WAFD INC (WAFD) FY 2025 MD&A

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, and E 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.

(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.

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.

___________________

(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.

(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 of September 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.

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

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.

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.

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.

The following table sets forth, by various interest rate categories, the amount of fixed-rate time deposits that mature during the

periods indicated.

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.

(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.

(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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