WAFD INC

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 customer deposit accounts is 60% variable and 40% fixed as of March 31, 2026 while the composition of the investment securities portfolio is 45% variable and 55% fixed rate. The Company was a party to $610,000,000 of pay fixed interest rate swaps to hedge the fair value risk of the AFS portfolio which effectively converts 12% of fixed securities to variable as of March 31, 2026. 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 $745,727,000 of mortgage-backed securities that it has designated as HTM and are carried at amortized cost. As of March 31, 2026, the net unrealized loss on these securities was $33,610,000. The Company has $4,352,258,000 of AFS securities that are carried at fair value. As of March 31, 2026, the net unrealized loss on these securities was $16,815,000. The Company recognized in earnings a loss of $6,989,000 on fair value of AFS securities hedged by the fixed interest rate swaps for the six months ended March 31, 2026. The Company has also executed interest rate swaps to hedge interest rate risk on certain FHLB borrowings. The unrealized gain on these interest rate swaps as of March 31, 2026 was $97,378,000. 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 customer deposit accounts is 61% variable and 39% fixed as of June 30, 2026 while the composition of the investment securities portfolio is 35% variable and 65% fixed rate. As of June 30, 2026 the Company was a party to $610,000,000 of pay fixed interest rate swaps to hedge the fair value risk of the AFS portfolio which effectively converts 12% of fixed securities to variable. 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 $858,261,000 of mortgage-backed securities that it has designated as HTM and are carried at amortized cost. As of June 30, 2026, the net unrealized loss on these securities was $36,745,000. The Company has $4,190,263,000 of AFS securities that are carried at fair value. As of June 30, 2026, the net unrealized loss on these securities was $39,483,000. The Company recognized in earnings a loss of $13,430,000 on the fair value of AFS securities hedged by the fixed interest rate swaps for the nine months ended June 30, 2026. The Company has also 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, 2026 was $104,446,000. All of the above are pre-tax net unrealized gains or losses.

Previous wording

NPV Sensitivity - 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 table sets 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) and compares the current model results to the prior quarter results.

Current wording

NPV Sensitivity - 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 table sets 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) and compares the current model results to the September 30, 2025 results.

Previous wording

Prepayment speeds continue to be relatively low at March 31, 2026 with the Bank's conditional payment rate ("CPR") for single-family mortgages at 8.10%, the same as the year before.

Current wording

Prepayment speeds continue to be relatively low at June 30, 2026 with the Bank's conditional payment rate ("CPR") for single-family mortgages at 9.50%, compared to 9.0% for the same quarter 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 2.81% for the quarter ended March 31, 2026 compared to 2.55% for the quarter ended March 31, 2025. The yield on interest-earning assets decreased 19 basis points to 5.14% and the cost of interest-bearing liabilities decreased 50 basis points to 2.79% over that same period. The lower yield on interest-earning assets was primarily due to falling interest rates affecting adjustable rate loans, non-accrual interest adjustments, lower net cash settlements on our loan and securities fair value hedge programs and interest-bearing cash deposits.

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 2.81% for the quarter ended June 30, 2026 compared to 2.69% for the quarter ended June 30, 2025. The yield on interest-earning assets decreased 15 basis points to 5.15% and the cost of interest-bearing liabilities decreased 34 basis points to 2.78% over that same period. The lower yield on interest-earning assets was primarily due to falling interest rates affecting adjustable rate loans, lower net cash settlements on our loan and securities fair value hedge programs and interest-bearing cash deposits.

Previous wording

As of March 31, 2026, total assets had increased by $869,086,000 to $27,568,785,000 from $26,699,699,000 at September 30, 2025 primarily due to the purchase of investments during the period. During the six months ended March 31, 2026, loans receivable decreased $121,635,000, investment and mortgage-backed securities increased by $918,982,000, and FHLB stock increased by $58,283,000 while cash and cash equivalents increased by $12,489,000, in each case as compared to September 30, 2025.

Current wording

As of June 30, 2026, total assets had increased by $897,271,000 to $27,596,970,000 from $26,699,699,000 at September 30, 2025 primarily due to the purchase of investments during the period. During the nine months ended June 30, 2026, loans receivable decreased $70,742,000, investment and mortgage-backed securities increased by $869,521,000, FHLB stock increased by $67,324,000 and cash and cash equivalents increased by $19,157,000, in each case as compared to September 30, 2025.

