WaFd Inc. Common Stock

Item 1A. Risk Factors

Ownership of our Common Stock involves risk. Investors should carefully consider, in addition to the other information included in this Annual Report on Form 10-K, the following risk factors. The risks described below may adversely affect our business, financial condition and results of operations. These risks are not the only risks we face; additional risks and uncertainties not currently known or that are currently considered to be immaterial may also materially and adversely affect our business.

Operational Risks

Fluctuating interest rates could adversely affect our business.

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 has increased interest rates rapidly and, causing the federal funds rate currently sits atto reach a 22-year high. Although the FRB leftreduced its benchmark rates steady in September and November of 20234, the FRB suggested that addiinflational rate increasry outlook in the United States in the future may be necessary to mitigate inflationary pressuress currently uncertain. Rapid changes in interest rates make it difficult for the Bank to balance its loan and deposit portfolios, which may adversely affect our results of operations by, for example, reducing asset yields or spreads, creating operating and system issues, or having other adverse impacts on our business. The increased market iPersistent inflation could lead to higher interest rates c, which could also adversely affect, in turn, increase the abilityborrowing costs of our floatcustomers, making-rate borrowers to meet it more difficult for them to repay their higher payment obligationsloans or other obligations. High interest rates could also push down asset prices and weaken economic activity.

Further, our profitability is dependent to a large extent upon net interest income, which is the difference (or spread) between the interest earned on loans, securities and other interest-earning assets and the interest paid on deposits, borrowings, and other interest-bearing liabilities. The level of net interest income is a function of the average balances of interest-earning assets and interest-bearing liabilities and the spread between the amounts of the yield on such assets and the cost of such liabilities. These factors are influenced by both the pricing and the mix of interest-earning assets and interest-bearing liabilities which, in turn, are impacted by such external factors as the local economy, competition for loans and deposits, the monetary policy of the Federal Open Market Committee of the Federal Reserve Board of Governors (the FOMC) and market interest rates. Furthermore, movements in interest rates, the pace at which such movements occur and the volume and mix of our interest-bearing assets and liabilities influence the level of net interest income. The cost of customer deposits is largely based on short-term interest rates, the level of which is driven by the FOMC. However, the yields generated by long-term loans, such as single-family residential and multifamily mortgage loans, and securities are typically driven by longer-term (10 year) interest rates, which are set by the market and vary from day to day. Further, recent changes in the Federal Reserve Bank's purchase of assets, commonly known as "quantitative easing," have created significant volatility in market 

As a result of the interest rates and recent, rapid i increases in federal benchmark rates and additional increases in such rates are creating additional uncertainty and making it more difficult for us to balance our loan and deposit portfolios.

As a result of the high interest rates experienced in 2022 and 2023, 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. 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. 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 wereif the interest rates on interest-earning assets to decline more quickly than the interest rates on interest-bearing liabilities. In addition, changes in interest rates could affect the Bank's ability to originate loans and attract and retain deposits; the fair values of its securities and other financial assets; the fair values of its liabilities; and the average lives of its loan and securities portfolios. Additionally, decreases in interest rates could lead to increased loan refinancing activity, which, in turn, would alter the balance of our interest-earning assets and impact net interest income. Increases in interest rates could reduce loan refinancing activity, which could result in compression of the spread between loan yields and more quickly rising funding rates. We may also be exposed to movements in market rates to a degree not experienced by other financial institutions, as a result of our significant portfolio of fixed-rate single-family home loans, which are longer-term in nature than the customer accounts and borrowed money that constitute our liabilities.

We are currently anticipating that there will be further indecreases in the target federal funds rate in 2024 to combat recent5 but the inflationary trends; houtlook remains uncertain. However, if interest rates do not ridecrease, or if the Federal Reserve were to rapidly lowerincrease the target federal funds rate, the reductionincrease in rates could continue to constrain our interest rate spread and may adversely affect our business forecasts. On the other hand, indecreases in interest rates, to combat inflation or otherwise, ma may result in a change in the mix of noninterest and interest-bearing accounts. All else being equal, if the interest rates on 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 othe Company'r changes interest-bearing liabilities

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We are exposed to risks related to fraud and cyber-attacks.

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increase at a faster pace than the interest rates on our interest-earning assets,

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 result would be a reduction in net interest income and with itCompany. As cybersecurity threats continue to evolve, we may be required to expend additional resources to continue to enhance, modify, and redufine our protection in net earnve measures against these evolvings.  threats.

We are unable to predict changes in interest rates, which are affected by factors beyocontinuously enhancing and expanding our digital products and services to meet customer and business needs with desired outcomes. These digital products and our control,services often include storing inflation, deflation, re, transmitting, and procession, uneng confidential customer, employment, money supply and oee, financial, and business information. Due to ther change nature of this in financial markets.

Inflationary pressures formation, and the value it has for internal and external threat actors, we, and risingour third-party service prices may affect our results of operationoviders, continue to be subject to cyber-attacks and financial condiraud activity that attempts to gain unauthorized access, misuse information.

Infl and information rates remained elevatedsystems, steal information, disrupt or degrade in 2023 however we did see a decrease from thformation systems, spread malicious software, and other illegal activities.

We believe we highs seen in 2022. Inflave robust preventive, detective, and administration pressureve safeguards are nd securrently expectedity controls to remain elevated throughout 2023 and minimize the probability and magnitude of a material event. However, if we are likelyunable to continue into 2024 as the inflation rate remainmaintain them, we may fall victim to a material adverse cybersecurity event. Because the tactics above the Federal Reserve Banks target rate of 2%. Inflation nd techniques used by threat actors to bypass safeguards and security controls change frequently, and often are not recognized until after an event has led occurred, we may be unable to increased costs to our customers, making it more difficult for themanticipate future tactics and techniques, or to implement adequate and timely protective measures.

We are subject to additional risk with respect to repay their loanthird-party vendors that process or other obligations increasing ohandle personal and financial data of our credit risk. Sustained higher interest rates byustomers, partners, suppliers or employees. These the Federal Reserveird-party vendors may be needed to tame persistent inflationary pricethemselves use other vendors to store or processures our data, which could push down asset prices and weaken economic activity. A deteriorationfurther elevates our risk exposure. Our third-party vendors have been, and may in the future be, subject to security in economic conditionscidents, including the Unitose caused States and our markets could result in a furby computer viruses, malware, ransomware, phishing attempts, social engineering, hacking or other increase in loan delinquencies and non-performing assets, decrmeans of unauthorized access. Control failures of security measures in loan collateral values and a decreamanaged by our third-party service providers could cause in demand forus to suffer damage to our productsreputation and services, all of which, in turncould require us to incur substantial expenses, which could adversehave a materially adverse effect on our business, financial condition, and results of operations. 

The Companys pending merger with Luo date, we have no knowledge of a material cyber-attack or other Burbank Corpormaterial information may exposesecurity incident affecting the Company to certainsystems we operate and control. However, our risks.

