WAFD INC

Previous wording

•global economic trends, including developments related to Ukraine and Russia, Israel and Gaza, and related negative financial impacts on our borrowers, the financial markets and the global economy;

Current wording

•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;

Previous wording

•non-compliance with the USA PATRIOT Act, Bank Secrecy Act, Real Estate Settlement Procedures Act, Truth-in-Lending Act, Community Reinvestment Act, Fair Lending Laws, Flood Insurance Reform Act or other laws and regulations;

Current wording

•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;

Previous wording

•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;

Current wording

•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, including compliance with the Bank's 2013 and 2020 HMDA Consent Orders;

Previous wording

•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;

Current wording

•risks associated with our geographic concentration, including the effects of a severe economic downturn, including high unemployment rates and declines in housing prices and both commercial and residential property values, in our primary market areas;

Previous wording

Washington Federal Bank, a federally-insured state-charted 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,” 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.

Current wording

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.

Previous wording

Based on management's assessment of the current interest rate environment, the Company has taken steps, including growing shorter-term loans and transaction deposit accounts, to reduce its interest rate risk profile. The mix of transaction and savings accounts is 56% of total deposits as of June 30, 2024 while the composition of the investment securities portfolio is 51% variable and 49% fixed rate. When interest rates rise, the fair value of the investment securities with fixed rates will decrease and vice versa when interest rates decline. The Company has $447,638,000 of mortgage-backed securities that it has designated as HTM and are carried at amortized cost. As of June 30, 2024, the net unrealized loss on these securities was $49,633,000. The Company has $2,428,769,000 of AFS securities that are carried at fair value. As of June 30, 2024, the net unrealized loss on these securities was $79,454,000. The Company has executed interest rate swaps to hedge interest rate risk on certain FHLB borrowings. The unrealized gain on these interest rate swaps as of June 30, 2024 was $151,333,000. All of the above are pre-tax net unrealized gains or losses.

Current wording

Based on management's assessment of the current interest rate environment, the Company has taken steps, including growing shorter-term loans and transaction deposit accounts, to reduce its interest rate risk profile. The mix of transaction and savings accounts is 55% of total deposits as of December 31, 2024 while the composition of the investment securities portfolio is 54% variable and 46% fixed rate. When interest rates rise, the fair value of the investment securities with fixed rates will decrease and vice versa when interest rates decline. The Company has $537,348,000 of mortgage-backed securities that it has designated as HTM and are carried at amortized cost. As of December 31, 2024, the net unrealized loss on these securities was $52,242,000. The Company has $2,743,731,000 of AFS securities that are carried at fair value. As of December 31, 2024, the net unrealized loss on these securities was $69,036,000. The Company has executed interest rate swaps to hedge interest rate risk on certain FHLB borrowings. The unrealized gain on these interest rate swaps as of December 31, 2024 was $138,870,000. All of the above are pre-tax net unrealized gains or losses.

Previous wording

NPV Sensitivity - NPV is an estimate of the market value of shareholders' equity. NPV is calculated as the difference between the present value of expected cash flows from interest-earning assets and the present value of expected cash flows from interest-paying liabilities and off-balance-sheet contracts. The sensitivity of NPV to changes in interest rates provides a view of interest rate risk as it incorporates all future expected cash flows. As of June 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 $752,000,000 or 26.13% and the NPV to total assets ratio to decline to 8.19% from a base of 10.52%. As of September 30, 2023, the NPV in the event of a 200 basis point increase in rates was estimated to decrease by $723,000,000 or 27.41% and the NPV to total assets ratio to decline to 9.50% from a base of 12.40%. The change in the sensitivity of the NPV ratio to this assumed change in interest rates is primarily due to the flattening of the yield curve and changes in balance sheet mix during the nine months ended June 30, 2024. Prepayment speeds continue to be low at June 30, 2024 with the Bank's conditional payment rate ("CPR") for single family mortgages at 6.60%, down from 7.90% the year before.

Current wording

Prepayment speeds continue to be low at December 31, 2024 but increasing with the Bank's conditional payment rate ("CPR") for single family mortgages at 8.10%, up from 6.60% the year before.

Previous wording

Net Interest Margin - Net interest margin is measured as net interest income divided by average earning assets for the period. Net interest margin was 2.56% for the quarter ended June 30, 2024 compared to 3.27% for the quarter ended June 30, 2023. The yield on interest-earning assets increased 37 basis points to 5.66% and the cost of interest-bearing liabilities increased 112 basis points to 3.63% over that same period. 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 resulted primarily from customer deposits repricing and higher rates on borrowings.

