Annual Report 2024
1
As I write this letter, the stock market is
sitting at all-time highs and residential
real estate values have seemingly defied
logic, staying near all-time high values
despite mortgage rates rising from 3%
up to 7%. WaFd participated in this bull
market with the stock turning in a 40%
total shareholder return for the fiscal year.
Inflation appears to have been tamed
from the 9% clip two short years ago, yet
questions persist about whether inflation
will behave with a record amount of U.S.
Government debt, the potential for tariffs,
and an aging workforce. I keep hearing the
words of the former Chair of the Federal
Reserve, Alan Greenspan, who in the late
1990s, referred to the dot-com fueled
market run as “irrational exuberance.”
Is the market irrational? Is there a
disconnect between valuations and future
cash flows? Can the so-called magnificent
seven continue to carry the bull market?
These are all legitimate questions that
I don’t pretend to know the answers to.
I do know this: over the long-term, I
would rather be invested in the United
States than anywhere else. The size and
diversification of the economic engine
make us the envy of the world. With this
context, let me share with you why
I believe the future of WaFd is as
bright as it has ever been.
During this year, we completed the largest
acquisition in our history, taking us into
the state of California with its nearly $2
trillion of deposits. We also executed
the largest loan sale of commercial real
estate loans in the history of U.S. banking,
selling $2.8 billion of loans at no loss to
WaFd — proving both the credit quality
and liquidity of our balance sheet. With
so much uncertainty about interest rates,
regulation and asset quality, we erred on
the side of caution, stockpiling almost
20% of our balance sheet in cash and
liquid investments.
Over the last seven years, we have been
working to become a digital-first bank.
We have made great strides and now offer
our commercial clients a phenomenal
treasury management system, and our
consumer clients online and mobile
banking to access and move their money
when, where and how they want. Anyone
who works with technology quickly
concludes that it is a race without a finish
line. You can roll out a new feature, and
because of the pace of innovation, it will
literally be outdated by launch date if
not shortly thereafter. We cannot stop
investing in technology; a bank that aims
to be competitive needs to be consistently
surveilling the market, ready to pivot as
new opportunities arise.
We are committed to not only
surviving, but thriving long-term for our
clients, communities, employees and
shareholders. History has taught us that
having a diverse banking system is one
of the positive differentiators in the U.S.
economy. We believe that mid-size banks,
like WaFd Bank, play a pivotal role as we
Dear Shareholders,
are big enough to be relevant and small
enough to be responsive to changes in
the market and client needs.
We look forward to a bright future, playing
the role of financial intermediary, providing
a safe harbor for our clients’ hard-earned
deposits and making prudent loans to spur
growth across the nine states we call home.
Our ongoing strong financial performance
is a direct result of the hard work and
dedication of our employees, who are our
most valuable asset. We remain focused
on strengthening our operations, investing
in our teams and technology, and fostering
relationships that enable us to deliver
lasting value to our shareholders.
I am proud of the achievements we have
made together, and as we look to the
future, I am excited about the possibilities
and confident of our success.
Thank you for your continued
trust and support.
Sincerely,
Brent Beardall
President & Chief Executive Officer
Here for Good
At WaFd Bank, we love what we do, and we are making a difference!
It is why we’re here, making an impact on the communities we serve.
Enjoy these highlights from our 2024 fiscal year:
265 grants awarded from the WaFd Foundation
to local organizations totaling over $1 million
$121.3 million invested in community
development lending including $72.9 million
toward affordable housing
Corporate matched donations to United Way
agencies totaled $847,000
Continue to offer a hybrid work-setting with 52%
of employees working partially from home, supporting
work-life balance, lower carbon footprint and
attractive recruitment/retention strategy
Net Promoter Score: 55, one of
the highest in the industry
Awarded America’s
Best-in-State Bank in
Washington, Nevada
and New Mexico
946 unique organizations served with 14,889
hours of employee led volunteer service
During the past fiscal year, our 13 regional Diversity and Inclusion
councils, made up of volunteers, worked to enhance employment
and recruitment diversity, participated in local PRIDE activities,
and supported workplace affinity groups for veterans, BIPOC,
working parents, emerging leaders and LGBTQIA colleagues
Brent
Beardall
Linda
Brower
Shawn
Bice
Stephen
Graham
David
Grant
Sylvia
Hampel
Steve
Singh
Sean
Singleton
M. Max
Yzaguirre
Randy
Talbot
Bradley
Shuster
WaFd Bank Board of Directors
WaFd Bank Executive Officers
Back l/r:
Ryan Mauer,
Executive Vice President
& Chief Credit Officer
Kelli Holz,
Executive Vice President
& Chief Financial Officer
Cathy Cooper,
Executive Vice President
& Chief Consumer Banker
James Endrizzi,
Executive Vice President
& Chief Commercial
Banker
Front l/r:
Brent Beardall,
President & Chief
Executive Officer
Kim Robison,
Executive Vice President
& Chief Operating Officer
WaFd Bank Regional Presidents
Tony Barnard
Texas
Regional President
Michelle Coons
New Mexico
Regional President
Marlise Fisher
Utah
Regional President
Todd Gerber
Arizona
Regional President
Gary Haines
Northern Oregon
Regional President
Doron Joseph
Nevada
Regional President
Dan LaCoste
Southern Oregon
Regional President
Ken McLain
Inland Northwest
Regional President
Tom Pozarycki
Northern Washington
Regional President
Tom Van Hemelryck
Idaho
Regional President
Dennis Zender
Southern Washington
Regional President
WaFd Bank Footprint
2,201 Team Members
211 Branch Offices in 9 States
Access over 40,000 free ATMs nationwide
through our bank’s participation in
MoneyPass® Network
4 Commercial Loan Offices
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United States
Securities and Exchange Commission
Washington, D.C. 20549
____________________________________________________________
FORM 10-K
____________________________________________________________
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended September 30, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission File Number: 001-34654
____________________________________________________________
WAFD, INC.
(Exact name of registrant as specified in its charter)
____________________________________________________________
Washington
91-1661606
(State or other jurisdiction of incorporation or
organization)
(I.R.S. Employer Identification No.)
425 Pike Street
Seattle
Washington
98101
(Address of Principal Executive Offices)
(Zip Code)
Registrant’s telephone number, including area code: (206) 624-7930
_____________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $1.00 par value per share
WAFD
NASDAQ Stock Market
Depositary Shares, Each Representing a
1/40th Interest in a Share of 4.875% Fixed
Rate Series A Non-Cumulative Perpetual
Preferred Stock
WAFDP
NASDAQ Stock Market
Securities registered pursuant to section 12(g) of the Act:
None
____________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in
Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report.
Yes ☒ No ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by
any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the registrant's common stock ("Common Stock") held on March 31, 2024, the last business day of the registrant's second fiscal
quarter by non-affiliates was $2,323,756,165 based on the NASDAQ Stock Market closing price of $29.03 per share on that date. This is based on 80,046,716
shares of Common Stock that were issued and outstanding on this date, which excludes 1,358,675 shares held by all affiliates.
At November 18, 2024, there were 81,352,532 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents incorporated by reference and the Part of Form 10-K into which the document is incorporated:
(1) Portions of the Registrant’s definitive proxy statement for its Annual Meeting of Shareholders to be held on February 11, 2025 are incorporated into Part III,
Items 10-14 of this Form 10-K.
PART I
Item 1. Business
6
Item 1A. Risk Factors
23
Item 1B. Unresolved Staff Comments
36
Item 1C. Cybersecurity
37
Item 2. Properties
39
Item 3. Legal Proceedings
39
Item 4. Mine Safety Disclosures
39
PART II
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities
40
Item 6. [Reserved]
42
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
42
Item 7A. Quantitative and Qualitative Disclosures about Market Risks
59
Item 8. Financial Statements and Supplementary Data
63
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
125
Item 9A. Controls and Procedures
125
Item 9B. Other Information
127
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
127
PART III
Item 10. Directors, Executive Officers and Corporate Governance
127
Item 11. Executive Compensation
127
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
127
Item 13. Certain Relationships and Related Transactions and Director Independence
127
Item 14. Principal Accountant Fees and Services
128
PART IV
Item 15. Exhibits and Financial Statement Schedules
129
Item 16. Form 10-K Summary
131
Signatures
131
WAFD, INC. AND SUBSIDIARIES
FORM 10-K ANNUAL REPORT
SEPTEMBER 30, 2024
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTOR SUMMARY
WaFd, Inc. ("we" or the "Company") makes statements in this Annual Report on Form 10-K that constitute forward-
looking statements. Words such as “expects,” “anticipates,” “believes,” “estimates,” “intends,” “forecasts,” “projects” and other
similar expressions or future or conditional verbs such as “will,” “should,” “would” and “could” are intended to help identify
such forward-looking statements. These statements are not historical facts, but instead represent current expectations, plans or
forecasts of the Company and are based on the beliefs and assumptions of the management of the Company and the information
available to management at the time that these disclosures were prepared. The Company intends for all such forward-looking
statements to be covered by the safe harbor provisions for forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. These statements are not guarantees of future results or performance and involve certain
risks, uncertainties and assumptions that are difficult to predict and often are beyond the Company's control. Actual outcomes
and results may differ materially from those expressed in, or implied by, the Company's forward-looking statements.
You should not place undue reliance on any forward-looking statement and should consider the following uncertainties
and risks, as well as the risks and uncertainties discussed elsewhere in this report, including under Item 1A. “Risk Factors,” and
in any of the Company's other subsequent Securities and Exchange Commission filings, which could cause the Company's
future results to differ materially from the plans, objectives, goals, estimates, intentions and expectations expressed in forward-
looking statements:
Operational Risks:
•
fluctuating interest rates and the impact of inflation on the Company's business and financial results;
•
risks associated with cybersecurity incidents and threat actors;
•
risk related to the integration of Luther Burbank Corporation;
•
economic uncertainty or a deterioration in economic conditions or slowdowns in economic growth, including financial
stress on borrowers (consumers and businesses) as a result of higher interest rates or an uncertain economic
environment;
•
the effects of and changes in monetary and fiscal policies of the Board of Governors of the Federal Reserve System
and the U.S. Government;
•
global economic trends, including developments related to Ukraine and Russia, the Middle East, and related negative
financial impacts on our borrowers, the financial markets and the global economy;
•
our ability to make accurate assumptions and judgments about the collectability of our loan portfolio, including the
creditworthiness of our borrowers and the value of the assets securing these loans;
•
risks related to operational, technological, and third-party provided technology infrastructure;
•
risks associated with data privacy laws and regulations;
•
risk associated with the development and use of artificial intelligence;
•
risks associated with our failure to retain or attract key employees;
•
risks associated with failures of our risk management framework;
•
risks related to the impacts of climate change on our business or reputation;
•
the effects of natural or man-made disasters, calamities, or conflicts, including terrorist events and pandemics (such as
the COVID-19 pandemic), and the resulting governmental and societal responses, including on our asset credit quality
and business operations, as well as its impact on general economic and financial market conditions;
Regulatory and Litigation Risk:
•
non-compliance with the USA PATRIOT Act, Bank Secrecy Act, Community Reinvestment Act, Fair Lending Laws,
Real Estate Settlement Procedures Act, Truth-in-Lending Act, Flood Insurance Reform Act or other laws and
regulations;
•
the Company’s ability to manage the risks and costs involved in the remediation efforts to the Bank's Home Mortgage
Disclosure Act (“HMDA”) compliance and reporting, and the impact of enforcement actions or legal proceedings with
respect to the Bank’s HMDA program;
•
legislative and regulatory limitations, including those arising under the Dodd-Frank Act, the Washington Commercial
Bank Act and potential limitations in the manner in which the Company conducts its business and undertakes new
investments and activities;
•
risks associated with increases to deposit insurance premiums or special assessments;
•
litigation risks resulting in significant expenses, losses and reputational damage;
•
environmental risks resulting from our real estate lending business;
4
Market and Industry Risk:
•
eroding confidence in the banking system and regional banks in particular;
•
downturns in the real estate market;
•
changes in banking operations, including a shift from retail to online activities;
•
changes in other economic, competitive, governmental, regulatory and technological factors affecting the Company's
markets, operations, pricing, products, services and fees;
•
risks associated with inadequate or faulty underwriting and loan collection practices;
•
risks associated with our geographic concentration, including the effects of a severe economic downturn, including
high unemployment rates and declines in housing prices and property values, in our primary market areas;
•
industry deficiencies in foreclosure practices, including delays and challenges in the foreclosure process;
•
impairment of goodwill;
Competitive Risks:
•
competition from other financial institutions and new market participants, offering services similar to those offered by
the Bank;
•
our ability to grow organically or through acquisitions;
•
risks associated with our entry into the California market;
Security Ownership Risks:
•
our ability to continue to pay dividends, including on our outstanding Series A Preferred Stock;
•
risks related to the volatility of our Common Stock, and future dilution;
•
the ability of the Company to obtain external financing to fund its operations or obtain financing on favorable terms;
•
risks related to Washington's anti-takeover statute;
•
effects of activist shareholders;
General Risks:
•
the success of the Company at managing the risks involved in the foregoing and managing its business; and
•
the timing and occurrence or non-occurrence of events that may be subject to circumstances beyond the Company's
control.
For the reasons described above, we caution you against relying on any forward-looking statements. You should not
consider the summary of such factors to be an exhaustive statement of all risks, uncertainties, or potentially inaccurate
assumptions that could cause our current expectations or beliefs to change. Further, all forward-looking statements speak only
as of the date on which such statements are made, and the Company undertakes no obligation to update or revise any forward-
looking statements to reflect changed assumptions, the occurrence of unanticipated events, changes to future operating results
over time, or the impact of circumstances arising after the date the forward-looking statement was made.
5
Item 1.
Business
General
Washington Federal Bank, a federally-insured Washington state chartered commercial bank dba WaFd Bank (the "Bank" or
"WaFd Bank"), was founded on April 24, 1917 in Ballard, Washington and is engaged primarily in providing lending, depository,
insurance and other banking services to consumers, mid-sized to large businesses, and owners and developers of commercial real
estate. WaFd, Inc., a Washington corporation, was formed as the Bank’s holding company in November, 1994. On September 27,
2023, the Company filed Articles of Amendment to its Restated Articles of Incorporation, as amended, with the Washington
Secretary of State, to change its name from Washington Federal, Inc. to WaFd, Inc. This change was effective on September 29,
2023. As used throughout this document, the terms "WaFd," the "Company" or "we" or "us" and "our" refer to WaFd, Inc. and its
consolidated subsidiaries, and the term "Bank" or "WaFd Bank" refers to its bank operating subsidiary. The Company is
headquartered in Seattle, Washington.
On November 9, 1982 the Company listed and began trading on the NASDAQ. Profitable operations have been recorded
every year since going public. As of September 30, 2024, the stock traded at 91 times its original 1982 offering price, has paid 166
consecutive quarterly cash dividends and has returned 15,195% total shareholder return to those who invested 42 years ago.
On February 29, 2024, WaFd, Inc. closed its merger with Luther Burbank Corporation ("Luther Burbank" or "LBC"), a
California corporation, effective as of 12:00am on March 1, 2024. 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 added approximately $7.7 billion of
LBC assets at fair value to the Company's balance sheet, and the Company assumed $50,175,000 in floating rate junior subordinated
debentures, due June 2036 and June 2037, and $93,514,000 in 6.5% senior unsecured term notes which matured and were paid off
on September 30, 2024. The Merger expanded WaFd Bank's footprint to nine western states with the addition of ten California
branches of Luther Burbank.
The Company's fiscal year end is September 30th. All references herein to 2024, 2023 and 2022 represent balances as of
September 30, 2024, September 30, 2023 and September 30, 2022, respectively, or activity for the fiscal years then ended.
The business of the Bank consists primarily of accepting deposits from the general public and investing these funds in loans of
various types, including first lien mortgages on single-family dwellings, construction loans, land acquisition and development loans,
loans on multi-family, commercial real estate and other income producing properties, home equity loans and business loans. The
Bank also invests in certain United States government and agency obligations and other investments permitted by applicable laws
and regulations. As of September 30, 2024, Washington Federal Bank has 210 branches located in Washington, Oregon, Idaho,
Arizona, Utah, Nevada, New Mexico, California and Texas. Through the Bank's subsidiaries, the Company is also engaged in
insurance brokerage activities.
The principal sources of funds for the Company's activities are retained earnings, loan repayments, net deposit inflows,
borrowings and repayments and sales of investments. WaFd's principal sources of revenue are interest on loans and interest and
dividends on investments. Its principal expenses are interest paid on deposits, credit costs, general and administrative expenses,
interest on borrowings and income taxes.
The Bank is subject to extensive regulation, supervision and examination by its primary state regulator, the Washington
State Department of Financial Institutions (the "WDFI"), the Federal Deposit Insurance Corporation ("FDIC"), its primary federal
regulator, which insures its deposits up to applicable limits, and the Consumer Financial Protection Bureau (the "CFPB"). The
Company, as a bank holding company, is subject to extensive regulation, supervision and examination by the Board of Governors of
the Federal Reserve System ("Federal Reserve").
The regulatory structure gives the regulatory authorities extensive discretion in connection with their supervisory and
enforcement activities. Any change in such regulation, whether by the WDFI, the FDIC, the Federal Reserve, the CFPB or the U.S.
Congress, could have a significant impact on the Company and its operations. See “Regulation” section below.
6
Lending Activities
General. The Company's net loan portfolio totaled $20,916,354,000 at September 30, 2024 and represents 74.5% of total assets. Lending activities include the origination of
loans secured by real estate, including long-term fixed-rate and adjustable-rate mortgage loans, adjustable-rate construction loans, adjustable-rate land development loans,
fixed-rate and adjustable-rate multi-family loans, fixed-rate and adjustable-rate commercial real estate loans and fixed-rate and adjustable-rate business loans.
The following table is a summary of loans receivable by loan portfolio segment and class.
September 30, 2024
September 30, 2023
September 30, 2022
($ in thousands)
Gross loans by category
Commercial loans
Multi-family
$
4,658,119
20.8 % $
2,907,086
14.8 % $
2,645,801
13.6 %
Commercial real estate
3,757,040
16.8
3,344,959
17.0
3,133,660
16.2
Commercial & industrial
2,337,139
10.5
2,321,717
11.8
2,350,984
12.1
Construction
2,174,254
9.7
3,318,994
16.9
3,784,388
19.5
Land - acquisition & development
200,713
0.9
201,538
1.0
291,301
1.5
Total commercial loans
13,127,265
58.7
12,094,294
61.6
12,206,134
63.0
Consumer loans
Single-family residential
8,399,030
37.6
6,451,270
32.8
5,771,862
29.8
Construction - custom
384,161
1.7
672,643
3.4
974,652
5.0
Land - consumer lot loans
108,791
0.5
125,723
0.6
153,240
0.8
HELOC
266,151
1.2
234,410
1.2
203,528
1.0
Consumer
73,998
0.3
70,164
0.4
75,543
0.4
Total consumer loans
9,232,131
41.3
7,554,210
38.4
7,178,825
37.0
Total gross loans
22,359,396
100 %
19,648,504
100 %
19,384,959
100 %
Less:
Allowance for credit losses (1)
203,753
177,207
172,808
Loans in process
1,009,798
1,895,940
3,006,023
Net deferred fees, costs and discounts
229,491
98,807
92,564
Total loan contra accounts
1,443,042
2,171,954
3,271,395
Net loans
$ 20,916,354
$ 17,476,550
$ 16,113,564
__________________
(1) The ACL within the table does not include the reserve for unfunded commitments which was $21,500,000, $24,500,000 and $32,500,000 as of
September 30, 2024, 2023 and 2022, respectively.
7
Lending Programs and Policies. The Bank's lending activities include commercial and consumer loans, including the
following loan categories.
Commercial real estate loans. The Bank makes loans on a variety of commercial real estate (“CRE”) types which are
generally secured by the subject property. Management differentiates multi-family properties from the rest of our CRE
portfolio as these loans have key differences in the way they are handled from underwriting through monitoring.
The following table provides detail of the amortized cost of non-multi family CRE loans by property type:
September 30, 2024
September 30, 2023
September 30, 2022
($ in thousands)
Office
$
783,363 $
815,776 $
813,103
Industrial
705,401
591,507
481,473
Retail
399,276
377,300
370,139
Warehouse/Self Storage
295,275
252,677
244,985
Medical/dental
265,495
198,208
167,200
Mixed Use
229,351
232,564
243,430
Hotel/motel
205,895
228,503
219,911
Other
848,099
613,566
570,871
Total commercial real estate loans
$
3,732,155 $
3,310,101 $
3,111,112
Within the types listed above, a CRE subject property could be either owner or non-owner occupied. The following table
provides the amortized cost of CRE loans by occupation status:
September 30, 2024
September 30, 2023
September 30, 2022
($ in thousands)
Non-owner occupied
$ 3,130,637
84 % $ 2,715,693
82 % $ 2,487,568
80 %
Owner occupied
601,518
16 %
594,408
18 %
623,544
20 %
Total commercial real estate loans
$ 3,732,155
100 % $ 3,310,101
100 % $ 3,111,112
100 %
In underwriting, the Bank considers a number of factors, which include the projected net cash flow to the loan's debt
service requirement, the age and condition of the collateral, the financial resources and income level of the borrower and the
borrower's experience in owning or managing similar properties. CRE loans are originated in amounts up to 75% of the
appraised value of the property securing the loan.
With CRE loans, credit risk is a result of several factors, including the concentration of principal in a limited number of
loans and borrowers, the effects of general economic and societal conditions on income-producing properties and the primary
source of cash flow for repayment being spread across multiple tenants (non-owner). Repayment of CRE loans depends upon
the successful operation of the related real estate property. If the cash flow from the property is reduced, the borrower's ability
to repay the loan may be impaired. The Bank seeks to minimize these risks through its underwriting policies, which require
such loans to be qualified at origination on the basis of the property's income and debt service ratio.
Multi-family residential loans. Multi-family residential (five or more dwelling units) loans generally are secured by
multi-family rental properties, such as apartment buildings. In underwriting multi-family residential loans, the Bank considers
the same factors considered for CRE loans. Like CRE, multi-family residential loans are originated in amounts up to 75% of the
appraised value of the property securing the loan.
Loans secured by multi-family residential real estate generally involve different credit risk than single-family residential
loans and carry larger loan balances. This different credit risk is a result of several factors, including the concentration of
principal in a limited number of loans and borrowers, the effects of general economic and societal conditions on income-
8
producing properties, the primary source of cash flow for repayment being spread across multiple tenants, the effects of
government orders such as eviction forbearance and the increased difficulty of evaluating and monitoring these types of loans.
It is the Bank's policy to obtain title insurance ensuring that it has a valid first lien on the mortgaged real estate serving as
collateral for the loan. Borrowers must also obtain hazard insurance prior to closing and, when required by regulation, flood
insurance. Borrowers may be required to advance funds on a monthly basis, together with each payment of principal and
interest, to a mortgage escrow account from which the Bank makes disbursements for items such as real estate taxes, hazard
insurance premiums and private mortgage insurance premiums when due.
Commercial and industrial loans. The Bank makes various types of business loans to customers in its market area for
working capital, acquiring real estate, equipment or other business purposes, such as acquisitions. The terms of these loans
generally range from less than one year to a maximum of ten years. The loans are either negotiated on a fixed-rate basis or carry
adjustable interest rates indexed to the Secured Overnight Funding Rate ("SOFR"), Prime Rate or another market rate.
Commercial loans are made based upon assessment of the borrower's ability and willingness to repay along with an
evaluation of secondary repayment sources such as the value and marketability of collateral. Most such loans are extended to
closely held businesses and the personal guaranty of the principal is usually obtained. Commercial loans have a relatively high
risk of default compared to residential real estate loans. Pricing of commercial loans is based on the credit risk of the borrower
with consideration given to the overall relationship of the borrower, including deposits and contributed equity/loan-to-value
ratio. The acquisition of business deposits is an important focus of this business line. The Bank provides a full line of treasury
management products to support the depository needs of its clients.
Construction loans. The Bank originates construction loans to finance construction of single-family and multi-family
residences as well as commercial properties. Loans made to builders are generally tied to an interest rate index and normally
have maturities of two years or less or are structured such that they convert to a permanent loan after the completion of
construction or stabilization of the property. Loans made to individuals for construction of their home generally are 30-year
fixed rate loans. The Bank's policies provide that for residential construction loans, loans may be made for 85% or less of the
construction cost or 80% of the appraised value of the property upon completion, whichever is less. As a result of activity over
the past four decades, the Bank believes that builders of single-family residences in its primary market areas consider the Bank
to be a construction lender of choice. Because of this history, the Bank has developed a staff with in-depth land development
and construction experience and working relationships with selected builders based on their operating histories and financial
stability.
Construction lending involves a higher level of risk than single-family residential lending due to the concentration of
principal in a limited number of loans and borrowers and the effects of general economic conditions in the home building
industry. Moreover, a construction loan can involve additional risks because of the complexities of completing the
construction, the inherent difficulty in estimating the cost (including interest) of the project, the future cash flows and the
property's value at completion of the project.
Land development loans. The Bank's land development loans are of a short-term nature and are generally made for 75%
or less of the appraised value of the unimproved property. Funds are disbursed periodically at various stages of completion as
authorized by the Bank's personnel. The interest rate on these loans typically adjust daily or monthly in accordance with a
designated index.
Land development loans involve a higher degree of credit risk than long-term financing on owner-occupied real estate.
Mitigation of risk of loss on a land development loan is dependent largely upon the accuracy of the initial estimate of the
property's value at completion of development compared to the estimated cost (including interest) of development and the
financial strength of the borrower.
Permanent land loans. The Bank's permanent land loans (also called consumer lot loans) are generally made on improved
land, with the intent of building a primary or secondary residence. These loans are limited to 70% or less of the appraised value
of the property, up to a maximum loan amount of $1,500,000. The interest rate on permanent land loans is generally fixed for
20 years.
