WAFD INC 10-K

Item 8. Financial Statements and Supplementary Data Index to financial statements and financial statement schedules: Report of Independent Registered Public Accounting Firm (PCAOB ID: 34 ) 64 Financial statements and supplementary data: Consolidated Statements of Financial Condition 68 Consolidated Statements of Operations 69 Consolidated Statements of Comprehensive Income 70 Consolidated Statements of Shareholders' Equity 71 Consolidated Statements of Cash Flows 72 Notes to Consolidated Financial Statements 74 64 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of WaFd, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated statements of financial condition of WaFd, Inc. and subsidiaries (the "Company") as of September 30, 2024 and 2023, the related consolidated statements of operations, comprehensive income, shareholders' equity, and cash flows, for each of the three years in the period ended September 30, 2024, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2024, and 2023, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2024, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 20, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters 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 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 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. Significant management judgments are required in determining whether, and to what extent, qualitative adjustments for each portfolio loan class are required. These adjustments are made after considering the conditions over the period from which historical loss experience was based and are split into two components: 1) asset or class specific risk characteristics or current 65 conditions at the reporting date related to portfolio credit quality, remaining payments, volume and nature, credit culture and management, business environment or other management factors, not captured in the historical loss rates and 2) reasonable and supportable forecasts of future economic conditions and collateral values. Given the significance of the ALL and management judgment required for quantitative and qualitative evaluation of past events, current conditions, and reasonable and supportable forecasts, performing audit procedures to evaluate the ALL requires a high degree of auditor judgment and increased extent of effort. We have identified the ALL estimate for certain loan portfolio classes as a critical audit matter based upon the above factors. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the ALL estimate for loan portfolio classes for which we concluded the ALL was significant included the following, among others: • We tested the effectiveness of management’s controls over model applicability, qualitative adjustments, the reasonable and supportable forecast adjustments, and management's review and approval process over the final determination of the ALL. • We tested the underlying data and mathematical accuracy of the cohort methodology used to determine most loan portfolio class historical loss rates. • 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. Our procedures included evaluating management’s inputs and assumptions used in determining the qualitative and forecast adjustments by comparing the information to internal and external source data including, among others, the economic forecasts utilized by the Company and third-party economic forecasts for selected assumptions. 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. Fair Value of Acquired Loans Receivable and Core Deposit Intangible Assets - Refer to Note B to the financial statements Critical Audit Matter Description 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 66 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 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 Seattle, Washington November 20, 2024 We have served as the Company’s auditor since 1982. 67 WAFD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION September 30, 2024 September 30, 2023 (In thousands, except share data) ASSETS Cash and cash equivalents $ 2,381,102 $ 980,649 Available-for-sale securities, at fair value 2,572,709 1,995,097 Held-to-maturity securities, at amortized cost 436,972 423,586 Loans receivable, net of allowance for loan losses of $ 203,753 and $ 177,207 20,916,354 17,476,550 Interest receivable 102,827 87,003 Premises and equipment, net 247,901 237,011 Real estate owned 4,567 4,149 FHLB stock 95,617 126,820 Bank owned life insurance 267,633 242,919 Intangible assets, including goodwill of $ 411,360 and $ 304,750 448,425 310,619 Federal and state income tax assets, net 119,248 8,479 Other assets 466,975 581,793 $ 28,060,330 $ 22,474,675 LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities Customer accounts Transaction deposit accounts $ 11,817,185 $ 10,765,313 Time deposit accounts 9,556,785 5,305,016 21,373,970 16,070,329 Borrowings 3,267,589 3,650,000 Junior subordinated debentures 50,718 — Advance payments by borrowers for taxes and insurance 61,330 52,550 Accrued expenses and other liabilities 306,423 275,370 25,060,030 20,048,249 Commitments and contingencies (see Note N) Shareholders’ equity Preferred stock, $ 1.00 par value, 5,000,000 shares authorized; 300,000 and 300,000 shares issued; 300,000 and 300,000 shares outstanding 300,000 300,000 Common stock, $ 1.00 par value, 300,000,000 shares authorized; 154,007,429 and 136,466,579 shares issued; 81,220,269 and 64,736,916 shares outstanding 154,007 136,467 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; 72,787,160 and 71,729,663 shares ( 1,639,131 ) ( 1,612,345 ) Retained earnings 1,978,898 1,867,749 3,000,300 2,426,426 $ 28,060,330 $ 22,474,675 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 68 WAFD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year ended September 30, 2024 2023 2022 (In thousands, except share data) INTEREST INCOME Loans receivable $ 1,165,849 $ 900,068 $ 601,592 Mortgage-backed securities 59,782 43,184 26,332 Investment securities and cash equivalents 146,079 99,703 38,435 1,371,710 1,042,955 666,359 INTEREST EXPENSE Customer accounts 532,434 237,233 43,041 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 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 ) — Loan fee income 2,745 3,885 7,168 Deposit fee income 27,507 26,050 25,942 Other income 29,857 23,100 33,163 Total non-interest income 60,692 52,201 66,372 NON-INTEREST EXPENSE Compensation and benefits 234,148 196,534 193,917 Occupancy 42,036 41,579 42,499 FDIC insurance premiums 28,870 20,025 9,531 Product delivery 23,986 20,973 19,536 Information technology 53,306 49,447 47,202 Other expense 65,926 47,477 45,890 Total non-interest expense 448,272 376,035 358,575 Gain on real estate owned, net 304 176 651 Income before income taxes 256,056 325,076 300,037 Income tax expense 56,015 67,650 63,707 Net income 200,041 257,426 236,330 Dividends on preferred stock 14,625 14,625 14,625 Net income available to common shareholders $ 185,416 $ 242,801 $ 221,705 PER SHARE DATA Basic earnings per common share $ 2.50 $ 3.72 $ 3.40 Diluted earnings per common share 2.50 3.72 3.39 Dividends paid on common stock per share 1.03 0.99 0.95 Basic weighted average number of common shares outstanding 74,244,323 65,192,510 65,287,650 Diluted weighted average number of common shares outstanding 74,290,568 65,255,283 65,404,110 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 69 WAFD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year ended September 30, 2024 2023 2022 (In thousands) Net income $ 200,041 $ 257,426 $ 236,330 Other comprehensive income (loss), net of tax: Net unrealized gain (loss) during the period on available-for-sale debt securities, net of tax of $( 17,782 ), $ 2,493 and $ 36,908 61,225 ( 9,360 ) ( 123,077 ) Reclassification adjustment of net (gain) loss included in net income during the period from sale of available-for-sale securities, net of tax of $( 81 ), $( 9 ) and $( 23 ) 261 26 76 Net unrealized gain (loss) from investment securities, net of reclassification adjustment 61,486 ( 9,334 ) ( 123,001 ) Net unrealized gain (loss) during the period on borrowing cash flow hedges, net of tax of $ 14,546 , $( 654 ) and $( 31,805 ) ( 52,556 ) 3,774 105,697 Net unrealized gain (loss) in cash flow hedging instruments, net of reclassification adjustment ( 52,556 ) 3,774 105,697 Other comprehensive income (loss) 8,930 ( 5,560 ) ( 17,304 ) Comprehensive income $ 208,971 $ 251,866 $ 219,026 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 70 WAFD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands) Preferred Stock Common Stock Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Balance at September 30, 2021 $ 300,000 $ 135,993 $ 1,678,622 $ 1,528,611 $ 69,785 $ ( 1,586,947 ) $ 2,126,064 Net income — — — 236,330 — — 236,330 Other comprehensive income (loss) — — — — ( 17,304 ) — ( 17,304 ) Dividends on common stock ($ 0.95 per share) — — — ( 61,576 ) — — ( 61,576 ) Dividends on preferred stock ($ 48.75 per share) — — — ( 14,625 ) — — ( 14,625 ) Proceeds from stock issuances — 65 1,758 — — — 1,823 Stock-based compensation expense — 213 6,595 — — — 6,808 Treasury stock purchased — — — — — ( 3,260 ) ( 3,260 ) Balance at September 30, 2022 300,000 136,271 1,686,975 1,688,740 52,481 ( 1,590,207 ) 2,274,260 Net income — — — 257,426 — — 257,426 Other comprehensive income (loss) — — — ( 5,560 ) — ( 5,560 ) Dividends on common stock ($ 0.99 per share) — — — ( 63,792 ) — — ( 63,792 ) Dividends on preferred stock ($ 48.75 per share) — — — ( 14,625 ) — — ( 14,625 ) Proceeds from stock issuances — 42 1,224 — — — 1,266 Stock-based compensation expense — 154 ( 565 ) — — — ( 411 ) Repurchase of stock warrants — — — — — 8325 8,325 Treasury stock purchased — — — — — ( 30,463 ) ( 30,463 ) Balance at September 30, 2023 300,000 136,467 1,687,634 1,867,749 46,921 ( 1,612,345 ) 2,426,426 Net income — — — 200,041 — — 200,041 Other comprehensive income (loss) — — — — 8,930 — 8,930 Dividends on common stock ($ 1.03 per share) — — — ( 74,267 ) — — ( 74,267 ) Dividends on preferred stock ($ 48.75 per share) — — — ( 14,625 ) — — ( 14,625 ) Stock issued in merger — 17,089 448,415 — — — 465,504 Proceeds from stock issuances — 231 5,948 — — — 6,179 Stock-based compensation expense — 220 8,678 — — 283 9,181 Treasury stock purchased — — — — — ( 27,069 ) ( 27,069 ) Balance at September 30, 2024 $ 300,000 $ 154,007 $ 2,150,675 $ 1,978,898 $ 55,851 $ ( 1,639,131 ) $ 3,000,300 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 71 WAFD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended September 30, 2024 2023 2022 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 200,041 $ 257,426 $ 236,330 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization, accretion and other, net 134,103 22,970 64,050 Stock-based compensation expense 9,181 7,914 6,808 Provision (release) for credit losses 17,500 41,500 3,000 Loss (gain) on sale of investment securities ( 342 ) ( 33 ) ( 99 ) Gain on settlements of bank owned life insurance — ( 821 ) ( 1,385 ) Impairment loss on premises and equipment — 6 — Net realized (gain) loss on sales of premises, equipment and real estate owned ( 2,555 ) ( 1,153 ) 655 Decrease (increase) in accrued interest receivable 9,873 ( 23,131 ) ( 13,236 ) Decrease (increase) in federal and state income tax receivable 18,751 ( 6,650 ) 3,877 Decrease (increase) in cash surrender value of bank owned life insurance ( 6,933 ) ( 5,976 ) ( 5,549 ) Decrease (increase) in other assets 148,001 ( 67,342 ) ( 100,146 ) Increase (decrease) in federal and state income tax liabilities — ( 3,306 ) 8,386 Increase (decrease) in accrued expenses and other liabilities ( 88,387 ) ( 7,447 ) 65,774 Net cash provided by (used in) operating activities 439,233 213,957 268,465 CASH FLOWS FROM INVESTING ACTIVITIES Origination of loans and principal repayments, net ( 348,528 ) ( 1,330,399 ) ( 1,748,955 ) Loans purchased — ( 79,965 ) ( 576,697 ) FHLB & FRB stock purchase ( 602,941 ) ( 654,805 ) ( 293,800 ) FHLB & FRB stock redeemed 669,975 623,058 301,590 Available-for-sale securities purchased ( 549,159 ) ( 376,481 ) ( 587,942 ) Principal payments and maturities of available-for-sale securities 386,564 420,154 510,156 Proceeds from sales of available-for-sale investment securities 182,682 1,169 5,020 Held-to-maturity securities purchased ( 47,092 ) — ( 195,357 ) Principal payments and maturities of held-to-maturity securities 36,013 39,414 95,326 Proceeds from sales of real estate owned 6,802 7,192 6,978 Proceeds from settlements of bank owned life insurance — 1,809 2,266 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 by (used in) investing activities 3,287,218 ( 1,377,917 ) ( 2,493,164 ) CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in customer accounts ( 324,506 ) 40,759 487,458 Proceeds from borrowings 17,037,035 17,175,000 7,345,000 Repayments of borrowings ( 18,842,525 ) ( 15,650,000 ) ( 6,940,000 ) Principal payments and maturities of senior debt ( 95,000 ) — — Proceeds from stock-based awards 5,187 1,089 1,823 Dividends paid on common stock ( 74,267 ) ( 63,792 ) ( 61,576 ) Dividends paid on preferred stock ( 14,625 ) ( 14,625 ) ( 14,625 ) Proceeds from employee stock purchase 992 177 — Treasury stock purchased ( 27,069 ) ( 30,463 ) ( 3,260 ) Increase (decrease) in advance payments by borrowers for taxes and insurance 8,780 2,499 3,035 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 ) Cash and cash equivalents at beginning of year 980,649 683,965 2,090,809 Cash and cash equivalents at end of year $ 2,381,102 $ 980,649 $ 683,965 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 72 WAFD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended September 30, 2024 2023 2022 (In thousands) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Non-cash investing activities Real estate acquired through foreclosure $ 681 $ 121 $ 73 Other personal property acquired through foreclosure — — 577 Non-cash financing activities Preferred stock dividend payable 3,656 3,656 3,656 Cash paid during the year for Interest 739,076 364,386 65,175 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 73 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Company and nature of operations. 