Previous wording

Management believes the Company's cash and cash equivalents of $669,799,000 and shareholders’ equity of $2,981,283,000 as of March 31, 2026 will provide flexibility in managing the Company's interest rate risk going forward.

Current wording

Management believes the Company's cash and cash equivalents of $676,467,000 and shareholders’ equity of $3,022,569,000 as of June 30, 2026 will provide flexibility in managing the Company's interest rate risk going forward.

Previous wording

Customer account balances have decreased by $313,485,000, or 1.5%, to $21,124,151,000 at March 31, 2026 compared with $21,437,636,000 at September 30, 2025. Total borrowings were $3,062,441,000 as of March 31, 2026, an increase from $1,765,604,000 at September 30, 2025, which were used for securities purchases during the fiscal year to date.

Current wording

Customer account balances decreased by $505,561,000, or 2.4%, to $20,932,075,000 at June 30, 2026 compared with $21,437,636,000 at September 30, 2025. Total borrowings were $3,263,359,000 as of June 30, 2026, an increase from $1,765,604,000 at September 30, 2025, which were used for securities purchases during the fiscal year to date.

Previous wording

The Company's cash and cash equivalents totaled $669,799,000 at March 31, 2026, an increase from $657,310,000 at September 30, 2025. This increase is the result of normal transactions and activities.

Current wording

The Company's cash and cash equivalents totaled $676,467,000 at June 30, 2026, an increase from $657,310,000 at September 30, 2025. This increase is the result of normal transactions and activities.

Previous wording

The Company’s shareholders' equity at March 31, 2026 was $2,981,283,000, or 10.81% of total assets. This is a decrease of $58,292,000 from September 30, 2025 when shareholders' equity was $3,039,575,000, or 11.38% of total assets. The Company’s shareholders' equity was impacted in the six months ended March 31, 2026 by net income of $129,744,000, the payment of $40,519,000 in common stock dividends, the payment of $7,313,000 in preferred stock dividends, treasury stock purchases of $145,224,000, as well as a decrease in other comprehensive income of $1,865,000. The tier 1 leverage ratio at March 31, 2026 was 9.10%. 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 June 30, 2026 was $3,022,569,000, or 10.95% of total assets. This is a decrease of $17,006,000 from September 30, 2025 when shareholders' equity was $3,039,575,000, or 11.38% of total assets. The Company’s shareholders' equity was impacted in the nine months ended June 30, 2026 by net income of $195,874,000, the payment of $60,181,000 in common stock dividends, the payment of $10,968,000 in preferred stock dividends, treasury stock purchases of $145,543,000, as well as a decrease in other comprehensive income of $8,863,000. The Company's tier 1 leverage ratio at June 30, 2026 was 9.19%. 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

Cash and cash equivalents - Cash and cash equivalents were $669,799,000 at March 31, 2026, an increase of $12,489,000, or 1.9%, since September 30, 2025. This increase was the result of normal transactions and activities.

Current wording

Cash and cash equivalents - Cash and cash equivalents were $676,467,000 at June 30, 2026, an increase of $19,157,000, or 2.9%, since September 30, 2025. This increase was the result of normal transactions and activities.

Previous wording

Available-for-sale and held-to-maturity investment securities - AFS securities increased $819,057,000, or 23.2%, during the six months ended March 31, 2026, a result of securities purchases of $1,067,724,000 offset by unrealized losses during the period of $7,559,000, a reclassification of loss into earnings from AFS securities hedging derivatives of $6,989,000 and principal repayments and maturities of $247,515,000. During the same period, the balance of HTM securities increased by $99,925,000 due to purchases of $141,063,000, offset by principal pay-downs and maturities of $41,409,000. As of March 31, 2026, the Company had a total net unrealized loss on AFS securities of $16,815,000, 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 $657,062,000, or 18.6%, during the nine months ended June 30, 2026, a result of securities purchases of $1,161,720,000 offset by unrealized losses during the period of $30,226,000, a reclassification of loss into earnings from AFS securities hedging derivatives of $13,430,000 and principal repayments and maturities of $408,047,000. During the same period, the balance of HTM securities increased by $212,459,000 due to purchases of $278,367,000, offset by principal pay-downs and maturities of $66,361,000. As of June 30, 2026, the Company had a total net unrealized loss on AFS securities of $39,483,000, 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, decreased by $121,635,000 to $19,966,983,000 at March 31, 2026, compared to $20,088,618,000 at September 30, 2025. The decrease was primarily loan principal repayments of $2,479,022,000 outpacing originations, net of loans-in-process, of $2,371,682. Commercial loan originations accounted for 95% of total originations and consumer loan originations were 5% for the quarter. The Company continues to focus on commercial lending, coupled with growing economies in all major markets in which we operate.

