrued and unpaid distributions required to be paid on the Trust Securities;

(ii) the redemption price with respect to any Trust Securities called for redemption by the Trusts;

and (iii) payments due upon a voluntary or involuntary dissolution, winding up or liquidation of the Trusts.

The Trust Securities are mandatorily redeemable upon maturity of the Notes, or upon earlier redemption as provided in the indenture.

The Company has the right to redeem the Notes purchased by the Trusts, in whole or in part, on or after the redemption date.

As specified in the indenture, if the Notes are redeemed prior to maturity, the redemption price will be the principal amount and any accrued but unpaid interest.

AND SUBSIDIARIES

1 unchanged sentence

YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022

NOTE M - COMMITMENTS AND CONTINGENCIES

The following table is a summary of the outstanding Trust Securities and Notes at September 30, 2024.

Issued Amount Carrying Amount 1

Date Issued Maturity Date Rate Index

Issuer Rate (Quarterly Reset)

($ in thousands)

Luther Burbank Statutory Trust I $ 41,238 $ 33,681 6.59 % 3/30/2006 6/15/2036 3 month CME Term SOFR + Tenor Spread Adjustment ( 0.26 %) + 1.38 %

Luther Burbank Statutory Trust II $ 20,619 $ 17,037 6.83 % 3/30/2007 6/15/2037 3 month CME Term SOFR + Tenor Spread Adjustment ( 0.26 %) + 1.62 %

1 Includes fair value adjustments made as a result of purchase accounting

NOTE N - COMMITMENTS AND CONTINGENCIES

Lease Commitments - The Company’s lease commitments consist primarily of real estate property for branches and office space under various non-cancellable operating leases that expire between 2024 and 2070.

11 unchanged sentences

Right-of-use assets obtained in exchange for new operating lease liabilities during the twelve months ended September 30, 2024 and 2023 were $ 12,890,000 and $ 2,349,000 .

Right-of-use assets obtained in the Merger were valued at $ 11,478,000 .

The following table presents the components of net lease costs, a component of Occupancy expense.

11 unchanged sentences

(In thousands) Year ending September 30,

2025 $ 11,786

Thereafter 14,443

3 unchanged sentences

Rental expense, including amounts paid under month-to-month cancelable leases, amounted to $ 11,025,000 and $ 7,686,000 in 2024, and 2023, respectively.

Financial Instruments with Off-Balance Sheet Risk - The only material off-balance-sheet credit exposures are loans in process and unused lines of credit, which had a combined balance of $ 3,625,333,000 and $ 4,947,570,000 at September 30, 2023 and September 30, 2022, respectively.

Financial Instruments with Off-Balance Sheet Risk - Off-balance-sheet credit exposures for the Company unfunded loan commitments and letters of credit from the FHLB - DM and the FHLB - SF.

As of September 30, 2024, the Bank was obligated on FHLB letters of credit totaling $ 902,606,000 and unfunded loan commitments of $ 2,928,697,000 .

As of September 30, 2023 FHLB letter of credit obligations were $ 0 and unfunded loan commitments were $ 3,625,333,000 .

The reserve for unfunded commitments was $ 21,500,000 as of September 30, 2024, which is a decrease from $ 24,500,000 at September 30, 2023.

5 unchanged sentences

YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022

NOTE N - INCOME TAXES

NOTE O - INCOME TAXES

Under generally accepted accounting principles, the Company uses the asset and liability method of accounting for income taxes.

3 unchanged sentences

Deferred tax balances represent temporary differences between the financial statement and corresponding tax treatment of income, gains, losses, deductions or credits.

With the completion of the Merger, the deferred tax amounts now include a number of deferred tax items carried over from LBC, as well as new deferred tax items created as a consequence of the purchase accounting process and post-merger asset sales.

In particular, deferred tax assets now include significant new items for loan purchase discount and loss carryover.

September 30, 2024 September 30, 2023

4 unchanged sentences

Non-accrual loan interest 3,124 1,797

Deferred compensation 2,901 6,841

Accrued bonus and deferred compensation 7,815 2,901

Stock based compensation 4,696 3,089

Lease liability 9,626 5,367

Loan purchase discount 48,064 —

Loss carryover 68,483 —

Other 1,739 2,804

2 unchanged sentences

FHLB stock dividends 6,171 9,741

Valuation adjustment on available-for-sale securities and cash flow hedges 13,933 15,765

Net unrealized gain on available-for-sale securities and cash flow hedges 13,758 13,933

Loan origination fees and costs 11,777 11,471

3 unchanged sentences

Acquired intangibles 12,824 4,798

Other 184 483

Total deferred tax liabilities 74,108 67,666

2 unchanged sentences

Net tax asset (liability) $ 119,248 $ 8,479

At the end of the fiscal year, the Company has about $ 290 million of ordinary tax loss to be carried to future years.

The loss carryover amount is based in large part from the tax loss realized from the portfolio loan sale following the Luther Burbank merger.

Because of the annual loss limitation rules under Section 382 of the Internal Revenue Code, it will take about 17 years for the Company to utilize all that loss carryover against its future taxable income.

However, there is no applicable time limit in this case, and therefore Company does not anticipate any expiration of the loss carryover amount.

AND SUBSIDIARIES

1 unchanged sentence

YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022

In its deferred tax assets at the end of the fiscal year, the Company also has about $ 1.2 million of remaining Oregon tax credits that the Company previously purchased as part of its community investments to support Oregon farmworkers housing.

That remaining Oregon tax credit will be fully utilized under an installment schedule over the next two years.

The table below presents a reconciliation of the statutory federal income tax rate to the Company's effective income tax rate.

