WAFD INC (WAFD) FY 2021 MD&A

Item 7.                 Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion should be read in conjunction with our Consolidated Financial Statements and related notes in “Item 8. Financial Statements and Supplementary Data” of this report. In the following discussion, unless otherwise noted, references to increases or decreases in average balances in items of income and expense for a particular period and balances at a particular date refer to the comparison with corresponding amounts for the period or date for the previous year.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company has determined that the only accounting policy critical to an understanding of its consolidated financial statements relates to the methodology for determining the amount of the allowance for credit losses (“ACL”).

Management’s determination of the amount of the ACL is a critical accounting estimate as it requires significant reliance on the credit risk we ascribe to individual borrowers, the use of estimates and significant judgment as to the amount and timing of expected future cash flows on individually evaluated loans, significant reliance on historical loss rates on homogenous portfolios, consideration of our quantitative and qualitative evaluation of past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts.

Going forward, the methodology used to calculate the ACL will be significantly influenced by the composition, characteristics and quality of our loan portfolio, as well as the prevailing economic conditions and forecasts utilized. Material changes to these and other relevant factors may result in greater volatility to the allowance for credit losses, and therefore, greater volatility in our reported earnings.

Select information regarding the ACL is below in "Allowance for Credit Losses." For further details, see Notes A and E to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data.”

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ALLOWANCE FOR CREDIT LOSSES

The following table provides detail regarding the Company's allowance for credit losses.

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(1) This does not include a reserve for unfunded commitments of $27,500,000, $25,000,000, $6,900,000, $7,250,000 and $7,750,000 as of September 30, 2021, 2020, 2019, 2018 and 2017 respectively.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table shows changes in the Company's allowance for credit losses since the prior year.

The allowance for loan losses increased by $4,345,000, or 2.60%, from $166,955,000 as of September 30, 2020, to $171,300,000 at September 30, 2021. As of September 30, 2021, the allowance of $171,300,000 is for loans that are evaluated on a pooled basis, which was comprised of $120,357,000 related to the quantitative component and $50,943,000 related to management's qualitative overlays.

The Company recorded a provision for credit losses of $500,000 in 2021, compared to a provision of $21,750,000 for 2020. The significant provision in 2020 was due to higher expected losses with the onset of the global pandemic. In 2021, provisioning for net growth in the loan portfolio was mostly offset by releases related to improvements in macroeconomic variables used in the forecast component of the reserve. For the year ended September 30, 2021, net recoveries were $6,345,000, compared to $3,271,000 in the prior year. No allowance was recorded as of September 30, 2021 for the $305,162,000 of PPP loans, which are included in the commercial & industrial loan category, due to the government guarantee. The ratio of the total ACL to total gross loans decreased to 1.22% as of September 30, 2021, as compared to 1.33% as of September 30, 2020. The decrease was primarily related to improvements in macroeconomic variables used in the forecast component of the ACL.

The reserve for unfunded loan commitments was $27,500,000 as of September 30, 2021, compared to $25,000,000 as of September 30, 2020.

Management believes the total ACL is sufficient to absorb estimated losses inherent in the portfolio of loans and unfunded commitments.

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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.

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(1)Represents the loans receivable for each respective loan class as a % of total loans receivable.

(2)Represents the allowance for each respective loan class as a % of loans receivable for that same loan class.

(3)This does not include a reserve for unfunded commitments of $27,500,000, $25,000,000, $6,900,000, $7,250,000 and $7,750,000 as of September 30, 2021, 2020, 2019, 2018 and 2017, respectively.

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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. Most TDRs are performing and accruing loans where the borrower has proactively approached the Company about modifications due to temporary financial difficulties. Each request is individually evaluated for merit and likelihood of success. The concession for these loans is typically a payment reduction through a rate reduction of 100 to 200 basis points for a specific term, usually six to twelve months. Interest-only payments may also be approved during the modification period.