Current wording

Net Interest Margin - Net interest margin is measured as net interest income divided by average earning assets for the period. Net interest margin was 2.39% for the quarter ended December 31, 2024 compared to 2.91% for the quarter ended December 31, 2023. The yield on interest-earning assets decreased 16 basis points to 5.31% and the cost of interest-bearing liabilities decreased 32 basis points to 3.48% over that same period. The lower yield on interest-earning assets was primarily due to the impact of rate reductions on adjustable rate assets and cash. This decrease out-paced the decrease in interest-bearing liabilities resulted primarily from customer deposits repricing at a slower rate.

Previous wording

Cash and cash equivalents of $2,492,504,000 and shareholders’ equity of $2,958,339,000 as of June 30, 2024 provide management with flexibility in managing interest rate risk going forward.

Current wording

Cash and cash equivalents of $1,507,735,000 and shareholders’ equity of $3,021,636,000 as of December 31, 2024 provide management with flexibility in managing interest rate risk going forward.

Previous wording

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 pledge of single-family residential mortgages that are specifically identified.

Current wording

The Bank has a credit line with the Federal Home Loan Bank of Des Moines ("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 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. The FHLB - SF credit line is secured by a line-item pledge of single-family residential mortgages that are specifically identified.

Previous wording

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.

Current wording

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.

Previous wording

The Company’s shareholders' equity at June 30, 2024 was $2,958,339,000, or 10.35% of total assets. This is an increase of $531,913,000 from September 30, 2023 when shareholders' equity was $2,426,426,000, or 10.80% of total assets. The Company’s shareholders' equity was impacted in the nine months ended June 30, 2024 by the stock consideration paid in the Merger of $465,504,000, net income of $138,901,000, the payment of $53,404,000 in common stock dividends, payment of $10,969,000 in preferred stock dividends, treasury stock purchases of $26,819,000, as well as other comprehensive income of $7,995,000. The ratio of tangible capital to tangible assets at June 30, 2024 was 8.91%. Management believes the Company's strong equity position allows it to manage balance sheet risk and provide the capital support needed for controlled growth in a regulated environment.

Current wording

The Company’s shareholders' equity at December 31, 2024 was $3,021,636,000, or 10.91% of total assets. This is an increase of $21,336,000 from September 30, 2024 when shareholders' equity was $3,000,300,000, or 10.69% of total assets. The Company’s shareholders' equity was impacted in the three months ended December 31, 2024 by net income of $47,267,000, the payment of $20,923,000 in common stock dividends, payment of $3,656,000 in preferred stock dividends, treasury stock purchases of $3,410,000, as well as the other comprehensive loss of $2,498,000. The ratio of tangible capital to tangible assets at December 31, 2024 was 9.45%. Management believes the Company's strong equity position allows it to manage balance sheet risk and provide the capital support needed for controlled growth in a regulated environment.

Previous wording

Available-for-sale and held-to-maturity investment securities - AFS securities increased $433,672,000, or 21.7%, during the nine months ended June 30, 2024, mostly due to the addition of LBC's AFS investments. During this time the Bank also had securities purchases of $321,308,000 and unrealized gains during the period of $5,489,000 offset by principal repayments and maturities of $270,178,000. During the same period, the balance of HTM securities increased by $24,052,000 primarily due to the purchase of $47,092,000 of HTM securities. There were also principal pay-downs and maturities of $25,503,000 during the period. As of June 30, 2024, the Company had a total net unrealized loss on AFS securities of $79,454,000, which is included on a net of tax basis in accumulated other comprehensive income (loss).

Current wording

Available-for-sale and held-to-maturity investment securities - AFS securities increased $171,022,000, or 6.6%, during the three months ended December 31, 2024, a result of securities purchases of $310,999,000 offset by unrealized losses during the period of $24,547,000 and principal repayments and maturities of $114,882,000. During the same period, the balance of HTM securities increased by $100,376,000 primarily due to purchases of $114,182,000 offset by principal pay-downs and maturities of $13,786,000. As of December 31, 2024, the Company had a total net unrealized loss on AFS securities of $69,036,000, which is included on a net of tax basis in accumulated other comprehensive income (loss).

Previous wording

Loans receivable - Loans receivable, net of related contra accounts, increased by $3,397,369,000 to $20,873,919,000 at June 30, 2024, compared to $17,476,550,000 at September 30, 2023. The increase was primarily the addition of loans obtained in the Merger. Additionally, the balance reflects originations of $2,669,679,000, a decrease to loans-in-process of $800,984,000, and principal repayments of $3,172,373,000. Commercial loan originations accounted for 73% of total originations and consumer loan originations were 27% during the nine months ended June 30, 2024. The Company continues to focus on commercial lending and growing operations in all major markets in which we operate.

