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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 001-34654
WASHINGTON FEDERAL INC
(Exact name of registrant as specified in its charter)
 
Washington
91-1661606
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
425 Pike Street
Seattle
Washington
98101
(Address of Principal Executive Offices)
(Zip Code)
Registrant’s telephone number, including area code (206) 624-7930
 
(Former name, former address and former fiscal year, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $1.00 par value per share
WAFD
NASDAQ Stock Market
Depositary Shares, Each Representing a 1/40th Interest in a Share of 4.875% Fixed Rate Series A Non-Cumulative Perpetual Preferred Stock
WAFDP
NASDAQ Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 ("Exchange Act") during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes      No   
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No  


The registrant had outstanding 65,792,216 shares of common stock as of April 30, 2023.



WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
 
  The Consolidated Financial Statements of Washington Federal, Inc. and Subsidiaries filed as a part of the report are as follows:
  
  
  
  

2

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)



March 31, 2023September 30, 2022
(In thousands, except share data)
ASSETS
Cash and cash equivalents$1,118,544 $683,965 
Available-for-sale securities, at fair value2,006,286 2,051,037 
Held-to-maturity securities, at amortized cost445,222 463,299 
Loans receivable, net of allowance for loan losses of $177,420 and $172,808
17,271,906 16,113,564 
Interest receivable79,069 63,872 
Premises and equipment, net236,054 243,062 
Real estate owned8,826 6,667 
FHLB stock147,078 95,073 
Bank owned life insurance239,840 237,931 
Intangible assets, including goodwill of $303,457 and $303,457
308,524 309,009 
Other assets463,862 504,652 
$22,325,211 $20,772,131 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Customer accounts
Transaction deposit accounts$11,880,343 $12,691,527 
Time deposit accounts3,980,605 3,338,043 
15,860,948 16,029,570 
Borrowings3,800,000 2,125,000 
Advance payments by borrowers for taxes and insurance44,312 50,051 
Federal and state income tax liabilities, net2,666 3,306 
Accrued expenses and other liabilities242,168 289,944 
19,950,094 18,497,871 
Commitments and contingencies (see Note I)
Shareholders’ equity
Preferred stock, $1.00 par value, 5,000,000 shares authorized; 300,000 and 300,000 shares issued; 300,000 and 300,000 shares outstanding
300,000 300,000 
Common stock, $1.00 par value, 300,000,000 shares authorized; 136,412,977 and 136,270,886 shares issued; 65,793,099 and 65,330,126 shares outstanding
136,413 136,271 
Additional paid-in capital1,683,720 1,686,975 
Accumulated other comprehensive income (loss), net of taxes43,822 52,481 
Treasury stock, at cost; 70,619,878 and 70,940,760 shares
(1,583,880)(1,590,207)
Retained earnings1,795,042 1,688,740 
2,375,117 2,274,260 
$22,325,211 $20,772,131 


SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
3

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 Three Months Ended March 31,Six Months Ended March 31,
 2023202220232022
(In thousands, except share data)(In thousands, except share data)
INTEREST INCOME
Loans receivable$222,957 $139,260 $426,903 $277,769 
Mortgage-backed securities10,422 4,659 21,035 9,451 
Investment securities and cash equivalents21,967 6,919 40,827 14,058 
255,346 150,838 488,765 301,278 
INTEREST EXPENSE
Customer accounts52,123 8,225 83,769 16,686 
Borrowings28,185 7,525 47,159 15,368 
80,308 15,750 130,928 32,054 
Net interest income175,038 135,088 357,837 269,224 
Provision (release) for credit losses3,500 (500)6,000 — 
Net interest income after provision (release)171,538 135,588 351,837 269,224 
OTHER INCOME
Gain (loss) on sale of investment securities— — — 81 
Gain (loss) on hedging derivatives26 — 26 — 
Loan fee income652 2,475 2,154 4,396 
Deposit fee income6,188 6,282 12,541 12,725 
Other income3,206 6,902 9,375 17,138 
10,072 15,659 24,096 34,340 
OTHER EXPENSE
Compensation and benefits51,444 47,115 100,514 94,540 
Occupancy10,918 11,788 21,020 21,878 
FDIC insurance premiums4,000 2,100 7,675 5,200 
Product delivery5,316 5,044 9,937 9,765 
Information technology12,785 11,722 25,114 23,143 
Other expense12,418 10,648 24,899 23,504 
96,881 88,417 189,159 178,030 
Gain (loss) on real estate owned, net(199)129 (311)691 
Income before income taxes84,530 62,959 186,463 126,225 
Income tax expense18,596 13,600 41,020 26,585 
Net income65,934 49,359 145,443 99,640 
Dividends on preferred stock3,656 3,656 7,312 7,312 
Net income available to common shareholders$62,278 $45,703 $138,131 $92,328 
PER SHARE DATA
Basic earnings per common share$0.95 $0.70 $2.11 $1.41 
Diluted earnings per common share0.95 0.70 2.11 1.41 
Dividends paid on common stock per share0.25 0.24 0.49 0.47 
Basic weighted average number of shares outstanding65,511,13165,301,17165,425,62365,253,991
Diluted weighted average number of shares outstanding65,551,18565,445,20665,510,27565,397,601

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
4

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)

 Three Months Ended March 31,
 20232022
(In thousands)
Net income$65,934 $49,359 
Other comprehensive income (loss) net of tax:
Net unrealized gain (loss) during the period on available-for-sale investment securities, net of tax of $(5,705) and $10,086
18,993 (33,767)
Reclassification adjustment of net (gain) loss from sale of available-for-sale securities included in net income, net of tax of $0 and $0
— — 
Net unrealized gain (loss) from investment securities, net of reclassification adjustment18,993 (33,767)
Net unrealized gain (loss) during the period on borrowings cash flow hedges, net of tax of $5,075 and $(12,954)
(16,897)43,369 
Net unrealized gain (loss) in cash flow hedging instruments, net of reclassification adjustment(16,897)43,369 
Other comprehensive income (loss)2,096 9,602 
Comprehensive income$68,030 $58,961 

 Six Months Ended March 31,
 20232022
(In thousands)
Net income$145,443 $99,640 
Other comprehensive income (loss) net of tax:
Net unrealized gain (loss) during the period on available-for-sale investment securities, net of tax of $(4,047) and $13,950
13,471 (46,701)
Reclassification adjustment of net (gain) loss from sale of available-for-sale securities included in net income, net of tax of $0 and $(19)
— 62 
Net unrealized gain (loss) from investment securities, net of reclassification adjustment13,471 (46,639)
Net unrealized gain (loss) during the period on borrowings cash flow hedges, net of tax of $6,648 and $(14,437)
(22,130)48,332 
Net unrealized gain (loss) in cash flow hedging instruments, net of reclassification adjustment(22,130)48,332 
Other comprehensive income (loss)(8,659)1,693 
Comprehensive income$136,784 $101,333 
SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
5

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED) 

(in thousands)Preferred StockCommon StockPaid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal
Balance at January 1, 2023$300,000 $136,373 $1,689,209 $1,749,008 $41,726 $(1,591,935)$2,324,381 
Net income  — 65,934 — — 65,934 
Other comprehensive income (loss)— — — — 2,096 — 2,096 
Dividends on common stock ($0.25 per share)
  — (16,243)— — (16,243)
Dividends on preferred stock ($12.1875 per share)
  — (3,657)— — (3,657)
Proceeds from stock-based awards— 249 — — — 258 
Stock-based compensation expense— 31 (5,738)— — 8,163 2,456 
Treasury stock acquired  — — — (108)(108)
Balance at March 31, 2023$300,000 $136,413 $1,683,720 $1,795,042 $43,822 $(1,583,880)$2,375,117 
(in thousands)Preferred StockCommon StockPaid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal
Balance at January 1, 2022$300,000 $136,196 $1,680,637 $1,560,337 $61,876 $(1,589,920)$2,149,126 
Net income  — 49,359 — — 49,359 
Other comprehensive income (loss)— — — — 9,602 — 9,602 
Dividends on common stock ($0.24 per share)
  — (15,557)— — (15,557)
Dividends on preferred stock ($12.1875 per share)
— — — (3,656)— — (3,656)
Proceeds from stock-based awards— 19 514 — — — 533 
Stock-based compensation expense— 29 2,427 — — — 2,456 
Treasury stock acquired  — — — (162)(162)
Balance at March 31, 2022$300,000 $136,244 $1,683,578 $1,590,483 $71,478 $(1,590,082)$2,191,701 

(CONTINUED)






SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
6

(in thousands)Preferred StockCommon StockPaid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal
Balance at October 1, 2022$300,000 $136,271 $1,686,975 $1,688,740 $52,481 $(1,590,207)$2,274,260 
Net income  — 145,443 — — 145,443 
Other comprehensive income (loss)— — — — (8,659)— (8,659)
Dividends on common stock ($0.49 per share)
  — (31,828)— — (31,828)
Dividends on preferred stock ($24.3750 per share)
  — (7,313)— — (7,313)
Proceeds from stock-based awards— 33 990 — — — 1,023 
Stock-based compensation expense— 109 (4,245)— — 8,163 4,027 
Treasury stock acquired  — — — (1,836)(1,836)
Balance at March 31, 2023$300,000 $136,413 $1,683,720 $1,795,042 $43,822 $(1,583,880)$2,375,117 
(in thousands)Preferred StockCommon StockPaid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal
Balance at October 1, 2021$300,000 $135,993 $1,678,622 $1,528,611 $69,785 $(1,586,947)$2,126,064 
Net income  — 99,640 — — 99,640 
Other comprehensive income (loss)— — — — 1,693 — 1,693 
Dividends on common stock ($0.47 per share)
  — (30,456)— — (30,456)
Dividends on preferred stock ($24.3750 per share)
— — — (7,312)— — (7,312)
Proceeds from stock-based awards— 49 1,312 — — — 1,361 
Stock-based compensation expense— 202 3,644 — — — 3,846 
Treasury stock acquired  — — — (3,135)(3,135)
Balance at March 31, 2022$300,000 $136,244 $1,683,578 $1,590,483 $71,478 $(1,590,082)$2,191,701 




SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
7

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) 
 Six Months Ended March 31,
 20232022
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income$145,443 $99,640 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, accretion and other, net864 31,110 
Stock-based compensation expense4,027 3,846 
Provision (release) for credit losses6,000 — 
Loss (gain) on sale of investment securities— (81)
Gain on bank owned life insurance(821)— 
Net realized (gain) loss on sales of premises, equipment, and real estate owned(130)74 
Impairment loss on premises and equipment— 
Decrease (increase) in accrued interest receivable(15,197)(804)
Decrease (increase) in federal and state income tax receivable— (450)
Decrease (increase) in cash surrender value of bank owned life insurance(2,898)(2,761)
Decrease (increase) in other assets12,840 (38,217)
Increase (decrease) in federal and state income tax liabilities1,961 — 
Increase (decrease) in accrued expenses and other liabilities(41,170)(9,107)
Net cash provided by (used in) operating activities110,925 83,250 
CASH FLOWS FROM INVESTING ACTIVITIES
Origination of loans and principal repayments, net(1,076,495)(754,450)
Loans purchased(79,965)(525,825)
FHLB stock purchased(372,005)(108,000)
FHLB & FRB stock redeemed320,000 131,990 
Available-for-sale securities purchased(115,931)(124,651)
Principal payments and maturities of available-for-sale securities178,589 287,775 
Proceeds from sales of available-for-sale securities— 4,510 
Principal payments and maturities of held-to-maturity securities17,936 63,214 
Proceeds from sales of real estate owned810 3,175 
Proceeds from settlement of bank owned life insurance1,809 — 
Equity securities purchased(7,434)— 
Proceeds from sales of premises and equipment664 41 
Premises and equipment purchased and REO improvements(5,009)(5,738)
Net cash provided by (used in) investing activities(1,137,031)(1,027,959)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in customer accounts(168,622)848,536 
Proceeds from borrowings9,675,000 2,700,000 
Repayments of borrowings(8,000,000)(2,700,000)
Proceeds from stock-based awards1,023 1,361 
Dividends paid on common stock(31,828)(30,456)
Dividends paid on preferred stock(7,313)(7,312)
Treasury stock purchased(1,836)(3,135)
Increase (decrease) in advances payments by borrowers for taxes and insurance(5,739)(7,590)
Net cash provided by (used in) financing activities1,460,685 801,404 
Increase (decrease) in cash and cash equivalents434,579 (143,305)
Cash, cash equivalents and restricted cash at beginning of period683,965 2,090,809 
Cash, cash equivalents and restricted cash at end of period$1,118,544 $1,947,504 
(CONTINUED)
SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
8