Single-family residential loans. The Bank originates 30-year fixed-rate mortgage loans secured by single-family
residences. Moreover, it is the Bank's general policy to include in the documentation evidencing its conventional mortgage
loans a due-on-sale clause, which facilitates adjustment of interest rates on such loans when the property securing the loan is
sold or transferred.
All of the Bank's mortgage lending is subject to written, nondiscriminatory underwriting standards, loan origination
procedures and lending policies approved by the Company's Board of Directors (the "Board"). Property valuations are required
9
on all real estate loans. Appraisals are prepared by independent appraisers, reviewed by staff of the Bank, and approved by the
Bank's management. Property evaluations are sometimes utilized in lieu of appraisals on single-family real estate loans of
$250,000 or less and are reviewed by the Bank's staff. Detailed loan applications are obtained to determine the borrower's
ability to repay and the more significant items on these applications are verified through the use of credit reports, financial
statements or written confirmations.
Depending on the size of the loan involved, a varying number of officers of the Bank must approve the loan application
before the loan can be granted. Federal guidelines limit the amount of a real estate loan made to a specified percentage of the
value of the property securing the loan, as determined by an evaluation at the time the loan is originated. This is referred to as
the loan-to-value ratio. The Board sets the maximum loan-to-value ratios for each type of real estate loan offered by the Bank.
When establishing general reserves for loans with loan-to-value ratios exceeding 80% that are not insured by private
mortgage insurance, the Bank considers the additional risk inherent in these products, as well as their relative loan loss
experience, and provides reserves when deemed appropriate. The total balance for loans with loan-to-value ratios exceeding
80% at origination as of September 30, 2024, was $315,704,000, with allocated reserves of $2,939,000.
Consumer loans. The Bank's non-mortgage consumer loan portfolio consists of prime quality student loans acquired
from an independent financial investment firm that retains 1% of each loan, plus various other non-mortgage consumer loans
including personal lines of credit and credit cards.
Home equity loans. The Bank extends revolving lines of credit to consumers that are secured by a first or second
mortgage on a single-family residence. The interest rate on these loans adjusts monthly indexed to prime. Total loan-to-value
ratios when combined with any underlying first liens held by the Bank are limited to 85% or less. Total loan-to-value ratios are
limited to 80% or less when underlying first liens are held by any other investor. Loan terms are a ten-year draw period
followed by a fifteen-year amortization period.
Origination and Purchase of Loans. The Bank has general authority to lend anywhere in the United States; however, its
primary lending areas are within the states of Washington, Oregon, Idaho, Arizona, Utah, Nevada, New Mexico, California and
Texas. Loan originations come from a variety of sources. Residential loan originations result from referrals from real estate
brokers, walk-in customers, purchasers of property in connection with builder projects that are financed by the Bank, mortgage
brokers and refinance activity for existing customers. Business purpose loans are obtained primarily by direct solicitation of
borrowers and ongoing relationships.
The Bank also purchases loans and mortgage-backed securities when lending rates and mortgage volume for new loan
originations in its market area do not fulfill its needs.
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The table below shows the Bank's total loan origination, purchase and repayment activities.
Twelve Months Ended September 30,
2024
2023
2022
(In thousands)
Commercial loan originations (1)
Multi-family
$
60,730 $
136,788 $
675,534
Commercial Real Estate
246,930
223,361
880,850
Commercial & Industrial
1,677,371
2,032,460
2,569,682
Construction
603,829
1,046,971
2,486,387
Land – Acquisition & Development
45,406
34,946
175,234
Total commercial loans
2,634,266
3,474,526
6,787,687
Consumer loan originations (1)
Single-family residential
430,272
610,130
892,608
Construction – custom
209,781
346,784
765,696
Land – Consumer Lot Loans
21,187
21,133
61,731
HELOC
161,917
154,030
171,393
Consumer
174,648
95,553
57,078
Total consumer loans
997,805
1,227,630
1,948,506
Total loans originated
3,632,071
4,702,156
8,736,193
Loans purchased (3)
6,207,393
80,015
564,584
Loans sold (4)
(3,017,506)
—
—
Loan principal repayments
(4,302,359)
(4,435,269)
(6,194,448)
Net change in loans in process, discounts, etc. (2)
920,205
1,016,084
(826,335)
Net loan activity increase (decrease)
$
3,439,804 $
1,362,986 $
2,279,994
Beginning balance
$
17,476,550 $
16,113,564 $
13,833,570
Ending balance
$
20,916,354 $
17,476,550 $
16,113,564
___________________
(1)
Includes undisbursed loan in process.
(2)
Includes non-cash transactions.
(3)
Loans purchased in fiscal 2024 refer to those obtained in the Merger
(4)
Loans sold in fiscal 2024 refer to multi-family and single-family residential loans obtained in the Merger and were classified as held
for sale.
Interest Rates, Loan Fees and Service Charges. Interest rates charged by the Bank on mortgage loans are primarily
determined by the competitive loan rates offered in its lending areas and in the secondary market. Mortgage loan rates reflect
factors such as general interest rates, the supply of money available to the industry and the demand for such loans. General
economic conditions, the regulatory programs and policies of federal and state agencies, including the Federal Reserve Bank’s
monetary policies, changes in tax laws and governmental budgetary programs influence these factors.
The Bank receives fees for originating loans in addition to various fees and charges related to existing loans, including
prepayment charges, late charges and assumption fees. In making one-to-four- family home mortgage loans, the Bank normally
charges an origination fee and as part of the loan application, the borrower pays the Bank for out-of-pocket costs, such as the
appraisal fee, whether or not the borrower closes the loan. The interest rate charged is normally the prevailing rate at the time
the loan application is approved and accepted. In the case of construction loans, the Bank normally charges an origination fee.
Loan origination fees and other terms of multi-family residential loans are individually negotiated.
Investment Activities
The Bank is obligated by its regulators to maintain adequate liquidity and does so by holding cash and cash equivalents
and by investing in securities. These investments may include, among other things, certain certificates of deposit, repurchase
11
agreements, bankers’ acceptances, loans to financial institutions whose deposits are federally-insured, federal funds, United
States government and agency obligations and mortgage-backed securities.
Sources of Funds
General. Deposits are the primary source of the Bank’s funds for use in lending and other general business purposes. In
addition to deposits, the Bank derives funds from loan repayments, advances from the Federal Home Loan Bank of Des Moines
("FHLB - DM"), borrowings from the Federal Reserve Bank ("FRB"), and from investment repayments and sales. Loan
repayments are a relatively stable source of funds, while deposit inflows and outflows are influenced by general interest rates,
money market conditions, the availability of FDIC insurance and the market perception of the Company’s financial stability.
Borrowings may be used on a short-term basis to compensate for reductions in normal sources of funds, such as deposit inflows
at lower than projected levels. Borrowings may also be used on a longer-term basis to support expanded activities and to
manage interest rate risk. Borrowing capacity and availability is influenced by interest rates, market conditions, availability of
collateral and the market's perception of the Bank's financial stability.
Deposits. The Bank relies on a mix of deposit types, including business and personal checking accounts, term certificates of
deposit, and other savings deposit alternatives that have no fixed term, such as money market accounts and passbook savings
accounts. The Bank offers several consumer checking account products, both interest bearing and non-interest bearing and three
business checking accounts, two of which target small businesses with relatively simple and straightforward banking needs and
one for larger, more complex business depositors with an account that prices monthly based on the volume and type of activity.
Savings and money market accounts are offered to both businesses and consumers, with interest paid after certain threshold
amounts are exceeded.
The Bank’s deposits are obtained primarily from residents of Washington, Oregon, Idaho, Arizona, Utah, Nevada, New
Mexico, California and Texas.
Borrowings. The Bank has a credit line with the FHLB - DM for up to 45% of total assets depending on specific collateral
eligibility. The Bank obtains advances from the FHLB - DM based upon the security of the FHLB capital stock it owns and
certain of its loans, provided certain standards related to credit worthiness have been met. Such advances are made pursuant to
several different credit programs. Each credit program has its own interest rate and range of maturities, and the FHLB - DM
prescribes acceptable uses to which the advances pursuant to each program may be put, as well as limitations on the size of such
advances. Depending on the program, such limitations are based either on a fixed percentage of assets or the Company's credit
worthiness. FHLB advances are used to meet seasonal and other withdrawals of deposit accounts and to fund expansion of the
Bank's lending.
The Bank may need to borrow funds for short periods of time to meet day-to-day financing needs. In these instances,
funds are borrowed from other financial institutions or the Federal Reserve Bank, for periods generally ranging from one to
seven days at the then current borrowing rate. The Bank also elected to utilize the FRB's Bank Term Funding Program (the
"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. The Federal Reserve ceased making new BTFP loans
on March 11, 2024.
The Bank also participates in the FRB of San Francisco Borrower-in-Custody program which collateralizes primary credit
borrowings and serves as a backstop for the FHLB - DM credit line. Due to differing program requirements between the FHLB
- DM and FRB of San Francisco, participating in both increases the amount of eligible collateral that may be pledged in support
of contingent liquidity needs.
The Bank Merger provided a credit line with the Federal Home Loan Bank of San Francisco (FHLB - SF) in support of
LBC borrowings from the FHLB - SF, but the Bank is unable to take down new advances against this line as a bank is not
allowed to belong to more than one FHLB. The FHLB - SF credit line is secured by a line-item pledge of single-family
residential mortgages that are specifically identified.
For further information on these activities, see Note L to the Consolidated Financial Statements in “Item 8. Financial
Statements and Supplementary Data” of this report.
Subsidiaries
The Company is a bank holding company that conducts its primary business through its wholly-owned subsidiary, WaFd
Bank. The Bank has three active wholly-owned subsidiaries, discussed further below.
12
WAFD Insurance Group, Inc. is incorporated under the laws of the state of Washington and is an insurance agency that
offers a full line of individual and business insurance policies to customers of the Bank, as well as to the general public. As of
September 30, 2024 and September 30, 2023, WAFD Insurance Group, Inc. had total assets of $23,174,000 and $20,229,000,
respectively.
Statewide Mortgage Services Company is incorporated under the laws of the state of Washington and it holds and
markets real estate owned. As of September 30, 2024 and September 30, 2023, Statewide Mortgage Services Company had
total assets of $2,506,000 and $785,000, respectively.
Washington Services, Inc. is incorporated under the laws of the state of Washington. It acts as a trustee under deeds of
trust as to which the Bank is beneficiary. As of both September 30, 2024 and September 30, 2023, Washington Services, Inc.
had total assets of $13,000.
Human Capital
At WaFd Bank, our culture is defined by our corporate values of integrity, teamwork, ownership, simplicity, service and
discipline. We value our employees by investing in a healthy work-life balance, competitive compensation and benefit packages
and a vibrant, team-oriented environment centered on professional service and open communication amongst employees. We
strive to build and maintain a high-performing culture and be an “employer of choice” by creating a work environment that
attracts and retains outstanding, engaged employees who embody our company mantra of “Love what you do. Make a
difference.”
Demographics. As of September 30, 2024, we employed 2,208 full and part time employees. None of these employees
are represented by a collective bargaining agreement. During fiscal year 2024 we hired 421 employees. Our voluntary turnover
rate was 15.80% in fiscal year 2024, a slight increase from 15.54% in 2023.
Diversity, Equity and Inclusion. We strive toward having a powerful and diverse team of employees, knowing we are
better together with our combined wisdom and intellect. With a commitment to equity, inclusion and workplace diversity, we
focus on understanding, accepting, and valuing the differences between people. To accomplish this, we have established
Diversity & Inclusion Advisory Councils in each of our regions made up of a diverse group of employee representatives
throughout our footprint. We show our commitment to equal employment opportunity through, among other things, our process
of performing annual compensation analyses and ongoing reviews of our selection and hiring practices alongside a continued
focus on building and maintaining a diverse workforce.
As of September 30, 2024, the population of our workforce was as follows:
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Learning and Development. We invest in the growth and development of our employees by providing a multi-
dimensional approach to learning that empowers, intellectually grows, and professionally develops our colleagues. Our
employees, including leadership, receive continuing education courses that are relevant to the banking industry and their job
function within the Company. All new employees attend our two-day new hire orientation, Welcome to WaFd. In addition, we
offer our Education Tuition Assistance Program, designed to encourage an employee's advancement and growth. We also offer
the Retail Bank Peer Mentor Program and retail banking certifications for our retail employees. These resources provide
employees with the skills they need to achieve their career goals, build management skills and become leaders within our
Company.
Compensation and Benefits. We provide a competitive compensation and benefits program to help meet the needs of
our employees. In addition to salaries, these programs include annual bonuses, stock awards, a 401(k) Plan with an employer
matching contribution in addition to an employer annual contribution, healthcare and insurance benefits, health savings, flexible
spending accounts, paid time off, family leave and an employee assistance program.
Workplace Safety & Wellness. We prioritize the importance of our employees’ health and the health of their families.
We offer healthcare plans where the Company pays a significant portion of the monthly premiums for employees and their
children. Our benefits program also includes a Health Savings Account ("HSA") option in addition to Flexible Spending
Accounts ("FSA"). We believe maintaining a competitive benefits program is a sound investment in attracting newcomers and
retaining loyal, dedicated and enthusiastic colleagues. Benefits we offer to employees include:
•
Health insurance including dental & vision.
•
Flexible spending plans for healthcare and childcare expenses.
•
Employer-paid life insurance & accidental death and dismemberment coverage.
•
Long-term disability insurance.
•
Employee assistance program to provide access to counseling and support well-being.
Corporate Social and Environmental Responsibility
We recognize the social and environmental responsibility that arises from the impact of our activities on peoples’ lives
and our community. The Company's Corporate and Social Environmental Policy integrates social, environmental and ethical
concerns into our daily business activities and our approach to stakeholder relationships. Through this policy, we strive to carry
out our banking activities in a responsible manner, placing the financial needs of our clients and economic health of our
communities at the core of our focus. Below is a summary of our community activities and financial contributions in 2024.
14
Additional information will be provided in the Company’s forthcoming 2024 Community and Social Responsibility
Report which will be made available on the Company’s website. Nothing on our website, including the aforementioned report,
shall be deemed incorporated by reference into this Annual Report.
The Company
General. The Company is registered as a bank holding company and is subject to regulation, examination, supervision and
reporting requirements of the Federal Reserve Bank.
Regulation. The Company operates in a highly regulated industry. The regulatory structure governing the Company’s
operations is designed primarily for the protection of the deposit insurance funds and consumers, and not to benefit our
shareholders. As part of this regulatory structure, the Company is subject to policies and other guidance developed by the
regulatory agencies with respect to capital levels, the timing and amount of dividend payments, the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Under this structure, regulators have broad discretion
to impose restrictions and limitations on the Company’s operations if they determine, among other things, that such operations
are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations or with the
supervisory policies of these agencies.
Failure to comply with applicable laws and regulations can result in a range of sanctions and enforcement actions,
including the imposition of civil money penalties, formal agreements and cease and desist orders. In order to ensure the
Company's programs and operations are in compliance with regulatory requirements, the Company has and will continue to
incur significant costs in order to comply in accordance with its responsibilities.
For further information on regulatory matters, see Note A to the Consolidated Financial Statements in “Item 8. Financial
Statements and Supplementary Data” as well as the "Risk Factors" section of this report and the "USA Patriot Act of 2001"
discussion below.
Sections below include a description of certain laws and regulations that relate to the regulation of the Company and the
Bank. The description of these laws and regulations, and descriptions of laws and regulations contained elsewhere herein, do
not purport to be complete and are qualified in their entirety by reference to applicable laws and regulations.
15
Restrictions on Activities and Acquisitions. Bank holding companies are subject to a variety of restrictions on their activities
and the acquisitions they can make. Generally, the activities or acquisition of a bank holding company that is not a financial
holding company are limited to those that constitute banking or managing or controlling banks or which are closely related to
banking. In addition, without the prior approval of the FRB, bank holding companies are generally prohibited from acquiring
more than 5% of the outstanding shares of any class of voting securities of a bank or bank holding company, taking any action
that causes a bank to become a subsidiary of the bank holding company, acquiring all or substantially all of the assets of a bank,
or merging with another bank holding company.
Control of Company or Bank. Pursuant to the Change in Bank Control Act, (the “CIBC Act”) individuals, corporations or
other entities acquiring Company equity interests may, alone or together with other investors, be deemed to control a holding
company or a bank. If an acquisition is deemed to constitute control of the holding company or bank and is not subject to
approval under the Bank Holding Company Act or certain other statutes, such person or group will be required to file a notice
under the CIBC Act. Generally, ownership of, or power to vote, more than 25% of any class of voting securities constitutes
control. In the case of a bank or bank holding company the securities of which are registered with the Securities and Exchange
Commission ("SEC"), ownership of or power to vote more than 10% of any class of voting securities creates a presumption of
control.
Source of Strength. Under long-standing FRB policy, a bank holding company is expected to serve as a source of financial and
management strength to its subsidiary bank. Under this policy, a bank holding company is expected to stand ready to provide
adequate capital funds to its subsidiary bank during periods of financial adversity and to maintain financial flexibility and
capital raising capacity to assist its subsidiary bank. The Dodd-Frank Act codified the source of strength doctrine by adopting a
statutory provision requiring, among other things, that bank holding companies serve as a source of financial strength to their
subsidiary banks.
Restrictions on Company Dividends. The Company’s ability to pay dividends to its shareholders is affected by several
factors. Since the Company is a separate legal entity from the Bank and its subsidiaries and does not have significant operations
of its own, the Company may not be able to pay dividends to its shareholders if the Bank is unable to pay dividends to the
Company. The Bank’s ability to pay dividends is subject to various regulatory restrictions.
In addition, the Company’s ability to pay dividends is subject to rules and policies of the FRB. It is the policy of the
Federal Reserve that bank holding companies should pay cash dividends only out of income available over the past year and
only if prospective earnings retention is consistent with the company’s expected future needs and financial condition. Capital
rules adopted by the Federal Reserve, effective January 2015, may limit the Company’s ability to pay dividends if the Company
fails to meet certain requirements under the rules. In addition, if we do not or are unable to pay quarterly dividends on our
Series A Preferred Stock, we may not pay a dividend to the holders of our Common Stock. See “Washington Federal Bank,
wholly-owned operating subsidiary - Restrictions on Dividends” below.
Since the Company is a Washington state corporation, it is also subject to restrictions under Washington corporate law
relating to dividends. Generally, under Washington law, a corporation may not pay a dividend if, after giving effect to the
dividend, the corporation would be unable to pay its liabilities as they become due in the ordinary course of business or the
corporation’s total assets would be less than the sum of its total liabilities plus (with some exceptions) the amount that would be
needed, if the corporation were to be dissolved at the time of the dividend payment, to satisfy the dissolution preferences of
senior equity securities.
Enterprise Risk Management. The Company faces a number of risks, including credit risk, interest rate risk, liquidity risk,
operations risk, cybersecurity risk, regulatory risk, compliance and legal risk, strategic risk, and reputational risk. The Risk
Management Committee of the Board (“RMC”) establishes the Company's risk appetite and sets appropriate risk limits and
policies. The RMC is responsible for providing ongoing review, guidance and oversight of the Company's enterprise risk
management function. Management is responsible for managing the Company's risks on a day-to-day basis in accordance with
the policies established by the Board.
The Company's Chief Risk Officer (“CRO”) chairs the Enterprise Risk Management Committee (“ERMC”), a
management-level committee that is responsible for executing the risk management framework adopted by the Board. The
ERMC maintains enterprise-wide oversight of risk assessment, monitoring and reporting. The ERMC meets at least quarterly
to identify, evaluate, monitor, and account for new, existing and emerging risks to the Company. Identified risks are evaluated,
analyzed, prioritized and tracked by the ERMC in a manner to be compatible with effective internal controls, risk management
practices and the policies adopted by the Board. The ERMC develops risk management programs and processes to incorporate
risk considerations into day-to-day business activities across the Company’s risk categories, business lines and functions. To
support the ERMC’s risk management function, certain types of risks are overseen by other management level committees. For
16
example, the Company’s Asset Liability Committee is responsible for managing interest rate and liquidity risks and the credit
administration department tracks credit risks.
On at least a quarterly basis, the Company’s CRO, Chief Financial Officer, Chief Information Officer, Chief Information
Security Officer, Chief Credit Officer, and other members of management report directly to the RMC to provide reporting on
risk levels, key risks, emerging risks and the Company’s compliance with the risk management framework, risk limits and risk
appetites adopted by the RMC.
The Company carries out its risk management practices through its “three lines of defense” model, which is designed to
establish effective checks and balances within its risk management framework. The first line of defense is business units and
process owners within the Company which are responsible for maintaining effective internal controls and executing risk and
control procedures on a day to day basis. The second line of defense is the Company’s risk management, compliance and other
control functions which are responsible for ensuring that the first line of defense is properly designed, in place, and operating
effectively. The third line of defense is the Company’s internal audit function, which provides independent assessment and
assurance regarding the effectiveness of governance, risk management and internal controls.
Washington Federal Bank, wholly-owned operating subsidiary
General. The Bank is a federally-insured Washington state chartered commercial bank dba WaFd Bank. The WDFI is the
Bank's primary state regulator and the FDIC is its primary federal regulatory. The Bank is a member of the FDIC and its
deposits are insured up to applicable limits of the Depository Insurance Fund (“DIF”), which is administered by the FDIC.
Regulation. The WDFI and FDIC have extensive authority over the operations of the Bank. As part of this authority, the Bank
is required to file periodic reports with the WDFI and FDIC and is subject to periodic examinations by the WDFI and FDIC. As
a Washington State chartered commercial bank with branches in the States of Washington, Oregon, Idaho, Utah, Nevada,
Arizona, New Mexico, California and Texas, the Bank is subject not only to the applicable laws and regulations of Washington
State, but is also subject to the applicable laws and regulations of these other states in which it does business. Various laws and
regulations prescribe the investment and lending authority of the Bank, and the Bank is prohibited from engaging in any
activities not permitted by such laws and regulations. While the Bank has broad authority to engage in all types of lending
activities, a variety of restrictions apply to certain other investments by the Bank.
Interstate Banking. Subject to certain limitations and restrictions, a bank holding company, with prior approval of the FRB,
may acquire an out-of-state bank; banks in states that do not prohibit out-of-state mergers may merge with the approval of the
appropriate federal banking agency, and a bank may establish a de novo branch out of state if such branching is permitted by
the other state for state banks chartered by such other state.
Insurance of Deposit Accounts. Under the Dodd-Frank Act, the maximum amount of federal deposit insurance coverage was
permanently increased from $100,000 to $250,000 per depositor, per institution. The Dodd-Frank Act also broadened the base
for FDIC insurance assessments. Assessments are now based on the average consolidated total assets less tangible equity capital
of a financial institution. In addition, the Dodd-Frank Act raised the minimum designated reserve ratio, which the FDIC is
required to set each year for the DIF, to 1.35%. The Dodd-Frank Act eliminated the requirement that the FDIC pay dividends to
depository institutions when the reserve ratio exceeds certain thresholds. The FDIC has established a higher reserve ratio of 2%
as a long-term goal beyond what is required by statute.
Brokered Deposits. The Federal Deposit Insurance Act prohibits an insured depository institution from accepting brokered
deposits or offering interest rates on any deposits significantly higher than the prevailing rate in the bank’s normal market area
or nationally (depending upon where the deposits are solicited), unless it is well-capitalized or is adequately capitalized and
receives a waiver from the FDIC. A depository institution that is adequately capitalized and accepts brokered deposits under a
waiver from the FDIC may not pay an interest rate on any deposit in excess of national and local rate caps set by the FDIC and
published on its website.
Transactions with Affiliates; Insider Loans. Under current federal law, all transactions between and among a bank and its
affiliates, including holding companies, are subject to Sections 23A and 23B of the Federal Reserve Act and Regulation W
promulgated thereunder. Generally, these requirements limit extensions of credit and certain other such transactions by the bank
to affiliates to a percentage of the institution's capital and generally such transactions must be collateralized. Generally, all
affiliate transactions must be on terms at least as favorable to the bank as transactions with non-affiliates. In addition, a bank
may not lend to any affiliate engaged in non-banking activities that are not permissible for a bank holding company or acquire
17
shares of any affiliate that is not a subsidiary. Federal law authorizes the imposition of additional restrictions on transactions
with affiliates if necessary to protect the safety and soundness of a bank.
Extensions of credit by a bank to executive officers, directors and principal shareholders are subject to Section 22(h) of
the Federal Reserve Act, which, among other things, generally prohibits loans to any such individual where the aggregate
amount exceeds an amount equal to 15% of an institution's unimpaired capital and surplus plus an additional 10% of
unimpaired capital and surplus in the case of loans that are fully secured by readily marketable collateral. Section 22(h) permits
loans to directors, executive officers and principal shareholders made pursuant to a benefit or compensation program that is
widely available to employees of a subject bank provided that no preference is given to any officer, director or principal
shareholder, or related interest thereto, over any other employee. In addition, the aggregate amount of extensions of credit by a
bank to all insiders cannot exceed the institution's unimpaired capital and surplus. Furthermore, Section 22(g) places additional
restrictions on loans to executive officers.
The affiliate transaction rules in Sections 23A and 23B of the Federal Reserve Act broaden the definition of affiliate and
apply these rules to securities lending, repurchase agreements and derivatives. These rules also strengthen collateral
requirements and limit Federal Reserve exemptive authority. Further, the definition of “extension of credit” for transactions
with executive officers, directors and principal shareholders includes credit exposure arising from a derivative transaction, a
repurchase or reverse repurchase agreement or a securities lending or borrowing transaction. These provisions have not had a
material effect on the Company or the Bank.