Concessions for construction, land A&D and multi-family loans are typically an extension of maturity combined with a rate reduction of normally 100 basis points. Before granting approval to modify a loan in a TDR, a borrower’s ability to repay is considered by evaluating current income levels, debt-to-income ratio, credit score, loan payment history and an updated evaluation of the secondary repayment source.

If a loan is on non-accrual status before becoming a TDR, it will stay on non-accrual status following restructuring until it has been performing for at least six months, at which point it may be moved to accrual status. If a loan is on accrual status before it becomes a TDR, and it is concluded that a full repayment is highly probable, it will remain on accrual status following restructuring. If the homogeneous restructured loan does not perform, it is placed in non-accrual status when it is 90 days delinquent. 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 on non-accrual. A loan that defaults and is subsequently modified would impact the Company's delinquency trend, which is part of the qualitative risk factors component of the CECL methodology. Any modified loan that re-defaults and is charged-off would impact the quantitative component of the CECL methodology.

Non-Performing Assets. When a borrower violates a condition of a loan, the Bank attempts to cure the default by contacting the borrower. In most cases, defaults are cured promptly. If the default is not cured within an appropriate time frame, typically 90 days, the Bank may institute appropriate action to collect the loan, such as making demand for payment or initiating foreclosure proceedings on the collateral. If foreclosure occurs, the collateral will typically be sold at public auction and may be purchased by the Bank.

Loans are placed on 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. See Note A to the Consolidated Financial Statements included in Item 8 hereof for additional information.

The Bank will consider modifying the interest rate and terms of a loan if it determines that a modification is deemed to be the best option available for collection in full or to minimize the loss to the Bank. 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. The modification of these loans is typically a payment reduction through a rate reduction of from 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. As of September 30, 2021, single-family residential loans comprised 92.1% of restructured loans. The Bank reserves for restructured loans within its pool based general reserve methodology, except in instances where management considers it appropriate to evaluate individually.

Real estate acquired by foreclosure or deed-in-lieu thereof (“REO” or “Real Estate Owned”) is classified as real estate held for sale. When property is acquired, it is recorded at the fair market value less estimated selling costs at the date of acquisition. Interest accrual ceases on the date of acquisition and all costs incurred in maintaining the property from that date forward are expensed as incurred. Costs incurred for the improvement or development of such property is capitalized. See Note A to the Consolidated Financial Statements included in Item 8 hereof for additional information.

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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.

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(1)    For the year ended September 30, 2021, the Company recognized $9,354,000 in interest income on cash payments received from borrowers on non-accrual loans. The Company would have recognized interest income of $1,373,000 for the same period had these loans performed according to their original contract terms. The recognized interest income may include more than twelve months of interest for some of the non-accrual loans that were brought current or paid off. In addition to the non-accrual loans reflected in the above table, the Company had $355,151,000 of loans that were less than 90 days delinquent at September 30, 2021 but were classified as substandard for one or more reasons. If these loans were deemed non-performing, the Company's ratio of total non-performing assets and performing restructured loans as a percent of total assets would have increased to 2.35% at September 30, 2021. 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.

Non-performing assets increased 15.7% to $43,625,000, or 0.22% of total assets, at September 30, 2021, compared to $37,695,000, or 0.20% of total assets, at September 30, 2020. The increase was primarily a result of $2,693,000 higher non-accrual loans and $3,238,000 higher real estate owned. Other property owned of $3,672,000 as of September 30, 2021 is comprised of $896,000 of equipment acquired through foreclosure on a commercial loan and a $2,776,000 government guarantee related to that same loan.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

TDRs declined to $65,128,000 as of September 30, 2021, from $91,408,000 as of September 30, 2020. As of September 30, 2021, $63,655,000 or 97.7% of TDRs were performing. Non-performing TDRs of $1,473,000 are included in NPAs. Total NPAs and performing TDRs as a percent of total assets has declined to 0.55% as of September 30, 2021, from 0.67% as of September 30, 2020. During 2021, there were TDR additions of $1,511,000 and reductions of $27,790,000 due to prepayments and transfers to REO. As of September 30, 2021, 92.1% of TDRs are comprised of single-family residential loans.

