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What changed in WAFD INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of WAFD INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+399 added−352 removedSource: 10-K (2024-11-20) vs 10-K (2023-11-17)

Top changes in WAFD INC's 2024 10-K

399 paragraphs added · 352 removed · 281 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

77 edited+38 added−5 removed113 unchanged
Biggest changeSeptember 30, 2023 September 30, 2022 September 30, 2021 September 30, 2020 September 30, 2019 ($ in thousands) Gross loans by category Commercial loans Multi-family $ 2,907,086 14.8 % $ 2,645,801 13.6 % $ 2,291,477 14.1 % $ 1,538,762 10.6 % $ 1,422,674 10.7 % Commercial real estate 3,344,959 17.0 3,133,660 16.2 2,443,845 15.0 1,895,086 13.1 1,631,170 12.3 Commercial & industrial 2,321,717 11.8 2,350,984 12.1 2,314,654 14.2 2,132,160 14.7 1,268,695 9.5 Construction 3,318,994 16.9 3,784,388 19.5 2,888,214 17.7 2,403,276 16.6 2,038,052 15.3 Land - acquisition & development 201,538 1.0 291,301 1.5 222,457 1.4 193,745 1.3 204,107 1.5 Total commercial loans 12,094,294 61.6 12,206,134 63.0 10,160,647 62.3 8,163,029 56.4 6,564,698 49.3 Consumer loans Single-family residential 6,451,270 32.8 5,771,862 29.8 4,951,627 30.4 5,304,689 36.7 5,835,194 43.8 Construction - custom 672,643 3.4 974,652 5.0 783,221 4.8 674,879 4.7 540,741 4.1 Land - consumer lot loans 125,723 0.6 153,240 0.8 149,956 0.9 102,263 0.7 99,694 0.7 HELOC 234,410 1.2 203,528 1.0 165,989 1.0 139,703 1.0 142,178 1.1 Consumer 70,164 0.4 75,543 0.4 87,892 0.5 83,159 0.6 129,883 1.0 Total consumer loans 7,554,210 38.4 7,178,825 37.0 6,138,685 37.7 6,304,693 43.6 6,747,690 50.7 Total gross loans 19,648,504 100 % 19,384,959 100 % 16,299,332 100 % 14,467,722 100 % 13,312,388 100 % Less: Allowance for credit losses (1) 177,207 172,808 171,300 166,955 131,534 Loans in process 1,895,940 3,006,023 2,232,836 1,456,072 1,201,341 Net deferred fees, costs and discounts 98,807 92,564 61,626 52,378 48,938 Total loan contra accounts 2,171,954 3,271,395 2,465,762 1,675,405 1,381,813 Net loans $ 17,476,550 $ 16,113,564 $ 13,833,570 $ 12,792,317 $ 11,930,575 __________________ (1) The ACL within the table does not include the the reserve for unfunded commitments which was $24,500,000, $32,500,000, $27,500,000, $25,000,000 and $6,900,000 as of September 30, 2023, 2022, 2021, 2020 and 2019 respectively. 7 Lending Programs and Policies.
Biggest changeSeptember 30, 2024 September 30, 2023 September 30, 2022 ($ in thousands) Gross loans by category Commercial loans Multi-family $ 4,658,119 20.8 % $ 2,907,086 14.8 % $ 2,645,801 13.6 % Commercial real estate 3,757,040 16.8 3,344,959 17.0 3,133,660 16.2 Commercial & industrial 2,337,139 10.5 2,321,717 11.8 2,350,984 12.1 Construction 2,174,254 9.7 3,318,994 16.9 3,784,388 19.5 Land - acquisition & development 200,713 0.9 201,538 1.0 291,301 1.5 Total commercial loans 13,127,265 58.7 12,094,294 61.6 12,206,134 63.0 Consumer loans Single-family residential 8,399,030 37.6 6,451,270 32.8 5,771,862 29.8 Construction - custom 384,161 1.7 672,643 3.4 974,652 5.0 Land - consumer lot loans 108,791 0.5 125,723 0.6 153,240 0.8 HELOC 266,151 1.2 234,410 1.2 203,528 1.0 Consumer 73,998 0.3 70,164 0.4 75,543 0.4 Total consumer loans 9,232,131 41.3 7,554,210 38.4 7,178,825 37.0 Total gross loans 22,359,396 100 % 19,648,504 100 % 19,384,959 100 % Less: Allowance for credit losses (1) 203,753 177,207 172,808 Loans in process 1,009,798 1,895,940 3,006,023 Net deferred fees, costs and discounts 229,491 98,807 92,564 Total loan contra accounts 1,443,042 2,171,954 3,271,395 Net loans $ 20,916,354 $ 17,476,550 $ 16,113,564 __________________ (1) The ACL within the table does not include the reserve for unfunded commitments which was $21,500,000, $24,500,000 and $32,500,000 as of September 30, 2024, 2023 and 2022, respectively. 7 Lending Programs and Policies.
The Bank is subject to extensive regulation, supervision and examination by the Washington State Department of Financial Institutions (the "WDFI"), its primary state regulator, the Consumer Financial Protection Bureau (the "CFPB") and the Federal Deposit Insurance Corporation ("FDIC"), which insures its deposits up to applicable limits.
The Bank is subject to extensive regulation, supervision and examination by its primary state regulator, the Washington State Department of Financial Institutions (the "WDFI"), the Federal Deposit Insurance Corporation ("FDIC"), its primary federal regulator, which insures its deposits up to applicable limits, and the Consumer Financial Protection Bureau (the "CFPB").
The Company makes available on its website, free of charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and any amendments to those reports (among others), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC).
The Company makes available on its website, free of charge, its annual reports on Form 10-K, current quarterly reports on Form 10-Q, reports on Form 8-K, proxy statements and any amendments to those reports (among others), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC).
This different credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic and societal conditions on income-producing properties, the primary source of cash flow for repayment being spread across multiple tenants, the effects of government orders such as eviction forbearance and the increased difficulty of evaluating and monitoring these types of loans.
This different credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic and societal conditions on income- 8 producing properties, the primary source of cash flow for repayment being spread across multiple tenants, the effects of government orders such as eviction forbearance and the increased difficulty of evaluating and monitoring these types of loans.
These investments may include, among other things, certain certificates of deposit, repurchase agreements, bankers’ acceptances, loans to financial institutions whose deposits are federally-insured, federal funds, United States government and agency obligations and mortgage-backed securities. Sources of Funds General. Deposits are the primary source of the Bank’s funds for use in lending and other general business purposes.
These investments may include, among other things, certain certificates of deposit, repurchase 11 agreements, bankers’ acceptances, loans to financial institutions whose deposits are federally-insured, federal funds, United States government and agency obligations and mortgage-backed securities. Sources of Funds General. Deposits are the primary source of the Bank’s funds for use in lending and other general business purposes.
Subject to certain limitations and restrictions, a bank holding company, with prior approval of the FRB, may acquire an out-of-state bank; banks in states that do not prohibit out-of-state mergers may merge with the approval of the 15 appropriate federal banking agency, and a bank may establish a de novo branch out of state if such branching is permitted by the other state for state banks chartered by such other state.
Subject to certain limitations and restrictions, a bank holding company, with prior approval of the FRB, may acquire an out-of-state bank; banks in states that do not prohibit out-of-state mergers may merge with the approval of the appropriate federal banking agency, and a bank may establish a de novo branch out of state if such branching is permitted by the other state for state banks chartered by such other state.
In addition, we offer our Education Assistance Program, designed to encourage an employee's advancement and growth. We also offer the Retail Bank Peer Mentor Program and retail banking certifications for our retail employees. These resources provide employees with the skills they need to achieve their career goals, build management skills and become leaders within our Company. Compensation and Benefits.
In addition, we offer our Education Tuition Assistance Program, designed to encourage an employee's advancement and growth. We also offer the Retail Bank Peer Mentor Program and retail banking certifications for our retail employees. These resources provide employees with the skills they need to achieve their career goals, build management skills and become leaders within our Company. Compensation and Benefits.
In addition, a bank may not lend to any affiliate engaged in non-banking activities that are not permissible for a bank holding company or acquire shares of any affiliate that is not a subsidiary. Federal law authorizes the imposition of additional restrictions on transactions with affiliates if necessary to protect the safety and soundness of a bank.
In addition, a bank may not lend to any affiliate engaged in non-banking activities that are not permissible for a bank holding company or acquire 17 shares of any affiliate that is not a subsidiary. Federal law authorizes the imposition of additional restrictions on transactions with affiliates if necessary to protect the safety and soundness of a bank.
All of the Bank's mortgage lending is subject to written, nondiscriminatory underwriting standards, loan origination procedures and lending policies approved by the Company's Board of Directors (the "Board"). Property valuations are required on all real estate loans. Appraisals are prepared by independent appraisers, reviewed by staff of the Bank, and approved by the Bank's management.
All of the Bank's mortgage lending is subject to written, nondiscriminatory underwriting standards, loan origination procedures and lending policies approved by the Company's Board of Directors (the "Board"). Property valuations are required 9 on all real estate loans. Appraisals are prepared by independent appraisers, reviewed by staff of the Bank, and approved by the Bank's management.
The description of these laws and regulations, and descriptions of laws and regulations contained elsewhere herein, do not purport to be complete and are qualified in their entirety by reference to applicable laws and regulations. Restrictions on Activities and Acquisitions. Bank holding companies are subject to a variety of restrictions on their activities and the acquisitions they can make.
The description of these laws and regulations, and descriptions of laws and regulations contained elsewhere herein, do not purport to be complete and are qualified in their entirety by reference to applicable laws and regulations. 15 Restrictions on Activities and Acquisitions. Bank holding companies are subject to a variety of restrictions on their activities and the acquisitions they can make.
As a Washington State chartered commercial bank with branches in the States of Washington, Oregon, Idaho, Utah, Nevada, Arizona, New Mexico and Texas, the Bank is subject not only to the applicable laws and regulations of Washington State, but is also subject to the applicable laws and regulations of these other states in which it does business.
As a Washington State chartered commercial bank with branches in the States of Washington, Oregon, Idaho, Utah, Nevada, Arizona, New Mexico, California and Texas, the Bank is subject not only to the applicable laws and regulations of Washington State, but is also subject to the applicable laws and regulations of these other states in which it does business.
Savings and money market accounts are offered to both businesses and consumers, with interest paid after certain threshold amounts are exceeded. The Bank’s deposits are obtained primarily from residents of Washington, Oregon, Idaho, Arizona, Utah, Nevada, New Mexico and Texas. Borrowings.
Savings and money market accounts are offered to both businesses and consumers, with interest paid after certain threshold amounts are exceeded. The Bank’s deposits are obtained primarily from residents of Washington, Oregon, Idaho, Arizona, Utah, Nevada, New Mexico, California and Texas. Borrowings.
The Bank has general authority to lend anywhere in the United States; however, its primary lending areas are within the states of Washington, Oregon, Idaho, Arizona, Utah, Nevada, New Mexico and Texas. Loan originations come from a variety of sources.
The Bank has general authority to lend anywhere in the United States; however, its primary lending areas are within the states of Washington, Oregon, Idaho, Arizona, Utah, Nevada, New Mexico, California and Texas. Loan originations come from a variety of sources.
Such advances are made pursuant to several different credit programs. Each credit program has its own interest rate and range of maturities, and the FHLB prescribes acceptable uses to which the advances pursuant to each program may be put, as well as limitations on the size of such advances.
Such advances are made pursuant to several different credit programs. Each credit program has its own interest rate and range of maturities, and the FHLB - DM prescribes acceptable uses to which the advances pursuant to each program may be put, as well as limitations on the size of such advances.
Mitigation of risk of loss on a land development loan is dependent largely upon the accuracy of the initial estimate of the property's 8 value at completion of development compared to the estimated cost (including interest) of development and the financial strength of the borrower. Permanent land loans .
Mitigation of risk of loss on a land development loan is dependent largely upon the accuracy of the initial estimate of the property's value at completion of development compared to the estimated cost (including interest) of development and the financial strength of the borrower. Permanent land loans .
Generally, the activities or acquisition of a bank holding company that is not a financial holding company are limited to those that constitute banking or managing or controlling banks or which are closely related to 14 banking.
Generally, the activities or acquisition of a bank holding company that is not a financial holding company are limited to those that constitute banking or managing or controlling banks or which are closely related to banking.
In addition to deposits, the Bank derives funds from loan repayments, advances from the Federal Home Loan Bank of Des Moines ("FHLB"), borrowings from the Federal Reserve Bank ("FRB"), and from investment repayments and sales.
In addition to deposits, the Bank derives funds from loan repayments, advances from the Federal Home Loan Bank of Des Moines ("FHLB - DM"), borrowings from the Federal Reserve Bank ("FRB"), and from investment repayments and sales.
In these instances, funds are borrowed from other financial institutions or the Federal Reserve Bank, for periods generally ranging from one to seven days at the then current borrowing rate. The Bank has elected to utilize the FRB's Bank Term Funding program (the "BTFP") to leverage its highly favorable terms to fortify the Bank's liquidity position.
In these instances, funds are borrowed from other financial institutions or the Federal Reserve Bank, for periods generally ranging from one to seven days at the then current borrowing rate. The Bank also elected to utilize the FRB's Bank Term Funding Program (the "BTFP") to leverage its highly favorable terms to fortify the Bank's liquidity position.
As of September 30, 2023, the Bank exceeded the requirements of a well-capitalized institution. Dodd-Frank Act Stress Tests ("DFAST"). On July 6, 2018, bank regulatory agencies (the FRB, FDIC and the Office of the Comptroller of the Currency) issued a joint interagency statement regarding the impact of the Economic Growth, Regulatory Relief, and Consumer Protection Act ("EGRRCPA") on financial institutions.
As of September 30, 2024, the Bank exceeded the requirements of a well-capitalized institution. Dodd-Frank Act Stress Tests ("DFAST"). On July 6, 2018, bank regulatory agencies (the FRB, FDIC and the Office of the Comptroller of the Currency) issued a joint interagency statement regarding the impact of the Economic Growth, Regulatory Relief, and Consumer Protection Act ("EGRRCPA") on financial institutions.
The Bank also purchases loans and mortgage-backed securities when lending rates and mortgage volume for new loan originations in its market area do not fulfill its needs. 9 The table below shows the Bank's total loan origination, purchase and repayment activities.
The Bank also purchases loans and mortgage-backed securities when lending rates and mortgage volume for new loan originations in its market area do not fulfill its needs. 10 The table below shows the Bank's total loan origination, purchase and repayment activities.
EGRRCPA also enacted several important changes in some technical compliance areas that we believe will help reduce our regulatory burden, including: • Prohibiting federal banking regulators from imposing higher capital standards on High Volatility Commercial Real Estate (“HVCRE”) exposures unless they are for acquisition, development or construction (“ADC”), and clarifying ADC status; 18 • Exempting from appraisal requirements certain transactions involving real property in rural areas and valued at less than $400,000; and • Directing the Consumer Financial Protection Bureau to provide guidance on the applicability of the TILA-RESPA Integrated Disclosure rule to mortgage assumption transactions and construction-to-permanent home loans, as well the extent to which lenders can rely on model disclosures that do not reflect recent regulatory changes.
EGRRCPA also enacted several important changes in some technical compliance areas that we believe will help reduce our regulatory burden, including: • Prohibiting federal banking regulators from imposing higher capital standards on High Volatility Commercial Real Estate (“HVCRE”) exposures unless they are for acquisition, development or construction (“ADC”), and clarifying ADC status; • Exempting from appraisal requirements certain transactions involving real property in rural areas and valued at less than $400,000; and • Directing the Consumer Financial Protection Bureau to provide guidance on the applicability of the Truth in Lending and Real Estate Settlement Procedures Act Integrated Disclosure rule to mortgage assumption transactions and construction-to-permanent home loans, as well the extent to which lenders can rely on model disclosures that do not reflect recent regulatory changes.
The Bank's permanent land loans (also called consumer lot loans) are generally made on improved land, with the intent of building a primary or secondary residence. These loans are limited to 70% or less of the appraised value of the property, up to a maximum loan amount of $700,000.
The Bank's permanent land loans (also called consumer lot loans) are generally made on improved land, with the intent of building a primary or secondary residence. These loans are limited to 70% or less of the appraised value of the property, up to a maximum loan amount of $1,500,000.
Interest Rates, Loan Fees and Service Charges. Interest rates charged by the Bank on mortgage loans are primarily determined by the competitive loan rates offered in its lending areas and in the secondary market. Mortgage loan rates reflect factors such as general interest rates, the supply of money available to the industry and the demand for such loans.
Interest rates charged by the Bank on mortgage loans are primarily determined by the competitive loan rates offered in its lending areas and in the secondary market. Mortgage loan rates reflect factors such as general interest rates, the supply of money available to the industry and the demand for such loans.
We strive to build and maintain a high-performing culture and be an “employer of choice” by creating a work environment that attracts and retains outstanding, engaged employees who embody our company mantra of “Love what you do. Make a difference.” Demographics. As of September 30, 2023, we employed 2,120 full and part time employees.
We strive to build and maintain a high-performing culture and be an “employer of choice” by creating a work environment that attracts and retains outstanding, engaged employees who embody our company mantra of “Love what you do. Make a difference.” Demographics. As of September 30, 2024, we employed 2,208 full and part time employees.
The Anti-Money Laundering act of 2020 (“AML Act”) was enacted as part of the National Defense Authorization Act and requires the U.S. Treasury Department to issue National Anti-Money Laundering and Countering the Financing of Terrorism Priorities, which occurred in June 2021.
The Anti-Money Laundering Act of 2020 (“AML Act”) was enacted as part of the National Defense Authorization Act and requires the U.S. Treasury Department to issue National Anti-Money Laundering and 18 Countering the Financing of Terrorism Priorities ("AML/CFT"), which occurred in June 2021.
We show our commitment to equal employment opportunity through, among other things, our process of performing annual compensation analyses and ongoing reviews of our selection and hiring practices alongside a continued focus on building and maintaining a diverse workforce. As of September 30, 2023, the population of our workforce was as follows: 12 Learning and Development.
We show our commitment to equal employment opportunity through, among other things, our process of performing annual compensation analyses and ongoing reviews of our selection and hiring practices alongside a continued focus on building and maintaining a diverse workforce. As of September 30, 2024, the population of our workforce was as follows: 13 Learning and Development.
The information found on our website is not part of this or any other report that we file or furnish to the SEC. 20
The information found on our website is not part of this or any other report that we file or furnish to the SEC. 22
Below is a summary of our community activities and financial contributions in 2023. 13 Additional information will be provided in the Company’s forthcoming 2023 Community and Social Responsibility Report which will be made available on the Company’s website. Nothing on our website, including the aforementioned report, shall be deemed incorporated by reference into this Annual Report. The Company General.
Below is a summary of our community activities and financial contributions in 2024. 14 Additional information will be provided in the Company’s forthcoming 2024 Community and Social Responsibility Report which will be made available on the Company’s website. Nothing on our website, including the aforementioned report, shall be deemed incorporated by reference into this Annual Report. The Company General.
The Bank also invests in certain United States government and agency obligations and other investments permitted by applicable laws and regulations. As of September 30, 2023, Washington Federal Bank has 198 branches located in Washington, Oregon, Idaho, Arizona, Utah, Nevada, New Mexico and Texas. Through the Bank's subsidiaries, the Company is also engaged in insurance brokerage activities.
The Bank also invests in certain United States government and agency obligations and other investments permitted by applicable laws and regulations. As of September 30, 2024, Washington Federal Bank has 210 branches located in Washington, Oregon, Idaho, Arizona, Utah, Nevada, New Mexico, California and Texas. Through the Bank's subsidiaries, the Company is also engaged in insurance brokerage activities.