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. 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 210 bank branches located in Washington, Oregon, Idaho, Utah, Arizona, Nevada, New Mexico, California and Texas. Basis of presentation and use of estimates. The Company’s accounting and financial reporting policies conform to accounting principles generally accepted in the United States of America (U.S. GAAP). Inter-company balances and transactions have been eliminated in consolidation. In preparing the consolidated financial statements, the Company makes estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and revenues and expenses during the reporting periods and related disclosures. The areas that require application of significant management judgments often result in the need to make estimates about the effect of matters that are inherently uncertain and may change in future periods. Actual results could differ materially from those estimates. Certain amounts in the financial statements from prior periods have been reclassified to conform to the current financial statement presentation. 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. On February 8, 2021, in connection with an underwritten public offering, the Company issued 300,000 shares of 4.875 % Noncumulative Perpetual Series A Preferred Stock (“Series A Preferred Stock”). 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 74 WAFD, INC. 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). The depositary shares are traded on the NASDAQ Global Select Market under the symbol "WAFDP." The Series A Preferred Stock is redeemable at the option of the Company, subject to all applicable regulatory approvals, on or after April 15, 2026. Cash and cash equivalents. 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. 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. • Low-income housing tax credit investments are accounted for under the proportional amortization method. • For equity investments where the Company has significant influence, the Company applies the equity method of accounting, which adjusts the carrying value of the investment to recognize a proportionate share of the financial results of the investment entity, regardless of whether any distribution is made. Any adjustments to the fair value of these investments are recorded in Other income in the Consolidated Statements of Operations. • 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 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 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 except in certain transformational events. Equity investments measured at NAV are not classified in the fair value hierarchy. Debt securities, including mortgage-backed securities. The Company accounts for debt securities in two categories: 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. 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 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. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. Therefore, the Company did not record an allowance for credit losses for these securities. 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 AFS debt securities differs from the CECL methodology applied for HTM debt securities because AFS debt securities are measured at fair value rather 75 WAFD, INC. 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. If either criteria is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities where neither of the criteria are met, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the credit rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited to the amount that the fair value is less than the amortized cost basis. Any remaining discount that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as a provision (or release) for credit losses. Losses are charged against the allowance when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met. As of September 30, 2024, the Company determined that the unrealized loss positions in AFS securities were not the result of credit losses, 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 AFS debt securities. Loans receivable. Loans that are performing in accordance with their contractual terms are carried at the unpaid principal balance, net of premiums, discounts and net deferred loan fees. Net deferred loan fees include non-refundable loan origination fees less direct loan origination costs. Net deferred loan fees, premiums and discounts are amortized into interest income using either the interest method or straight-line method over the terms of the loans, adjusted for actual prepayments. 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. When a borrower fails to make a required payment on a loan, the Bank attempts to cure the deficiency by contacting the borrower. Contact is made after a payment is 30 days past its grace period. In most cases, deficiencies are cured promptly. If the delinquency is not cured within 90 days, the Bank may institute appropriate action to foreclose on the property. If foreclosed, the property is sold at a public sale and may be purchased by the Bank. Allowance for Credit Losses (Loans Receivable). The Company maintains an allowance for credit losses (“ACL”) for the expected credit losses of the loan portfolio as well as unfunded loan commitments. The amount of ACL is based on ongoing, quarterly assessments by management. 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. The ACL consists of the allowance for loan losses and the reserve for unfunded commitments. The estimate of expected credit losses under the CECL methodology is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. We then consider whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period that historical experience was based for each loan type. Finally, we consider forecasts about future economic conditions or changes in collateral values that are reasonable and supportable. Portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its ACL. The Company has designated two loan portfolio segments, commercial loans and consumer loans. These loan portfolio segments are further disaggregated into classes, which represent loans of similar type, risk characteristics, and methods for monitoring and assessing credit risk. The commercial loan portfolio segment is disaggregated into five classes: multi-family, commercial real estate, commercial and industrial, construction, and land acquisition and development. The risk of loss for the commercial loan portfolio segment is generally most indicated by the credit risk rating assigned to each borrower. Commercial loan risk ratings are determined by experienced senior credit officers based on specific facts and circumstances and are subject to periodic review by an independent internal team of credit specialists. The consumer loan portfolio segment is disaggregated into five classes: single-family-residential mortgage, custom construction, consumer lot loans, home equity lines of credit, and other consumer. The risk of loss for the consumer loan portfolio segment is generally most indicated by delinquency status and general economic factors. Each commercial and consumer loan portfolio class may also be further segmented based on risk characteristics. 76 WAFD, INC. AND SUBSIDIARIES 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. This method pools loans into groups (“cohorts”) sharing similar risk characteristics and tracks each cohort’s net charge-offs over the lives of the loans to calculate a historical loss rate. The historical loss rates for each cohort are then averaged to calculate an overall historical loss rate which is applied to the current loan balance to arrive at the quantitative baseline portion of the allowance for credit losses for the respective loan portfolio class. For certain loan portfolio classes, the Company determined there was not sufficient historical loss information to calculate a meaningful historical loss rate using the cohort methodology. For any such loan portfolio class, the weighted-average remaining maturity (“WARM”) methodology is being utilized until sufficient historical loss data is obtained. The WARM method multiplies an average annual loss rate by the expected remaining life of the loan pool to arrive at the quantitative baseline portion of the allowance for credit losses for the respective loan portfolio class. The Company also considers qualitative adjustments to the historical loss rate for each loan portfolio class. The qualitative adjustments for each loan class consider the conditions over the period from which historical loss experience was based and are split into two components: 1) asset or class specific risk characteristics or current conditions at the reporting date related to portfolio credit quality, remaining payments, volume and nature, credit culture and management, business environment or other management factors and 2) reasonable and supportable forecast of future economic conditions and collateral values. The Company performs a quarterly asset quality review which includes a review of forecasted gross charge-offs and recoveries, nonperforming assets, criticized loans, risk rating migration, delinquencies, etc. The asset quality review is performed by management and the results are used to consider a qualitative overlay to the quantitative baseline. The second qualitative adjustment noted above, economic conditions and collateral values, encompasses a one-year reasonable and supportable forecast period. 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. 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 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. 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 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 77 WAFD, INC. 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. If payment is made on a loan so that the loan becomes less than 90 days past due, and the Company expects full collection of principal and interest, the loan is returned to full accrual status. Any interest ultimately collected is credited to income in the period of recovery. 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 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. In some instances, after the required six consecutive payments are made, management will conclude that collection of the entire principal and interest due is still in doubt. In those instances, the loan will remain on non-accrual status. Accrued interest receivable. The Company has made the following elections regarding accrued interest receivable ("AIR"): • Presenting accrued interest receivable balances separately from their underlying instruments within the consolidated statements of financial condition. • Excluding accrued interest receivable that is included in the amortized cost of financing receivables from related disclosure requirements. • Continuing our policy to write off accrued interest receivable by reversing interest income in cases where the Company does not reasonably expect to receive payment. • Not measuring an allowance for credit losses for accrued interest receivable due to the Company’s policy of writing off uncollectible accrued interest receivable balances in a timely manner. We believe accrued interest receivable recorded as of September 30, 2024 is collectible. Off-balance-sheet credit exposures. 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. The reserve for unfunded commitments represents the expected lifetime credit losses on off-balance sheet obligations such as commitments to extend credit and standby letters of credit. 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 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 N "Commitments and Contingencies" for details. Client swap program hedges. Interest rate swap agreements are provided to certain clients who desire to convert their obligations from variable to fixed interest rates. Under these agreements, the Bank enters into a variable-rate loan agreement with a customer in addition to a swap agreement, and then enters into a corresponding swap agreement with a third party in order to offset its exposure on the customer swap agreement. 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 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. Borrowings cash flow hedges. The Company has entered into interest rate swaps to convert a series of future short-term borrowings to fixed-rate payments. These interest rate swaps qualify as cash flow hedging instruments under ASC 815 so gains and losses are recorded in Other Comprehensive Income to the extent the hedge is effective. Gains and losses on the interest rate swaps are reclassified from OCI to earnings in the period the hedged transaction affects earnings and are included in the same income statement line item that the hedged transaction is recorded. Mortgage loan "last-of-layer" portfolio hedges. The Company has entered into interest rate swaps to hedge the portion of the respective closed portfolios of prepayable mortgage loans that are expected to remain at the end of the hedge term. 