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 2025 and 2024 items and year-to-year comparisons
between 2025 and 2024. For management's review of the factors that affected our results of operations for the years ended
September 30, 2024 and 2023, refer to our Annual Report on Form 10-K for the year ended September 30, 2024, which was
filed with the SEC on November 20, 2024.
42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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.
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 2025, 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.
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 judgment. 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.
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, andE to the Consolidated Financial Statements in
“Item 8. Financial Statements and Supplementary Data.”
43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ALLOWANCE FOR CREDIT LOSSES
The following table provides detail regarding the Company's allowance for credit losses.
(In thousands)
Charge-offs:
Commercial loans
Multi-Family 555 — — — —
Construction — — — — —
Land – Acquisition & Development — 149 — 11 2
Consumer loans
Construction – Custom — — — — —
Land – Consumer Lot Loans — — — 27 —
HELOC — — — — —
Recoveries:
Commercial loans
Multi-Family — — — — —
Construction — — — 2,179 —
Consumer loans
Construction – Custom 4 1 — — —
ASC 326 Adoption Impact — — — — —
(1) This does not include a reserve for unfunded commitments of $21,500,000, $21,500,000, $24,500,000, $32,500,000 and
$27,500,000 as of September 30, 2025, 2024, 2023, 2022 and 2021 respectively.
44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table shows changes in the Company's allowance for credit losses since the prior year.
(In thousands)
Allowance for credit losses:
Commercial loans
Consumer loans
Reserve for unfunded commitments 21,500 21,500 — —%
The allowance for loan losses decreased by $4,033,000, or 1.98%, from $203,753,000 as of September 30, 2024, to
$199,720,000 at September 30, 2025. As of September 30, 2025, the allowance of $199,720,000 is for loans that are evaluated
on a pooled basis, which was comprised of $131,652,000 related to the quantitative component and $68,068,000 related to
management's qualitative overlays. The fluctuations that resulted in the overall decrease from the prior year can be seen in the
table above. The allowance for both commercial construction loans and land A&D loans decreased as projects were completed
and paid off or transitioned to CRE. Single-family, residential construction and lot loans decreased as a result of run-off after
the Bank's exit of the residential mortgage market..
The Company recorded a provision for credit losses of $7,750,000 in 2025, compared to a provision of $17,500,000 for 2024.
These amounts are net of provision and recapture related to the unfunded commitments reserve. In 2025, provisioning reflected
increasing trends in charge-offs and negative migration of delinquent and nonperforming loans combined with economic
concerns. 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, 2025, net charge-offs were
$11,783,000, compared to charge-offs of $1,356,000 in the prior year. The ratio of the total ACL to total gross loans increased
to 1.04% as of September 30, 2025, as compared to 1.01% as of September 30, 2024. A shift toward commercial loan
originations led to a modified mix of loan types combined with increased qualitative reserve adjustments resulted in this
increase.
The reserve for unfunded loan commitments was $21,500,000 as of September 30, 2025, unchanged compared to $21,500,000
as of September 30, 2024.
Management believes the total ACL is sufficient to absorb estimated losses inherent in the portfolio of loans and unfunded
commitments.
45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth the amount of the Bank’s allowance for loan losses by loan portfolio and class.
($ in thousands)
Commercial loans
Consumer loans
___________________
(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 and 2021 include PPP loans for which no allowance was recorded. These PPP loan balances were $1,000,000, $10,000,000 and $312,000,000 as of
September 30, 2023, 2022 and 2021 respectively.
(3)This does not include a reserve for unfunded commitments of $21,500,000, $21,500,000, $24,500,000, $32,500,000 and $27,500,000 as of September 30, 2025, 2024, 2023,
2022 and 2021, respectively.
46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
47
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth information regarding the Bank's non-performing assets.