Restrictions on Dividends. The amount of dividends payable by the Bank to the Company depends upon its earnings and
capital position, and is limited by federal and state laws, regulations and policies, including the capital conservation buffer
requirement. Federal law further provides that no insured depository institution may make any capital distribution (which
includes a cash dividend) if, after making the distribution, the institution would be “undercapitalized,” as defined in the prompt
corrective action regulations. Moreover, the federal bank regulatory agencies also have the general authority to limit the
dividends paid by insured banks if such payments should be deemed to constitute an unsafe and unsound practice. In addition,
under Washington law, no bank may declare or pay any dividend in an amount greater than its retained earnings without the
prior approval of the WDFI. WDFI also has the power to require any bank to suspend the payment of any and all dividends.
Federal Home Loan Bank System. The Bank is a member of the Federal Home Loan Bank of Des Moines, which is one of 11
regional FHLBs that provide funding to their members for making home mortgage loans, as well as loans for affordable
housing and community development. Each FHLB serves members within its assigned region and is funded primarily through
proceeds derived from the sale of consolidated obligations of the FHLB system. Loans are made to members in accordance with
the policies and procedures established by the Board of Directors of the FHLB. At September 30, 2024, total FHLB advances to
the Bank amounted to $2,192,874,000. As a member, the Bank is required to purchase and maintain stock in the FHLB of Des
Moines. The Bank also acquired the stock of the FHLB San Francisco in the Merger but is not a member of this FHLB. At
September 30, 2024, the Bank held $73,910,000 in FHLB of Des Moines stock and $21,707,000 in FHLB of San Francisco
stock, which was in compliance with requirements.
Community Reinvestment Act and Fair Lending Laws. Banks have a responsibility under the Community Reinvestment Act
("CRA") and related regulations of the FDIC to help meet the credit needs of their communities, including low- and moderate-
income neighborhoods. In addition, the Equal Credit Opportunity Act and the Fair Housing Act (together, the "Fair Lending
Laws") prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes.
An institution's failure to comply with the provisions of the CRA could, at a minimum, result in regulatory restrictions on its
activities. Failure to comply with the Fair Lending Laws could result in enforcement actions by the FDIC, the CFPB and other
federal regulatory agencies, including the U.S. Department of Justice.
USA Patriot Act of 2001. The USA PATRIOT Act of 2001 ("Patriot Act"), through amendments to the federal Bank Secrecy
Act (“BSA”), substantially broadened the scope of United States anti money-laundering laws and regulations by imposing
significant new compliance and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial
scope of United States jurisdiction. The United States Treasury Department has issued a number of regulations under the Patriot
Act that apply to financial institutions such as the Bank. These regulations impose obligations on financial institutions to
maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing
and to verify the identity of their customers. Failure of a financial institution to maintain and implement adequate risk-based
programs reasonably designed to combat money laundering and terrorist financing, or to comply satisfactorily with all relevant
Patriot Act and BSA requirements, could have serious legal and reputational consequences for the institution.
Anti-Money Laundering Act of 2020. The Anti-Money Laundering Act of 2020 (“AML Act”) was enacted as part of the
National Defense Authorization Act and requires the U.S. Treasury Department to issue National Anti-Money Laundering and
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Countering the Financing of Terrorism Priorities ("AML/CFT"), which occurred in June 2021. The AML Act also includes a
requirement to conduct studies and issue regulations that may alter some of the due diligence, recordkeeping and reporting
requirements that the BSA and Patriot Act impose on financial institutions. The AML Act also promotes increased information-
sharing and use of technology and increases penalties for violations of the BSA and includes whistleblower incentives, both of
which could increase the prospect of regulatory enforcement.
Regulatory Capital Requirements. Bank holding companies and federally insured banks are required to maintain minimum
levels of regulatory capital. The Federal Reserve establishes capital standards applicable to all bank holding companies, and the
WDFI and FDIC establish capital standards applicable to Washington state chartered, non-member banks. The capital rules
reflect, in part, certain standards initially adopted by the Basel Committee on Banking Supervision in December 2010 (which
standards are commonly referred to as “Basel III”) as well as requirements contemplated by the Dodd-Frank Act.
The capital rules require a capital ratio of common equity Tier 1 capital to risk based assets. Common equity Tier 1 capital
generally consists of retained earnings and common stock instruments (subject to certain adjustments) as well as accumulated
other comprehensive income (“AOCI”) except to the extent that the Company and the Bank exercise a one-time irrevocable
option to exclude certain components of AOCI, which the Company and the Bank have done. Tier 1 capital also includes non-
cumulative perpetual preferred stock and limited amounts of minority interests. Regulatory deductions from capital include
goodwill and intangible assets. The capital rules prescribe the manner in which certain capital elements are determined,
including but not limited to, requiring certain deductions related to mortgage servicing rights and deferred tax assets. Total
capital consists of Tier 1 capital and supplementary capital. Supplementary capital consists of certain capital instruments that
do not qualify as core capital as well as general valuation loan and lease loss allowances up to a maximum of 1.25% of risk-
weighted assets. Supplementary capital may be used to satisfy the risk-based requirement only in an amount equal to the
amount of Tier 1 capital.
In determining the required amount of risk-based capital, total assets, including certain off-balance-sheet items, are
multiplied by a risk-weight factor based on the risks inherent in the type of assets held by an institution. The risk categories
range from 0% for low-risk assets such as U.S. Treasury securities and GNMA securities to 1,250% for various types of loans
and other assets deemed to be of higher risk. Single-family residential loans having loan-to-value ratios not exceeding 90% and
meeting certain additional criteria, as well as certain multi-family residential loans, qualify for a 50% risk-weight treatment.
The book value of each asset is multiplied by the risk factor applicable to the asset category, and the sum of the products of this
calculation equals total risk-weighted assets. The rules set forth the methods of calculating certain risk-based assets, which in
turn affects the calculation of risk-based ratios. Higher or more sensitive risk weights are assigned to various categories of
assets, among which are commercial real estate, credit facilities that finance the acquisition, development or construction of real
property, certain exposures or credit that are 90 days past due or are non-accrual, foreign exposures, certain corporate
exposures, securitization exposures, equity exposures and in certain cases mortgage servicing rights and deferred tax assets.
Both the Company and the Bank are required to have a common equity Tier 1 capital ratio of 4.5%. In addition, both the
Company and the Bank are required to have a Tier 1 leverage ratio of 4.0%, a Tier 1 risk-based ratio of 6.0% and a total risk-
based ratio of 8.0%. Both the Company and the Bank are required to establish a “conservation buffer,” consisting of common
equity Tier 1 capital, equal to 2.5%. The capital conservation buffer is designed to ensure that banks build up capital buffers
outside periods of stress, which can be drawn down as losses are incurred. An institution that does not meet the conservation
buffer will be subject to restrictions on certain activities including payment of dividends, stock repurchases and discretionary
bonuses to executive officers.
The Federal Reserve and the FDIC are also authorized to impose capital requirements in excess of these standards on
individual institutions on a case-by-case basis. Management believes that the current capital levels of the Company and the
Bank are sufficient to be in compliance with the fully phased-in standards under the rules.
Any bank holding company or bank that fails to meet the capital requirements is subject to possible enforcement actions.
Such actions could include a capital directive, a cease and desist or consent order, civil money penalties, restrictions on an
institution's operations and/or the appointment of a conservator or receiver. FRB, FDIC and WDFI capital regulations provide
that such supervisory actions, through enforcement proceedings or otherwise, could require one or more of a variety of
corrective actions.
For information regarding compliance with each of these capital requirements by the Company and the Bank as of
September 30, 2024, see Note R to the Consolidated Financial Statements included in Item 8 hereof.
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Prompt Corrective Action. Federal statutes establish a supervisory framework based on five capital categories: well
capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. An
institution’s category depends upon its capital levels in relation to relevant capital measures, which include a risk-based capital
measure, a leverage ratio capital measure and certain other factors. The federal banking agencies have adopted regulations that
implement this statutory framework.
The prompt corrective action rules, which apply to the Bank but not the Company, are modified to include a common
equity Tier 1 risk-based ratio and to increase certain other capital requirements for the various thresholds. For example, the
requirements for the Bank to be considered well-capitalized under the rules are a 5.0% Tier 1 leverage ratio, a 6.5% common
equity Tier 1 risk-based ratio, an 8.0% Tier 1 risk-based capital ratio and a 10.0% total risk-based capital ratio. To be
adequately capitalized, those ratios are 4.0%, 4.5%. 6.0% and 8.0%, respectively.
An institution that is not well capitalized is subject to certain restrictions on brokered deposits, including restrictions on
the rates it can offer on its deposits, generally. Any institution that is neither well capitalized nor adequately capitalized is
considered undercapitalized. Federal law authorizes the FDIC to reclassify a well-capitalized institution as adequately
capitalized and may require an adequately capitalized institution or an undercapitalized institution to comply with supervisory
actions as if it were in the next lower category. The FDIC may not reclassify a significantly undercapitalized institution as
critically undercapitalized. As of September 30, 2024, the Bank exceeded the requirements of a well-capitalized institution.
Dodd-Frank Act Stress Tests ("DFAST"). On July 6, 2018, bank regulatory agencies (the FRB, FDIC and the Office of the
Comptroller of the Currency) issued a joint interagency statement regarding the impact of the Economic Growth, Regulatory
Relief, and Consumer Protection Act ("EGRRCPA") on financial institutions. The EGRRCPA gave immediate relief from
stress testing for applicable bank holding companies but not financial institutions until November 25, 2019. Pursuant to
direction from the Bank's regulators, the Bank was provided similar relief and is no longer required to submit company-run
annual stress tests. Notwithstanding these amendments to the stress testing requirements, the federal banking agencies indicated
through interagency guidance that the capital planning and risk management practices of institutions with total assets less than
$100 billion would continue to be reviewed through the regular supervisory process. Although the Bank will continue to
monitor its capital consistent with the safety and soundness expectations of the federal regulators, the Bank will no longer
conduct company-run stress testing as a result of the legislative and regulatory amendments. The Bank continues to use
customized stress testing to support the business and as part of its risk management and capital planning process.
EGRRCPA also enacted several important changes in some technical compliance areas that we believe will help reduce
our regulatory burden, including:
•
Prohibiting federal banking regulators from imposing higher capital standards on High Volatility Commercial Real
Estate (“HVCRE”) exposures unless they are for acquisition, development or construction (“ADC”), and clarifying
ADC status;
•
Exempting from appraisal requirements certain transactions involving real property in rural areas and valued at less
than $400,000; and
•
Directing the Consumer Financial Protection Bureau to provide guidance on the applicability of the Truth in Lending
and Real Estate Settlement Procedures Act Integrated Disclosure rule to mortgage assumption transactions and
construction-to-permanent home loans, as well the extent to which lenders can rely on model disclosures that do not
reflect recent regulatory changes.
Despite the improvements for mid-size financial institutions such as the Company that has resulted from
EGRRCPA, many provisions of the Dodd-Frank Act and its implementing regulations remain in place and will continue to
result in additional operating and compliance costs that could have a material adverse effect on our business, financial
condition, and results of operation. In addition, the EGRRCPA requires the enactment of a number of implementing
regulations, the details of which may have a material effect on the ultimate impact of the law.
Cybersecurity. The federal banking agencies have established certain expectations with respect to an institution's information
security and cybersecurity programs, with an increasing focus on risk management, processes related to information technology
and operational resiliency, and the use of third parties in the provision of financial services. In January 2020, the federal
banking agencies jointly issued a statement reminding supervised financial institutions of sound cybersecurity risk management
principles that expanded on areas articulated in the Interagency Guidelines Establishing Information Security Standards written
in Section 39 of the Federal Deposit Insurance Act and Sections 501 and 505(b) of the Gramm-Leach-Bliley Act.
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State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations.
Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs
and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have
also recently implemented or modified their data breach notification and data privacy requirements. We expect this trend of
state-level activity in those areas to continue and are continually monitoring developments in the states in which the Company
operates.
In November 2021, the U.S. federal bank regulatory agencies adopted a rule regarding notification requirements for
banking organizations related to significant computer security incidents. Under the final rule, a bank holding company, such as
the Company, and an FDIC-supervised insured depository institution, such as the Bank, are required to notify the Federal
Reserve or FDIC, respectively, within 36 hours of incidents that have materially disrupted or degraded, or are reasonably likely
to materially disrupt or degrade, the banking organization’s ability to deliver services to a material portion of its customer base,
jeopardize the viability of key operations of the banking organization, or impact the stability of the financial sector. Service
providers are required under the rule to notify any affected bank client it provides services to as soon as possible when it
determines it has experienced a computer-security incident that has materially disrupted or degraded, or is reasonably likely to
materially disrupt or degrade, covered services provided by that entity to the Bank for four or more hours.
See Item 1C - Cybersecurity, for additional disclosures regarding the Company's cybersecurity risk management, strategy
and governance.
Financial Privacy. Under the Gramm-Leach-Bliley Act of 1999, as amended, a financial institution may not disclose non-
public personal information about a consumer to unaffiliated third parties unless the institution satisfies various disclosure
requirements and the consumer has not elected to opt out of the information sharing. The financial institution must provide its
customers with a notice of its privacy policies and practices. The Federal Reserve, the FDIC, and other financial regulatory
agencies issued regulations implementing notice requirements and restrictions on a financial institution's ability to disclose non-
public personal information about consumers to unaffiliated third parties.
In addition, privacy and data protection are areas of increasing state legislative focus, and several states have recently
enacted consumer privacy laws that impose significant compliance obligations with respect to personal information. For
example, the Company is subject to the California Consumer Privacy Act (“CCPA”) and its implementing regulations. The
CCPA gives consumers the right to request disclosure of information collected about them, and whether that information has
been sold or shared with others, the right to request deletion of personal information (subject to certain exceptions), the right to
opt out of the sale of the consumer’s personal information, and the right not to be discriminated against for exercising these
rights. The CCPA contains several exemptions, including an exemption applicable to information that is collected, processed,
sold, or disclosed pursuant to the Gramm-Leach-Bliley Act of 1999, as amended. In November 2020, voters in the state of
California approved the California Privacy Rights Act (“CPRA”), a ballot measure that amends and supplements the substantive
requirements of the CCPA by, among other things, expanding certain rights relating to personal information and its use,
collection, and disclosure by covered businesses and providing certain mechanisms for administration and enforcement of the
statue by creating the California Privacy Protection Agency, a watchdog privacy agency. Similar laws may in the future be
adopted by other states where the Company does business. The Company has made and will make operational adjustments in
accordance with the requirements of the CCPA and other state privacy laws.
Furthermore, privacy and data protection areas are expected to receive further attention at the federal level. Congress and
federal regulatory agencies are considering similar laws or regulations that could create new individual privacy rights and
impose increased obligations on companies handling personal data. On April 1, 2022, the federal banking agencies’ new rule
became effective, providing for new notification requirements for banking organizations and their service providers for
significant cybersecurity incidents. Specifically, the new rule requires banking organizations to notify their primary federal
regulator as soon as possible, and no later than 36 hours after, the discovery of a computer-security incident that rises to the
level of a notification incident as defined by the rule. Notification is required for incidents that have materially affected or are
reasonably likely to materially affect the viability of a banking organization’s operations, its ability to deliver banking products
and services, or the stability of the financial sector. Service providers are required under the rule to notify any affected bank to
which it provides services as soon as possible when it determines it has experienced a computer-security incident that has
materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, covered services provided by that
entity to the bank for four or more hours. The potential effects of state or federal privacy and data protection laws on the
Company’s business cannot be determined at this time and will depend both on whether such laws are adopted by states in
which the Company does business and/or at the federal level and the requirements imposed by any such laws.
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Taxation
In addition to federal income tax, the Company is also subject to income, franchise, excise or gross receipts tax in states
(and some cities) where the Company has branches or is deemed to have sufficient nexus for tax purposes. The Company
generally files consolidated federal and state income tax returns with its subsidiaries.
The Company's federal income tax returns are open and subject to potential examination by the IRS for fiscal year 2021
and later.
Competition
We operate in a highly competitive environment. Our competitors include other banks, savings associations, community
banks, credit unions, fintech companies and other financial intermediaries, and new market participants offering services similar
to those that we offer. We compete with some competitors within our geographic market area, and with others on a product
specific basis, such as the residential mortgage market. Our ability to compete effectively depends on our ability to provide
first-rate, friendly and professional customer service and deliver the banking solutions that our customers want and need. We
are also dependent upon our ability to attract and retain employees while managing compensation and other costs.
Availability of Financial Data
Under the Securities Exchange Act of 1934 ("Exchange Act"), the Company is required to file annual, quarterly and
current reports, proxy statements and other information with the SEC. We file reports on Forms 10-K, 10-Q and 8-K, and
amendments to those reports, with the SEC. The public may obtain copies of these reports at the SEC's website: www.sec.gov.
The Company has adopted and posted on its website a code of ethics that applies to its senior financial officers. The
Company’s website also includes the charters for its audit committee, compensation committee, risk management committee,
executive committee, technology committee and nominating and governance committee.
The address for the Company’s website is www.wafdbank.com. The Company makes available on its website, free of
charge, its annual reports on Form 10-K, current quarterly reports on Form 10-Q, reports on Form 8-K, proxy statements and
any amendments to those reports (among others), as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the Securities and Exchange Commission (SEC). We also make available on our website public financial
information for which a report is not required to be filed with or furnished to the SEC. Our SEC reports and such other
information can be accessed through the investor relations section of our website (https://www.wafdbank.com/about-us/
investor-relations). The Company’s website provides a link to all our filings on the SEC’s Edgar website, and the company will
provide a printed copy of any of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-
K, proxy statements and any amendments to those reports (among others) to any requesting shareholder, free of charge. The
information found on our website is not part of this or any other report that we file or furnish to the SEC.
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Item 1A. Risk Factors
Ownership of our Common Stock involves risk. Investors should carefully consider, in addition to the other information
included in this Annual Report on Form 10-K, the following risk factors. The risks described below may adversely affect our
business, financial condition and results of operations. These risks are not the only risks we face; additional risks and
uncertainties not currently known or that are currently considered to be immaterial may also materially and adversely affect
our business.
Operational Risks
Fluctuating interest rates could adversely affect our business.
Significant increases in market interest rates on loans, or the perception that an increase may occur, could adversely
affect both our ability to originate new loans and our ability to grow. Beginning early in 2022, in response to growing signs of
inflation, the Federal Reserve Bank increased interest rates rapidly, causing the federal funds rate to reach a 22-year high.
Although the FRB reduced its benchmark rates in September 2024, the inflationary outlook in the United States is currently
uncertain. Rapid changes in interest rates make it difficult for the Bank to balance its loan and deposit portfolios, which may
adversely affect our results of operations by, for example, reducing asset yields or spreads, creating operating and system
issues, or having other adverse impacts on our business. Persistent inflation could lead to higher interest rates, which could, in
turn, increase the borrowing costs of our customers, making it more difficult for them to repay their loans or other obligations.
High interest rates could also push down asset prices and weaken economic activity.
Further, our profitability is dependent to a large extent upon net interest income, which is the difference (or “spread”)
between the interest earned on loans, securities and other interest-earning assets and the interest paid on deposits, borrowings,
and other interest-bearing liabilities. The level of net interest income is a function of the average balances of interest-earning
assets and interest-bearing liabilities and the spread between the amounts of the yield on such assets and the cost of such
liabilities. These factors are influenced by both the pricing and the mix of interest-earning assets and interest-bearing liabilities
which, in turn, are impacted by such external factors as the local economy, competition for loans and deposits, the monetary
policy of the Federal Open Market Committee of the Federal Reserve Board of Governors (the “FOMC”) and market interest
rates. Furthermore, movements in interest rates, the pace at which such movements occur and the volume and mix of our
interest-bearing assets and liabilities influence the level of net interest income. The cost of customer deposits is largely based
on short-term interest rates, the level of which is driven by the FOMC. However, the yields generated by long-term loans, such
as single-family residential and multifamily mortgage loans, and securities are typically driven by longer-term (10 year) interest
rates, which are set by the market and vary from day to day.
As a result of the interest rate increases experienced in 2022 and 2023, our interest expense on both deposits and
borrowings increased significantly. Because of the differences in maturities and repricing characteristics of our interest-earning
assets and interest-bearing liabilities, changes in interest rates do not produce equivalent changes in interest income earned on
interest-earning assets and interest paid on interest-bearing liabilities. Accordingly, fluctuations in interest rates could adversely
affect our interest rate spread, and, in turn, our profitability. For example, if the interest rates on interest-bearing liabilities
increase at a faster pace than the interest rates on interest-earning assets, the result could be a reduction in our net interest
income and with it, a reduction in earnings. The same could be true if interest rates on interest-earning assets decline faster than
the rates on interest-bearing liabilities. Net interest income and earnings would be similarly impacted if the interest rates on
interest-earning assets decline more quickly than the interest rates on interest-bearing liabilities. In addition, changes in interest
rates could affect the Bank's ability to originate loans and attract and retain deposits; the fair values of its securities and other
financial assets; the fair values of its liabilities; and the average lives of its loan and securities portfolios. Additionally,
decreases in interest rates could lead to increased loan refinancing activity, which, in turn, would alter the balance of our
interest-earning assets and impact net interest income. Increases in interest rates could reduce loan refinancing activity, which
could result in compression of the spread between loan yields and more quickly rising funding rates. We may also be exposed
to movements in market rates to a degree not experienced by other financial institutions, as a result of our significant portfolio
of fixed-rate single-family home loans, which are longer-term in nature than the customer accounts and borrowed money that
constitute our liabilities.
We are currently anticipating that there will be further decreases in the target federal funds rate in 2025 but the
inflationary outlook remains uncertain. However, if interest rates do not decrease, or if the Federal Reserve were to rapidly
increase the target federal funds rate, the increase in rates could continue to constrain our interest rate spread and may adversely
affect our business forecasts. On the other hand, decreases in interest rates, may result in a change in the mix of noninterest and
interest-bearing accounts. We are unable to predict changes in interest rates, which are affected by factors beyond our control,
including inflation, deflation, recession, unemployment, money supply and other changes in financial markets.
We are exposed to risks related to fraud and cyber-attacks.
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Cybersecurity, and the continued development and enhancement of controls, processes, and practices designed to
protect customer information, systems, computers, software, data, and networks from attack, damage, or unauthorized access
remain a priority for the Company. As cybersecurity threats continue to evolve, we may be required to expend additional
resources to continue to enhance, modify, and refine our protective measures against these evolving threats.
We are continuously enhancing and expanding our digital products and services to meet customer and business needs
with desired outcomes. These digital products and services often include storing, transmitting, and processing confidential
customer, employee, financial, and business information. Due to the nature of this information, and the value it has for internal
and external threat actors, we, and our third-party service providers, continue to be subject to cyber-attacks and fraud activity
that attempts to gain unauthorized access, misuse information and information systems, steal information, disrupt or degrade
information systems, spread malicious software, and other illegal activities.
We believe we have robust preventive, detective, and administrative safeguards and security controls to minimize the
probability and magnitude of a material event. However, if we are unable to maintain them, we may fall victim to a material
adverse cybersecurity event. Because the tactics and techniques used by threat actors to bypass safeguards and security controls
change frequently, and often are not recognized until after an event has occurred, we may be unable to anticipate future tactics
and techniques, or to implement adequate and timely protective measures.
We are subject to additional risk with respect to third-party vendors that process or handle personal and financial data
of our customers, partners, suppliers or employees. These third-party vendors may themselves use other vendors to store or
process our data, which further elevates our risk exposure. Our third-party vendors have been, and may in the future be, subject
to security incidents, including those caused by computer viruses, malware, ransomware, phishing attempts, social engineering,
hacking or other means of unauthorized access. Control failures of security measures managed by our third-party service
providers could cause us to suffer damage to our reputation and could require us to incur substantial expenses, which could
have a materially adverse effect on our business, financial condition, and results of operations.
To date, we have no knowledge of a material cyber-attack or other material information security incident affecting the
systems we operate and control. However, our risk and exposure to these matters remains heightened because of, among other
things, the evolving nature of these threats, the continuation of a remote or hybrid work environment for our employees and
service providers, and our plans to continue to implement and expand digital banking services, expand operations, and use
third-party information systems that includes cloud-based infrastructure, platforms, and software. Recent instances of attacks
specifically targeting banks and financial services businesses indicate that the risk to our systems remains significant. We, and
our third-party providers, are regularly the subject of attempted attacks and the ability of the attackers and the method of their
attacks continues to grow in sophistication. Threat actors, including nation state attackers, could also use artificial intelligence
for malicious purposes, increasing the frequency and complexity of their attacks. Potential threats to our technologies, systems,
networks, and other devices, as well as those of our employees, third party vendors, and other third parties with whom we
interact, include Distributed Denial of Service ("DDoS") attacks, computer viruses, hacking, malware, ransomware, credential
stuffing, phishing, and other forms of social engineering. Such cyber-attacks and other security incidents are designed to lead to
various harmful outcomes, such as unauthorized transactions against our customers’ accounts, unauthorized or unintended
access to confidential information, or the release, gathering, monitoring, disclosure, loss, destruction, corruption, disablement,
encryption, misuse, modification or other processing of confidential or sensitive information (including personal information),
intellectual property, software, methodologies or business secrets, disruption, sabotage or degradation of service, systems or
networks, or other damage. These threats may derive from, among other things, error, fraud or malice on the part of our
employees, insiders, or third parties or may result from accidental technological failure. Any of these parties may also attempt
to fraudulently induce employees, service providers, customers, partners or other third-party users of our systems or networks to
disclose confidential or sensitive information (including personal information) in order to gain access to our systems, networks
or data or that of our customers, partners, or third parties with whom we interact, or to unlawfully obtain monetary benefit
through misdirected or otherwise improper payment. A cyber-attack or other security incident on the systems we operate and
control could cause us to suffer damage to our reputation, result in productivity losses, require us to incur substantial expenses,
including response costs associated with investigation and resumption of services, remediation expenses costs associated with
customer notification and credit monitoring services, increased insurance premiums, regulatory penalties and fines, and costs
associated with civil litigation, any of which could have a materially adverse effect on our business, financial condition, and
results of operations.
