WAFD INC (WAFD)

LIQUIDITY AND CAPITAL RESOURCES

The principal sources of funds for the Company's activities are loan repayments (including prepayments), net deposit inflows, sales and repayments of investments and borrowings 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 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 Luther Burbank Corporation ("LBC") borrowings from the FHLB -

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SF as a result of the merger with LBC effective March 1, 2024, 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.

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.

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.

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.

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.

WaFd, Inc. and its banking subsidiary are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly discretionary actions by regulators that, if undertaken, could have a material adverse effect on the Company's financial statements.

Federal banking agencies establish regulatory capital rules that require minimum capital ratios and establish criteria for calculating regulatory capital. Minimum capital ratios for four measures are used for assessing capital adequacy. The standards are indicated in the table below. The common equity tier 1 capital ratio recognizes common equity as the highest form of capital. The denominator for all except the leverage ratio is risk weighted assets. The rules set forth a “capital conservation buffer” of up to 2.5%. In the event that a bank’s capital levels fall below the minimum ratios plus these buffers, the bank's regulators may place restrictions on it. These restrictions include reducing dividend payments, share buy-backs, and staff bonus payments. The purpose of these buffers is to require banks to build up capital outside of periods of stress that can be drawn down during periods of stress. As a result, even during periods where losses are incurred, the minimum capital ratios can still be met.

There are also standards for Adequate and Well Capitalized criteria that are used for “Prompt Corrective Action” purposes. To remain categorized as well capitalized, the Bank and the Company must maintain minimum common equity risk-based, tier 1 risk-based, total risk-based and tier 1 leverage ratios as set forth in the following table.

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As of June 30, 2026 and September 30, 2025, the Company and the Bank met all capital adequacy requirements to which they are subject, and the Bank's regulators categorized it as well capitalized under the regulatory framework for prompt corrective action.

CHANGES IN FINANCIAL CONDITION

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.

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).

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Substantially all of the Company’s HTM and AFS debt securities are issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit or implicit guarantee of the U.S. government and have a long history of zero credit loss. The Company did not record an allowance for credit losses for HTM securities as of June 30, 2026 or September 30, 2025 as the investment portfolio consists primarily of U.S. government agency mortgage-backed securities that management deems to have immaterial risk of loss. 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 Company does not believe that any of its AFS debt securities had credit loss impairment as of June 30, 2026 or September 30, 2025, therefore, no allowance was recorded.

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.

The following table shows the loan portfolio by category and the change from prior fiscal year end.

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The following tables provide information regarding loans receivable by loan class and geography.

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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.

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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, and E to the Consolidated Financial Statements in

“Item 8. Financial Statements and Supplementary Data.”

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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.

(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.

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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.

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

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