On November 13, 2022,  and exposure to the Company announcse matters remains heightened that it had entered into a definitive merger agreement pursuantbecause of, among other things, the evolving nature of these threats, the continuation of a remote or hybrid work environment for our employees and service providers, and our plans to which it intends to acquire Luther Burbank Corpocontinue to implement and expand digital banking services, expand operation (Luther Burbank) and its wholly-owned subsidiary, Luther Burs, and use third-party information systems that includes cloud-based infrastructure, platforms, and software. Recent instances of attacks specifically targeting bank Savings, in an all-stock transaction valued at approximates and financial services businesses indicate that the risk to our systems remains significant. We, and our third-party providers, are regularly $654 million based uponthe subject of attempted attacks and the closing price oability of the attackers and the method of the Companys Common Stock ir attacks continues to grow in sophistication. Threat actors, including nation November 11, 2022. As pstate attackers, could also use art of the merger agreement, shares of ificial intelligence for malicious purposes, increasing the frequency and common stockplexity of Luther Burbank will be converted intoir attacks. Potential threats to our technologies, systems, networks, and canceled in exchange forother devices, as well as those of our employees, the right to receive 0.3353 shares of the Companys Common Stock, with Luthird party vendors, and other third parties with whom we interact, include Distributed Denial of Service ("DDoS") attacks, computer Burbank shareholders receivviruses, hacking, malware, ransomware, credential stuffing cash in lieu of fractional share, phishing, and other forms of Company Common Stock. On May 4, 2023, social engineering. Such cyber-attacks and othe Company's shr security incidents areholders approve designed to lead the issuance of shares of Company Common Stock to the shareholdo various harmful outcomes, such as unauthorized transactions against our customers of Laccounts, unauther Burbank in connecorized or unintended access to confidential information with, or the merger, and release, gathe Luther Burbank shareholders approved the proposed mergring, monitoring, disclosure, loss, destruction, corruption, disablement, encryption, misuse, modification or other agreement and merger with the Company and a proposprocessing of confidential or sensitive information (including personal to apinformation), intellectual prove on a non-binding basis the compensaperty, software, methodologies or business secrets, disruption that certain named executives of Lu, sabotage or degradation of service, systems or networks, or other Burbank may receivdamage. These that is based on orreats may derive from, among otherwise relates to things, error, fraud or malice on the merger. The Company has submitted an application for approval of the Merger to part of our employees, insiders, or third parties or may result from accidental technological failure. Any of these parties may also attempt to fraudulently induce employees, service providers, customers, partners or othe Washington State Department of Financr third-party users of our systems or networks to disclose confidential Institutor sensitive informations (WDFI), the Feder (including personal Deposit Insurance Corporation (FDIC) and the Board information) in order to gain access to our systems, networks or data or that of Governors ofour customers, partners, or the Federal Reserve System (Fedird parties with whom we interal Reserve). On October 13, 2023,ct, or to unlawfully obtain monetary benefit the WDFI approvrough misdirected or othe Merger, subject to approval by the Federal Reserve andrwise improper payment. A cyber-attack or other security incident on the FDIC. The Companysystems we operate and continuerol could cause us to work with the Federal Reserve and the FDIC,suffer damage to our reputation, result in productivity losses, require us to incur substantial expenses, including response costs associated with investigation and the mergerresumption of services, remains subject to their approval. If approved, the Merger will result in the Banks footprint expanding to include the state of California. Becauseediation 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 regulatory approval has not yet been achieved, it is possiblesults of operations.

We also face additional costs when our customers become the transaviction may not be consummated as planned or at all, and may exposems of cyber-attacks. For example, various retailers have reported the Company to certaat they have been the victims of a cyber-attack in risks, prior to or aftewhich large amounts of their completionustomers data, including but not limited to:

Regulatory approvaldebit and credit card information, is obtained. Our customers may not be received, may take longer than expected,the victims of phishing scams, providing cyber criminals access to their accounts, or credit or may impodebit card information. In these conditsituations not presently anticipat, we incur costs to replace compromised or that could have an adverse ecards and address fraudulent transaction activity affect on the combined company following the merger.

Ting our customers, as well as potential increases to insurance premiums for policies we may maintain to cover these losses.

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Bothe Company a internal and external fraud and Luther Burbank will be subject toft are risks. If confidential customer, employee, monetary, or business uncertainties and contractual restrictions on their respective operinformation were to be mishandled or misused, we could suffer significant regulatory consequences, reputational damage, and financial loss. Such mishandling or misuse could include, for example, if such informations while the merger is pending and  were erroneously provided to parties who are not permitted to have the information, eithe announcement and pendency of r by fault of our systems, employees, or counterparties, or if such information were to be intercepted or othe merger could carwise inappropriately taken by third parties, or if our own employees abuse disruptions in the businesses ofd their access to financial systems to commit fraud against our customers and the Company and Luther Burbank, which could have an adverse effect on their respe. These activities can occur in connection with activities such as the origination of loans and lines of credit, ACH transactions, wire transactive businessons, ATM transactions, and financialchecking transactions, and results, and consequently on the combined company if the merger is c in financial losses as well as reputational damage.

Operational errors can include information system misconfiguration, clerical or record-keeping errors, or disruptionsummated.

Litig from faulty or disabled computer or telecommunication from shareholders of either Luther Burbank or the Company could attempt to prevent or delay the consummations systems. Because the nature of the financial services business involves a high volume of transactions, certain errors, which may be automated or manual, may be repeated or compounded before they are discovered and successfully rectified. Because of the meCompanys larger and result in additional unanticipat transaction volume and its necessary dependence upon automated costs.

Denial or delay of apsystems to record and proval as a result ofcess these transactions, there is a risk the February 3, 2023 comment letter to the FDICat technical flaws, tampering, or manipulation of those automated systems, arising from the California Reinvestment Coalievents wholly or partially beyond its control, may give rise to disruption co-signed by other community groupof service to customers and organizations. This letter requested thatto financial loss or liability.

The occurrence of any of the FDIC hoese risks could public hearings on the bank merger applicaresult in a diminished ability for us to operate our business, addition, and urged the FDICal costs to correct defects, potential liability to deny the bank merger application.

Terminaclients, reputational damage, and regulatory intervention , any of the merger agreemenwhich could adversely affect or failure to complete the merger for whateveur business, financial condition and results of operations.

Inflationary pressures and rising prices may affect our reason could adversely impact the Company.

The value ofsults of operations and financial condition.

Inflation rates moved closer to the meFRBs targer considet ration to be issue in 2024, but remained by the Company is uncertain becaussomewhat elevated and as of September 2024, above the mark FRBs target price of the Companys Common Stock will fluctuate.

Theof 2%. The inflation experienced in 2022 and 2023 has led to increased costs to our customers, market price ofking it more difficult for the Companys stock afterm to repay the merger may be affected by factors different fromir loans or other obligations increasing our credit risk. The inflationary outlook in those thate United States is currently affect the shauncertain. If inflationary pressures of the Company.

Changesdo not subside, sustained higher interest rates by the operations and prospects of the Company or Luther Burbank, general market andFederal Reserve may be needed to tame persistent inflationary price pressures, which could push down asset prices and weaken economic activity. A deterioration in economic conditions and oin ther factors that may be beyond the control of  United States and our markets could result in a furthe Company and Luther Burbank may alter ther increase in loan delinquencies and non-performing assets, decreases in loan collateral value of WaFd or Luther Burbank s and a decrease in demand for the marketour price for shares oducts and services, all of Company Common Stock or Luther Burbankwhich, in turn, would adversely affect our business, financial common stock by the time the merger is completed.