As of September 30, 2021, real estate owned totaled $8,204,000, an increase of $3,238,000, or 65.2%, from $4,966,000 as of September 30, 2020, as new REO properties were partially offset by sales of foreclosed properties. During 2021, the Company sold real estate owned properties for total net proceeds of $3,340,000. The majority of REO properties are former bank premises that are expected to be sold.

The ratio of the allowance for loan losses to non-accrual loans decreased to 540% as of September 30, 2021, from 575% as of September 30, 2020.

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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 $2,090,809,000 at September 30, 2021, as compared to $1,702,977,000 at September 30, 2020. The change was primarily due to the $1,762,488,000 increase in customer accounts, the majority of which was used to fund growth in the loan portfolio and pay down FHLB borrowings. Changes in investment securities balances discussed below also contributed to growth in cash and cash equivalents.

Available-for-sale investment securities: Available-for-sale securities decreased $111,233,000, or 4.9%, during the year ended September 30, 2021, to $2,138,259,000, primarily due to principal repayments of $646,532,000 and sales of $1,499,000, partially offset by purchases of $530,227,000. As of September 30, 2021, the Company had a net unrealized gain on available-for-sale securities of $48,189,000, which is recorded net of tax as part of shareholders' equity.

Substantially all of the Company’s available-for-sale debt securities are issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. The remaining securities are issued by highly-rated municipalities or corporate borrowers. The Company does not believe that any of its available-for-sale debt securities have credit loss impairment as of September 30, 2021, therefore, no allowance was recorded. The impact going forward will depend on the composition, characteristics, and credit quality of the loan and securities portfolios as well as the economic conditions at future reporting periods.

Held-to-maturity investment securities: Held-to-maturity securities decreased by $339,813,000, or 48.1%, during the year ended September 30, 2021, to $366,025,000 primarily due to principal repayments and maturities of $332,001,000. There were no held-to-maturity securities purchased or sold during the year ended September 30, 2021. Rising interest rates may cause these securities to be subject to unrealized losses. As of September 30, 2021, the net unrealized gain on held-to-maturity securities was $13,522,000, which management attributes to the change of interest rates since acquisition.

Substantially 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. The Company did not record an allowance for credit losses for held-to-maturity securities as of September 30, 2021 as the investment portfolio consists primarily of U.S. government agency mortgage-backed securities that management deems to have immaterial risk of loss. The impact going forward will depend on the composition, characteristics, and credit quality of the loan and 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.

For further information on our investment portfolio, see Note C to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.

Loans receivable: Loans receivable, net of related contra accounts, increased $1,041,253,000, or 8.1%, to $13,833,570,000 at September 30, 2021, from $12,792,317,000 one year earlier. The increase resulted primarily from originations of $8,184,733,000 and loan purchases of $488,147,000, partially offset by loan repayments of $6,797,043,000 and a $776,764,000 increase to loans-in-process during the year ended September 30, 2021. Commercial loan originations accounted for 77.1% of

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

total originations and consumer originations were 22.9% as the Company 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.

(1) Includes $311,795,000 of SBA Payroll Protection Program loans as of September 30, 2021.

The following table summarizes the Company’s loan portfolio, due for the periods indicated based on contractual terms to maturity or repricing.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The contractual loan payment period for residential mortgage loans originated by the Company normally ranges from 15 to 30 years. Experience during recent years has indicated that, because of prepayments in connection with refinancing and sales of property, residential loans typically have a weighted average life of approximately five years.

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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.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table shows the change in the geographic distribution by state of the loan portfolio since the prior year.

(1) Includes loans from outside of our eight state footprint.

CARES Act and PPP Program: Pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) passed by Congress, the Company offered payment deferrals on consumer loans and commercial loans. The Company also made loans to small businesses through the Small Business Administration Paycheck Protection Program. For further information on these activities, see Note D to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of 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.

Troubled debt restructured loans ("TDRs"): For details, see the “Asset Quality" section above in this report.