(In thousands)
Commercial loans
Land – acquisition & development — 74 — — 2,340
Consumer loans
(1) For the year ended September 30, 2025, the Bank recognized $3,304,802 in interest income on cash payments received from borrowers
on non-accrual loans. The Bank would have recognized interest income of $4,591,000 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 $505,815,000 of loans that were less than 90 days delinquent at September 30, 2025 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 2.43% at September 30, 2025. 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 84.7% to $143,022,000, or 0.54% of total assets, at September 30, 2025, compared to
$77,418,000, or 0.28% of total assets, at September 30, 2024 as a result of an increase of $59,087,000 in non-accrual loans
combined with a $6,517,000 increase in real estate owned. The increase in non-accrual loans is primarily the result of one
commercial real estate loan over 90 days past due. Although appropriately non-accrual based on policy, there was no charge-off
taken upon revaluation. Management is actively collaborating with the borrower. Other property owned of $3,310,000 as of
September 30, 2025 is comprised entirely of a government guarantee related to equipment obtained via a commercial loan
foreclosure.
As of September 30, 2025, real estate owned totaled $11,084,000, an increase of $6,517,000, or 142.7%, from $4,567,000 as of
September 30, 2024. During 2025, the Bank sold real estate owned properties for total net proceeds of $2,865,000. 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 155% as of September 30, 2025, from 293% as of
September 30, 2024.
48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CHANGES IN FINANCIAL CONDITION
Cash and cash equivalents: Cash and cash equivalents decreased to $657,310,000 at September 30, 2025, as compared to
$2,381,102,000 at September 30, 2024. The prior year end balances reflected cash received from the Luther Burbank multi-
family and single-family residential loan portfolio sales. The decrease in the current year reflects cash used to reduce
borrowings and purchase investment securities during the year.
Available-for-sale (AFS) investment securities: Available-for-sale securities increased $960,492,000, or 37.3%, during the year
ended September 30, 2025, to $3,533,201,000, as a result of securities purchases of $1,482,058,000 combined with unrealized
losses of $9,237,000 and a reclassification of gain into earnings from AFS securities hedging derivatives of $15,452,000
partially offset by principal repayments and maturities of $561,808,000 and sales of $797,000. The net unrealized loss the year
ended September 30, 2025 is recorded net of tax within AOCI, and is decreased compared to unrealized losses of $44,168,000
as of September 30, 2024.
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, 2025, 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 (HTM) investment securities: Held-to-maturity securities increased by $208,830,000 to $645,802,000, or
47.8%, during the year ended September 30, 2025, largely due to the purchase of $261,842,000 of HTM securities. These
purchases were offset by principal repayments and maturities of $53,030,000 during the period. There were no held-to-maturity
securities sold during the year ended September 30, 2025. As of September 30, 2025, the net unrealized loss on held-to-
maturity securities was $33,063,000, compared to $35,926,000 the year prior.
Substantially all of the Company’s HTM debt securities are issued by U.S. government agencies or U.S. government-sponsored
enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero
credit loss, thus the Company did not record an allowance for credit losses for HTM securities as ofSeptember 30, 2025. The
impact going forward will depend on the composition, characteristics, and credit quality of the securities portfolios as well as
the economic conditions at future reporting periods.
The table below shows the available-for-sale and held-for-investment securities portfolios categorized by contractual maturity
band.
September 30, 2025 AmortizedCost Weighted Average Yield
($ in thousands)
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, decreased $827,736,000, or 4.0%, to $20,088,618,000 at
September 30, 2025, from $20,916,354,000 one year earlier. The balance change reflects originations of $3,956,199,000, a
decrease to loans-in-process of $236,192,000 and principal repayments of $5,145,176,000 during the year ended September 30,
2025. Commercial loan originations accounted for 83.1% of total originations and consumer originations were 16.9% as the
Bank exited the residential mortgage market mid-year. Management continues to focus on commercial lending, coupled with
growing economies in all major markets in which we operate.
The following table presents loan balances by category and the year-over-year change.
49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
($ in thousands) ($ in thousands) $ %
Gross loans by category
Commercial loans
Consumer loans
Less:
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, 2025 Total Less than1 Year 1 to 5Years 5 to 15Years After 15Years
(In thousands)
Commercial loans
Consumer loans
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.
50
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following tables provide information regarding loans receivable by loan class and geography.