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ndition and results of operations.

CombinIntegrating Luther Burbank with the Company may prove more difficult, costly or time consuming than expected, and the anticipated benefits and cost savings of the mMerger may not be realized.

The me

On March 1, 2024, the Company closed the Merger is subject to certain closing conditionwith Luther Burbank. The Merger involves the integration of two companies that, if not satisfied or waived, will res have previously operated independently and with different business models. The ult in imate success of the mMerger not being completed, which may caus will depend, in part, on our ability to realize the price of the Companys Common Stock to decline.

The growth opportunitieanticipated cost savings from combining the businesses of WaFd and Luther Burbank. To realize the anticipated benefits and cost savings from the mMerger may not be , we must successfully realized or may take longerintegrate Luther Burbanks operations with ours in a manner that permits those cost savings to be realize than expected.

Operad, without adversely affecting costs, customer losseurrent revenues and business disrupfuture growth. If the integration followingis more costly the merger, including adverse effecan projected, the anticipated benefits of relationships with employees,the Merger may not be realized fully or at all or may be gtake longer to reaterlize than expected.

The interest rate environment has changed, causing margins  While we have realized 45% in annualized cost-savings due to compress and adversely affectthe merger as of September 30, 2024, exceeding net interest income.

The fair value of the Luthe original 25% target, an inability to maintain ther Burbank assets to be acquired in full extent of these cost savings following the mMerger are sensitive to, as well as any delays encountered in the interest rate environmentgration process, could have and may fluctuate as a result adverse effect upon the revenues, levels of changexpenses in inteand operating rest ratesults of the combined company, which could reduce or eliminatemay adversely affect the anticipated benefits ofvalue of our Common Stock. It is possible the merger for at the integration process could result in the Company.

Tloss of key employees, the combineddisruption of each company may be unable to retain Company s ongoing businesses or inconsistencies in stand/or Luther Burbank personnel.

Tards, controls, procedures, and policies that adversely affect the Ccompany may incur substantial costs associated with the mergeries ability to maintain relationships with clients, customers, depositors, and employees or to achieve the anticipated benefits and tcost savings of the iMerger. Integration of Luther Burbank.

Issuance of shares of Company Common Stock in connecefforts between the companies may also divert management attention and resources. These integration with the merger maymatters could have an adversely a effect on the market price of Ccombined company for an undetermined period after company Common Stockletion of the Merger.

Current uncertain economic conditions pose challenges, and could adversely affect our business, financial condition and results of operations.

We are operating in an uncertain economic environment. The pandemic caused a global economic slowdown, and while we have seen some economic recovery, continuing supply chain issues, labor shortages and inflation risks continue to affect the economic recovery. 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, 20245 are not

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passed by Congress. Future deterioration in the U.S. credit and financial markets could result in losses or significant deterioration in the fair value of our U.S. government issued, sponsored or guaranteed investments. At September 30, 20234, we had $1.62.2 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.

While a government-wide shutdown can reduce GDP growth, the additional eEconomic 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, d 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. We could also face the following risks in connection with the following events:

Market developments and economic stagnation or slowdown may affect consumer confidence levels and may cause adverse changes in payment patterns, resulting in increased delinquencies and default rates on loans and other credit facilities.

The processes we use to estimate the allowance for credit losses and other reserves may prove to be unreliable. 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.

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Further erosion in the fiscal condition of the U.S. Treasury could lead to new taxes that would limit our ability to pursue growth and return profits to shareholders.

If these conditions or similar ones continue to exist or worsen, we could experience continuing or increased adverse effects on our financial condition.

Changes to monetary policy by the Federal Reserve could adversely impact our results of operations.

The Federal Reserve is responsible for regulating the supply of money in the United States, including open market operations used to stabilize prices in times of economic stress, as well as setting monetary policies. These activities strongly influence our rate of return on certain investments, our hedge effectiveness for mortgage servicing and our mortgage origination pipeline, as well as our costs of funds for lending and investing, all of which may adversely impact our liquidity, results of operations, financial condition and capital position.

Unstable global economic conditions may have serious adverse consequences on our business, financial condition, and operations.

The global credit and financial markets have from time to -to-time experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, high rates of inflation, and uncertainty about economic stability. Changes in trade policies by the United States or other countries, such as tariffs or retaliatory tariffs, may cause inflation which could impact the prices of products sold by our borrowers and have the potential to reduce demand for their products impacting their profitability and making it difficult for our borrowers to repay their loans. 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 Gazathe Middle East. These events have increased and are expected to continue to increase volatility in commodity and energy prices, including oil, and continuing hostilities raise the possibility of supply disruptions. Rising tensions and global instability have the potential to affect consumer confidence in the U.S. and abroad, therefore having a broader effect on financial markets. SChanges 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. 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.

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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.

Due to the declining economic conditions, oIf our customers may not be are unable to repay their loans according to the original terms, and the collateral securing the payment of those loans may beis insufficient to pay any remaining loan balancee, we will be required to characterize the loan as non-performing or write it off as a loss. We maintain an ACL to provide for loan defaults and non-performance, however, losses may exceed the value of the collateral securing the loans and the allowance may not fully cover any excess loss.

We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of loans. Our ACL is based on these judgments, as well as historical loss experience and an evaluation of the other risks associated with our loan portfolio, including but not limited to, economic trends and conditions, changes in underwriting standards, management, competition, and trends in delinquencies, non-accrual and adversely classified loans, the size and composition of the loan portfolio, current economic conditions and geographic concentrations within the portfolio. FederalBanking 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. 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. This includes internally developed systems, internally managed systems, outsourced systems provided by third-party service providers, internet facing digital products and services, mobile technologies and the on-going operational maintenance of each service. 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.

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In many instances, the Companys 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.

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. 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. 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 exposedsubject to risks related to fraud and cyber-attacks.

Cybersecurity,complex state and the continued development and enhancement of controlfederal laws, processrules, and practices designed to protect customer informregulation, systems, computers, software, data, as and networks from attack, damage, or unauthorized accessstandards remain agarding data priority for the Company. Asvacy and cybersecurity threats continue to evolve, we may be required to expend additional resources to continue to enhance, modify, and refine our protective measures against these evolving threat, which impact how we conduct our business.

We are continuously enhancingsubject to complex and expandvolving our digitaldata products and services to meet customer and business needs with desired outcomes. These digital productivacy laws, rules, regulations, standards and services often include storing, transmitting, and processing confidential customer, employee, financial, and business information. Due to the nature of this information, andcontractual obligations (collectively data privacy laws) the value it has for internal and external threat actors, we, and our third-party serviceat relate to the providers, continue to be subject to cyber-attacksivacy and fraud activsecurity that attempts to gain unauthorized access, misuse information andof the personal information systems, steal information, disrupt or degrade information systemof customers, spread malicious software, and employees or other illegal activities.