Real estate owned: For details, see the “Asset Quality" section above in this report.

Interest receivable: Interest receivable was $50,636,000 as of September 30, 2021, a decrease of $3,163,000, or 5.9%, since September 30, 2020. The decrease was primarily a result of payments on previously deferred amounts on CARES Act loan modifications.

Bank Owned Life Insurance: Bank-owned life insurance increased to $233,263,000 as of September 30, 2021 from $227,749,000 as of September 30, 2020, primarily as a result of increases in the cash surrender value of the policies. The investments in bank-owned life insurance serve to assist in funding growing employee benefit costs.

Intangible assets: The Company's intangible assets totaled $310,019,000 at September 30, 2021 compared to $309,906,000 as of September 30, 2020. The balance at September 30, 2021 is comprised of $303,457,000 of goodwill and the unamortized balance of the core deposit and other intangibles of $6,562,000.

Customer accounts: As of September 30, 2021, customer deposits totaled $15,542,112,000 compared with $13,779,624,000 at September 30, 2020, a $1,762,488,000, or 12.8%, increase. During 2021, the Company was able to increase transaction accounts by $2,301,593,000 or 23.5% while time deposits decreased by $539,105,000 or 13.6%.

The following table shows customer deposits by account type.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table shows the geographic distribution by state for customer deposits.

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

Historically, a significant number of time deposit account holders roll over their balances into new time deposits of the same term at the Bank’s then current rate. To ensure a continuity of this trend, the Bank expects to continue to offer market rates of interest. The ability to retain maturing time deposits is difficult to project; however, the Bank believes that by competitively pricing these certificates, levels deemed appropriate by management can be achieved on a continuing basis.

At September 30, 2021, the Bank had $607,245,000 of time deposits in amounts of $250,000 or more outstanding, maturing as follows: $200,127,000 within 3 months; $131,401,000 over 3 months through 6 months; $139,859,000 over 6 months through 12 months; and $135,858,000 thereafter.

Time deposits with a maturity of one year or less have penalties for premature withdrawal equal to 90 days of interest. When the maturity is greater than one year but less than four years, the penalty is 180 days of interest. When the maturity is

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

greater than four years, the penalty is 365 days of interest. Early withdrawal penalty fee income for the years ended 2021, 2020 and 2019 amounted to $198,000, $539,000 and $895,000, 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.

FHLB advances: FHLB advances declined to $1,720,000,000 as of September 30, 2021, as compared to $2,700,000,000 at September 30, 2020. Strong growth in customer deposits allowed the Company to reduce FHLB borrowings. Since September 30, 2020, cash flow hedges totaling $600,000,000 were terminated and the associated FHLB advances were paid off. An additional $150,000,000 of unhedged advances were repaid prior to maturity (resulting in a prepayment fee of $13,788,000) and the remaining $230,000,000 of unhedged borrowings were not renewed upon maturity. The weighted average rate for FHLB borrowings was 1.51% as of September 30, 2021, versus 1.79% at September 30, 2020, the decrease being primarily due to repayment of advances with higher rates. The Company has entered into interest rate swaps to hedge interest rate risk and convert certain FHLB advances to fixed rate payments. Taking into account these hedges, the weighted average effective maturity of FHLB advances at September 30, 2021 is 5.03 years.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

COMPARISON OF 2021 RESULTS WITH 2020

Net Income: Net income increased $10,177,000, or 5.9%, to $183,615,000 for the year ended September 30, 2021, as compared to $173,438,000 for the year ended September 30, 2020. The change was due to the factors described below.

Net Interest Income: For the year ended September 30, 2021, net interest income was $505,109,000, an increase of $35,601,000 or 7.6% from the year ended September 30, 2020. The increase in net interest income from the prior year was primarily due to average interest-earning assets increasing by $1,986,044,000 or 12.37% while average interest-bearing liabilities increased by $1,017,143,000 or 7.72%. During 2021, the average balance of loans receivable increased $943,212,000 or 7.7%, while the combined average balances of mortgage backed securities, other investment securities and cash increased by $1,054,758,000 or 28.9%. Average noninterest-bearing deposits grew by $809,741,000 over the same period. The change in net interest income was also impacted by the average rate earned on interest-earning assets declining by 58 basis points while the average rate paid on interest-bearing liabilities declined by 54 basis points.