WaFd, Inc., a Washington corporation, was formed as the Bank’s holding company in November, 1994 under the name Washington Federal, Inc. On September 27, 2023, the Company filed Articles of Amendment to its Restated Articles of Incorporation, as amended, with the Washington Secretary of State, to change its name from Washington Federal, Inc. to WaFd, Inc.
WaFd, Inc., a Washington corporation, was formed as the Bank’s holding company in November, 1994. On September 27, 2023, the Company filed Articles of Amendment to its Restated Articles of Incorporation, as amended, with the Washington Secretary of State, to change its name from Washington Federal, Inc. to WaFd, Inc. This change was effective on September 29, 2023.
Moreover, a construction loan can involve additional risks because of the complexities of completing the construction, the inherent difficulty in estimating both the cost (including interest) of the project and the property's value at completion of the project. Land development loans .
Moreover, a construction loan can involve additional risks because of the complexities of completing the construction, the inherent difficulty in estimating the cost (including interest) of the project, the future cash flows and the property's value at completion of the project. Land development loans .
Each FHLB serves members within its assigned region and is funded primarily through proceeds derived from the sale of consolidated obligations of the FHLB system. Loans are made to members in accordance with the policies and procedures established by the Board of Directors of the FHLB. At September 30, 2023, FHLB advances to the Bank amounted to $2,900,000,000.
Each FHLB serves members within its assigned region and is funded primarily through proceeds derived from the sale of consolidated obligations of the FHLB system. Loans are made to members in accordance with the policies and procedures established by the Board of Directors of the FHLB. At September 30, 2024, total FHLB advances to the Bank amounted to $2,192,874,000.
As of September 30, 2023 and September 30, 2022, Statewide Mortgage Services Company had total assets of $785,000 and $785,000, respectively. 11 Washington Services, Inc. is incorporated under the laws of the state of Washington. It acts as a trustee under deeds of trust as to which the Bank is beneficiary.
As of September 30, 2024 and September 30, 2023, Statewide Mortgage Services Company had total assets of $2,506,000 and $785,000, respectively. Washington Services, Inc. is incorporated under the laws of the state of Washington. It acts as a trustee under deeds of trust as to which the Bank is beneficiary.
As of September 30, 2023 and September 30, 2022, WAFD Insurance Group, Inc. had total assets of $20,229,000 and $18,483,000, respectively. Statewide Mortgage Services Company is incorporated under the laws of the state of Washington and it holds and markets real estate owned.
As of September 30, 2024 and September 30, 2023, WAFD Insurance Group, Inc. had total assets of $23,174,000 and $20,229,000, respectively. Statewide Mortgage Services Company is incorporated under the laws of the state of Washington and it holds and markets real estate owned.
The Bank has a credit line with the FHLB for up to 45% of total assets, subject to availability of collateral. The Bank obtains advances from the FHLB based upon the security of the FHLB capital stock it owns and certain of its loans, provided certain standards related to credit worthiness have been met.
The Bank has a credit line with the FHLB - DM for up to 45% of total assets depending on specific collateral eligibility. The Bank obtains advances from the FHLB - DM based upon the security of the FHLB capital stock it owns and certain of its loans, provided certain standards related to credit worthiness have been met.
In January 2020, the federal banking agencies jointly issued a statement reminding supervised financial institutions of sound cybersecurity risk management principles that expanded on areas articulated in the Interagency Guidelines Establishing Information Security Standards written in Section 39 of the Federal Deposit Insurance Act and Sections 501 and 505(b) of the Gramm-Leach-Bliley Act.
In January 2020, the federal banking agencies jointly issued a statement reminding supervised financial institutions of sound cybersecurity risk management principles that expanded on areas articulated in the Interagency Guidelines Establishing Information Security Standards written in Section 39 of the Federal Deposit Insurance Act and Sections 501 and 505(b) of the Gramm-Leach-Bliley Act. 20 State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations.
State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements.
Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements.
Any change in such regulation, whether by the WDFI, the FDIC, the Federal Reserve, the CFPB or the U.S. Congress, could have a significant impact on the Company and its operations. See “Regulation” section below. 6 Lending Activities General. The Company's net loan portfolio totaled $17,476,550,000 at September 30, 2023 and represents 77.8% of total assets.
Any change in such regulation, whether by the WDFI, the FDIC, the Federal Reserve, the CFPB or the U.S. Congress, could have a significant impact on the Company and its operations. See “Regulation” section below. 6 Lending Activities General. The Company's net loan portfolio totaled $20,916,354,000 at September 30, 2024 and represents 74.5% of total assets.
In addition, both the Company and the Bank are required to have a Tier 1 leverage ratio of 4.0%, a Tier 1 risk-based ratio of 6.0% and a total risk-based ratio of 8.0%. Both the Company and the Bank are required to establish a “conservation buffer,” consisting of common equity Tier 1 capital, equal to 2.5%.
Both the Company and the Bank are required to have a common equity Tier 1 capital ratio of 4.5%. In addition, both the Company and the Bank are required to have a Tier 1 leverage ratio of 4.0%, a Tier 1 risk-based ratio of 6.0% and a total risk-based ratio of 8.0%.
Repayment of loans secured by multi-family mortgages typically depends upon the successful operation of the related real estate property. If the cash flow from the project is reduced, the borrower's ability to repay the loan may be impaired.
Repayment of CRE loans depends upon the successful operation of the related real estate property. If the cash flow from the property is reduced, the borrower's ability to repay the loan may be impaired.
The total balance for loans with loan-to-value ratios exceeding 80% at origination as of September 30, 2023, was $271,020,000, with allocated reserves of $2,442,000. Consumer loans .
The total balance for loans with loan-to-value ratios exceeding 80% at origination as of September 30, 2024, was $315,704,000, with allocated reserves of $2,939,000. Consumer loans .
WAFD Insurance Group, Inc. is incorporated under the laws of the state of Washington and is an insurance agency that offers a full line of individual and business insurance policies to customers of the Bank, as well as to the general public.
The Bank has three active wholly-owned subsidiaries, discussed further below. 12 WAFD Insurance Group, Inc. is incorporated under the laws of the state of Washington and is an insurance agency that offers a full line of individual and business insurance policies to customers of the Bank, as well as to the general public.
None of these employees are represented by a collective bargaining agreement. During fiscal year 2023 we hired 470 employees. Our voluntary turnover rate was 15.54% in fiscal year 2023, a decrease from 21.18% in 2022. Diversity, Equity and Inclusion.
None of these employees are represented by a collective bargaining agreement. During fiscal year 2024 we hired 421 employees. Our voluntary turnover rate was 15.80% in fiscal year 2024, a slight increase from 15.54% in 2023. Diversity, Equity and Inclusion.
Multi-family residential loans are originated in amounts up to 80% of the appraised value of the property securing the loan. Loans secured by multi-family residential real estate generally involve different credit risk than single-family residential loans and carry larger loan balances.
In underwriting multi-family residential loans, the Bank considers the same factors considered for CRE loans. Like CRE, multi-family residential loans are originated in amounts up to 75% of the appraised value of the property securing the loan. Loans secured by multi-family residential real estate generally involve different credit risk than single-family residential loans and carry larger loan balances.
In order to ensure the Bank's programs and operations are in compliance with regulatory requirements, the Bank has and will continue to incur additional significant costs in order to bring programs and operations into compliance. For further information on regulatory matters, see Note A to the Consolidated Financial Statements in “Item 8.
In order to ensure the Company's programs and operations are in compliance with regulatory requirements, the Company has and will continue to incur significant costs in order to comply in accordance with its responsibilities. For further information on regulatory matters, see Note A to the Consolidated Financial Statements in “Item 8.
The federal banking agencies have adopted regulations that implement this statutory framework. The prompt corrective action rules, which apply to the Bank but not the Company, are modified to include a common equity Tier 1 risk-based ratio and to increase certain other capital requirements for the various thresholds.
The prompt corrective action rules, which apply to the Bank but not the Company, are modified to include a common equity Tier 1 risk-based ratio and to increase certain other capital requirements for the various thresholds.
The interest rate charged is normally the prevailing rate at the time the loan application is approved and accepted. In the case of construction loans, the Bank normally charges an origination fee.
The interest rate charged is normally the prevailing rate at the time the loan application is approved and accepted. In the case of construction loans, the Bank normally charges an origination fee. Loan origination fees and other terms of multi-family residential loans are individually negotiated.
Higher or more sensitive risk weights are assigned to various categories of assets, among which are commercial real estate, credit facilities that finance the acquisition, development or construction of real property, certain exposures or credit that are 90 days past due or are nonaccrual, foreign exposures, certain corporate exposures, securitization exposures, equity exposures and in certain cases mortgage servicing rights and deferred tax assets. 17 Both the Company and the Bank are required to have a common equity Tier 1 capital ratio of 4.5%.
Higher or more sensitive risk weights are assigned to various categories of assets, among which are commercial real estate, credit facilities that finance the acquisition, development or construction of real property, certain exposures or credit that are 90 days past due or are non-accrual, foreign exposures, certain corporate exposures, securitization exposures, equity exposures and in certain cases mortgage servicing rights and deferred tax assets.
Subsidiaries The Company is a bank holding company that conducts its primary business through its directly-owned subsidiary, WaFd Bank. The Bank has three active wholly-owned subsidiaries, discussed further below.
Subsidiaries The Company is a bank holding company that conducts its primary business through its wholly-owned subsidiary, WaFd Bank.
This change was effective on September 29, 2023. As used throughout this document, the terms "WaFd," the "Company" or "we" or "us" and "our" refer to WaFd, Inc. and its consolidated subsidiaries, and the term "Bank" or "WaFd Bank" refers to the operating subsidiary. The Company is headquartered in Seattle, Washington.
As used throughout this document, the terms "WaFd," the "Company" or "we" or "us" and "our" refer to WaFd, Inc. and its consolidated subsidiaries, and the term "Bank" or "WaFd Bank" refers to its bank operating subsidiary. The Company is headquartered in Seattle, Washington. On November 9, 1982 the Company listed and began trading on the NASDAQ.
In addition, if we do not or are unable to pay quarterly dividends on our Series A Preferred Stock, we may not pay a dividend to the holders of our Common Stock.
In addition, if we do not or are unable to pay quarterly dividends on our Series A Preferred Stock, we may not pay a dividend to the holders of our Common Stock. See “ Washington Federal Bank, wholly-owned operating subsidiary - Restrictions on Dividends ” below.
On November 9, 1982 the Company listed and began trading on the NASDAQ. Profitable operations have been recorded every year since going public. As of September 30, 2023, the stock traded at 69 times its original 1982 offering price, has paid 162 consecutive quarterly cash dividends and has returned 12,425% total shareholder return to those who invested 41 years ago.
Profitable operations have been recorded every year since going public. As of September 30, 2024, the stock traded at 91 times its original 1982 offering price, has paid 166 consecutive quarterly cash dividends and has returned 15,195% total shareholder return to those who invested 42 years ago.
See “ Washington Federal Bank, wholly-owned operating subsidiary - Restrictions on Dividends .” Since the Company is a Washington state corporation, it is also subject to restrictions under Washington corporate law relating to dividends.
Since the Company is a Washington state corporation, it is also subject to restrictions under Washington corporate law relating to dividends.
As a result, the FDIC has certain regulatory and examination authority over the Bank. Regulation. The WDFI and FDIC have extensive authority over the operations of the Bank. As part of this authority, the Bank is required to file periodic reports with the WDFI and FDIC and is subject to periodic examinations by the WDFI and FDIC.
As part of this authority, the Bank is required to file periodic reports with the WDFI and FDIC and is subject to periodic examinations by the WDFI and FDIC.
Human Capital At WaFd Bank, our culture is defined by our corporate values of integrity, teamwork, ownership, simplicity, service and discipline. We value our employees by investing in a healthy work-life balance, competitive compensation and benefit packages and a vibrant, team-oriented environment centered on professional service and open communication amongst employees.
We value our employees by investing in a healthy work-life balance, competitive compensation and benefit packages and a vibrant, team-oriented environment centered on professional service and open communication amongst employees.
The Company's fiscal year end is September 30th. All references herein to 2023, 2022 and 2021 represent balances as of September 30, 2023, September 30, 2022 and September 30, 2021, respectively, or activity for the fiscal years then ended.
The Merger expanded WaFd Bank's footprint to nine western states with the addition of ten California branches of Luther Burbank. The Company's fiscal year end is September 30th. All references herein to 2024, 2023 and 2022 represent balances as of September 30, 2024, September 30, 2023 and September 30, 2022, respectively, or activity for the fiscal years then ended.
Loan origination fees and other terms of multi-family residential loans are individually negotiated. 10 Investment Activities The Bank is obligated by its regulators to maintain adequate liquidity and does so by holding cash and cash equivalents and by investing in securities.
Investment Activities The Bank is obligated by its regulators to maintain adequate liquidity and does so by holding cash and cash equivalents and by investing in securities.
We are also dependent upon our ability to attract and retain employees while managing compensation and other costs. Availability of Financial Data Under the Securities Exchange Act of 1934 ("Exchange Act"), the Company is required to file annual, quarterly and current reports, proxy statements and other information with the SEC.
Availability of Financial Data Under the Securities Exchange Act of 1934 ("Exchange Act"), the Company is required to file annual, quarterly and current reports, proxy statements and other information with the SEC. We file reports on Forms 10-K, 10-Q and 8-K, and amendments to those reports, with the SEC.
We file reports on Forms 10-K, 10-Q and 8-K, and amendments to those reports, with the SEC. The public may obtain copies of these reports at the SEC's website: www.sec.gov . The Company has adopted and posted on its website a code of ethics that applies to its senior financial officers.
The public may obtain copies of these reports at the SEC's website: www.sec.gov . The Company has adopted and posted on its website a code of ethics that applies to its senior financial officers. The Company’s website also includes the charters for its audit committee, compensation committee, risk management committee, executive committee, technology committee and nominating and governance committee.
(2) 1,016,084 (826,335) (834,584) (277,692) (28,355) Net loan activity increase (decrease) $ 1,362,986 $ 2,279,994 $ 1,041,253 $ 861,742 $ 453,494 Beginning balance $ 16,113,564 $ 13,833,570 $ 12,792,317 $ 11,930,575 $ 11,477,081 Ending balance $ 17,476,550 $ 16,113,564 $ 13,833,570 $ 12,792,317 $ 11,930,575 ___________________ (1) Includes undisbursed loan in process. (2) Includes non-cash transactions.
(2) 920,205 1,016,084 (826,335) Net loan activity increase (decrease) $ 3,439,804 $ 1,362,986 $ 2,279,994 Beginning balance $ 17,476,550 $ 16,113,564 $ 13,833,570 Ending balance $ 20,916,354 $ 17,476,550 $ 16,113,564 ___________________ (1) Includes undisbursed loan in process. (2) Includes non-cash transactions.
Washington Federal Bank, wholly-owned operating subsidiary General. The Bank is a federally-insured Washington state chartered commercial bank dba WaFd Bank. The Bank is a member of the FDIC and its deposits are insured up to applicable limits of the Depository Insurance Fund (“DIF”), which is administered by the FDIC.
The WDFI is the Bank's primary state regulator and the FDIC is its primary federal regulatory. The Bank is a member of the FDIC and its deposits are insured up to applicable limits of the Depository Insurance Fund (“DIF”), which is administered by the FDIC. Regulation. The WDFI and FDIC have extensive authority over the operations of the Bank.
Any bank holding company or bank that fails to meet the capital requirements is subject to possible enforcement actions. Such actions could include a capital directive, a cease and desist or consent order, civil money penalties, restrictions on an institution's operations and/or the appointment of a conservator or receiver.
Such actions could include a capital directive, a cease and desist or consent order, civil money penalties, restrictions on an institution's operations and/or the appointment of a conservator or receiver. FRB, FDIC and WDFI capital regulations provide that such supervisory actions, through enforcement proceedings or otherwise, could require one or more of a variety of corrective actions.
As a member, the Bank is required to purchase and maintain stock in the FHLB of Des 16 Moines. At September 30, 2023, the Bank held $126,820,000 in FHLB of Des Moines stock, which was in compliance with this requirement. Community Reinvestment Act and Fair Lending Laws.
At September 30, 2024, the Bank held $73,910,000 in FHLB of Des Moines stock and $21,707,000 in FHLB of San Francisco stock, which was in compliance with requirements. Community Reinvestment Act and Fair Lending Laws.
Prompt Corrective Action. Federal statutes establish a supervisory framework based on five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. An institution’s category depends upon its capital levels in relation to relevant capital measures, which include a risk-based capital measure, a leverage ratio capital measure and certain other factors.
An institution’s category depends upon its capital levels in relation to relevant capital measures, which include a risk-based capital measure, a leverage ratio capital measure and certain other factors. The federal banking agencies have adopted regulations that implement this statutory framework.
The Federal Reserve and the FDIC are also authorized to impose capital requirements in excess of these standards on individual institutions on a case-by-case basis. Management believes that the current capital levels of the Company and the Bank are sufficient to be in compliance with the fully phased-in standards under the rules.
Management believes that the current capital levels of the Company and the Bank are sufficient to be in compliance with the fully phased-in standards under the rules. Any bank holding company or bank that fails to meet the capital requirements is subject to possible enforcement actions.
Twelve Months Ended September 30, 2023 2022 2021 2020 2019 (In thousands) Commercial loan originations (1) Multi-family $ 136,788 $ 675,534 $ 821,426 $ 403,118 $ 210,589 Commercial Real Estate 223,361 880,850 673,117 466,322 343,172 Commercial & Industrial 2,032,460 2,569,682 2,509,512 2,168,908 1,020,296 Construction 1,046,971 2,486,387 2,178,260 1,457,602 1,271,167 Land – Acquisition & Development 34,946 175,234 124,871 88,379 123,758 Total commercial loans 3,474,526 6,787,687 6,307,186 4,584,329 2,968,982 Consumer loan originations (1) Single-family residential 610,130 892,608 938,822 910,571 547,057 Construction – custom 346,784 765,696 621,928 576,342 457,328 Land – Consumer Lot Loans 21,133 61,731 94,388 51,678 37,125 HELOC 154,030 171,393 130,988 93,285 101,399 Consumer 95,553 57,078 91,421 4,395 8,580 Total consumer loans 1,227,630 1,948,506 1,877,547 1,636,271 1,151,489 Total loans originated 4,702,156 8,736,193 8,184,733 6,220,600 4,120,471 Loans purchased 80,015 564,584 488,147 15,456 — Loan principal repayments (4,435,269) (6,194,448) (6,797,043) (5,096,622) (3,638,622) Net change in loans in process, discounts, etc.
Twelve Months Ended September 30, 2024 2023 2022 (In thousands) Commercial loan originations (1) Multi-family $ 60,730 $ 136,788 $ 675,534 Commercial Real Estate 246,930 223,361 880,850 Commercial & Industrial 1,677,371 2,032,460 2,569,682 Construction 603,829 1,046,971 2,486,387 Land – Acquisition & Development 45,406 34,946 175,234 Total commercial loans 2,634,266 3,474,526 6,787,687 Consumer loan originations (1) Single-family residential 430,272 610,130 892,608 Construction – custom 209,781 346,784 765,696 Land – Consumer Lot Loans 21,187 21,133 61,731 HELOC 161,917 154,030 171,393 Consumer 174,648 95,553 57,078 Total consumer loans 997,805 1,227,630 1,948,506 Total loans originated 3,632,071 4,702,156 8,736,193 Loans purchased (3) 6,207,393 80,015 564,584 Loans sold (4) (3,017,506) — — Loan principal repayments (4,302,359) (4,435,269) (6,194,448) Net change in loans in process, discounts, etc.