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. 78 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 Commercial loan fair value hedges. The Company has entered into interest rate swaps to hedge long term fixed rate commercial loans. These hedges qualify as fair value 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 loan. Premises and equipment. Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is computed on the straight-line method over the estimated useful lives of the respective assets. Costs for improvements are capitalized. Charges for ordinary maintenance and repairs are expensed to operations as incurred. Real estate owned. Real estate properties acquired through foreclosure of loans or through acquisitions are recorded initially at fair value less selling costs and are subsequently recorded at lower of cost or fair value. Costs for improvements are capitalized. Any gains (losses) and maintenance costs are recorded in Gain (loss) on real estate owned, net. Intangible assets. Goodwill represents the excess of the cost of businesses acquired over the fair value of the net assets acquired. Other intangibles, including core deposit intangibles, are acquired assets that lack physical substance but can be distinguished from goodwill. Goodwill is not amortized but 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. We have determined our goodwill balance is all related to a single reporting unit and perform a quantitative impairment assessment. An impairment loss is recorded when the carrying amount of goodwill exceeds its implied fair value. If circumstances indicate that the carrying value of the assets may not be recoverable, an impairment charge could be recorded. Other intangible assets are amortized over their estimated lives and are subject to impairment testing when events or circumstances change. The Company performed its annual impairment assessment as of August 31, 2024 and concluded the fair value of our single reporting unit exceeded its respective carrying value and did not result in impairment for the reporting unit. When performing the quantitative assessment of goodwill impairment, we estimated the fair value of our reporting unit using the market capitalization approach, based on our stock price, adjusted for the effect of a control premium. The Company continuously monitors for events and circumstances that could negatively impact the key assumptions in determining fair value. 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. 79 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 The table below provides detail regarding the Company's intangible assets. Goodwill Core Deposit and Other Intangibles Total (In thousands) Balance at September 30, 2022 $ 303,457 $ 5,552 $ 309,009 Additions 1,293 1,297 2,590 Amortization — ( 980 ) ( 980 ) Balance at September 30, 2023 304,750 5,869 310,619 Additions 106,610 38,939 145,549 Amortization — ( 7,743 ) ( 7,743 ) Balance at September 30, 2024 $ 411,360 $ 37,065 $ 448,425 The table below presents the estimated future amortization expense of other intangibles for the next five years. Fiscal Year Expense (In thousands) 2025 $ 9,862 2026 7,317 2027 5,567 2028 5,205 2029 5,112 Income taxes. Income taxes are accounted for using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, a deferred tax asset or liability is determined based on the temporary differences between the financial statement and corresponding tax treatment of income, gains, losses, deductions or credits using enacted tax rates in effect for the year in which the differences are expected to reverse. The provision for income taxes includes current and deferred income tax expense based on net income adjusted for temporary and permanent differences such as depreciation, loan loss reserve, tax-exempt interest, and affordable housing tax credits. Reserves for uncertain tax positions, together with any related interest and penalties, if applicable, and amortization of affordable housing tax credit investments are recorded within income tax expense. Accounting for stock-based compensation. We recognize in the statement of operations the grant-date fair value of stock options and other equity-based forms of compensation issued to employees over the employees' requisite service period (generally the vesting period). The requisite service period may be subject to performance conditions. Stock options and restricted stock awards generally vest ratably over two to five years and are recognized as expense over that same period of time. The exercise price of each option equals the market price of the Company's Common Stock on the date of the grant, and the maximum term is ten years . Certain grants of restricted stock are subject to performance-based and market-based vesting as well as other approved vesting conditions and cliff vest based on those conditions. Compensation expense is recognized over the service period to the extent restricted stock awards are expected to vest. See Note Q "Stock Award Plans" for additional information. Business segments. As the Company manages its business and operations on a consolidated basis, management has determined that there is one reportable business segment. Regulatory matters. On October 9, 2013, the CFPB entered a Consent Order against the Bank that required the Bank to pay a civil money penalty of $ 34,000 , and to adopt an enhanced compliance program related to reporting Home Mortgage Disclosure 80 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 Act ("HMDA") data. The Bank has adopted an enhanced HMDA program, which continues to be subject to review by the CFPB. On October 27, 2020 the CFPB entered a second Consent Order against the Bank for violations related to the Bank’s HMDA reporting obligations. The 2020 Consent Order required the Bank to pay a $ 200,000 civil money penalty and develop and implement a HMDA compliance management system. Both HMDA Consent Orders remain in place. 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. 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). 81 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 Number of WaFd shares issued to LBC shareholders 17,089 WaFd market price per share on February 29, 2024 $ 27.24 Purchase price of shares issued to LBC shareholders $ 465,501 Cash in lieu of fractional shares $ 3 Purchase price consideration $ 465,504 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: 82 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 March 1, 2024 (in thousands) Total merger consideration $ 465,504 Fair value of assets acquired Cash and cash equivalents $ 627,403 Investment securities 518,878 Loans receivable 3,189,887 Loans held for sale 3,017,506 Interest receivable 25,697 Premises and equipment 6,436 FHLB stock 35,831 Bank owned life insurance 17,781 Intangible assets 37,022 Deferred tax asset, net 125,151 Other assets 75,585 Total assets acquired $ 7,677,177 Fair value of liabilities assumed Customer accounts $ 5,640,440 Borrowings 1,432,138 Junior subordinated deferrable interest debentures 50,175 Senior Debt 93,514 Accrued expenses and other liabilities 100,113 Total liabilities assumed $ 7,316,380 Net Assets Acquired $ 360,797 Goodwill $ 104,707 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 83 WAFD, INC. 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 $ 293,204 PCD ACL at acquisition ( 7,403 ) Non-credit discount on PCD loans ( 45,869 ) Fair value of PCD loans $ 239,932 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. Year Ended 84 WAFD, INC. 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 $ 18,846 $ — Legal and Professional 5,573 2,773 Charitable contributions 1,000 — System conversion and integration 900 242 $ 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 Year Ended September 30, 2024 September 30, 2023 (in thousands) Net-interest income $ 710,644 $ 833,957 Non-interest income 63,371 56,331 Net income 207,689 291,832 85 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 NOTE C - INVESTMENT SECURITIES The tables below provide detail regarding the amortized cost and fair value of available-for-sale and held-to-maturity investment securities. September 30, 2024 Amortized Cost Gross Unrealized Fair Value Yield Gains Losses ($ in thousands) Available-for-sale securities U.S. government and agency securities due Within 1 year $ 4,360 $ 4 $ — $ 4,364 5.58 % 1 to 5 years 4,640 2 ( 124 ) 4,518 2.82 5 to 10 years 166,070 1,230 — 167,300 5.97 Over 10 years 137,799 394 ( 171 ) 138,022 6.29 Asset-backed securities due 1 to 5 years 11,466 — ( 284 ) 11,182 6.04 5 to 10 years 9,631 — ( 3 ) 9,628 6.20 Over 10 years 520,756 600 ( 2,041 ) 519,315 6.15 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 5 to 10 years 5,689 — ( 243 ) 5,446 3.00 Over 10 years 29,793 — ( 166 ) 29,627 5.85 Mortgage-backed securities Agency pass-through certificates 1,420,376 7,324 ( 40,675 ) 1,387,025 4.09 2,616,877 10,531 ( 54,699 ) 2,572,709 4.87 Held-to-maturity securities Mortgage-backed securities Agency pass-through certificates 436,972 913 ( 36,839 ) 401,046 3.18 436,972 913 ( 36,839 ) 401,046 3.18 $ 3,053,849 $ 11,444 $ ( 91,538 ) $ 2,973,755 4.63 % 86 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 September 30, 2023 Amortized Cost Gross Unrealized Fair Value Yield Gains Losses ($ in thousands) Available-for-sale securities U.S. 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 1 to 5 years 18,579 — ( 715 ) 17,864 6.06 5 to 10 years 36,875 2 ( 99 ) 36,778 6.11 Over 10 years 539,911 578 ( 7,115 ) 533,374 6.35 Corporate debt securities due Within 1 year — — — — — 1 to 5 years 151,893 895 ( 1,787 ) 151,001 5.14 5 to 10 years 113,221 — ( 21,700 ) 91,521 3.87 Municipal bonds due 5 to 10 years 5,720 — ( 701 ) 5,019 3.00 Over 10 years 29,832 361 ( 550 ) 29,643 5.85 Mortgage-backed securities Agency pass-through certificates 1,005,928 66 ( 93,150 ) 912,844 3.39 2,118,616 2,910 ( 126,429 ) 1,995,097 4.64 Held-to-maturity securities Mortgage-backed securities Agency pass-through certificates 423,586 — ( 68,398 ) 355,188 2.88 423,586 — ( 68,398 ) 355,188 2.88 $ 2,542,202 $ 2,910 $ ( 194,827 ) $ 2,350,285 4.35 % 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. Substantially all mortgage-backed securities have contractual due dates that exceed 25 years. The Company elected to exclude AIR from the amortized cost basis of debt securities disclosed throughout this footnote. For AFS securities, AIR totaled $ 9,311,000 and $ 8,641,000 as of September 30, 2024 and September 30, 2023, respectively. For HTM debt securities, AIR totaled $ 1,154,000 and $ 1,013,000 as of September 30, 2024 and September 30, 2023, respectively. AIR is included in the “ interest receivable ” line item on the Company’s consolidated statements of financial condition. The following tables show the gross unrealized losses and fair value of securities as of September 30, 2024 and September 30, 2023, by length of time that individual securities in each category have been in a continuous loss position. There were 209 and 232 securities with an unrealized loss as of September 30, 2024 and September 30, 2023, respectively. The decline in fair value since purchase is attributable to changes in interest rates. Because the Company does not intend to sell these securities and does not consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be upon maturity, the Company does not consider these investments to be impaired. 87 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 September 30, 2024 Less than 12 months 12 months or more Total Unrealized Gross Losses Fair Value Unrealized Gross Losses Fair Value Unrealized Gross Losses Fair Value (In thousands) Available-for-sale securities Corporate debt securities $ — $ — $ ( 10,993 ) $ 146,060 $ ( 10,993 ) $ 146,060 Municipal bonds ( 15 ) 19,985 ( 394 ) 15,088 ( 409 ) 35,073 U.S. government and agency securities — — — — — — Asset-backed securities ( 249 ) 116,173 ( 2,373 ) 235,846 ( 2,622 ) 352,019 Mortgage-backed securities ( 165 ) 103,283 ( 40,510 ) 728,968 ( 40,675 ) 832,251 ( 429 ) 239,441 ( 54,270 ) 1,125,962 ( 54,699 ) 1,365,403 Held-to-maturity securities Mortgage-backed securities — — ( 36,839 ) 348,573 ( 36,839 ) 348,573 $ ( 429 ) $ 239,441 $ ( 91,109 ) $ 1,474,535 $ ( 91,538 ) $ 1,713,976 September 30, 2023 Less than 12 months 12 months or more Total Unrealized Gross Losses Fair Value Unrealized Gross Losses Fair Value Unrealized Gross Losses Fair Value (In thousands) Available-for-sale securities Corporate debt securities $ — $ — $ ( 23,487 ) $ 167,452 $ ( 23,487 ) $ 167,452 Municipal bonds due — — ( 1,250 ) 14,302 ( 1,250 ) 14,302 U.S. government and agency securities ( 13 ) 14,917 ( 599 ) 21,795 ( 612 ) 36,712 Asset-backed securities ( 2,142 ) 86,800 ( 5,788 ) 445,454 ( 7,930 ) 532,254 Mortgage-backed securities ( 2,030 ) 142,235 ( 91,120 ) 744,010 ( 93,150 ) 886,245 ( 4,185 ) 243,952 ( 122,244 ) 1,393,013 ( 126,429 ) 1,636,965 Held-to-maturity securities Mortgage-backed securities ( 15 ) 1,424 ( 68,383 ) 353,764 ( 68,398 ) 355,188 $ ( 4,200 ) $ 245,376 $ ( 190,627 ) $ 1,746,777 $ ( 194,827 ) $ 1,992,153 Substantially all of the Company’s held-to-maturity debt securities are issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. 