We believe we have robust preventive, detective, and administrative safeguards and security controls to minimize the probability and magnitude of a material event. However, if we are unable to maintain them, s. These data privacy laws require, among other things, that we may fall victim to a material adverse cybersecurity event. Because the tactics and techniques used by threat actors to bypass safeguards andke certain privacy disclosures, maintain a robust security controls change fprogram, requently, and often are not recognized until after an event has occurred, we may be unable to anticipate future tactics and techniques, or to implement adequateire disclosures and notifications during a cyber or information security incident, and timely protective measures.

We are subject to addiregulate our collectional risk with respect to third-party vendors that process or h, use, sharing, retention, andle personal and financial data safeguarding of our customers, partners, suppliersconsumer or employees. These third-party vendors may themselves use other vendors to store or process our data, which further elevates our risk exposure. Our third-party vend information. State and federal regulators have been, and  may in the future be, subject to security incidents, including those caused by computer viruses, malware, ransomware, phishing attempts, social engineering, hacking or other means of unauthorized access. Control failures of security measures managealso hold us responsible for privacy and data protection obligations performed by our third-party service providers could cause us to suffer damage to our reputation and could require uwhile providing services to incur substantial expenses, which could have a materially adverse effect on our business, financial condition, and results of operus, as well as disclosures and notifications.

To date, we have no knowledge of a material  during a cyber-attack or other material iinformation security incident affecting the systems we operate and control. However, our risk and exposure to these matt. Consumers remains heightened because of, among other things, the evolving nature ofalso have these threats, the continua option of a remote or hybrid work environment for our employees and service providers, to direct banks and our plans to continue to implement and expand digitther financial banking services, expand operatinstitutions, and use third-party not to share information systems that includes cloud-based infrastructure, platforms, and software. Recent instances of attacks specifically targeting bankabout transactions and financial services businessexperiences indicate that the risk to our systems remains significant. We, and our third-party providers, are regularlywith affiliated companies for the subject of attempted attacks and the ability purpose of the attackers conmarketinues to grow in sophistication. Potential threats to our technologies, systems, networks, and other deg products or services, as well as those of our employees, third party vends.

State regulators, and other third parties with whom we interact, have also been include Distributed Denial of Service ("DDoS") attacks, computer viruses, hacking, malware, ransomware, credereasingly active in implemential stuffing, phishing, and other forms of social engineering. Such cyber-attacksng privacy and other cybersecurity incidents are designed to lead to various harmful outcomes, such as unauthorizstandards and regulations. Recently, several states have adopted transacregulations against our customers accounts, unauthorized or unintended access to confidentrequiring certain financial information, or the release, gathering, monitoring, disclosure, loss, destructstitution, corruption, disabs to implement, encryption, misuse, modification or other cybersecurity programs and processing of confidential or sensitive information (including personal information), intellectualvide detailed requirements with respect to these property, software, methodologies or business secrets, disruption, sabotage or degradagrams, including data encryption of service, systems or networks, or other damage. These threats may derive from, among other things, error, fraud or malice on the part of our erequirements. Many states have also recently imployees, insiders,emented or third parties or may result from accidental technological failure. Any of these parties may also attempt to fraudulmodified their data breach notification and data privacy requiremently inducs. We employees, service providers, customers, partners or other third-party users of our systems or networkxpect this trend of state-level activity in those areas to disclose confidecontinue and are contial or sensitive information (including personal information)nually monitoring developments in order to gain access to our systems, networks or data or that of our customers, partners, or third parties with whom we interact, or to unlawfully obtain monetathe states in which the Company operates. As the regulatory benefit through misdirected or otherwise improper payment. A cyber-attack or other security incident on the systemsenvironment becomes more rigorous, we operanticipate and controlthat could cause us to suffer damage to our reputation,mpliance with these requirements will result in productivity losses, require us to incur substantialadditional costs and expenses, including response costs associated with

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invand may impact the way westigation and resumption of services, remediation expenses costs associated conduct business. Our failure to comply with customer notification and credit monitoring services, increased insurance premiums, redata privacy laws could result in potentially significant regulatory penalties andor governmental investigations, litigation, fines, or

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sand costs associated with civil litigctions, or cause damage to our reputation, any of which could have a materiallyl adverse effect on our business, financial condition, and or results of operations.

We also face additional costs when our customers become the victims of cyber-attacks. For example, various retailers have reportedThe development and use of Artificial Intelligence (AI) presents risks and challenges that they have been the victims of a cyber-attack in which large amounts of their customers data, including debit and credit card information, is obtained. Our customers may be the victims of phishing scammay adversely impact our business.

We or our third-party (or fourth party) vendors, providing cyber criminals access to their acclients or counts, 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 increaerparties may develop or incorporate AI technology in certain business processes to insurance premiums f, services, or policies we may maintain to cover these losses.

Both internalroducts. The development and external fraud and theft areuse of AI presents a number of risks. If confidential customer, employee, monetary, o and challenges to our business information were to be mish. The legal andled or misused, we could suffer significa regulatory environment regulatory consequeing to AI is unces, reputational damage, artain and financial loss. Such mishrapidly evolving, both in the U.S. andling or misuse coul internationally, and include, for example, if such information were erroneously provided to partis regulatory schemes who are not permittargeted to have the information, either by fault of our systems, employees, or counterparties, or if such information were to bespecifically at AI as well as provisions in intercepted or otherwise inappropriately taken by third parties, or if our ownllectual property, privacy, consumer protection, employees abused ment, and otheir access to financial systemsr laws applicable to commit fraud against our customers and the Companythe use of AI. These activities can occur in connecevolving laws and regulation with activities such as the origins could require changes in our implementation of loansAI technology and lines of credit, ACH transactions, wire transactions, ATM transactions,increase our compliance costs and checking transactions, and result in financial losses as well as reputational damage.

Operational errors can include information system misconfiguthe risk of non-compliance. AI models, particularly generation, clerical or record-keeping errorve AI models, or disruptions from faulty or disabled commay produce outputer or telecommunicaake actions systems. Because that is incorrect, the nature of the financial serviceat reflects business involviases a high volume of transactions, certain errors,included in the data on which may be automated or manual, may bethey are trained, that repeated or compounded before sults in they are discovered and successfully rectified. Because of the Companys large transac release of private, confidential, or proprietary information volume and its necessary dependence up, that infringes on automated systems to record andthe intellectual process these transactions, perty rights of othere is a risks, or that technical flaws, tampering, or manipulais otherwise harmful. In addition of those automated systems, arising from events wholl, the complexity or partially beyond its control, may give rise tof many AI models makes it disruption of servicefficult to customunders tand to financial loss or liability.

The occurrence of any of these risks could result in a dwhy they are generating particular outputs. This liminishted ability for us to operate our business, additional costtransparency increases to correct defects, potential liability to clients, reputational damage, and regulatory intervenhe challenges associated with assessing the proper operation, any  of which could adversely affect our business, financial condition and results of operations.

A resurgenceAI models, understanding and monitoring the capabilities of the COVID-19 pandemic, or a similar health crisis, may adversely affect our business and our customers, counterparties, employeeAI models, reducing erroneous output, eliminating bias, and third-party service providers in the future.