The capital conservation buffer is designed to ensure that banks build up capital buffers outside periods of stress, which can be drawn down as losses are incurred. An institution that does not meet the conservation buffer will be subject to restrictions on certain activities including payment of dividends, stock repurchases and discretionary bonuses to executive officers.
An institution that does not meet the conservation buffer will be subject to restrictions on certain activities including payment of dividends, stock repurchases and discretionary bonuses to executive officers. The Federal Reserve and the FDIC are also authorized to impose capital requirements in excess of these standards on individual institutions on a case-by-case basis.
We compete with some competitors within our geographic market area, and with others on a product specific basis, such as the residential mortgage market. Our ability to compete effectively depends on our ability to provide first-rate, friendly and professional customer service and deliver the banking solutions that our customers want and need.
Our ability to compete effectively depends on our ability to provide first-rate, friendly and professional customer service and deliver the banking solutions that our customers want and need. We are also dependent upon our ability to attract and retain employees while managing compensation and other costs.
The Company's federal income tax returns are open and subject to potential examination by the IRS for fiscal year 2020 and later. Competition We operate in a highly competitive environment. Our competitors include other banks, savings associations, community banks, credit unions and other financial intermediaries, and new market participants offering services similar to those that we 19 offer.
The Company generally files consolidated federal and state income tax returns with its subsidiaries. The Company's federal income tax returns are open and subject to potential examination by the IRS for fiscal year 2021 and later. Competition We operate in a highly competitive environment.
FRB and WDFI capital regulations provide that such supervisory actions, through enforcement proceedings or otherwise, could require one or more of a variety of corrective actions. For information regarding compliance with each of these capital requirements by the Company and the Bank as of September 30, 2023, see Note Q to the Consolidated Financial Statements included in Item 8 hereof.
For information regarding compliance with each of these capital requirements by the Company and the Bank as of September 30, 2024, see Note R to the Consolidated Financial Statements included in Item 8 hereof. 19 Prompt Corrective Action. Federal statutes establish a supervisory framework based on five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.
These borrowings are repayable at any time without penalty and are the lowest cost funding source available. For further information on these activities, see Note L to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.
The FHLB - SF credit line is secured by a line-item pledge of single-family residential mortgages that are specifically identified. For further information on these activities, see Note L to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.
Taxation In addition to federal income tax, the Company is also subject to income, franchise, excise or gross receipts tax in states (and some cities) where the Company has branches or is deemed to have sufficient nexus for tax purposes. The Company generally files consolidated federal and state income tax returns with its subsidiaries.
The potential effects of state or federal privacy and data protection laws on the Company’s business cannot be determined at this time and will depend both on whether such laws are adopted by states in which the Company does business and/or at the federal level and the requirements imposed by any such laws. 21 Taxation In addition to federal income tax, the Company is also subject to income, franchise, excise or gross receipts tax in states (and some cities) where the Company has branches or is deemed to have sufficient nexus for tax purposes.
The Bank seeks to minimize these risks through its underwriting policies, which require such loans to be qualified at origination on the basis of the property's income and debt service ratio. It is the Bank's policy to obtain title insurance ensuring that it has a valid first lien on the mortgaged real estate serving as collateral for the loan.
The Bank seeks to minimize these risks through its underwriting policies, which require such loans to be qualified at origination on the basis of the property's income and debt service ratio. Multi-family residential loans . Multi-family residential (five or more dwelling units) loans generally are secured by multi-family rental properties, such as apartment buildings.
In underwriting multi-family residential loans, the Bank considers a number of factors, which include the projected net cash flow to the loan's debt service requirement, the age and condition of the collateral, the financial resources and income level of the borrower and the borrower's experience in owning or managing similar properties.
The following table provides the amortized cost of CRE loans by occupation status: September 30, 2024 September 30, 2023 September 30, 2022 ($ in thousands) Non-owner occupied $ 3,130,637 84 % $ 2,715,693 82 % $ 2,487,568 80 % Owner occupied 601,518 16 % 594,408 18 % 623,544 20 % Total commercial real estate loans $ 3,732,155 100 % $ 3,310,101 100 % $ 3,111,112 100 % In underwriting, the Bank considers a number of factors, which include the projected net cash flow to the loan's debt service requirement, the age and condition of the collateral, the financial resources and income level of the borrower and the borrower's experience in owning or managing similar properties.
Borrowers must also obtain hazard insurance prior to closing and, when required by regulation, flood insurance.
It is the Bank's policy to obtain title insurance ensuring that it has a valid first lien on the mortgaged real estate serving as collateral for the loan. Borrowers must also obtain hazard insurance prior to closing and, when required by regulation, flood insurance.
The Company’s website also includes the charters for its audit committee, compensation committee, risk management committee, executive committee, technology committee and nominating and governance committee. The address for the Company’s website is www.wafdbank.com.
The address for the Company’s website is www.wafdbank.com.
The Bank's lending activities include commercial and consumer loans, including the following loan categories. Multi-family residential loans . Multi-family residential (five or more dwelling units) loans generally are secured by multi-family rental properties, such as apartment buildings.
The Bank's lending activities include commercial and consumer loans, including the following loan categories. Commercial real estate loans . The Bank makes loans on a variety of commercial real estate (“CRE”) types which are generally secured by the subject property.
Removed
As of September 30, 2023 and September 30, 2022, Washington Services, Inc. had total assets of $13,000 and $13,000, respectively. The Company also currently holds a 33.98% interest in Archway Software, Inc. (“Archway”), a Delaware corporation focused on the business of developing and selling technology and software products and services for financial institutions, including the Bank.
Added
On February 29, 2024, WaFd, Inc. closed its merger with Luther Burbank Corporation ("Luther Burbank" or "LBC"), a California corporation, effective as of 12:00am on March 1, 2024. Pursuant to the Merger Agreement, at the Effective Time Luther Burbank merged with and into the Company (the “Corporate Merger”), with the Company surviving the Corporate Merger.
Removed
Archway was conceived in November 2022 as a joint venture between the Company and certain subsidiaries of Madrona Venture Group.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

91 edited+44 added−24 removed117 unchanged
Biggest changeThere is a risk that these investments may not provide the anticipated benefits and/or will prove significantly more costly and time consuming to produce. If this occurs, we may see a loss of customers, and our financial results and ability to execute on our strategic plan may be adversely impacted. We are exposed to risks related to fraud and cyber-attacks.
Biggest changeIn recent years, we have made a significant ongoing investment to enhance our technological capabilities with the objectives of enhancing customer experience, growing revenue, and improving operating efficiency. There is a risk that these investments may not provide the anticipated benefits and/or will prove significantly more costly and time consuming to produce.
Such estimates rely upon complex modeling inputs and judgments, including forecasts of economic conditions, which may be rendered inaccurate and/or no longer subject to accurate forecasting. • Our ability to assess the creditworthiness of our borrowers may be impaired if the models and approaches we use to select, manage, and underwrite loans become less predictive of future charge-offs. • Regulatory scrutiny of the industry could increase, leading to increased regulation of the industry that could lead to a higher cost of compliance, limit our ability to pursue business opportunities and increase our exposure to litigation or fines. • Ineffective monetary policy or other market conditions could cause rapid changes in interest rates and asset values that would have a materially adverse impact on our profitability and overall financial condition. 23 • Further erosion in the fiscal condition of the U.S.
Such estimates rely upon complex modeling inputs and judgments, including forecasts of economic conditions, which may be rendered inaccurate and/or no longer subject to accurate forecasting. • Our ability to assess the creditworthiness of our borrowers may be impaired if the models and approaches we use to select, manage, and underwrite loans become less predictive of future charge-offs. • Regulatory scrutiny of the industry could increase, leading to increased regulation of the industry that could lead to a higher cost of compliance, limit our ability to pursue business opportunities and increase our exposure to litigation or fines. • Ineffective monetary policy or other market conditions could cause rapid changes in interest rates and asset values that would have a materially adverse impact on our profitability and overall financial condition. • Further erosion in the fiscal condition of the U.S.
A substantial increase in unemployment rates, or severe declines in housing prices and property values in these primary market areas could have a material adverse effect on our business due to a number of factors, including: • Loan delinquencies may increase. • Problem assets and foreclosures may increase. • Demand for the Bank's products and services may decline. • Collateral for loans made by the Bank, especially real estate, may decline in value, in turn reducing a customer's borrowing power and reducing the value of assets and collateral associated with the loans. • Natural disasters and catastrophic events such as wildfires, floods and earthquakes may damage or destroy collateral for loans made by the Bank and negatively impact the collateral’s value and a customer’s ability to repay loans.
A substantial increase in unemployment rates, or severe declines in housing prices and property values in any of these primary market areas could have a material adverse effect on our business due to a number of factors, including: • Loan delinquencies may increase. • Problem assets and foreclosures may increase. • Demand for the Bank's products and services may decline. • Collateral for loans made by the Bank, especially real estate, may decline in value, in turn reducing a customer's borrowing power and reducing the value of assets and collateral associated with the loans. • Natural disasters and catastrophic events such as wildfires, floods and earthquakes may damage or destroy collateral for loans made by the Bank and negatively impact the collateral’s value and a customer’s ability to repay loans.
A cyber-attack or other security incident on the systems we operate and control could cause us to suffer damage to our reputation, result in productivity losses, require us to incur substantial expenses, including response costs associated with 25 investigation and resumption of services, remediation expenses costs associated with customer notification and credit monitoring services, increased insurance premiums, regulatory penalties and fines, and costs associated with civil litigation, any of which could have a materially adverse effect on our business, financial condition, and results of operations.
A cyber-attack or other security incident on the systems we operate and control could cause us to suffer damage to our reputation, result in productivity losses, require us to incur substantial expenses, including response costs associated with investigation and resumption of services, remediation expenses costs associated with customer notification and credit monitoring services, increased insurance premiums, regulatory penalties and fines, and costs associated with civil litigation, any of which could have a materially adverse effect on our business, financial condition, and results of operations.
Our Board of Directors is authorized to cause the Company to issue one or more classes or series of preferred stock junior to our Series A Preferred Stock from time to time without any action on the part of our shareholders, and our Board of Directors also has the power, without shareholder approval, to set the terms of any such classes or series of preferred stock that may be issued, including voting rights, dividend rights, and preferences over the Common Stock with respect to dividends or upon our dissolution, winding up and liquidation and other terms.
Our Board of Directors is authorized to cause the Company to issue one or more classes or series of preferred stock junior to our Series A Preferred Stock from time to time without any action on the part of our shareholders, and our Board of Directors also has the power, without shareholder approval, to set the terms of any such classes or series of preferred stock that 35 may be issued, including voting rights, dividend rights, and preferences over the Common Stock with respect to dividends or upon our dissolution, winding up and liquidation and other terms.
The Company has a significant goodwill balance and, in accordance 31 with GAAP, we evaluate it for impairment at least annually and more often if events or circumstances indicate the possibility of impairment. Evaluations may be based on many factors, some of which are the price of our Common Stock, discounted cash flow projections and data from comparable market acquisitions.
The Company has a significant goodwill balance and, in accordance with GAAP, we evaluate it for impairment at least annually and more often if events or circumstances indicate the possibility of impairment. Evaluations may be based on many factors, some of which are the price of our Common Stock, discounted cash flow projections and data from comparable market acquisitions.
This regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies to address not only compliance with applicable laws and regulations (including laws and regulations governing consumer credit, and anti-money laundering and anti-terrorism laws), but also capital adequacy, asset quality and risk, management ability and performance, earnings, liquidity, data reporting and various other factors.
This regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies to address not only compliance with applicable laws and regulations (including laws and regulations governing consumer credit, CRA, and anti-money laundering and anti-terrorism laws), but also capital adequacy, asset quality and risk, management ability and performance, earnings, liquidity, data reporting and various other factors.
Failure to comply with applicable laws and regulations can result in a range of sanctions and enforcement actions, including the imposition of civil money penalties, formal agreements and cease and desist orders; identified deficiencies in our HMDA reporting and AML/CFT programs have resulted in Consent Orders from the CFPB and OCC, required us to incur significant expenses and compliance costs and subjected us to civil penalties.
Failure to comply with applicable laws and regulations can result in a range of sanctions and enforcement actions, including the imposition of civil money penalties, formal agreements and cease and desist orders; prior-identified deficiencies in our HMDA reporting and AML/CFT programs have resulted in Consent Orders from the CFPB and OCC, required us to incur significant expenses and compliance costs and subjected us to civil penalties.
Our general business strategy may be adversely affected by any such economic downturn, volatile business environment, hostile third-party action or continued unpredictable and unstable market conditions. Our allowance for credit losses ("ACL") may not be adequate to cover future loan losses, which could adversely affect our financial condition and results of operations.
Our general business strategy may be adversely affected by any such economic downturn, volatile business environment, hostile third-party action or continued unpredictable and unstable market conditions. 26 Our allowance for credit losses ("ACL") may not be adequate to cover future loan losses, which could adversely affect our financial condition and results of operations.
Our risk management framework is comprised of various processes, systems and strategies, and is designed to manage the types of risks to which we are subject, including, among others, credit, market, liquidity, interest rate and compliance. Our framework also includes financial or other modeling methodologies that involve management assumptions and judgment.
Our risk management framework is comprised of various processes, systems and strategies designed to manage the types of risks to which we are subject, including, among others, credit, market, liquidity, interest rate, cybersecurity and compliance. Our framework also includes financial or other modeling methodologies that involve management assumptions and judgment.
We could be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic 29 substances or chemical releases at such properties.
We could be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic substances or chemical releases at such properties.
Downturns in the stock market and the market price of our stock, changes in our capital position, and changes in our regulatory standing could each have a negative impact on our ability to complete future acquisitions. The Company’s entry into California may present increased risk that may adversely impact our business, prospects and financial condition.
Downturns in the stock market and the market price of our stock, changes in our capital position, and changes in our regulatory standing could each have a negative impact on our ability to complete future acquisitions. Our entry into California may present increased risk that may adversely impact our business, prospects and financial condition.
The 26 loss of qualified and key personnel, or an inability to continue to attract, retain and motivate key personnel could adversely affect our business and consequently impact our financial condition and results of operations. Our risk management framework may not be effective in mitigating risks and losses to us.
The loss of qualified and key personnel, or an inability to continue to attract, retain and motivate key personnel could adversely affect our business and consequently impact our financial condition and results of operations. Our risk management framework may not be effective in mitigating risks and losses to us.
Our operations are focused in the western United States, subjecting us to the risks of general economic conditions in these market areas. Substantially all of the Bank's loans are to individuals, businesses and real estate developers in the Pacific Northwest, Arizona, Utah, Texas, New Mexico and Nevada.
Our operations are focused in the western United States, subjecting us to the risks of general economic conditions in these market areas. Substantially all of the Bank's loans are to individuals, businesses and real estate developers in the Pacific Northwest, California, Arizona, Utah, Texas, New Mexico and Nevada.
The Dodd-Frank Act creates a framework through which regulatory reform has been and continues to be written. While many of the rules required by the Dodd-Frank Act have been implemented, others are still being drafted. As a result, the impact of the future regulatory requirements continues to be uncertain.
The Dodd-Frank Act creates a framework through which regulatory reform has been and continues to be written. While many of the rules required by the Dodd-Frank Act have been implemented, others are still being drafted. As a result, the impact of the future regulatory requirements continue to be uncertain.
Our failure or our inability to comply with the 27 Patriot Act and BSA statutes and regulations could result in fines or penalties, curtailment of expansion opportunities, enforcement actions, intervention or sanctions by regulators and costly litigation or expensive additional controls and systems.
Our failure or our inability to comply with the Patriot Act and BSA statutes and regulations could result in fines or penalties, curtailment of expansion opportunities, enforcement actions, intervention or sanctions by regulators and costly litigation or expensive additional controls and systems.
Other legislative initiatives could detrimentally impact our operations in the future. Regulatory bodies may enact new laws or 28 promulgate new regulations or view matters or interpret laws and regulations differently than they have in the past, or commence investigations or inquiries into our business practices.
Other legislative initiatives could detrimentally impact our operations in the future. Regulatory bodies may enact new laws, promulgate new regulations or view matters or interpret laws and regulations differently than they have in the past, or commence investigations or inquiries into our business practices.
Security Ownership Risks Our ability to pay dividends is subject to limitations that may affect our ability to continue to pay dividends to shareholders. The Company is a separate legal entity from the bank subsidiary and does not have significant operations of its own.
Security Ownership Risks Our ability to pay dividends is subject to limitations that may affect our ability to continue to pay dividends to shareholders. 34 The Company is a separate legal entity from the bank subsidiary and does not have significant operations of its own.
Holders of our Common Stock have no preemptive rights that 33 entitle holders to purchase their pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in increased dilution to our shareholders.
Holders of our Common Stock have no preemptive rights that entitle holders to purchase their pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in increased dilution to our shareholders.
Many competitors, including fintech companies, offer the same types of loan and deposit services that the Company offers. These competitors include national and multinational banks, other regional banks, savings associations, community banks, credit unions and other financial intermediaries.
Many competitors, including fintech companies, offer the same types of loan and deposit services that the Company offers. These competitors include national and multinational banks, other regional banks, savings associations, community banks, credit unions, fintechs, and other financial intermediaries.
If the purchase price of the acquired company exceeds the fair value of the acquired net assets, the excess will be included in the Company's Statement of Financial Condition as goodwill.
If the purchase price of the acquired company exceeds the fair value of the acquired net assets, the excess will be included in the 33 Company's Statement of Financial Condition as goodwill.
Federal regulatory agencies, as part of their examination process, review our loans and ACL. If our assumptions and judgments used to determine the ACL prove to be incorrect, if the value of the collateral securing the loans decreases substantially or if regulators disagree with our judgments, we may need to increase the ACL in amounts that exceed our expectations.
Banking regulatory agencies, as part of their examination process, review our loans and ACL. If our assumptions and judgments used to determine the ACL prove to be incorrect, if the value of the collateral securing the loans decreases substantially or if regulators disagree with our judgments, we may need to increase the ACL in amounts that exceed our expectations.
Increases in the foreclosure timeline may also have an adverse effect on collateral values and the our ability to minimize our losses. Impairment of goodwill may adversely impact future results of operations. Accounting standards require that we account for acquisitions using a method that could result in goodwill.
Increases in the foreclosure timeline could also result in increased costs, and may have an adverse effect on collateral values and our ability to minimize our losses. Impairment of goodwill may adversely impact future results of operations. Accounting standards require that we account for acquisitions using a method that could result in goodwill.
If the Bank earnings are not sufficient to make dividend payments to us while maintaining adequate capital levels, then our liquidity may be affected and our stock price may be negatively affected by our inability to pay dividends, which will have an adverse impact on both the Company and our shareholders.
If the Bank's earnings are not sufficient to make dividend payments to us while maintaining adequate capital levels, then our liquidity may be affected and our stock price may be negatively affected by our inability to pay dividends, which will have an adverse impact on both the Company and our shareholders.
Recent instances of attacks specifically targeting banks and financial services businesses indicate that the risk to our systems remains significant. We, and our third-party providers, are regularly the subject of attempted attacks and the ability of the attackers continues to grow in sophistication.
Recent instances of attacks specifically targeting banks and financial services businesses indicate that the risk to our systems remains significant. We, and our third-party providers, are regularly the subject of attempted attacks and the ability of the attackers and the method of their attacks continues to grow in sophistication.
The revised assessment rate schedules became effective January 1, 2023, and are applicable to the first quarterly assessment period of 2023 (i.e., January 1 through March 31, 2023, with an invoice payment date of June 30, 2023).
The revised assessment rate schedules became effective January 1, 2023, and were applicable to the first quarterly assessment period of 2023 (i.e., January 1 through March 31, 2023, with an invoice payment date of June 30, 2023).