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. The Company does not intend to sell the investment securities that were in an unrealized loss position and it is not more likely than not that the Company will be required to sell the investment securities before recovery of their amortized cost basis, which may be at maturity. Available-for-sale debt securities issued by U.S. government agencies or U.S. government-sponsored enterprises carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. Corporate debt securities and municipal bonds are considered to have an issuer of high credit quality and the decline in fair value is due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity. 88 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 NOTE D - LOANS RECEIVABLE 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" above. The Company's loans held for investment are divided into two portfolio segments, commercial loans and consumer loans, with each of those segments further split into loan classes for purposes of estimating the allowance for credit losses. The following table is a summary of loans receivable by loan portfolio segment and class. September 30, 2024 September 30, 2023 ($ in thousands) ($ in thousands) Gross loans by category Commercial loans Multi-family $ 4,658,119 20.8 % $ 2,907,086 14.8 % Commercial real estate 3,757,040 16.8 3,344,959 17.0 Commercial & industrial 2,337,139 10.4 2,321,717 11.8 Construction 2,174,254 9.7 3,318,994 16.9 Land - acquisition & development 200,713 1.0 201,538 1.0 Total commercial loans 13,127,265 58.7 12,094,294 61.6 Consumer loans Single-family residential 8,399,030 37.6 6,451,270 32.8 Construction - custom 384,161 1.7 672,643 3.4 Land - consumer lot loans 108,791 0.5 125,723 0.6 HELOC 266,151 1.2 234,410 1.2 Consumer 73,998 0.3 70,164 0.4 Total consumer loans 9,232,131 41.3 7,554,210 38.4 Total gross loans 22,359,396 100 % 19,648,504 100 % Less: Allowance for loan losses 203,753 177,207 Loans in process 1,009,798 1,895,940 Net deferred fees, costs and discounts 229,491 98,807 Total loan contra accounts 1,443,042 2,171,954 Net loans $ 20,916,354 $ 17,476,550 The Company elected to exclude AIR from the amortized cost basis of loans for disclosure purposes and from the calculations of estimated credit losses. 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 $ 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. 89 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 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. September 30, 2024 Fixed-Rate Adjustable-Rate Term To Maturity Loans % of Loans Term To Rate Adjustment Loans % of Loans (In thousands) (In thousands) Within 1 year $ 179,267 0.8 % Less than 1 year $ 6,218,630 29.4 % 1 to 3 years 1,215,170 5.8 1 to 3 years 2,101,732 10.0 3 to 5 years 764,056 3.6 3 to 5 years 1,148,969 5.4 5 to 10 years 2,582,522 12.2 5 to 10 years 306,485 1.5 10 to 20 years 503,677 2.4 10 to 20 years 311 — Over 20 years 6,096,168 28.9 Over 20 years 3,120 — $ 11,340,860 53.7 % $ 9,779,247 46.3 % The Company has granted loans to officers and directors of the Company and related interests. These loans are made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of collectability. The aggregate dollar amount of these loans, including unfunded commitments to lend, was $ 98,271,000 and $ 134,860,000 at September 30, 2024 and 2023, respectively. As of September 30, 2024, all of these loans were performing in accordance with contractual terms. The following table sets forth the amortized cost basis of loans receivable for non-accrual loans and loans 90 days or more past due and still accruing. September 30, 2024 September 30, 2023 (In thousands, except ratio data) Non-accrual Non-accrual with no ACL 90 days or more past due and accruing Non-accrual Non-accrual with no ACL 90 days or more past due and accruing Commercial loans Multi-family $ 18,743 $ — $ — $ 5,127 $ — $ — Commercial real estate 26,362 — — 23,435 — — Commercial & industrial — — 1,083 6,082 — — Construction 1,120 — — — — — Land - acquisition & development 74 — — — — — Total commercial loans 46,299 — 1,083 34,644 — — Consumer loans Single-family residential 21,488 — — 14,918 — — Construction - custom 848 — — 88 — — Land - consumer lot loans — — — 9 — — HELOC 596 — — 736 — — Consumer 310 — — 27 — — Total consumer loans 23,242 — — 15,778 — — Total loans $ 69,541 $ — $ 1,083 $ 50,422 $ — $ — % of total loans 0.33 % 0.29 % 90 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 The following tables break down loan delinquencies by loan portfolio segment and class. September 30, 2024 Days Delinquent Based on $ Amount of Loans % based on $ Loan type Loans Receivable (Amortized Cost) Current 30 60 90 Total Past Due ($ in thousands) Commercial loans Multi-Family $ 4,556,200 $ 4,541,527 $ — $ 4,890 $ 9,783 $ 14,673 0.32 % Commercial Real Estate 3,732,155 3,731,494 89 — 572 661 0.02 Commercial & Industrial 2,332,732 2,330,686 — 1,023 1,023 2,046 0.09 Construction 1,424,016 1,421,966 930 — 1,120 2,050 0.14 Land - Acquisition & Development 160,317 160,243 — — 74 74 0.05 Total commercial loans 12,205,420 12,185,916 1,019 5,913 12,572 19,504 0.16 Consumer loans Single-Family Residential 8,280,300 8,250,589 3,927 7,540 18,244 29,711 0.36 Construction - Custom 182,415 181,567 — — 848 848 0.46 Land - Consumer Lot Loans 108,060 108,060 — — — — — HELOC 269,857 267,347 1,387 577 546 2,510 0.93 Consumer 74,055 73,290 311 144 310 765 1.03 Total consumer loans 8,914,687 8,880,853 5,625 8,261 19,948 33,834 0.38 Total Loans $ 21,120,107 $ 21,066,769 $ 6,644 $ 14,174 $ 32,520 $ 53,338 0.25 % Delinquency % 99.75 % 0.03 % 0.07 % 0.15 % 0.25 % September 30, 2023 Days Delinquent Based on $ Amount of Loans % based on $ Loan type Loans Receivable (Amortized Cost) Current 30 60 90 Total Past Due ($ in thousands) Commercial loans Multi-Family $ 2,886,594 $ 2,886,462 $ — $ — $ 132 $ 132 — % Commercial Real Estate 3,310,101 3,285,673 848 145 23,435 24,428 0.74 Commercial & Industrial 2,315,318 2,307,020 30 2,186 6,082 8,298 0.36 Construction 1,838,936 1,838,936 — — — — — Land - Acquisition & Development 156,661 156,661 — — — — — Total commercial loans 10,507,610 10,474,752 878 2,331 29,649 32,858 0.31 Consumer loans Single-Family Residential 6,388,990 6,365,065 6,441 6,068 11,416 23,925 0.37 Construction - Custom 324,451 320,987 760 2,617 87 3,464 1.07 Land - Consumer Lot Loans 124,842 124,231 358 245 8 611 0.49 HELOC 237,754 235,708 1,050 314 682 2,046 0.86 Consumer 70,110 69,699 228 107 76 411 0.59 Total consumer loans 7,146,147 7,115,690 8,837 9,351 12,269 30,457 0.43 Total Loans $ 17,653,757 $ 17,590,442 $ 9,715 $ 11,682 $ 41,918 $ 63,315 0.36 % Delinquency % 99.64 % 0.06 % 0.07 % 0.24 % 0.36 % 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. 91 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 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 — — HELOC 197 — Consumer — — 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 Wtd. Avg. Term Extension Commercial loans ( in thousands) (in months) Commercial real estate $ 23,449 0.63 % 36 Commercial & industrial 61,074 2.62 4 Construction 19,087 1.34 12 Total commercial loans 103,610 0.85 Consumer loans Single-family residential 882 0.01 6 Total consumer loans 882 0.01 Total Loans $ 104,492 0.49 % 13 92 WAFD, INC. 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 Construction 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 Total Loans $ 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: • Pass – the credit does not meet one of the definitions below. • Special mention – A special mention credit is considered to be currently protected from loss but is potentially weak. No loss of principal or interest is foreseen; however, proper supervision and management attention is required to deter further deterioration in the credit. Assets in this category constitute some undue and unwarranted credit risk but not to the point of justifying a risk rating of substandard. The credit risk may be relatively minor yet constitutes an unwarranted risk in light of the circumstances surrounding a specific asset. • Substandard – A substandard credit is an unacceptable credit. Additionally, repayment in the normal course is in jeopardy due to the existence of one or more well defined weaknesses. In these situations, loss of principal is likely if the weakness is not corrected. A substandard asset is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Assets so classified will have a well-defined weakness or weaknesses that jeopardize the collection or liquidation of the debt. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets risk rated substandard. • Doubtful – A credit classified doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weakness makes collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The probability of loss is high, but because of certain important and reasonably specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and refinancing plans. • Loss – Credits classified loss are considered uncollectible and of such little value that their continuance as a bankable asset is not warranted. 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 93 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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) 2024 2023 2022 2021 2020 Prior to 2020 Revolving Loans Revolving to Term Loans Total Loans Commercial loans Multi-family Pass $ 62,038 $ 198,790 $ 1,645,460 $ 1,203,005 $ 577,037 $ 716,573 $ 56,627 $ 16,753 $ 4,476,283 Special Mention — — 1,698 2,655 2,572 5,452 — — 12,377 Substandard — — 13,566 5,850 7,059 41,065 — — 67,540 Total $ 62,038 $ 198,790 $ 1,660,724 $ 1,211,510 $ 586,668 $ 763,090 $ 56,627 $ 16,753 $ 4,556,200 Commercial real estate Pass $ 216,520 $ 252,923 $ 1,086,200 $ 723,600 $ 475,313 $ 797,877 $ 35,249 $ — $ 3,587,682 Special Mention — — — 22,216 8,682 9,399 — — 40,297 Substandard — — 8,686 2,260 25,319 67,911 — — 104,176 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 Pass $ 42,232 $ 148,059 $ 231,215 $ 282,148 $ 89,219 $ 156,666 $ 1,116,283 $ 41,957 $ 2,107,779 Special Mention — — — — — — 21,264 — 21,264 Substandard 2,142 19,818 35,717 2,284 13,227 44,870 85,627 4 203,689 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 Construction 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 Total $ 146,236 $ 429,956 $ 538,370 $ 250,120 $ — $ — $ 59,334 $ — $ 1,424,016 Land - acquisition & development Pass $ 23,475 $ 12,976 $ 56,292 $ 46,635 $ 2,774 $ 17,768 $ — $ — $ 159,920 Substandard — — — — 74 323 — — 397 Total $ 23,475 $ 12,976 $ 56,292 $ 46,635 $ 2,848 $ 18,091 $ — $ — $ 160,317 Gross Charge-offs — — — — — 149 — — 149 Total commercial loans Pass $ 490,419 $ 1,034,082 $ 3,551,477 $ 2,488,588 $ 1,144,343 $ 1,688,884 $ 1,267,493 $ 58,710 $ 11,723,996 Special Mention — — 1,698 28,092 11,254 14,851 21,264 — 77,159 Substandard 2,224 28,440 64,029 24,093 45,679 154,169 85,627 4 404,265 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 94 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 September 30, 2024 Term Loans Amortized Cost Basis by Origination Year (In thousands) 2024 2023 2022 2021 2020 Prior to 2020 Revolving Loans Revolving to Term Loans Total Loans Consumer loans Single-family residential Current $ 384,516 $ 765,673 $ 2,285,996 $ 2,061,359 $ 797,586 $ 1,955,459 $ — $ — $ 8,250,589 30 days past due — — 375 — 1,063 2,489 — — 3,927 60 days past due — 3,237 — 1,199 662 2,442 — — 7,540 90+ days past due — 820 3,454 1,339 1,027 11,604 — — 18,244 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 Current $ 54,649 $ 108,941 $ 17,082 $ 537 $ — $ 358 $ — $ — $ 181,567 90+ days past due — — 848 — — — — — 848 Total $ 54,649 $ 108,941 $ 17,930 $ 537 $ — $ 358 $ — $ — $ 182,415 Land - consumer lot loans Current $ 19,672 $ 14,809 $ 26,839 $ 23,804 $ 9,223 $ 13,713 $ — $ — $ 108,060 Total $ 19,672 $ 14,809 $ 26,839 $ 23,804 $ 9,223 $ 13,713 $ — $ — $ 108,060 HELOC Current $ — $ — $ — $ — $ — $ 4,176 $ 262,055 $ 1,116 $ 267,347 30 days past due — — — — — 216 1,171 — 1,387 60 days past due — — — — — 392 185 — 577 90+ days past due — — — — — 8 538 — 546 Total $ — $ — $ — $ — $ — $ 4,792 $ 263,949 $ 1,116 $ 269,857 Consumer Current $ 1,515 $ 33 $ ( 19 ) $ 9,440 $ 8,000 $ 18,329 $ 35,992 $ — $ 73,290 30 days past due — — — — — 92 219 — 311 60 days past due — — — — — — 144 — 144 90+ days past due — — — — — 91 219 — 310 Total $ 1,515 $ 33 $ ( 19 ) $ 9,440 $ 8,000 $ 18,512 $ 36,574 $ — $ 74,055 Gross Charge-offs — — — — — 139 379 — 518 Total consumer loans Current $ 460,352 $ 889,456 $ 2,329,898 $ 2,095,140 $ 814,809 $ 1,992,035 $ 298,047 $ 1,116 $ 8,880,853 30 days past due — — 375 — 1,063 2,797 1,390 — 5,625 60 days past due — 3,237 — 1,199 662 2,834 329 — 8,261 90+ days past due — 820 4,302 1,339 1,027 11,703 757 — 19,948 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 95 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 September 30, 2023 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 Commercial loans Multi-family 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 Total $ 135,859 $ 754,265 $ 853,307 $ 544,077 $ 143,548 $ 406,015 $ 49,523 $ — $ 2,886,594 Commercial real estate Pass $ 221,057 $ 912,776 $ 735,069 $ 476,941 $ 262,945 $ 596,459 $ 2,349 $ — $ 3,207,596 Special Mention — — 788 — 4,059 — — — 4,847 Substandard 499 5,361 3,810 24,538 27,916 35,534 — — 97,658 Total $ 221,556 $ 918,137 $ 739,667 $ 501,479 $ 294,920 $ 631,993 $ 2,349 $ — $ 3,310,101 Commercial & industrial Pass $ 155,411 $ 258,798 $ 316,713 $ 117,089 $ 24,246 $ 175,042 $ 1,089,896 $ 27,681 $ 2,164,876 Special Mention — — — — 2,940 — 3,707 — 6,647 Substandard — 5,532 8,537 2,783 3,819 46,297 69,948 6,879 143,795 Total $ 155,411 $ 264,330 $ 325,250 $ 119,872 $ 31,005 $ 221,339 $ 1,163,551 $ 34,560 $ 2,315,318 Construction Pass $ 235,150 $ 833,577 $ 559,850 $ 68,105 $ 46,390 $ 373 $ 74,821 $ — $ 1,818,266 Substandard 2,901 5,119 12,650 — — — — — 20,670 Total $ 238,051 $ 838,696 $ 572,500 $ 68,105 $ 46,390 $ 373 $ 74,821 $ — $ 1,838,936 Land - acquisition & development 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 Total commercial loans Pass $ 768,070 $ 2,732,691 $ 2,501,906 $ 1,210,070 $ 469,897 $ 1,190,162 $ 1,219,189 $ 27,681 $ 10,119,666 Special Mention — 90,428 788 — 6,999 — 3,707 — 101,922 Substandard 3,400 21,994 27,306 29,743 39,318 87,434 69,948 6,879 286,022 Total $ 771,470 $ 2,845,113 $ 2,530,000 $ 1,239,813 $ 516,214 $ 1,277,596 $ 1,292,844 $ 34,560 $ 10,507,610 96 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 September 30, 2023 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 Consumer loans Single-family residential Current $ 513,007 $ 1,478,479 $ 1,719,163 $ 718,250 $ 295,836 $ 1,640,330 $ — $ — $ 6,365,065 30 days past due 822 115 859 392 221 4,032 — — 6,441 60 days past due — 1,526 1,420 1,325 — 1,797 — — 6,068 90+ days past due — 1,470 666 1,408 — 7,872 — — 11,416 Total $ 513,829 $ 1,481,590 $ 1,722,108 $ 721,375 $ 296,057 $ 1,654,031 $ — $ — $ 6,388,990 Construction - custom Current $ 92,081 $ 218,988 $ 8,838 $ 243 $ 358 $ 479 $ — $ — $ 320,987 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 Land - consumer lot loans Current $ 19,128 $ 41,658 $ 35,048 $ 11,517 $ 4,166 $ 12,714 $ — $ — $ 124,231 30 days past due — — 358 — — — — — 358 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 HELOC Current $ — $ — $ — $ — $ — $ 3,733 $ 230,338 $ 1,637 $ 235,708 30 days past due — — — — — 44 1,006 — 1,050 60 days past due — — — — — 314 — — 314 90+ days past due — — — — — — 682 — 682 Total $ — $ — $ — $ — $ — $ 4,091 $ 232,026 $ 1,637 $ 237,754 Consumer Current $ 662 $ 121 $ 9,748 $ 8,006 $ 16 $ 23,201 $ 27,945 $ — $ 69,699 30 days past due — — — — — 225 3 — 228 60 days past due — — — — — 106 1 — 107 90+ days past due — — — — 29 46 — 1 76 Total $ 662 $ 121 $ 9,748 $ 8,006 $ 45 $ 23,578 $ 27,949 $ 1 $ 70,110 Total consumer loans Current $ 624,878 $ 1,739,246 $ 1,772,797 $ 738,016 $ 300,376 $ 1,680,457 $ 258,283 $ 1,637 $ 7,115,690 30 days past due 822 875 1,217 392 221 4,301 1,009 — 8,837 60 days past due — 1,526 1,665 3,942 — 2,217 1 — 9,351 90+ days past due — 1,557 666 1,408 29 7,926 682 1 12,269 Total $ 625,700 $ 1,743,204 $ 1,776,345 $ 743,758 $ 300,626 $ 1,694,901 $ 259,975 $ 1,638 $ 7,146,147 97 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 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. Twelve Months Ended September 30, 2024 Beginning Allowance Charge-offs Recoveries Provision & Transfers 1 Ending Allowance (In thousands) Commercial loans Multi-family $ 13,155 $ — $ — $ 12,093 $ 25,248 Commercial real estate 28,842 ( 203 ) 4 10,567 39,210 Commercial & industrial 58,773 ( 2,611 ) 1,069 1,517 58,748 Construction 29,408 — — ( 7,141 ) 22,267 Land - acquisition & development 7,016 ( 149 ) 105 928 7,900 Total commercial loans 137,194 ( 2,963 ) 1,178 17,964 153,373 Consumer loans Single-family residential 28,029 ( 144 ) 381 12,257 40,523 Construction - custom 2,781 — 1 ( 1,355 ) 1,427 Land - consumer lot loans 3,512 — 58 ( 1,006 ) 2,564 HELOC 2,859 — 4 186 3,049 Consumer 2,832 ( 518 ) 647 ( 144 ) 2,817 Total consumer loans 40,013 ( 662 ) 1,091 9,938 50,380 $ 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 . 98 WAFD, INC. 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 & Transfers Ending Allowance (In thousands) Commercial loans Multi-family $ 12,013 $ — $ — $ 1,142 $ 13,155 Commercial real estate 25,814 — 103 2,925 $ 28,842 Commercial & industrial 57,210 ( 45,856 ) 93 47,326 $ 58,773 Construction 26,161 — — 3,247 $ 29,408 Land - acquisition & development 12,278 — 78 ( 5,340 ) $ 7,016 Total commercial loans 133,476 ( 45,856 ) 274 49,300 137,194 Consumer loans Single-family residential 25,518 ( 34 ) 568 1,977 28,029 Construction - custom 3,410 — — ( 629 ) 2,781 Land - consumer lot loans 5,047 — 23 ( 1,558 ) 3,512 HELOC 2,482 — 2 375 2,859 Consumer 2,875 ( 580 ) 502 35 2,832 Total consumer loans 39,332 ( 614 ) 1,095 200 40,013 $ 172,808 $ ( 46,470 ) $ 1,369 $ 49,500 $ 177,207 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 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. Non-accrual loans increased to $ 69,541,000 as of September 30, 2024, from $ 50,422,000 as of September 30, 2023. Non-performing assets totaled $ 77,418,000 , or 0.28 % of total assets, at September 30, 2024, compared to $ 57,924,000 , or 0.26 % of total assets, as of September 30, 2023. As of September 30, 2024, the allowance for loan losses of $ 203,753,000 is for loans that are evaluated on a pooled basis, which was comprised of $ 144,848,000 related to the quantitative component and $ 58,905,000 related to management's qualitative overlays (including the forecast component of the reserve). The Company has an asset quality review function that analyzes its loan portfolio and reports the results of the review to its Board of Directors on a quarterly basis. The single-family residential, HELOC and consumer portfolios are evaluated based on their performance as a pool of loans, since no single loan is individually significant or judged by its risk rating, size or potential risk of loss. 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." 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). 99 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 September 30, 2024 Internally Assigned Grade Pass Special mention Substandard Doubtful Loss Total (In thousands) Loan type Commercial loans Multi-family $ 4,476,283 $ 12,377 $ 67,540 $ — $ — $ 4,556,200 Commercial real estate 3,587,682 40,297 104,176 — — 3,732,155 Commercial & industrial 2,107,780 21,264 203,688 — — 2,332,732 Construction 1,392,332 3,221 28,463 — — 1,424,016 Land - acquisition & development 159,919 — 398 — — 160,317 Total commercial loans 11,723,996 77,159 404,265 — — 12,205,420 Consumer loans Single-family residential 8,258,812 — 21,488 — — 8,280,300 Construction - custom 181,567 — 848 — — 182,415 Land - consumer lot loans 108,060 — — — — 108,060 HELOC 269,261 — 596 — — 269,857 Consumer 73,824 — 231 — — 74,055 Total consumer loans 8,891,524 — 23,163 — — 8,914,687 Total loans $ 20,615,520 $ 77,159 $ 427,428 $ — $ — $ 21,120,107 Total grade as a % of total loans 97.6 % 0.4 % 2.0 % — % — % September 30, 2023 Internally Assigned Grade Pass Special mention Substandard Doubtful Loss Total Gross Loans (In thousands) Loan type Commercial loans Multi-family $ 2,772,538 $ 90,428 $ 23,628 $ — $ — $ 2,886,594 Commercial real estate 3,207,596 4,847 97,658 — — 3,310,101 Commercial & industrial 2,164,876 6,647 143,795 — — 2,315,318 Construction 1,818,266 — 20,670 — — 1,838,936 Land - acquisition & development 156,390 — 271 — — 156,661 Total commercial loans 10,119,666 101,922 286,022 — — 10,507,610 Consumer loans Single-family residential 6,370,936 — 18,054 — — 6,388,990 Construction - custom 324,363 — 88 — — 324,451 Land - consumer lot loans 124,588 — 254 — — 124,842 HELOC 237,018 — 736 — — 237,754 Consumer 70,098 — 12 — — 70,110 Total consumer loans 7,127,003 — 19,144 — — 7,146,147 Total gross loans $ 17,246,669 $ 101,922 $ 305,166 $ — $ — $ 17,653,757 Total grade as a % of total gross loans 97.7 % 0.6 % 1.7 % — % — % 100 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 The following tables provide information on amortized cost of loans receivable based on borrower payment activity. September 30, 2024 Performing Loans Non-Performing Loans Amount % of Total Loans Amount % of Total Loans (In thousands) (In thousands) Commercial loans Multi-family $ 4,537,457 99.6 % $ 18,743 0.4 % Commercial real estate 3,705,793 99.3 26,362 0.7 Commercial & industrial 2,332,732 100.0 — — Construction 1,422,896 99.9 1,120 0.1 Land - acquisition & development 160,243 100.0 74 — Total commercial loans 12,159,121 99.6 46,299 0.4 Consumer loans Single-family residential 8,258,812 99.7 21,488 0.3 Construction - custom 181,567 99.5 848 0.5 Land - consumer lot loans 108,060 100.0 — — HELOC 269,261 99.8 596 0.2 Consumer 73,745 99.6 310 0.4 Total consumer loans 8,891,445 99.7 23,242 0.3 Total $ 21,050,566 99.7 % $ 69,541 0.3 % September 30, 2023 Performing Loans Non-Performing Loans Amount % of Total Loans Amount % of Total Loans (In thousands) (In thousands) Commercial loans Multi-family $ 2,881,467 99.8 % $ 5,127 0.2 % Commercial real estate 3,286,666 99.3 23,435 0.7 Commercial & industrial 2,309,236 99.7 6,082 0.3 Construction 1,838,936 100.0 — — Land - acquisition & development 156,661 100.0 — — Total commercial loans 10,472,966 99.7 34,644 0.3 Consumer loans Single-family residential 6,374,072 99.8 14,918 0.2 Construction - custom 324,363 100.0 88 — Land - consumer lot loans 124,833 100.0 9 — HELOC 237,018 99.7 736 0.3 Consumer 70,083 100.0 27 — Total consumer loans 7,130,369 99.8 15,778 0.2 Total gross loans $ 17,603,335 99.7 % $ 50,422 0.3 % 101 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 NOTE F - FAIR VALUE MEASUREMENTS FASB ASC 820, Fair Value Measurement ("ASC 820") defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active exchange markets that the entity has the ability to access as of the measurement date. Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active and other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The Company has established and documented the process for determining the fair values of its assets and liabilities, where applicable. Fair value is based on quoted market prices, when available, for identical or similar assets or liabilities. In the absence of quoted market prices, fair value is determined using valuation models or third-party appraisals. The following is a description of the valuation methodologies used to measure and report the fair value of financial assets and liabilities on a recurring or nonrecurring basis. Measured on a Recurring Basis Available-for-sale investment securities and derivative contracts Securities available for sale are recorded at fair value on a recurring basis. The fair value of debt securities are priced using model pricing based on the securities' relationship to other benchmark quoted prices as provided by an independent third party, and under GAAP are considered a Level 2 input method. 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. At the same time, the Company enters into the opposite trade with a counterparty to offset its interest rate risk. The Company has also entered various forms of fair value hedges and cash flow hedges using interest rate swaps. The fair value of these interest rate swaps are estimated by a third party pricing service using a discounted cash flow technique. These are considered a Level 2 input method. 102 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 The following tables present the balance and level in the fair value hierarchy for assets and liabilities that are measured at fair value on a recurring basis (with the exception of those measured using the NAV practical expedient). September 30, 2024 Level 1 Level 2 Level 3 Total (In thousands) Available-for-sale securities U.S. government and agency securities $ — $ 314,204 $ — $ 314,204 Asset-backed securities — 540,125 540,125 Municipal bonds — 35,073 — 35,073 Corporate debt securities — 296,282 — 296,282 Mortgage-backed securities Agency pass-through certificates — 1,387,025 — 1,387,025 Total Available-for-sale securities — 2,572,709 — 2,572,709 Client swap program hedges — 46,758 — 46,758 Commercial loan hedges — 1,595 — 1,595 Borrowings cash flow hedges — 117,271 — 117,271 Total Financial Assets $ — $ 2,738,333 $ — $ 2,738,333 Financial Liabilities Client swap program hedges $ — $ 47,388 $ — $ 47,388 Mortgage loan fair value hedges — 667 — 667 Total Financial Liabilities $ — $ 48,055 $ — $ 48,055 September 30, 2023 Level 1 Level 2 Level 3 Total (In thousands) Available-for-sale securities U.S. government and agency securities $ — $ 217,053 $ — $ 217,053 Asset-backed securities — 588,016 — 588,016 Municipal bonds — 34,662 — 34,662 Corporate debt securities — 242,522 — 242,522 Mortgage-backed securities Agency pass-through certificates — 912,844 — 912,844 Total Available-for-sale securities — 1,995,097 — 1,995,097 Client swap program hedges — 78,797 — 78,797 Commercial loan fair value hedges — 3,405 — 3,405 Mortgage loan fair value hedge — 46,396 — 46,396 Borrowings cash flow hedges — 184,373 — 184,373 Total Financial Assets $ — $ 2,308,068 $ — $ 2,308,068 Financial Liabilities Client swap program hedges $ — $ 79,668 $ — $ 79,668 Total Financial Liabilities $ — $ 79,668 $ — $ 79,668 103 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 There were no transfers between, into and/or out of Level 1, 2 or 3 during the year ended September 30, 2024 or September 30, 2023. Measured on a Nonrecurring Basis Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition such as collateral dependent loans and real estate owned ("REO"). REO consists principally of properties acquired through foreclosure. From time to time, and on a nonrecurring basis, adjustments