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Six Months Ended March 31,
 20232022
(In thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Non-cash investing activities
Real estate acquired through foreclosure$121 $— 
Other personal property acquired through foreclosure— 422 
Non-cash financing activities
Preferred stock dividend payable3,656 3,656 
Cash paid (received) during the period for
Interest135,037 25,979 
Income taxes30,951 19,001 


SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
9

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE A – Summary of Significant Accounting Policies

Company and Nature of Operations - Washington Federal Bank, a federally-insured Washington state chartered commercial bank dba WaFd Bank (the “Bank” or “WaFd Bank”), was founded on April 24, 1917 in Ballard, Washington and is engaged primarily in providing lending, depository, insurance and other banking services to consumers, mid-sized to large businesses, and owners and developers of commercial real estate. Washington Federal, Inc., a Washington corporation (the “Company”), was formed as the Bank’s holding company in November, 1994. As used throughout this document, the terms “Washington Federal” or the “Company” refer to the Company and its consolidated subsidiaries, and the term “Bank” refers to the operating subsidiary, Washington Federal Bank, a Washington state chartered commercial bank. The Company is headquartered in Seattle, Washington. The Bank conducts its activities through a network of 199 bank branches located in Washington, Oregon, Idaho, Utah, Arizona, Nevada, New Mexico and Texas.

Basis of Presentation - The Company has prepared the consolidated unaudited interim financial statements included in this report. All intercompany transactions and accounts have been eliminated in consolidation. The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America (“GAAP”), requires management to make estimates and assumptions that affect amounts reported in the financial statements. Actual results could differ from these estimates. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation are reflected in the interim financial statements.

The information included in this Form 10-Q should be read in conjunction with the financial statements and related notes in the Company's 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on November 18, 2022 ("2022 Annual Financial Statements"). Interim results are not necessarily indicative of results for a full year.

Summary of Significant Accounting Policies - The significant accounting policies used in preparation of the Company's consolidated financial statements are disclosed in its 2022 Annual Financial Statements. There have not been any significant changes in the Company's significant accounting policies compared to those contained in its 2022 Annual Financial Statements for the year ended September 30, 2022.

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

Restricted Cash Balances - The Company is not required to maintain cash reserve balances with the Federal Reserve Bank as of March 31, 2023. As of March 31, 2023 and September 30, 2022, the Company held counterparty cash collateral of $246,500,000 and $284,400,000, respectively, related to derivative contracts.

Equity Securities - The Company records equity securities within Other assets in its Consolidated Statements of Financial Condition. These equity investments are accounted for under different methods.

Low-income housing tax credit investments are accounted for under the proportional amortization method in accordance with Accounting Standards Update (“ASU”) 2014-01, Equity Method and Joint Ventures (Topic 323).
For other equity investments where the Company has significant influence, the Company applies the equity method of accounting, which adjusts the carrying value of the investment to recognize a proportionate share of the financial results of the investment entity, regardless of whether any distribution is made. Any adjustments to the fair value of these investments are recorded in Other income in the Consolidated Statements of Operations.
For other equity investments where neither ASU 2014-01 nor the equity method of accounting is applicable, the Company applies the fair value adjustment method of ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10). Any adjustments to the fair value of these investments are recorded in Other income in the Consolidated Statements of Operations. Fair value is determined by reference to readily determinable market values if applicable. Equity investments that do not have readily determinable fair values (non-marketable) are generally accounted for at cost minus impairment, if any, plus or minus changes resulting from
10

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

observable transactions involving the same or similar investments from the same issuer, also referred to as the measurement alternative. Under the NAV expedient for fair value measurement, equity investments in qualified real estate funds can use the net asset value (“NAV”) determined by the fund as fair value for the investment. At March 31, 2023, equity investments held by the Company and recorded at NAV had a carrying amount of $34,260,000 and a remaining unfunded commitment of $9,589,000. These NAV based investments cannot be transferred without consent and we do not have redemption rights. Equity investments measured at NAV are not classified in the fair value hierarchy.

Allowance for Credit Losses (Loans Receivable) - The Company maintains an allowance for credit losses (“ACL”) for the expected credit losses of the loan portfolio as well as unfunded loan commitments. The amount of ACL is based on ongoing, quarterly assessments by management. The current expected credit losses ("CECL") methodology requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures) and replaces the incurred loss methodology’s threshold that delayed the recognition of a credit loss until it was probable a loss event was incurred.

The ACL consists of the allowance for loan losses and the reserve for unfunded commitments. The estimate of expected credit losses under the CECL methodology is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. We then consider whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period that historical experience was based for each loan type. Finally, we consider forecasts about future economic conditions or changes in collateral values that are reasonable and supportable.

Portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its ACL. The Company has designated two loan portfolio segments, commercial loans and consumer loans. These loan portfolio segments are further disaggregated into classes, which represent loans of similar type, risk characteristics, and methods for monitoring and assessing credit risk. The commercial loan portfolio segment is disaggregated into five classes: multi-family, commercial real estate, commercial and industrial, construction, and land acquisition and development. The risk of loss for the commercial loan portfolio segment is generally most indicated by the credit risk rating assigned to each borrower. Commercial loan risk ratings are determined by experienced senior credit officers based on specific facts and circumstances and are subject to periodic review by an independent internal team of credit specialists. The consumer loan portfolio segment is disaggregated into five classes: single-family-residential mortgage, custom construction, consumer lot loans, home equity lines of credit, and other consumer. The risk of loss for the consumer loan portfolio segment is generally most indicated by delinquency status and general economic factors. Each commercial and consumer loan portfolio class may also be further segmented based on risk characteristics.

For most of our loan portfolio classes, the historical loss experience is determined using a cohort methodology. This method pools loans into groups (“cohorts”) sharing similar risk characteristics and tracks each cohort’s net charge-offs over the lives of the loans to calculate a historical loss rate. The historical loss rates for each cohort are then averaged to calculate an overall historical loss rate which is applied to the current loan balance to arrive at the quantitative baseline portion of the allowance for credit losses for the respective loan portfolio class. For certain loan portfolio classes, the Company determined there was not sufficient historical loss information to calculate a meaningful historical loss rate using the cohort methodology. For any such loan portfolio class, the weighted-average remaining maturity (“WARM”) methodology is being utilized until sufficient historical loss data is obtained. The WARM method multiplies an average annual loss rate by the expected remaining life of the loan pool to arrive at the quantitative baseline portion of the allowance for credit losses for the respective loan portfolio class.

The Company also considers qualitative adjustments to the historical loss rate for each loan portfolio class. The qualitative adjustments for each loan class consider the conditions over the period from which historical loss experience was based and are split into two components: 1) asset or class specific risk characteristics or current conditions at the reporting date related to portfolio credit quality, remaining payments, volume and nature, credit culture and management, business environment or other management factors and 2) reasonable and supportable forecast of future economic conditions and collateral values.

The Company performs a quarterly asset quality review which includes a review of forecasted gross charge-offs and recoveries, nonperforming assets, criticized loans, risk rating migration, delinquencies, etc. The asset quality review is performed by management and the results are used to consider a qualitative overlay to the quantitative baseline. The second qualitative adjustment noted above, economic conditions and collateral values, encompasses a one-year reasonable and supportable
11

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

forecast period. The overlay adjustment for the reasonable and supportable forecast assumes an immediate reversion after the one-year forecast period to historical loss rates for the remaining life of the respective loan pool.

When management deems it to be appropriate, the Company establishes a specific reserve for individually evaluated loans that do not share similar risk characteristics with the loans included in each respective loan pool. These individually evaluated loans are removed from their respective pools and typically represent collateral dependent loans but may also include other non-performing loans or troubled debt restructurings (“TDRs”). In addition, the Company individually evaluates “reasonably expected” TDRs, which are identified by the Company as a loan expected to be classified as a TDR within the next six months. Management judgment is utilized to make this determination.

Allowance for Credit Losses (Held-to-Maturity Debt Securities) - For held-to-maturity (“HTM”) debt securities, the Company is required to utilize a CECL methodology to estimate expected credit losses. Substantially all of the Company’s HTM debt securities are issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. See Note F "Fair Value Measurements" for more information about HTM debt securities.

Allowance for Credit Losses (Available-for-Sale Debt Securities) - The impairment model for available-for-sale (“AFS”) debt securities differs from the CECL methodology applied for HTM debt securities because AFS debt securities are measured at fair value rather than amortized cost. For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either criteria is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities where neither of the criteria are met, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the credit rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited to the amount that the fair value is less than the amortized cost basis. Any remaining discount that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as a provision (or release) for credit losses. Losses are charged against the allowance when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met. See Note F "Fair Value Measurements" for more information about AFS debt securities.

Accrued Interest Receivable - The Company made the following elections regarding accrued interest receivable (“AIR”):

Presenting accrued interest receivable balances separately from their underlying instruments within the consolidated statements of financial condition.
Excluding accrued interest receivable that is included in the amortized cost of financing receivables from related disclosure requirements.
Continuing our policy to write off accrued interest receivable by reversing interest income in cases where the Company does not reasonably expect to receive payment.
Not measuring an allowance for credit losses for accrued interest receivable due to the Company’s policy of writing off uncollectible accrued interest receivable balances in a timely manner, as described above.

Non-Accrual Loans - Loans are placed on non-accrual status when, in the judgment of management, the probability of collection of interest is deemed to be insufficient to warrant further accrual. When a loan is placed on non-accrual status, previously accrued but unpaid interest is deducted from interest income. The Bank does not accrue interest on loans 90 days or more past due, except for situations where principal and interest is considered collectible such as a loan with a guarantee. If payment is made on a loan so that the loan becomes less than 90 days past due, and the Bank expects full collection of principal and interest, the loan is returned to full accrual status. Any interest ultimately collected is credited to income in the period of recovery. A loan is charged-off when the loss is estimable and it is confirmed that the borrower is not expected to be able to meet contractual obligations.

If a consumer loan is on non-accrual status before becoming a TDR it will stay on non-accrual status following restructuring until it has been performing for at least six months, at which point it may be moved to accrual status. If a loan is on accrual
12

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

status before it becomes a TDR, and management concludes that full repayment is probable based on internal evaluation, it will remain on accrual status following restructuring. If the restructured consumer loan does not perform, it is placed on non-accrual status when it is 90 days delinquent. For commercial loans, six consecutive payments on newly restructured loan terms are required prior to returning the loan to accrual status. In some instances, after the required six consecutive payments are made, management will conclude that collection of the entire principal and interest due is still in doubt. In those instances, the loan will remain on non-accrual status.

Collateral-Dependent Loans - A financial asset is considered collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. For all classes of loans and leases deemed collateral-dependent, the Company elected the practical expedient to estimate expected credit losses based on the collateral’s fair value less cost to sell. In most cases, the Company records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less cost to sell. Substantially all of the collateral consists of various types of real estate including residential properties; commercial properties such as retail centers, office buildings, and lodging; agriculture land; and vacant land.