During the COVID-19 emergency, certain states in which we do business enacted temporary stays on evictions and foreclosures, or instituted a right to forbearance for homeowners experiencing financial hardship.
During the COVID-19 pandemic, certain states in which we do business enacted temporary stays on evictions and foreclosures, or instituted a right to forbearance for homeowners experiencing financial hardship.
The spread of COVID-19 created a global public-health crisis that resulted in significant economic uncertainty, and has impacted household, business, economic, and market conditions, including in the western United States where we conduct nearly all of our business.
The spread of COVID-19 created a global public-health crisis that resulted in significant economic uncertainty, and impacted household, business, economic, and market conditions across the world, including in the western United States where we conduct nearly all of our business.
While the Department of the Treasury, the FRB, and the FDIC have taken steps to ensure that depositors of these recently failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in regional banks and the banking system more broadly.
While the Department of the Treasury, the FRB, and the FDIC took steps to ensure that depositors of the failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in regional banks and the banking system more broadly.
Sanctions imposed by the United States and other countries in response to such conflict could further adversely impact the financial markets and the global economy, and any economic countermeasures by the affected countries or others could exacerbate market and economic instability.
Changes in trade policies or sanctions imposed by the United States and other countries in response to such conflict could further adversely impact the financial markets and the global economy, and any economic countermeasures by the affected countries or others could exacerbate market and economic instability.
Material additions to the ACL would adversely affect our results of operations and financial condition. We are exposed to risks related to our operational, technological, and third-party provided technology infrastructure. We rely extensively on the successful and uninterrupted functioning of information technology and telecommunications systems to conduct our business.
Material additions to the ACL, or losses in excess of the ACL, would adversely affect our results of operations and financial condition. We are exposed to risks related to our operational, technological, and third-party provided technology infrastructure. We rely extensively on the successful and uninterrupted functioning of information technology and telecommunications systems to conduct our business.
Our business, reputation and ability to attract and retain employees may also be harmed if our response to climate change is perceived to be ineffective or insufficient. Furthermore, the long-term impacts of climate change will have a negative impact on our customers and their business.
Our business, reputation and ability to attract and retain employees may also be harmed if our response to climate change is perceived to be ineffective or insufficient. 28 Furthermore, the long-term impacts of climate change have and will continue to have a negative impact on our business, as well as on our customers and their business.
S. and the financial markets generally. • variations in the operating results of the Company and our competitors. • events affecting other companies that the market deems comparable to the Company. • changes in securities analysts' estimates of our future performance and the future performance of our competitors. • announcements by the Company or our competitors of mergers, acquisitions and strategic partnerships, including the pending merger with Luther Burbank. • additions or departure of key personnel. • the presence or absence of short selling of the Company's Common Stock. • future sales by us of our Common Stock or debt securities.
S. and the financial markets generally. • variations in the operating results of the Company and our competitors. • events affecting other companies that the market deems comparable to the Company. • changes in securities analysts' estimates of our future performance and the future performance of our competitors. • announcements by the Company or our competitors of mergers, acquisitions and strategic partnerships. • additions or departure of key personnel. • the presence or absence of short selling of the Company's Common Stock. • future sales by us of our Common Stock or debt securities.
The recent high-profile bank failures have generated significant market volatility among publicly traded bank holding companies and, in particular, regional banks like the Company. These market developments have negatively impacted customer confidence in the safety and soundness of regional banks.
The high-profile bank failures of 2023 generated significant market volatility among publicly traded bank holding companies and, in particular, regional banks like the Company. These market developments also negatively impacted customer confidence in the safety and soundness of regional banks.
If other banks and financial institutions enter receivership or become insolvent in the future due to financial conditions affecting the banking system and financial markets, it could cause further disruption to the financial services industry and customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations.
If other bank failures occur and financial institutions enter receivership or become insolvent in the future due to financial conditions affecting the banking system and financial markets, it could disrupt the financial services industry and customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations.
Some additional factors that may cause the price of our Common Stock to fluctuate include: • general conditions in the financial markets and real estate markets. • macro-economic and political conditions in the U.
Some additional factors that may cause the price of our Common Stock to fluctuate include: • general conditions in the financial markets and real estate markets. • bank failures and the regulatory response. • macro-economic and political conditions in the U.
At September 30, 2023, we had $1.6 billion invested in U.S. government and agency obligations, and further downgrades could affect the stability of securities issued or guaranteed by the federal government and the valuation or liquidity of our portfolio of such investment securities.
At September 30, 2024, we had $2.2 billion invested in U.S. government and agency obligations, and further downgrades could affect the stability of securities issued or guaranteed by the federal government and the valuation or liquidity of our portfolio of such investment securities.
The financial markets and the global economy may also be adversely affected by the current or anticipated impact of military conflict, including the conflict between Russia and Ukraine, and the evolving conflict in Israel and Gaza.
The financial markets and the global economy may also be adversely affected by the current or anticipated impact of military conflict, including the conflict between Russia and Ukraine, and the evolving conflict in the Middle East.
Many of these competitors are much larger in total assets and capitalization, have greater access to capital markets and offer a broader array of financial services than we do.
Many of these competitors are much larger in total assets and capitalization, have greater access to capital markets and offer a broader array of financial services than the Company.
Non-Compliance with the USA PATRIOT Act, Bank Secrecy Act, Real Estate Settlement Procedures Act, Truth-in-Lending Act, Community Reinvestment Act, Fair Lending Laws, Flood Insurance Reform Act or other laws and regulations could result in fines or sanctions, and curtail our expansion opportunities.
Regulatory and Litigation Risks Non-Compliance with banking rules and regulations, including the USA PATRIOT Act, Bank Secrecy Act, Community Reinvestment Act, Fair Lending Laws, Real Estate Settlement Procedures Act, Truth-in-Lending Act, Flood Insurance Reform Act or other laws and regulations could result in fines or sanctions, and curtail our expansion opportunities.
A slow-down or reversal in the economic recovery of the regions in which we conduct our business could result in declines in loan demand and collateral values. Negative impacts on our customers caused by COVID-19 or other pathogens could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans.
A slow-down or reversal in the economic recovery of the regions in which we conduct our business could result in declines in loan demand and collateral values. Negative impacts on our customers caused by a pandemic or other major health crisis could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans.
The issuance of any additional shares of common or of preferred stock or convertible securities or the exercise of such securities could be substantially dilutive to existing shareholders. We may also elect to use Common Stock to fund new acquisitions, which will further dilute existing shareholders.
The issuance of any additional shares of common or of preferred stock or convertible securities or the exercise of such securities could be substantially dilutive to existing shareholders. As we did for the Merger with Luther Burbank, we may also elect to use Common Stock to fund new acquisitions, which will further dilute existing shareholders.
The market price for our Common Stock may be volatile. The market price of our Common Stock could fluctuate substantially in the future in response to a number of factors, including those discussed below. The market price of our Common Stock has in the past fluctuated significantly.
The market price for our Common Stock may be volatile. The market price of our Common Stock could fluctuate substantially in the future in response to a number of factors, including those discussed below. The market price of our Common Stock has in the past fluctuated significantly, including in 2023 as a result of the high-profile bank failures.
If this, or another class action lawsuit is filed or determined adversely to us, or we were to enter into a settlement agreement in connection with such a matter, we could be exposed to monetary damages, reputational harm, or subject to limits on our ability to operate our business, which could have an adverse effect on our financial condition, and operating results.
If another class action lawsuit is filed or determined adversely to us, or we were to enter into a settlement agreement in connection with such a matter, we could be exposed to monetary damages, reputational harm, or subject to limits on our ability to operate our business, which could have an adverse effect on our financial condition, and operating results. 31 Our real estate lending also exposes us to the risk of environmental liabilities.
Physical risks include extreme storms or wildfires that damage or destroy property and inventory securing loans we make, or may interrupt our customer’s business operations, putting them in financial difficulty, and increasing the risk of default.
Physical risks include extreme storms, tsunamis, floods, wildfires or other catastrophic events that damage or destroy offices or other assets, or that damage or destroy property and inventory securing loans we make. These catastrophic events may also interrupt our customer’s business operations, putting them in financial difficulty, and increasing the risk of default.
The same could be true if interest rates on interest-earning assets decline faster than the rates on interest-bearing liabilities. Net interest income and earnings would be similarly impacted were the interest rates on interest-earning assets to decline more quickly than the interest rates on interest-bearing liabilities.
Net interest income and earnings would be similarly impacted if the interest rates on interest-earning assets decline more quickly than the interest rates on interest-bearing liabilities.
In particular, we may face increased regulation of our industry, including increased compliance costs and limitations on our ability to pursue business opportunities; significantly higher Federal Deposit Insurance Corporation premiums; adverse impacts on our stock price and volatility of our Common Stock; and increased competition for deposits due to a lack of consumer confidence in regional banks.
If additional bank failures were to occur, we could face increased regulation of our industry, including increased compliance costs and limitations on our ability to pursue business opportunities; significantly higher Federal Deposit Insurance Corporation premiums or additional special assessments; adverse impacts on our stock price and volatility of our Common Stock; and increased competition for deposits due to a lack of consumer confidence in regional banks.
Cybersecurity, and the continued development and enhancement of controls, processes, and practices designed to protect customer information, systems, computers, software, data, and networks from attack, damage, or unauthorized access remain a priority for the Company.
We are exposed to risks related to fraud and cyber-attacks. 23 Cybersecurity, and the continued development and enhancement of controls, processes, and practices designed to protect customer information, systems, computers, software, data, and networks from attack, damage, or unauthorized access remain a priority for the Company.
Both internal and external fraud and theft are risks. If confidential customer, employee, monetary, or business information were to be mishandled or misused, we could suffer significant regulatory consequences, reputational damage, and financial loss.
If confidential customer, employee, monetary, or business information were to be mishandled or misused, we could suffer significant regulatory consequences, reputational damage, and financial loss.
The perceived uncertainty as to the Company’s future direction resulting from activist strategies could also affect the market price and volatility of the Company’s common shares. Item 1B. Unresolved Staff Comments None. 34
The perceived uncertainty as to the Company’s future direction resulting from activist strategies could also affect the market price and volatility of the Company’s common shares.
In such a case, we may incur further write-downs and charge-offs, which could, in turn, adversely affect our business, financial condition and results of operations.
In such a case, we may incur further write-downs and charge-offs, which could, in turn, adversely affect our business, financial condition and results of operations. 32 Changes in retail distribution strategies and consumer behavior may adversely impact our business, financial condition and results of operations.
Our risk management framework may not be effective under all circumstances and may not adequately mitigate any risk of loss to us. If our framework is not effective, we could suffer unexpected losses and our financial condition, operations or business prospects could be materially and adversely affected. We may also be subject to potentially adverse regulatory consequences.
Because we rely on assumptions and judgment calls, our risk management framework may not be effective under all circumstances and may not adequately mitigate any risk of loss to us. If our framework is not effective, we could suffer unexpected losses and our financial condition, operations or business prospects could be materially and adversely affected.
Increased competition within our geographic market area may result in reduced loan originations and deposits. Ultimately, competition from current and future competitors may affect our business materially and adversely. We may not be able to continue to grow organically or through acquisitions. Historically, we have expanded through a combination of organic growth and acquisitions.
Ultimately, competition from current and future competitors may affect our business materially and adversely. We may not be able to continue to grow organically or through acquisitions. Historically, we have expanded through a combination of organic growth and acquisitions.
While a government-wide shutdown can reduce GDP growth, the additional economic uncertainty, or a recessionary or stagnant economy, could result in financial stress on the Bank's borrowers, which could adversely affect our business, financial condition and results of operations.
Economic uncertainty, or a recessionary or stagnant economy, could result in financial stress on the Bank's borrowers, which could adversely affect our business, financial condition and results of operations.
We decreased the expense for credit losses over fiscal year 2021 and 2022 as the economy began to recover, however, deteriorating conditions in the regional economies we serve, or in certain sectors of those economies, in excess of the reasonable and supportable forecasts used to estimate credit losses, could drive losses beyond that which is provided for in our allowance for loan losses.
Deteriorating conditions in the regional economies we serve, or in certain sectors of those economies, in excess of the reasonable and supportable forecasts we used to estimate credit losses, could drive losses beyond that which is provided for in our allowance for loan losses.
New governmental regulations or guidance relating to climate change, as well as changes in consumers’ and businesses’ behaviors and business preferences, may affect whether and on what terms and conditions we will engage in certain activities or offer certain products or services.
Consumers and businesses are also changing their behavior and business preferences as a result of these concerns. New governmental regulations or guidance relating to climate change, as well as changes in consumers’ and businesses’ behaviors and business preferences, may affect whether and on what terms and conditions we will engage in certain activities or offer certain products or services.
As a result, there can be no assurance that we will be able to compete effectively in California, and the results of our operations could be materially and adversely affected if we are unable to compete effectively.
As a result, there can be no assurance that we will be able to compete effectively in California, and if we are unable to compete effectively in California, the benefits we were anticipating from the Merger may not be fully achieved, and our results of operations and financial conditions could be materially and adversely affected.
Any disruptions, failures, or inaccuracies of these systems, including changes and improvements, could result in our inability to service customers, manage operations, manage risk, meet regulatory obligations, or provide timely and accurate financial reporting which could damage our reputation, result in loss of customer business, subject us to regulatory scrutiny, or expose us to civil litigation and possible financial liability. 24 In many instances, the Company’s products and services to customers are dependent upon third-party service providers, who provide necessary, or critical, services and support.
Any disruptions, failures, or inaccuracies of these systems, including changes and improvements, could result in our inability to service customers, manage operations, manage risk, meet regulatory obligations, or provide timely and accurate financial reporting which could damage our reputation, result in loss of customer business, subject us to regulatory scrutiny, or expose us to civil litigation and possible financial liability.
Accordingly, fluctuations in interest rates could adversely affect our interest rate spread, and, in turn, our profitability. For example, if the interest rates on interest-bearing liabilities increase at a faster pace than the interest rates on interest-earning assets, the result could be a reduction in our net interest income and with it, a reduction in earnings.
For example, if the interest rates on interest-bearing liabilities increase at a faster pace than the interest rates on interest-earning assets, the result could be a reduction in our net interest income and with it, a reduction in earnings. The same could be true if interest rates on interest-earning assets decline faster than the rates on interest-bearing liabilities.
The recent failures of Silicon Valley Bank and Signature Bank are expected to result in modifications to or additional laws and regulations governing banks and bank holding companies, including increasing capital requirements, modifications to regulatory requirements with respect to liquidity risk management, deposit concentrations, capital adequacy, stress testing and contingency planning, and safe and sound banking practices, or enhanced supervisory or enforcement activities.
We expect the way we conduct business to continue to be affected by these regulatory requirements, including through limitations on our ability to pursue certain lines of business, capital requirements, enhanced reporting obligations, and increased costs. 30 The failures of Silicon Valley Bank and Signature Bank are expected to result in modifications to or additional laws and regulations governing banks and bank holding companies, including increasing capital requirements, modifications to regulatory requirements with respect to liquidity risk management, deposit concentrations, capital adequacy, stress testing and contingency planning, and safe and sound banking practices, or enhanced supervisory or enforcement activities.
We are subject to extensive supervision, regulation and examination by the WDFI, CFPB and the FDIC. In addition, the FRB is responsible for regulating the holding company. This regulatory structure is designed primarily for the protection of the deposit insurance funds and consumers and not to benefit our shareholders.
In addition, the Federal Reserve is responsible for regulating the holding company. This regulatory structure is designed primarily for the protection of the deposit insurance funds and consumers and not to benefit our shareholders.
Our 4.875% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A (“Series A Preferred Stock”) ranks senior to our Common Stock, and we are prohibited from paying dividends on our Common Stock unless we have paid dividends on our Series A Preferred. 32 Shares of our Series A Preferred Stock rank senior to our Common Stock with respect to the payment of dividends and distributions of assets upon liquidation, dissolution or winding up.
Our 4.875% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A (“Series A Preferred Stock”) ranks senior to our Common Stock, and we are prohibited from paying dividends on our Common Stock unless we have paid dividends on our Series A Preferred.
Climate change could adversely affect our business, affect client activity levels and damage our reputation. Concerns over the long-term impacts of climate change have led and will continue to lead to governmental efforts around the world to mitigate those impacts. Consumers and businesses are also changing their behavior and business preferences as a result of these concerns.
We may also be subject to potentially adverse regulatory consequences. Climate change could adversely affect our business, affect client activity levels and damage our reputation. Concerns over the long-term impacts of climate change have led and will continue to lead to governmental efforts around the world to mitigate those impacts.
FDIC insurance premiums could increase in the future in response to similar declining economic conditions. We are subject to various claims and litigation, which could result in significant expenses, losses and damage to our reputation. We are, from time to time, subject to claims and proceedings related to our operations.
FDIC insurance premiums could increase in the future in response to similar declining economic conditions. A material increase in the Bank's FDIC premiums could have an adverse effect on its business, financial condition and results of operations. We are subject to various claims and litigation, which could result in significant expenses, losses and damage to our reputation.
We are unable to predict changes in interest rates, which are affected by factors beyond our control, including inflation, deflation, recession, unemployment, money supply and other changes in financial markets. Inflationary pressures and rising prices may affect our results of operations and financial condition.
On the other hand, decreases in interest rates, may result in a change in the mix of noninterest and interest-bearing accounts. We are unable to predict changes in interest rates, which are affected by factors beyond our control, including inflation, deflation, recession, unemployment, money supply and other changes in financial markets.
We are currently anticipating that there will be further increases in the target federal funds rate in 2024 to combat recent inflationary trends; however, if interest rates do not rise, or if the Federal Reserve were to rapidly lower the target federal funds rate, the reduction in rates could continue to constrain our interest rate spread and may adversely affect our business forecasts.
However, if interest rates do not decrease, or if the Federal Reserve were to rapidly increase the target federal funds rate, the increase in rates could continue to constrain our interest rate spread and may adversely affect our business forecasts.
As a result, after the merger, a current Company's shareholders’ percentage ownership of the combined company will be smaller than such shareholder’s current percentage ownership of the Company’s Common Stock. There may be future sales or other dilution of the Company's equity, which may adversely affect the market price of our common stock or depositary shares.
There may be future sales or other dilution of the Company's equity, which may adversely affect the market price of our Common Stock or depositary shares.
Failure to maintain an effective AML/CFT program could have serious business, financial and reputational consequences for the Bank. Any of these results could have a material adverse effect on our business, financial condition and results of operations. We operate in a highly regulated industry, which limits the manner and scope of our business activities.
Any of these results could have a material adverse effect on our business, financial condition and results of operations. We operate in a highly regulated industry, which limits the manner and scope of our business activities. We are subject to extensive supervision, regulation and examination by the WDFI, the FDIC and the CFPB.
Our customers are also facing changes in energy and commodity prices driven by climate change, as well as new regulatory requirements resulting in increased operational costs. Regulatory and Litigation Risks Failure to comply with the 2020 and 2013 Consent Orders from the Consumer Financial Protection Bureau regarding our Home Mortgage Disclosure Act submissions could result in additional regulatory enforcement action.
Failure to comply with the 2020 and 2013 Consent Orders from the Consumer Financial Protection Bureau regarding our Home Mortgage Disclosure Act submissions could result in additional regulatory enforcement action.
Significant increases in market interest rates on loans, or the perception that an increase may occur, could adversely affect both our ability to originate new loans and our ability to grow.
Significant increases in market interest rates on loans, or the perception that an increase may occur, could adversely affect both our ability to originate new loans and our ability to grow. Beginning early in 2022, in response to growing signs of inflation, the Federal Reserve Bank increased interest rates rapidly, causing the federal funds rate to reach a 22-year high.