We also face additional costs when our customers become the victims of cyber-attacks. For example, various retailers
have reported that they have been the victims of a cyber-attack in which large amounts of their customers’ data, including debit
and credit card information, is obtained. Our customers may be the victims of phishing scams, providing cyber criminals access
to their accounts, or credit or debit card information. In these situations, we incur costs to replace compromised cards and
address fraudulent transaction activity affecting our customers, as well as potential increases to insurance premiums for policies
we may maintain to cover these losses.
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Both internal and external fraud and theft are risks. If confidential customer, employee, monetary, or business
information were to be mishandled or misused, we could suffer significant regulatory consequences, reputational damage, and
financial loss. Such mishandling or misuse could include, for example, if such information were erroneously provided to parties
who are not permitted to have the information, either by fault of our systems, employees, or counterparties, or if such
information were to be intercepted or otherwise inappropriately taken by third parties, or if our own employees abused their
access to financial systems to commit fraud against our customers and the Company. These activities can occur in connection
with activities such as the origination of loans and lines of credit, ACH transactions, wire transactions, ATM transactions, and
checking transactions, and result in financial losses as well as reputational damage.
Operational errors can include information system misconfiguration, clerical or record-keeping errors, or disruptions
from faulty or disabled computer or telecommunications systems. Because the nature of the financial services business involves
a high volume of transactions, certain errors, which may be automated or manual, may be repeated or compounded before they
are discovered and successfully rectified. Because of the Company’s large transaction volume and its necessary dependence
upon automated systems to record and process these transactions, there is a risk that technical flaws, tampering, or manipulation
of those automated systems, arising from events wholly or partially beyond its control, may give rise to disruption of service to
customers and to financial loss or liability.
The occurrence of any of these risks could result in a diminished ability for us to operate our business, additional costs
to correct defects, potential liability to clients, reputational damage, and regulatory intervention, any of which could adversely
affect our business, financial condition and results of operations.
Inflationary pressures and rising prices may affect our results of operations and financial condition.
Inflation rates moved closer to the FRB’s target rate in 2024, but remained somewhat elevated and as of September
2024, above the FRB’s target of 2%. The inflation experienced in 2022 and 2023 has led to increased costs to our customers,
making it more difficult for them to repay their loans or other obligations increasing our credit risk. The inflationary outlook in
the United States is currently uncertain. If inflationary pressures do not subside, sustained higher interest rates by the Federal
Reserve may be needed to tame persistent inflationary price pressures, which could push down asset prices and weaken
economic activity. A deterioration in economic conditions in the United States and our markets could result in a further increase
in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products
and services, all of which, in turn, would adversely affect our business, financial condition and results of operations.
Integrating Luther Burbank with the Company may prove more difficult, costly or time consuming than expected, and
the anticipated benefits and cost savings of the Merger may not be realized.
On March 1, 2024, the Company closed the Merger with Luther Burbank. The Merger involves the integration of two
companies that have previously operated independently and with different business models. The ultimate success of the Merger
will depend, in part, on our ability to realize the anticipated cost savings from combining the businesses of WaFd and Luther
Burbank. To realize the anticipated benefits and cost savings from the Merger, we must successfully integrate Luther Burbank’s
operations with ours in a manner that permits those cost savings to be realized, without adversely affecting current revenues and
future growth. If the integration is more costly than projected, the anticipated benefits of the Merger may not be realized fully or
at all or may take longer to realize than expected. While we have realized 45% in annualized cost-savings due to the merger as
of September 30, 2024, exceeding the original 25% target, an inability to maintain the full extent of these cost savings
following the Merger, as well as any delays encountered in the integration process, could have an adverse effect upon the
revenues, levels of expenses and operating results of the combined company, which may adversely affect the value of our
Common Stock. It is possible that the integration process could result in the loss of key employees, the disruption of each
company’s ongoing businesses or inconsistencies in standards, controls, procedures, and policies that adversely affect the
companies’ ability to maintain relationships with clients, customers, depositors, and employees or to achieve the anticipated
benefits and cost savings of the Merger. Integration efforts between the companies may also divert management attention and
resources. These integration matters could have an adverse effect on the combined company for an undetermined period after
completion of the Merger.
Current uncertain economic conditions pose challenges, and could adversely affect our business, financial condition and
results of operations.
We are operating in an uncertain economic environment. The pandemic caused a global economic slowdown, and
while we have seen some economic recovery, continuing supply chain issues, labor shortages and inflation risks continue to
affect the economic recovery. U.S. debt ceiling and budget deficit concerns have increased the possibility of additional credit-
rating downgrades and economic slowdowns, or a recession in the United States. There remain increased risks of a government
shutdown if the spending bills necessary to fund the government through the fiscal year that ends September 30, 2025 are not
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passed by Congress. Future deterioration in the U.S. credit and financial markets could result in losses or significant
deterioration in the fair value of our U.S. government issued, sponsored or guaranteed investments. At September 30, 2024, we
had $2.2 billion invested in U.S. government and agency obligations, and further downgrades could affect the stability of
securities issued or guaranteed by the federal government and the valuation or liquidity of our portfolio of such investment
securities.
Economic uncertainty, or a recessionary or stagnant economy, could result in financial stress on the Bank's borrowers,
which could adversely affect our business, financial condition and results of operations. Deteriorating conditions in the regional
economies we serve, or in certain sectors of those economies, in excess of the reasonable and supportable forecasts we used to
estimate credit losses, could drive losses beyond that which is provided for in our allowance for loan losses. We could also face
the following risks in connection with the following events:
•
Market developments and economic stagnation or slowdown may affect consumer confidence levels and may cause
adverse changes in payment patterns, resulting in increased delinquencies and default rates on loans and other credit
facilities.
•
The processes we use to estimate the allowance for credit losses and other reserves may prove to be unreliable. Such
estimates rely upon complex modeling inputs and judgments, including forecasts of economic conditions, which may
be rendered inaccurate and/or no longer subject to accurate forecasting.
•
Our ability to assess the creditworthiness of our borrowers may be impaired if the models and approaches we use to
select, manage, and underwrite loans become less predictive of future charge-offs.
•
Regulatory scrutiny of the industry could increase, leading to increased regulation of the industry that could lead to a
higher cost of compliance, limit our ability to pursue business opportunities and increase our exposure to litigation or
fines.
•
Ineffective monetary policy or other market conditions could cause rapid changes in interest rates and asset values that
would have a materially adverse impact on our profitability and overall financial condition.
•
Further erosion in the fiscal condition of the U.S. Treasury could lead to new taxes that would limit our ability to
pursue growth and return profits to shareholders.
If these conditions or similar ones continue to exist or worsen, we could experience continuing or increased adverse
effects on our financial condition.
Changes to monetary policy by the Federal Reserve could adversely impact our results of operations.
The Federal Reserve is responsible for regulating the supply of money in the United States, including open market
operations used to stabilize prices in times of economic stress, as well as setting monetary policies. These activities strongly
influence our rate of return on certain investments, our hedge effectiveness for mortgage servicing and our mortgage origination
pipeline, as well as our costs of funds for lending and investing, all of which may adversely impact our liquidity, results of
operations, financial condition and capital position.
Unstable global economic conditions may have serious adverse consequences on our business, financial condition, and
operations.
The global credit and financial markets have from time-to-time experienced extreme volatility and disruptions,
including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth,
increases in unemployment rates, high rates of inflation, and uncertainty about economic stability. Changes in trade policies by
the United States or other countries, such as tariffs or retaliatory tariffs, may cause inflation which could impact the prices of
products sold by our borrowers and have the potential to reduce demand for their products impacting their profitability and
making it difficult for our borrowers to repay their loans. The financial markets and the global economy may also be adversely
affected by the current or anticipated impact of military conflict, including the conflict between Russia and Ukraine, and the
evolving conflict in the Middle East. These events have increased and are expected to continue to increase volatility in
commodity and energy prices, including oil, and continuing hostilities raise the possibility of supply disruptions. Rising
tensions and global instability have the potential to affect consumer confidence in the U.S. and abroad, therefore having a
broader effect on financial markets. Changes in trade policies or sanctions imposed by the United States and other countries in
response to such conflict could further adversely impact the financial markets and the global economy, and any economic
countermeasures by the affected countries or others could exacerbate market and economic instability. Our general business
strategy may be adversely affected by any such economic downturn, volatile business environment, hostile third-party action or
continued unpredictable and unstable market conditions.
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Our allowance for credit losses ("ACL") may not be adequate to cover future loan losses, which could adversely affect
our financial condition and results of operations.
If our customers are unable to repay their loans according to the original terms, and the collateral securing the payment
of those loans is insufficient to pay any remaining loan balance, we will be required to characterize the loan as non-performing
or write it off as a loss. We maintain an ACL to provide for loan defaults and non-performance, however, losses may exceed the
value of the collateral securing the loans and the allowance may not fully cover any excess loss.
We make various assumptions and judgments about the collectability of our loan portfolio, including the
creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of
loans. Our ACL is based on these judgments, as well as historical loss experience and an evaluation of the other risks associated
with our loan portfolio, including but not limited to, economic trends and conditions, changes in underwriting standards,
management, competition, and trends in delinquencies, non-accrual and adversely classified loans, the size and composition of
the loan portfolio, current economic conditions and geographic concentrations within the portfolio. Banking regulatory
agencies, as part of their examination process, review our loans and ACL. If our assumptions and judgments used to determine
the ACL prove to be incorrect, if the value of the collateral securing the loans decreases substantially or if regulators disagree
with our judgments, we may need to increase the ACL in amounts that exceed our expectations. Material additions to the ACL,
or losses in excess of the ACL, would adversely affect our results of operations and financial condition.
We are exposed to risks related to our operational, technological, and third-party provided technology infrastructure.
We rely extensively on the successful and uninterrupted functioning of information technology and
telecommunications systems to conduct our business. This includes internally developed systems, internally managed systems,
outsourced systems provided by third-party service providers, internet facing digital products and services, mobile technologies
and the on-going operational maintenance of each service. Any disruptions, failures, or inaccuracies of these systems, including
changes and improvements, could result in our inability to service customers, manage operations, manage risk, meet regulatory
obligations, or provide timely and accurate financial reporting which could damage our reputation, result in loss of customer
business, subject us to regulatory scrutiny, or expose us to civil litigation and possible financial liability.
In many instances, the Company’s products and services to customers are dependent upon third-party service
providers, who provide necessary, or critical, services and support. Any disruption of such services, or an unplanned
termination of a third-party license or service agreement related thereto, could adversely affect our ability to provide necessary
products and services for our customers.
In recent years, we have made a significant ongoing investment to enhance our technological capabilities with the
objectives of enhancing customer experience, growing revenue, and improving operating efficiency. There is a risk that these
investments may not provide the anticipated benefits and/or will prove significantly more costly and time consuming to
produce. If this occurs, we may see a loss of customers, and our financial results and ability to execute on our strategic plan
may be adversely impacted.
We are subject to complex state and federal laws, rules, regulations and standards regarding data privacy and
cybersecurity, which impact how we conduct our business.
We are subject to complex and evolving data privacy laws, rules, regulations, standards and contractual obligations
(collectively “data privacy laws”) that relate to the privacy and security of the personal information of customers, employees or
others. These data privacy laws require, among other things, that we make certain privacy disclosures, maintain a robust
security program, require disclosures and notifications during a cyber or information security incident, and regulate our
collection, use, sharing, retention, and safeguarding of consumer or employee information. State and federal regulators may
also hold us responsible for privacy and data protection obligations performed by our third-party service providers while
providing services to us, as well as disclosures and notifications during a cyber or information security incident. Consumers
also have the option to direct banks and other financial institutions not to share information about transactions and experiences
with affiliated companies for the purpose of marketing products or services.
State regulators have also been increasingly active in implementing privacy and cybersecurity standards and
regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity
programs and provide detailed requirements with respect to these programs, including data encryption requirements. Many
states have also recently implemented or modified their data breach notification and data privacy requirements. We expect this
trend of state-level activity in those areas to continue and are continually monitoring developments in the states in which the
Company operates. As the regulatory environment becomes more rigorous, we anticipate that compliance with these
requirements will result in additional costs and expenses, and may impact the way we conduct business. Our failure to comply
with data privacy laws could result in potentially significant regulatory or governmental investigations, litigation, fines, or
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sanctions, or cause damage to our reputation, which could have a material adverse effect on our business, financial condition or
results of operations.
The development and use of Artificial Intelligence (“AI”) presents risks and challenges that may adversely impact our
business.
We or our third-party (or fourth party) vendors, clients or counterparties may develop or incorporate AI technology in
certain business processes, services, or products. The development and use of AI presents a number of risks and challenges to
our business. The legal and regulatory environment relating to AI is uncertain and rapidly evolving, both in the U.S. and
internationally, and includes regulatory schemes targeted specifically at AI as well as provisions in intellectual property,
privacy, consumer protection, employment, and other laws applicable to the use of AI. These evolving laws and regulations
could require changes in our implementation of AI technology and increase our compliance costs and the risk of non-
compliance. AI models, particularly generative AI models, may produce output or take action that is incorrect, that reflects
biases included in the data on which they are trained, that results in the release of private, confidential, or proprietary
information, that infringes on the intellectual property rights of others, or that is otherwise harmful. In addition, the complexity
of many AI models makes it difficult to understand why they are generating particular outputs. This limited transparency
increases the challenges associated with assessing the proper operation of AI models, understanding and monitoring the
capabilities of the AI models, reducing erroneous output, eliminating bias, and complying with regulations that require
documentation or explanation of the basis on which decisions are made. Further, we may rely on AI models developed by third
parties, and, to that extent, would be dependent in part on the manner in which those third parties develop and train their
models, including risks arising from the inclusion of any unauthorized material in the training data for their models and the
effectiveness of the steps these third parties have taken to limit the risks associated with the output of their models, matters over
which we may have limited visibility. Any of these risks could expose us to liability or adverse legal or regulatory
consequences and harm our reputation and the public perception of our business or the effectiveness of our security measures.
If we are not able to retain or attract key employees, or if we were to suffer the loss of a significant number of
employees, we could experience a disruption in our business.
If a key employee or a substantial number of employees depart or become unable to perform their duties, it may
negatively impact our ability to conduct business as usual. Unanticipated departures, including in connection with acquisition
activity, such as our recent acquisition of Luther Burbank, might require us to divert resources from other areas of our
operations, which could create additional stress for other employees, including those in key positions. The loss of qualified and
key personnel, or an inability to continue to attract, retain and motivate key personnel could adversely affect our business and
consequently impact our financial condition and results of operations.
Our risk management framework may not be effective in mitigating risks and losses to us.
Our risk management framework is comprised of various processes, systems and strategies designed to manage the
types of risks to which we are subject, including, among others, credit, market, liquidity, interest rate, cybersecurity and
compliance. Our framework also includes financial or other modeling methodologies that involve management assumptions and
judgment. Because we rely on assumptions and judgment calls, our risk management framework may not be effective under all
circumstances and may not adequately mitigate any risk of loss to us. If our framework is not effective, we could suffer
unexpected losses and our financial condition, operations or business prospects could be materially and adversely affected. We
may also be subject to potentially adverse regulatory consequences.
Climate change could adversely affect our business, affect client activity levels and damage our reputation.
Concerns over the long-term impacts of climate change have led and will continue to lead to governmental efforts
around the world to mitigate those impacts. Consumers and businesses are also changing their behavior and business
preferences as a result of these concerns. New governmental regulations or guidance relating to climate change, as well as
changes in consumers’ and businesses’ behaviors and business preferences, may affect whether and on what terms and
conditions we will engage in certain activities or offer certain products or services. The governmental and supervisory focus on
climate change could also result in our becoming subject to new or heightened regulatory requirements, such as requirements
relating to operational resiliency or stress testing for various climate stress scenarios. Any such new or heightened requirements
could result in increased regulatory, compliance or other costs or higher capital requirements. In connection with the transition
to a low carbon economy, legislative or public policy changes and changes in consumer sentiment could negatively impact the
businesses and financial condition of our clients, which may decrease revenues from those clients and increase the credit risk
associated with loans and other credit exposures to those clients. Our business, reputation and ability to attract and retain
employees may also be harmed if our response to climate change is perceived to be ineffective or insufficient.
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Furthermore, the long-term impacts of climate change have and will continue to have a negative impact on our
business, as well as on our customers and their business. Physical risks include extreme storms, tsunamis, floods, wildfires or
other catastrophic events that damage or destroy offices or other assets, or that damage or destroy property and inventory
securing loans we make. These catastrophic events may also interrupt our customer’s business operations, putting them in
financial difficulty, and increasing the risk of default. Our customers are also facing increases in energy, insurance and
commodity costs driven by climate change, as well as new regulatory requirements resulting in increased operational costs.
A pandemic or similar health crisis, may adversely affect our business and our customers, counterparties, employees,
and third-party service providers in the future.
The spread of COVID-19 created a global public-health crisis that resulted in significant economic uncertainty, and
impacted household, business, economic, and market conditions across the world, including in the western United States where
we conduct nearly all of our business.
Throughout the pandemic our operations were impacted by the need to close certain offices and limit how customers
conduct business through our branch network. Many of our employees continue to work remotely, which exposes us to
increased cybersecurity risks such as phishing, malware, and other cybersecurity attacks, all of which could expose us to
liability and could seriously disrupt our business operations.
A similar pandemic or major health crisis could negatively impact our capital, liquidity, and other financial positions
and our business, results of operations, and prospects, affect significantly more households and businesses, or cause additional
limitations on commercial activity, increased unemployment, increased property vacancy rates and general economic and
financial instability. A slow-down or reversal in the economic recovery of the regions in which we conduct our business could
result in declines in loan demand and collateral values. Negative impacts on our customers caused by a pandemic or other major
health crisis could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans. Future actions of
governmental authorities taken in response to a pandemic or similar crisis, such as eviction forbearance, occupancy restrictions,
vaccine mandates, or suspension of mortgage foreclosures, could have a negative impact on our business.
Regulatory and Litigation Risks
Non-Compliance with banking rules and regulations, including the USA PATRIOT Act, Bank Secrecy Act, Community
Reinvestment Act, Fair Lending Laws, Real Estate Settlement Procedures Act, Truth-in-Lending Act, Flood Insurance
Reform Act or other laws and regulations could result in fines or sanctions, and curtail our expansion opportunities.
Financial institutions are required under the USA PATRIOT Act of 2001 (the “Patriot Act”) and Bank Secrecy Act
("BSA") to develop programs to prevent financial institutions from being used for money-laundering and terrorist activities.
Financial institutions are also obligated to file suspicious activity reports with the U.S. Treasury Department's Office of
Financial Crimes Enforcement Network. These rules also require financial institutions to establish procedures for identifying
and verifying the identity of customers seeking to open new financial accounts. Our failure or our inability to comply with the
Patriot Act and BSA statutes and regulations could result in fines or penalties, curtailment of expansion opportunities,
enforcement actions, intervention or sanctions by regulators and costly litigation or expensive additional controls and systems.
The Bank was previously subject to a Consent Order from the Office of the Comptroller of the Currency (“OCC”) for
its BSA program that was issued in February 2018 (the “BSA Consent Order”). The BSA Consent Order resulted in the Bank
incurring significant expenses to implement an effective AML/CFT Program, including payment of a $2,500,000 civil money
penalty. The OCC terminated the BSA Consent Order in December 2021. However, the Bank remains subject to the BSA, the
Patriot Act, and other laws and regulations requiring financial institutions, among other duties, to institute and maintain an
effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate. Expanded
laws and regulations relating to residential and consumer lending activities could create significant new compliance burdens
and financial costs. Failure to maintain an effective AML/CFT program could have serious business, financial and reputational
consequences for the Bank.
The Community Reinvestment Act (“CRA”), the Equal Credit Opportunity Act, the Fair Housing Act and other fair
lending laws and regulations impose community investment requirements and nondiscriminatory lending requirements on
financial institutions. The FDIC, CFPB, the United States Department of Justice and other federal agencies are responsible for
enforcing these laws and regulations. A successful regulatory challenge to our performance under the CRA, receiving a less
than satisfactory CRA rating, or challenges related to other fair lending laws and regulations could result in a wide variety of
sanctions, including the required payment of damages, civil money penalties, injunctive relief, imposition of restrictions on
merger and acquisition activity, and restrictions on expansion activity, including opening new branches or entering new lines of
business. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private
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class action litigation. Any of these actions could have a material adverse effect on our business, financial condition and results
of operations.
Failure to comply with the 2020 and 2013 Consent Orders from the Consumer Financial Protection Bureau regarding
our Home Mortgage Disclosure Act submissions could result in additional regulatory enforcement action.
In March 2020, the Consumer Financial Protection Bureau (the “CFPB”) Office of Enforcement formally notified us
of alleged violations of the Home Mortgage Disclosure Act (“HMDA”) associated with our HMDA reporting submissions. The
CFPB alleged that the Bank did not accurately report all required relevant information within the annual HMDA submissions.
We responded to the CFPB, noting that the Bank has instituted enhanced procedures to ensure compliance with HMDA, and
submitted amended HMDA filings. In October 2020, after further discussions with the CFPB, we entered into a consent order
related to our HMDA reporting, under which we agreed to pay a $200,000 civil money penalty and implement a HMDA
compliance management system while adhering to a compliance plan. The consent order will be in effect for 10 years. We had
previously entered into a consent order with the CFPB in 2013, also relating to HMDA reporting deficiencies, resulting in a
$34,000 civil money penalty. The 2013 HMDA consent order remains in effect. Any further deficiencies in our HMDA
reporting submissions could result in additional regulatory enforcement actions, cause us to incur additional significant
compliance costs and subject us to larger fines. Moreover, continued deficiencies in our HMDA reporting could have serious
reputational consequences for the Bank. Any of these results could have a material adverse effect on our business, financial
condition and results of operations.
We operate in a highly regulated industry, which limits the manner and scope of our business activities.
We are subject to extensive supervision, regulation and examination by the WDFI, the FDIC and the CFPB. In
addition, the Federal Reserve is responsible for regulating the holding company. This regulatory structure is designed primarily
for the protection of the deposit insurance funds and consumers and not to benefit our shareholders. This regulatory structure
also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and
examination policies to address not only compliance with applicable laws and regulations (including laws and regulations
governing consumer credit, CRA, and anti-money laundering and anti-terrorism laws), but also capital adequacy, asset quality
and risk, management ability and performance, earnings, liquidity, data reporting and various other factors. As part of this
regulatory structure, we are subject to policies and other guidance developed by the regulatory agencies with respect to capital
levels, the timing and amount of dividend payments, the classification of assets and the establishment of adequate loan loss
reserves for regulatory purposes. Under this structure the WDFI, the FDIC, the CFPB and the Federal Reserve have broad
discretion to impose restrictions and limitations on our operations if they determine, among other things, that our operations are
unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations or with the
supervisory policies of these agencies. This supervisory framework could materially impact the conduct, growth and
profitability of our operations. In particular, the FDIC has specific authority to take “prompt corrective action,” if the Bank’s
capital falls below its current “well capitalized” level, including limiting the Bank’s ability to take brokered deposits, requiring
the Bank to raise additional capital and subject it to progressively more severe restrictions on its operations, management and
capital distributions, and replacement of senior executive officers and directors. If the Bank ever became “critically
undercapitalized,” it would also be subject to the appointment of a conservator or receiver.
Failure to comply with applicable laws and regulations can result in a range of sanctions and enforcement actions,
including the imposition of civil money penalties, formal agreements and cease and desist orders; prior-identified deficiencies
in our HMDA reporting and AML/CFT programs have resulted in Consent Orders from the CFPB and OCC, required us to
incur significant expenses and compliance costs and subjected us to civil penalties. Failure to meet regulatory requirements
could require the Bank to incur additional significant costs in order to bring our programs and operations into compliance,
negatively impact our reputation, and have a material adverse effect on our business, financial condition and results of
operations.
Recent national and state legislation and regulatory initiatives to support the financial services industry have been
coupled with numerous restrictions and requirements that could detrimentally affect our business.
The Dodd-Frank Act has had a substantial impact on the financial services industry since its passage in 2010. The
Dodd-Frank Act creates a framework through which regulatory reform has been and continues to be written. While many of the
rules required by the Dodd-Frank Act have been implemented, others are still being drafted. As a result, the impact of the future
regulatory requirements continue to be uncertain. We expect the way we conduct business to continue to be affected by these
regulatory requirements, including through limitations on our ability to pursue certain lines of business, capital requirements,
enhanced reporting obligations, and increased costs.
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The failures of Silicon Valley Bank and Signature Bank are expected to result in modifications to or additional laws
and regulations governing banks and bank holding companies, including increasing capital requirements, modifications to
regulatory requirements with respect to liquidity risk management, deposit concentrations, capital adequacy, stress testing and
contingency planning, and safe and sound banking practices, or enhanced supervisory or enforcement activities. Other
legislative initiatives could detrimentally impact our operations in the future. Regulatory bodies may enact new laws,
promulgate new regulations or view matters or interpret laws and regulations differently than they have in the past, or
commence investigations or inquiries into our business practices. For example, the Biden Administration announced a
government-wide effort to eliminate “junk fees” which could subject our business practices to even further scrutiny. The
CFPB’s action on junk fees thus far has largely focused on fees associated with deposit products, such as “surprise” overdraft
fees and non-sufficient funds fees. However, what constitutes a “junk fee” remains undefined. The CFPB is actively soliciting
consumer input on fee practices associated with other consumer financial products or services, signaling that the “junk fee”
initiative is likely to continue to broaden in scope. As a result of this regulatory focus, we have changed how we assess
overdraft and non-sufficient funds fees and we may be required to implement additional changes based on regulatory directives
or guidance. Such changes have led to and may continue to cause a reduction in our non-interest income thus impacting our
overall net income.