The spread of COVID-19 created a global public-health crisicomplying with regulations that resulted in significant economic uncertainty, and has impacted household, business, economic, and market conditquire documentation or explanation of the basis on which decisions, including in the western United States w are made. Furthere, we conduct nearmay rely all of our business.

Throughout the pandemic our operations were impacton AI models developed by the need to close certain officesird parties, and limit how customers conduct business through our branch network. Many of our employees continue to work remotely,, to that extent, would be dependent in part on the manner in which expthoses us to increased cybersecurity risks such as phishing, malware, third parties develop and other cybersecurity attacks, all of which could expose us to liability and could seriously disrupt our business operations.

A resurgence oftrain their models, including risks arising from the COVID-19 pandemic, or a similar crisis, could negatively impact our capital, liquidity, and oinclusion of any unauthorized material in ther financial position training data for their models and our busithe effectiveness, results  of operations, and prospects. A resurgence in spread, caused by the rise of new variants, could affect significantly more householdthe steps these third parties have taken to limit the risks and businesses, or cause additional limitations on commercial activity, increased unemployment, increased property vacancy rates and general economic and financial instassociated with the output of their models, matters over which we may have limited visibility. A slow-down or reversal in the economic recoverny of the regions in which we conduct our businesse risks could result in declines in loan demand and collaterexpose us to liability or adverse legal values. Negative impacts on our customers caused by COVID-19 or other pathogens couldor regulatory consequences and harm our result in increased risk of delinquencies, defaults, foreclosures aputation and losses on our loans. Future acthe public perceptions of governmental authorities taken in response to a pandemic or similar crisis, such as eviction forbearance, occupancy restrictions, vaccine mandates, or suspensionour business or the effectiveness of mortgage foreclosures, could have a negative impact on our businesour security measures.

If we are not able to retain or attract key employees, or if we were to suffer the loss of a significant number of employees, we could experience a disruption in our business.

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 , including in connection with acquisition activity, such as our recent acquisition of Luther Burbank, 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. The

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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 risk management framework is comprised of various processes, systems and strategies, and is d 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. Our rBecause 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. 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. 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. The governmental and supervisory focus on climate change could also result in our becoming subject to new or heightened regulatory requirements, such as requirements relating to operational resiliency or stress testing for various climate stress scenarios. Any such new or heightened requirements could result in increased regulatory, compliance or other costs or higher capital requirements. In connection with the transition to a low carbon economy, legislative or public policy changes and changes in consumer sentiment could negatively impact the businesses and financial condition of our clients, which may decrease revenues from those clients and increase the credit risk associated with loans and other credit exposures to those clients. 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.

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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. Physical risks include extreme storms or, tsunamis, floods, wildfires that  or other catastrophic events that damage or destroy offices or other assets, or that damage or destroy property and inventory securing loans we make, or . These catastrophic events may also interrupt our customers business operations, putting them in financial difficulty, and increasing the risk of default. Our customers are also facing changincreases in energy an, insurance and commodity pricecosts driven by climate change, as well as new regulatory requirements resulting in increased operational costs.

RegulatorA pandemic or similar health crisis, may and Litigation Risks

Failure todversely affect our business and our customers, counterparties, emply with the 2020 oyees, and 2013 Consent Orders from the Consumer Financial Protection Bureau regarding our Home Mortgage Disclosure Act submissions couldthird-party service providers in the future.

The spread of COVID-19 created a global public-health crisis that resulted in additional regulatory enforcement action.

In March 2020, the Consumer Financial Protection Bureau (the CFPB) Office of Enforcement formally notified us of alleged violations ofsignificant economic uncertainty, and impacted household, business, economic, and market conditions across the world, including in the Home Mortgage Disclosure Act (HMDA) associated with our HMDA reporting submissions. The CFPB alleged thawestern United States where we conduct nearly all of our business.

Throughout the Bank did not accupandemic our operately report all requirions were impacted by the need relevant information within the annual HMDA submissions. We respto close certain offices and limit how customers conded to the CFPB, noting that the Bank has instituted enhanced procedures to ensureuct business through our branch network. Many of our employees compliance with HMDA, and submitted amended HMDA filings. In Octontinue to work remotely, which exposes us to increased cyber 2020, after further discussions with the CFPB, we entered into a consent order related to our HMDA reporting, under security risks such as phishing, malware, and other cybersecurity attacks, all of which we agreed could expose us to paliability a $200,000 civil money penalty and implement a HMDA compliance management system while adhering to a compliance plan. The consent order will be in end could seriously disrupt our business operations.

A similar pandemic or major health crisis could negatively impact our capital, liquidity, and other financial positions and our business, results of operations, and prospects, affect for 10 years. We had previously entered into a csignificantly more households and businesses, or cause additional limitationsent order with the CFPB in 2013, also relating to HMDA reporting deficiencies, resulting in a $34,000 civil money penal on commercial activity, increased unemployment, increased property vacancy rates and general economic and financial instability. The 2013 HMDA Consent OrdeA slow-down or remainsversal in effect. Any furthe economic recovery of ther deficiencie regions in our HMDA reporting submissionswhich we conduct our business could result in additional regudeclines in loan demand and collatory enforcement eral values. Negative impactions, cause us to incur additional significant compliance costs on our customers caused by a pandemic or other major health crisis could result in increased risk of delinquencies, defaults, foreclosures and subject us to larger fines. Morelosses on our loans. Future actions of gover, continued deficiencies in our HMDA reporting could have seriousnmental authorities taken in response to a pandemic or similar crisis, such as eviction forbearance, occupancy reputastrictional consequences fs, vaccine mandates, or the Bank. Anysuspension of these resultsmortgage foreclosures, could have a material adverse effenegative impact on our business, financial condition.

Regulatory and results of operLitigations. Risks

Non-Compliance with tbanking rules and regulations, including the USA PATRIOT Act, Bank Secrecy Act, ReaCommunity Reinvestment Act, Fair Lending Laws, Real Estate Settlement Procedures Act, Truth-in-Lending Act, Community Reinvestment Act, Fair Lending Laws, FFlood Insurance Reform Act or other laws and regulations could result in fines or sanctions, and curtail our expansion opportunities.

Financial institutions are required under the USA PATRIOT Act of 2001 (the Patriot Act) and Bank Secrecy Act ("BSA") to develop programs to prevent financial institutions from being used for money-laundering and terrorist activities. Financial institutions are also obligated to file suspicious activity reports with the U.S. Treasury Department's Office of Financial Crimes Enforcement Network. These rules also require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Our failure or our inability to comply with the

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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. During t

The last few years, several banking institutiBank was previously subject to a Cons have received large fines for non-compliance with these laws and regulatient Order from the Office of the Comptroller of the Currency (OCC) for its BSA program that was issued in February 2018 (the BSA Cons, and we were subject to a Consent Orderent Order). The BSA Consent Order resulted in the Bank incurring significant expenses to implement and ha effective paid a AML/CFT Program, including payment of a $2,500,000 civil money penalty with respect to our Anti Money Laun. The OCC terminated the BSA Consent Ordering/Combating in December 2021. However, the Financing of Terrorism Program, (AML/CFT Program) (formerly known as our BSA Program)Bank remains subject to the BSA, the Patriot Act, and other laws and regulations requiring financial institutions, as described below. In addition, the U.S. Government imposedmong other duties, to institute and maintain an effective anti-money laundering program and is expected to continue to efile suspicious activity and currency transaction reports as appropriate. Expanded laws and regulations relating to residential and consumer lending activities that could create significant new compliance burdens and financial costs.