using fair value measurements are recorded to reflect increases or decreases based on the discounted cash flows, the current appraisal or estimated value of the collateral or REO property. When management determines that the fair value of the collateral or the REO requires additional adjustments, either as a result of an updated appraised value or when there is no observable market price, the Company classifies the collateral dependent loan or real estate owned as Level 3. Level 3 assets recorded at fair value on a nonrecurring basis includes loans for which an allowance was established or a partial charge-off was recorded based on the fair value of collateral, as well as real estate owned where the fair value of the property was less than the cost basis. The following tables present the aggregated balance of assets that were measured at fair value on a nonrecurring basis for the periods presented, and the total gains (losses) resulting from those fair value adjustments during the respective periods. The estimated fair value measurements are shown gross of estimated selling costs. September 30, 2024 Twelve Months Ended September 30, 2024 Level 1 Level 2 Level 3 Total Total Gains (Losses) (In thousands) Loans receivable (1) $ — $ — $ 4,345 $ 4,345 $ ( 3,225 ) Real estate owned (2) — — 1,460 1,460 ( 1,910 ) Balance at end of period $ — $ — $ 5,805 $ 5,805 $ ( 5,135 ) (1) The gains (losses) represent re-measurements of collateral-dependent impaired loans. (2) The gains (losses) represent aggregate write-downs and charge-offs on real estate owned. September 30, 2023 Twelve Months Ended September 30, 2023 Level 1 Level 2 Level 3 Total Total Gains (Losses) (In thousands) Loans receivable (1) $ — $ — $ 35,627 $ 35,627 $ ( 46,079 ) Real estate owned (2) — — 3,857 3,857 ( 181 ) Balance at end of period $ — $ — $ 39,484 $ 39,484 $ ( 46,260 ) (1) The gains (losses) represent re-measurements of collateral-dependent impaired loans. (2) The gains (losses) represent aggregate write-downs and charge-offs on real estate owned. At September 30, 2024, there was $ 681,000 in foreclosed residential real estate properties held as REO. The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process was $ 6,184,000 . 104 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 Fair Values of Financial Instruments U. S. GAAP requires disclosure of fair value information about financial instruments, whether or not recognized on the statement of financial condition, for which it is practicable to estimate those values. Certain financial instruments and all non-financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value estimates presented do not reflect the underlying fair value of the Company. Although management is not aware of any factors that would materially affect the estimated fair value amounts presented below, such amounts have not been comprehensively revalued for purposes of these financial statements since the dates shown, and therefore, estimates of fair value subsequent to those dates may differ significantly from the amounts presented below. September 30, 2024 September 30, 2023 Level Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value (In thousands) Financial assets Cash and cash equivalents 1 $ 2,381,102 $ 2,381,102 $ 980,649 $ 980,649 Available-for-sale securities: U.S. government and agency securities 2 314,204 314,204 217,053 217,053 Asset-backed securities 2 540,125 540,125 588,016 588,016 Municipal bonds 2 35,073 35,073 34,662 34,662 Corporate debt securities 2 296,282 296,282 242,522 242,522 Mortgage-backed securities Agency pass-through certificates 2 1,387,025 1,387,025 912,844 912,844 Total available-for-sale securities 2,572,709 2,572,709 1,995,097 1,995,097 Held-to-maturity securities: Mortgage-backed securities Agency pass-through certificates 2 436,972 401,046 423,586 355,188 Total held-to-maturity securities 436,972 401,046 423,586 355,188 Loans receivable 3 20,916,354 20,269,059 17,476,550 16,559,758 FHLB stock 2 95,617 95,617 126,820 126,820 Other assets - client swap program hedges 2 46,758 46,758 78,797 78,797 Other assets - commercial loan fair value hedges 2 1,595 1,595 3,405 3,405 Other assets - mortgage loan fair value hedges 2 — — 46,396 46,396 Other assets - borrowings cash flow hedges 2 117,271 117,271 184,373 184,373 Financial liabilities Time deposits 2 9,556,785 9,787,187 5,305,016 5,232,689 Borrowings 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: Cash and cash equivalents – The carrying amount of these items is a reasonable estimate of their fair value. Available-for-sale securities and held-to-maturity securities – Securities at fair value are primarily priced using model pricing based on the securities' relationship to other benchmark quoted prices as provided by an independent third party and are considered a Level 2 input method. Equity securities which are exchange traded are considered a Level 1 input method. 105 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 Loans receivable – Fair values are estimated first by stratifying the portfolios of loans with similar financial characteristics. Loans are segregated by type such as multi-family real estate, residential mortgage, construction, commercial, consumer and land loans. Each loan category is further segmented into fixed- and adjustable-rate interest terms. For residential mortgages and multi-family loans, the bank determined that its best exit price was by securitization. MBS benchmark prices are used as a base price, with further loan level pricing adjustments made based on individual loan characteristics such as FICO score, LTV, Property Type and occupancy. For all other loan categories an estimate of fair value is then calculated based on discounted cash flows using a discount rate offered and observed in the market on similar products, plus an adjustment for liquidity to reflect the non-homogeneous nature of the loans, as well as, an annual loss rate based on historical losses to arrive at an estimated exit price fair value. Fair value for impaired loans is also based on recent appraisals or estimated cash flows discounted using rates commensurate with risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific borrower information. 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. At the same time, the Bank enters into the opposite trade with a counterparty to offset its interest rate risk. The Company also uses interest rate swaps for various fair value hedges and cash flow hedges. The fair value of interest rate swaps are estimated by a third-party pricing service using a discounted cash flow technique. NOTE G - DERIVATIVES AND HEDGING ACTIVITIES The following tables present the fair value, notional amount and balance sheet classification of derivative assets and liabilities at September 30, 2024 and September 30, 2023. September 30, 2024 Derivative Assets Derivative Liabilities Interest rate contract purpose Balance Sheet Location Notional Fair Value Balance Sheet Location Notional Fair Value (In thousands) (In thousands) Client swap program hedges Other assets $ 1,044,512 $ 46,758 Other liabilities $ 1,044,512 $ 47,388 Commercial loan fair value hedges Other assets 37,042 1,595 Other liabilities — — Mortgage loan fair value hedges Other assets — — Other liabilities 2,570,000 667 Borrowings cash flow hedges Other assets 900,000 117,271 Other liabilities — — $ 1,981,554 $ 165,624 $ 3,614,512 $ 48,055 106 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 September 30, 2023 Derivative Assets Derivative Liabilities Interest rate contract purpose Balance Sheet Location Notional Fair Value Balance Sheet Location Notional Fair Value (In thousands) (In thousands) Client swap program hedges Other assets $ 806,744 $ 78,797 Other liabilities $ 806,744 $ 79,668 Commercial loan fair value hedges Other assets 39,661 3,405 Other liabilities — — Mortgage loan fair value hedges Other assets 670,000 46,396 Other liabilities — — Borrowings cash flow hedges Other assets 1,000,000 184,373 Other liabilities — — $ 2,516,405 $ 312,971 $ 806,744 $ 79,668 The Company enters into interest rate swaps to hedge interest rate risk. These arrangements include 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. These relationships qualify as fair value hedges under FASB ASC 815, Derivatives and Hedging ("ASC 815"), which provides for offsetting of the recognition of gains and losses of the respective interest rate swap and the hedged items. Gains and losses on interest rate swaps designated in these hedge relationships, along with the offsetting gains and losses on the hedged items attributable to the hedged risk, are recognized in current earnings within the same income statement line item. Upon electing to apply ASC 815 fair value hedge accounting, the carrying value of the hedged items are adjusted to reflect the cumulative impact of changes in fair value attributable to the hedged risk. The hedge basis adjustment remains with each hedged item until the hedged item is de-recognized from the balance sheet. The following tables presents the impact of fair value hedge accounting on the carrying value of the hedged items at September 30, 2024 and September 30, 2023. (In thousands) September 30, 2024 Balance sheet line item in which hedged item is recorded Carrying value of hedged items Cumulative gain (loss) fair value hedge adjustment included in carrying amount of hedged items Loans receivable (1) (2) $ 7,287,540 $ 20,005 $ 7,287,540 $ 20,005 (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. 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. At September 30, 2024, the amortized cost basis of the hedged commercial loans was $ 35,523,000 and the cumulative basis adjustment associated with the hedging relationships was $( 1,471,000 ). (In thousands) September 30, 2023 Balance sheet line item in which hedged item is recorded Carrying value of hedged items Cumulative gain (loss) fair value hedge adjustment included in carrying amount of hedged items Loans receivable (1) (2) $ 1,816,870 $ ( 48,865 ) $ 1,816,870 $ ( 48,865 ) 107 WAFD, INC. 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. At September 30, 2023, the amortized cost basis of the closed loan portfolios used in the hedging relationships was $ 1,780,503,000 , the cumulative basis adjustment associated with the hedging relationships was $( 45,622,000 ), and the amount of the designated hedged items was $ 670,000,000 . (2) Includes the amortized cost basis of commercial loans designated in fair value hedging relationships. At September 30, 2023, the amortized cost basis of the hedged commercial loans was $ 36,367,000 and the cumulative basis adjustment associated with the hedging relationships was $( 3,243,000 ). The Company has entered into interest rate swaps to convert certain short-term borrowings to fixed rate payments. 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 income statement line item as the hedged cash flows. 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. (In thousands) Twelve Months Ended September 30, Amount of gain/(loss) recognized in AOCI on derivatives in cash flow hedging relationships 2024 2023 Interest rate contracts: Pay fixed/receive floating swaps on cash flow hedges of borrowings $ ( 67,102 ) $ 4,428 Total pre-tax gain/(loss) recognized in AOCI $ ( 67,102 ) $ 4,428 108 WAFD, INC. 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. Twelve Months Ended September 30, 2024 Twelve Months Ended September 30, 2023 Interest income on loans receivable Interest expense on FHLB advances Interest income on loans receivable Interest expense on FHLB advances (In thousands) (In thousands) Interest income/(expense), including the effects of fair value and cash flow hedges $ 1,165,849 $ ( 178,444 ) $ 900,068 $ ( 115,488 ) Gain/(loss) on fair value hedging relationships: Interest rate contracts Amounts related to interest settlements on derivatives $ 39,223 $ 16,975 Recognized on derivatives ( 67,785 ) 10,519 Recognized on hedged items 67,639 ( 9,775 ) Net income/(expense) recognized on fair value hedges $ 39,077 $ 17,719 Gain/(loss) on cash flow hedging relationships: Interest rate contracts Amounts related to interest settlements on derivatives $ 46,645 $ 38,709 Amount of derivative gain/(loss) reclassified from AOCI into interest income/expense — — Net income/(expense) recognized on cash flow hedges $ 46,645 $ 38,709 The Company periodically enters into certain interest rate swap agreements in order to provide commercial loan customers the ability to convert from variable to fixed interest rate payments, while the Company retains a variable rate loan. Under these agreements, the Company enters into a variable rate loan agreement and a swap agreement with the client. The swap agreement effectively converts the client’s variable rate loan into a fixed rate. The Company enters into a corresponding swap agreement with a third party in order to offset its exposure on the variable and fixed components of the client's swap agreement. 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, 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. 