Rate/Volume Analysis

The table below sets forth certain information regarding changes in interest income and interest expense of the Company for the years indicated. For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to: (1) changes in volume (changes in volume multiplied by old rate) and (2) changes in rate (changes in rate multiplied by old average volume). The change in interest income and interest expense attributable to changes in both volume and rate has been allocated proportionately to the change due to volume and the change due to rate.

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(1)Includes interest on cash equivalents and dividends on stock of the FHLB of Des Moines and FRB of San Francisco.

Provision (Release) for Credit Losses: The Company recorded a provision for credit losses of $500,000 in fiscal 2021, compared to provision of $21,750,000 in 2020. The significant provision in 2020 was due to higher expected losses with the onset of the global pandemic. In 2021, provisioning for net growth in the loan portfolio was mostly offset by releases related to improvements in macroeconomic variables used in the forecast component of the reserve. The Company had recoveries, net of

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

charge-offs, of $6,345,000 for the year ended September 30, 2021, compared with $3,271,000 of net recoveries for the year ended September 30, 2020.

Other Income: Other income was $60,561,000 for the year ended September 30, 2021, a decrease of $26,399,000, or 30.4%, from $86,960,000 for the year ended September 30, 2020. The decrease is primarily due to the recognition of a net gain of $30,700,000 in 2020 from the sale and valuation adjustments of fixed assets, including a branch property in Bellevue, Washington. In 2021, a gain of $4,700,000 was recorded for equity investments based on updated valuations, a gain of $14,110,000 was recognized on the partial termination of an interest rate swap being used to hedge a FHLB borrowing, and these amounts were partially offset by a $13,788,000 loss on early repayment of a fixed-rate FHLB borrowing.

Other Expense: Operating expense was $332,459,000 for the year ended September 30, 2021, an increase of $16,901,000, or 5.4%, from the $315,558,000 for the year ended September 30, 2020. Compensation and benefits costs increased $28,510,000 or 19.3% year-over-year primarily due to annual merit increases, higher bonus compensation accruals related to strong deposit and loan growth, and strategic investments in top talent as well as contract staff to support strategic projects. Information technology costs decreased by $10,165,000 in 2021, as 2020 reflected larger investments in new hardware and software as well as a $5,900,000 impairment charge. In September 2021, the company recognized a $2,500,000 civil money penalty paid to the Office of the Comptroller of the Currency (“OCC”) related to the previously-disclosed February 2018, Consent Order for Anti-Money Laundering and Bank Secrecy Act (“AML/BSA”) deficiencies. The Company’s efficiency ratio was 58.8% for 2021 as compared to 56.7% for the prior year. The number of staff, including part-time employees on a full-time equivalent basis, was 2,082 and 2,080 at September 30, 2021 and 2020, respectively. Total operating expense for the years ended September 30, 2021, and 2020 were 1.72% and 1.82%, respectively, of average assets.

Gain (Loss) on Real Estate Owned: Net gain on real estate owned was $427,000 for the year ended September 30, 2021, compared to a net gain of $26,000 for the year ended September 30, 2020. This amount includes ongoing maintenance expense, periodic valuation adjustments, and gains (losses) on sales of REO.