The Bank was Failure to maintain an effective AML/CFT prevogram could have seriously subject to a Cons business, financial and reputational consequences for the Bank.

The Community Reinvestment Order from the Office of the Comptroller of the Currency (OCC) for its BSA programAct (CRA), the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose community investment requirements and nondiscriminatory lending requirements on financial institutions. The FDIC, CFPB, the United States Department of Justice and other federal agencies are responsible for enforcing that was issued in Februaese laws and regulations. A successful regulatory 2018 (the BSA Consent Orchallenge to our performance under). T the BSA Consent OrderCRA, receiving a less than satisfactory CRA rating, or challenges resullated in to othe Bank incurring significar fair lending laws and regulations could result in a wide variety of sanctions, including the required payment exof damages, civil money penses toalties, injunctive relief, implement an effeosition of restrictions on merger and acquisition activity, and restrictive AML/CFT Programons on expansion activity, including payment opening new branches or entering new lines of a $2,500,000 civil money penaltbusiness. Private parties may also have the ability to challenge an institutions performance under fair lending laws in private

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class action litigation. Any. The OCC  of these actions could have a materminated tial adverse effect on our business, financial condition and results of operations.

Failure to comply with the BSA 2020 and 2013 Consent Order in December 2021.s from the Consumer Financial Protection Bureau regarding our However, the Bankme Mortgage Disclosure Act submissions could result in additional remains subject to the BSA, gulatory enforcement action.

In March 2020, the Consumer Financial Protection Bureau (the Patriot Act, and other laws and regulations CFPB) Office of Enforcement formally notified us of alleged violations of the Home Mortgage Disclosure Act (HMDA) associated with our HMDA reporting submissions. The CFPB alleged that the Bank did not accurately report all requiring financial institutied relevant information within the annual HMDA submissions, among o. We responded to ther duties, to CFPB, noting that the Bank has institute and maintain an effective anti-money launderd enhanced procedures to ensure compliance with HMDA, and submitted amended HMDA filings. In October 2020, after further discussions with the CFPB, we entered into a consent order related to our HMDA reporting program a, under which we agreed to pay a $200,000 civil money penalty and file suspicious activity and currency transaction implement a HMDA compliance management system while adhering to a compliance plan. The consent order will be in effect for 10 years. We had previously entered into a consent order with the CFPB in 2013, also relating to HMDA reports as appropriate. Failure to ing deficiencies, resulting in a $34,000 civil money penalty. The 2013 HMDA consent order remaintain as in effective AML/CFT program. Any further deficiencies in our HMDA reporting submissions could have serious busresult in additional regulatory enforcement actions, cause us to incur additional significant compliance costs and subject us to larger finess, financial and. Moreover, continued deficiencies in our HMDA reporting could have serious 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.

We are subject to extensive supervision, regulation and examination by the WDFI, CFPBthe FDIC and the FDICCFPB. In addition, the FRBederal 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. 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. As part of this regulatory structure, we are subject to policies and other guidance developed by the regulatory agencies with respect to capital levels, the timing and amount of dividend payments, the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Under this structure the WDFI, the FDIC, the CFPB and the Federal Reserve have broad discretion to impose restrictions and limitations on our operations if they determine, among other things, that our operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agencies. This supervisory framework could materially impact the conduct, growth and profitability of our operations. In particular, the FDIC has specific authority to take prompt corrective action, if the Banks capital falls below its current well capitalized level, including limiting the Banks ability to take brokered deposits, requiring the Bank to raise additional capital and subject it to progressively more severe restrictions on its operations, management and capital distributions, and replacement of senior executive officers and directors. If the Bank ever became critically undercapitalized, it would also be subject to the appointment of a conservator or receiver.

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; iprior-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 meet regulatory requirements could require the Bank to incur additional significant costs in order to bring our programs and operations into compliance, negatively impact our reputation, and have a material adverse effect on our business, financial condition and results of operations.

Recent national and state legislation and regulatory initiatives to support the financial services industry have been coupled with numerous restrictions and requirements that could detrimentally affect our business.

The Dodd-Frank Act has had a substantial impact on the financial services industry since its passage in 2010. 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. 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.

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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. Other legislative initiatives could detrimentally impact our operations in the future. Regulatory bodies may enact new laws or

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, 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. For example, the Biden Administration announced a government-wide effort to eliminate junk fees which could subject our business practices to even further scrutiny. The CFPBs action on junk fees thus far has largely focused on fees associated with deposit products, such as surprise overdraft fees and non-sufficient funds fees. However, what constitutes a junk fee remains undefined. The CFPB is actively soliciting consumer input on fee practices associated with other consumer financial products or services, signaling that the junk fee initiative is likely to continue to broaden in scope. As a result of this regulatory focus, we have changed how we assess overdraft and non-sufficient funds fees and we may be required to implement additional changes based on regulatory directives or guidance. Such changes have led to and may continue to cause a reduction in our non-interest income thus impacting our overall net income.

The extent of the impact of any future legislation will be dependent on the specific details of the final legislation passed, if any, but the potential changes outlined above could, among other things, increase our costs, limit our ability to pursue business opportunities and the types of financial services and products we may offer, and impact future growth, any of which could materially and adversely affect our business, results of operations or financial condition.

Deposit insurance premiums could increase further in the future.

The FDIC insures deposits at FDIC-insured financial institutions, including the Bank. The FDIC charges insured financial institutions premiums to maintain the Deposit Insurance Fund ("DIF") at a specific level. Historically, unfavorable economic conditions increased bank failures and these additional bank failures decreased the DIF. Extraordinary growth in insured deposits during the first and second quarters of 2020 caused the ratio of the DIF to total insured deposits to fall below the current statutory minimum of 1.35%. In order to restore the DIF to its statutorily mandated minimums, the FDIC significantly increased deposit insurance premium rates, including the Bank's, resulting in increased expenses. The revised assessment rate schedules became effective January 1, 2023, and awere 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). In November 2023, the FDIC approved a final rule to impose a special assessment to recover the losses to the deposit insurance fund resulting from the closures of Silicon Valley Bank and Signature Bank. Beginning in the first calendar quarter of 2024, the FDIC began collecting the special assessment and it is expected to continue collecting the special assessment for a total of eight quarters. The FDIC may further increase the assessment rates or impose additional special assessments in the future to restore and then steadily increase the DIF to the. FDIC insurance premiums could increase statutory target levelin the future in response to similar declining economic conditions. Any i material increase in the Bank's FDIC premiums could have an adverse effect on its business, financial condition and results of operations. 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. 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 a, among other things, alleged violations of employment, state wage and hour and consumer protection laws. These claims could involve large monetary demands, including civil money penalties or fines imposed by government authorities, and significant defense costs. If such claims and legal actions are brought, and are not resolved in a manner favorable to the Company, they could result in financial liability and/or reputational harm, which could have a material adverse effect on our financial condition and results of operations.