Current wording

Loans receivable - Loans receivable, net of related contra accounts, increased by $144,147,000 to $21,060,501,000 at December 31, 2024, compared to $20,916,354,000 at September 30, 2024. The increase was primarily the net result of originations of $930,789,000, a decrease to loans-in-process of $106,545,000, offset by loan principal repayments of $981,574,000. Commercial loan originations accounted for 68% of total originations and consumer loan originations were 32% during the period. The Company continues to focus on commercial lending, coupled with growing economies in all major markets in which we operate.

Previous wording

The following table shows the loan portfolio by category and the change.

Current wording

The following table shows the loan portfolio by category and the change in the quarter.

Previous wording

Non-performing assets - Non-performing assets increased $10,863,000 during the nine months ended June 30, 2024 to $68,787,000 from $57,924,000 at September 30, 2023. The change is primarily due to non-accrual loans acquired in the Merger. Given that the overall assets grew with the Merger, non-performing assets as a percentage of total assets was 0.24% at June 30, 2024 compared to 0.26% at September 30, 2023.

Current wording

Non-performing assets - Non-performing assets increased $1,695,000 during the three months ended December 31, 2024 to $79,113,000 from $77,418,000 at September 30, 2024. The change is primarily due to a $2,946,000 increase in non-accrual loans offset by a $1,251,000 decrease in real estate owned as a result of property sales. Non-performing assets as a percentage of total assets was 0.29% at December 31, 2024 compared to 0.28% at September 30, 2024.

Previous wording

For the nine months ended June 30, 2024, the Company recognized $706,000 in interest income as a result of cash payments received from borrowers on non-accrual loans. Recognized interest income on loans for the nine months ended June 30, 2024 was lower than what otherwise would have been recognized in the period due to non-accrual loans. The Company would have recognized interest income of $2,121,000 for the same period had these loans performed according to their original contract terms. In addition to the non-accrual loans reflected in the above table, the Company had $359,572,000 of loans that were less than 90 days delinquent at June 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 NPAs as a percent of total assets would have increased to 1.50% at June 30, 2024.

Current wording

Company would have recognized interest income of $924,000 for the same period had non-accrual loans performed according to their original contract terms. In addition to the non-accrual loans reflected in the above table, the Company had $381,010,000 of loans that were less than 90 days delinquent at December 31, 2024 but were classified as substandard for one or more reasons. If these loans were deemed non-performing, the Company's ratio of total NPAs as a percent of total assets would have increased to 1.66% at December 31, 2024.

Previous wording

Management believes the allowance for credit losses of $225,324,000, or 1.00% of gross loans, is sufficient to absorb estimated losses inherent in the portfolio of loans and unfunded commitments. See Note E and Note I for further details of the allowance for loan losses and reserve for unfunded commitments as of and for the period ended June 30, 2024 and September 30, 2023.

Current wording

Management believes the allowance for credit losses of $225,022,000, or 1.00% of gross loans, is sufficient to absorb estimated losses inherent in the portfolio of loans and unfunded commitments. See Note E and Note I for further details of the allowance for loan losses and reserve for unfunded commitments as of and for the period ended December 31, 2024 and September 30, 2024.

Previous wording

Shareholders' equity - The Company’s shareholders' equity at June 30, 2024 was $2,958,339,000, or 10.35% of total assets. This is an increase of $531,913,000 from September 30, 2023 when shareholders' equity was $2,426,426,000, or 10.80% of total assets. The Company’s shareholders' equity was impacted in the nine months ended June 30, 2024 by the stock consideration paid in the Merger of $465,504,000, net income of $138,901,000, the payment of $53,404,000 in common stock dividends, payment of $10,969,000 in preferred stock dividends, treasury stock purchases of $26,819,000, as well as changes in other comprehensive income of $7,995,000.

Current wording

Shareholders' equity - The Company’s shareholders' equity at December 31, 2024 was $3,021,636,000, or 10.91% of total assets. This is an increase of $21,336,000 from September 30, 2024 when shareholders' equity was $3,000,300,000, or 10.69% of total assets. The Company’s shareholders' equity was impacted in the three months ended December 31, 2024 by net income of $47,267,000, the payment of $20,923,000 in common stock dividends, payment of $3,656,000 in preferred stock dividends, treasury stock purchases of $3,410,000, as well as changes in other comprehensive income of $2,498,000.

Previous wording

Net Income - The Company recorded net income of $64,560,000 for the three months ended June 30, 2024 compared to $61,775,000 for the prior year quarter, an increase of 4.51%. The Company recorded net income of $138,901,000 for the nine months ended June 30, 2024 compared to $207,218,000 for the prior year same period. The changes are due to the factors described below.