Income Tax Expense: Income tax expense was $49,523,000 for the year ended September 30, 2021, an increase of $3,775,000, or 8.3%, from the $45,748,000 for the year ended September 30, 2020. The increase is mostly due to a 6.4% increase in pre-tax income. The effective tax rate for 2021 was 21.24% as compared to 20.87% for the year ended September 30, 2020. The effective tax rate of 21.24% for 2021 differs from the statutory rate mainly due to the effects of state taxes, bank-owned life insurance, tax credit investments, tax-exempt loans to municipal entities and other qualified borrowers as well as adjustments to deferred tax items.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

COMPARISON OF 2020 RESULTS WITH 2019

For management's review of the factors that affected our results of operations for the years ended September 30, 2020 and 2019 refer to our Annual Report on Form 10-K for the year ended September 30, 2020, which was filed with the Securities and Exchange Commission on November 20, 2020.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

The principal sources of funds for the Company's activities are loan repayments (including prepayments), net deposit inflows, borrowings, repayments and sales of investments and retained earnings, if applicable. The Company's principal sources of revenue are interest on loans and interest and dividends on investments. Additionally, the Company earns fee income for loan, deposit, insurance and other services.

On February 8, 2021, in connection with an underwritten public offering, the Company issued 300,000 shares of 4.875% Noncumulative Perpetual Series A Preferred Stock (“Series A Preferred Stock”). Net proceeds, after underwriting discounts and expenses, were $293,325,000. The public offering consisted of the issuance and sale of 12,000,000 depositary shares, each representing a 1/40th interest in a share of the Series A Preferred Stock, at a public offering price of $25.00 per depositary share. Holders of the depositary shares are entitled to all proportional rights and preferences of the Series A Preferred Stock (including dividend, voting, redemption and liquidation rights). The depositary shares are traded on the NASDAQ under the symbol "WAFDP." The Series A Preferred Stock is redeemable at the option of the Company, subject to all applicable regulatory approvals, on or after April 15, 2026.

The Company's shareholders' equity at September 30, 2021, was $2,126,064,000, or 10.82% of total assets, as compared to $2,014,133,000, or 10.72% of total assets, at September 30, 2020. The Company's shareholders' equity was impacted in the year by the February 8, 2021 issuance of Series A Preferred Stock and the receipt of net proceeds, after underwriting discounts and expenses of $293,325,000. Additionally, net income of $183,615,000, the payment of $65,876,000 in common stock dividends, payment of $6,378,000 in preferred stock dividends, $348,651,000 of treasury stock purchases, as well as other comprehensive income of $52,832,000 impacted shareholders' equity. The Company paid out 38.1% of its 2021 earnings in cash dividends to common shareholders, compared with 38.5% last year. For the year ended September 30, 2021, the Company returned 226% of net income to shareholders in the form of cash dividends and share repurchases as compared to 103% for the year ended September 30, 2020. Management believes the Company's strong net worth position allows it to manage balance sheet risk and provide the capital support needed for controlled growth in a regulated environment. Share repurchases were temporarily suspended during the COVID-19 pandemic but resumed in 2021. The Company’s share repurchase program may be modified, suspended or terminated at any time, and the timing and amount of share repurchases is subject to market conditions and the market price of the Company’s common stock, as well as other factors.

The Bank has a credit line with the Federal Home Loan Bank of Des Moines ("FHLB") 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, 2021, the Bank had $2,267,319,000 of additional borrowing capacity at the FHLB.

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. All borrowings are secured by stock of the FHLB, deposits with the FHLB, and a blanket pledge of qualifying loans receivable as provided in the agreements with the FHLB. The Bank is also eligible to borrow under the Federal Reserve Bank's primary credit program.

The Company's cash and cash equivalents were $2,090,809,000 at September 30, 2021, which is a 22.8% increase from the balance of $1,702,977,000 as of September 30, 2020. This increase was primarily due to the $1,762,488,000 increase in customer deposits, the majority of which was used to fund growth in the loan portfolio and paydown FHLB 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 following table presents the Company's significant fixed and determinable contractual obligations, within the categories described below, by contractual maturity or payment amount.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(1) Includes non-maturing customer transaction accounts.

(2) Represents contractual maturities of FHLB advances. Taking into account cash flow hedges, the weighted average effective maturity of FHLB advances at September 30, 2021 is 5.03 years.

These obligations are included in the Consolidated Statements of Financial Condition. The payment amounts of the operating lease obligations represent those amounts contractually due.

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