The extent of the impact of any future legislation will be dependent on the specific details of the final legislation
passed, if any, but the potential changes outlined above could, among other things, increase our costs, limit our ability to pursue
business opportunities and the types of financial services and products we may offer, and impact future growth, any of which
could materially and adversely affect our business, results of operations or financial condition.
Deposit insurance premiums could increase further in the future.
The FDIC insures deposits at FDIC-insured financial institutions, including the Bank. The FDIC charges insured
financial institutions premiums to maintain the Deposit Insurance Fund ("DIF") at a specific level. Historically, unfavorable
economic conditions increased bank failures and these additional bank failures decreased the DIF. Extraordinary growth in
insured deposits during the first and second quarters of 2020 caused the ratio of the DIF to total insured deposits to fall below
the current statutory minimum of 1.35%. In order to restore the DIF to its statutorily mandated minimums, the FDIC
significantly increased deposit insurance premium rates, including the Bank's, resulting in increased expenses. The revised
assessment rate schedules became effective January 1, 2023, and were applicable to the first quarterly assessment period of
2023 (i.e., January 1 through March 31, 2023, with an invoice payment date of June 30, 2023). In November 2023, the FDIC
approved a final rule to impose a special assessment to recover the losses to the deposit insurance fund resulting from the
closures of Silicon Valley Bank and Signature Bank. Beginning in the first calendar quarter of 2024, the FDIC began collecting
the special assessment and it is expected to continue collecting the special assessment for a total of eight quarters. The FDIC
may further increase the assessment rates or impose additional special assessments in the future to restore and then steadily
increase the DIF. FDIC insurance premiums could increase in the future in response to similar declining economic conditions.
A material increase in the Bank's FDIC premiums could have an adverse effect on its business, financial condition and results
of operations.
We are subject to various claims and litigation, which could result in significant expenses, losses and damage to our
reputation.
We are, from time to time, subject to claims and proceedings related to our operations. These claims and legal actions
could include supervisory or enforcement actions by our regulators, criminal proceedings by prosecutorial authorities, or civil
claims by our customers, former customers, contractual counterparties, and current and former employees. We may also face
class action lawsuits for, among other things, alleged violations of employment, state wage and hour and consumer protection
laws. These claims could involve large monetary demands, including civil money penalties or fines imposed by government
authorities, and significant defense costs. If such claims and legal actions are brought, and are not resolved in a manner
favorable to the Company, they could result in financial liability and/or reputational harm, which could have a material adverse
effect on our financial condition and results of operations.
Banking institutions are also increasingly the target of class action lawsuits, including claims alleging deceptive
practices or violations of account terms in connection with non-sufficient funds or overdraft charges and violations of the Fair
Labor Standards Act (“FLSA”). In 2022, the Bank paid $495,000 plus claims administrative expenses to settle a class action
lawsuit related to allegations of improper assessments of overdraft and insufficient funds fees. In May 2024, we received court
approval for the settlement of a class action claim related to alleged violations of the FLSA associated with claims for allegedly
unpaid wages and overtime for certain of our non-exempt employees under which the Bank ultimately paid approximately $2.1
million. If another class action lawsuit is filed or determined adversely to us, or we were to enter into a settlement agreement in
connection with such a matter, we could be exposed to monetary damages, reputational harm, or subject to limits on our ability
to operate our business, which could have an adverse effect on our financial condition, and operating results.
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Our real estate lending also exposes us to the risk of environmental liabilities.
In the course of our business, it is necessary to foreclose and take title to real estate, which could subject us to
environmental liabilities with respect to these properties. Hazardous substances or waste, contaminants, pollutants or sources
thereof may be discovered on properties during our ownership or after a sale to a third party. We could be held liable to a
governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these
parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic
substances or chemical releases at such properties. The costs associated with investigation or remediation activities could be
substantial and could substantially exceed the value of the real property. In addition, as the owner or former owner of a
contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from
environmental contamination emanating from the property. We may be unable to recover costs from any third party. These
occurrences may materially reduce the value of the affected property, and we may find it difficult or impossible to use or sell
the property prior to or following any environmental remediation. If we ever become subject to significant environmental
liabilities, our business, financial condition and results of operations could be materially and adversely affected.
Market and Industry Risks
Recent negative developments affecting the banking industry, and resulting media coverage, have eroded customer
confidence in the banking system.
The high-profile bank failures of 2023 generated significant market volatility among publicly traded bank holding
companies and, in particular, regional banks like the Company. These market developments also negatively impacted customer
confidence in the safety and soundness of regional banks. While the Department of the Treasury, the FRB, and the FDIC took
steps to ensure that depositors of the failed banks would have access to their deposits, including uninsured deposit accounts,
there is no guarantee that such actions will be successful in restoring customer confidence in regional banks and the banking
system more broadly. If other bank failures occur and financial institutions enter receivership or become insolvent in the future
due to financial conditions affecting the banking system and financial markets, it could disrupt the financial services industry
and customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed
income securities, all of which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest
margin, capital and results of operations.
As a result of the bank failures, the FDIC imposed a special assessment to recoup losses to the deposit fund. If
additional bank failures were to occur, we could face increased regulation of our industry, including increased compliance costs
and limitations on our ability to pursue business opportunities; significantly higher Federal Deposit Insurance Corporation
premiums or additional special assessments; adverse impacts on our stock price and volatility of our Common Stock; and
increased competition for deposits due to a lack of consumer confidence in regional banks. If these conditions or similar ones
continue to exist or worsen, we could experience continuing or increased adverse effects on our financial condition.
A downturn in the real estate market would hurt our business.
The Bank’s business activities and credit exposure are concentrated in real estate lending, in particular commercial real
estate loans which are generally viewed as having more risk of default than residential real estate loans or certain other types of
loans or investments. The market for real estate is cyclical and the outlook for this sector is uncertain. A downturn in the real
estate market, accompanied by falling values and increased foreclosures would hurt our business because a large majority of our
loans are secured by real estate.
If a significant decline in market values occurs, the collateral for loans will provide decreasing levels of security. As a
result, our ability to recover the principal amount due on defaulted loans by selling the underlying real estate will be
diminished, and we will be more likely to suffer losses on defaulted loans. Because our loan portfolio contains commercial real
estate loans with relatively large balances, the deterioration of these loans may cause a significant increase in our
nonperforming loans which could result in a loss of earnings from these loans, an increase in the provision for loan losses, or an
increase in loan charge-offs, any of which would have an adverse impact, which could be material, on our business, financial
condition, and results of operations.
We own real estate as a result of foreclosures resulting from non-performing loans. If other lenders or borrowers
liquidate significant amounts of real estate in a rapid or disorderly fashion, or if the FDIC elects to dispose of significant
amounts of real estate from failed financial institutions in a similar fashion, it could have an adverse effect on the values of the
properties owned by the Company by depressing the value of these real estate holdings. In such a case, we may incur further
write-downs and charge-offs, which could, in turn, adversely affect our business, financial condition and results of operations.
32
Changes in retail distribution strategies and consumer behavior may adversely impact our business, financial condition
and results of operations.
We have significant investments in bank premises and equipment for our branch network as well as our retail work
force and other branch banking assets. Advances in technology, as well as changing customer preferences for accessing our
products and services, are requiring us to change our retail distribution strategy. As a result of the current market environment
and customer behavior, we have undertaken a branch optimization strategy that has led to the closure, consolidation or sale of
certain branches in our network. These actions could lead to losses on these assets or could adversely impact the carrying value
of other long-lived assets and may lead to increased expenditures to renovate and reconfigure remaining branches or to
otherwise further reform our retail distribution channel. In addition, any changes in our branch network strategy could adversely
impact our business, financial condition or operations if it results in the loss of customers or deposits which we rely on as a low
cost and stable source of funds for our loans and operations.
We may suffer losses in our loan portfolio due to inadequate or faulty underwriting and loan collection practices.
There are risks inherent in any loan portfolio, which we attempt to address by adhering to specific underwriting and
loan collection practices. Underwriting practices often include analysis of a borrower's prior credit history; financial statements;
tax returns; cash flow projections; valuation of collateral; personal guarantees of loans to businesses; and verification of liquid
assets. If the underwriting process fails to capture accurate information or proves to be inadequate, we may incur losses on
loans that appeared to meet our underwriting criteria, and those losses may exceed the amounts set aside as reserves in the
allowance for credit losses. Loan collection resources may be expanded to meet increases in nonperforming loans resulting
from economic downturns or to service any loans acquired, resulting in higher loan administration costs. We are also exposed
to the risk of improper documentation of foreclosure proceedings that would also increase the cost of collection.
Our operations are focused in the western United States, subjecting us to the risks of general economic conditions in
these market areas.
Substantially all of the Bank's loans are to individuals, businesses and real estate developers in the Pacific Northwest,
California, Arizona, Utah, Texas, New Mexico and Nevada. As a result, our business depends significantly on general
economic conditions in these market areas. A substantial increase in unemployment rates, or severe declines in housing prices
and property values in any of these primary market areas could have a material adverse effect on our business due to a number
of factors, including:
•
Loan delinquencies may increase.
•
Problem assets and foreclosures may increase.
•
Demand for the Bank's products and services may decline.
•
Collateral for loans made by the Bank, especially real estate, may decline in value, in turn reducing a customer's
borrowing power and reducing the value of assets and collateral associated with the loans.
•
Natural disasters and catastrophic events such as wildfires, floods and earthquakes may damage or destroy collateral
for loans made by the Bank and negatively impact the collateral’s value and a customer’s ability to repay loans.
Our liquidity may be adversely impacted by issues arising from certain industry deficiencies in foreclosure practices,
including delays and challenges in the foreclosure process.
Foreclosure process issues and the potential legal and regulatory responses to them could negatively impact the
process and timing to completion of foreclosures for residential mortgage lenders, including the Bank. During the COVID-19
pandemic, certain states in which we do business enacted temporary stays on evictions and foreclosures, or instituted a right to
forbearance for homeowners experiencing financial hardship. Even before the adoption of these emergency policies, foreclosure
timelines have increased in recent years due to, among other reasons, delays associated with the significant increase in the
number of foreclosure cases as a result of economic downturns, additional consumer protection initiatives related to the
foreclosure process and voluntary or mandatory programs intended to permit or require lenders to consider loan modifications
or other alternatives to foreclosure. Should these stays or rights to forbearance be enacted again, or if new legislation is passed
regarding residential foreclosures, we may be limited in our ability to take timely possession of real estate assets collateralizing
loans, which may increase our loan losses. Increases in the foreclosure timeline could also result in increased costs, and may
have an adverse effect on collateral values and our ability to minimize our losses.
Impairment of goodwill may adversely impact future results of operations.
Accounting standards require that we account for acquisitions using a method that could result in goodwill. If the
purchase price of the acquired company exceeds the fair value of the acquired net assets, the excess will be included in the
33
Company's Statement of Financial Condition as goodwill. The Company has a significant goodwill balance and, in accordance
with GAAP, we evaluate it for impairment at least annually and more often if events or circumstances indicate the possibility of
impairment. Evaluations may be based on many factors, some of which are the price of our Common Stock, discounted cash
flow projections and data from comparable market acquisitions. A significant and sustained decline in our stock price and
market capitalization, a significant decline in our expected future cash flows, a significant adverse change in the business
climate or slower growth rates could result in impairment of our goodwill. Future evaluations of goodwill may result in the
impairment and write-down of our goodwill balance which could have a material adverse impact on our earnings and adversely
affect our operating results.
Competitive Risks
The Bank faces strong competition from other financial institutions and new market participants, offering services
similar to those offered by the Bank.
Many competitors, including fintech companies, offer the same types of loan and deposit services that the Company
offers. These competitors include national and multinational banks, other regional banks, savings associations, community
banks, credit unions, fintechs, and other financial intermediaries. In particular, our competitors include national banks and
major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain
numerous banking locations, launch new technologies and mount extensive promotional and advertising campaigns. The
effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.
Many of our competitors have substantially greater resources to invest in technological improvements than we do. Our future
success will depend, in part, upon our ability to address the needs of our clients by using technology to provide products and
services that will satisfy client demands for convenience, as well as to create additional efficiencies in our operations. We may
not be able to effectively implement new technology-driven products and services or be successful in marketing these products
and services to our customers. In addition, the implementation of technological changes and upgrades to maintain current
systems and integrate new ones may also cause service interruptions, transaction processing errors and system conversion
delays and may cause us to fail to comply with applicable laws. There can be no assurance that we will be able to successfully
manage the risks associated with our increased dependency on technology. Additionally, recent technological breakthroughs
have made it possible for other non-traditional competitors to enter the marketplace and compete for traditional banking
services. Increased competition within our geographic market area may result in reduced loan originations and deposits.
Ultimately, competition from current and future competitors may affect our business materially and adversely.
We may not be able to continue to grow organically or through acquisitions.
Historically, we have expanded through a combination of organic growth and acquisitions. If market and regulatory
conditions change, we may be unable to grow organically or successfully compete for, complete, and integrate potential future
acquisitions at the same pace as we have achieved in recent years, or at all. We have historically used our strong stock currency
and capital resources to complete acquisitions. Downturns in the stock market and the market price of our stock, changes in our
capital position, and changes in our regulatory standing could each have a negative impact on our ability to complete future
acquisitions.
Our entry into California may present increased risk that may adversely impact our business, prospects and financial
condition.
The Merger with Luther Burbank resulted in the Bank’s initial entry into the state of California. We have no operating
experience in California, are new to this market area, and will be relying on the experience and expertise of Luther Burbank’s
lending and business development officers to help with our transition. We may be unsuccessful in retaining those existing
employees. The banking and financial services business in California is highly competitive. The entry of the Bank into
California presents us with different competitive conditions, and we will be required to compete for loans, deposits and
customers for financial services with other commercial banks, savings and loan associations, securities and brokerage
companies, mortgage companies, insurance companies, finance companies, money market funds, credit unions, fintechs, and
other nonbank financial service providers in California. Many of these competitors are much larger in total assets and
capitalization, have greater access to capital markets and offer a broader array of financial services than the Company. As a
result, there can be no assurance that we will be able to compete effectively in California, and if we are unable to compete
effectively in California, the benefits we were anticipating from the Merger may not be fully achieved, and our results of
operations and financial conditions could be materially and adversely affected.
Security Ownership Risks
Our ability to pay dividends is subject to limitations that may affect our ability to continue to pay dividends to
shareholders.
34
The Company is a separate legal entity from the bank subsidiary and does not have significant operations of its own.
The availability of dividends from the Bank is limited by the Bank's earnings and capital, as well as various federal and state
statutes and regulations. It is possible, depending upon the financial condition of the Bank and other factors, that the Bank may
not be able to pay dividends to the Company. If the Bank is unable to pay dividends to the Company, then we may not be able
to pay dividends on our preferred or Common Stock to our shareholders. If the Bank's earnings are not sufficient to make
dividend payments to us while maintaining adequate capital levels, then our liquidity may be affected and our stock price may
be negatively affected by our inability to pay dividends, which will have an adverse impact on both the Company and our
shareholders.
Our 4.875% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A (“Series A Preferred Stock”) ranks senior
to our Common Stock, and we are prohibited from paying dividends on our Common Stock unless we have paid
dividends on our Series A Preferred.
Shares of our Series A Preferred Stock rank senior to our Common Stock with respect to the payment of dividends and
distributions of assets upon liquidation, dissolution or winding up. Holders of Series A Preferred Stock are entitled to receive,
when, as, and if declared by our Board of Directors (or a duly authorized committee of our Board of Directors), out of assets
legally available for the payment of dividends under Washington law, non-cumulative cash dividends based on the liquidation
preference of the Series A Preferred Stock at a rate equal to 4.875% per annum for each quarterly dividend period, beginning on
April 15, 2021. If we do not or are unable to pay quarterly dividends on our Series A Preferred Stock, we may not pay a
dividend to the holders of our Common Stock. Our stock price may be negatively affected by our inability to pay dividends,
which will have an adverse impact on both the Company and our shareholders.
In addition, if we fail to pay, or declare and set apart for payment, dividends on our Series A Preferred Stock for six
quarterly dividend periods, whether or not consecutive, the number of directors on our Board of Directors will automatically be
increased by two, and the holders of shares of Series A Preferred Stock will have the right to elect two additional members of
our Board of Directors (the “Preferred Stock Directors”) to fill such newly created directorships.
The market price for our Common Stock may be volatile.
The market price of our Common Stock could fluctuate substantially in the future in response to a number of factors,
including those discussed below. The market price of our Common Stock has in the past fluctuated significantly, including in
2023 as a result of the high-profile bank failures. We expect to see additional volatility in the financial markets due to the
uncertainty caused by the continuing global conflicts, commodity shortages and price fluctuations, recent bank failures,
uncertainty over the U.S. government debt ceiling, risks of government shutdowns and changing Federal Reserve policy. Some
additional factors that may cause the price of our Common Stock to fluctuate include:
•
general conditions in the financial markets and real estate markets.
•
bank failures and the regulatory response.
•
macro-economic and political conditions in the U. S. and the financial markets generally.
•
variations in the operating results of the Company and our competitors.
•
events affecting other companies that the market deems comparable to the Company.
•
changes in securities analysts' estimates of our future performance and the future performance of our competitors.
•
announcements by the Company or our competitors of mergers, acquisitions and strategic partnerships.
•
additions or departure of key personnel.
•
the presence or absence of short selling of the Company's Common Stock.
•
future sales by us of our Common Stock or debt securities.
The stock markets in general have experienced substantial price and trading fluctuations. These fluctuations have
resulted in volatility in the market prices of securities that often has been unrelated or disproportionate to changes in operating
performance. These broad market fluctuations are expected to continue for the near future, and may adversely affect the trading
price of our Common Stock.
There may be future sales or other dilution of the Company's equity, which may adversely affect the market price of our
Common Stock or depositary shares.
Our Board of Directors is authorized to cause the Company to issue one or more classes or series of preferred stock
junior to our Series A Preferred Stock from time to time without any action on the part of our shareholders, and our Board of
Directors also has the power, without shareholder approval, to set the terms of any such classes or series of preferred stock that
35
may be issued, including voting rights, dividend rights, and preferences over the Common Stock with respect to dividends or
upon our dissolution, winding up and liquidation and other terms.
The issuance of any additional shares of common or of preferred stock or convertible securities or the exercise of such
securities could be substantially dilutive to existing shareholders. As we did for the Merger with Luther Burbank, we may also
elect to use Common Stock to fund new acquisitions, which will further dilute existing shareholders. Holders of our Common
Stock have no preemptive rights that entitle holders to purchase their pro rata share of any offering of shares of any class or
series and, therefore, such sales or offerings could result in increased dilution to our shareholders.
We rely, in part, on external financing to fund our operations and the unavailability of such funding in the future could
adversely impact our growth and prospects.
We rely on customer deposits, advances from the FHLB and other borrowings to fund our operations. Management
has historically been able to replace maturing deposits, if desired; however, we may not be able to replace such funds at any
given point in time if our financial condition or market conditions change or if the cost of doing so might adversely affect our
business, financial condition and results of operations.
If we need additional funds for our liquidity needs, we may seek additional debt to achieve our long-term business
objectives. Such borrowings, if sought, may not be available to us or, if available, may not be on favorable terms. If additional
financing sources are unavailable or are not available on reasonable terms, our business, financial condition and results of
operations may be adversely affected.
A person holding our Common Stock could have the voting power of their shares of Common Stock on all matters
significantly reduced under Washington's anti-takeover statutes, if the person acquires 10% or more of the voting stock
of the Company.
We are incorporated in the state of Washington and subject to Washington state law. Some provisions of Washington
state law could interfere with or restrict takeover bids or other change-in-control events affecting us. For example, Chapter
23B.19 of the Washington Business Corporation Act, with limited exceptions, prohibits a “target corporation” from engaging in
specified “significant business transactions” for a period of five years after the share acquisition by an acquiring person, without
complying with certain shareholder approval requirements. An acquiring person is defined as a person or group of persons that
beneficially own 10% or more of our voting securities. Such prohibited transactions include, among other things:
•
certain mergers, or consolidations with, disposition of assets to, or issuances of stock to or redemption of stock from,
the acquiring person;
•
termination of 5% or more of the employees of the target corporation as a result of the acquiring person's acquisition of
10% or more of the shares;
•
allowing the acquiring person to receive any disproportionate benefit as a shareholder; and
•
liquidating or dissolving the target corporation.
After the five-year period, certain “significant business transactions” are permitted, if they comply with certain “fair
price” provisions of the statute or are approved by a majority of the outstanding shares other than those of which the acquiring
person has beneficial ownership. As a Washington corporation, the Company is not permitted to “opt out” of this statute.
The Company’s business or the value of its common shares could be negatively affected as a result of actions by activist
shareholders.
The Company values constructive input from shareholders, and our Board of Directors and management team are
committed to acting in the best interests of all of the Company’s shareholders. Activist shareholders who disagree with the
composition of the Board of Directors, the Company’s strategic direction, or the way the Company is managed may seek to
effect change through various strategies that range from private engagement to public filings, proxy contests, efforts to force
transactions not supported by the Board of Directors, and litigation. Responding to some of these actions can be costly and
time-consuming, may disrupt the Company’s operations and divert the attention of the Board of Directors and management.
Such activities could interfere with the Company’s ability to execute its strategic plan and to attract and retain qualified
executive leadership. The perceived uncertainty as to the Company’s future direction resulting from activist strategies could
also affect the market price and volatility of the Company’s common shares.
Item 1B. Unresolved Staff Comments
36
None.
Item 1C. Cybersecurity
Cybersecurity risk management and strategy
We recognize the value of personal and financial information and are dedicated to protecting the confidentiality,
integrity, and availability of our data and systems. From the Board of Directors to our Customer Service Representatives, all
individuals at the organization are responsible for handling confidential data with care.
Our Information Security Program is aligned with applicable federal and state regulations, the Federal Financial
Institutions Examination Council (FFIEC) Examination Guidance, and industry-accepted security standards such as the
National Institute of Standards and Technology (NIST) Cybersecurity Framework, which are at the forefront of cybersecurity
guidelines for federal agencies in the U.S. We employ a defense in depth strategy that incorporates preventive, detective, and
administrative safeguards including, but not limited to, advanced anti-malware and firewall technologies, anti-phishing and web
filtering controls, robust patch management and vulnerability management processes, configuration hardening, participation
with FS-ISAC (Financial Services Information Sharing and Analysis Center) for sharing and consuming threat information, and
we perform regular security testing to evaluate our defenses against real-world threats. We have an extensive information
security training program that aims to regularly educate our colleagues on current best practices on handling sensitive
information and expectations for protecting the organization and our clients. All employees complete mandatory cybersecurity
training on at least a quarterly basis, including how to identify phishing attacks. Colleagues are tested regularly with simulated
social engineering attacks to ensure awareness and preparedness. As an additional risk mitigation measure, the Bank maintains
cybersecurity insurance in the event that a material incident does occur.
The ability to mitigate cybersecurity risks is dependent upon an effective risk assessment process that identifies,
measures, controls, and monitors material risks stemming from cybersecurity threats. These threats include any potential
unauthorized activities occurring through the Company’s information systems that could adversely affect the confidentiality,
integrity, or availability of the Company’s information systems or the data contained therein. The Company’s Information
Security Program includes a comprehensive information security risk assessment process that incorporates the following
elements:
•
Identifying threats, measuring risk, defining information security requirements, and implementing controls to reduce
risk.
•
Identifying reasonably foreseeable internal and external threats that may lead to unauthorized disclosure, misuse,
alteration, or destruction of sensitive information or information systems.
•
Assessing the likelihood and potential damage posed by these threats, considering the degree of information sensitivity
and the Company’s operations, inclusive of substantive changes to people, processes and technology.
•
Aligning the Information Security Program with the Company’s enterprise-wide risk management program, which
identifies, measures, mitigates, and monitors risk.
•
Evaluating the adequacy of policies, procedures, information systems, and other arrangements designed to control
identified risks.
•
Providing input for internal and external auditors and independent third-party engagements, including in relation to
third party operated penetration tests.
•
Exercising risk oversight to conduct appropriate, risk-based due diligence and monitoring to understand risks
associated with our third-party vendors and outsourced services.
The risk assessment process is designed to identify assets requiring risk reduction strategies and includes an evaluation
of the key factors applicable to the operation. The Company conducts a variety of information security assessments throughout
the year, both internally and through third-party specialists. We partner with the Cybersecurity and Infrastructure Security
Agency (CISA), under the Department of Homeland Security, to conduct regular vulnerability scanning against our public
facing assets, and on a recurring basis we partner with outside firms to conduct thorough security assessments against our
external and internal environment. Results of those assessments are further evaluated, and remediation activity is prioritized.
Our cybersecurity and IT teams prepare for and respond to cybersecurity attacks and incidents, including defending
against unauthorized access to our systems, and crafting response plans intended to significantly reduce impacts on operations
and customers. We understand that cyber threats are unwavering and evolving in this digital age, and because of that we
continue to increase investments in people and technology to help us mature our practices and maintain confidence in our
ability to safeguard our assets. While cybersecurity risks have the potential to materially affect the Company’s business,
37
financial condition, and results of operations, the Company does not believe that risks from cybersecurity threats or attacks,
including as a result of any previous cybersecurity incidents, have materially affected the Company, including our business
strategy, results of operations or financial condition. With regard to the possible impact of future cybersecurity threats or
incidents, see Item 1A, Risk Factors.
Cybersecurity Governance
The Risk Management Committee ("RMC") and the Technology Committee of our Board of Directors oversee the
company's approach to managing cybersecurity risks. On a quarterly basis, the Board committees receive a comprehensive
update from management on our cybersecurity risk management strategy. This includes information on emerging threats, the
company’s cybersecurity posture, progress toward risk mitigation goals, significant cybersecurity incidents or developments,
and the steps management has taken to address these risks. During these sessions, the Board committees typically review
materials detailing current and potential risks, as well as the company’s capacity to mitigate those risks. The committee also
engages in discussions with our Chief Information Security Officer and Chief Information Officer about these matters.