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. (In thousands) Twelve Months Ended September 30, Derivative instruments Classification of gain/(loss) recognized in income on derivative instrument 2024 2023 Interest rate contracts: Pay fixed/receive floating swap Other noninterest income $ ( 45,960 ) $ 11,544 Receive fixed/pay floating swap Other noninterest income 46,201 ( 12,414 ) $ 241 $ ( 870 ) 109 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 NOTE H – REVENUE FROM CONTRACTS WITH CUSTOMERS Net interest income on financial assets and liabilities is excluded from the scope of ASU No. 2014-09, Revenue from Contracts with Customers ("ASC 606") thus a significant majority of our revenues are not subject to the referenced guidance. Revenue streams that are within the scope of the guidance are presented within noninterest income and are, in general, recognized as revenue at the same time the Company's obligation to the customer is satisfied. Most of the Company's customer contracts that are within the scope of the guidance are cancelable by either party without penalty and are short-term in nature. These sources of revenue include depositor and other consumer and business banking fees, commission income, as well as debit and credit card interchange fees. For fiscal years ended 2024 and 2023, in scope revenue streams represented approximately 3.2 % and 3.9 % of our total revenues, respectively. As this standard is immaterial to our consolidated financial statements, the Company has omitted certain disclosures in ASC 606, including the disaggregation of revenue table. Sources of noninterest income within the scope of the guidance include the following: Deposit related and other service charges (recognized in Deposit Fee Income) : The Company's deposit accounts are governed by standardized contracts customary in the industry. Revenues are earned at a point in time or over time (monthly) from account maintenance fees and charges for specific transactions such as wire transfers, stop payment orders, overdrafts, debit card replacements, check orders and cashiers' checks. The Company’s performance obligation related to each of these fees is generally satisfied, and the related revenue recognized, at the time the service is provided (point in time or monthly). The Company is principal in each of these contracts. Debit and credit card interchange fees (recognized in Deposit Fee Income) : The Company receives interchange fees from the debit card and credit card payment networks based on transactions involving debit or credit cards issued by the Company, generally measured as a percentage of the underlying transaction. Interchange fees from debit and credit card transactions are recognized as the transaction processing services are provided by the network. The Company acts as an agent in the card payment network arrangement so the interchange fees are recorded net of any expenses paid to the principal (the card payment networks in this case). Insurance agency commissions (recognized in Other Income) : WAFD Insurance Group, Inc. is a wholly-owned subsidiary of the Bank that operates as an insurance agency, selling and marketing property and casualty insurance policies for a small number of high-quality insurance carriers. WAFD Insurance Group, Inc. earns revenue in the form of commissions paid by the insurance carriers for policies that have been sold. In addition to the origination commission, WAFD Insurance Group, Inc. may also receive contingent incentive fees based on the volume of business generated for the insurance carrier and based on policy renewal rates. 110 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 NOTE I - INTEREST RECEIVABLE The following table provides a summary of interest receivable by interest-earning asset type. September 30, 2024 September 30, 2023 (In thousands) Loans receivable $ 92,362 $ 77,349 Mortgage-backed securities 4,882 3,431 Investment securities 5,583 6,223 $ 102,827 $ 87,003 NOTE J - PREMISES AND EQUIPMENT The following table provides a summary of premises and equipment by asset type. September 30, 2024 September 30, 2023 Estimated Useful Life in Years (In thousands) Land — $ 88,055 $ 90,726 Buildings 10 - 40 203,567 190,707 Leasehold improvements 5 - 15 31,729 18,081 Furniture, software and equipment 2 - 10 99,033 92,765 422,384 392,279 Less accumulated depreciation and amortization ( 174,483 ) ( 155,268 ) $ 247,901 $ 237,011 NOTE K - CUSTOMER ACCOUNTS The following tables provide the composition of the Company's customer accounts, including time deposits. September 30, 2024 September 30, 2023 Deposit Account Balance As a % of Total Deposits Weighted Average Rate Deposit Account Balance As a % of Total Deposits Weighted Average Rate ($ in thousands) Non-interest checking $ 2,500,467 11.7 % — % $ 2,706,448 16.8 % — % Interest checking 4,486,444 21.0 2.89 3,882,715 24.2 2.28 Savings 718,560 3.4 0.23 817,547 5.1 0.21 Money market 4,111,714 19.2 2.22 3,358,603 20.9 1.48 Time deposits 9,556,785 44.7 4.58 5,305,016 33.0 3.77 Total $ 21,373,970 100 % 3.09 % $ 16,070,329 100 % 2.12 % 111 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 Time deposits by rate band are as follows: September 30, 2024 September 30, 2023 (In thousands) Less than 1.00% $ 82,935 $ 139,525 1.00% to 1.99% 2,395 64,262 2.00% to 2.99% 3,340 248,973 3.00% to 3.99% 345,680 3,884,337 4.00% to 4.99% 8,244,791 532,153 5.00% and higher 877,644 435,766 $ 9,556,785 $ 5,305,016 Time deposits by maturity band are as follows: September 30, 2024 September 30, 2023 (In thousands) Three months or less $ 2,923,299 $ 2,383,793 Over 3 through 6 months 3,140,278 1,517,379 Over 6 through 12 months 2,543,201 732,141 Over 12 months 950,007 671,703 $ 9,556,785 $ 5,305,016 Customer accounts with uninsured or uncollateralized deposits totaled $ 5,134,192,000 as of September 30, 2024, compared to $ 4,124,355,000 as of September 30, 2023. Interest expense on customer accounts consisted of the following: Year ended September 30, 2024 2023 2022 (In thousands) Checking accounts $ 99,917 $ 70,396 $ 10,086 Savings accounts 3,952 1,715 1,377 Money market accounts 77,993 47,485 12,423 Time deposit accounts 351,654 119,255 19,422 533,516 238,851 43,308 Less early withdrawal penalties ( 1,082 ) ( 1,618 ) ( 267 ) $ 532,434 $ 237,233 $ 43,041 Weighted average interest rate at end of year 3.09 % 2.12 % 0.51 % Daily weighted average interest rate during the year 3.26 % 1.84 % 0.34 % NOTE L - BORROWINGS The Company had total borrowings outstanding at September 30, 2024 with carrying values of $ 3,267,589,000 compared to $ 3,650,000,000 at September 30, 2023. The borrowings consisted of FHLB advances and funds received from the FRB's Bank Term Funding Program. The table below shows the contractual maturity dates of outstanding FHLB advances. September 30, 2024 September 30, 2023 (In thousands) Within 1 year $ 2,099,353 $ 2,900,000 1 to 3 years 93,354 — 3 to 5 years 167 — $ 2,192,874 $ 2,900,000 112 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 As of September 30, 2024, there are no advances that are callable by the FHLB. Taking into account cash flow hedges, the weighted average effective maturity of FHLB advances at September 30, 2024 is 2.34 years. Financial information pertaining to the weighted-average cost and the amount of FHLB advances were as follows. 2024 2023 2022 ($ in thousands) Weighted average interest rate, including cash flow hedges, at end of year 3.32 % 3.83 % 2.02 % Weighted daily average interest rate, including cash flow hedges, during the year 3.78 % 3.42 % 1.66 % Daily average of FHLB advances during the year $ 2,952,872 $ 2,916,849 $ 1,731,110 Maximum amount of FHLB advances at any month end $ 4,338,731 $ 3,425,000 $ 2,125,000 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 - 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. 113 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 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. The majority of the leases contain renewal options and provisions for increases in rental rates based on a predetermined schedule or an agreed upon index. If, at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the right-of-use asset and lease liability. Operating lease liabilities and right-of-use assets are recognized on the lease commencement date based on the present value of the future minimum lease payments over the lease term. The future lease payments are discounted at a rate that represents the Company's collateralized borrowing rate for financing instruments of a similar term and are included in Accrued expenses and other liabilities . The related right-of-use asset is included in Other assets . The table below presents the Company’s operating lease right-of-use asset and the related lease liability. (In thousands) September 30, 2024 September 30, 2023 Operating lease asset $ 37,486 $ 21,126 Operating lease liability $ 40,788 $ 23,422 As of September 30, 2024, the Company’s operating leases have a weighted average remaining lease term of 9.5 years and a weighted average discount rate of 3.74 %. Cash paid for amounts included in the measurement of the above operating lease liability was $ 9,627,000 and $ 6,418,000 for the twelve months ended September 30, 2024 and 2023, respectively. 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. The Company elected not to separate lease and non-lease components and instead account for them as a single lease component. Variable lease costs include subsequent increases in index-based rents and variable payments such as common area maintenance. (In thousands) Twelve Months Ended September 30, Twelve Months Ended September 30, 2024 2023 Operating lease cost $ 8,521 $ 6,424 Variable lease cost 2,504 1,262 Sublease income ( 405 ) ( 369 ) Net lease cost $ 10,620 $ 7,317 The following table shows future minimum payments for operating leases as of September 30, 2024 for the respective periods. 114 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 (In thousands) Year ending September 30, 2025 $ 11,786 2026 7,984 2027 7,027 2028 5,067 2029 2,943 Thereafter 14,443 Total minimum payments 49,250 Amounts representing interest ( 8,462 ) Present value of minimum lease payments $ 40,788 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 - 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. See Note A "Summary of Significant Accounting Policies" for details regarding the reserve methodology. Legal Proceedings - The Company and its subsidiaries are from time to time defendants in and are threatened with various legal proceedings arising from regular business activities. Management, after consulting with legal counsel, is of the opinion that the ultimate liability, if any, resulting from these pending or threatened actions and proceedings will not have a material effect on the financial statements of the Company. 115 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 NOTE O - INCOME TAXES Under generally accepted accounting principles, the Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates applicable to taxable income in the years in which those temporary differences are expected to reverse. The table below provides a summary of the Company's tax assets and liabilities, including deferred tax assets and deferred tax liabilities by major source. 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 (In thousands) Deferred tax assets Allowance for credit losses $ 53,227 $ 46,191 REO reserves 480 300 Non-accrual loan interest 3,124 1,797 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 Total deferred tax assets 197,254 62,449 Deferred tax liabilities FHLB stock dividends 6,171 9,741 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 Premises and equipment 16,390 18,155 Lease right-of-use assets 9,304 4,841 Equity investments 3,700 4,244 Acquired intangibles 12,824 4,798 Other 184 483 Total deferred tax liabilities 74,108 67,666 Net deferred tax asset (liability) 123,146 ( 5,217 ) Current tax asset (liability) ( 3,898 ) 13,696 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. 116 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. Year ended September 30, 2024 2023 2022 Statutory income tax rate 21.0 % 21.0 % 21.0 % 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 — Effective income tax rate 21.9 % 20.8 % 21.2 % The following table summarizes the Company's income tax expense (benefit) for the respective periods. Year ended September 30, 2024 2023 2022 (In thousands) Federal: Current $ 54,817 $ 58,667 $ 50,854 Deferred ( 4,767 ) 3,334 7,187 50,050 62,001 58,041 State: Current 7,837 4,425 6,600 Deferred ( 1,872 ) 1,224 ( 934 ) 5,965 5,649 5,666 Total Current 62,654 63,092 57,454 Deferred ( 6,639 ) 4,558 6,253 $ 56,015 $ 67,650 $ 63,707 The Company does not have a liability for uncertain tax positions as of September 30, 2024 or September 30, 2023. The Company's federal income tax returns are open and subject to potential examination by the IRS for fiscal years 2021 and later. State income tax returns are generally subject to examination for a period of three to five years after filing. 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 P - EMPLOYEE BENEFIT PLANS 401(k) Plan - The Company maintains a 401(k) Plan (the "Plan") for the benefit of its employees. Company contributions are made annually as approved by the Board of Directors. Such amounts are not in excess of amounts permitted by the Employee Retirement Income Security Act of 1974. 