Off-balance-sheet credit exposures - The only material off-balance-sheet credit exposures are unfunded loan commitments, which had a combined balance of $4,533,687,000 and $4,947,570,000 at March 31, 2023 and September 30, 2022, respectively. The reserve for unfunded commitments is recognized as a liability (included as other liabilities in "Accrued expenses and other liabilities" in the consolidated statements of financial condition), with adjustments to the reserve recognized through provision for credit losses in the consolidated statements of income. The reserve for unfunded commitments represents the expected lifetime credit losses on off-balance sheet obligations such as commitments to extend credit and standby letters of credit. However, a liability is not recognized for commitments that are unconditionally cancellable by the Company. The reserve for unfunded commitments is determined by estimating future draws, including the effects of risk mitigation actions, and applying the expected loss rates on those draws. Loss rates are estimated by utilizing the same loss rates calculated for the allowance for credit losses related to the respective loan portfolio class. See Note I "Commitments and Contingencies" for more information.


NOTE B – New Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848). The amendments in this ASU provide temporary, optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The ASU primarily includes relief related to contract modifications and hedging relationships, as well as providing a one-time election for the sale or transfer of debt securities classified as held-to-maturity that reference a rate affected by the new guidance. This guidance is effective immediately and the amendments were originally to be applied prospectively through December 31, 2022. However, the FASB issued ASU 2022-06, deferring the sunset date to December 31, 2024. The Company has evaluated the regulatory requirements to cease the use of LIBOR and has put in place systems and capabilities for this purpose. The adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815). The amendments in this ASU clarify the guidance on ASC 815 on fair value hedge accounting of interest rate risk for portfolios and financial assets. Among other things, the amended guidance establishes the "last-of-layer" method for making the fair value hedge accounting for these portfolios more accessible and renames that method the "portfolio layer" method. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We do not expect the amendments to have a material effect on our consolidated financial statements.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326). The amendments in this ASU eliminate the guidance on troubled debt restructurings while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors made to borrowers experiencing financial difficulties. The ASU also requires that entities disclose current-period gross charge-offs by year of origination for loans and leases. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We do not expect the amendments to have a material effect on our consolidated financial statements.

13

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

In March 2023, the FASB issued ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323). The amendments in this ASU expand the population of tax credit investments for which an investor may elect to to apply the proportional amortization method ("PAM") and require certain disclosures for tax credit investments. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company has utilized PAM for low income housing tax credit investments. We do not expect this ASU to have a material effect on our consolidated financial statements.


NOTE C – Dividends and Share Repurchases

On March 10, 2023, the Company paid a regular dividend on common stock of $0.25 per share, which represented the 160th consecutive quarterly cash dividend. Dividends per share were $0.25 and $0.24 for the quarters ended March 31, 2023 and 2022, respectively.

For the three months ended March 31, 2023, the Company repurchased 3,239 shares (related to tax withholding on employee equity awards) at an average price of $33.48. As of March 31, 2023, there are 3,676,260 remaining shares authorized to be repurchased under the current Board approved share repurchase program.

The Company pays a cash dividend, if declared by the Board, of $12.1875 per share on its Series A Preferred Stock quarterly on January 15, April 15, July 15 and October 15. This dividend equals $0.30468750 per depositary share (each dividend, a "Series A Preferred Dividend"). The Company paid the Series A Preferred Dividend on April 15, 2023.

NOTE D – Loans Receivable

For a detailed discussion of loans and credit quality, including accounting policies and the CECL methodology used to estimate the allowance for credit losses, see Note A "Summary of Significant Accounting Policies" above.

The Company's loans held for investment are divided into two portfolio segments, commercial loans and consumer loans, with each of those segments further split into loan classes for purposes of estimating the allowance for credit losses.

14

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following table is a summary of loans receivable by loan portfolio segment and class.
 March 31, 2023September 30, 2022
(In thousands)(In thousands)
Commercial loans
Multi-family$2,894,567 14.3 %$2,645,801 13.7 %
Commercial real estate3,283,151 16.3 3,133,660 16.2 
Commercial & industrial2,590,700 12.8 2,350,984 12.1 
Construction3,735,821 18.5 3,784,388 19.5 
Land - acquisition & development231,990 1.1 291,301 1.5 
Total commercial loans12,736,229 63.1 12,206,134 63.0 
Consumer loans
Single-family residential6,175,250 30.6 5,771,862 29.8 
Construction - custom840,475 4.2 974,652 5.0 
   Land - consumer lot loans141,215 0.7 153,240 0.8 
   HELOC218,179 1.1 203,528 1.0 
   Consumer71,083 0.4 75,543 0.4 
Total consumer loans7,446,202 36.9 7,178,825 37.0 
Total gross loans20,182,431 100 %19,384,959 100 %
   Less:
      Allowance for credit losses on loans177,420 172,808 
      Loans in process2,648,512 3,006,023 
      Net deferred fees, costs and discounts84,593 92,564 
Total loan contra accounts2,910,525 3,271,395 
Net loans$17,271,906 $16,113,564 

The Company elected to exclude accrued interest receivable from the amortized cost basis of loans for disclosure purposes and from the calculations of estimated credit losses. As of March 31, 2023, and September 30, 2022, AIR for loans totaled $71,830,000 and $57,070,000, respectively, and is included in the Interest receivable line item balance on the Company’s consolidated statements of financial condition.

Loans in the amount of $8,867,524,000 and $8,224,951,000 at March 31, 2023 and September 30, 2022, respectively, were pledged to secure borrowings from the Federal Home Loan Bank ("FHLB") as part of our liquidity management strategy. The FHLB does not have the right to sell or re-pledge these loans.
15

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following table sets forth the amortized cost basis of non-accrual loans and loans 90 days or more past due and accruing.
 
 March 31, 2023September 30, 2022
 (In thousands, except ratio data)
Non-accrualNon-accrual with no ACL (1)90 days or more past due and accruingNon-accrualNon-accrual with no ACL90 days or more past due and accruing
Commercial loans
Multi-family$5,844 $— $— $5,912 $— $— 
Commercial real estate4,519 — — 4,691 — — 
Commercial & industrial7,681 740 — 5,693 1,308 — 
Construction— — — — — — 
Land - acquisition & development— — — — — — 
   Total commercial loans18,044 740 — 16,296 1,308 — 
Consumer loans
Single-family residential16,396 — — 17,450 — — 
Construction - custom— — — 435 — — 
Land - consumer lot loans— — 84 — — 
HELOC128 — — 233 — — 
Consumer32 — — 36 — — 
   Total consumer loans16,562 — — 18,238 — — 
Total non-accrual loans$34,606 $740 $— $34,534 $1,308 $— 
% of total loans0.20 %0.21 %
(1) Amounts in the 'Non-accrual with no ACL' column are a subset of the amounts in the 'Non-accrual' column

The Company recognized interest income on non-accrual loans of approximately $1,039,000 in the six months ended March 31, 2023. If these loans had been on accrual status and performed according to their original contract terms, the Company would have recognized interest income of approximately $761,000 for the six months ended March 31, 2023. Recognized interest income for the six months ended March 31, 2023 was higher than what otherwise would have been recognized in the period due to the collection of past due amounts. Interest cash flows collected on non-accrual loans vary from period to period as those loans are brought current or are paid off.

16

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following tables provide details regarding loan delinquencies by loan portfolio and class.
 
March 31, 2023Days Delinquent Based on $ Amount of Loans% based
on $
Type of LoanLoans Receivable (Amortized Cost)Current306090Total Delinquent
(In thousands, except ratio data)
Commercial Loans
Multi-family$2,859,994 $2,859,862 $132 $— $— $132 — %
Commercial real estate3,258,304 3,256,293 2,011 — — 2,011 0.06 
Commercial & industrial2,585,196 2,580,997 509 2,960 730 4,199 0.16 
Construction1,608,513 1,608,008 505 — — 505 0.03 
Land - acquisition & development167,080 167,080 — — — — — 
   Total commercial loans10,479,087 10,472,240 3,157 2,960 730 6,847 0.07 
Consumer Loans
Single-family residential6,134,021 6,114,783 5,894 432 12,912 19,238 0.31 
Construction - custom403,783 403,696 87 — — 87 0.02 
Land - consumer lot loans140,140 140,061 79 — — 79 0.06 
HELOC221,159 219,811 600 624 124 1,348 0.61 
Consumer71,136 70,901 81 153 235 0.33 
   Total consumer loans6,970,239 6,949,252 6,741 1,057 13,189 20,987 0.30 
Total Loans$17,449,326 $17,421,492 $9,898 $4,017 $13,919 $27,834 0.16 %
Delinquency %99.84%0.06%0.02%0.08%0.16%



September 30, 2022Days Delinquent Based on $ Amount of Loans% based
on $
Type of LoanLoans Receivable (Amortized Cost)Current306090Total Delinquent
(In thousands, except ratio data)
Commercial Loans
Multi-family$2,626,479 $2,626,479 $— $— $— $— — %
Commercial real estate3,111,112 3,110,056 538 450 68 1,056 0.03 
Commercial & industrial2,343,403 2,336,791 — 919 5,693 6,612 0.28 
Construction1,423,891 1,423,891 — — — — 
Land - acquisition & development223,616 223,616 — — — — — 
  Total commercial loans9,728,501 9,720,833 538 1,369 5,761 7,668 0.08 
Consumer Loans
Single-family residential5,726,979 5,708,996 2,796 1,316 13,871 17,983 0.31 
Construction - custom397,343 396,908 — — 435 435 0.11 
Land - consumer lot loans151,945 151,746 — 139 60 199 0.13 
HELOC206,033 205,605 155 46 227 428 0.21 
Consumer75,571 75,357 162 17 35 214 0.28 
  Total consumer loans6,557,871 6,538,612 3,113 1,518 14,628 19,259 0.29 
Total Loans$16,286,372 $16,259,445 $3,651 $2,887 $20,389 $26,927 0.17 %
Delinquency %99.83%0.02%0.02%0.13%0.17%


17

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Most TDRs are accruing and performing loans where the borrower has proactively approached the Company about modification due to temporary financial difficulties. Each request for modification is individually evaluated for merit and likelihood of success. The concession granted in a loan modification is typically a payment reduction through a rate reduction of between 100 to 200 basis points for a specific term, usually six to twenty-four months. Interest-only payments may also be approved during the modification period. Principal forgiveness is not an available option for restructured loans. As of March 31, 2023, 97.7% of the Company's $52,051,000 in TDRs were classified as performing. As of March 31, 2023, single-family residential loans comprised 81.9% of TDRs.

We evaluate the credit quality of our loans based on regulatory risk ratings and also consider other factors. Based on this evaluation, the loans are assigned a grade and classified as follows:

Pass – the credit does not meet one of the definitions below.

Special mention – A special mention credit is considered to be currently protected from loss but is potentially weak. No loss of principal or interest is foreseen; however, proper supervision and management attention is required to deter further deterioration in the credit. Assets in this category constitute some undue and unwarranted credit risk but not to the point of justifying a risk rating of substandard. The credit risk may be relatively minor yet constitutes an unwarranted risk in light of the circumstances surrounding a specific asset.

Substandard – A substandard credit is an unacceptable credit. Additionally, repayment in the normal course is in jeopardy due to the existence of one or more well defined weaknesses. In these situations, loss of principal is likely if the weakness is not corrected. A substandard asset is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Assets so classified will have a well-defined weakness or weaknesses that jeopardize the collection or liquidation of the debt. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets risk rated substandard.

Doubtful – A credit classified doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weakness makes collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The probability of loss is high, but because of certain important and reasonably specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and refinancing plans.

Loss – Credits classified loss are considered uncollectible and of such little value that their continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset even though partial recovery may be affected in the future. Losses should be taken in the period in which they are identified as uncollectible. Partial charge-off versus full charge-off may be taken if the collateral offers some identifiable protection.