Inflation has led to increased costs to our customers, making it more difficult for them to repay their loans or other obligations increasing our credit risk. Sustained higher interest rates by the Federal Reserve may be needed to tame persistent inflationary price pressures, which could push down asset prices and weaken economic activity.
Persistent inflation could lead to higher interest rates, which could, in turn, increase the borrowing costs of our customers, making it more difficult for them to repay their loans or other obligations. High interest rates could also push down asset prices and weaken economic activity.
As a result of the high interest rates, our interest expense on both deposits and borrowings has increased significantly. Because of the differences in maturities and repricing characteristics of our interest-earning assets and interest-bearing liabilities, changes in interest rates do not produce equivalent changes in interest income earned on interest-earning assets and interest paid on interest-bearing liabilities.
Because of the differences in maturities and repricing characteristics of our interest-earning assets and interest-bearing liabilities, changes in interest rates do not produce equivalent changes in interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Accordingly, fluctuations in interest rates could adversely affect our interest rate spread, and, in turn, our profitability.
If a key employee or a substantial number of employees depart or become unable to perform their duties, it may negatively impact our ability to conduct business as usual. Unanticipated departures might require us to divert resources from other areas of our operations, which could create additional stress for other employees, including those in key positions.
If a key employee or a substantial number of employees depart or become unable to perform their duties, it may negatively impact our ability to conduct business as usual.
Our customers may be the victims of phishing scams, providing cyber criminals access to their accounts, or credit or debit card information. In these situations, we incur costs to replace compromised cards and address fraudulent transaction activity affecting our customers, as well as potential increases to insurance premiums for policies we may maintain to cover these losses.
In these situations, we incur costs to replace compromised cards and address fraudulent transaction activity affecting our customers, as well as potential increases to insurance premiums for policies we may maintain to cover these losses. 24 Both internal and external fraud and theft are risks.
Our real estate lending also exposes us to the risk of environmental liabilities. In the course of our business, it is necessary to foreclose and take title to real estate, which could subject us to environmental liabilities with respect to these properties.
In the course of our business, it is necessary to foreclose and take title to real estate, which could subject us to environmental liabilities with respect to these properties. Hazardous substances or waste, contaminants, pollutants or sources thereof may be discovered on properties during our ownership or after a sale to a third party.
U.S. debt ceiling and budget deficit concerns have increased the possibility of additional credit-rating downgrades and economic slowdowns, or a recession in the United States. There remain increased risks of a government shutdown if the spending bills necessary to fund the government through the fiscal year that ends September 30, 2024 are not passed by Congress.
There remain increased risks of a government shutdown if the spending bills necessary to fund the government through the fiscal year that ends September 30, 2025 are not 25 passed by Congress.
In 2022, the Bank paid $495,000 plus claims administrative expenses to settle a class action lawsuit related to allegations of improper assessments of overdraft and insufficient funds fees. In April 2023, we received a letter from an attorney alleging violations of the FLSA and seeking to recover damages for allegedly unpaid wages and overtime for certain of our non-exempt employees.
In 2022, the Bank paid $495,000 plus claims administrative expenses to settle a class action lawsuit related to allegations of improper assessments of overdraft and insufficient funds fees.
In particular, our competitors include national banks and major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations and mount extensive promotional and advertising campaigns. Additionally, recent technological breakthroughs have made it possible for other non-traditional competitors to enter the marketplace and compete for traditional banking services.
In particular, our competitors include national banks and major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations, launch new technologies and mount extensive promotional and advertising campaigns. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.
These claims and legal actions could include supervisory or enforcement actions by our regulators, criminal proceedings by prosecutorial authorities, or civil claims by our customers, former customers, contractual counterparties, and current and former employees. We may also face class action lawsuits for alleged violations of employment, state wage and hour and consumer protection laws.
We are, from time to time, subject to claims and proceedings related to our operations. These claims and legal actions could include supervisory or enforcement actions by our regulators, criminal proceedings by prosecutorial authorities, or civil claims by our customers, former customers, contractual counterparties, and current and former employees.
Any disruption of such services, or an unplanned termination of a third-party license or service agreement related thereto, could adversely affect our ability to provide necessary products and services for our customers. In recent years, we have made a significant ongoing investment to enhance our technological capabilities with the objectives of enhancing customer experience, growing revenue, and improving operating efficiency.
In many instances, the Company’s products and services to customers are dependent upon third-party service providers, who provide necessary, or critical, services and support. Any disruption of such services, or an unplanned termination of a third-party license or service agreement related thereto, could adversely affect our ability to provide necessary products and services for our customers.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeFor further information on these activities, see Notes J and M to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.
Biggest changeFor further information on these activities, see Notes J and N to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeMine Safety Disclosures Not applicable. 35 PART II
Biggest changeMine Safety Disclosures Not applicable. 39 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePeriod Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plan Maximum Number of Shares That May Yet Be Purchased Under the Plan at the End of the Period July 1, 2023 to July 31, 2023 211 $ 30.25 211 2,559,400 August 1, 2023 to August 31, 2023 217 30.55 217 2,559,183 September 1, 2023 to September 30, 2023 — — — 2,559,183 Total 428 $ 30.41 428 2,559,183 36 Performance Graphs The following graphs compare the cumulative total return to WaFd shareholders (stock price appreciation plus reinvested dividends) to the cumulative total return of the Nasdaq Stock Market Index (U.S.
Biggest changePeriod Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs July 1, 2024 to July 31, 2024 1,551 $ 34.69 — 11,501,005 August 1, 2024 to August 31, 2024 3,016 33.80 — 11,501,005 September 1, 2024 to September 30, 2024 2,607 36.08 — 11,501,005 Total 7,174 $ 34.82 — 11,501,005 40 Performance Graphs The following graphs compare the cumulative total return to WaFd shareholders (stock price appreciation plus reinvested dividends) to the cumulative total return of the Nasdaq Stock Market Index (U.S.
The Company’s Board of Directors' dividend policy is to review our financial performance, capital adequacy, regulatory compliance and cash resources on a quarterly basis, and, if such review is favorable, to declare and pay a quarterly cash dividend to common shareholders.
The Board of Directors' dividend policy is to review our financial performance, capital adequacy, regulatory compliance and cash resources on a quarterly basis, and, if such review is favorable, to declare and pay a quarterly cash dividend to common shareholders.
Issuer Purchases of Equity Securities The Company’s stock repurchase program was publicly announced by the board of directors on February 3, 1995 and has no expiration date. Under this program, a total of 76,956,264 shares of the Company’s Common Stock have been authorized for repurchase.
Issuer Purchases of Equity Securities The Company’s stock repurchase program was publicly announced by the Board of Directors on February 3, 1995 and has no expiration date. Under this program, a total of 86,956,264 shares of the Company’s Common Stock have been authorized for repurchase.
The graphs assume that $100 was invested on September 30, 2018, and November 9, 1982, respectively, in WaFd Common Stock, the Nasdaq Stock Market Index and the Nasdaq Financial Stocks Index, and that all dividends were reinvested.
The graphs assume that $100 was invested on September 30, 2019, and November 9, 1982, respectively, in WaFd Common Stock, the Nasdaq Stock Market Index and the Nasdaq Financial Stocks Index, and that all dividends were reinvested.
Additional information about stock options and other equity compensation plans is included in Note P to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.
Additional information about stock options and other equity compensation plans is included in Note Q to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.
Companies) and the KBW Bank Index for the five year period ended September 30, 2023, and since WaFd first became a publicly traded company on November 9, 1982, respectively.
Companies) and the KBW Bank Index for the five year period ended September 30, 2024, and since WaFd first became a publicly traded company on November 9, 1982, respectively.
Management of WaFd cautions that the stock price performance shown in the graphs below should not be considered indicative of potential future stock price performance. 37 Item 6. [Reserved]
Management of WaFd cautions that the stock price performance shown in the graphs below should not be considered indicative of potential future stock price performance. 41 Item 6. [Reserved]
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Common Stock The Company’s Common Stock is traded on the Nasdaq Global Select Market of The Nasdaq Stock Market LLC under the symbol “WAFD.” At September 30, 2023, the number of shareholders of record was 1,045.
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Common Stock The Company’s Common Stock is traded on the Nasdaq Global Select Market of The Nasdaq Stock Market LLC under the symbol “WAFD.” At September 30, 2024, the number of shareholders of record was 994.
The following table shows the share repurchases made for the three months ended September 30, 2023.
The following table shows the share repurchases made for the three months ended September 30, 2024.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

74 edited+27 added−39 removed26 unchanged
Biggest changeThe following table presents loan balances by category and the year-over-year change. 47 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS September 30, 2023 September 30, 2022 Change ($ in thousands) ($ in thousands) $ % Gross loans by category Commercial loans Multi-family $ 2,907,086 14.8 % $ 2,645,801 13.6 % $ 261,285 9.9% Commercial real estate 3,344,959 17.0 3,133,660 16.2 211,299 6.7 Commercial & industrial 2,321,717 11.8 2,350,984 12.1 (29,267) (1.2) Construction 3,318,994 16.9 3,784,388 19.5 (465,394) (12.3) Land - acquisition & development 201,538 1.0 291,301 1.5 (89,763) (30.8) Total commercial loans 12,094,294 61.6 12,206,134 63.0 (111,840) (0.9) Consumer loans Single-family residential 6,451,270 32.8 5,771,862 29.8 679,408 11.8 Construction - custom 672,643 3.4 974,652 5.0 (302,009) (31.0) Land - consumer lot loans 125,723 0.6 153,240 0.8 (27,517) (18.0) HELOC 234,410 1.2 203,528 1.0 30,882 15.2 Consumer 70,164 0.4 75,543 0.4 (5,379) (7.1) Total consumer loans 7,554,210 38.4 7,178,825 37.0 375,385 5.2 Total gross loans 19,648,504 100 % 19,384,959 100 % 263,545 1.4% Less: Allowance for loan losses 177,207 172,808 4,399 2.5 Loans in process 1,895,940 3,006,023 (1,110,083) (36.9) Net deferred fees, costs and discounts 98,807 92,564 6,243 6.7 Total loan contra accounts 2,171,954 3,271,395 (1,099,441) (33.6) Net loans $ 17,476,550 $ 16,113,564 $ 1,362,986 8.5% The following table summarizes the Company’s loan portfolio balances, at amortized cost, due for the periods indicated based on contractual terms to maturity or repricing.
Biggest changeSeptember 30, 2024 September 30, 2023 Change ($ in thousands) ($ in thousands) $ % Gross loans by category Commercial loans Multi-family $ 4,658,119 20.8 % $ 2,907,086 14.8 % $ 1,751,033 60.2% Commercial real estate 3,757,040 16.8 3,344,959 17.0 412,081 12.3 Commercial & industrial 2,337,139 10.5 2,321,717 11.8 15,422 0.7 Construction 2,174,254 9.7 3,318,994 16.9 (1,144,740) (34.5) Land - acquisition & development 200,713 0.9 201,538 1.0 (825) (0.4) Total commercial loans 13,127,265 58.7 12,094,294 61.6 1,032,971 8.5 Consumer loans Single-family residential 8,399,030 37.6 6,451,270 32.8 1,947,760 30.2 Construction - custom 384,161 1.7 672,643 3.4 (288,482) (42.9) Land - consumer lot loans 108,791 0.5 125,723 0.6 (16,932) (13.5) HELOC 266,151 1.2 234,410 1.2 31,741 13.5 Consumer 73,998 0.3 70,164 0.4 3,834 5.5 Total consumer loans 9,232,131 41.3 7,554,210 38.4 1,677,921 22.2 Total gross loans 22,359,396 100 % 19,648,504 100 % 2,710,892 13.8% Less: Allowance for loan losses 203,753 177,207 26,546 15.0 Loans in process 1,009,798 1,895,940 (886,142) (46.7) Net deferred fees, costs and discounts 229,491 98,807 130,684 132.3 Total loan contra accounts 1,443,042 2,171,954 (728,912) (33.6) Net loans $ 20,916,354 $ 17,476,550 $ 3,439,804 19.7% 50 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 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 maturity band.
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.
Loans are placed on nonaccrual 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 nonaccrual 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.
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.
Based on the results of the annual quantitative evaluation for 2023, 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.
Based on the results of the annual quantitative evaluation for 2024, 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.
Select information regarding the ACL is under the "Allowance for Credit Losses" heading within this section below. For further details on the ACL or goodwill, see Notes A and E to the Consolidated Financial Statements in “Item 8.
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.
Early withdrawal penalty fee income for the years ended 2023, 2022 and 2021 amounted to $1,618,000, $267,000 and $198,000, 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.
Early withdrawal penalty fee income for the years ended 2024, 2023 and 2022 amounted to $1,082,000, $1,618,000 and $267,000, 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.
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 1.63% at September 30, 2023. For a discussion of the Company's policy for placing loans on non-accrual status, see Note A to the Consolidated Financial Statements included in Item 8 of this report.
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 1.55% at September 30, 2024. 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.
COMPARISON OF 2022 RESULTS WITH 2021 For management's review of the factors that affected our results of operations for the years ended September 30, 2022 and 2021 refer to our Annual Report on Form 10-K for the year ended September 30, 2022, which was filed with the Securities and Exchange Commission on November 18, 2022.
COMPARISON OF 2023 RESULTS WITH 2022 For management's review of the factors that affected our results of operations for the years ended September 30, 2023 and 2022 refer to our Annual Report on Form 10-K for the year ended September 30, 2023, which was filed with the Securities and Exchange Commission on November 17, 2023.
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 available-for-sale debt securities have credit loss impairment as of September 30, 2023, therefore, no allowance was recorded.
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, 2024, therefore, no allowance was recorded.
This section of this Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
This section of this Form 10-K generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023.
(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, 2023 is 2.01 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. 55
(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, 2024 is 2.34 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. 58
The ratio of the total ACL to total gross loans decreased to 1.03% as of September 30, 2023, as compared to 1.06% as of September 30, 2022. The decrease was primarily related to a shift in mix of loan types within the portfolio.
The ratio of the total ACL to total gross loans decreased to 1.01% as of September 30, 2024, as compared to 1.03% as of September 30, 2023. The decrease was primarily related to a shift in mix of loan types within the portfolio.
The Company would have recognized interest income of $1,981,000 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.
The Bank would have recognized interest income of $3,081,000 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.
As of September 30, 2023, the Company had a net unrealized loss on available-for-sale securities of $123,519,000, which is recorded net of tax within AOCI, compared to an unrealized loss of $111,700,000 as of September 30, 2022. Substantially all of the Company’s available-for-sale debt securities are issued by U.S. government agencies or U.S. government-sponsored enterprises.
As of September 30, 2024, the Company had a net unrealized loss on available-for-sale securities of $44,168,000, which is recorded net of tax within AOCI, compared to an unrealized loss of $123,519,000 as of September 30, 2023. Substantially all of the Company’s AFS debt securities are issued by U.S. government agencies or U.S. government-sponsored enterprises.
See Note A to the Consolidated Financial Statements included in Item 8 hereof for additional information. 44 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth information regarding the Company's restructured loans and non-performing assets.
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.
Loan portfolios with lower historical losses, like multi-family and single family residential saw increased balances while those with higher historical losses, like construction, saw decreases. The reserve for unfunded loan commitments was $24,500,000 as of September 30, 2023, compared to $32,500,000 as of September 30, 2022.
Loan portfolios with lower historical losses, like multi-family and single family residential saw increased balances as a result of the Merger while those with higher historical losses, like construction, saw decreases. The reserve for unfunded loan commitments was $21,500,000 as of September 30, 2024, compared to $24,500,000 as of September 30, 2023.
September 30, 2023 2022 Change Washington 31.0 % 32.5 % (1.5) Oregon 13.3 13.8 (0.5) Arizona 13.9 14.3 (0.4) Utah 11.0 9.6 1.4 Texas 13.6 12.2 1.4 New Mexico 4.2 4.4 (0.2) Idaho 5.1 5.1 — Nevada 4.1 4.2 (0.1) Other (1) 3.8 3.9 (0.1) 100 % 100 % (1) Includes loans from outside of our eight state footprint.
September 30, 2024 2023 Change Washington 27.3 % 31.0 % (3.7) Oregon 11.7 13.3 (1.6) Arizona 11.0 13.9 (2.9) Utah 9.9 11.0 (1.1) Texas 11.8 13.6 (1.8) New Mexico 3.6 4.2 (0.6) Idaho 4.3 5.1 (0.8) Nevada 3.7 4.1 (0.4) California 14.4 1.5 12.9 Other (1) 2.3 2.3 — 100 % 100 % (1) Includes loans from outside of our nine state footprint.
In addition to the non-accrual loans reflected in the above table, the Company had $263,075,000 of loans that were less than 90 days delinquent at September 30, 2023 but were classified as substandard for one or more reasons.
In addition to the non-accrual loans reflected in the above table, the Bank had $356,893,000 of loans that were less than 90 days delinquent at September 30, 2024 but were classified as substandard for one or more reasons.
September 30, 2023 2022 2021 2020 2019 Allowance Loans to Total Loans (1) Coverage Ratio (2) Allowance Loans to Total Loans (1) Coverage Ratio (2) Allowance Loans to Total Loans (1) Coverage Ratio (2) Allowance Loans to Total Loans (1) Coverage Ratio (2) Allowance Loans to Total Loans (1) Coverage Ratio (2) ($ in thousands) Commercial loans Multi-family $ 13,155 16.4 % 0.5 % $ 12,013 16.2 % 0.5 % $ 16,949 16.3 % 0.8 % $ 13,853 11.8 % 0.9 % $ 7,391 11.7 % 0.5 % Commercial real estate 28,842 18.8 0.9 25,814 19.1 0.8 23,437 17.4 1.0 22,516 14.4 1.2 13,170 13.5 0.8 Commercial & industrial 58,773 12.9 2.6 57,210 14.2 2.5 45,957 16.3 2.0 38,665 16.5 1.8 31,450 10.5 2.5 Construction 29,408 10.4 1.6 26,161 8.7 1.9 25,585 7.9 2.3 24,156 10.5 1.8 32,304 9.6 2.8 Land – acquisition & development 7,016 0.9 4.7 12,278 1.3 5.8 13,447 1.3 7.5 10,733 1.2 7.0 9,155 1.3 5.7 Total commercial loans 137,194 133,476 125,375 109,923 93,470 Consumer loans Single-family residential 28,029 36.4 0.4 25,518 35.4 0.4 30,978 35.5 0.6 45,186 40.8 0.9 30,988 48.2 0.5 Construction – custom 2,781 1.8 0.9 3,410 2.4 0.9 4,907 2.5 1.4 3,555 2.3 1.2 1,369 2.1 0.5 Land – consumer lot loans 3,512 0.7 2.9 5,047 0.9 3.4 4,939 1.0 3.4 2,729 0.8 2.7 2,143 0.8 2.2 HELOC 2,859 1.3 1.2 2,482 1.3 1.2 2,390 1.2 1.5 2,571 1.1 1.8 1,103 1.2 0.8 Consumer 2,832 0.4 4.2 2,875 0.5 4.0 2,711 0.6 3.2 2,991 0.6 3.6 2,461 1.1 1.9 Total consumer loans 40,013 39,332 45,925 57,032 38,064 Total allowance for loan losses (3) $ 177,207 100 % $ 172,808 100 % $ 171,300 100 % $ 166,955 100 % $ 131,534 100 % ___________________ (1) Represents the loans receivable for each respective loan class as a % of total loans receivable.