Current wording

Loans receivable - Loans receivable, net of related contra accounts, decreased by $70,742,000 to $20,017,876,000 at June 30, 2026, compared to $20,088,618,000 at September 30, 2025. The decrease was primarily loan principal repayments outpacing originations net of the growth in loans in process. Commercial loan originations accounted for 95% of total originations and consumer loan originations were 5% for the nine months ended June 30, 2026. The Company continues to focus on commercial lending, coupled with growing economies in all major markets in which we operate.

Previous wording

Non-performing assets - Non-performing assets decreased $11,038,000 during the six months ended March 31, 2026 to $131,984,000 from $143,022,000 at September 30, 2025. The change is due to a $4,769,000 decrease in non-accrual loans combined with a $2,959,000 decrease in real estate owned and a $3,310,000 decrease in other property owned. Non-performing assets as a percentage of total assets was 0.48% at March 31, 2026 compared to 0.54% at September 30, 2025.

Current wording

Non-performing assets - Non-performing assets decreased $7,274,000 during the nine months ended June 30, 2026 to $135,748,000 from $143,022,000 at September 30, 2025. The change is due to a $1,059,000 decrease in non-accrual loans combined with a $2,905,000 decrease in real estate owned and a $3,310,000 decrease in other property owned. Non-performing assets as a percentage of total assets was 0.49% at June 30, 2026 compared to 0.54% at September 30, 2025.

Previous wording

The Company would have recognized interest income of $3,916,000 for the six months ended March 31, 2026 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 $404,010,000 of loans that were less than 90 days delinquent at March 31, 2026 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 1.94% at March 31, 2026. For the six months ended March 31, 2026, the Company recognized $844,000 in interest income on cash payments received from borrowers on non-accrual loans.

Current wording

The Company would have recognized interest income of $5,681,000 for the nine months ended June 30, 2026 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 $398,190,000 of loans that were less than 90 days delinquent at June 30, 2026 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 1.93% at June 30, 2026. For the nine months ended June 30, 2026, the Company recognized $1,264,000 in interest income on cash payments received from borrowers on non-accrual loans.

Previous wording

Management believes the allowance for credit losses of $224,450,000, or 1.05% 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 periods ended March 31, 2026 and September 30, 2025.

Current wording

Management believes the allowance for credit losses of $233,831,000, or 1.08% 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 periods ended June 30, 2026 and September 30, 2025.

Previous wording

Real estate owned ("REO") - REO decreased during the six months ended March 31, 2026 by $2,959,000 to $8,125,000. The decrease was due to the sale of properties.

Current wording

Real estate owned ("REO") - REO decreased during the nine months ended June 30, 2026 by $2,905,000 to $8,179,000. The decrease was due to the sale of properties.

Previous wording

Intangible assets - Intangible assets increased to $445,511,000 as of March 31, 2026 from $442,093,000 as of September 30, 2025 as the result of small acquisitions made by the Company's insurance subsidiary. This was offset by normal amortization.

Current wording

Intangible assets - Intangible assets increased to $443,670,000 as of June 30, 2026 from $442,093,000 as of September 30, 2025 as the result of small acquisitions made by the Company's insurance subsidiary offset by normal amortization.

Previous wording

Customer accounts - Customer accounts decreased $313,485,000, or 1.5%, to $21,124,151,000 at March 31, 2026 compared with $21,437,636,000 at September 30, 2025. Transaction accounts increased by $440,389,000 or 3.6% during that period, while time deposits decreased $753,874,000, or 8.3%, consistent with our strategy to shift away from time deposits in favor of transaction accounts.