117 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. Such eligible employees do not become eligible for profit sharing or matching contributions until the first day of the quarter (January 1, April 1, July 1 or October 1) following completion of 1 year of service. A “year of service” is defined as a 12-month period in which the eligible employee works at least 1,000 hours of service and the first eligibility service period starts on the first day of employment. The Plan provides for a guaranteed safe harbor matching contribution equal to 100 % of the first 4 % of compensation that employees contribute to their account and this amount is immediately vested. The safe harbor match is not subject to the six-year vesting schedule of the profit sharing contribution. This provides plan participants more investment flexibility. Additionally, the Company anticipates that all eligible employees, regardless of personal plan participation, will continue to receive an annual discretionary profit-sharing contribution from the Company. Company contributions to the Plan amounted to $ 8,185,000 , $ 8,648,000 and $ 10,559,000 for the years ended 2024, 2023 and 2022, respectively. Employee Stock Purchase Plan - Upon approval by common shareholders, the Company implemented an Employee Stock Purchase Plan ("ESPP") in 2023 in which substantially all employees of the Company are eligible to participate. The ESPP provides participants the opportunity to purchase common stock of the Company at 95 % of the closing stock price on the last day of the purchase period. Purchase periods are three-month periods that are set as January 1 through March 31, April 1 through June 30, July 1 through September 30, and October 1 through December 31 of each year. A total of 500,000 shares were made available for issuance. Participants of the ESPP purchased 35,782 shares for $ 956,550 during 2024. At September 30, 2024 there were 457,191 shares remaining for purchase under the ESPP. Supplemental Executive Retirement Plan - Also approved by our shareholders, the Company implemented a Supplemental Executive Retirement Plan ("SERP") during 2023. This non-qualified deferred compensation plan provides retirement benefits to certain highly compensated executives. The SERP credits, if vested, will be distributed in the form of WaFd, Inc. common stock, in ten ( 10 ) substantially equal annual installments, following retirement of the executive officer. $ 11,700,000 in common stock units, and related dividend equivalents, were authorized with each unit having a value equal to one share of WaFd, Inc. common stock. These units will vest based on the age of each participant as follows: Attained Age Vested Percentage Before 62 — % 62 80 % 63 90 % 64 100 % 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. SERP related expense recognized during the year was $ 1,013,000 . There were no shares paid during 2024 and there were no participants vested. 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 118 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 canceled. 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. When applicable, stock options are granted with an exercise price equal to the market price of the Company's stock at the date of grant; those option awards generally vest based on three to five years of continuous service and have 10-year contractual terms. The Company's policy is to issue new shares upon option exercises. 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. Expected volatility is based on the historical volatility of the Company's stock. The risk-free interest rate is based on the U.S. Treasury yield curve that is in effect at the time of grant with a remaining term equal to the options' expected life. The expected term represents the period of time that options granted are expected to be outstanding. Stock Option Awards: 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. Options Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (In thousands) Outstanding at September 30, 2022 1,137,608 $ 30.06 8 $ 5,330 Granted 779,740 28.47 Exercised ( 35,877 ) 30.39 Forfeited ( 173,646 ) 30.07 Outstanding at September 30, 2023 1,707,825 29.32 8 — Granted — — Exercised ( 196,086 ) 26.45 Forfeited ( 157,114 ) 30.07 Outstanding at September 30, 2024 1,354,625 $ 29.65 7 $ 7,040 Exercisable at September 30, 2024 512,778 $ 29.98 5 $ 2,499 The table below presents other information regarding stock options. Year ended September 30, 2024 2023 2022 (In thousands, except grant date fair value per stock option) Compensation cost for stock options $ 1,571 $ 1,875 $ 1,296 Weighted average grant date fair value per stock option 6.14 5.91 5.10 Total intrinsic value of options exercised 1,228 214 433 Grant date fair value of options exercised 690 198 345 Cash received from option exercises 5,187 1,089 1,823 The following is a summary of activity related to unvested stock options. 119 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 Year ended September 30, 2024 2023 2022 Unvested Stock Options Options Outstanding Weighted Average Grant Date Fair Value Options Outstanding Weighted Average Grant Date Fair Value Options Outstanding Weighted Average Grant Date Fair Value Outstanding at beginning of period 1,390,422 $ 5.93 981,410 $ 5.07 1,031,134 $ 4.39 Granted — — 779,740 7.11 352,043 7.18 Vested ( 412,160 ) 3.20 ( 217,695 ) 6.13 ( 223,387 ) 5.32 Forfeited ( 135,011 ) 6.07 ( 153,033 ) 5.38 ( 178,380 ) 5.02 Outstanding at end of period 843,251 $ 5.50 1,390,422 $ 5.93 981,410 $ 5.07 As of September 30, 2024, there was $ 2,071,520 of unrecognized compensation cost related to stock options. Restricted Stock Awards: The Company grants shares of restricted stock pursuant to the incentive plans. The restricted stock grants are subject to a service condition and vest over a period of one to seven years . Certain grants of restricted stock to executive officers are also subject to additional market and performance conditions based upon meeting certain total shareholder return targets pre-established by the Board. The Company had a total of 568,987 shares of restricted stock outstanding as of September 30, 2024, with a total grant date fair value of $ 13,815,004 . The following table summarizes information about unvested restricted stock activity. Year ended September 30, 2024 2023 2022 Non-vested Restricted Stock Outstanding Weighted Average Fair Value Outstanding Weighted Average Fair Value Outstanding Weighted Average Fair Value Outstanding at beginning of period 495,782 $ 24.40 489,777 $ 21.64 522,991 $ 19.96 Granted 366,616 28.84 247,966 26.48 224,593 25.34 Vested ( 250,001 ) 30.87 ( 119,956 ) 29.87 ( 246,119 ) 21.34 Forfeited ( 43,410 ) 26.22 ( 122,005 ) 12.16 ( 11,688 ) 23.96 Outstanding at end of period 568,987 $ 24.28 495,782 $ 24.40 489,777 $ 21.64 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 R - SHAREHOLDERS' EQUITY The Company and the Bank are subject to various regulatory capital requirements. Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of Common Equity Tier 1, Tier 1 and Total capital to risk weighted assets (as defined in the regulations) and Tier 1 capital to average assets (as defined in the regulations). Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary action by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. The Company and the Bank are also subject to certain restrictions on the amount of dividends that they may declare without prior regulatory approval. On February 8, 2021, in connection with an underwritten public offering, the Company issued 300,000 shares of 4.875 % Noncumulative Perpetual Series A Preferred Stock. 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. Holders of the depositary shares 120 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 are entitled to all proportional rights and preferences of the Series A Preferred Stock (including, dividend, voting, redemption and liquidation rights). The depositary shares are traded on the NASDAQ Global Select Market under the symbol "WAFDP." The Series A Preferred Stock is redeemable at the option of the Company, subject to all applicable regulatory approvals, on or after April 15, 2026. As of September 30, 2024, and 2023, the Company and the Bank met all capital adequacy requirements to which they are subject, and the Bank's regulators categorized it as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum Common Equity Tier 1, Tier 1 risk-based, Total risk-based and Tier 1 leverage ratios as set forth in the following table. The Bank's actual capital amounts and ratios as of these dates are also presented. There are no conditions or events since that management believes have changed the Bank's categorization. Actual Capital Adequacy Guidelines Categorized as Well Capitalized Under Prompt Corrective Action Provisions Capital Ratio Ratio Ratio September 30, 2024 ($ in thousands) Common Equity Tier 1 risk-based capital ratio: The Company $ 2,153,721 11.31 % 4.50 % NA The Bank 2,463,266 12.94 4.50 6.50 % Tier 1 risk-based capital ratio: The Company 2,453,721 12.88 6.00 NA The Bank 2,463,266 12.94 6.00 8.00 Total risk-based capital ratio: The Company 2,722,290 14.29 8.00 NA The Bank 2,681,116 14.08 8.00 10.00 Tier 1 leverage ratio: The Company 2,453,721 8.90 4.00 NA The Bank 2,463,266 8.94 4.00 5.00 September 30, 2023 Common Equity Tier 1 risk-based capital ratio: The Company $ 1,769,170 10.37 % 4.50 % NA The Bank 1,982,943 11.63 4.50 6.50 % Tier 1 risk-based capital ratio: The Company 2,069,170 12.12 6.00 NA The Bank 1,982,943 11.63 6.00 8.00 Total risk-based capital ratio: The Company 2,270,877 13.31 8.00 NA The Bank 2,184,650 12.81 8.00 10.00 Tier 1 leverage ratio: The Company 2,069,170 9.39 4.00 NA The Bank 1,982,943 9.10 4.00 5.00 At periodic intervals, the Federal Reserve, the WDFI and the FDIC examine the Company's and the Bank's financial statements as part of their oversight. Based on their examinations, these regulators can direct that the Company's or Bank's financial statements be adjusted in accordance with their findings. 121 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 The Company and the Bank are subject to regulatory restrictions on paying dividends. The Company has an ongoing common share repurchase program and 1,058,178 shares were repurchased during 2024 at a weighted average price of $ 25.29 . In 2023, 1,165,161 shares were repurchased at a weighted average price of $ 26.14 . As of September 30, 2024, management had authorization from the Board of Directors to repurchase up to 11,501,005 additional shares. The following table sets forth information regarding earnings per common share calculations. Year ended September 30, 2024 2023 2022 Weighted average shares outstanding 74,244,323 65,192,510 65,287,650 Weighted average dilutive options 46,245 62,773 116,460 Weighted average diluted shares 74,290,568 65,255,283 65,404,110 Net income available to common shareholders (in thousands) $ 185,416 $ 242,801 $ 221,705 Basic EPS $ 2.50 $ 3.72 $ 3.40 Diluted EPS 2.50 3.72 3.39 NOTE S - FINANCIAL INFORMATION – WAFD, INC. The following WaFd, Inc. (parent company only) financial information should be read in conjunction with the other notes to the Consolidated Financial Statements. Condensed Statements of Financial Condition September 30, 2024 September 30, 2023 (In thousands) Assets Cash $ 25,966 $ 74,450 Other assets 18,024 16,171 Investment in statutory trust 1,857 — Investment in subsidiary 3,009,845 2,340,199 Total assets $ 3,055,692 $ 2,430,820 Liabilities Dividend payable on preferred stock $ 3,656 $ 3,656 Junior subordinated deferrable debentures 50,718 — Other liabilities 1,018 738 Total liabilities 55,392 4,394 Shareholders’ equity Total shareholders’ equity 3,000,300 2,426,426 Total liabilities and shareholders’ equity $ 3,055,692 $ 2,430,820 122 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 Condensed Statements of Operations Twelve Months Ended September 30, 2024 2023 2022 (In thousands) Income Dividends from subsidiary $ 140,000 $ 56,490 $ 172,850 Interest income 78 — — Total Income 140,078 56,490 172,850 Expense Miscellaneous expense 11,341 2,214 619 Total expense 11,341 2,214 619 Net income (loss) before equity in undistributed net income (loss) of subsidiary 128,737 54,276 172,231 Equity in undistributed net income (loss) of subsidiaries 68,628 202,643 63,956 Income before income taxes 197,365 256,919 236,187 Income tax benefit (expense) 2,676 507 143 Net income 200,041 257,426 236,330 Dividends on preferred stock 14,625 14,625 14,625 Net income available to common shareholders $ 185,416 $ 242,801 $ 221,705 123 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022 Condensed Statements of Cash Flows Twelve Months Ended September 30, 2024 2023 2022 (In thousands) Cash Flows From Operating Activities Net income $ 200,041 $ 257,426 $ 236,330 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed earnings from investments in subsidiaries ( 68,628 ) ( 202,643 ) ( 63,956 ) Distributions in excess of earnings from investments in subsidiaries — — — Stock based compensation expense 9,181 7,914 6,808 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 ) — Net cash provided by (used in) investing activities 13,173 ( 12,500 ) — Cash Flows From Financing Activities Proceeds from exercise of common stock options and related tax benefit 5,187 1,089 1,823 Proceeds from issuance of preferred stock, net — — — 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 ) Dividends on preferred stock ( 14,625 ) ( 14,625 ) ( 14,625 ) Dividends on common stock ( 74,267 ) ( 63,792 ) ( 61,576 ) Net cash provided by (used in) financing activities ( 204,782 ) ( 107,614 ) ( 77,638 ) Increase (decrease) in cash ( 48,484 ) ( 56,052 ) 101,806 Cash at beginning of year 74,450 130,502 28,696 Cash at end of year $ 25,966 $ 74,450 $ 130,502 124 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.