Current wording

Net Income - The Company recorded net income of $47,267,000 for the three months ended December 31, 2024 compared to $58,453,000 for the prior year quarter. The changes are due to the factors described below.

Previous wording

Net Interest Income - For the three months ended June 30, 2024, net interest income was $177,186,000, which is an increase of $8,486,000, or 5.03%, compared with the same quarter of the prior year. Net interest margin was 2.56% for the quarter ended June 30, 2024 compared to 3.27% for the quarter ended June 30, 2023. The decrease in net interest income is largely due to rising deposit costs. The average rate earned on interest-earning assets grew by 37 basis points to 5.66% while the average rate paid on interest-bearing liabilities increased by 112 basis points to 3.63%. Additionally, as a result of the Merger, average interest-earning assets increased by $7,184,650,000 from the same quarter last year while average interest-bearing liabilities increased by $7,190,355,000. For the nine months ended June 30, 2024, net interest income was $488,020,000, which is a decline of $38,517,000 from the same period of the prior year. Net interest margin was 2.72% for the nine months ended June 30, 2024 compared to 3.49% for the prior year same period.

Current wording

Net Interest Income - For the three months ended December 31, 2024, net interest income was $155,431,000, which is $3,194,000 lower than the same quarter of the prior year. Net interest margin was 2.39% for the quarter ended December 31, 2024 compared to 2.91% for the quarter ended December 31, 2023. The decrease in net interest income compared to the December 31, 2023 quarter is largely due to greater growth in interest-bearing liabilities than in interest-earning assets. As a result of the Merger, average interest-earning assets increased by 23.75% from the same quarter last year while average interest-bearing liabilities increased by 27.56%. Additionally, average rate earned on interest-earning assets decreased by 16 basis points to 5.31% while the average rate paid on interest-bearing liabilities increased by 32 basis points to 3.48%.

Previous wording

Non-interest Income - The three months ended June 30, 2024 results include total non-interest income of $17,255,000 compared to $13,771,000 for the same period one year ago, a $3,484,000 increase. The nine months ended June 30, 2024 results include total non-interest income of $44,814,000 compared to $37,867,000 for the same period one year ago, a $6,947,000 increase. These increases are primarily due to increased gains on certain equity method investments, increases in WAFD Insurance Group commissions and overall fee increases as a result of the Merger.

Current wording

Non-Interest Income - The three months ended December 31, 2024 results include total non-interest income of $15,702,000 compared to $14,167,000 for the same period one year ago, a $1,535,000 increase. The increase is primarily due to income growth of WaFd Insurance, the Company's insurance subsidiary as well as increases in overall fee income as a result of the Merger.

Previous wording

Gain (Loss) on Real Estate Owned - Results for the three months ended June 30, 2024 include a net loss on REO of $124,000, compared to a net gain of $722,000 for the prior year quarter. The loss during the three months ended June 30, 2024 was due to normal REO-related expenses. Results for the nine months ended June 30, 2024 include a net gain on REO of $387,000, compared to a net gain of $411,000 for the prior year same period.

Current wording

Gain (Loss) on Real Estate Owned - Results for the three months ended December 31, 2024 include a net gain on REO of $429,000, compared to a net gain of $1,826,000 for the prior year quarter. The gains during both periods were due to property sales.

Previous wording

Income Tax Expense - Income tax expense totaled $18,178,000 for the three months ended June 30, 2024, compared to $17,719,000 for the prior year quarter. The effective tax rate was 21.97% and 22.29% for the three months ended June 30, 2024 and June 30, 2023, respectively. Income tax expense totaled $36,489,000 for the nine months ended June 30, 2024, compared to $58,739,000 for the prior year same period. The effective tax rate was 20.80% and 22.09% for the nine months ended June 30, 2024 and June 30, 2023, respectively. The Company’s effective tax rate varies from the Federal statutory rate of 21% mainly due to state taxes, tax-exempt income, tax-credit investments, miscellaneous non-deductible expenses and true-up adjustments for prior periods.

Current wording

Income Tax Expense - Income tax expense totaled $12,984,000 for the three months ended December 31, 2024, compared to $13,237,000 for the prior year quarter. The effective tax rate was 21.55% and 18.46% for the three months ended December 31, 2024 and December 31, 2023, respectively. The Company’s effective tax rate varies from the statutory rate mainly due to state taxes, tax-exempt income, tax-credit investments miscellaneous non-deductible expenses and discrete tax adjustments for prior periods.