Current wording

Customer accounts - Customer accounts decreased $505,561,000, or 2.4%, to $20,932,075,000 at June 30, 2026 compared with $21,437,636,000 at September 30, 2025. Transaction accounts increased by $439,259,000 or 3.6% during that period, while time deposits decreased $944,820,000, or 10.3%, consistent with our strategy to shift away from time deposits in favor of transaction accounts.

Previous wording

Borrowings - Borrowings were $3,114,548,000 as of March 31, 2026, an increase from $1,817,249,000 as of September 30, 2025. The increase was utilized to support asset growth. The weighted average effective rate for borrowings was 3.01% as of March 31, 2026 and 2.50% at September 30, 2025.

Current wording

Borrowings - Borrowings were $3,315,697,000 as of June 30, 2026, an increase from $1,817,249,000 as of September 30, 2025. The increase was utilized to support asset growth. The weighted average effective rate for borrowings was 3.08% as of June 30, 2026 and 2.50% at September 30, 2025.

Previous wording

Shareholders' equity - The Company’s shareholders' equity at March 31, 2026 was $2,981,283,000, or 10.81% of total assets. This is a decrease of $58,292,000 from September 30, 2025 when shareholders' equity was $3,039,575,000, or 11.38% of total assets. The Company’s shareholders' equity was impacted in the six months ended March 31, 2026 by net income of $129,744,000, the payment of $40,519,000 in common stock dividends, payment of $7,313,000 in preferred stock dividends, treasury stock purchases of $145,224,000, as well as a decrease in other comprehensive income of $1,865,000.

Current wording

Shareholders' equity - The Company’s shareholders' equity at June 30, 2026 was $3,022,569,000, or 10.95% of total assets. This is a decrease of $17,006,000 from September 30, 2025 when shareholders' equity was $3,039,575,000, or 11.38% of total assets. The Company’s shareholders' equity was impacted in the nine months ended June 30, 2026 by net income of $195,874,000, the payment of $60,181,000 in common stock dividends, payment of $10,968,000 in preferred stock dividends, treasury stock purchases of $145,543,000, as well as a decrease in other comprehensive income of $8,863,000.

Previous wording

Net Income - The Company recorded net income of $65,548,000 for the three months ended March 31, 2026 compared to $56,252,000 for the prior year quarter. All driving factors are described below.

Current wording

Net Income - The Company recorded net income of $66,130,000 for the three months ended June 30, 2026 compared to $61,952,000 for the prior year quarter. All driving factors are described below.

Previous wording

Net Interest Income - For the three months ended March 31, 2026, net interest income was $177,570,000, which is an increase of $16,660,000 from the same quarter of the prior year. Net interest margin increased to 2.81% for the quarter ended March 31, 2026 compared to 2.55% for the quarter ended March 31, 2025. The increase in net interest income is largely due to decreased rates on interest-bearing liabilities partially offset by the decrease in rate earned on interest-earning assets. The rate paid on interest-bearing liabilities decreased by 50 basis points while the rate earned on interest-earning assets fell by 19 basis points.

Current wording

Net Interest Income - For the three months ended June 30, 2026, net interest income was $181,338,000, which is an increase of $13,350,000 from the same quarter of the prior year. Net interest margin increased to 2.81% for the quarter ended June 30, 2026 compared to 2.69% for the quarter ended June 30, 2025. The increase in net interest income is largely due to decreased rates on interest-bearing liabilities partially offset by the decrease in rate earned on interest-earning assets. The rate paid on interest-bearing liabilities decreased by 34 basis points while the rate earned on interest-earning assets fell by 15 basis points. For the nine months ended June 30, 2026, net interest income was $530,019,000, which is an increase of $45,690,000 from the same period of the prior year. Net interest margin was 2.77% for the nine months ended June 30, 2026 compared to 2.54% for the prior year same period.

Previous wording

Provision for Credit Losses - The Company recorded a $4,000,000 provision for credit losses for the three months ended March 31, 2026, compared with $2,750,000 provision for credit losses for the three months ended March 31, 2025. The provision recorded in the three months ended March 31, 2026 was the result of increased commercial originations during the quarter. This provision increased the reserve to 1.05% of gross loans compared with 1.01% at March 31, 2025.