Additionally, Board committee members are encouraged to engage in ongoing, informal conversations with management
regarding cybersecurity news and updates to our risk management and strategy initiatives. Material cybersecurity risks are also
reviewed during Board discussions on key topics such as enterprise risk management, operational budgeting, business
continuity planning, mergers and acquisitions, and brand management. Three individuals on the Board of Directors have deep
technology expertise, while one of those individuals is responsible for leading cloud security at a Fortune 50 technology
company.
Our cybersecurity risk management and strategy are overseen by our Chief Information Security Officer, who leads a
team with decades of combined experience in information security management, cybersecurity strategy development, and the
implementation of effective cybersecurity programs. The team holds a variety of relevant degrees and professional
certifications.
These members of management are responsible for overseeing and monitoring the prevention, mitigation, detection,
and remediation of cybersecurity incidents as part of their involvement in the cybersecurity risk management and strategy
processes, including the execution of our incident response plan.
38
Item 2. Properties
The Company owns the building in which its principal executive offices are located in Seattle, Washington, as well as
certain branch properties. The Company evaluates on a continuing basis the suitability and adequacy of its offices, both
branches and administrative centers, and has opened, relocated, remodeled or closed locations as necessary to maintain efficient
and attractive premises. For further information on these activities, see Notes J and N to the Consolidated Financial Statements
in “Item 8. Financial Statements and Supplementary Data” of this report.
Item 3. Legal Proceedings
The Company and its consolidated subsidiaries are involved in legal proceedings occurring in the ordinary course of
business that in the aggregate are believed by management to be immaterial to the financial statements of the Company. The
effects of legal proceedings did not have a material impact on the Company's consolidated financial statements.
Item 4. Mine Safety Disclosures
Not applicable.
39
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities
Common Stock
The Company’s Common Stock is traded on the Nasdaq Global Select Market of The Nasdaq Stock Market LLC under
the symbol “WAFD.” At September 30, 2024, the number of shareholders of record was 994. This figure does not represent the
actual number of beneficial owners of Common Stock because shares are frequently held in “street name” by securities dealers
and others for the benefit of individual owners who may vote the shares.
Additional information about stock options and other equity compensation plans is included in Note Q to the
Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.
The Company’s ability to pay dividends is subject to bank regulatory requirements, including (but not limited to) the
capital adequacy regulations and policies established by the Board of Governors of the Federal Reserve System. The Board of
Directors' dividend policy is to review our financial performance, capital adequacy, regulatory compliance and cash resources
on a quarterly basis, and, if such review is favorable, to declare and pay a quarterly cash dividend to common shareholders.
The Company’s 4.875% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred”),
ranks senior to the Company’s Common Stock with respect to payment of dividends, and dividends (if declared) accrue and are
payable on the Series A Preferred a rate of 4.875% per annum, payable quarterly, in arrears. While the Series A Preferred is
outstanding, unless the full dividend for the preceding quarterly period is paid in full, or declared and a sum set aside, no
dividend may be declared or paid on the Company’s Common Stock.
Issuer Purchases of Equity Securities
The Company’s stock repurchase program was publicly announced by the Board of Directors on February 3, 1995 and
has no expiration date. Under this program, a total of 86,956,264 shares of the Company’s Common Stock have been
authorized for repurchase. The following table shows the share repurchases made for the three months ended September 30,
2024.
Period
Total Number of
Shares Purchased
Average Price
Paid Per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs
Maximum
Number of Shares
That May Yet Be
Purchased Under
the Plans or
Programs
July 1, 2024 to July 31, 2024
1,551 $
34.69
—
11,501,005
August 1, 2024 to August 31, 2024
3,016
33.80
—
11,501,005
September 1, 2024 to September 30, 2024
2,607
36.08
—
11,501,005
Total
7,174
$
34.82
—
11,501,005
40
Performance Graphs
The following graphs compare the cumulative total return to WaFd shareholders (stock price appreciation plus
reinvested dividends) to the cumulative total return of the Nasdaq Stock Market Index (U.S. Companies) and the KBW Bank
Index for the five year period ended September 30, 2024, and since WaFd first became a publicly traded company on
November 9, 1982, respectively. The graphs assume that $100 was invested on September 30, 2019, and November 9, 1982,
respectively, in WaFd Common Stock, the Nasdaq Stock Market Index and the Nasdaq Financial Stocks Index, and that all
dividends were reinvested. Management of WaFd cautions that the stock price performance shown in the graphs below should
not be considered indicative of potential future stock price performance.
41
Item 6.
[Reserved]
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion should be read in conjunction with our Consolidated Financial Statements and related notes in “Item 8.
Financial Statements and Supplementary Data” of this report. In the following discussion, unless otherwise noted, references to
increases or decreases in average balances in items of income and expense for a particular period and balances at a particular
date refer to the comparison with corresponding amounts for the period or date for the previous year.
In addition to historical financial information, the following discussion and analysis contains forward-looking statements that
involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-
looking statements as a result of many factors, including those discussed under “Risk Factors” and elsewhere in this Annual
Report on Form 10-K. This section of this Form 10-K generally discusses 2024 and 2023 items and year-to-year comparisons
between 2024 and 2023. For management's review of the factors that affected our results of operations for the years ended
September 30, 2023 and 2022, refer to our Annual Report on Form 10-K for the year ended September 30, 2023, which was
filed with the Securities and Exchange Commission on November 17, 2023.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
42
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to use judgment in
making estimates and assumptions that affect the reported amounts within the consolidated financial statements. Actual results
may differ from these estimates. While our significant accounting policies are described in more detail in Note A to the
Consolidated Financial Statements, we believe that the accounting policies discussed below are critical for understanding our
historical and future performance. Critical accounting policies and estimates are those that we consider the most important to
the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of the matters that are inherently uncertain.
Allowance for Credit Losses. Management’s determination of the amount of the ACL is a critical accounting estimate as it
requires significant reliance on the credit risk we ascribe to individual borrowers, the use of estimates and significant judgment
as to the amount and timing of expected future cash flows on individually evaluated loans, significant reliance on historical loss
rates on homogeneous portfolios, consideration of our quantitative and qualitative evaluation of past events, current conditions,
and reasonable and supportable forecasts that affect the collectability of the reported amounts.
Going forward, the methodology used to calculate the ACL will be significantly influenced by the composition, characteristics
and quality of our loan portfolio, as well as the prevailing economic conditions and forecasts utilized. Material changes to these
and other relevant factors may result in greater volatility to the allowance for credit losses, and therefore, greater volatility in
our reported earnings.
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.
Management uses various valuation methodologies to estimate the fair value of acquired assets and liabilities which often
involve a significant degree of judgement. Changes in the assumptions utilized within these valuations, including downturns in
economic or business conditions, could have a significant adverse impact on the carrying value of assets which could result in
impairment losses affecting the Company's financial statements as a whole.
Goodwill. Goodwill represents the excess of the acquisition consideration over the fair value of assets acquired and liabilities
assumed. We have determined our goodwill balance is all related to a single reporting unit and perform an annual impairment
assessment on August 31st, or sooner if an impairment indicator exists. We perform a quantitative impairment assessment and,
upon performing the quantitative test, if the carrying value of the reporting unit exceeds its fair value, an impairment loss is
recognized in an amount equal to that excess.
When performing the quantitative assessment of goodwill impairment, we estimate the fair value of our reporting unit using the
market capitalization approach, based on quoted market prices of our securities, adjusted for the effect of a control premium.
Based on the results of the annual quantitative evaluation for 2024, the fair value of our single reporting unit exceeded its
respective carrying value and did not result in impairment for the reporting unit.
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 are
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.
Select information regarding the ACL is under the "Allowance for Credit Losses" heading within this section below. For further
details on the ACL, business combinations or goodwill, see Notes A, B, and E to the Consolidated Financial Statements in
“Item 8. Financial Statements and Supplementary Data.”
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
43
ALLOWANCE FOR CREDIT LOSSES
The following table provides detail regarding the Company's allowance for credit losses.
Twelve Months Ended September 30,
2024
2023
2022
2021
2020
(In thousands)
Beginning balance
$ 177,207
$ 172,808
$ 171,300
$ 166,955
$ 131,534
Charge-offs:
Commercial loans
Multi-Family
—
—
—
—
—
Commercial Real Estate
203
—
529
—
111
Commercial & Industrial Loans
2,611
45,856
1,202
31
4,196
Construction
—
—
—
—
—
Land – Acquisition & Development
149
—
11
2
11
Total commercial loans
2,963
45,856
1,742
33
4,318
Consumer loans
Single-Family Residential
144
34
—
106
131
Construction – Custom
—
—
—
—
—
Land – Consumer Lot Loans
—
—
27
—
237
HELOC
—
—
—
—
—
Consumer
518
580
370
286
1,069
Total consumer loans
662
614
397
392
1,437
3,625
46,470
2,139
425
5,755
Recoveries:
Commercial loans
Multi-Family
—
—
—
—
498
Commercial Real Estate
4
103
984
2,789
2,447
Commercial & Industrial Loans
1,069
93
73
92
443
Construction
—
—
2,179
—
188
Land – Acquisition & Development
105
78
70
622
2,070
Total commercial loans
1,178
274
3,306
3,503
5,646
Consumer loans
Single-Family Residential
381
568
1,002
2,026
1,394
Construction – Custom
1
—
—
—
—
Land – Consumer Lot Loans
58
23
48
168
639
HELOC
4
2
351
52
95
Consumer
647
502
940
1,021
1,252
Total consumer loans
1,091
1,095
2,341
3,267
3,380
2,269
1,369
5,647
6,770
9,026
Net charge-offs (recoveries)
1,356
45,101
(3,508)
(6,345)
(3,271)
ASC 326 Adoption Impact
—
—
—
—
17,750
Provision (release) for loan losses and transfers
27,902
49,500
(2,000)
(2,000)
14,400
Ending balance (1)
$ 203,753
$ 177,207
$ 172,808
$ 171,300
$ 166,955
Ratio of net charge-offs (recoveries) to
average loans outstanding
0.01 %
0.26 %
(0.02) %
(0.05) %
(0.03) %
(1) This does not include a reserve for unfunded commitments of $21,500,000, $24,500,000, $32,500,000, $27,500,000 and
$25,000,000 as of September 30, 2024, 2023, 2022, 2021 and 2020 respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
44
The following table shows changes in the Company's allowance for credit losses since the prior year.
September 30, 2024
September 30, 2023
$ Change
% Change
(In thousands)
Allowance for credit losses:
Commercial loans
Multi-family
$
25,248 $
13,155 $
12,093
92 %
Commercial real estate
39,210
28,842
10,368
36 %
Commercial & industrial
58,748
58,773
(25)
— %
Construction
22,267
29,408
(7,141)
(24) %
Land - acquisition & development
7,900
7,016
884
13 %
Total commercial loans
153,373
137,194
16,179
12 %
Consumer loans
Single-family residential
40,523
28,029
12,494
45 %
Construction - custom
1,427
2,781
(1,354)
(49) %
Land - consumer lot loans
2,564
3,512
(948)
(27) %
HELOC
3,049
2,859
190
7 %
Consumer
2,817
2,832
(15)
(1) %
Total consumer loans
50,380
40,013
10,367
26 %
Total allowance for loan losses
203,753
177,207
26,546
15 %
Reserve for unfunded commitments
21,500
24,500
(3,000)
(12) %
Total allowance for credit losses
$
225,253 $
201,707 $
23,546
12 %
The allowance for loan losses increased by $26,546,000, or 14.98%, from $177,207,000 as of September 30, 2023, to
$203,753,000 at September 30, 2024. As of September 30, 2024, the allowance 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. The fluctuations that resulted in the overall increase from the prior year can be seen in the
table above. The allowance for multi-family and single-family residential loans increased largely as a result of the Merger. The
allowance for both consumer and commercial construction loans decreased as projects were completed and transitioned to CRE
and single-family loans which also contributed to increases.
The Company recorded a provision for credit losses of $17,500,000 in 2024, compared to a provision of $41,500,000 for 2023.
These amounts are net of provision and recapture related to the unfunded commitments reserve. In 2024, provisioning included
the initial provision of $16,000,000 recorded on LBC loans acquired, as well as adjustments resulting from qualitative
considerations such as prolonged and intensified borrower sensitivity to high interest rates and operating costs due to
inflationary pressures. For the year ended September 30, 2024, net charge-offs were $1,356,000, compared to charge-offs of
$45,101,000 in the prior year. The ratio of the total ACL to total gross loans decreased to 1.01% as of September 30, 2024, as
compared to 1.03% as of September 30, 2023. The decrease was primarily related to a shift in mix of loan types within the
portfolio. Loan portfolios with lower historical losses, like multi-family and single family residential saw increased balances as
a result of the Merger while those with higher historical losses, like construction, saw decreases.
The reserve for unfunded loan commitments was $21,500,000 as of September 30, 2024, compared to $24,500,000 as of
September 30, 2023.
Management believes the total ACL is sufficient to absorb estimated losses inherent in the portfolio of loans and unfunded
commitments.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
45
The following table sets forth the amount of the Bank’s allowance for loan losses by loan portfolio and class.
September 30,
2024
2023
2022
2021
2020
Allowance
Loans to
Total
Loans (1)
Coverage
Ratio (2)
Allowance
Loans to
Total
Loans (1)
Coverage
Ratio (2)
Allowance
Loans to
Total
Loans (1)
Coverage
Ratio (2)
Allowance
Loans to
Total
Loans (1)
Coverage
Ratio (2)
Allowance
Loans to
Total
Loans (1)
Coverage
Ratio (2)
($ in thousands)
Commercial loans
Multi-family
$ 25,248
21.7 %
0.6 % $ 13,155
16.4 %
0.5 % $ 12,013
16.2 %
0.5 % $ 16,949
16.3 %
0.8 % $ 13,853
11.8 %
0.9 %
Commercial real estate
39,210
17.7
1.1
28,842
18.8
0.9
25,814
19.1
0.8
23,437
17.4
1.0
22,516
14.4
1.2
Commercial & industrial
58,748
10.9
2.6
58,773
12.9
2.6
57,210
14.2
2.5
45,957
16.3
2.0
38,665
16.5
1.8
Construction
22,267
6.7
1.6
29,408
10.4
1.6
26,161
8.7
1.9
25,585
7.9
2.3
24,156
10.5
1.8
Land – acquisition &
development
7,900
0.7
5.2
7,016
0.9
4.7
12,278
1.3
5.8
13,447
1.3
7.5
10,733
1.2
7.0
Total commercial loans
153,373
137,194
133,476
125,375
109,923
Consumer loans
Single-family residential
40,523
39.4
0.5
28,029
36.4
0.4
25,518
35.4
0.4
30,978
35.5
0.6
45,186
40.8
0.9
Construction – custom
1,427
0.9
0.8
2,781
1.8
0.9
3,410
2.4
0.9
4,907
2.5
1.4
3,555
2.3
1.2
Land – consumer lot
loans
2,564
0.5
2.4
3,512
0.7
2.9
5,047
0.9
3.4
4,939
1.0
3.4
2,729
0.8
2.7
HELOC
3,049
1.3
1.1
2,859
1.3
1.2
2,482
1.3
1.2
2,390
1.2
1.5
2,571
1.1
1.8
Consumer
2,817
0.3
4.0
2,832
0.4
4.2
2,875
0.5
4.0
2,711
0.6
3.2
2,991
0.6
3.6
Total consumer loans
50,380
40,013
39,332
45,925
57,032
Total allowance for loan
losses (3)
$ 203,753
100 %
$ 177,207
100 %
$ 172,808
100 %
$ 171,300
100 %
$ 166,955
100 %
___________________
(1)
Represents the loans receivable for each respective loan class as a % of total loans receivable.
(2)
Represents the allowance for each respective loan class as a % of loans receivable for that same loan class. The underlying commercial & industrial loan balances for
September 30, 2023, 2022, 2021, 2020 include PPP loans for which no allowance was recorded. These PPP loan balances were $1,000,000, $10,000,000, $312,000,000 and
$745,000,000 as of September 30, 2023, 2022, 2021 and 2020 respectively.
(3)
This does not include a reserve for unfunded commitments of $21,500,000, $24,500,000, $32,500,000, $27,500,000 and $25,000,000 as of September 30, 2024, 2023, 2022,
2021 and 2020, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
46
ASSET QUALITY
Modifications to Borrowers Experiencing Financial Difficulty. Loans may be modified as the result of borrowers
experiencing financial difficulty needing relief from the contractual terms of their loan. Most loan modifications to borrowers
experiencing financial difficulty are accruing and performing loans where the borrower has approached the Bank about
modification due to temporary financial difficulties. Each request for modification 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 corrective
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.
Non-Performing Assets. When a borrower violates a condition of a loan, the Bank attempts to cure the default by contacting
the borrower. In most cases, defaults are cured promptly. If the default is not cured within an appropriate time frame, typically
90 days, the Bank may institute appropriate action to collect the loan, such as making demand for payment or initiating
foreclosure proceedings on the collateral. If foreclosure occurs, the collateral will typically be sold at public auction and may be
purchased by the Bank.
Loans are placed on non-accrual status when, in the judgment of management, the probability of collecting interest or principal
is deemed to be insufficient to warrant further accrual. When a loan is placed on non-accrual status, previously accrued but
unpaid interest is deducted from interest income. The Bank does not accrue interest on loans 90 days past due or more. See
Note A to the Consolidated Financial Statements included in Item 8 hereof for additional information.
For commercial loans, six consecutive payments on newly restructured loan terms are generally required prior to returning the
loan to accrual status. In some instances after the required six consecutive payments are made, a management assessment will
conclude that collection of the entire principal balance is still in doubt. In those instances, the loan will remain on non-accrual.
Homogeneous loans may or may not be on accrual status at the time of restructuring, but all are placed on accrual status upon
the restructuring of the loan.
Real estate acquired by foreclosure or deed-in-lieu thereof (“REO” or “Real Estate Owned”) is classified as real estate held for
sale. When property is acquired, it is recorded at the fair market value less estimated selling costs at the date of acquisition.
Interest accrual ceases on the date of acquisition and all costs incurred in maintaining the property from that date forward are
expensed as incurred. Costs incurred for the improvement or development of such property are capitalized. See Note A to the
Consolidated Financial Statements included in Item 8 hereof for additional information.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
47
The following table sets forth information regarding the Bank's non-performing assets.
September 30,
2024
2023
2022
2021
2020
(In thousands)
Commercial loans
Multi-family
18,743
5,127
5,912
475
—
Commercial real estate
26,362
23,435
4,691
8,038
3,771
Commercial & industrial
—
6,082
5,693
365
329
Construction
1,120
—
—
505
1,669
Land – acquisition & development
74
—
—
2,340
—
Total commercial loans
46,299
34,644
16,296
11,723
5,769
Consumer loans
Single-family residential
21,488
14,918
17,450
19,320
22,431
Construction – custom
848
88
435
—
—
Land – consumer lot loans
—
9
84
359
243
HELOC
596
736
233
287
553
Consumer
310
27
36
60
60
Total consumer loans
23,242
15,778
18,238
20,026
23,287
Total non-accrual loans (1)
69,541
50,422
34,534
31,749
29,056
Real estate owned
4,567
4,149
6,667
8,204
4,966
Other property owned
3,310
3,353
3,353
3,672
3,673
Total non-performing assets
$
77,418
$
57,924
$
44,554
$
43,625
$
37,695
Total non-performing assets to total assets
0.28 %
0.26 %
0.21 %
0.22 %
0.20 %
(1) For the year ended September 30, 2024, the Bank recognized $1,775,000 in interest income on cash payments received from borrowers
on non-accrual loans. The Bank would have recognized interest income of $3,081,000 for the same period had these loans performed
according to their original contract terms. The recognized interest income may include more than twelve months of interest for some
of the non-accrual loans that were brought current or paid off. In addition to the non-accrual loans reflected in the above table, the
Bank had $356,893,000 of loans that were less than 90 days delinquent at September 30, 2024 but were classified as substandard for
one or more reasons. If these loans were deemed non-performing, the Company's ratio of total non-performing assets and performing
restructured loans as a percent of total assets would have increased to 1.55% at September 30, 2024. For a discussion of the Bank's
policy for placing loans on non-accrual status, see Note A to the Consolidated Financial Statements included in Item 8 of this report.
Non-performing assets increased 33.7% to $77,418,000, or 0.28% of total assets, at September 30, 2024, compared to
$57,924,000, or 0.26% of total assets, at September 30, 2023. The increase was primarily a result of an increase of $19,119,000
in non-accrual loans partially offset by a $418,000 increase in real estate owned. Other property owned of $3,310,000 as of
September 30, 2024 is comprised entirely of a government guarantee related to equipment obtained via a commercial loan
foreclosure.
As of September 30, 2024, real estate owned totaled $4,567,000, an increase of $418,000, or 10.1%, from $4,149,000 as of
September 30, 2023. During 2024, the Bank sold real estate owned properties for total net proceeds of $6,802,000. The majority
of REO properties are former bank premises that are expected to be sold.
The ratio of the allowance for loan losses to non-accrual loans decreased to 293% as of September 30, 2024, from 351% as of
September 30, 2023.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
48
CHANGES IN FINANCIAL CONDITION
Cash and cash equivalents: Cash and cash equivalents increased to $2,381,102,000 at September 30, 2024, as compared to
$980,649,000 at September 30, 2023. This increase reflects cash received from LBC as a result of the Merger combined with
cash received from the recent LBC multi-family and LBC single-family residential loan portfolio sales, offset by pay-downs on
borrowings.
Available-for-sale investment securities: Available-for-sale securities increased $577,612,000, or 29.0%, during the year ended
September 30, 2024, to $2,572,709,000, due to the addition of $516,308,000 in AFS investments obtained in the Merger
combined with normal investing activity. During this time, the Bank had purchases of $549,159,000 offset by principal
repayments and maturities of $386,564,000 and sales of $182,682,000. As of September 30, 2024, the Company had a net
unrealized loss on available-for-sale securities of $44,168,000, which is recorded net of tax within AOCI, compared to an
unrealized loss of $123,519,000 as of September 30, 2023.
Substantially all of the Company’s AFS 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. The remaining securities are issued by highly-rated municipalities or corporate borrowers. The Company does not
believe that any of its AFS debt securities have credit loss impairment as of September 30, 2024, therefore, no allowance was
recorded. The impact going forward will depend on the composition, characteristics, and credit quality of the securities
portfolios as well as the economic conditions at future reporting periods.
Held-to-maturity investment securities: Held-to-maturity securities increased by $13,386,000 to $436,972,000, or 3.2%, during
the year ended September 30, 2024, largely due to the purchase of $47,092,000 of HTM securities. These purchases were offset
by principal repayments and maturities of $36,013,000 during the period. The increase also included $2,570,000 in HTM
securities obtained in the Merger. There were no held-to-maturity securities sold during the year ended September 30, 2024. As
of September 30, 2024, the net unrealized loss on held-to-maturity securities was $35,926,000, compared to $68,398,000 the
year prior, which management attributes to the change in interest rates since acquisition.
Substantially all of the Company’s HTM debt securities are issued by U.S. government agencies or U.S. government-sponsored
enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero
credit loss, thus the Company did not record an allowance for credit losses for HTM securities as of September 30, 2024. The
impact going forward will depend on the composition, characteristics, and credit quality of the securities portfolios as well as
the economic conditions at future reporting periods.
The table below shows the available-for-sale and held-for-investment securities portfolios categorized by contractual maturity
band.
September 30, 2024
Amortized
Cost
Weighted Average
Yield
($ in thousands)
Due in less than 1 year
$
49,384
4.70 %
Due after 1 year through 5 years
354,344
5.12
Due after 5 years through 10 years
484,630
4.99
Due after 10 years
2,165,491
4.47
$
3,053,849
4.63 %
For further information on our investment portfolio, see Note C to the Consolidated Financial Statements in “Item 8. Financial
Statements and Supplementary Data” of this report.
Loans receivable: Loans receivable, net of related contra accounts, increased $3,439,804,000, or 19.7%, to $20,916,354,000 at
September 30, 2024, from $17,476,550,000 one year earlier. The increase resulted primarily from the addition of loans obtained
in the Merger. The balance change also reflects originations of $3,632,071,000, a decrease to loans-in-process of $886,142,000
and principal repayments of $4,302,359,000 during the year ended September 30, 2024. Commercial loan originations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
49
accounted for 72.5% of total originations and consumer originations were 27.5% as the Bank continues to focus on commercial
lending, coupled with growing economies in all major markets in which we operate.
The following table presents loan balances by category and the year-over-year change.
September 30, 2024
September 30, 2023
Change
($ in thousands)
($ in thousands)
$
%
Gross loans by category
Commercial loans
Multi-family
$
4,658,119
20.8 %
$
2,907,086
14.8 %
$
1,751,033
60.2%
Commercial real estate
3,757,040
16.8
3,344,959
17.0
412,081
12.3
Commercial & industrial
2,337,139
10.5
2,321,717
11.8
15,422
0.7
Construction
2,174,254
9.7
3,318,994
16.9
(1,144,740) (34.5)
Land - acquisition & development
200,713
0.9
201,538
1.0
(825)
(0.4)
Total commercial loans
13,127,265
58.7
12,094,294
61.6
1,032,971
8.5
Consumer loans
Single-family residential
8,399,030
37.6
6,451,270
32.8
1,947,760
30.2
Construction - custom
384,161
1.7
672,643
3.4
(288,482) (42.9)
Land - consumer lot loans
108,791
0.5
125,723
0.6
(16,932) (13.5)
HELOC
266,151
1.2
234,410
1.2
31,741
13.5
Consumer
73,998
0.3
70,164
0.4
3,834
5.5
Total consumer loans
9,232,131
41.3
7,554,210
38.4
1,677,921
22.2
Total gross loans
22,359,396
100 %
19,648,504
100 %
2,710,892
13.8%
Less:
Allowance for loan losses
203,753
177,207
26,546
15.0
Loans in process
1,009,798
1,895,940
(886,142) (46.7)
Net deferred fees, costs and discounts
229,491
98,807
130,684
132.3
Total loan contra accounts
1,443,042
2,171,954
(728,912) (33.6)
Net loans
$ 20,916,354
$ 17,476,550
$
3,439,804
19.7%
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
50
The following table summarizes the Bank’s loan portfolio balances, at amortized cost, due for the periods indicated based on
contractual terms to maturity or repricing.