September 30, 2024 2023 2022 2021 2020 Allowance Loans to Total Loans (1) Coverage Ratio (2) Allowance Loans to Total Loans (1) Coverage Ratio (2) Allowance Loans to Total Loans (1) Coverage Ratio (2) Allowance Loans to Total Loans (1) Coverage Ratio (2) Allowance Loans to Total Loans (1) Coverage Ratio (2) ($ in thousands) Commercial loans Multi-family $ 25,248 21.7 % 0.6 % $ 13,155 16.4 % 0.5 % $ 12,013 16.2 % 0.5 % $ 16,949 16.3 % 0.8 % $ 13,853 11.8 % 0.9 % Commercial real estate 39,210 17.7 1.1 28,842 18.8 0.9 25,814 19.1 0.8 23,437 17.4 1.0 22,516 14.4 1.2 Commercial & industrial 58,748 10.9 2.6 58,773 12.9 2.6 57,210 14.2 2.5 45,957 16.3 2.0 38,665 16.5 1.8 Construction 22,267 6.7 1.6 29,408 10.4 1.6 26,161 8.7 1.9 25,585 7.9 2.3 24,156 10.5 1.8 Land – acquisition & development 7,900 0.7 5.2 7,016 0.9 4.7 12,278 1.3 5.8 13,447 1.3 7.5 10,733 1.2 7.0 Total commercial loans 153,373 137,194 133,476 125,375 109,923 Consumer loans Single-family residential 40,523 39.4 0.5 28,029 36.4 0.4 25,518 35.4 0.4 30,978 35.5 0.6 45,186 40.8 0.9 Construction – custom 1,427 0.9 0.8 2,781 1.8 0.9 3,410 2.4 0.9 4,907 2.5 1.4 3,555 2.3 1.2 Land – consumer lot loans 2,564 0.5 2.4 3,512 0.7 2.9 5,047 0.9 3.4 4,939 1.0 3.4 2,729 0.8 2.7 HELOC 3,049 1.3 1.1 2,859 1.3 1.2 2,482 1.3 1.2 2,390 1.2 1.5 2,571 1.1 1.8 Consumer 2,817 0.3 4.0 2,832 0.4 4.2 2,875 0.5 4.0 2,711 0.6 3.2 2,991 0.6 3.6 Total consumer loans 50,380 40,013 39,332 45,925 57,032 Total allowance for loan losses (3) $ 203,753 100 % $ 177,207 100 % $ 172,808 100 % $ 171,300 100 % $ 166,955 100 % ___________________ (1) Represents the loans receivable for each respective loan class as a % of total loans receivable.
Gain on Real Estate Owned : Net gain on real estate owned was $176,000 for the year ended September 30, 2023, compared to a net gain of $651,000 for the year ended September 30, 2022.
Gain on Real Estate Owned : Gain on real estate owned, net was $304,000 for the year ended September 30, 2024, compared to of $176,000 for the year ended September 30, 2023.
Twelve Months Ended September 30, 2023 2022 2021 2020 2019 (In thousands) Beginning balance $ 172,808 $ 171,300 $ 166,955 $ 131,534 $ 129,257 Charge-offs: Commercial loans Multi-Family — — — — — Commercial Real Estate — 529 — 111 428 Commercial & Industrial Loans 45,856 1,202 31 4,196 5,782 Construction — — — — — Land – Acquisition & Development — 11 2 11 107 Total commercial loans 45,856 1,742 33 4,318 6,317 Consumer loans Single-Family Residential 34 — 106 131 268 Construction – Custom — — — — 1,973 Land – Consumer Lot Loans — 27 — 237 804 HELOC — — — — 1,086 Consumer 580 370 286 1,069 1,028 Total consumer loans 614 397 392 1,437 5,159 46,470 2,139 425 5,755 11,476 Recoveries: Commercial loans Multi-Family — — — 498 — Commercial Real Estate 103 984 2,789 2,447 1,102 Commercial & Industrial Loans 93 73 92 443 3,443 Construction — 2,179 — 188 99 Land – Acquisition & Development 78 70 622 2,070 7,457 Total commercial loans 274 3,306 3,503 5,646 12,101 Consumer loans Single-Family Residential 568 1,002 2,026 1,394 1,020 Construction – Custom — — — — — Land – Consumer Lot Loans 23 48 168 639 719 HELOC 2 351 52 95 46 Consumer 502 940 1,021 1,252 1,167 Total consumer loans 1,095 2,341 3,267 3,380 2,952 1,369 5,647 6,770 9,026 15,053 Net charge-offs (recoveries) 45,101 (3,508) (6,345) (3,271) (3,577) ASC 326 Adoption Impact — — — 17,750 — Provision (release) for loan losses and transfers 49,500 (2,000) (2,000) 14,400 (1,300) Ending balance (1) $ 177,207 $ 172,808 $ 171,300 $ 166,955 $ 131,534 Ratio of net charge-offs (recoveries) to average loans outstanding 0.26 % (0.02) % (0.05) % (0.03) % (0.03) % (1) This does not include a reserve for unfunded commitments of $24,500,000, $32,500,000, $27,500,000, $25,000,000 and $6,900,000 as of September 30, 2023, 2022, 2021, 2020 and 2019 respectively. 41 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.
Twelve Months Ended September 30, 2024 2023 2022 2021 2020 (In thousands) Beginning balance $ 177,207 $ 172,808 $ 171,300 $ 166,955 $ 131,534 Charge-offs: Commercial loans Multi-Family — — — — — Commercial Real Estate 203 — 529 — 111 Commercial & Industrial Loans 2,611 45,856 1,202 31 4,196 Construction — — — — — Land – Acquisition & Development 149 — 11 2 11 Total commercial loans 2,963 45,856 1,742 33 4,318 Consumer loans Single-Family Residential 144 34 — 106 131 Construction – Custom — — — — — Land – Consumer Lot Loans — — 27 — 237 HELOC — — — — — Consumer 518 580 370 286 1,069 Total consumer loans 662 614 397 392 1,437 3,625 46,470 2,139 425 5,755 Recoveries: Commercial loans Multi-Family — — — — 498 Commercial Real Estate 4 103 984 2,789 2,447 Commercial & Industrial Loans 1,069 93 73 92 443 Construction — — 2,179 — 188 Land – Acquisition & Development 105 78 70 622 2,070 Total commercial loans 1,178 274 3,306 3,503 5,646 Consumer loans Single-Family Residential 381 568 1,002 2,026 1,394 Construction – Custom 1 — — — — Land – Consumer Lot Loans 58 23 48 168 639 HELOC 4 2 351 52 95 Consumer 647 502 940 1,021 1,252 Total consumer loans 1,091 1,095 2,341 3,267 3,380 2,269 1,369 5,647 6,770 9,026 Net charge-offs (recoveries) 1,356 45,101 (3,508) (6,345) (3,271) ASC 326 Adoption Impact — — — — 17,750 Provision (release) for loan losses and transfers 27,902 49,500 (2,000) (2,000) 14,400 Ending balance (1) $ 203,753 $ 177,207 $ 172,808 $ 171,300 $ 166,955 Ratio of net charge-offs (recoveries) to average loans outstanding 0.01 % 0.26 % (0.02) % (0.05) % (0.03) % (1) This does not include a reserve for unfunded commitments of $21,500,000, $24,500,000, $32,500,000, $27,500,000 and $25,000,000 as of September 30, 2024, 2023, 2022, 2021 and 2020 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.
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 five years. The following tables provide information regarding loans receivable by loan class and geography.
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. 51 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.
The ratio of the allowance for loan losses to non-accrual loans decreased to 351% as of September 30, 2023, from 500% as of September 30, 2022. 46 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CHANGES IN FINANCIAL CONDITION Cash and cash equivalents : Cash and cash equivalents increased to $980,649,000 at September 30, 2023, as compared to $683,965,000 at September 30, 2022.
The ratio of the allowance for loan losses to non-accrual loans decreased to 293% as of September 30, 2024, from 351% as of September 30, 2023. 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 increased to $2,381,102,000 at September 30, 2024, as compared to $980,649,000 at September 30, 2023.
Bank Owned Life Insurance : Bank-owned life insurance increased to $242,919,000 as of September 30, 2023 from $237,931,000 as of September 30, 2022, 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.
Bank Owned Life Insurance : Bank-owned life insurance increased to $267,633,000 as of September 30, 2024 from $242,919,000 as of September 30, 2023, primarily as a result of policies obtained in the Merger. The investments in bank-owned life insurance serve to assist in funding growing employee benefit costs.
Management believes the total ACL is sufficient to absorb estimated losses inherent in the portfolio of loans and unfunded commitments. 42 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth the amount of the Company’s allowance for loan losses by loan portfolio and class (periods prior to 2020 applied the incurred loss model as CECL was implemented in 2020).
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.
The ability to retain maturing time deposits is difficult to project; however, the Bank believes that by competitively pricing these certificates, levels deemed appropriate by management can be achieved on a continuing basis. 51 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS At September 30, 2023, the Bank had $1,779,272,000 of time deposits in amounts of $250,000 or more outstanding, maturing as follows: $763,615,000 within 3 months; $419,791,000 over 3 months through 6 months; $281,404,000 over 6 months through 12 months; and $314,462,000 thereafter.
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. 54 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS At September 30, 2024, the Bank had $4,024,661,000 of time deposits in amounts of $250,000 or more outstanding, maturing as follows: $1,057,121,000 within 3 months; $1,277,315,000 over 3 months through 6 months; $1,030,587,000 over 6 months through 12 months; and $659,638,000 thereafter.
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. 52 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Twelve Months Ended September 30, 2023 vs. 2022 Increase (Decrease) Due to 2022 vs. 2021 Increase (Decrease) Due to 2021 vs. 2020 Increase (Decrease) Due to Volume Rate Total Volume Rate Total Volume Rate Total (In thousands) (In thousands) (In thousands) Interest income: Loan portfolio $ 87,565 $ 210,911 $ 298,476 $ 74,710 $ (10,778) $ 63,932 $ 40,365 $ (48,413) $ (8,048) Mortgage-backed securities 5,760 11,092 16,852 (3,101) 4,725 1,624 (16,011) (8,593) (24,604) Investments (1) (13,400) 74,668 61,268 (9,347) 18,540 9,193 18,824 (15,827) 2,997 All interest-earning assets 79,925 296,671 376,596 62,262 12,487 74,749 43,178 (72,833) (29,655) Interest expense: Customer accounts 570 193,622 194,192 2,170 (1,442) 728 11,184 (69,183) (57,999) Borrowings 38,084 48,675 86,759 (9,002) (6,457) (15,459) (6,003) (1,254) (7,257) All interest-bearing liabilities 38,654 242,297 280,951 (6,832) (7,899) (14,731) 5,181 (70,437) (65,256) Change in net interest income $ 41,271 $ 54,374 $ 95,645 $ 69,094 $ 20,386 $ 89,480 $ 37,997 $ (2,396) $ 35,601 ___________________ (1) Includes interest on cash equivalents and dividends on stock of the FHLB of Des Moines and FRB of San Francisco.
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. 55 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Twelve Months Ended September 30, 2024 vs. 2023 Increase (Decrease) Due to 2023 vs. 2022 Increase (Decrease) Due to 2022 vs. 2021 Increase (Decrease) Due to Volume Rate Total Volume Rate Total Volume Rate Total (In thousands) (In thousands) (In thousands) Interest income: Loan portfolio $ 189,770 $ 76,011 $ 265,781 $ 87,565 $ 210,911 $ 298,476 $ 74,710 $ (10,778) $ 63,932 Mortgage-backed securities 8,129 8,469 16,598 5,760 11,092 16,852 (3,101) 4,725 1,624 Investments (1) 34,219 12,157 46,376 (13,400) 74,668 61,268 (9,347) 18,540 9,193 All interest-earning assets 232,118 96,637 328,755 79,925 296,671 376,596 62,262 12,487 74,749 Interest expense: Customer accounts 75,680 219,521 295,201 570 193,622 194,192 2,170 (1,442) 728 Borrowings 38,609 24,347 62,956 38,084 48,675 86,759 (9,002) (6,457) (15,459) All interest-bearing liabilities 114,289 243,868 358,157 38,654 242,297 280,951 (6,832) (7,899) (14,731) Change in net interest income $ 117,829 $ (147,231) $ (29,402) $ 41,271 $ 54,374 $ 95,645 $ 69,094 $ 20,386 $ 89,480 (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.
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. Troubled debt restructured loans ("TDRs") : For details, see the “Asset Quality" section above in this report.
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.
This amount includes ongoing maintenance expense, periodic valuation adjustments, and gains on sales of REO. 53 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Income Tax Expense : Income tax expense was $67,650,000 for the year ended September 30, 2023, an increase of $3,943,000, or 6.2%, from the $63,707,000 for the year ended September 30, 2022.
This amount includes ongoing maintenance expense, periodic valuation adjustments, and gains on sales of REO. 56 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Income Tax Expense : Income tax expense was $56,015,000 for the year ended September 30, 2024, a decrease of $11,635,000, or 17.2%, from the $67,650,000 for the year ended September 30, 2023.
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 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.
All of the Company’s held-to-maturity 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 held-to-maturity securities as of September 30, 2023.
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, 2024.
Non-performing assets increased 30.0% to $57,924,000, or 0.26% of total assets, at September 30, 2023, compared to $44,554,000, or 0.21% of total assets, at September 30, 2022. The increase was primarily a result of an increase of $15,888,000 in non-accrual loans partially offset by a $2,518,000 decline in real estate owned.
Non-performing assets increased 33.7% to $77,418,000, or 0.28% of total assets, at September 30, 2024, compared to $57,924,000, or 0.26% of total assets, at September 30, 2023. The increase was primarily a result of an increase of $19,119,000 in non-accrual loans partially offset by a $418,000 increase in real estate owned.
The Company’s efficiency ratio was 50.7% for 2023 as compared to 54.3% for the prior year. The number of staff, including part-time employees on a full-time equivalent basis, was 2,120 and 2,132 at September 30, 2023 and 2022, respectively. Total operating expense for the years ended September 30, 2023, and 2022 were 1.74% and 1.78%, respectively, of average assets.
The number of staff, including part-time employees on a full-time equivalent basis, was 2,208 and 2,120 at September 30, 2024 and 2023, respectively. Total operating expense for the years ended September 30, 2024, and 2023 were 1.71% and 1.74%, respectively, of average assets.
For commercial loans, six consecutive payments on newly restructured loan terms are required prior to returning the loan to accrual status. After the required six consecutive payments are made, a management assessment may conclude that collection of the entire principal and interest due is still in doubt. In those instances, the loan will remain non-accrual.
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.
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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES 42 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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.
For management's review of the factors that affected our results of operations for the years ended September 30, 2022 and 2021, refer to our Annual Report on Form 10-K for the year ended September 30, 2022, which was filed with the Securities and Exchange Commission on November 18, 2022. 38 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.
For management's review of the factors that affected our results of operations for the years ended September 30, 2023 and 2022, refer to our Annual Report on Form 10-K for the year ended September 30, 2023, which was filed with the Securities and Exchange Commission on November 17, 2023.
The Company paid out 26.6% of its 2023 earnings in cash dividends to common shareholders, compared with 28.0% last year. For the year ended September 30, 2023, the Company returned 36.6% of net income to shareholders in the form of cash dividends and share repurchases as compared to 27% for the year ended September 30, 2022.
For the year ended September 30, 2024, the Company returned 50.7% of net income to shareholders in the form of cash dividends and share repurchases as compared to 36.6% for the year ended September 30, 2023.
September 30, 2023 2022 2021 2020 2019 (In thousands) Performing restructured loans $ 45,167 $ 55,823 $ 63,655 $ 89,072 $ 116,659 Non-performing restructured loans 950 994 1,473 2,336 5,018 Total restructured loans 46,117 56,817 65,128 91,408 121,677 Non-accrual loans: Commercial loans Multi-family 5,127 5,912 475 — — Commercial real estate 23,435 4,691 8,038 3,771 5,835 Commercial & industrial 6,082 5,693 365 329 1,292 Construction — — 505 1,669 — Land – acquisition & development — — 2,340 — 169 Total commercial loans 34,644 16,296 11,723 5,769 7,296 Consumer loans Single-family residential 14,918 17,450 19,320 22,431 25,271 Construction – custom 88 435 — — — Land – consumer lot loans 9 84 359 243 246 HELOC 736 233 287 553 907 Consumer 27 36 60 60 11 Total consumer loans 15,778 18,238 20,026 23,287 26,435 Total non-accrual loans (1) 50,422 34,534 31,749 29,056 33,731 Real estate owned 4,149 6,667 8,204 4,966 6,781 Other property owned 3,353 3,353 3,672 3,673 3,314 Total non-performing assets 57,924 44,554 43,625 37,695 43,826 Total non-performing assets and performing restructured loans $ 103,091 $ 100,377 $ 107,280 $ 126,767 $ 160,485 Total non-performing assets and restructured loans as a percent of total assets 0.46 % 0.48 % 0.55 % 0.67 % 0.97 % Total non-performing assets to total assets 0.26 % 0.21 % 0.22 % 0.20 % 0.27 % ___________________ (1) For the year ended September 30, 2023, the Company recognized $2,824,000 in interest income on cash payments received from borrowers on non-accrual loans.
September 30, 2024 2023 2022 2021 2020 (In thousands) Commercial loans Multi-family 18,743 5,127 5,912 475 — Commercial real estate 26,362 23,435 4,691 8,038 3,771 Commercial & industrial — 6,082 5,693 365 329 Construction 1,120 — — 505 1,669 Land – acquisition & development 74 — — 2,340 — Total commercial loans 46,299 34,644 16,296 11,723 5,769 Consumer loans Single-family residential 21,488 14,918 17,450 19,320 22,431 Construction – custom 848 88 435 — — Land – consumer lot loans — 9 84 359 243 HELOC 596 736 233 287 553 Consumer 310 27 36 60 60 Total consumer loans 23,242 15,778 18,238 20,026 23,287 Total non-accrual loans (1) 69,541 50,422 34,534 31,749 29,056 Real estate owned 4,567 4,149 6,667 8,204 4,966 Other property owned 3,310 3,353 3,353 3,672 3,673 Total non-performing assets $ 77,418 $ 57,924 $ 44,554 $ 43,625 $ 37,695 Total non-performing assets to total assets 0.28 % 0.26 % 0.21 % 0.22 % 0.20 % (1) For the year ended September 30, 2024, the Bank recognized $1,775,000 in interest income on cash payments received from borrowers on non-accrual loans.
The Bank has entered into borrowing agreements with the FHLB to borrow funds under a short-term floating rate cash management advance program and fixed-rate term advance agreements.
The Bank has entered into borrowing agreements with the FHLB - DM to borrow funds under a short-term floating rate cash management advance program and fixed-rate term loan agreements. All borrowings are secured by stock of the FHLB - DM, deposits with the FHLB - DM, and a blanket pledge of qualifying loans receivable.
September 30, 2023 September 30, 2022 ($ in thousands) Deposit Account Balance As a % of Total Deposits Weighted Average Rate Deposit Account Balance As a % of Total Deposits Weighted Average Rate Non-interest checking $ 2,706,448 16.8 % — % $ 3,266,734 20.4 % — % Interest checking 3,882,715 24.2 2.28 3,497,795 21.8 0.90 Savings 817,547 5.1 0.21 1,059,093 6.6 0.13 Money market 3,358,603 20.9 1.48 4,867,905 30.4 0.49 Time deposits 5,305,016 33.0 3.77 3,338,043 20.8 0.74 Total $ 16,070,329 100 % 2.12 % $ 16,029,570 100 % 0.51 % The following table shows the geographic distribution by state for customer deposits.