18

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following tables present by primary credit quality indicator, loan class, and year of origination, the amortized cost basis of loans receivable as of March 31, 2023 and September 30, 2022.
March 31, 2023Term Loans Amortized Cost Basis by Origination Year
YTD 20232022202120202019Prior to 2019Revolving LoansRevolving to Term LoansTotal Loans
Commercial loans
Multi-family
Pass$119,024 $630,346 $780,948 $583,407 $152,445 $441,066 $38,598 $— $2,745,834 
Special Mention— 94,503 — — — — — — 94,503 
Substandard— 5,121 2,331 4,159 — 8,046 — — 19,657 
Total$119,024 $729,970 $783,279 $587,566 $152,445 $449,112 $38,598 $— $2,859,994 
Commercial real estate
Pass$165,837 $838,106 $732,623 $465,913 $285,084 $680,459 $1,350 $— $3,169,372 
Special Mention500 — — — — — — — 500 
Substandard— 5,495 3,840 24,815 31,827 20,001 2,454 — 88,432 
Total$166,337 $843,601 $736,463 $490,728 $316,911 $700,460 $3,804 $— $3,258,304 
Commercial & industrial
Pass$134,404 $249,540 $339,808 $126,506 $31,758 $208,250 $1,301,176 $23,893 $2,415,335 
Special Mention— — — — — 1,558 — — 1,558 
Substandard572 27,141 8,771 5,220 4,445 25,141 90,076 — 161,366 
Doubtful— — 2,959 — — — 3,978 — 6,937 
Total$134,976 $276,681 $351,538 $131,726 $36,203 $234,949 $1,395,230 $23,893 $2,585,196 
Construction
Pass$66,866 $666,139 $657,393 $74,905 $39,687 $375 $71,634 $— $1,576,999 
Special Mention3,631 14,341 13,542 — — — — — 31,514 
Total$70,497 $680,480 $670,935 $74,905 $39,687 $375 $71,634 $— $1,608,513 
Land - acquisition & development
Pass$14,807 $69,949 $45,549 $9,455 $1,378 $23,073 $2,600 $— $166,811 
Special Mention— 269 — — — — — — 269 
Total$14,807 $70,218 $45,549 $9,455 $1,378 $23,073 $2,600 $— $167,080 
Total commercial loans
Pass$500,938 $2,454,080 $2,556,321 $1,260,186 $510,352 $1,353,223 $1,415,358 $23,893 $10,074,351 
Special Mention4,131 109,113 13,542 — — 1,558 — — 128,344 
Substandard572 37,757 14,942 34,194 36,272 53,188 92,530 — 269,455 
Doubtful— — 2,959 — — — 3,978 — 6,937 
Total$505,641 $2,600,950 $2,587,764 $1,294,380 $546,624 $1,407,969 $1,511,866 $23,893 $10,479,087 
19

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

March 31, 2023Term Loans Amortized Cost Basis by Origination Year
YTD 20232022202120202019Prior to 2019Revolving LoansRevolving to Term LoansTotal Loans
Consumer loans
Single-family residential
Current$272,177 $1,285,524 $1,748,863 $758,020 $309,481 $1,740,718 $— $— $6,114,783 
30 days past due— 804 — 745 76 4,269 — — 5,894 
60 days past due— 198 174 — — 60 — — 432 
90+ days past due— — 674 — 752 11,486 — — 12,912 
Total$272,177 $1,286,526 $1,749,711 $758,765 $310,309 $1,756,533 $— $— $6,134,021 
Construction - custom
Current$23,021 $341,449 $34,918 $3,472 $358 $478 $— $— $403,696 
30 days past due— 87 — — — — — — 87 
Total$23,021 $341,536 $34,918 $3,472 $358 $478 $— $— $403,783 
Land - consumer lot loans
Current$10,606 $48,382 $48,199 $13,476 $4,506 $14,892 $— $— $140,061 
30 days past due— — — 79 — — — — 79 
Total$10,606 $48,382 $48,199 $13,555 $4,506 $14,892 $— $— $140,140 
HELOC
Current$— $— $— $— $— $4,546 $214,440 $825 $219,811 
30 days past due— — — — — 96 504 — 600 
60 days past due— — — — — 151 473 — 624 
90+ days past due— — — — — 40 84 — 124 
Total$— $— $— $— $— $4,833 $215,501 $825 $221,159 
Consumer
Current$656 $138 $9,889 $8,012 $16 $26,833 $25,357 $— $70,901 
30 days past due— — — — — 80 — 81 
60 days past due— — — — — — — 
90+ days past due— — — 30 122 — — 153 
Total$657 $138 $9,889 $8,012 $46 $27,035 $25,359 $— $71,136 
Total consumer loans
Current$306,460 $1,675,493 $1,841,869 $782,980 $314,361 $1,787,467 $239,797 $825 $6,949,252 
30 days past due— 891 — 824 76 4,445 505 — 6,741 
60 days past due— 198 174 — — 211 474 — 1,057 
90+ days past due— 674 — 782 11,648 84 — 13,189 
Total$306,461 $1,676,582 $1,842,717 $783,804 $315,219 $1,803,771 $240,860 $825 $6,970,239 




20

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

September 30, 2022Term Loans Amortized Cost Basis by Origination Year
20222021202020192018Prior to 2018Revolving LoansRevolving to Term LoansTotal Loans
Commercial loans
Multi-family
Pass$657,144 $778,936 $500,917 $168,568 $157,144 $315,858 $34,102 $— $2,612,669 
Substandard3,951 — 1,729 — 6,560 1,570 — — 13,810 
Total$661,095 $778,936 $502,646 $168,568 $163,704 $317,428 $34,102 $— $2,626,479 
Commercial real estate
Pass$820,490 $679,321 $492,826 $301,033 $218,171 $541,008 $1,391 $— $3,054,240 
Special Mention— 1,594 — — — — — — 1,594 
Substandard259 — 6,074 30,579 4,857 10,923 2,586 — 55,278 
Total$820,749 $680,915 $498,900 $331,612 $223,028 $551,931 $3,977 $— $3,111,112 
Commercial & industrial
Pass$254,668 $435,630 $145,799 $39,102 $25,709 $197,909 $1,097,696 $255 $2,196,768 
Special Mention2,503 — — — — — 29,153 — 31,656 
Substandard2,021 12,639 9,803 5,029 1,213 25,519 58,755 — 114,979 
Total$259,192 $448,269 $155,602 $44,131 $26,922 $223,428 $1,185,604 $255 $2,343,403 
Construction
Pass$510,764 $671,611 $142,816 $27,260 $375 $— $68,808 $— $1,421,634 
Substandard— 2,257 — — — — — — 2,257 
Total$510,764 $673,868 $142,816 $27,260 $375 $— $68,808 $— $1,423,891 
Land - acquisition & development
Pass$100,022 $64,539 $16,934 $3,391 $8,175 $27,955 $2,600 $— $223,616 
Total$100,022 $64,539 $16,934 $3,391 $8,175 $27,955 $2,600 $— $223,616 
Total commercial loans
Pass$2,343,088 $2,630,037 $1,299,292 $539,354 $409,574 $1,082,730 $1,204,597 $255 $9,508,927 
Special Mention2,503 1,594 — — — — 29,153 — 33,250 
Substandard6,231 14,896 17,606 35,608 12,630 38,012 61,341 — 186,324 
Total$2,351,822 $2,646,527 $1,316,898 $574,962 $422,204 $1,120,742 $1,295,091 $255 $9,728,501 











21

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

September 30, 2022Term Loans Amortized Cost Basis by Origination Year
20222021202020192018Prior to 2018Revolving LoansRevolving to Term LoansTotal Loans
Consumer loans
Single-family residential
Current$1,131,152 $1,652,242 $771,769 $320,546 $276,093 $1,557,194 $— $— $5,708,996 
30 days past due— — 400 604 — 1,792 — — 2,796 
60 days past due— — — — — 1,316 — — 1,316 
90+ days past due— — — 477 — 13,394 — — 13,871 
Total$1,131,152 $1,652,242 $772,169 $321,627 $276,093 $1,573,696 $— $— $5,726,979 
Construction - custom
Current$235,030 $150,434 $9,811 $1,155 $478 $— $— $— $396,908 
90+ days past due— 435 — — — — — — 435 
Total$235,030 $150,869 $9,811 $1,155 $478 $— $— $— $397,343 
Land - consumer lot loans
Current$53,396 $60,454 $15,876 $5,399 $3,433 $13,188 $— $— $151,746 
60 days past due— — 139 — — — — — 139 
90+ days past due— — — — — 60 — — 60 
Total$53,396 $60,454 $16,015 $5,399 $3,433 $13,248 $— $— $151,945 
HELOC
Current$— $— $— $— $— $4,349 $200,267 $989 $205,605 
30 days past due— — — — — 95 60 — 155 
60 days past due— — — — — 29 17 — 46 
90+ days past due— — — — — — 227 — 227 
Total$— $— $— $— $— $4,473 $200,571 $989 $206,033 
Consumer
Current$1,386 $10,156 $8,038 $215 $23,919 $6,449 $25,194 $— $75,357 
30 days past due— — — — 153 — 162 
60 days past due— — — — — 17 — — 17 
90+ days past due— — 32 — — — 35 
Total$1,387 $10,156 $8,038 $249 $23,919 $6,621 $25,201 $— $75,571 
Total consumer loans
Current$1,420,964 $1,873,286 $805,494 $327,315 $303,923 $1,581,180 $225,461 $989 $6,538,612 
30 days past due— — 400 606 — 2,040 67 — 3,113 
60 days past due— — 139 — — 1,362 17 — 1,518 
90+ days past due435 — 509 — 13,456 227 — 14,628 
Total$1,420,965 $1,873,721 $806,033 $328,430 $303,923 $1,598,038 $225,772 $989 $6,557,871 


22

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE E – Allowance for Losses on Loans

For a detailed discussion of loans and credit quality, including accounting policies and the CECL methodology used to estimate the allowance for credit losses, see Note A "Summary of Significant Accounting Policies."

The following tables summarize the activity in the allowance for loan losses by loan portfolio segment and class. 
Three Months Ended March 31, 2023Beginning AllowanceCharge-offsRecoveries
Provision &
Transfers (1)
Ending Allowance
 (In thousands)
Commercial loans
   Multi-family$12,324 $— $— $714 $13,038 
   Commercial real estate27,380 — 422 27,803 
   Commercial & industrial63,873 (6,054)42 5,440 63,301 
   Construction26,133 — — (106)26,027 
   Land - acquisition & development8,572 — 14 (1,090)7,496 
      Total commercial loans138,282 (6,054)57 5,380 137,665 
Consumer loans
   Single-family residential25,475 (34)104 1,371 26,916 
   Construction - custom3,500 — — (44)3,456 
   Land - consumer lot loans4,142 — (202)3,945 
   HELOC2,588 — — 74 2,662 
   Consumer2,810 (38)83 (79)2,776 
      Total consumer loans38,515 (72)192 1,120 39,755 
Total loans$176,797 $(6,126)$249 $6,500 $177,420 
(1) Provision & transfer amounts within the table do not include the recapture of provision for unfunded commitments of $3.0 million. The total provision recognized for the three months ended March 31, 2023 was $3.5 million.
Three Months Ended March 31, 2022Beginning AllowanceCharge-offsRecoveries
Provision &
Transfers (1)
Ending Allowance
 (In thousands)
Commercial loans
   Multi-family$15,993 $— $— $(1,530)$14,463 
   Commercial real estate25,722 — 753 (1,793)24,682 
   Commercial & industrial47,231 (873)7,543 53,903 
   Construction24,766 — 179 (2,238)22,707 
   Land - acquisition & development14,125 — 20 (460)13,685 
      Total commercial loans127,837 (873)954 1,522 129,440 
Consumer loans
   Single-family residential30,106 — 147 (1,261)28,992 
   Construction - custom3,719 — — (590)3,129 
   Land - consumer lot loans4,984 — 40 81 5,105 
   HELOC2,365 — 100 10 2,475 
   Consumer2,400 (39)144 (262)2,243 
      Total consumer loans43,574 (39)431 (2,022)41,944 
Total loans$171,411 $(912)$1,385 $(500)$171,384 
23