September 30, 2024
Total
Less than
1 Year
1 to 5
Years
5 to 15
Years
After 15
Years
(In thousands)
Commercial loans
Multi-family
$
4,556,200 $
1,586,041 $
2,176,256 $
763,382 $
30,521
Commercial real estate
3,732,155
1,555,937
1,265,459
902,615
8,144
Commercial & industrial
2,332,732
1,641,047
428,061
241,421
22,203
Construction
1,424,016
924,460
194,311
299,360
5,885
Land - acquisition & development
160,317
158,229
583
1,505
—
Total commercial loans
12,205,420
5,865,714
4,064,670
2,208,283
66,753
Consumer loans
Single-family residential
8,280,300
214,643
1,159,297
552,155
6,354,205
Construction - custom
182,415
194
101
86,467
95,653
Land - consumer lot loans
108,060
7,482
3,011
10,906
86,661
HELOC
269,857
269,806
51
—
—
Consumer
74,055
40,058
2,797
31,197
3
Total consumer loans
8,914,687
532,183
1,165,257
680,725
6,536,522
$
21,120,107 $
6,397,897 $
5,229,927 $
2,889,008 $
6,603,275
The contractual loan payment period for residential mortgage loans originated by the Bank normally ranges from 15 to 30
years. Experience during recent years has indicated that, because of prepayments in connection with refinancing and sales of
property, residential loans typically have a weighted average life of approximately eight years.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
51
The following tables provide information regarding loans receivable by loan class and geography.
September 30,
2024
Multi-
family
Commercial
Real Estate
Commercial
and Industrial
Construction
Land -
A & D
Single -
Family
Residential
Construction -
custom
Land -
Lot Loans
Consumer
HELOC
Total
(In thousands)
Washington
$
428,523 $ 574,996 $
833,736 $
199,969 $ 40,649 $ 3,368,534 $
98,913 $
56,961 $
31,586 $ 137,862 $ 5,771,729
Oregon
714,610
441,494
190,806
97,219
50,796
907,906
13,164
12,975
226
34,334
2,463,530
Arizona
608,313
480,988
101,431
248,924
2,328
804,752
18,617
18,121
5,237
30,395
2,319,106
Utah
625,499
349,972
126,166
283,178
45,663
601,062
17,805
2,195
18,797
14,714
2,085,051
Texas
446,099
848,678
717,559
326,700
6,595
143,633
1,205
200
2
4,870
2,495,541
New Mexico
152,498
263,964
14,643
92,572
4,781
215,585
4,272
2,481
294
10,763
761,853
Idaho
178,490
185,325
36,026
68,832
5,018
405,089
15,607
9,480
45
20,661
924,573
Nevada
170,191
173,063
61,007
37,756
4,487
305,732
12,832
5,647
2,041
10,844
783,600
California
1,137,134
223,589
134,347
29,131
—
1,503,510
—
—
9,498
397
3,037,606
Other
94,843
190,086
117,011
39,735
—
24,497
—
—
6,329
5,017
477,518
$ 4,556,200 $ 3,732,155 $
2,332,732 $ 1,424,016 $ 160,317 $ 8,280,300 $
182,415 $
108,060 $
74,055 $ 269,857 $ 21,120,107
Percentage by geographic area
September 30,
2024
Multi-
family
Commercial
Real Estate
Commercial
and Industrial
Construction
Land -
A & D
Single -
Family
Residential
Construction -
custom
Land -
Lot Loans
Consumer
HELOC
Total
As % of total gross loans
Washington
1.9 %
2.7 %
3.9 %
0.9 %
0.3 %
15.9 %
0.5 %
0.3 %
0.2 %
0.7 %
27.3 %
Oregon
3.4
2.1
0.9
0.5
0.3
4.2
0.1
0.1
—
0.1
11.7
Arizona
2.9
2.3
0.4
1.2
—
3.9
0.1
0.1
—
0.1
11.0
Utah
3.1
1.7
0.6
1.3
0.2
2.8
—
—
0.1
0.1
9.9
Texas
2.1
4.0
3.4
1.6
—
0.7
—
—
—
—
11.8
New Mexico
0.8
1.2
0.1
0.4
—
1.0
—
—
—
0.1
3.6
Idaho
0.8
0.9
0.2
0.3
—
1.9
0.1
—
—
0.1
4.3
Nevada
0.8
0.8
0.3
0.2
—
1.4
0.1
—
—
0.1
3.7
California
5.4
1.1
0.6
0.1
—
7.2
—
—
—
—
14.4
Other
0.4
0.9
0.6
0.2
—
0.2
—
—
—
—
2.3
21.6 %
17.7 %
11.0 %
6.7 %
0.8 %
39.2 %
0.9 %
0.5 %
0.3 %
1.3 %
100 %
Percentage by geographic area as a % of each loan type
September 30,
2024
Multi-
family
Commercial
Real Estate
Commercial
and Industrial
Construction
Land -
A & D
Single -
Family
Residential
Construction -
custom
Land -
Lot Loans
Consumer
HELOC
As % of total gross loans
Washington
9.4 %
15.4 %
35.7 %
14.0 %
25.4 %
40.7 %
54.2 %
52.7 %
42.7 %
51.1 %
Oregon
15.7
11.8
8.2
6.8
31.7
11.0
7.2
12.0
0.3
12.7
Arizona
13.4
12.9
4.3
17.5
1.4
9.7
10.2
16.7
7.1
11.3
Utah
13.7
9.4
5.4
19.9
28.5
7.3
9.8
2.0
25.4
5.5
Texas
9.8
22.7
30.8
22.9
4.1
1.7
0.7
0.2
—
1.8
New Mexico
3.3
7.1
0.6
6.5
3.0
2.6
2.3
2.3
0.4
4.0
Idaho
3.9
5.0
1.5
4.8
3.1
4.9
8.6
8.8
0.1
7.7
Nevada
3.7
4.6
2.6
2.6
2.8
3.7
7.0
5.2
2.8
4.0
California
25.0
6.0
5.8
2.0
—
18.1
—
—
12.8
0.1
Other
2.1
5.1
5.0
2.8
—
0.3
—
—
8.5
1.9
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
52
The following table shows the change in the geographic distribution by state of the loan portfolio since the prior year.
September 30,
2024
2023
Change
Washington
27.3 %
31.0 %
(3.7)
Oregon
11.7
13.3
(1.6)
Arizona
11.0
13.9
(2.9)
Utah
9.9
11.0
(1.1)
Texas
11.8
13.6
(1.8)
New Mexico
3.6
4.2
(0.6)
Idaho
4.3
5.1
(0.8)
Nevada
3.7
4.1
(0.4)
California
14.4
1.5
12.9
Other (1)
2.3
2.3
—
100 %
100 %
(1) Includes loans from outside of our nine state footprint.
Allowance for credit losses: For details, see the “Allowance for Credit Losses" section above in this report.
Non-performing assets: For details, see the “Asset Quality" section above in this report.
Real estate owned: For details, see the “Asset Quality" section above in this report.
Interest receivable: Interest receivable was $102,827,000 as of September 30, 2024, an increase of $15,824,000, or 18.2%, since
September 30, 2023. The increase was the result of a 19.7% increase in loans receivable combined with the increase in interest
rates.
Bank Owned Life Insurance: Bank-owned life insurance increased to $267,633,000 as of September 30, 2024 from
$242,919,000 as of September 30, 2023, primarily as a result of policies obtained in the Merger. The investments in bank-
owned life insurance serve to assist in funding growing employee benefit costs.
Intangible assets: The Bank's intangible assets totaled $448,425,000 at September 30, 2024 compared to $310,619,000 as of
September 30, 2023. The increase is largely the result of the Merger which created $104,707,000 in Goodwill and a Core
Deposit Intangible balance of $37,022,000. The balance at September 30, 2024 is comprised of $411,360,000 of goodwill and
the unamortized balance of the core deposit and other intangibles of $37,065,000.
Customer accounts: As of September 30, 2024, customer deposits totaled $21,373,970,000 compared with $16,070,329,000 at
September 30, 2023, a $5,303,641,000, or 33.0%, increase largely due to deposits obtained in the Merger. During 2024,
transaction accounts increased by $1,051,872,000 or 9.8% while time deposits increased by $4,251,769,000 or 80.1% as 66% of
the LBC customer accounts were time deposits.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
53
The following table shows customer deposits by account type.
September 30, 2024
September 30, 2023
($ in thousands)
Deposit Account
Balance
As a % of
Total Deposits
Weighted
Average Rate
Deposit Account
Balance
As a % of
Total Deposits
Weighted
Average Rate
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 %
The following table shows the geographic distribution by state for customer deposits.
($ in thousands)
September 30, 2024
September 30, 2023
$ Change
% Change
Washington
$
8,528,608
39.9 % $
7,627,674
47.5 % $
900,934
11.8 %
Oregon
2,696,243
12.6
2,820,338
17.5
(124,095)
(4.4) %
Arizona
1,619,101
7.6
1,635,345
10.2
(16,244)
(1.0) %
New Mexico
1,622,534
7.6
1,474,986
9.2
147,548
10.0 %
Idaho
949,025
4.4
972,424
6.1
(23,399)
(2.4) %
Utah
584,001
2.7
662,192
4.1
(78,191)
(11.8) %
Nevada
527,704
2.5
495,794
3.1
31,910
6.4 %
Texas
398,736
1.9
381,576
2.4
17,160
4.5 %
California
4,448,018
20.8
—
—
—
— %
$ 21,373,970
100 % $ 16,070,329
100 % $
855,623
5.3 %
The following table sets forth, by various interest rate categories, the amount of fixed-rate time deposits that mature during the
periods indicated.
Maturing in
September 30, 2024
1 to 3
Months
4 to 6
Months
7 to 12
Months
13 to 24
Months
25 to 36
Months
37 to 60
Months
Total
(In thousands)
Fixed-rate time deposits:
Under 1.00%
$
39,029 $
1,434 $
— $
10,996 $
21,104 $
10,371 $
82,934
1.00% to 1.99%
—
339
—
—
2,056
—
2,395
2.00% to 2.99%
242
1,113
—
—
—
1,985
3,340
3.00% to 3.99%
—
762
234,175
110,743
—
—
345,680
4.00% to 4.99%
2,730,599 3,135,921 2,002,063
376,209
—
— 8,244,792
5.00% and higher
153,429
710
306,963
316,598
—
99,944
877,644
Total
$ 2,923,299 $ 3,140,279 $ 2,543,201 $ 814,546 $
23,160 $ 112,300 $ 9,556,785
Historically, a significant number of time deposit account holders roll over their balances into new time deposits of the same
term at the Bank’s then current rate. To ensure a continuity of this trend, the Bank expects to continue to offer market rates of
interest. The ability to retain maturing time deposits is difficult to project; however, the Bank believes that by competitively
pricing these certificates, roll-over levels deemed appropriate by management can be achieved on a continuing basis.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
54
At September 30, 2024, the Bank had $4,024,661,000 of time deposits in amounts of $250,000 or more outstanding, maturing
as follows: $1,057,121,000 within 3 months; $1,277,315,000 over 3 months through 6 months; $1,030,587,000 over 6 months
through 12 months; and $659,638,000 thereafter.
Time deposits with a maturity of one year or less have penalties for premature withdrawal equal to 90 days of interest. When
the maturity is greater than one year but less than four years, the penalty is 180 days of interest. When the maturity is greater
than four years, the penalty is 365 days of interest. Early withdrawal penalty fee income for the years ended 2024, 2023 and
2022 amounted to $1,082,000, $1,618,000 and $267,000, respectively.
For additional details on customer accounts, including uninsured deposits, see Note K to the Consolidated Financial Statements
in “Item 8. Financial Statements and Supplementary Data” of this report.
Borrowings: Total borrowings decreased to $3,267,589,000 as of September 30, 2024, as compared to $3,650,000,000 at
September 30, 2023. The weighted average rate for borrowings was 3.93% as of September 30, 2024, versus 3.98% at
September 30, 2023, the decrease being primarily due to higher rates on new short-term borrowings. The Bank has entered into
interest rate swaps to hedge interest rate risk and convert certain FHLB advances to fixed rate payments. Taking into account
these hedges, the weighted average effective maturity of FHLB advances at September 30, 2024 was 2.34 years.
RESULTS OF OPERATIONS
COMPARISON OF 2024 RESULTS WITH 2023
Net Income: Net income decreased $57,385,000, or 22.3%, to $200,041,000 for the year ended September 30, 2024, as
compared to $257,426,000 for the year ended September 30, 2023. The change was due to the factors described below.
Net Interest Income: For the year ended September 30, 2024, net interest income was $660,832,000, a decrease of $29,402,000
or 4.3% from the year ended September 30, 2023. Net interest margin was 2.69% for the year ended September 30, 2024
compared to 3.40% in the prior year. The decrease was the result of the combination of greater growth in interest-bearing
liabilities balances than in interest-paying assets and a larger increase in the rate paid on those liabilities compared to the rates
earned on interest-earning assets. Average interest-bearing liabilities grew by 27.2% while average interest-earning assets grew
by 20.8%. Rates on interest-bearing liabilities increased by 128 basis points outpacing the 46 basis points increase in the
average rate on interest-earning assets.
Rate/Volume Analysis
The table below sets forth certain information regarding changes in interest income and interest expense of the Company for the
years indicated. For each category of interest-earning asset and interest-bearing liability, information is provided on changes
attributable to: (1) changes in volume (changes in volume multiplied by old rate) and (2) changes in rate (changes in rate
multiplied by old average volume). The change in interest income and interest expense attributable to changes in both volume
and rate has been allocated proportionately to the change due to volume and the change due to rate.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
55
Twelve Months Ended September 30,
2024 vs. 2023
Increase (Decrease) Due to
2023 vs. 2022
Increase (Decrease) Due to
2022 vs. 2021
Increase (Decrease) Due to
Volume
Rate
Total
Volume
Rate
Total
Volume
Rate
Total
(In thousands)
(In thousands)
(In thousands)
Interest income:
Loan portfolio
$ 189,770
$ 76,011
$ 265,781
$ 87,565
$ 210,911
$ 298,476
$ 74,710
$ (10,778) $ 63,932
Mortgage-backed
securities
8,129
8,469
16,598
5,760
11,092
16,852
(3,101)
4,725
1,624
Investments (1)
34,219
12,157
46,376
(13,400)
74,668
61,268
(9,347)
18,540
9,193
All interest-earning
assets
232,118
96,637
328,755
79,925
296,671
376,596
62,262
12,487
74,749
Interest expense:
Customer accounts
75,680
219,521
295,201
570
193,622
194,192
2,170
(1,442)
728
Borrowings
38,609
24,347
62,956
38,084
48,675
86,759
(9,002)
(6,457)
(15,459)
All interest-bearing
liabilities
114,289
243,868
358,157
38,654
242,297
280,951
(6,832)
(7,899)
(14,731)
Change in net
interest income
$ 117,829
$ (147,231) $ (29,402) $ 41,271
$ 54,374
$ 95,645
$ 69,094
$ 20,386
$ 89,480
(1)
Includes interest on cash equivalents and dividends on stock of the FHLB of Des Moines, the FHLB of San Francisco and FRB of
San Francisco.
Provision for Credit Losses: 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 provision of $16,000,000 recorded on LBC loans
acquired, as well as adjustments resulting from qualitative considerations such as prolonged and intensified borrower sensitivity
to high interest rates and operating costs due to inflationary pressures. For the year ended September 30, 2024, net charge-offs
were $1,356,000, compared to $45,101,000 in the prior year.
Non-interest Income: Non-interest income was $60,692,000 for the year ended September 30, 2024, an increase of $8,491,000,
or 16.3%, from $52,201,000 for the year ended September 30, 2023. The increase in other income is primarily due to increased
income from the Company's subsidiary, WAFD Insurance Group combined with a decrease in unrealized losses recorded for
certain equity method investments in fiscal 2024 compared to the prior year. The reduced losses on the equity method
investment made up $2,371,000 of the overall increase.
Non-interest Expense: Total non-interest expense was $448,272,000 for the year ended September 30, 2024, an increase of
$72,237,000, or 19.2%, from the $376,035,000 for the year ended September 30, 2023. Compensation and benefits costs
increased $37,614,000 or 19.1% year-over-year primarily due to Merger-related retention, severance and change-in-control
expenses combined with a larger post-Merger workforce. FDIC premiums increased $8,845,000 in 2024 compared to the prior
year as a result of both the FDIC's special assessment and the Company's increased size post-Merger. Information technology
costs increased by $3,859,000 in 2024 as compared to 2023 due to increased telephone and data lines combined with
conversion costs and termination fees related to the Merger. Other expense increased by $18,449,000 and included Merger-
related expenses of $8,873,000, a $2,000,000 charitable donation and $6,626,000 in amortization expense related to the core
deposit intangible asset created in the Merger.
The Company’s efficiency ratio was 62.1% for 2024 as compared to 50.7% for the prior year. The number of staff, including
part-time employees on a full-time equivalent basis, was 2,208 and 2,120 at September 30, 2024 and 2023, respectively. Total
operating expense for the years ended September 30, 2024, and 2023 were 1.71% and 1.74%, respectively, of average assets.
Gain on Real Estate Owned: Gain on real estate owned, net was $304,000 for the year ended September 30, 2024, compared to
of $176,000 for the year ended September 30, 2023. This amount includes ongoing maintenance expense, periodic valuation
adjustments, and gains on sales of REO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
56
Income Tax Expense: Income tax expense was $56,015,000 for the year ended September 30, 2024, a decrease of $11,635,000,
or 17.2%, from the $67,650,000 for the year ended September 30, 2023. The decrease is mostly due to an 21.2% decrease in
pre-tax income. The effective tax rate for 2024 was 21.88% as compared to 20.81% for the year ended September 30, 2023. The
Company's effective tax rate varies from the Federal statutory rate of 21% mainly due to state taxes, tax-exempt income and
tax-credit investments. For the current year, income tax was also impacted by the LBC Merger and consideration of California
State and Local taxes.
COMPARISON OF 2023 RESULTS WITH 2022
For management's review of the factors that affected our results of operations for the years ended September 30, 2023 and 2022
refer to our Annual Report on Form 10-K for the year ended September 30, 2023, which was filed with the Securities and
Exchange Commission on November 17, 2023.
LIQUIDITY AND CAPITAL RESOURCES
The principal sources of funds for the Company's activities are loan repayments (including prepayments), net deposit inflows,
borrowings, repayments and sales of investments and retained earnings, if applicable. The Company's principal sources of
revenue are interest on loans and interest and dividends on investments. Additionally, the Company earns fee income for loan,
deposit, insurance and other services.
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 shares, each
representing a 1/40th 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 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.
The Company's shareholders' equity at September 30, 2024, was $3,000,300,000, or 10.69% of total assets, as compared to
$2,426,426,000, or 10.80% of total assets, at September 30, 2023. The Company's shareholders' equity was greatly impacted in
the year by the stock issued in the Merger valued at $465,504,000. Other items affecting shareholders' equity were net income
of $200,041,000, the payment of $74,267,000 in Common Stock dividends, payment of $14,625,000 in preferred stock
dividends, $27,069,000 of treasury stock purchases, as well as other comprehensive loss of $8,930,000. The Company paid out
41.2% of its 2024 earnings in cash dividends to common shareholders, compared with 26.6% last year. For the year ended
September 30, 2024, the Company returned 50.7% of net income to shareholders in the form of cash dividends and share
repurchases as compared to 36.6% for the year ended September 30, 2023. Management believes the Company's strong net
worth position allows it to manage balance sheet risk and provide the capital support needed for controlled growth in a
regulated environment. The Company’s share repurchase program may be modified, suspended or terminated at any time, and
the timing and amount of share repurchases is subject to market conditions and the market price of the Company’s Common
Stock, as well as other factors.
The Bank has a credit line with the FHLB - DM of up to 45% of total assets depending on specific collateral eligibility. This
line provides the Bank a substantial source of additional liquidity. 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
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
57
pledge of single-family residential mortgages that are specifically identified. Based on collateral pledged as of September 30,
2024, the Bank had $6,029,890,000 of additional borrowing capacity at the FHLB - DM.
To ensure ample contingent liquidity the Bank participates in the FRB of San Francisco Borrower-in-Custody program which
collateralizes primary credit borrowings and serves as a backstop for the FHLB - DM credit line. Due to differing program
requirements between the FHLB - DM and FRB of San Francisco, participating in both increases the amount of eligible
collateral that may be pledged in support of contingent liquidity needs. The Bank is also eligible to borrow under the Federal
Reserve Bank's primary credit program. The Bank 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 are currently the lowest cost funding source available. The Federal Reserve ceased making new BTFP
loans on March 11, 2024.
The Company's cash and cash equivalents were $2,381,102,000 at September 30, 2024, which is a 142.8% increase from the
balance of $980,649,000 as of September 30, 2023. During the year, the Company completed the sale of approximately
$2,800,000,000 in multifamily loans and approximately $400,000,000 in single-family loans from the acquired LBC loan
portfolio. The proceeds from the sales have increased liquidity adding approximately $1 billion in cash after paying down
borrowings. See “Changes in Financial Condition” above and the “Statement of Cash Flows” included in the financial
statements for additional details regarding this change.
The following table presents the Company's significant fixed and determinable contractual obligations, within the categories
described below, by contractual maturity or payment amount.
September 30, 2024
Total
Less than
1 Year
1 to 5
Years
Over 5
Years
(In thousands)
Customer accounts (1)
$ 21,373,970 $ 20,423,963 $
949,943 $
64
Debt obligations (2)
3,318,307
3,174,068
93,521
50,718
Operating lease obligations
49,250
11,786
23,021
14,443
$ 24,741,527 $ 23,609,817 $
1,066,485 $
65,225
(1) Includes non-maturing customer transaction accounts.
(2) Represents contractual maturities of FHLB advances and FRB borrowings. Taking into account cash flow hedges, the weighted
average effective maturity of FHLB advances at September 30, 2024 is 2.34 years.
These obligations are included in the Consolidated Statements of Financial Condition. The payment amounts of the operating
lease obligations represent those amounts contractually due.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
58
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
INTEREST RATE RISK
The primary source of income for the Bank is net interest income, which is the difference between the interest income generated
by interest-earning assets and the interest expense incurred for interest-bearing liabilities. The level of net interest income is a
function of the average balance of interest-earning assets and interest-bearing liabilities and the difference between the yield on
earning assets and the cost of interest-bearing liabilities. Both the pricing and mix of the Company's interest-earning assets and
interest-bearing liabilities influence these factors. All else being equal, if the interest rates on the Company's interest-bearing
liabilities increase at a faster pace than the interest rates on its interest-earning assets, the result would be a reduction in net
interest income and with it, a reduction in net earnings. Conversely, if the interest rates on the Company's interest-bearing
liabilities decrease at a slower pace than the interest rates on its interest-earning assets, the result would be a reduction in net
interest income and with it, a reduction in net earnings.
Interest rates, both in terms of their overall levels and volatility, can greatly influence our profitability. Our goal in managing
interest rate risk is to assess and control how changes in interest rates affect our net interest income, helping us achieve our
financial objectives. We mitigate exposure to interest rate fluctuations through actions determined by the Asset/Liability
Management Committee ("ALCO"). This committee meets at least quarterly to establish asset/liability management policies,
develop and implement strategies to enhance balance sheet positioning and earnings, and assess interest rate sensitivity. The
Company's Board oversees the asset/liability management process, reviews interest rate risk analyses prepared by ALCO, and
annually approves the Financial Management policy.
Interest rate risk arises in part due to the Bank's significant holdings of fixed-rate single-family home loans, which are longer-
term than customer accounts that constitute its primary liabilities. Accordingly, assets do not usually respond as quickly to
changes in interest rates as liabilities. In the absence of management action, net interest income can be expected to decline when
interest rates rise and to expand when interest rates fall. Shortening the maturity or repricing of the investment portfolio is one
action that management can take. The composition of the investment portfolio was 53.8% variable rate and 46.2% fixed rate as
of September 30, 2024 to provide some protection against changing rates. In addition, the Bank is producing more commercial
loans that have shorter terms and/or variable rates. There has also been focus on increasing less rate sensitive transaction
deposit accounts. These accounts make up 55.3% of the deposit portfolio as of September 30, 2024.
The Company's balance sheet strategy, in conjunction with low operating costs, has allowed the Company to manage interest
rate risk, within guidelines established by the Board, through all interest rate cycles. It is Management's objective to grow the
dollar amount of net interest income, through the rate cycles, acknowledging that there will be some periods of time when that
will not be feasible. Cash and cash equivalents of $2,381,102,000 and shareholders' equity of $3,000,300,000 provide
management with flexibility in managing interest rate risk. Based on management's assessment of the current interest rate
environment, the Company has taken steps, including growing commercial loans having shorter average lives and transaction
deposit accounts, to position itself for changing interest rates.
Net Interest Income Sensitivity. We estimate the sensitivity of our net interest income to changes in market interest rates using
an interest rate simulation model that includes assumptions related to the level of balance sheet growth, deposit repricing
characteristics and the rate of prepayments for multiple interest rate change scenarios. Interest rate sensitivity depends on
certain repricing characteristics in our interest-earning assets and interest-bearing liabilities, including the maturity term
structure, contractual rate changes and prepayment/attrition characteristics of assets and liabilities, all of which vary with
changes in market interest rates. The analysis presented below assumes a constant balance sheet. Actual results would differ
from the assumptions used in this model, as management monitors and adjusts loan and deposit pricing and the composition and
overall size of the balance sheet to respond to changing interest rates.