September 30, 2024 September 30, 2023 ($ in thousands) Deposit Account Balance As a % of Total Deposits Weighted Average Rate Deposit Account Balance As a % of Total Deposits Weighted Average Rate Non-interest checking $ 2,500,467 11.7 % — % $ 2,706,448 16.8 % — % Interest checking 4,486,444 21.0 2.89 3,882,715 24.2 2.28 Savings 718,560 3.4 0.23 817,547 5.1 0.21 Money market 4,111,714 19.2 2.22 3,358,603 20.9 1.48 Time deposits 9,556,785 44.7 4.58 5,305,016 33.0 3.77 Total $ 21,373,970 100 % 3.09 % $ 16,070,329 100 % 2.12 % The following table shows the geographic distribution by state for customer deposits.
The Bank has a credit line with the FHLB of up to 45% of total assets depending on specific collateral eligibility. This line provides a substantial source of additional liquidity if needed. Based on collateral pledged as of September 30, 2023, the Bank had $2,357,588,000 of additional borrowing capacity at the FHLB.
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.
(3) This does not include a reserve for unfunded commitments of $24,500,000, $32,500,000, $27,500,000, $25,000,000 and $6,900,000 as of September 30, 2023, 2022, 2021, 2020 and 2019, respectively. 43 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ASSET QUALITY Troubled debt restructured loans ("TDRs"). TDRs are reserved for under the Company's CECL methodology.
(3) This does not include a reserve for unfunded commitments of $21,500,000, $24,500,000, $32,500,000, $27,500,000 and $25,000,000 as of September 30, 2024, 2023, 2022, 2021 and 2020, respectively. 46 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ASSET QUALITY Modifications to Borrowers Experiencing Financial Difficulty.
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 investment securities : Held-to-maturity securities decreased by $39,713,000 to $423,586,000, or 8.6%, during the year ended September 30, 2023, primarily due to principal repayments and maturities of $39,414,000.
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 investment securities : Held-to-maturity securities increased by $13,386,000 to $436,972,000, or 3.2%, during the year ended September 30, 2024, largely due to the purchase of $47,092,000 of HTM securities.
September 30, 2023 Amortized Cost Weighted Average Yield ($ in thousands) Due in less than 1 year $ 3,500 6.06 % Due after 1 year through 5 years 231,307 4.61 Due after 5 years through 10 years 426,180 4.55 Due after 10 years 1,881,215 4.27 $ 2,542,202 4.35 % For further information on our investment portfolio, see Note C to the Consolidated Financial Statements in “Item 8.
September 30, 2024 Amortized Cost Weighted Average Yield ($ in thousands) Due in less than 1 year $ 49,384 4.70 % Due after 1 year through 5 years 354,344 5.12 Due after 5 years through 10 years 484,630 4.99 Due after 10 years 2,165,491 4.47 $ 3,053,849 4.63 % For further information on our investment portfolio, see Note C to the Consolidated Financial Statements in “Item 8.
During 2023, transaction accounts decreased by $1,926,214,000 or 15.2% while time deposits increased by $1,966,973,000 or 58.9%. 50 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table shows customer deposits by account type.
During 2024, transaction accounts increased by $1,051,872,000 or 9.8% while time deposits increased by $4,251,769,000 or 80.1% as 66% of the LBC customer accounts were time deposits. 53 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table shows customer deposits by account type.
Average noninterest-bearing deposits decreased by $279,150,000 over the same period. 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.
Rates on interest-bearing liabilities increased by 128 basis points outpacing the 46 basis points increase in the average rate on interest-earning assets. 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.
The majority of REO properties are former bank premises that are expected to be sold.
During 2024, the Bank sold real estate owned properties for total net proceeds of $6,802,000. The majority of REO properties are former bank premises that are expected to be sold.
The Company's shareholders' equity at September 30, 2023, was $2,426,426,000, or 10.80% of total assets, as compared to $2,274,260,000, or 10.95% of total assets, at September 30, 2022.
The Company's shareholders' equity at September 30, 2024, was $3,000,300,000, or 10.69% of total assets, as compared to $2,426,426,000, or 10.80% of total assets, at September 30, 2023. The Company's shareholders' equity was greatly impacted in the year by the stock issued in the Merger valued at $465,504,000.
The increase is mostly due to an 8.3% increase in pre-tax income. The effective tax rate for 2023 was 20.81% as compared to 21.23% for the year ended September 30, 2022.
The decrease is mostly due to an 21.2% decrease in pre-tax income. The effective tax rate for 2024 was 21.88% as compared to 20.81% for the year ended September 30, 2023. 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.
Financial Statements and Supplementary Data” of this report. Loans receivable: Loans receivable, net of related contra accounts, increased $1,362,986,000, or 8.5%, to $17,476,550,000 at September 30, 2023, from $16,113,564,000 one year earlier.
Financial Statements and Supplementary Data” of this report. Loans receivable: Loans receivable, net of related contra accounts, increased $3,439,804,000, or 19.7%, to $20,916,354,000 at September 30, 2024, from $17,476,550,000 one year earlier. The increase resulted primarily from the addition of loans obtained in the Merger.
Commercial loan originations accounted for 73.9% of total originations and consumer originations were 26.1% as the Company continues to focus on commercial lending, coupled with growing economies in all major markets in which we operate.
Commercial loan originations 49 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS accounted for 72.5% of total originations and consumer originations were 27.5% as the Bank 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.
There were no held-to-maturity securities sold during the year ended September 30, 2023. As of September 30, 2023, the net unrealized loss on held-to-maturity securities was $68,398,000, compared to $56,439,000 the year prior, which management attributes to the change in interest rates since acquisition.
As of September 30, 2024, the net unrealized loss on held-to-maturity securities was $35,926,000, compared to $68,398,000 the year prior, which management attributes to the change in interest rates since acquisition. Substantially all of the Company’s HTM debt securities are issued by U.S. government agencies or U.S. government-sponsored enterprises.
September 30, 2023 September 30, 2022 $ Change % Change (In thousands) Allowance for credit losses: Commercial loans Multi-family $ 13,155 $ 12,013 $ 1,142 10 % Commercial real estate 28,842 25,814 3,028 12 % Commercial & industrial 58,773 57,210 1,563 3 % Construction 29,408 26,161 3,247 12 % Land - acquisition & development 7,016 12,278 (5,262) (43) % Total commercial loans 137,194 133,476 3,718 3 % Consumer loans Single-family residential 28,029 25,518 2,511 10 % Construction - custom 2,781 3,410 (629) (18) % Land - consumer lot loans 3,512 5,047 (1,535) (30) % HELOC 2,859 2,482 377 15 % Consumer 2,832 2,875 (43) (1) % Total consumer loans 40,013 39,332 681 2 % Total allowance for loan losses 177,207 172,808 4,399 3 % Reserve for unfunded commitments 24,500 32,500 (8,000) (25) % Total allowance for credit losses $ 201,707 $ 205,308 $ (3,601) (2) % The allowance for loan losses increased by $4,399,000, or 2.55%, from $172,808,000 as of September 30, 2022, to $177,207,000 at September 30, 2023.
September 30, 2024 September 30, 2023 $ Change % Change (In thousands) Allowance for credit losses: Commercial loans Multi-family $ 25,248 $ 13,155 $ 12,093 92 % Commercial real estate 39,210 28,842 10,368 36 % Commercial & industrial 58,748 58,773 (25) — % Construction 22,267 29,408 (7,141) (24) % Land - acquisition & development 7,900 7,016 884 13 % Total commercial loans 153,373 137,194 16,179 12 % Consumer loans Single-family residential 40,523 28,029 12,494 45 % Construction - custom 1,427 2,781 (1,354) (49) % Land - consumer lot loans 2,564 3,512 (948) (27) % HELOC 3,049 2,859 190 7 % Consumer 2,817 2,832 (15) (1) % Total consumer loans 50,380 40,013 10,367 26 % Total allowance for loan losses 203,753 177,207 26,546 15 % Reserve for unfunded commitments 21,500 24,500 (3,000) (12) % Total allowance for credit losses $ 225,253 $ 201,707 $ 23,546 12 % The allowance for loan losses increased by $26,546,000, or 14.98%, from $177,207,000 as of September 30, 2023, to $203,753,000 at September 30, 2024.
The change was due to the factors described below. Net Interest Income : For the year ended September 30, 2023, net interest income was $690,234,000, an increase of $95,645,000 or 16.1% from the year ended September 30, 2022. Net interest margin was 3.40% for the year ended September 30, 2023 compared to 3.16% in the prior year.
Net Interest Income : For the year ended September 30, 2024, net interest income was $660,832,000, a decrease of $29,402,000 or 4.3% from the year ended September 30, 2023. Net interest margin was 2.69% for the year ended September 30, 2024 compared to 3.40% in the prior year.
The weighted average rate for borrowings was 3.98% as of September 30, 2023, versus 2.02% at September 30, 2022, the increase being primarily due to higher rates on new short-term borrowings. The Company has entered into interest rate swaps to hedge interest rate risk and convert certain FHLB advances to fixed rate payments.
Borrowings : Total borrowings decreased to $3,267,589,000 as of September 30, 2024, as compared to $3,650,000,000 at September 30, 2023. The weighted average rate for borrowings was 3.93% as of September 30, 2024, versus 3.98% at September 30, 2023, the decrease being primarily due to higher rates on new short-term borrowings.
($ in thousands) September 30, 2023 September 30, 2022 $ Change % Change Washington $ 7,627,674 47.5 % $ 7,209,123 45.0 % $ 418,551 5.8 % Oregon 2,820,338 17.5 2,878,933 18.0 (58,595) (2.0) % Arizona 1,635,345 10.2 1,625,957 10.1 9,388 0.6 % New Mexico 1,474,986 9.2 1,363,525 8.5 111,461 8.2 % Idaho 972,424 6.1 1,052,550 6.6 (80,126) (7.6) % Utah 662,192 4.1 802,635 5.0 (140,443) (17.5) % Nevada 495,794 3.1 534,655 3.3 (38,861) (7.3) % Texas 381,576 2.4 562,192 3.5 (180,616) (32.1) % $ 16,070,329 100 % $ 16,029,570 100 % $ 40,759 0.3 % The following table sets forth, by various interest rate categories, the amount of fixed-rate time deposits that mature during the periods indicated.
($ in thousands) September 30, 2024 September 30, 2023 $ Change % Change Washington $ 8,528,608 39.9 % $ 7,627,674 47.5 % $ 900,934 11.8 % Oregon 2,696,243 12.6 2,820,338 17.5 (124,095) (4.4) % Arizona 1,619,101 7.6 1,635,345 10.2 (16,244) (1.0) % New Mexico 1,622,534 7.6 1,474,986 9.2 147,548 10.0 % Idaho 949,025 4.4 972,424 6.1 (23,399) (2.4) % Utah 584,001 2.7 662,192 4.1 (78,191) (11.8) % Nevada 527,704 2.5 495,794 3.1 31,910 6.4 % Texas 398,736 1.9 381,576 2.4 17,160 4.5 % California 4,448,018 20.8 — — — — % $ 21,373,970 100 % $ 16,070,329 100 % $ 855,623 5.3 % The following table sets forth, by various interest rate categories, the amount of fixed-rate time deposits that mature during the periods indicated.
Other property owned of $3,353,000 as of September 30, 2023 is comprised entirely of a government guarantee related to equipment obtained via a commercial loan foreclosure. 45 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TDRs declined to $46,117,000 as of September 30, 2023, from $56,817,000 as of September 30, 2022.
Other property owned of $3,310,000 as of September 30, 2024 is comprised entirely of a government guarantee related to equipment obtained via a commercial loan foreclosure. As of September 30, 2024, real estate owned totaled $4,567,000, an increase of $418,000, or 10.1%, from $4,149,000 as of September 30, 2023.
As of September 30, 2023, the allowance of $177,207,000 is for loans that are evaluated on a pooled basis, which was comprised of $107,049,000 related to the quantitative component and $70,158,000 related to management's qualitative overlays. The Company recorded a provision for credit losses of $41,500,000 in 2023, compared to a provision of $3,000,000 for 2022.
As of September 30, 2024, the allowance of $203,753,000 is for loans that are evaluated on a pooled basis, which was comprised of $144,848,000 related to the quantitative component and $58,905,000 related to management's qualitative overlays. The fluctuations that resulted in the overall increase from the prior year can be seen in the table above.
Intangible assets : The Company's intangible assets totaled $310,619,000 at September 30, 2023 compared to $309,009,000 as of September 30, 2022. The balance at September 30, 2023 is comprised of $304,750,000 of goodwill and the unamortized balance of the core deposit and other intangibles of $5,869,000.
Intangible assets : The Bank's intangible assets totaled $448,425,000 at September 30, 2024 compared to $310,619,000 as of September 30, 2023. The increase is largely the result of the Merger which created $104,707,000 in Goodwill and a Core Deposit Intangible balance of $37,022,000.
Real estate owned : For details, see the “Asset Quality" section above in this report. Interest receivable : Interest receivable was $87,003,000 as of September 30, 2023, an increase of $23,131,000, or 36.2%, since September 30, 2022. The increase was the result of an 8.5% increase in loans receivable combined with the increase in interest rates.
Interest receivable : Interest receivable was $102,827,000 as of September 30, 2024, an increase of $15,824,000, or 18.2%, since September 30, 2023. The increase was the result of a 19.7% increase in loans receivable combined with the increase in interest rates.
The Company's cash and cash equivalents were $980,649,000 at September 30, 2023, which is a 43.4% increase from the balance of $683,965,000 as of September 30, 2022. The change was meant to increase balance sheet liquidity and was used to fund growth in the loan portfolio.
The Company's cash and cash equivalents were $2,381,102,000 at September 30, 2024, which is a 142.8% increase from the balance of $980,649,000 as of September 30, 2023. During the year, the Company completed the sale of approximately $2,800,000,000 in multifamily loans and approximately $400,000,000 in single-family loans from the acquired LBC loan portfolio.
The increase in cash was the result of a $40,759,000 increase in customer accounts and $1,525,000,000 increase in borrowings. The net loans balance increased by $1,362,986,000 during the year ended September 30, 2023. See “Changes in Financial Condition” above and the “Statement of Cash Flows” included in the financial statements for additional details regarding this change.
The proceeds from the sales have increased liquidity adding approximately $1 billion in cash after paying down borrowings. See “Changes in Financial Condition” above and the “Statement of Cash Flows” included in the financial statements for additional details regarding this change.
The modification of these loans is typically a payment reduction through a rate reduction of between 100 to 200 bps for a specific term, usually six to twelve months. Interest-only payments may also be approved during the modification period. Principal forgiveness generally is not an available option for restructured loans.
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.
Most loans restructured in TDRs are accruing and performing loans where the borrower has proactively approached the Bank about a modification due to temporary financial difficulties. Each request is individually evaluated for merit and likelihood of success.
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.
The increase in net interest income was primarily due to rising interest rates. The average rate earned on interest-earning assets grew by 159 basis points to 5.13% while the average rate paid on interest-bearing liabilities increased by 168 basis points to 2.18%.
The decrease was the result of the combination of greater growth in interest-bearing liabilities balances than in interest-paying assets and a larger increase in the rate paid on those liabilities compared to the rates earned on interest-earning assets. Average interest-bearing liabilities grew by 27.2% while average interest-earning assets grew by 20.8%.
Provision (Release) for Credit Losses : The Company recorded a provision for credit losses of $41,500,000 in 2023, compared to a provision of $3,000,000 for 2022. In 2023, provisioning was largely due to adjustments made as a result of one large charge-off taken, offset by reduced unfunded commitment balances.
Provision for Credit Losses : The Company recorded a provision for credit losses of $17,500,000 in 2024, compared to a provision of $41,500,000 for 2023.
Other Expense : Operating expense was $376,035,000 for the year ended September 30, 2023, an increase of $17,460,000, or 4.9%, from the $358,575,000 for the year ended September 30, 2022. Compensation and benefits costs increased $2,617,000 or 1.3% year-over-year primarily due to annual merit increases and investments in strategic initiatives combined with reduced cost capitalization as loan originations have decreased.
Non-interest Expense : Total non-interest expense was $448,272,000 for the year ended September 30, 2024, an increase of $72,237,000, or 19.2%, from the $376,035,000 for the year ended September 30, 2023. Compensation and benefits costs increased $37,614,000 or 19.1% year-over-year primarily due to Merger-related retention, severance and change-in-control expenses combined with a larger post-Merger workforce.
The decrease is primarily due to unrealized gains recorded in the prior year for certain equity investments that resulted in small losses in the current year. This change made up $13,992,730 of the overall decrease.
The increase in other income is primarily due to increased income from the Company's subsidiary, WAFD Insurance Group combined with a decrease in unrealized losses recorded for certain equity method investments in fiscal 2024 compared to the prior year. The reduced losses on the equity method investment made up $2,371,000 of the overall increase.
The Company's shareholders' equity was impacted in the year by net income of $257,426,000, the payment of $63,792,000 in Common Stock dividends, payment of $14,625,000 in preferred stock dividends, $30,463,000 of treasury stock purchases, as well as other comprehensive loss of $5,560,000.
Other items affecting shareholders' equity were net income of $200,041,000, the payment of $74,267,000 in Common Stock dividends, payment of $14,625,000 in preferred stock dividends, $27,069,000 of treasury stock purchases, as well as other comprehensive loss of $8,930,000. The Company paid out 41.2% of its 2024 earnings in cash dividends to common shareholders, compared with 26.6% last year.
Customer accounts : As of September 30, 2023, customer deposits totaled $16,070,329,000 compared with $16,029,570,000 at September 30, 2022, a $40,759,000, or 0.3%, increase.
The balance at September 30, 2024 is comprised of $411,360,000 of goodwill and the unamortized balance of the core deposit and other intangibles of $37,065,000. Customer accounts : As of September 30, 2024, customer deposits totaled $21,373,970,000 compared with $16,070,329,000 at September 30, 2023, a $5,303,641,000, or 33.0%, increase largely due to deposits obtained in the Merger.
The increase resulted primarily from originations of $4,702,156,000, a decrease to loans-in-process of $1,110,083,000 and loan purchases of $80,015,000, partially offset by loan repayments of $4,435,269,000 during the year ended September 30, 2023.
The balance change also reflects originations of $3,632,071,000, a decrease to loans-in-process of $886,142,000 and principal repayments of $4,302,359,000 during the year ended September 30, 2024.
These borrowings are repayable at any time without penalty and are the lowest cost funding source available. Based on collateral pledged as of September 30, 2023, the Bank had $1,119,000,000 of additional borrowing capacity within the BTFP. The Bank is also eligible to borrow under the Federal Reserve Bank's primary credit program.
The Bank elected to utilize the Federal Reserve's Bank Term Funding Program ("BTFP") to leverage its highly favorable terms to fortify the Bank's liquidity position. These borrowings are repayable at any time without penalty and are currently the lowest cost funding source available. The Federal Reserve ceased making new BTFP loans on March 11, 2024.
Management does not expect the resulting expense to be material to its financial results given the Company's low level of uninsured deposits. 40 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 (periods prior to 2020 applied the incurred loss model as the current expected credit loss methodology ("CECL") was implemented in 2020).
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.
Taking into account these hedges, the weighted average effective maturity of FHLB advances at September 30, 2023 is 2.01 years. RESULTS OF OPERATIONS COMPARISON OF 2023 RESULTS WITH 2022 Net Income : Net income increased $21,096,000, or 8.9%, to $257,426,000 for the year ended September 30, 2023, as compared to $236,330,000 for the year ended September 30, 2022.
RESULTS OF OPERATIONS COMPARISON OF 2024 RESULTS WITH 2023 Net Income : Net income decreased $57,385,000, or 22.3%, to $200,041,000 for the year ended September 30, 2024, as compared to $257,426,000 for the year ended September 30, 2023. The change was due to the factors described below.