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(1) Provision & transfer amounts within the table do not include the provision for unfunded commitments. There was no such provision in the above quarter. The total provision recapture recognized for the three months ended March 31, 2022 was $0.5 million
Six Months Ended March 31, 2023Beginning AllowanceCharge-offsRecoveries
Provision &
Transfers (1)
Ending Allowance
 (In thousands)
Commercial loans
   Multi-family$12,013 $— $— $1,025 $13,038 
   Commercial real estate25,814 — 1,984 27,803 
   Commercial & industrial57,210 (6,136)74 12,153 63,301 
   Construction26,161 — — (134)26,027 
   Land - acquisition & development12,278 — 30 (4,812)7,496 
      Total commercial loans133,476 (6,136)109 10,216 137,665 
Consumer loans
   Single-family residential25,518 (34)534 898 26,916 
   Construction - custom3,410 — — 46 3,456 
   Land - consumer lot loans5,047 — (1,107)3,945 
   HELOC2,482 — 179 2,662 
   Consumer2,875 (184)317 (232)2,776 
      Total consumer loans39,332 (218)857 (216)39,755 
Total loans$172,808 $(6,354)$966 $10,000 $177,420 
(1) Provision & transfer amounts within the table do not include the recapture of provision for unfunded commitments of $4.0 million. The total provision for the six months ended March 31, 2023 was $6.0 million.
24

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



Six Months Ended March 31, 2022Beginning AllowanceCharge-offsRecoveries
Provision &
Transfers (1)
Ending Allowance
 (In thousands)
Commercial loans
   Multi-family$16,949 $— $— $(2,486)$14,463 
   Commercial real estate23,437 (529)797 977 24,682 
   Commercial & industrial45,957 (916)64 8,798 53,903 
   Construction25,585 — 2,179 (5,057)22,707 
   Land - acquisition & development13,447 (2)40 200 13,685 
      Total commercial loans125,375 (1,447)3,080 2,432 129,440 
Consumer loans
   Single-family residential30,978 — 552 (2,538)28,992 
   Construction - custom4,907 — — (1,778)3,129 
   Land - consumer lot loans4,939 (27)45 148 5,105 
   HELOC2,390 — 101 (16)2,475 
   Consumer2,711 (115)395 (748)2,243 
      Total consumer loans45,925 (142)1,093 (4,932)41,944 
Total loans$171,300 $(1,589)$4,173 $(2,500)$171,384 
(1) Provision & transfer amounts within the table do not include the provision for unfunded commitments of $2.5 million. As such there was no provision recognized for the six months ended March 31, 2022.

The Company recorded a $3,500,000 provision for credit losses for the three months ended March 31, 2023, compared to a $500,000 release of allowance for credit losses for the three months ended March 31, 2022. The provision in the three months ended March 31, 2023 was primarily due to growth in net loans receivable combined with the changing economic outlook amid concerns around a looming recession and recent macro-economic events. The release for the three months ended March 31, 2022 was primarily due to improvements in the credit quality of certain loan portfolios related to strong real estate markets and collateral conditions, mostly offset by growth in loans receivable. The Company recorded a $6,000,000 provision for credit losses for the six months ended March 31, 2023, compared with no provision for credit losses for the six months ended March 31, 2022. Charge-offs, net of recoveries, totaled $5,877,000 for the three months ended March 31, 2023, compared to net recoveries of $473,000 during the three months ended March 31, 2022. Charge-offs, net of recoveries, totaled $5,388,000 for the six months ended March 31, 2023, compared to net recoveries of $2,584,000 during the six months ended March 31, 2022. No allowance was recorded as of March 31, 2023 or as of September 30, 2022 for the $2,781,000 and $10,141,399 of PPP loans in the portfolio on each date, respectively, which are included in the commercial & industrial loan category, due to the government guarantee.

Non-performing assets were $46,785,000, or 0.21% of total assets, at March 31, 2023, compared to $44,554,000, or 0.21% of total assets, at September 30, 2022. Non-accrual loans were $34,606,000 at March 31, 2023, compared to $34,534,000 at September 30, 2022. Delinquencies, as a percent of total loans, were 0.16% at March 31, 2023, compared to 0.17% at September 30, 2022.

The Company has an asset quality review function that analyzes its loan portfolio and reports the results of the review to its Board of Directors on a quarterly basis. The single-family residential, HELOC and consumer portfolios are evaluated based on their performance as a pool of loans, since no single loan is individually significant or judged by its risk rating, size or potential risk of loss. The construction, land, multi-family, commercial real estate and commercial and industrial loans are risk rated on a loan by loan basis to determine the relative risk inherent in specific borrowers or loans. Based on that risk rating, the loans are assigned a grade and classified as described in Note D "Loans Receivable."


25

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following tables provide the amortized cost of loans receivable based on risk rating categories as previously defined.
March 31, 2023Internally Assigned Grade
 PassSpecial mentionSubstandardDoubtfulLossTotal
 (In thousands, except ratio data)
Loan type
Commercial loans
  Multi-family$2,745,834 $94,503 $19,657 $— $— $2,859,994 
  Commercial real estate3,169,372 500 88,432 — — 3,258,304 
  Commercial & industrial2,415,335 1,558 161,366 6,937 — 2,585,196 
  Construction1,576,999 31,514 — — — 1,608,513 
  Land - acquisition & development166,811 269 — — — 167,080 
    Total commercial loans10,074,351 128,344 269,455 6,937 — 10,479,087 
Consumer loans
  Single-family residential6,114,358 — 19,663 — — 6,134,021 
  Construction - custom403,783 — — — — 403,783 
  Land - consumer lot loans140,134 — — — 140,140 
  HELOC221,031 — 128 — — 221,159 
  Consumer71,124 — 12 — — 71,136 
    Total consumer loans6,950,430 — 19,809 — — 6,970,239 
Total$17,024,781 $128,344 $289,264 $6,937 $— $17,449,326 
Total grade as a % of total loans97.57 %0.74 %1.66 %0.04 %— %


26

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

September 30, 2022Internally Assigned Grade
 PassSpecial mentionSubstandardDoubtfulLossTotal
 (In thousands, except ratio data)
Loan type
Commercial loans
  Multi-family$2,612,669 $— $13,810 $— $— $2,626,479 
  Commercial real estate3,054,241 1,594 55,277 — — 3,111,112 
  Commercial & industrial2,196,767 31,656 114,980 — — 2,343,403 
  Construction1,421,634 — 2,257 — — 1,423,891 
  Land - acquisition & development223,616 — — — — 223,616 
    Total commercial loans9,508,927 33,250 186,324 — — 9,728,501 
Consumer loans
  Single-family residential5,706,199 — 20,780 — — 5,726,979 
  Construction - custom396,908 — 435 — — 397,343 
  Land - consumer lot loans151,723 — 222 — — 151,945 
  HELOC205,800 — 233 — — 206,033 
  Consumer75,570 — — — 75,571 
    Total consumer loans6,536,200 — 21,671 — — 6,557,871 
Total loans$16,045,127 $33,250 $207,995 $— $— $16,286,372 
Total grade as a % of total loans98.52 %0.20 %1.28 %— %— %



27

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following tables provide information on amortized cost of loans receivable based on borrower payment activity.

March 31, 2023Performing LoansNon-Performing Loans
 Amount% of Total
Loans
Amount% of Total
Loans
 (In thousands, except ratio data)
Commercial loans
   Multi-family$2,854,150 99.8 %$5,844 0.2 %
   Commercial real estate3,253,785 99.9 4,519 0.1 
   Commercial & industrial2,577,515 99.7 7,681 0.3 
   Construction1,608,513 100.0 — 0.0 
   Land - acquisition & development167,080 100.0 — — 
      Total commercial loans10,461,043 99.8 18,044 0.2 
Consumer loans
   Single-family residential6,117,625 99.7 16,396 0.3 
   Construction - custom403,783 100.0 — — 
   Land - consumer lot loans140,134 100.0 0.0 
   HELOC221,031 99.9 128 0.1 
   Consumer71,104 100.0 32 0.0 
      Total consumer loans6,953,677 99.8 16,562 0.2 
Total loans$17,414,720 99.8 %$34,606 0.2 %
September 30, 2022Performing LoansNon-Performing Loans
 Amount% of Total
Loans
Amount% of Total
Loans
 (In thousands, except ratio data)
Commercial loans
   Multi-family$2,620,567 99.8 %$5,912 0.2 %
   Commercial real estate3,106,421 99.8 4,691 0.2 
   Commercial & industrial2,337,710 99.8 5,693 0.2 
   Construction1,423,891 100.0 — — 
   Land - acquisition & development223,616 100.0 — — 
      Total commercial loans9,712,205 99.9 16,296 0.1 
Consumer loans
   Single-family residential5,709,529 99.7 17,450 0.3 
   Construction - custom396,908 99.9 435 0.1 
   Land - consumer lot loans151,861 99.9 84 0.1 
   HELOC205,800 99.9 233 0.1 
   Consumer75,535 100.0 36 0.0 
      Total consumer loans6,539,633 99.7 18,238 0.4 
Total loans$16,251,838 99.8 %$34,534 0.2 %


28

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE F – Fair Value Measurements
FASB ASC 820, Fair Value Measurement ("ASC 820") defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active exchange markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active and other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company has established and documented the process for determining the fair values of its assets and liabilities, where applicable. Fair value is based on quoted market prices, when available, for identical or similar assets or liabilities. In the absence of quoted market prices, fair value is determined using valuation models or third-party appraisals. The following is a description of the valuation methodologies used to measure and report the fair value of financial assets and liabilities on a recurring or nonrecurring basis.
Measured on a Recurring Basis

Available-for-Sale Securities and Derivative Contracts
Securities available for sale are recorded at fair value on a recurring basis. The fair value of debt securities are priced using model pricing based on the securities' relationship to other benchmark quoted prices as provided by an independent third party, and under GAAP are considered a Level 2 input method. Securities that are traded on active exchanges are measured using the closing price in an active market and are considered a Level 1 input method.
The Company offers interest rate swaps to its variable rate borrowers who want to manage their interest rate risk. At the same time, the Company enters into the opposite trade with a counter party to offset its interest rate risk. The Company has also entered into commercial loan hedges, mortgage pool hedges and borrowings hedges using interest rate swaps. The fair value of these interest rate swaps are estimated by a third-party pricing service using a discounted cash flow technique. These are considered a Level 2 input method.
 
29

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following tables present the balance and level in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis.
 March 31, 2023
 Level 1Level 2Level 3Total
 (In thousands)
Financial Assets
Available-for-sale securities:
U.S. government and agency securities$— $94,772 $— $94,772 
Asset-backed securities— 654,070 — 654,070 
Municipal bonds— 35,297 — 35,297 
Corporate debt securities— 322,403 — 322,403 
Mortgage-backed securities
Agency pass-through certificates— 899,744 — 899,744 
Total available-for-sale securities— 2,006,286 — 2,006,286 
Client swap program hedges— 54,935 — 54,935 
Commercial loan fair value hedges— 1,854 — 1,854 
Mortgage loan fair value hedges— 27,971 — 27,971 
Borrowings cash flow hedges— 151,167 — 151,167 
Total financial assets$— $2,242,213 $— $2,242,213 
Financial Liabilities
Client swap program hedges$— $54,910 $— $54,910 
Total financial liabilities$— $54,910 $— $54,910 
 September 30, 2022
 Level 1Level 2Level 3Total
 (In thousands)
Financial Assets
Available-for-sale securities:
U.S. government and agency securities$— $39,354 $— $39,354 
Asset-backed securities— 767,001 767,001 
Municipal bonds— 34,962 — 34,962 
Corporate debt securities— 313,757 — 313,757 
Mortgage-backed securities
Agency pass-through certificates— 895,963 — 895,963 
Total available-for-sale securities— 2,051,037 — 2,051,037 
Client swap program hedges— 67,260 — 67,260 
Commercial loan fair value hedges— 2,517 — 2,517 
Mortgage loan fair value hedges— 36,765 — 36,765 
Borrowings cash flow hedges— 179,945 — 179,945 
Total financial assets$— $2,337,524 $— $2,337,524 
Financial Liabilities
Client swap program hedges$— $67,260 $— $67,260 
Total financial liabilities$— $67,260 $— $67,260 
30

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Measured on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition such as collateral dependent loans and real estate owned ("REO"). REO consists principally of properties acquired through foreclosure. From time to time, and on a nonrecurring basis, adjustments using fair value measurements are recorded to reflect increases or decreases based on the discounted cash flows, the current appraisal or estimated value of the collateral or REO property.