(In thousands)
Percentage by geographic area
As % of total gross loans
Percentage by geographic area as a % of each loan type
As % of total gross loans
51
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table shows the change in the geographic distribution by state of the loan portfolio since the prior year.
(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 $98,589,000 as of September 30, 2025, a decrease of $4,238,000, or 4.1%, since
September 30, 2024. The decrease was the result of a 4.0% decrease in loans receivable combined with the decrease in interest
rates.
Bank Owned Life Insurance: Bank-owned life insurance increased to $275,159,000 as of September 30, 2025 from
$267,633,000 as of September 30, 2024, primarily as a result of increases in the cash surrender value of the policies. The
investments in bank-owned life insurance serve to assist in funding growing employee benefit costs.
Intangible assets: The Bank's intangible assets totaled $442,093,000 at September 30, 2025 compared to $448,425,000 as of
September 30, 2024. The decrease is largely the result of the amortization of the core deposit intangible balance created in the
Merger. The balance at September 30, 2025 is comprised of $414,722,000 of goodwill and the unamortized balance of the core
deposit and other intangibles of $27,371,000.
Customer accounts: As of September 30, 2025, customer deposits totaled $21,437,636,000 compared with $21,373,970,000 at
September 30, 2024, a $63,666,000, or 0.3%, increase driven by transaction accounts. During 2025, transaction accounts
increased by $489,347,000 or 4.1% while time deposits decreased by $425,681,000 or 4.5%.
The following table shows customer deposits by account type.
52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table shows the geographic distribution by state for customer deposits.
($ in thousands) September 30, 2025 September 30, 2024 $ Change % Change
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
(In thousands)
Fixed-rate time deposits:
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.
At September 30, 2025, the Bank had $3,895,726,000 of time deposits in amounts of $250,000 or more outstanding, maturing
as follows: $1,355,645,000 within 3 months; $1,116,894,000 over 3 months through 6 months; $1,207,030,000 over 6 months
through 12 months; and $216,157,000 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 2025, 2024 and
2023 amounted to $1,230,000, $1,082,000 and $1,618,000, 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 $1,765,604,000 as of September 30, 2025, as compared to $3,267,589,000 at
September 30, 2024. The weighted average rate for borrowings was 2.50% as of September 30, 2025, versus 3.93% at
September 30, 2024. The decreases in balance and rate are primarily due to the pay-down of higher interest borrowings
combined with decreasing interest rates. 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, 2025 was 2.19 years.
53
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF 2025 RESULTS WITH 2024
Net Income: Net income increased $26,027,000, or 13.0%, to $226,068,000 for the year ended September 30, 2025, as
compared to $200,041,000 for the year ended September 30, 2024. The change was due to the factors described below.
Net Interest Income: For the year ended September 30, 2025, net interest income was $654,235,000, a decrease of $6,597,000
or 1.0% from the year ended September 30, 2024. Net interest margin was 2.58% for the year ended September 30, 2025
compared to 2.69% in the prior year. The decrease was the result of the greater decrease in the rate earned on assets compared
with the rate paid on liabilities. Rates on interest-bearing liabilities decreased by 22 basis points compared to the 30 basis points
decrease in the average rate on interest-earning assets. This effect was partially offset by the greater increase in interest-earning
assets compared to interest bearing liabilities. Average interest-bearing liabilities grew by 2.9% while average interest-earning
assets grew by 3.2%.
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.
Twelve Months Ended September 30,
Volume Rate Total Volume Rate Total Volume Rate Total
(In thousands) (In thousands) (In thousands)
Interest income:
Interest expense:
(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 $7,750,000 in 2025, compared to a
provision of $17,500,000 for 2024. 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. In 2025, the provisioning reflected a shift toward higher
reserved commercial originations combined with increasing trends in charge-offs and negative migration of delinquent and
nonperforming loans combined with economic concerns. For the year ended September 30, 2025, net charge-offs were
$11,783,000, compared to $1,356,000 in the prior year.
Non-interest Income: Non-interest income was $71,247,000 for the year ended September 30, 2025, an increase of
$10,555,000, or 17.4%, from $60,692,000 for the year ended September 30, 2024. This increase was the result of increased
54
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
prepayment fees earned on loans plus increased commission income from WaFd Insurance, the Company's insurance
subsidiary.