Removed
Financial Statements and Supplementary Data.” UPDATE ON LUTHER BURBANK MERGER On November 13, 2022, the Company announced that it had entered into a definitive agreement and plan of reorganization with Luther Burbank Corporation (“Luther Burbank”), pursuant to which Luther Burbank will be merged with and into WaFd with WaFd as the surviving institution, promptly followed by the merger of Luther Burbank’s wholly-owned bank subsidiary, Luther Burbank Savings, (“LBS”) with and into WaFd Bank (the “Merger”).
Added
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.
Removed
The proposed Merger is an all-stock transaction valued at approximately $654 million based upon the closing price of the Company’s Common Stock on November 11, 2022.
Added
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.
Removed
As part of the merger agreement, Luther Burbank shares of Common Stock will be converted into, and canceled in exchange for, the right to receive 0.3353 shares of the Company’s Common Stock, with Luther Burbank shareholders receiving cash in lieu of fractional shares of Company Common Stock.
Added
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

28 edited+9 added−3 removed11 unchanged
Biggest changeNet Interest Income Summary Year Ended September 30, 2023 2022 2021 Average Balance Interest Average Rate Average Balance Interest Average Rate Average Balance Interest Average Rate ($ in thousands) Assets Loans receivable (1) $ 17,095,014 $ 900,068 5.27 % $ 15,083,111 $ 601,593 3.99 % $ 13,209,642 $ 537,660 4.07 % Mortgage-backed securities 1,362,415 43,184 3.17 1,141,501 26,332 2.31 1,290,901 24,707 1.91 Cash and other investment securities (2) 1,742,806 91,058 5.22 2,500,008 33,555 1.34 3,412,263 23,051 0.68 FHLB & FRB stock 127,066 8,645 6.80 87,861 4,879 5.55 123,368 6,192 5.02 Total interest-earning assets 20,327,301 1,042,955 5.13 % 18,812,481 666,359 3.54 % 18,036,174 591,610 3.28 % Other assets 1,484,271 1,343,848 1,279,085 Total assets $ 21,811,572 $ 20,156,329 $ 19,315,259 Liabilities and Shareholders’ Equity Interest-bearing customer accounts $ 12,906,383 237,233 1.84 % $ 12,738,719 43,041 0.34 % $ 11,962,764 42,312 0.35 % FHLB advances 3,261,917 115,488 3.54 1,731,110 28,729 1.66 2,234,027 44,188 1.98 Other borrowings — — — 10 — 2.49 11 — 0.69 Total interest-bearing liabilities 16,168,300 352,721 2.18 % 14,469,839 71,770 0.50 % 14,196,802 86,500 0.61 % Noninterest-bearing customer accounts 2,969,970 3,249,120 2,679,773 Other liabilities 296,840 242,213 249,134 Total liabilities 19,435,110 17,961,172 17,125,709 Shareholders’ equity 2,376,462 2,195,157 2,189,550 Total liabilities and shareholders’ equity $ 21,811,572 $ 20,156,329 $ 19,315,259 Net interest income/interest rate spread $ 690,234 2.95 % $ 594,589 3.04 % $ 505,110 2.67 % Net interest margin (3) 3.40 % 3.16 % 2.80 % ___________________ (1) Interest income includes net amortization-accretion of deferred loan fees, costs, discounts and premiums of $20,130,000, $29,156,000 and $48,079,000 for year ended 2023, 2022 and 2021, respectively.
Biggest changeNet Interest Income and Margin Summary Year Ended September 30, 2024 2023 2022 Average Balance Interest Average Rate Average Balance Interest Average Rate Average Balance Interest Average Rate ($ in thousands) Assets Loans receivable (1) $ 20,500,281 $ 1,165,849 5.69 % $ 17,095,014 $ 900,068 5.27 % $ 15,083,111 $ 601,593 3.99 % Mortgage-backed securities 1,597,566 59,782 3.74 1,362,415 43,184 3.17 1,141,501 26,332 2.31 Cash & Investments (2) 2,330,505 133,608 5.73 1,742,806 91,058 5.22 2,500,008 33,555 1.34 FHLB & FRB stock 131,313 12,471 9.50 127,066 8,645 6.80 87,861 4,879 5.55 Total interest-earning assets 24,559,665 1,371,710 5.59 % 20,327,301 1,042,955 5.13 % 18,812,481 666,359 3.54 % Other assets 1,682,721 1,484,271 1,343,848 Total assets $ 26,242,386 $ 21,811,572 $ 20,156,329 Liabilities and Shareholders’ Equity Interest-bearing customer accounts $ 16,327,208 532,434 3.26 % $ 12,906,383 237,233 1.84 % $ 12,738,719 43,041 0.34 % Borrowings 4,242,431 178,444 4.21 3,261,917 115,488 3.54 1,731,120 28,729 1.66 Total interest-bearing liabilities 20,569,639 710,878 3.46 % 16,168,300 352,721 2.18 % 14,469,839 71,770 0.50 % Noninterest-bearing customer accounts 2,593,567 2,969,970 3,249,120 Other liabilities 322,071 296,840 242,213 Total liabilities 23,485,277 19,435,110 17,961,172 Shareholders’ equity 2,757,109 2,376,462 2,195,157 Total liabilities and shareholders’ equity $ 26,242,386 $ 21,811,572 $ 20,156,329 Net interest income/interest rate spread $ 660,832 2.13 % $ 690,234 2.95 % $ 594,589 3.04 % Net interest margin (3) 2.69 % 3.40 % 3.16 % ___________________ (1) Interest income includes net amortization-accretion of deferred loan fees, costs, discounts and premiums of $37,489,000, $20,130,000 and $29,156,000 for year ended 2024, 2023 and 2022, respectively.
Actual results would differ from the assumptions used in this model, as management monitors and adjusts loan and deposit pricing and the size and composition of the balance sheet to respond to changing interest rates.
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.
(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. 59 The following table shows the potential impact of changing interest rates on net income for one year.
(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. 62 The following table shows the potential impact of changing interest rates on net income for one year.
As of September 30, 2023, in the event of an immediate and parallel increase of 200 basis points in interest rates, the NPV is estimated to decrease by $723,000,000, or 27.4%, and the NPV-to-total assets ratio to decline to 9.5% from a base of 12.4%.
As of September 30, 2023, in the event of an immediate and parallel increase of 200 basis points in interest rates, the NPV was estimated to decrease by $723,000,000, or 27.4%, and the NPV-to-total assets ratio to decline to 9.5% from a base of 12.4%.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk INTEREST RATE RISK The primary source of income for the Company 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.
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 change in the sensitivity of the NPV ratio to this assumed change in interest rates is primarily due to the 56 flattening of the yield curve and changes in balance sheet mix year over year.
The change in the sensitivity of the NPV ratio to this assumed change in interest rates is primarily due to the steepening of the yield curve and changes in balance sheet mix year over year.
These accounts make up 67.0% of the deposit portfolio as of September 30, 2023. 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.
These accounts make up 55.3% of the deposit portfolio 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 $980,649,000 and shareholders' equity of $2,426,426,000 provide management with flexibility in managing interest rate risk.
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 $2,381,102,000 and shareholders' equity of $3,000,300,000 provide management with flexibility in managing interest rate risk.
The higher rate on interest-earning assets is due primarily to the Federal Reserve Bank's rate increases which have led to higher rates on adjustable rate loans, investment securities and cash as well as asset mix shifting to loans receivable.
The higher rate on interest-earning assets is due primarily to the Federal Reserve Bank's rate increases from March 2022 until September 2024, which have led to higher rates on adjustable rate loans, investment securities and cash as well as asset mix shifting to loans receivable.
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 2.61% at September 30, 2023 and 3.36% at September 30, 2022.
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 1.91% at September 30, 2024 and 2.61% at September 30, 2023.
The period end interest rate spread for the last eight fiscal quarters is shown below: SEP 2023 JUN 2023 MAR 2023 DEC 2022 SEP 2022 JUN 2022 MAR 2022 DEC 2021 Interest rate on loans and mortgage-backed securities 5.08 % 4.97 % 4.81 % 4.59 % 4.13 % 3.67 % 3.37 % 3.30 % Interest rate on other interest-earning assets 4.98 4.74 4.45 3.19 3.16 2.02 0.85 0.67 Combined, all interest-earning assets 5.07 4.94 4.77 4.46 4.04 3.50 2.93 2.83 Interest rate on customer accounts 2.12 1.82 1.48 0.94 0.51 0.32 0.24 0.23 Interest rate on borrowings (1) 3.98 3.93 3.69 3.14 2.02 1.43 1.55 1.49 Combined cost of funds 2.46 2.22 1.91 1.29 0.68 0.43 0.36 0.35 Interest rate spread 2.61 % 2.72 % 2.86 % 3.17 % 3.36 % 3.07 % 2.57 % 2.48 % (1) Represents the effective rate taking into consideration cash flow hedges on FHLB borrowings. 57 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 period end interest rate spread for the last eight fiscal quarters is shown below: SEP 2024 JUN 2024 MAR 2024 DEC 2023 SEP 2023 JUN 2023 MAR 2023 DEC 2022 Interest rate on loans and mortgage-backed securities 5.16 % 5.18 % 4.94 % 5.11 % 5.08 % 4.97 % 4.81 % 4.59 % Interest rate on other interest-earning assets 4.85 5.13 5.02 4.94 4.98 4.74 4.45 3.19 Combined, all interest-earning assets 5.11 5.17 4.94 5.09 5.07 4.94 4.77 4.46 Interest rate on customer accounts 3.09 2.91 2.92 2.35 2.12 1.82 1.48 0.94 Interest rate on borrowings (1) 3.93 4.10 4.48 3.99 3.98 3.93 3.69 3.14 Combined cost of funds 3.20 3.10 3.24 2.67 2.46 2.22 1.91 1.29 Interest rate spread 1.91 % 2.07 % 1.70 % 2.42 % 2.61 % 2.72 % 2.86 % 3.17 % (1) Represents the effective rate taking into consideration cash flow hedges on FHLB borrowings. 60 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 composition of the investment portfolio was 45.9% variable rate and 54.1% fixed rate as of September 30, 2023 to provide some protection against rising 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.
The composition of the investment portfolio was 53.8% variable rate and 46.2% fixed rate as of September 30, 2024 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.
As of September 30, 2023, the weighted-average rate on interest-earning assets increased by 103 basis points to 5.07% compared to September 30, 2022.
As of September 30, 2024, the weighted-average rate on interest-earning assets increased by 4 basis points to 5.11% compared to September 30, 2023.
Interest rate sensitivity depends on certain repricing characteristics in our interest-earning assets and interest-bearing liabilities, including the maturity structure of assets and liabilities and their repricing characteristics during the periods of changes in market interest rates. The analysis presented below assumes a constant balance sheet.
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.
As of September 30, 2022, in the event of an immediate and parallel increase of 200 basis points in interest rates, the NPV was estimated to decrease by $617,000,000, or 20.9%, and the NPV-to-total assets ratio to decline to 12.6% from a base of 14.9%.
As of September 30, 2023, in the event of an immediate and parallel decrease of 200 basis points in interest rates, the NPV was estimated to increase by $583,000,000, or 22.1%, and the NPV-to-total assets ratio to increase to 14.3% from a base of 12.4%.
Prepayment speeds for single family mortgages are low at September 30, 2023 with the Bank's conditional payment rate ("CPR") for this portfolio segment at 7.0%, down from 8.1% the year before.
Prepayment speeds for single family mortgages are increasing though still low at September 30, 2024 with the Bank's conditional payment rate ("CPR") for this portfolio segment at 8.6%, up slightly from 7.0% the year before.
The higher yield on interest-earning assets was primarily due to the impact of rising rates on adjustable rate assets and cash. The higher rate in interest-bearing liabilities was primarily due to replacing maturing borrowings at higher rates.
The higher yield on interest-earning assets was primarily due to the impact of rising rates on adjustable rate assets and cash. The higher rate in interest-bearing liabilities was primarily due to higher rates on interest-bearing customer accounts combined with the higher interest rates on borrowings and customer accounts obtained in the Merger.
Another method used to quantify interest rate risk is the NPV analysis. This analysis calculates the difference between the present value of interest-bearing liabilities and the present value of expected cash flows from interest-earning assets and off-balance-sheet contracts.
This analysis calculates the difference between the present value of interest-bearing liabilities and the present value of expected cash flows from interest-earning assets and off-balance-sheet contracts.
The net interest margin increased to 3.40% for the year ended September 30, 2023, from 3.16% for the year ended September 30, 2022. The yield on interest-earning assets increased 159 basis points to 5.13% and the cost of interest-bearing liabilities increased by 168 basis points to 2.18%.
The net interest margin decreased to 2.69% for the year ended September 30, 2024, from 3.40% for the year ended September 30, 2023. The yield on interest-earning assets increased 46 basis points to 5.59% and the cost of interest-bearing liabilities increased by 128 basis points to 3.46%.
For the year ended September 30, 2023, average interest-earning assets increased by 8.1% to $20,327,301,000, up from $18,812,481,000 for the year ended September 30, 2022. Balance sheet growth in 2023 was primarily due to the growth in loans receivable.
For the year ended September 30, 2024, average interest-earning assets increased by 20.8% to $24,559,665,000, up from $20,327,301,000 for the year ended September 30, 2023. Balance sheet growth in 2024 was primarily due to the Merger.
In the event of an immediate and parallel increase of 200 basis points in both short- and long-term interest rates, the model estimates that net interest income would decrease by 2.0% in the next year. This compares to an estimated increase of 1.9% as of the September 30, 2022 analysis.
In the event of an immediate and parallel decrease of 200 basis points across all interest rates, the model estimates that net interest income would decrease 1.0% in the next year. This compares to an estimated increase of 7.8% for the same measure as of September 30, 2023.
As of September 30, 2023, in the event of an immediate and parallel decrease of 100 basis points in interest rates, the NPV is estimated to increase NPV by $327,000,000, or 12.38%, and increase the NPV to total assets ratio to 13.59% from a base of 12.4%. Interest Rates.
As of September 30, 2024, in the event of an immediate and parallel decrease of 200 basis points in interest rates, the NPV is estimated to increase by $273,000,000, or 9.2%, and the NPV-to-total assets ratio to increase to 11.6% from a base of 11.0%.
During 2023, average interest-bearing customer deposit accounts increased $167,664,000 or 1.3% and the average balance of borrowings increased by $1,530,807,000, or 88.4%, from 2022. 58 The following table sets forth the information explaining the changes in the net interest income and net interest margin.
During 2024, average interest-bearing customer deposit accounts increased $3,420,825,000 or 26.5% and the average balance of borrowings increased by $980,514,000, or 30.1%, from 2023, primarily due to the Merger. 61 The following table sets forth the information explaining the changes in the net interest income and net interest margin.
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 and extension of the maturity of certain borrowings.
In a rising interest rate environment, it is likely that the Company will grow its balance sheet to offset margin compression that may occur.
Potential Increase (Decrease) in Net Interest Income Basis Point Increase (Decrease) in Interest Rates September 30, 2023 September 30, 2022 (In thousands, except percentages) (200) $ 57,103 7.79 % $ (18,501) (2.40) % (100) 36,168 4.94 (10,525) (1.37) 100 (9,507) (1.30) 4,788 0.62 200 (14,907) (2.03) 14,381 1.87 300 (22,737) (3.10) 21,110 2.74 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.
Potential Increase (Decrease) in Net Interest Income Basis Point Increase (Decrease) in Interest Rates September 30, 2024 (In thousands, except percentages) (300) $ (35,155) (4.27) % (200) (8,414) (1.02) (100) 1,702 0.21 100 (274) (0.03) 200 22,686 2.76 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.
As of September 30, 2023, the weighted-average rate on interest-bearing liabilities increased by 178 basis points to 2.46% compared to September 30, 2022. The higher rate on interest-bearing liabilities primarily resulted from customer deposits repricing and higher rates on new borrowings.
As of September 30, 2024, the weighted-average rate on interest-bearing liabilities increased by 74 basis points to 3.20% compared to September 30, 2023.
It is noted that a flattening yield curve where the spread between short-term rates and long-term rates decreases would likely result in lower net interest income and vice versa for a steepening yield curve.
It is noted that a steepening yield curve where the spread between short-term rates and long-term rates increases would likely result in higher net interest income. In the event of an immediate and parallel increase of 200 basis points across all interest rates, the model estimates that net interest income would increase by 2.8% in the next year.
During 2023, average loans receivable increased $2,011,903,000, or 13.3%, while the combined average balances of mortgage-backed securities, other investment securities and cash decreased by $536,288,000 or 14.7%. Management views organic loan growth as the highest and best use of capital, thus the focus on primarily growing loans receivable.
During 2024, average loans receivable increased $3,405,267,000, or 19.9%, while the combined average balances of mortgage-backed securities, other investment securities and cash increased by $822,850,000 or 26.5%.
Removed
Management estimates that a gradual increase of 300 basis points in short-term rates and 100 basis points in long-term rates over two years would result in a 0.2% increase in net interest income in the first year and a decrease of 1.0% in the second year, assuming a constant balance sheet and no management intervention.
Added
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.
Removed
Alternatively, in the event of an immediate and parallel decrease of 100 basis points in both short and long-term interest rates, the model estimates that net interest income would increase by 4.94%. Net Portfolio Value ("NPV") Sensitivity. The NPV is an estimate of the market value of shareholders' equity at a point in time.
Added
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").
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September 30, 2023 Change in Interest Rates Estimated NPV Amount Estimated Increase/(Decrease) in NPV Amount NPV as % of Assets (Basis Points) (In thousands) (In thousands) 300 $ 1,550,686 $ (1,088,444) 7.88 % 200 1,915,842 (723,288) 9.50 100 2,276,765 (362,365) 11.00 No change 2,639,130 — 12.42 (100) 2,965,913 326,783 13.59 (200) 3,221,892 582,792 14.33 September 30, 2022 Change in Interest Rates Estimated NPV Amount Estimated Increase/(Decrease) in NPV Amount NPV as % of Assets (Basis Points) (In thousands) (In thousands) 300 $ 1,987,904 $ (956,559) 11.06 % 200 2,327,875 (616,588) 12.57 100 2,647,946 (296,517) 13.86 No change 2,944,463 — 14.93 (100) 2,981,579 37,115 14.77 (200) 3,163,345 218,882 15.08 As of September 30, 2023, the Company was in compliance with all of its interest rate risk policy limits. 60
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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.
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This compares to an estimated decrease of 2.0% for the same measure as of September 30, 2023. 59 Net Portfolio Value ("NPV") Sensitivity. The NPV is an estimate of the market value of shareholders' equity at a point in time.
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As of September 30, 2024, in the event of an immediate and parallel increase of 200 basis points in interest rates, the NPV is estimated to decrease by $741,000,000, or 24.9%, and the NPV-to-total assets ratio to decline to 8.7% from a base of 11.0%.
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Opposite to the down scenario above, this change in the sensitivity of the NPV ratio to the assumed change in interest rates is due to the flattening of the yield curve and changes in balance sheet mix year over year in this scenario. Interest Rates.
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The higher rate on interest-bearing liabilities primarily resulted from the addition of higher yielding deposits in the Merger which also had a higher concentration of the rate sensitive time deposits, customer deposits repricing and higher rates on new borrowings.
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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. Another method used to quantify interest rate risk is the NPV analysis.
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September 30, 2024 Change in Interest Rates Estimated NPV Amount Estimated Increase/(Decrease) in NPV Amount NPV as % of Assets (Basis Points) (In thousands) (In thousands) 200 $ 2,236,691 $ (740,588) 8.69 % 100 2,472,251 (505,028) 9.41 No change 2,977,279 — 10.99 (100) 3,045,962 68,683 11.08 (200) 3,249,949 272,670 11.56 (300) 3,232,362 255,083 11.32 As of September 30, 2024, the Company was in compliance with all of its interest rate risk policy limits. 63

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