2 unchanged sentences

State income tax 2.3 1.7 1.9

Tax-exempt interest income ( 2.1 ) ( 1.2 ) ( 0.9 )

Interest expense disallowance 1.2 0.5 0.1

Low-income housing investments ( 1.1 ) ( 1.3 ) ( 0.9 )

Other differences 0.6 0.1 —

12 unchanged sentences

$ 56,015 $ 67,650 $ 63,707

Based on current information, the Company does not expect that changes in the amount of unrecognized tax benefits over the next 12 months will have a significant impact on its results of operations or financial position.

The Company does not have a liability for uncertain tax positions as of September 30, 2024 or September 30, 2023.

2 unchanged sentences

The state impact of any federal changes remains subject to examination by various states for a period of up to two years after formal notification to the states.

NOTE O - EMPLOYEE BENEFIT PLANS

NOTE P - EMPLOYEE BENEFIT PLANS

401(k) Plan - The Company maintains a 401(k) Plan (the "Plan") for the benefit of its employees.

1 unchanged sentence

Such amounts are not in excess of amounts permitted by the Employee Retirement Income Security Act of 1974.

Plan participants may make voluntary after-tax contributions of their considered earnings as defined by the Plan.

In addition, participants may make pre-tax contributions up to the statutory limits through the 401(k) provisions of the Plan.

The annual addition from contributions to an individual participant's account in this Plan cannot exceed the lesser of 100 % of base salary or $ 66,000 .

AND SUBSIDIARIES

1 unchanged sentence

YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022

Plan participants may make voluntary after-tax contributions of their considered earnings as defined by the Plan.

In addition, participants may make pre-tax contributions up to the statutory limits through the 401(k) provisions of the Plan.

The annual addition from contributions to an individual participant's account in this Plan cannot exceed the lesser of 100 % of base salary or $ 69,000 .

New employees become eligible to participate in the Plan and make employee contributions on the first day of the calendar month following the completion of 30 days of employment.

21 unchanged sentences

Before 62 — %

On March 9, 2023, the date of distribution, a total of 368,966 common stock units were credited to participant accounts based on the closing share price of $ 31.71 .

An additional 7,292 units were credited to accounts during 2023 as a result of dividends paid subsequent to the initial distribution.

During fiscal 2024, 12,710 units were credited to participant accounts as a result of dividends paid.

As a result, there were a total of 388,968 share units with a weighted average grant date fair value of $ 31.56 held within SERP accounts at September 30, 2024.

1 unchanged sentence

There were no shares paid during 2024 and there were no participants vested.

NOTE P - STOCK AWARD PLANS

NOTE Q - STOCK AWARD PLANS

The Company's stock-based compensation plan provides for grants of stock options and restricted stock.

On January 22, 2020, the shareholders approved the 2020 Incentive Plan.

Upon approval of the 2020 Incentive Plan, the 2011 Incentive Plan terminated with respect to future awards, and the remaining shares that were not awarded under the 2011 Incentive Plan as of that date were canceled.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022

A total of 3,200,000 shares were made available for grant under the 2020 Incentive Plan and 941,420 shares remain available for issuance as of September 30, 2024.

2 unchanged sentences

The Company's policy is to issue new shares upon option exercises.

The fair value of stock options granted is estimated on the

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021

date of grant using the Black-Scholes option-pricing model.

The fair value of stock options granted is estimated on the date of grant using the Black-Scholes option-pricing model.

Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options granted but are not considered by the model.

4 unchanged sentences

Stock Option Awards:

There were 779,740 stock options granted under the incentive plans during 2023, compared to 352,043 stock options granted in 2022 and no stock options granted in 2021 under the previous plan.

There were no stock options granted under the incentive plans during 2024, compared to 779,740 options granted in 2023 and 352,043 options granted in 2022 under the previous plan.

A summary of stock option activity and changes during the year are as follows.

7 unchanged sentences

Outstanding at September 30, 2023 1,707,825 29.32 8 —

Granted 779,740 28.47

Exercised ( 196,086 ) 26.45

40 unchanged sentences

Compensation expense related to restricted stock awards was $ 5,695,000 , $ 4,512,000 , and $ 4,367,000 for the years ended 2024, 2023 and 2022, respectively.

NOTE Q - SHAREHOLDERS' EQUITY

NOTE R - SHAREHOLDERS' EQUITY

The Company and the Bank are subject to various regulatory capital requirements.

61 unchanged sentences

Diluted EPS 2.50 3.72 3.39

NOTE R - FINANCIAL INFORMATION – WAFD, INC.

NOTE S - FINANCIAL INFORMATION – WAFD, INC.

The following WaFd, Inc.

5 unchanged sentences

Other assets 18,024 16,171

Investment in statutory trust 1,857 —

Investment in subsidiary 3,009,845 2,340,199

1 unchanged sentence

Dividend payable on preferred stock $ 3,656 $ 3,656

Junior subordinated deferrable debentures 50,718 —

Other liabilities 1,018 738

10 unchanged sentences

Dividends from subsidiary $ 140,000 $ 56,490 $ 172,850

Interest income 78 — —

Total Income 140,078 56,490 172,850

20 unchanged sentences

Stock based compensation expense 9,181 7,914 6,808

Decrease in other assets 1,329 — —

Increase in other liabilities 36 262 440

Net changes in other assets and liabilities 2,531 1,365 262

Net cash provided by operating activities 143,125 64,062 179,444

Cash Flows From Investing Activities

Net cash received in business combinations 16,173 — —

Purchase of strategic investments ( 3,000 ) ( 12,500 ) —

4 unchanged sentences

Proceeds from the purchase of common stock through the Employee Stock Purchase Program 992 177 —

Repayment of long term senior debt ( 95,000 ) 0 0

Treasury stock purchased ( 27,069 ) ( 30,463 ) ( 3,260 )

7 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data