When management determines that the fair value of the collateral or the REO requires additional adjustments, either as a result of an updated appraised value or when there is no observable market price, the Company classifies the collateral dependent loan or real estate owned as Level 3. Level 3 assets recorded at fair value on a nonrecurring basis at March 31, 2023 included loans for which an allowance was established or a partial charge-off was recorded based on the fair value of collateral, as well as real estate owned where the fair value of the property was less than the cost basis.

The following tables present the aggregated balance of assets that were measured at fair value on a nonrecurring basis at March 31, 2023 and March 31, 2022, and the total gains (losses) resulting from those fair value adjustments during the respective periods. The estimated fair value measurements are shown gross of estimated selling costs.
 
 March 31, 2023Three Months Ended March 31, 2023Six Months Ended March 31, 2023
 Level 1Level  2Level  3TotalTotal Gains (Losses)
 (In thousands)(In thousands)
Loans (1)$— $— $3,313 $3,313 $(6,120)$(6,243)
Real estate owned (2)— — 372 372 22 22 
Balance at end of period$— $— $3,685 $3,685 $(6,098)$(6,221)

(1)The gains (losses) represent re-measurements of collateral-dependent loans.
(2)The gains (losses) represent aggregate write-downs and charge-offs on real estate owned.
March 31, 2022Three Months Ended March 31, 2022Six Months Ended March 31, 2022
Level 1Level  2Level  3TotalTotal Gains (Losses)
(In thousands)(In thousands)
Loans (1)$— $— $3,816 $3,816 $(896)$(985)
Real estate owned (2)— — 1,571 1,571 32 (472)
Balance at end of period$— $— $5,387 $5,387 $(864)$(1,457)

(1)The gains (losses) represent re-measurements of collateral-dependent loans.
(2)The gains (losses) represent aggregate write-downs and charge-offs on real estate owned.
At March 31, 2023, there was $121,000 in foreclosed residential real estate properties held as REO. The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process was $2,384,000.
Fair Values of Financial Instruments
FASB ASC 825, Financial Instruments ("ASC 825") requires disclosure of fair value information about financial instruments, whether or not recognized on the statement of financial condition, for which it is practicable to estimate those values. Certain financial instruments and all non-financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value estimates presented do not reflect the underlying fair value of the Company. Although management is not aware of any factors that would materially affect the estimated fair value amounts presented below, such amounts have not been comprehensively revalued for purposes of these financial statements since the dates shown, and therefore, estimates of fair value subsequent to those dates may differ significantly from the amounts presented below.
31

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 March 31, 2023September 30, 2022
 Level in Fair Value HierarchyCarrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
 ($ in thousands)
Financial assets
Cash and cash equivalents1$1,118,544 $1,118,544 $683,965 $683,965 
Available-for-sale securities
U.S. government and agency securities294,772 94,772 39,354 39,354 
Asset-backed securities2654,070 654,070 767,001 767,001 
Municipal bonds235,297 35,297 34,962 34,962 
Corporate debt securities2322,403 322,403 313,757 313,757 
Mortgage-backed securities
Agency pass-through certificates2899,744 899,744 895,963 895,963 
Total available-for-sale securities2,006,286 2,006,286 2,051,037 2,051,037 
Held-to-maturity securities
Mortgage-backed securities
Agency pass-through certificates2445,222 401,076 463,299 406,860 
Total held-to-maturity securities445,222 401,076 463,299 406,860 
Loans receivable317,271,906 16,632,415 16,113,564 15,417,635 
FHLB stock2147,078 147,078 95,073 95,073 
        Other assets - client swap program hedges254,935 54,935 67,260 67,260 
        Other assets - commercial fair value loan hedges21,854 1,854 2,517 2,517 
        Other assets - mortgage loan fair value hedges227,971 27,971 36,765 36,765 
        Other assets - borrowings cash flow hedges2151,167 151,167 179,945 179,945 
Financial liabilities
Time deposits23,980,605 3,902,413 3,338,043 3,249,169 
Borrowings23,800,000 3,789,250 2,125,000 1,940,813 
        Other liabilities - client swap program hedges254,910 54,910 67,260 67,260 
Other liabilities - commercial loan fair value hedges2— — — — 
Other liabilities - mortgage loan fair value hedges2— — — — 

The following methods and assumptions were used to estimate the fair value of financial instruments:
Cash and cash equivalents – The carrying amount of these items is a reasonable estimate of their fair value. 
Available-for-sale (AFS) securities and held-to-maturity (HTM) securities – Securities at fair value are primarily priced using model pricing based on the securities' relationship to other benchmark quoted prices as provided by an independent third party, and are considered a Level 2 input method. Equity securities that are exchange traded are considered a Level 1 input method.
Loans receivable – Fair values are estimated first by stratifying the portfolios of loans with similar financial characteristics. Loans are segregated by type such as multi-family real estate, residential mortgage, construction, commercial, consumer and land loans. Each loan category is further segmented into fixed- and adjustable-rate interest terms. For residential mortgages and multi-family loans, the bank determined that its best exit price was by securitization. MBS benchmark prices are used as a base price, with further loan level pricing adjustments made based on individual loan characteristics such as FICO score, LTV, property type and occupancy. For all other loan categories an estimate of fair value is then calculated based on discounted cash flows using a discount rate offered and observed in the market on similar products, plus an adjustment for liquidity to reflect the non-homogeneous nature of the loans, as well as an annual loss rate based on historical losses to arrive at an estimated exit price
32

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

fair value. Fair value for impaired loans is also based on recent appraisals or estimated cash flows discounted using rates commensurate with risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific borrower information.
FHLB stock – The fair value is based upon the par value of the stock that equates to its carrying value.
Time deposits – The fair value of time deposits is estimated by discounting the estimated future cash flows using rates offered for deposits with similar remaining maturities.
Borrowings – The fair value of FHLB advances, FRB borrowings and other borrowings is estimated by discounting the estimated future cash flows using rates currently available to the Company for debt with similar remaining maturities.
Interest rate swaps – The Company offers interest rate swaps to its variable rate borrowers who want to manage their interest rate risk. At the same time, the Company enters into the opposite trade with a counterparty to offset its interest rate risk. The Company also uses interest rate swaps for various fair value hedges and cash flow hedges. The fair value of these interest rate swaps is estimated by a third-party pricing service using a discounted cash flow technique.
The following tables provide details about the amortized cost and fair value of available-for-sale and held-to-maturity securities.
 March 31, 2023
 Amortized
Cost
Gross UnrealizedFair
Value
Yield
 GainsLosses
 ($ in thousands)
Available-for-sale securities
U.S. government and agency securities due
Within 1 year$7,003 $— $(39)$6,964 5.29 %
1 to 5 years24,228 — (604)23,624 4.29 
Over 10 years63,740 444 — 64,184 5.15 
Asset-backed securities
1 to 5 years20,059 — (763)19,296 5.48 
5 to 10 years49,023 (280)48,747 5.51 
Over 10 years600,080 753 (14,806)586,027 5.52 
Corporate debt securities due
Within 1 year75,023 (107)74,918 5.36 
1 to 5 years151,652 793 (1,683)150,762 4.75 
5 to 10 years113,817 — (17,094)96,723 3.87 
Municipal bonds due
5 to 10 years5,735 — (201)5,534 3.00 
Over 10 years29,851 275 (363)29,763 5.85 
Mortgage-backed securities
Agency pass-through certificates960,254 532 (61,042)899,744 3.02 
2,100,465 2,803 (96,982)2,006,286 4.18 
Held-to-maturity securities
Mortgage-backed securities
Agency pass-through certificates445,222 55 (44,201)401,076 2.88 
445,222 55 (44,201)401,076 2.88 
$2,545,687 $2,858 $(141,183)$2,407,362 3.97 %
33

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 September 30, 2022
 Amortized
Cost
Gross UnrealizedFair
Value
Yield
 GainsLosses
 ($ in thousands)
Available-for-sale securities
U.S. government and agency securities due
1 to 5 years$40,403 $— $(1,049)$39,354 3.03 %
Asset-backed securities
1 to 5 years22,527 — (1,141)21,386 3.27 
5 to 10 years82,962 (547)82,419 3.53 
Over 10 years668,482 783 (6,069)663,196 3.86 
Corporate debt securities due
Within 1 year75,000 (200)74,804 3.74 
1 to 5 years151,411 — (2,748)148,663 3.59 
5 to 10 years114,414 — (24,124)90,290 3.87 
Municipal bonds due
5 to 10 years5,751 — (361)5,390 3.00 
Over 10 years29,871 400 (699)29,572 5.85 
Mortgage-backed securities
Agency pass-through certificates971,916 117 (76,070)895,963 2.81 
2,162,737 1,308 (113,008)2,051,037 3.36 
Held-to-maturity securities
Mortgage-backed securities
Agency pass-through certificates463,299 22 (56,461)406,860 2.88 
463,299 22 (56,461)406,860 2.88 
$2,626,036 $1,330 $(169,469)$2,457,897 3.28 %


For AFS investment securities, there were purchases of $115,931,000 during the six months ended March 31, 2023 and purchases of $124,651,000 during the six months ended March 31, 2022. There were no sales of AFS investment securities during the six months ended March 31, 2023 and $4,510,000 in sales during the prior year same period. For HTM investment securities, there were no purchases during the six months ended March 31, 2023 and no purchases during the six months ended March 31, 2022. There were no sales of held-to-maturity investment securities during the six months ended March 31, 2023 or March 31, 2022. Substantially all of the agency mortgage-backed securities have contractual due dates that exceed 10 years.

The Company elected to exclude AIR from the amortized cost basis of debt securities disclosed throughout this footnote. For AFS securities, AIR totaled $6,174,000 and $5,694,000 as of March 31, 2023 and September 30, 2022, respectively. For HTM debt securities, AIR totaled $1,065,000 and $1,108,000 as of March 31, 2023 and September 30, 2022, respectively. AIR for securities is included in the "Interest receivable" line item balance on the Company’s consolidated statements of financial condition.
The following tables show the gross unrealized losses and fair value of securities as of March 31, 2023 and September 30, 2022, by length of time that individual securities in each category have been in a continuous loss position. There were 220 and 223 securities with an unrealized loss as of March 31, 2023 and September 30, 2022, respectively. The decline in fair value since purchase is attributable to changes in interest rates. Because the Company does not intend to sell these securities and does not consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be upon maturity, the Company does not consider these investments to have any credit impairment.
34

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 
March 31, 2023Less than 12 months12 months or moreTotal
 Unrealized
Gross Losses
Fair
Value
Unrealized
Gross Losses
Fair
Value
Unrealized
Gross Losses
Fair
Value
 (In thousands)
Available-for-sale securities
Corporate debt securities$(1,790)$136,214 $(17,094)$96,723 $(18,884)$232,937 
Municipal bonds(363)9,488 (201)5,534 (564)15,022 
U.S. government and agency securities(15)10,126 (628)20,463 (643)30,589 
Asset-backed securities(8,353)387,918 (7,496)231,114 (15,849)619,032 
Mortgage-backed securities(30,101)577,018 (30,941)271,694 (61,042)848,712 
(40,622)1,120,764 (56,360)625,528 (96,982)1,746,292 
Held-to-maturity securities
Mortgage-backed securities(18,843)165,224 (25,358)233,935 (44,201)399,159 
$(59,465)$1,285,988 $(81,718)$859,463 $(141,183)$2,145,451 

September 30, 2022Less than 12 months12 months or moreTotal
 Unrealized
Gross Losses
Fair
Value
Unrealized
Gross Losses
Fair
Value
Unrealized
Gross Losses
Fair
Value
 (In thousands)
Available-for-sale securities
Corporate debt securities$(27,072)$288,753 $— $— $(27,072)$288,753 
Municipal bonds due(1,061)14,561 — — (1,061)14,561 
U.S. government and agency securities(1,049)39,354 — — (1,049)39,354 
Asset-backed securities(6,374)601,248 (1,383)50,070 (7,757)651,318 
Mortgage-backed securities(63,738)833,683 (12,331)53,533 (76,069)887,216 
(99,294)1,777,599 (13,714)103,603 (113,008)1,881,202 
Held-to-maturity securities
Mortgage-backed securities(56,461)405,166 — — (56,461)405,166 
$(155,755)$2,182,765 $(13,714)$103,603 $(169,469)$2,286,368 


Substantially all of the Company’s held-to-maturity debt securities are issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. Therefore, the Company did not record an allowance for credit losses for these securities as of March 31, 2023 or September 30, 2022.