In the event of an immediate and parallel decrease of 200 basis points across all interest rates, the model estimates that net
interest income would decrease 1.0% in the next year. This compares to an estimated increase of 7.8% for the same measure as
of September 30, 2023. It is noted that a steepening yield curve where the spread between short-term rates and long-term rates
increases would likely result in higher net interest income.
In the event of an immediate and parallel increase of 200 basis points across all interest rates, the model estimates that net
interest income would increase by 2.8% in the next year. This compares to an estimated decrease of 2.0% for the same measure
as of September 30, 2023.
59
Net Portfolio Value ("NPV") Sensitivity. The NPV is an estimate of the market value of shareholders' equity at a point in
time. It is derived by calculating the difference between the present value of expected cash flows from assets and the present
value of expected cash flows from liabilities and off-balance-sheet contracts. The sensitivity of the NPV to changes in interest
rates provides a longer-term view of interest rate risk of the current balance sheet as it incorporates all future expected cash
flows.
As of September 30, 2024, in the event of an immediate and parallel decrease of 200 basis points in interest rates, the NPV is
estimated to increase by $273,000,000, or 9.2%, and the NPV-to-total assets ratio to increase to 11.6% from a base of 11.0%.
As of September 30, 2023, in the event of an immediate and parallel decrease of 200 basis points in interest rates, the NPV was
estimated to increase by $583,000,000, or 22.1%, and the NPV-to-total assets ratio to increase to 14.3% from a base of 12.4%.
The change in the sensitivity of the NPV ratio to this assumed change in interest rates is primarily due to the steepening of the
yield curve and changes in balance sheet mix year over year. Prepayment speeds for single family mortgages are increasing
though still low at September 30, 2024 with the Bank's conditional payment rate ("CPR") for this portfolio segment at 8.6%, up
slightly from 7.0% the year before.
As of September 30, 2024, in the event of an immediate and parallel increase of 200 basis points in interest rates, the NPV is
estimated to decrease by $741,000,000, or 24.9%, and the NPV-to-total assets ratio to decline to 8.7% from a base of 11.0%. As
of September 30, 2023, in the event of an immediate and parallel increase of 200 basis points in interest rates, the NPV was
estimated to decrease by $723,000,000, or 27.4%, and the NPV-to-total assets ratio to decline to 9.5% from a base of 12.4%.
Opposite to the down scenario above, this change in the sensitivity of the NPV ratio to the assumed change in interest rates is
due to the flattening of the yield curve and changes in balance sheet mix year over year in this scenario.
Interest Rates. The Company measures the difference between the rate on interest-earning assets and the rate on interest-
bearing liabilities at the end of each period. The period end interest rate spread was 1.91% at September 30, 2024 and 2.61% at
September 30, 2023. As of September 30, 2024, the weighted-average rate on interest-earning assets increased by 4 basis points
to 5.11% compared to September 30, 2023. The higher rate on interest-earning assets is due primarily to the Federal Reserve
Bank's rate increases from March 2022 until September 2024, which have led to higher rates on adjustable rate loans,
investment securities and cash as well as asset mix shifting to loans receivable. As of September 30, 2024, the weighted-
average rate on interest-bearing liabilities increased by 74 basis points to 3.20% compared to September 30, 2023. The higher
rate on interest-bearing liabilities primarily resulted from the addition of higher yielding deposits in the Merger which also had
a higher concentration of the rate sensitive time deposits, customer deposits repricing and higher rates on new borrowings. The
period end interest rate spread for the last eight fiscal quarters is shown below:
SEP
2024
JUN
2024
MAR
2024
DEC
2023
SEP
2023
JUN
2023
MAR
2023
DEC
2022
Interest rate on loans and mortgage-backed
securities
5.16 % 5.18 % 4.94 % 5.11 % 5.08 % 4.97 % 4.81 % 4.59 %
Interest rate on other interest-earning assets
4.85
5.13
5.02
4.94
4.98
4.74
4.45
3.19
Combined, all interest-earning assets
5.11
5.17
4.94
5.09
5.07
4.94
4.77
4.46
Interest rate on customer accounts
3.09
2.91
2.92
2.35
2.12
1.82
1.48
0.94
Interest rate on borrowings (1)
3.93
4.10
4.48
3.99
3.98
3.93
3.69
3.14
Combined cost of funds
3.20
3.10
3.24
2.67
2.46
2.22
1.91
1.29
Interest rate spread
1.91 % 2.07 % 1.70 % 2.42 % 2.61 % 2.72 % 2.86 % 3.17 %
(1) Represents the effective rate taking into consideration cash flow hedges on FHLB borrowings.
60
The chart below shows the volatility of our period end net interest spread (dashed line measured against the right axis)
compared to the relatively consistent growth in net interest income (solid line measured against the left axis). The relative
consistency of net interest income is accomplished by actively managing the size and composition of the balance sheet through
different rate cycles.
Net Interest Margin. The net interest margin is measured using net interest income divided by average interest-earning assets
for the period. The net interest margin decreased to 2.69% for the year ended September 30, 2024, from 3.40% for the year
ended September 30, 2023. The yield on interest-earning assets increased 46 basis points to 5.59% and the cost of interest-
bearing liabilities increased by 128 basis points to 3.46%. The higher yield on interest-earning assets was primarily due to the
impact of rising rates on adjustable rate assets and cash. The higher rate in interest-bearing liabilities was primarily due to
higher rates on interest-bearing customer accounts combined with the higher interest rates on borrowings and customer
accounts obtained in the Merger.
For the year ended September 30, 2024, average interest-earning assets increased by 20.8% to $24,559,665,000, up from
$20,327,301,000 for the year ended September 30, 2023. Balance sheet growth in 2024 was primarily due to the Merger.
During 2024, average loans receivable increased $3,405,267,000, or 19.9%, while the combined average balances of mortgage-
backed securities, other investment securities and cash increased by $822,850,000 or 26.5%.
During 2024, average interest-bearing customer deposit accounts increased $3,420,825,000 or 26.5% and the average balance
of borrowings increased by $980,514,000, or 30.1%, from 2023, primarily due to the Merger.
61
The following table sets forth the information explaining the changes in the net interest income and net interest margin.
Net Interest Income and Margin Summary
Year Ended September 30,
2024
2023
2022
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
($ in thousands)
Assets
Loans receivable (1)
$
20,500,281
$ 1,165,849
5.69 % $
17,095,014 $ 900,068
5.27 % $
15,083,111 $ 601,593
3.99 %
Mortgage-backed securities
1,597,566
59,782
3.74
1,362,415
43,184
3.17
1,141,501
26,332
2.31
Cash & Investments (2)
2,330,505
133,608
5.73
1,742,806
91,058
5.22
2,500,008
33,555
1.34
FHLB & FRB stock
131,313
12,471
9.50
127,066
8,645
6.80
87,861
4,879
5.55
Total interest-earning assets
24,559,665
1,371,710
5.59 %
20,327,301 1,042,955
5.13 %
18,812,481
666,359
3.54 %
Other assets
1,682,721
1,484,271
1,343,848
Total assets
$
26,242,386
$
21,811,572
$
20,156,329
Liabilities and Shareholders’ Equity
Interest-bearing customer accounts
$
16,327,208
532,434
3.26 % $
12,906,383
237,233
1.84 % $
12,738,719
43,041
0.34 %
Borrowings
4,242,431
178,444
4.21
3,261,917
115,488
3.54
1,731,120
28,729
1.66
Total interest-bearing liabilities
20,569,639
710,878
3.46 %
16,168,300 352,721
2.18 %
14,469,839
71,770
0.50 %
Noninterest-bearing customer accounts
2,593,567
2,969,970
3,249,120
Other liabilities
322,071
296,840
242,213
Total liabilities
23,485,277
19,435,110
17,961,172
Shareholders’ equity
2,757,109
2,376,462
2,195,157
Total liabilities and shareholders’ equity $
26,242,386
$
21,811,572
$
20,156,329
Net interest income/interest rate spread
$ 660,832
2.13 %
$ 690,234
2.95 %
$ 594,589
3.04 %
Net interest margin (3)
2.69 %
3.40 %
3.16 %
___________________
(1)
Interest income includes net amortization-accretion of deferred loan fees, costs, discounts and premiums of $37,489,000, $20,130,000 and $29,156,000 for year
ended 2024, 2023 and 2022, respectively.
(2)
Includes cash equivalents and non-mortgage backed security investments, such as U.S. agency obligations, mutual funds, corporate bonds, and municipal bonds.
(3)
Net interest income divided by average interest-earning assets.
62
The following table shows the potential impact of changing interest rates on net income for one year. The Company's focus is
primarily on the impact of abrupt upward or downward changes in short term rates. It is important to note that this is not a
forecast or prediction of future events, but is used as a tool for measuring potential risk. This analysis assumes zero balance
sheet growth and a constant percentage composition of assets and liabilities.
Potential Increase (Decrease) in Net Interest Income
Basis Point Increase (Decrease) in Interest Rates
September 30, 2024
(In thousands, except percentages)
(300)
$
(35,155)
(4.27) %
(200)
(8,414)
(1.02)
(100)
1,702
0.21
100
(274)
(0.03)
200
22,686
2.76
Actual results will differ from the assumptions used in this model, as management monitors and adjusts both the size and the
composition of the balance sheet in order to respond to changing interest rates. In a rising interest rate environment, it is likely
that the Company will grow its balance sheet to offset margin compression that may occur. Improvement in the net interest
income sensitivity during the year is primarily the result of interest rate swap activity, as well as increased time deposits and an
increased federal funds balances which help reduce sensitivity in rising shock scenarios.
Another method used to quantify interest rate risk is the NPV analysis. This analysis calculates the difference between the
present value of interest-bearing liabilities and the present value of expected cash flows from interest-earning assets and off-
balance-sheet contracts. The following tables set forth an analysis of the Company’s interest rate risk as measured by the
estimated changes in NPV resulting from instantaneous and sustained parallel shifts in the yield curve (measured in 100-basis-
point increments).
The tables below express the NPV under varying interest scenarios.
September 30, 2024
Change in
Interest Rates
Estimated
NPV Amount
Estimated Increase/(Decrease)
in NPV Amount
NPV as
% of Assets
(Basis Points)
(In thousands)
(In thousands)
200 $
2,236,691 $
(740,588)
8.69 %
100
2,472,251
(505,028)
9.41
No change
2,977,279
—
10.99
(100)
3,045,962
68,683
11.08
(200)
3,249,949
272,670
11.56
(300)
3,232,362
255,083
11.32
As of September 30, 2024, the Company was in compliance with all of its interest rate risk policy limits.
63
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
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
WAFD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
68
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
WAFD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
69
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
WAFD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
70
(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
WAFD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
71
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
WAFD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
72
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
$
—
$
—
WAFD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
73
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
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
74
shares, each representing a 1/40th 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
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
75
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.
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
76
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
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
77
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.
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
78
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.
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
79
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
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
80
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).
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
81
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:
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
82
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
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
83
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
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
84
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
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
85
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 %
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
86
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.
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
87
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.
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
88
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.
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
89
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 %
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
90
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.
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
91
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
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
92
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
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
93
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
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
94
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
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
95
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
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
96
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
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
97
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 &
Transfers1
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
1Provision & 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.
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
98
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
1Provision & 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).
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
99
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 %
— %
— %
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
100
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 %
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
101
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.
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
102
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
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
103
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.
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
104
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.
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
105
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
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
106
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)
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
107
(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
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
108
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)
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
109
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.
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
110
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 %
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
111
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
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
112
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 $1.9 million, is included in other assets in the
consolidated statements of financial condition. The sole asset of the Trusts are the Notes that they hold.
The Trusts have invested the proceeds of such Trust Securities in the Notes. Each of the Notes has an interest rate equal to the
corresponding Trust Securities distribution rate. The Company has the right to defer payment of interest on the Notes at any
time or from time to time for a period not exceeding five years provided that no extension period may extend beyond the stated
maturity of the relevant Notes. During any such extension period, distributions on the Trust Securities will also be deferred, and
the Company’s ability to pay dividends on its common stock will be restricted.
The Company has assumed LBC's contractual arrangements which, taken collectively, fully and unconditionally guarantee
payment of: (i) accrued and unpaid distributions required to be paid on the Trust Securities; (ii) the redemption price with
respect to any Trust Securities called for redemption by the Trusts; and (iii) payments due upon a voluntary or involuntary
dissolution, winding up or liquidation of the Trusts. The Trust Securities are mandatorily redeemable upon maturity of the
Notes, or upon earlier redemption as provided in the indenture. The Company has the right to redeem the Notes purchased by
the Trusts, in whole or in part, on or after the redemption date. As specified in the indenture, if the Notes are redeemed prior to
maturity, the redemption price will be the principal amount and any accrued but unpaid interest.
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
113
The following table is a summary of the outstanding Trust Securities and Notes at September 30, 2024.
Issued
Amount
Carrying
Amount1
Date
Issued
Maturity
Date
Rate Index
Issuer
Rate
(Quarterly Reset)
($ 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%
1Includes 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.
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
114
(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.
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
115
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.
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
116
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.
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
117
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
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
118
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.
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
119
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 1/40th interest in a
share of the Series A Preferred Stock, at a public offering price of $25.00 per depositary share. Holders of the depositary shares
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
120
are entitled to all proportional rights and preferences of the Series A Preferred Stock (including, dividend, voting, redemption and
liquidation rights). The depositary shares are traded on the NASDAQ Global Select Market under the symbol "WAFDP." The
Series A Preferred Stock is redeemable at the option of the Company, subject to all applicable regulatory approvals, on or after
April 15, 2026.
As of September 30, 2024, and 2023, the Company and the Bank met all capital adequacy requirements to which they are subject,
and the Bank's regulators categorized it as well capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum Common Equity Tier 1, Tier 1 risk-based, Total risk-based and
Tier 1 leverage ratios as set forth in the following table. The Bank's actual capital amounts and ratios as of these dates are also
presented. There are no conditions or events since that management believes have changed the Bank's categorization.
Actual
Capital
Adequacy
Guidelines
Categorized as
Well Capitalized
Under Prompt
Corrective Action
Provisions
Capital
Ratio
Ratio
Ratio
September 30, 2024
($ 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.
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
121
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
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
122
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
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
123
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
WAFD, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2024, 2023, AND 2022
124
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of September 30, 2024, the Company carried out an evaluation, under the supervision and participation of the
Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of
the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(e) of the Exchange Act.
Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s
disclosure controls and procedures were effective, as of the end of the period covered in this report, to ensure that information
required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported within time periods specified in SEC rules and forms and were effective to ensure that such
information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial
reporting. The Company’s internal control system is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting practices in the United States of America.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of
September 30, 2024. In making the assessment, the Company’s management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in the 2013 version of its Internal Control-Integrated
Framework. Based on its assessment, the Company’s management believes that as of September 30, 2024, the Company’s
internal control over financial reporting was effective based on this criteria.
The Company’s independent auditors, Deloitte & Touche LLP, an independent registered public accounting firm, have
issued an audit report on the Company’s internal control over financial reporting, which appears in this annual report on Form
10-K.
There have been no changes in the Company’s internal control over financial reporting during the Company’s most recent
fiscal quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and Board of Directors of WaFd, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of WaFd, Inc. and subsidiaries (the “Company”) 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 (COSO). Because management's assessment and our audit were conducted to meet the reporting requirements
of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA), management's assessment and our audit of the
Company's internal control over financial reporting included controls over the preparation of the schedules equivalent to the basic financial
statements in accordance with the instructions for the Office of the Comptroller of the Currency Instructions for Call Reports for Balance
Sheet on schedule RC, Income Statement on schedule RI, and Changes in Company Equity Capital on schedule RI-A. In our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2024, based on criteria
established in Internal Control — Integrated Framework (2013) issued by COSO.
We have not examined and, accordingly, we do not express an opinion or any other form of assurance on management's statement referring
to compliance with laws and regulations.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated financial statements as of and for the year ended September 30, 2024, of the Company and our report dated November 20,
2024, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our
audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Seattle, Washington
November 20, 2024
Item 9B. Other Information
Rule 10b5-1 Plan and Non-Rule 10b5-1 Trading Arrangement Adoptions, Terminations, and Modifications
During the three months ended September 30, 2024, none of the Company’s directors or “officers” (as defined in Rule
16a-1(f) under the Exchange Act) adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading
arrangement,” as each term is defined in Item 408 of SEC Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item will be set forth in the Company's definitive proxy statement for its Annual
Meeting of Shareholders to be held on February 11, 2025 (the "2024 Proxy Statement") under the following captions, and is
incorporated herein by reference.
•
Proposal 1: Election of Directors
•
Executive Officers
•
Corporate Governance
•
Delinquent Section 16 Reports
Code of Ethics
The Company has adopted a code of ethics that applies to all senior financial officers, including its Chief Executive
Officer and Chief Financial Officer. The code of ethics is publicly available on the Company’s website under "Investor
Relations - Corporate Governance" at www.wafdbank.com. If the Company makes any substantive amendments to the code of
ethics or grants any waiver from a provision of the code, it will disclose the nature of such amendment or waiver on its website
or in a report on Form 8-K.
Insider Trading Policy
The Company has adopted insider trading policies and procedures governing the purchase, sale, and/or other dispositions
of the Company’s securities by directors, officers and employees, or the Company itself, that are reasonably designed to
promote compliance with insider trading laws, rules and regulations, and any listing standards applicable to the Company. A
copy of the Company’s Trading Policy has been filed as Exhibit 19.1 to this Annual Report on Form 10-K.
Item 11. Executive Compensation
The information required by this item will be set forth in the 2024 Proxy Statement under the captions "Executive
Compensation” and “Corporate Governance – Compensation Committee Interlocks And Insider Participation" and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information required by this item will be set forth in the 2024 Proxy Statement under the caption "Security
Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information" and is incorporated
herein by reference.
Additional information about stock options and other equity compensation plans is included in Note Q to the
Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this report.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by this item will be set forth in the 2024 Proxy Statement under the caption "Corporate
Governance - Related Party Transactions" and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this item will be set forth in the 2024 Proxy Statement under the caption "Principal
Accountant Fees and Services" and is incorporated herein by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Documents filed as part of this Report:
(1) The Consolidated Financial Statements and related documents set forth in "Item 8. Financial Statements and
Supplementary Data" are filed as part of this report.
(2) All other schedules to the Consolidated Financial Statements required by Regulation S-X are omitted because
they are not applicable, not material or because the information is included in the Consolidated Financial Statements
and related notes in “Item 8. Financial Statements and Supplementary Data” of this report.
(3) The following exhibits are required by Item 601 of Regulation S-K:
No.
Exhibit
Page/
Footnote
3.1
Third Restated Articles of Incorporation of the Company, as amended
(1)
3.2
Second Amended and Restated Bylaws of the Company
(1)
4.1
Description of Registrant's Securities
(2)
4.2
Deposit Agreement, dated February 8, 2021, by and among the Company, American Stock
Transfer & Trust Company LLC, and the holders from time to time of the depositary receipts
described therein
(3)
10.1
2020 Incentive Plan and Form of Award Agreements *
(4)
10.2
2011 Incentive Plan, as amended *
(5)
10.3
Form of Restricted Stock Award Agreement under 2011 Incentive Plan *
(5)
10.4
Form of Stock Option Agreement under 2011 Incentive Plan *
(5)
10.5
Form of Indemnification Agreement *
(6)
10.6
Form of Change in Control Agreement *
(7)
10.7
WaFd, Inc. Amended and Restated Non-Qualified Employee Stock Purchase Plan*
(1)
10.8
WaFd Bank Deferred Compensation Plan*
(8)
10.9
Amendment to WaFd Bank Deferred Compensation Plan *
(8)
10.10
Agreement for the Purchase and Sale of Loans between Washington Federal Bank and Bank of
America, National Association
(9)
10.11
Amendment No. 1 to Agreement for the Purchase and Sale of Loans between Washington
Federal Bank and Bank of America, National Association
(10)
19.1
Trading Policy
+
21
Subsidiaries of the Company - Reference is made to Item 1, “Business - Subsidiaries” for the
required information
+
23.1
Consent of Independent Registered Public Accounting Firm
+
31.1
Section 302 Certification by the Chief Executive Officer
+
31.2
Section 302 Certification by the Chief Financial Officer
+
32
Section 906 Certification pursuant to the Sarbanes-Oxley Act of 2002
+
97.1
WaFd, Inc. Clawback Policy
+
101
Financial Statements for the fiscal year ended September 30, 2024 formatted in iXBRL
+
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
+
___________________
*
Management contract or compensation plan
+
Filed herewith
(1)
Incorporated by reference from the Registrant's Form 10-K filed with the SEC on November 17, 2023.
(2)
Incorporated by reference from the Registrant's Form 10-K filed with the SEC on November 19, 2021.
(3)
Incorporated by reference from the Registrant's Form 8-K filed with the SEC on February 8, 2021.
(4)
Incorporated by reference from the Registrant's Form 10-K filed with the SEC on November 23, 2020.
(5)
Incorporated by reference from the Registrant's Form 10-K filed with the SEC on November 21, 2016.
(6)
Incorporated by reference from the Registrant's Form 8-K filed with the SEC on October 24, 2016.
(7)
Incorporated by reference from the Registrant's Form 8-K filed with the SEC on August 19, 2015.
(8)
Incorporated by reference from the Registrant's Form 8-K filed with the SEC on February 17, 2023.
(9)
Incorporated by reference from the Registrant's Form 8-K filed with the SEC on May 17, 2024.
(10)
Incorporated by reference from the Registrant's Form 10-Q filed with the SEC on August 2, 2024.
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WAFD, INC.
November 20, 2024
By:
/S/ BRENT J. BEARDALL
Brent J. Beardall, Vice Chair, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Brent J. Beardall
November 20, 2024
Brent J. Beardall
Vice Chair, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Kelli J. Holz
November 20, 2024
Kelli J. Holz
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Blayne A. Sanden
November 20, 2024
Blayne A. Sanden
Senior Vice President and Principal Accounting Officer
(Principal Accounting Officer)
/s/ Stephen M. Graham
November 20, 2024
Stephen M. Graham, Chairman of the Board
/s/ R. Shawn Bice
November 20, 2024
R. Shawn Bice, Director
/s/ Linda S. Brower
November 20, 2024
Linda S. Brower, Director
/s/ David K. Grant
November 20, 2024
David K. Grant, Director
/s/ Sylvia R. Hampel
November 20, 2024
Sylvia R. Hampel, Director
/s/ Bradley M. Shuster
November 20, 2024
Bradley M. Shuster, Director
/s/ S. Steven Singh
November 20, 2024
S. Steven Singh, Director
/s/ Sean B. Singleton
November 20, 2024
Sean B. Singleton, Director
/s/ Randall H. Talbot
November 20, 2024
Randall H. Talbot, Director
/s/ M. Max Yzaguirre
November 20, 2024
M. Max Yzaguirre, Director
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements Nos. 333-271135, 333-268395, 333-251235, and
333-185154 on Form S-8, Registration Statements Nos. 333-268964 and 333-252519 on Form S-3 and Registration Statement
No. 333-270159 on Form S-4 of our reports dated November 20, 2024, relating to the consolidated financial statements of
WaFd, Inc., and the effectiveness of WaFd, Inc.’s internal control over financial reporting, appearing in this Annual Report on
Form 10-K of WaFd, Inc. for the year ended September 30, 2024.
Seattle, Washington
November 20, 2024
Exhibit 31.1
WAFD, INC. AND SUBSIDIARIES
CERTIFICATION
I, Brent J. Beardall, certify that:
1.
I have reviewed this annual report on Form 10-K of WaFd, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: November 20, 2024
/s/ Brent J. Beardall
BRENT J. BEARDALL
President and Chief Executive Officer
Exhibit 31.2
WAFD, INC. AND SUBSIDIARIES
CERTIFICATION
I, Kelli J. Holz, certify that:
1.
I have reviewed this annual report on Form 10-K of WaFd, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: November 20, 2024
/s/ Kelli J. Holz
KELLI J. HOLZ
Executive Vice President and Chief Financial Officer
Exhibit 32
WAFD, INC. AND SUBSIDIARIES
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of WaFd, Inc. (the “Company”) on Form 10-K for the period ended September 30,
2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certify,
pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the
undersigned's best knowledge and belief:
(a) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: November 20, 2024
WaFd, Inc.
(Company)
/s/ Brent J. Beardall
BRENT J. BEARDALL
President and Chief Executive Officer
/s/ Kelli J. Holz
KELLI J. HOLZ
Executive Vice President and Chief Financial Officer
Independent Auditors
Deloitte & Touche LLP
Seattle, Washington
Transfer Agent, Registrar and Dividend Disbursing Agent
Shareholder inquiries regarding transfer requirements,
cash or stock dividends, lost certificates, consolidating
records, correcting a name or changing an address should
be directed to the transfer agent:
Broadridge Corporate Issuer Solutions
PO Box 1342
Brentwood, NY 11717
1-844-983-0877
shareholder@broadridge.com
Annual Meeting
The annual meeting of shareholders will be held live via the
internet at www.virtualshareholdermeeting.com/WAFD2025
on February 11, 2025, at 8am Pacific Time.
Available Information
To find out more about the Company, please visit our website.
The Company uses its website to distribute financial and other
material information about the Company. Our annual report on
Form 10-K, our quarterly reports on Form 10-Q, current reports
on Form 8-K, amendments to those reports and other SEC filings
of the Company are available through the Company’s website:
www.wafdbank.com
Stock Information
WaFd, Inc. is traded on the NASDAQ Global
Select Market. The common stock symbol is WAFD.
425 Pike Street | Seattle, WA 98101
@WAFDbank
wafdbank.com