Banking institutions are also increasingly the target of class action lawsuits, including claims alleging deceptive practices or violations of account terms in connection with non-sufficient funds or overdraft charges and violations of the Fair Labor Standards Act (FLSA). 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 AprilMay 20234, we received a lcourt approval for the setter from an attorneylement of a class action claim related to alleginged violations of the FLSA and seeking to recover damagessociated with claims for allegedly unpaid wages and overtime for certain of our non-exempt employees. We do not believe under which these allegations have merit and will oppose any lawsuit if one is filed Bank ultimately paid approximately $2.1 million. 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.

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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. 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. 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

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substances or chemical releases at such properties. The costs associated with investigation or remediation activities could be substantial and could substantially exceed the value of the real property. In addition, as the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. We may be unable to recover costs from any third party. These occurrences may materially reduce the value of the affected property, and we may find it difficult or impossible to use or sell the property prior to or following any environmental remediation. If we ever become subject to significant environmental liabilities, our business, financial condition and results of operations could be materially and adversely affected.

Market and Industry Risks

Recent negative developments affecting the banking industry, and resulting media coverage, have eroded customer confidence in the banking system.

The recent high-profile bank failures have of 2023 generated significant market volatility among publicly traded bank holding companies and, in particular, regional banks like the Company. These market developments havealso negatively impacted customer confidence in the safety and soundness of regional banks. While the Department of the Treasury, the FRB, and the FDIC have takentook steps to ensure that depositors of these recently e 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. If other banks  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 cause further disruption to t 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 Companys liquidity, loan funding capacity, net interest margin, capital and results of operations.

Reflecting concerns about liquidity andAs a result of the uncertain economic environment, many lenders have reduced funding to borrowers. This tightening of credit has also contributbank failures, the FDIC imposed to a lack of consumer confidence and increased market volatility. 

A worsening of any of the foregoing conditions would likely exacerbatea special assessment to recoup losses to the adverse effects of these challenging market conditions on us and others in thedeposit fund. If additional banking industry. In particula failures were to occur, we maycould 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. If these conditions or similar ones continue to exist or worsen, we could experience continuing or increased adverse effects on our financial condition.

A downturn in the real estate market would hurt our business.

The Banks business activities and credit exposure are concentrated in real estate lending, in particular commercial real estate loans which are generally viewed as having more risk of default than residential real estate loans or certain other types of loans or investments. The market for real estate is cyclical and the outlook for this sector is uncertain. A downturn in the real estate market, accompanied by falling values and increased foreclosures would hurt our business because a large majority of our loans are secured by real estate.

If a significant decline in market values occurs, the collateral for loans will provide decreasing levels of security. As a result, our ability to recover the principal amount due on defaulted loans by selling the underlying real estate will be diminished, and we will be more likely to suffer losses on defaulted loans. Because our loan portfolio contains commercial real estate loans with relatively large balances, the deterioration of these loans may cause a significant increase in our nonperforming loans which could result in a loss of earnings from these loans, an increase in the provision for loan losses, or an increase in loan charge-offs, any of which would have an adverse impact, which could be material, on our business, financial condition, and results of operations.

We own real estate as a result of foreclosures resulting from non-performing loans. If other lenders or borrowers liquidate significant amounts of real estate in a rapid or disorderly fashion, or if the FDIC elects to dispose of significant amounts of real estate from failed financial institutions in a similar fashion, it could have an adverse effect on the values of the properties owned by the Company by depressing the value of these real estate holdings. 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.

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Changes in retail distribution strategies and consumer behavior may adversely impact our business, financial condition and results of operations.

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We have significant investments in bank premises and equipment for our branch network as well as our retail work force and other branch banking assets. Advances in technology such as e-commerce, telephone, internet and mobile banking, and in-branch self-service technologies including automatic teller machines and other equipment, as , as well as changing customer preferences for these other methods of accessing our products and services, could decrease the value of our branch network or other retail distribution assets and may causeare requiring us to change our retail distribution strategy, close and/or sell certain branches or parcels of land held for development and restructure or reduce our remaining branches and work force. As a result of the current market environment and customer behavior, we have undertaken a branch optimization strategy that has led to the closure, consolidation or sale of certain branches in our network. These actions could lead to losses on these assets or could adversely impact the carrying value of other long-lived assets and may lead to increased expenditures to renovate and reconfigure remaining branches or to otherwise further reform our retail distribution channel. In addition, any changes in our branch network strategy could adversely impact our business, financial condition or operations if it results in the loss of customers or deposits which we rely on as a low cost and stable source of funds for our loans and operations.

We may suffer losses in our loan portfolio due to inadequate or faulty underwriting and loan collection practices.

There are risks inherent in any loan portfolio, which we attempt to address by adhering to specific underwriting and loan collection practices. Underwriting practices often include analysis of a borrower's prior credit history; financial statements; tax returns; cash flow projections; valuation of collateral; personal guarantees of loans to businesses; and verification of liquid assets. If the underwriting process fails to capture accurate information or proves to be inadequate, we may incur losses on loans that appeared to meet our underwriting criteria, and those losses may exceed the amounts set aside as reserves in the allowance for credit losses. Loan collection resources may be expanded to meet increases in nonperforming loans resulting from economic downturns or to service any loans acquired, resulting in higher loan administration costs. We are also exposed to the risk of improper documentation of foreclosure proceedings that would also increase the cost of collection.

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. As a result, our business depends significantly on general economic conditions in these market areas. 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 collaterals value and a customers ability to repay loans.

Our liquidity may be adversely impacted by issues arising from certain industry deficiencies in foreclosure practices, including delays and challenges in the foreclosure process.

Foreclosure process issues and the potential legal and regulatory responses to them could negatively impact the process and timing to completion of foreclosures for residential mortgage lenders, including the Bank. During the COVID-19 emergencypandemic, 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. Even before the adoption of these emergency policies, foreclosure timelines have increased in recent years due to, among other reasons, delays associated with the significant increase in the number of foreclosure cases as a result of economic downturns, additional consumer protection initiatives related to the foreclosure process and voluntary or mandatory programs intended to permit or require lenders to consider loan modifications or other alternatives to foreclosure. Should these stays or rights to forbearance be enacted again, or if new legislation is passed regarding residential foreclosures, we may be limited in our ability to take timely possession of real estate assets collateralizing loans, which may increase our loan losses. Increases in the foreclosure timeline maycould also result in increased costs, and may 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. If the purchase price of the acquired company exceeds the fair value of the acquired net assets, the excess will be included in the

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Company's Statement of Financial Condition as goodwill. The Company has a significant goodwill balance and, in accordance

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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. A significant and sustained decline in our stock price and market capitalization, a significant decline in our expected future cash flows, a significant adverse change in the business climate or slower growth rates could result in impairment of our goodwill. Future evaluations of goodwill may result in the impairment and write-down of our goodwill balance which could have a material adverse impact on our earnings and adversely affect our operating results.

Competitive Risks

The Bank faces strong competition from other financial institutions and new market participants, offering services similar to those offered by the Bank.