Current wording

Provision for Credit Losses - The Company recorded an $11,000,000 provision for credit losses for the three months ended June 30, 2026, compared with a $2,000,000 provision for credit losses for the three months ended June 30, 2025. The provision recorded in the three months ended June 30, 2026 was the result of growth in the active loan portfolio, specifically C&I and Construction loans, in addition to concerns related to possible losses on adversely classified loans. This provision increased the reserve to 1.08% of gross loans compared with 1.03% at June 30, 2025. The Company recorded an $18,500,000 provision for credit losses for the nine months ended June 30, 2026 compared to $4,750,000 for the nine months ended June 30, 2025.

Previous wording

Non-Interest Income - The results for the three months ended March 31, 2026 included total non-interest income of $19,813,000 compared to $18,881,000 for the same period one year ago, a $932,000 increase. The increase was primarily due to increased fee income on loans and deposits.

Current wording

Non-Interest Income - The results for the three months ended June 30, 2026 included total non-interest income of $24,178,000 compared to $18,273,000 for the same period one year ago, a $5,905,000 increase. The increase was primarily due to approximately $3,200,000 of gain recognized on the sale of bank real estate combined with lower losses recognized on equity method investments and increased fee income recognized on loan and deposit accounts. The results for the nine months ended June 30, 2026 include total non-interest income of $64,246,000 compared to $52,856,000 for the nine months ended June 30, 2025, an $11,390,000 increase. This increase was also the result of gains recognized on sales of bank real estate combined with increased fee income on loans and deposits.

Previous wording

Non-Interest Expense - Non-interest expense was $109,857,000 for the three months ended March 31, 2026, an increase of $5,025,000 from $104,832,000 for the prior year quarter, largely a result of increased compensation and technology expenses, reflecting annual merit increases and continued investment in operational efficiency. Non-interest expense for the three months ended March 31, 2026 and March 31, 2025 equaled 1.61% and 1.53%, respectively, of average assets.

Current wording

Non-Interest Expense - Non-interest expense was $110,334,000 for the three months ended June 30, 2026, an increase of $6,007,000 from $104,327,000 for the prior year quarter, largely a result of increased compensation and technology expenses, reflecting annual merit increases and continued investment in operational efficiency. Non-interest expense for the three months ended June 30, 2026 and June 30, 2025 equaled 1.60% and 1.56%, respectively, of average assets. Non-interest expense was $325,912,000 for the nine months ended June 30, 2026, an increase of $5,442,000 from $320,470,000 for the same period in fiscal 2025. This increase was also the result of increased compensation and technology expenses. Total non-interest expense for the nine months ended June 30, 2026 and June 30, 2025 equaled 1.59% and 1.57%, respectively, of average assets.

Previous wording

Gain (Loss) on Real Estate Owned - Results for the three months ended March 31, 2026 include a net gain on REO of $280,000, compared to a net loss of $199,000 for the prior year quarter.

Current wording

Gain (Loss) on Real Estate Owned - Results for the three months ended June 30, 2026 include a net gain on REO of $167,000, compared to a net loss of $176,000 for the prior year quarter. Results for the nine months ended June 30, 2026 included a net gain on REO of $603,000, compared to a net gain of $54,000 in the prior year period.

Previous wording

Income Tax Expense - Income tax expense totaled $18,258,000 for the three months ended March 31, 2026, compared to $15,758,000 for the prior year quarter. The effective tax rate was 21.79% and 21.88% for the three months ended March 31, 2026 and March 31, 2025, 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.

Current wording

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. During the quarter ended June 30, 2026, the Company purchased $9,200,000 of Federal energy tax credits and have committed to a four year investment in similar tax credits which reduces our tax expense and effective tax rate.

Previous wording

We account for our portfolio of LIHTC investments under the proportional amortization method. The tax benefits from pass-through tax credits and losses from our LIHTC investments are included in our estimate of income tax liability for the year, and therefore reflected in the Income Tax Expense line of the statement of operations. We currently estimate that the total amount of tax benefits from our LIHTC investment portfolio that will be recognized during this fiscal year is about $20.0 million.

Current wording

We account for our portfolio of LIHTC investments under the proportional amortization method. The tax benefits from pass-through tax credits and losses from our LIHTC investments are included in our estimate of income tax liability for the year, and therefore reflected in the income tax expense line of the Consolidated Statement of Operations. We currently estimate that the total amount of tax benefits from our LIHTC investment portfolio that will be recognized during this fiscal year is about $20.0 million.