Non-interest Expense: Total non-interest expense was $427,463,000 for the year ended September 30, 2025, a decrease of
$20,809,000, or 4.6%, from the $448,272,000 for the year ended September 30, 2024. The 2024 results included $25,000,000 in
Merger-related costs. Compensation and benefits costs decreased $12,002,000 or 5.1% year-over-year as a result of Merger-
related retention, severance and change-in-control expenses booked in 2024 and $5,400,000 in restructuring costs arising from
the shift in strategy and exit from single family lending. Other non-interest expense also decreased as a result of Merger-related
professional and legal fees recorded in 2024. Additionally, FDIC premiums decreased $8,670,000 in 2025 compared to the
prior year resulting from several factors. The previous year's figures had included a special assessment and the decrease was
further influenced by both the contraction of the balance sheet and a lower assessment rate in 2025. Offsetting these decreases,
information technology costs increased by $6,795,000 in 2025 as compared to 2024 due to strategic investments in technology.
The Company’s efficiency ratio was 58.9% for 2025 as compared to 62.1% for the prior year. The number of staff, including
part-time employees on a full-time equivalent basis, was 1,979 and 2,208 at September 30, 2025 and 2024, respectively. Total
operating expense for the years ended September 30, 2025 and 2024 were 1.58% and 1.71%, respectively, of average assets.
Loss on Real Estate Owned: Loss on real estate owned, net was $627,000 for the year ended September 30, 2025, compared to
a net gain of $304,000 for the year ended September 30, 2024. This amount includes ongoing maintenance expense, periodic
valuation adjustments, and gains and losses on sales of REO.
Income Tax Expense: Income tax expense was $63,574,000 for the year ended September 30, 2025, an increase of $7,559,000,
or 13.5%, from the $56,015,000 for the year ended September 30, 2024. The increase is primarily due to a 13.1% increase in
pre-tax income. The effective tax rate for 2025 was 21.95% as compared to 21.88% for the year ended September 30, 2024. 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.
On July 4, 2025, the One Big Beautiful Bill Act, officially designated as H.R. 1, was enacted into law. This legislation includes
significant changes to federal tax law and other regulatory provisions that may impact the Company. Key provisions include the
permanent extension of several business tax benefits originally introduced under the 2017 Tax Cuts and Jobs Act. The
Company is currently evaluating the provisions of the new law and the potential effects on its financial position, results of
operations and cash flows. We believe the provisions of the new tax law will have no significant direct impact on our financial
position and results of operation.
COMPARISON OF 2024 RESULTS WITH 2023
For management's review of the factors that affected our results of operations for the years ended September 30, 2024 and 2023
refer to our Annual Report on Form 10-K for the year ended September 30, 2024, which was filed with the SEC on November
20, 2024.
55
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
The Company's shareholders' equity at September 30, 2025, was $3,039,575,000, or 11.38% of total assets, as compared to
$3,000,300,000, or 10.69% of total assets, at September 30, 2024. Items affecting shareholders' equity were net income of
$226,068,000, the payment of $84,639,000 in Common Stock dividends, the payment of $14,625,000 in preferred stock
dividends, $101,931,000 of treasury stock purchases, as well as other comprehensive income of $1,099,000. The Company paid
out 40.7% of its 2025 earnings in cash dividends to common shareholders, compared with 41.2% last year. For the year ended
September 30, 2025, the Company returned 82.5% of net income to shareholders in the form of cash dividends and share
repurchases as compared to 50.7% for the year ended September 30, 2024. 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. 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
pledge of mortgage backed securities. Based on collateral pledged as of September 30, 2025, the Bank had $6,647,214,000 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 Company's cash and cash equivalents were $657,310,000 at September 30, 2025, which is a 72.4% decrease from the
balance of $2,381,102,000 as of September 30, 2024. The prior year end balances reflected cash received from the Luther
Burbank multi-family and single-family residential loan portfolio sales. During the year, the Company utilized cash to reduce
borrowings and purchase investments. 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, 2025 Total Less than1 Year 1 to 5Years Over 5Years
(In thousands)
(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, 2025 is 2.19 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.