The Company does not believe that the available-for-sale debt securities that were in an unrealized loss position have any credit loss impairment as of March 31, 2023 or September 30, 2022. The Company does not intend to sell the investment securities that were in an unrealized loss position and it is not more likely than not that the Company will be required to sell the investment securities before recovery of their amortized cost basis, which may be at maturity. Available-for-sale debt securities issued by U.S. government agencies or U.S. government-sponsored enterprises carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. Corporate debt securities and municipal bonds are considered to have an issuer of high credit quality and the decline in fair value is due to changes in interest rates and other market conditions. The issuer continues to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity.
35

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE G – Derivatives and Hedging Activities

The following tables present the fair value, notional amount and balance sheet classification of derivative assets and liabilities at March 31, 2023 and September 30, 2022.

March 31, 2023Derivative AssetsDerivative Liabilities
Interest rate contract purposeBalance Sheet LocationNotionalFair ValueBalance Sheet LocationNotionalFair Value
(In thousands)(In thousands)
Client swap program hedgesOther assets$700,058 $54,935 Other liabilities$700,058 $54,910 
Commercial loan fair value hedgesOther assets39,661 1,854 Other liabilities— — 
Mortgage loan fair value hedgesOther assets670,000 27,971 Other liabilities— — 
Borrowings cash flow hedgesOther assets1,000,000 151,167 Other liabilities— — 
$2,409,719 $235,927 $700,058 $54,910 

September 30, 2022Derivative AssetsDerivative Liabilities
Interest rate contract purposeBalance Sheet LocationNotionalFair ValueBalance Sheet LocationNotionalFair Value
(In thousands)(In thousands)
Client swap program hedgesOther assets$588,676 $67,260 Other liabilities$588,676 $67,260 
Commercial loan fair value hedgesOther assets42,209 2,517 Other liabilities— — 
Mortgage loan fair value hedgesOther assets470,000 36,765 Other liabilities— — 
Borrowings cash flow hedgesOther assets1,000,000 179,945 Other liabilities— — 
$2,100,885 $286,487 $588,676 $67,260 

The Company enters into interest rate swaps to hedge interest rate risk. These arrangements include hedges of individual fixed rate commercial loans and also hedges of a specified portion of pools of prepayable fixed rate mortgage loans under the "last of layer" method. These relationships qualify as fair value hedges under FASB ASC 815, Derivatives and Hedging ("ASC 815"), which provides for offsetting of the recognition of gains and losses of the respective interest rate swap and the hedged items. Gains and losses on interest rate swaps designated in these hedge relationships, along with the offsetting gains and losses on the hedged items attributable to the hedged risk, are recognized in current earnings within the same income statement line item.

Upon electing to apply ASC 815 fair value hedge accounting, the carrying value of the hedged item is adjusted to reflect the cumulative impact of changes in fair value attributable to the hedged risk. The hedge basis adjustment remains with the hedged item until the hedged item is de-recognized from the balance sheet. The following tables present the impact of fair value hedge accounting on the carrying value of the hedged items at March 31, 2023 and September 30, 2022.

(In thousands)March 31, 2023
Balance sheet line item in which hedged item is recordedCarrying value of hedged itemsCumulative gain (loss) fair value hedge adjustment included in carrying amount of hedged items
Loans receivable (1) (2)$1,917,364 $(29,262)
$1,917,364 $(29,262)

(1) Includes the amortized cost basis of the closed mortgage loan portfolios used to designate the hedging relationships in which the hedged items are the last layer expected to be remaining at the end of the hedging relationships. At March 31, 2023, the amortized cost basis of the closed loan portfolios used in the hedging relationships was $1,879,678,000, the cumulative basis adjustment associated with the hedging relationships was $(27,338,000), and the amount of the designated hedged items was $670,000,000.

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(2) Includes the amortized cost basis of commercial loans designated in fair value hedging relationships. At March 31, 2023, the amortized cost basis of the hedged commercial loans was $37,686,000 and the cumulative basis adjustment associated with the hedging relationships was $(1,924,000).


(In thousands)September 30, 2022
Balance sheet line item in which hedged item is recordedCarrying value of hedged itemsCumulative gain (loss) fair value hedge adjustment included in carrying amount of hedged items
Loans receivable (1) (2)$1,159,496 $(39,090)
$1,159,496 $(39,090)

(1) Includes the amortized cost basis of the closed mortgage loan portfolios used to designate the hedging relationships in which the hedged items are the last layer expected to be remaining at the end of the hedging relationships. At September 30, 2022, the amortized cost basis of the closed loan portfolios used in the hedging relationships was $1,119,975,000, the cumulative basis adjustment associated with the hedging relationships was $(36,458,000), and the amount of the designated hedged items was $470,000,000.

(2) Includes the amortized cost basis of commercial loans designated in fair value hedging relationships. At September 30, 2022, the amortized cost basis of the hedged commercial loans was $40 million and the cumulative basis adjustment associated with the hedging relationships was $(2,632,000).

The Company has entered into interest rate swaps to convert certain short-term borrowings to fixed rate payments. The primary purpose of these hedges is to mitigate the risk of changes in future cash flows resulting from increasing interest rates. For qualifying cash flow hedges under ASC 815, gains and losses on the interest rate swaps are recorded in accumulated other comprehensive income ("AOCI") and then reclassified into earnings in the same period the hedged cash flows affect earnings and within the same income statement line item as the hedged cash flows. As of March 31, 2023, the maturities for hedges of adjustable rate borrowings ranged from one year to seven years, with the weighted average being 6.0 years.

The following tables present the impact of derivative instruments (cash flow hedges on borrowings) on AOCI for the periods presented.

(In thousands)Three Months Ended March 31,
Amounts of gain/(loss) recognized in AOCI20232022
Interest rate contracts:
Pay fixed/receive floating swaps on borrowings cash flow hedges$(21,972)$56,323 
Total pre-tax gain/(loss) recognized in AOCI $(21,972)$56,323 

(In thousands)Six Months Ended March 31,
Amounts of gain/(loss) recognized in AOCI20232022
Interest rate contracts:
Pay fixed/receive floating swaps on borrowings cash flow hedges$(28,778)$62,769 
Total pre-tax gain/(loss) recognized in AOCI $(28,778)$62,769 


The following tables present the gain (loss) on derivative instruments in fair value and cash flow accounting hedging relationships under ASC 815 for the periods presented.

37

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Three Months Ended March 31, 2023Three Months Ended March 31, 2022
Interest income on loans receivableInterest expense on FHLB advancesInterest income on loans receivableInterest expense on FHLB advances
(In thousands)(In thousands)
Interest income/(expense), including the effects of fair value and cash flow hedges$222,957 $(28,185)$139,260 $(7,525)
Gain/(loss) on fair value hedging relationships:
Interest rate contracts
Amounts related to interest settlements on derivatives$4,237 $(1,199)
Recognized on derivatives(6,608)18,561 
Recognized on hedged items6,696 (18,586)
Net income/(expense) recognized on fair value hedges$4,325 $(1,224)
Gain/(loss) on cash flow hedging relationships:
Interest rate contracts
Amounts related to interest settlements on derivatives$9,457 $1,715 
Amount of derivative gain/(loss) reclassified from AOCI into interest income/expense— — 
Net income/(expense) recognized on cash flow hedges$9,457 $1,715 
Six Months Ended March 31, 2023Six Months Ended March 31, 2022
Interest income on loans receivableInterest expense on FHLB advancesInterest income on loans receivableInterest expense on FHLB advances
(In thousands)(In thousands)
Interest income/(expense), including the effects of fair value and cash flow hedges$426,903 $(47,159)$277,769 $(15,368)
Gain/(loss) on fair value hedging relationships:
Interest rate contracts
Amounts related to interest settlements on derivatives$7,404 $(2,570)
Recognized on derivatives(9,457)23,061 
Recognized on hedged items9,828 (23,061)
Net income/(expense) recognized on fair value hedges$7,775 $(2,570)
Gain/(loss) on cash flow hedging relationships:
Interest rate contracts
Amounts related to interest settlements on derivatives$16,731 $3,736 
Amount of derivative gain/(loss) reclassified from AOCI into interest income/expense— — 
Net income/(expense) recognized on cash flow hedges$16,731 $3,736 


The Company periodically enters into certain interest rate swap agreements in order to provide commercial loan customers the ability to convert from variable to fixed interest rate payments, while the Company retains a variable rate loan. Under these agreements, the Company enters into a variable rate loan agreement and a swap agreement with the client. The swap agreement effectively converts the client’s variable rate loan into a fixed rate. The Company enters into a corresponding swap agreement with a third party in order to offset its exposure on the variable and fixed components of the client's swap agreement. The interest rate swaps are derivatives under ASC 815,
38

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

with changes in fair value recorded in earnings. For the six months ended March 31, 2023 the net impact to the statement of operations was $26,000. There was no net impact to the statement of operations for the six months ended March 31, 2022.

The following tables present the impact of derivative instruments (client swap program) that are not designated in accounting hedges under ASC 815 for the periods presented.

(In thousands)Three Months Ended March 31,
Derivative instrumentsClassification of gain/(loss) recognized in income on derivative instrument20232022
Interest rate contracts:
Pay fixed/receive floating swapOther noninterest income$(11,143)$33,298 
Receive fixed/pay floating swapOther noninterest income11,169 (33,298)
$26 $— 

(In thousands)Six Months Ended March 31,
Derivative instrumentsClassification of gain/(loss) recognized in income on derivative instrument20232022
Interest rate contracts:
Pay fixed/receive floating swapOther noninterest income$(15,021)$38,337 
Receive fixed/pay floating swapOther noninterest income15,047 (38,337)
$— $— 
39

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE H – Revenue from Contracts with Customers

Since net interest income on financial assets and liabilities is outside the scope of ASU No. 2014-09, Revenue from Contracts with Customers ("ASC 606"), a significant majority of our revenues are not subject to that guidance.