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. 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 an, 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. Many of our competitors have substantially greater resources to invest in technological improvements than we do. Our future success will depend, in part, upon our ability to address the needs of our clients by using technology to provide products and services that will satisfy client demands for convenience, as well as to create additional efficiencies in our operations. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. In addition, the implementation of technological changes and upgrades to maintain current systems and integrate new ones may also cause service interruptions, transaction processing errors and system conversion delays and may cause us to fail to comply with applicable laws. There can be no assurance that we will be able to successfully manage the risks associated with our increased dependency on technology. Additionally, recent technological breakthroughs have made it possible for other non-traditional competitors to enter the marketplace and compete for traditional banking services. 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. If market and regulatory conditions change, we may be unable to grow organically or successfully compete for, complete, and integrate potential future acquisitions at the same pace as we have achieved in recent years, or at all. We have historically used our strong stock currency and capital resources to complete acquisitions. 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 CompanysOur entry into California may present increased risk that may adversely impact our business, prospects and financial condition.

The mMerger will rth Luther Burbank resulted in WaFd significantly expanding ourthe Banks initial entry into the state of California. We have no operations into the state of ng experience in California where we have limited operating experience, are new to this market area, and will be relying on the experience and expertise of Luther Burbanks lending and business development officers to help with our transition. We may be unsuccessful in retaining those existing employees. The banking and financial services business in California is highly competitive. OurThe entry of the Bank into California will presents us with different competitive conditions, and we will be required to compete for loans, deposits and customers for financial services with many new other commercial banks, savings and loan associations, securities and brokerage competitors ianies, mortgage companies, insurance companies, finance companies, money market funds, credit unions, fintechs, and other nonbank financial service providers in California. 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 dothe Company. 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 materiaif we are unable to compete effectively in California, the benefits we were anticipating from the Merger may not be fully and adversely affected if we are unable tochieved, and our results of operations and financial conditions compete euld be materially and adversely affectivelyed.

Security Ownership Risks

Our ability to pay dividends is subject to limitations that may affect our ability to continue to pay dividends to shareholders.

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The Company is a separate legal entity from the bank subsidiary and does not have significant operations of its own. The availability of dividends from the Bank is limited by the Bank's earnings and capital, as well as various federal and state statutes and regulations. It is possible, depending upon the financial condition of the Bank and other factors, that the Bank may not be able to pay dividends to the Company. If the Bank is unable to pay dividends to the Company, then we may not be able to pay dividends on our preferred or Common Stock to 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.

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.

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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. Holders of Series A Preferred Stock are entitled to receive, when, as, and if declared by our Board of Directors (or a duly authorized committee of our Board of Directors), out of assets legally available for the payment of dividends under Washington law, non-cumulative cash dividends based on the liquidation preference of the Series A Preferred Stock at a rate equal to 4.875% per annum for each quarterly dividend period, beginning on April 15, 2021. 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. 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.

In addition, if we fail to pay, or declare and set apart for payment, dividends on our Series A Preferred Stock for six quarterly dividend periods, whether or not consecutive, the number of directors on our Board of Directors will automatically be increased by two, and the holders of shares of Series A Preferred Stock will have the right to elect two additional members of our Board of Directors (the Preferred Stock Directors) to fill such newly created directorships.

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. We expect to see additional volatility in the financial markets due to the uncertainty caused by the continuing global conflicts, commodity shortages and price fluctuations, recent bank failures, uncertainty over the U.S. government debt ceiling, risks of government shutdowns and changing Federal Reserve policy. 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. 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.

The stock markets in general have experienced substantial price and trading fluctuations. These fluctuations have resulted in volatility in the market prices of securities that often has been unrelated or disproportionate to changes in operating performance. These broad market fluctuations are expected to continue for the near future, and may adversely affect the trading price of our Common Stock.

If the merger with Luther Burbank is approved, the Companys shareholders will have less influence as a shareholder of the combined company than as a shareholder of Company.

The Companys shareholders currently have the right to vote in the election of the Board of Directors and on other matters affecting the Company. Based on WaFds stock price as of November 1, 2023, following completion of the merger, the shareholders of Luther Burbank as a group are expected to hold a maximum ownership interest of approximately 21% of the Company. As a result, after the merger, a current Company's shareholders percentage ownership of re may be future sales or othe combined company will be smaller than such shareholders current percentage ownership of the Companys Common Stock.

There may be future sales or other dilr dilution of the Company's equity, which may adversely affect the market price of our cCommon sStock or depositary shares.

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

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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 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. WAs 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. Holders of our Common Stock have no preemptive rights that

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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.

We rely, in part, on external financing to fund our operations and the unavailability of such funding in the future could adversely impact our growth and prospects.

We rely on customer deposits, advances from the FHLB and other borrowings to fund our operations. Management has historically been able to replace maturing deposits, if desired; however, we may not be able to replace such funds at any given point in time if our financial condition or market conditions change or if the cost of doing so might adversely affect our business, financial condition and results of operations.

If we need additional funds for our liquidity needs, we may seek additional debt to achieve our long-term business objectives. Such borrowings, if sought, may not be available to us or, if available, may not be on favorable terms. If additional financing sources are unavailable or are not available on reasonable terms, our business, financial condition and results of operations may be adversely affected.

A person holding our Common Stock could have the voting power of their shares of Common Stock on all matters significantly reduced under Washington's anti-takeover statutes, if the person acquires 10% or more of the voting stock of the Company.

We are incorporated in the state of Washington and subject to Washington state law. Some provisions of Washington state law could interfere with or restrict takeover bids or other change-in-control events affecting us. For example, Chapter 23B.19 of the Washington Business Corporation Act, with limited exceptions, prohibits a target corporation from engaging in specified significant business transactions for a period of five years after the share acquisition by an acquiring person, without complying with certain shareholder approval requirements. An acquiring person is defined as a person or group of persons that beneficially own 10% or more of our voting securities. Such prohibited transactions include, among other things:

certain mergers, or consolidations with, disposition of assets to, or issuances of stock to or redemption of stock from, the acquiring person;

termination of 5% or more of the employees of the target corporation as a result of the acquiring person's acquisition of 10% or more of the shares;

allowing the acquiring person to receive any disproportionate benefit as a shareholder; and

liquidating or dissolving the target corporation.

After the five-year period, certain significant business transactions are permitted, if they comply with certain fair price provisions of the statute or are approved by a majority of the outstanding shares other than those of which the acquiring person has beneficial ownership. As a Washington corporation, the Company is not permitted to opt out of this statute.

The Companys business or the value of its common shares could be negatively affected as a result of actions by activist shareholders.

The Company values constructive input from shareholders, and our Board of Directors and management team are committed to acting in the best interests of all of the Companys shareholders. Activist shareholders who disagree with the composition of the Board of Directors, the Companys strategic direction, or the way the Company is managed may seek to effect change through various strategies that range from private engagement to public filings, proxy contests, efforts to force transactions not supported by the Board of Directors, and litigation. Responding to some of these actions can be costly and time-consuming, may disrupt the Companys operations and divert the attention of the Board of Directors and management. Such activities could interfere with the Companys ability to execute its strategic plan and to attract and retain qualified executive leadership. The perceived uncertainty as to the Companys future direction resulting from activist strategies could also affect the market price and volatility of the Companys common shares.