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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 44.6% variable rate and 55.5% fixed rate as
of September 30, 2025 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 57.4% of the deposit portfolio as of September 30, 2025 as compared with 55.3% 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 $657,310,000 and shareholders' equity of $3,039,575,000 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. The Company estimates 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.
The following table models the potential impact of changing interest rates on net income over a twelve-month period and
compares the current results to the results as of the prior year end. 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.
The Company's focus is primarily on the impact of abrupt upward or downward changes in short term rates.
57
(In thousands, except percentages)
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.
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. The following tables set forth an analysis of the Company's interest rate risk as measured by the estimate changes in
NPV resulting from instantaneous and sustained parallel shifts in the yield curve.
Hypothetical, Immediate and Parallel Potential Increase (Decrease) in NPV as of
(In thousands, except percentages)
Hypothetical, Immediate and Parallel September 30, 2025
(In thousands)
Prepayment speeds continue to be relatively low at September 30, 2025 with the Bank's conditional payment rate ("CPR") for
single-family mortgages at 7.5%, down slightly from 8.6% the year before.
As of September 30, 2025, the Company was in compliance with all of its interest rate risk policy limits.
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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 2.32% at September 30, 2025 and 1.91% at
September 30, 2024. As of September 30, 2025, the weighted-average rate on interest-earning assets decreased by 12 basis
points to 5.23% compared to September 30, 2024. The lower rate on interest-earning assets is due primarily to the Federal
Reserve Bank's rate decreases since September 2024, which have led to lower rates on adjustable rate loans, investment
securities and cash. As of September 30, 2025, the weighted-average rate on interest-bearing liabilities decreased by 29 basis
points to 2.91% compared to September 30, 2024. The lower rate on interest-bearing liabilities also primarily resulted from the
FRB rate cuts combined with repayments on higher rate borrowings. The period end interest rate spread for the last five fiscal
quarters is shown below:
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 growth is accomplished by actively managing the size and composition of the balance sheet through
different rate cycles.
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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 2.58% for the year ended September 30, 2025, from 2.69% for the year
ended September 30, 2024. The yield on interest-earning assets decreased 30 basis points to 5.29% and the cost of interest-
bearing liabilities decreased by 22 basis points to 3.24%. The lower yield on interest-earning assets was primarily due to the
impact of falling rates on adjustable rate assets and cash. The lower rate in interest-bearing liabilities was primarily due to lower
rates on interest-bearing customer accounts and combined with the pay-off of higher borrowings.
For the year ended September 30, 2025, average interest-earning assets increased by 3.2% to $25,337,814,000, up from
$24,559,665,000 for the year ended September 30, 2024. During 2025, average loans receivable increased $151,026,000, or
0.7%, while the combined average balances of mortgage-backed securities, other investment securities and cash increased by
$652,098,000 or 16.6%.
During 2025, average interest-bearing customer deposit accounts increased $2,408,182,000 or 14.7% and the average balance
of borrowings decreased by $1,819,187,000, or 42.9%, from 2024.
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The following table sets forth the information explaining the changes in the net interest income and net interest margin.
Net Interest Income and Margin Summary
Year Ended September 30,
($ in thousands)
Assets
Liabilities and Shareholders’ Equity
___________________
(1)Interest income includes net amortization-accretion of deferred loan fees, costs, discounts and premiums of $12,870,000, $37,489,000 and $20,130,000 for year
ended 2025, 2024 and 2023, 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.
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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) 61
Financial statements and supplementary data:
Consolidated Statements of Financial Condition 64
Consolidated Statements of Operations 65
Consolidated Statements of Comprehensive Income 66
Consolidated Statements of Shareholders' Equity 67
Consolidated Statements of Cash Flows 68
Notes to Consolidated Financial Statements 70
62
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, 2025 and 2024, 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, 2025, 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, 2025, and 2024, and the results of its operations and its
cash flows for each of the three years in the period ended September 30, 2025, 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, 2025, 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 18, 2025, 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
63
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