Revenue streams that are within the scope of ASC 606 are presented within non-interest income and are, in general, recognized as revenue at the same time the Company's obligation to the customer is satisfied. Most of the Company's customer contracts that are within the scope of the new guidance are cancelable by either party without penalty and are short-term in nature. These sources of revenue include depositor and other consumer and business banking fees, commission income, as well as debit and credit card interchange fees. In scope revenue streams represented approximately 4.0% of our total revenues for the six months ended March 31, 2023, compared to 6.0% for the six months ended March 31, 2022. As this standard is immaterial to our consolidated financial statements, the Company has omitted certain disclosures in ASC 606, including the disaggregation of revenue table. Sources of non-interest income within the scope of the guidance include the following:

Deposit related and other service charges (recognized in Deposit fee income) - The Company's deposit accounts are governed by standardized contracts customary in the industry. Revenues are earned at a point in time or over time (monthly) from account maintenance fees and charges for specific transactions such as wire transfers, stop payment orders, overdrafts, debit card replacements, check orders and cashier’s checks. The Company’s performance obligation related to each of these fees is generally satisfied, and the related revenue recognized, at the time the service is provided (point in time or monthly). The Company is principal in each of these contracts.

Debit and Credit Card Interchange Fees (recognized in Deposit fee income) - The Company receives interchange fees from the debit card or credit card payment network based on transactions involving debit or credit cards issued by the Company, generally measured as a percentage of the underlying transaction. Interchange fees from debit and credit card transactions are recognized as the transaction processing services are provided by the network. The Company acts as an agent in the card payment network arrangement, so the interchange fees are recorded net of any expenses paid to the principal (the card payment network in this case).

Insurance Agency Commissions (recognized in Other income) - WAFD Insurance Group, Inc. is a wholly owned subsidiary of Washington Federal Bank that operates as an insurance agency, selling and marketing property and casualty insurance policies for a small number of high-quality insurance carriers. WAFD Insurance Group, Inc. earns revenue in the form of commissions paid by the insurance carriers for policies that have been sold. In addition to the origination commission, WAFD Insurance Group, Inc. may also receive contingent incentive fees based on the volume of business generated for the insurance carrier and based on policy renewal rates.


NOTE I – Commitments and Contingencies

Lease Commitments - The Company’s lease commitments consist primarily of real estate property for branches and office space under various non-cancellable operating leases that expire between 2023 and 2070. The majority of the leases contain renewal options and provisions for increases in rental rates based on a predetermined schedule or an agreed upon index.
Financial Instruments with Off-Balance Sheet Risk - The only material off-balance-sheet credit exposures are loans in process and unused lines of credit, which had a combined balance of $4,533,687,000 and $4,947,570,000 at March 31, 2023 and September 30, 2022, respectively. The reserve was $28,500,000 as of March 31, 2023, which is a decrease from $32,500,000 at September 30, 2022. See Note A "Summary of Significant Accounting Policies" for details regarding the reserve methodology.

Legal Proceedings - The Company and its subsidiaries are from time to time defendants in and are threatened with various legal proceedings arising from regular business activities. Management, after consulting with legal counsel, is of the opinion that the ultimate liability, if any, resulting from these pending or threatened actions and proceedings will not have a material effect on the financial statements of the Company.
40

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I – Financial Information
Item 2.                Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD LOOKING STATEMENTS

Washington Federal, Inc. (the “Company” or “Washington Federal”) makes statements in this Quarterly Report on Form 10-Q that constitute forward-looking statements. Words such as “expects,” “anticipates,” “believes,” “estimates,” “intends,” “forecasts,” “projects” and other similar expressions or future or conditional verbs such as “will,” “should,” “would” and “could” are intended to help identify such forward-looking statements. These statements are not historical facts, but instead represent current expectations, plans or forecasts of the Company and are based on the beliefs and assumptions of the management of the Company and the information available to management at the time that these disclosures were prepared. The Company intends for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumptions that are difficult to predict and often are beyond the Company's control. Actual outcomes and results may differ materially from those expressed in, or implied by, the Company's forward-looking statements.
You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties discussed elsewhere in this report, and including the Risk Factors included in the Company’s 2022 Form 10-K for the year ended September 30, 2022, and in any of the Company's other subsequent Securities and Exchange Commission ("SEC") filings, which could cause the Company's future results to differ materially from the plans, objectives, goals, estimates, intentions and expectations expressed in forward-looking statements:

Operational Risks:
Economic uncertainty or a deterioration in economic conditions or slowdowns in economic growth, including declines in home sale volumes and financial stress on borrowers (consumers and businesses) as a result of higher interest rates or an uncertain economic environment;
fluctuating interest rates and the impact of inflation on the Company's business and financial results;
the effects of and changes in monetary and fiscal policies of the Board of Governors of the Federal Reserve System and the U.S. Government, including responses to the COVID-19 pandemic;
global economic trends, including developments related to Ukraine and Russia, and related negative financial impacts on our borrowers, the financial markets and the global economy;
our ability to make accurate assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the assets securing these loans;
risks related to operational, technological, and third-party provided technology infrastructure
risks associated with cybersecurity incidents and threat actors;
the effects of natural or man-made disasters, calamities, or conflicts, including terrorist events and pandemics (such as the COVID-19 pandemic), and the resulting governmental and societal responses, including on our asset credit quality and business operations, as well as its impact on general economic and financial market conditions;
risks associated with our failure to retain or attract key employees;
risks associated with failures of our risk management framework;
risks related to the impacts of climate change on our business or reputation;
risks related to the Company’s pending merger with Luther Burbank Corporation.

Regulatory and Litigation Risk:
Unanticipated effects and expenses related to the completed charter conversion of the Bank from a federal to a state charter;
the Company’s ability to manage the risks and costs involved in the remediation efforts to the Bank's Home Mortgage Disclosure Act (“HMDA”) compliance and reporting, and the impact of enforcement actions or legal proceedings with respect to the Bank’s HMDA program;
compliance risks associated with the USA PATRIOT Act, Bank Secrecy Act, Real Estate Settlement Procedures Act, Truth-in-Lending Act, Community Reinvestment Act, Fair Lending Laws, Flood Insurance Reform Act or other laws and regulations;
legislative and regulatory limitations, including those arising under the Dodd-Frank Act, the Washington Commercial Bank Act and potential limitations in the manner in which the Company conducts its business and undertakes new investments and activities;
litigation risks resulting in significant expenses, losses and reputational damage;
41

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
environmental risks resulting from our real estate lending business.

Market and Industry Risk:

Risks associated with our geographic concentration, including the effects of a severe economic downturn, including high unemployment rates and declines in housing prices and property values, in our primary market areas;
downturns in the real estate market;
changes in other economic, competitive, governmental, regulatory and technological factors affecting the Company's markets, operations, pricing, products, services and fees;
risks associated with inadequate or faulty underwriting and loan collection practices;
changes in banking operations, including a shift from retail to online activities;
fluctuations in interest rate risk and changes in market interest rates, including risk related to LIBOR reform, risk of an inverted yield curve and the effect on our net interest income and net interest margin;
industry deficiencies in foreclosure practices, including delays and challenges in the foreclosure process.

Competitive Risks:
Our ability to effectively compete with government sponsored enterprises entering the market, other financial institutions and new market participants;
our ability to grow organically or through acquisitions.

Security Ownership Risks:
Our ability to continue to pay dividends, including on our outstanding Series A Preferred Stock;
risks related to the volatility of our common stock, and future dilution;
effects of activist shareholders;
the ability of the Company to obtain external financing to fund its operations or obtain financing on favorable terms.

General Risks:
The success of the Company at managing the risks involved in the foregoing and managing its business; and
the timing and occurrence or non-occurrence of events that may be subject to circumstances beyond the Company's control.

For the reasons described above, we caution you against relying on any forward-looking statements. You should not consider the summary of such factors to be an exhaustive statement of all of the risks, uncertainties, or potentially inaccurate assumptions that could cause our current expectations or beliefs to change. Further, all forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update or revise any forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, changes to future operating results over time, or the impact of circumstances arising after the date the forward-looking statement was made.
GENERAL & BUSINESS DESCRIPTION

Washington Federal Bank, a federally-insured national bank dba WaFd Bank (the “Bank” or “WaFd Bank”), was founded on April 24, 1917 in Ballard, Washington and is engaged primarily in providing lending, depository, insurance and other banking services to consumers, mid-sized to large businesses, and owners and developers of commercial real estate. Washington Federal, Inc., a Washington corporation was formed as the Bank’s holding company in November, 1994. As used throughout this document, the terms “Washington Federal,” the “Company” or “we” or “us” and “our” refer to the Washington Federal, Inc. and its consolidated subsidiaries, and the term “Bank” refers to the operating subsidiary, Washington Federal Bank. The Company is headquartered in Seattle, Washington.

On January 3, 2022, the Bank announced that it had applied to the Washington State Department of Financial Institutions (the "WDFI") to convert from a national association to a non-Federal Reserve member Washington state-chartered bank. The Bank completed the conversion of its charter from a national bank charter, supervised by the Office of the Comptroller of the Currency, to a Washington state chartered commercial bank effective February 4, 2022. The Bank cancelled its holdings of stock in the Federal Reserve Bank of San Francisco as part of the conversion and its legal name changed from “Washington Federal Bank, National Association” to “Washington Federal Bank.” As a result of the conversion, the WDFI is the Bank's primary state regulator and the Federal Deposit Insurance Corporation (the "FDIC") is the Bank's primary federal regulator. The Federal Reserve will continue to regulate the Bank's holding company, Washington Federal, Inc.

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
The Company's fiscal year end is September 30th. All references to 2022 represent balances as of September 30, 2022 or activity for the fiscal year then ended.

RECENT INDUSTRY DEVELOPMENTS

During the first quarter of 2023, the banking industry experienced significant volatility with multiple high-profile bank failures and industry- wide concerns related to liquidity, deposit outflows, unrealized securities losses and eroding consumer confidence in the banking system. Despite these negative industry developments, the Company's liquidity position and balance sheet remain robust. The Company experienced minimal deposit outflow for the quarter ending March 31, 2023 with total deposits decreasing by 0.6%. The Company also took a number of preemptive actions which included proactive outreach to clients and actions to maximize funding sources in response to these recent developments. Furthermore, the Company's capital at March 31, 2023 remains at high levels with common equity tier 1 capital ("CET1") and total risk-based capital ratios of 10.21% and 13.20%, respectively, for the Company and 11.09% and 12.31% for the Bank, respectively, which exceed the minimum well-capitalized guidelines of 6.50% and 10.00%.

CRITICAL ACCOUNTING POLICIES

See Note A to the Consolidated Financial Statements in "Item 1. Financial Statements" above. Also, refer to "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on November 18, 2022.

ASSET QUALITY & ALLOWANCE FOR CREDIT LOSSES

See Note A, D and E to the Consolidated Financial Statements in "Item 1. Financial Statements" above. Also, refer to "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on November 18, 2022.

INTEREST RATE RISK
Based on management's assessment of the current interest rate environment, the Company has taken steps, including growing shorter-term loans and transaction deposit accounts, to reduce its interest rate risk profile. The mix of transaction and savings accounts is 75% of total deposits as of March 31, 2023 while the composition of the investment securities portfolio is 37% variable and 63% fixed rate. When interest rates rise, the fair value of the investment securities with fixed rates will decrease and vice versa when interest rates decline. The Company has $445,222,000 of mortgage-backed securities that it has designated as HTM and are carried at amortized cost. As of March 31, 2023, the net unrealized loss on these securities was $44,146,000. The Company has $2,006,286,000 of available-for-sale securities that are carried at fair value. As of March 31, 2023, the net unrealized loss on these securities was $94,179,000. The Company has executed interest rate swaps to hedge interest rate risk on certain FHLB borrowings. The unrealized gain on these interest rate swaps as of March 31, 2023 was $151,167,000. All of the above are pre-tax net unrealized gains or losses.

The Company relies on various measures of interest rate risk, including an asset/liability analysis, modeling of changes in forecasted net interest income under various rate change scenarios, and the impact of interest rate changes on the net portfolio value (“NPV”) of the Company.

Net Interest Income Sensitivity - The Company estimates the sensitivity of its net interest income to changes in market interest rates using an interest rate simulation model that includes assumptions related to the level of balance sheet growth, deposit repricing characteristics and the rate of prepayments for multiple interest rate change scenarios. Interest rate sensitivity depends on certain repricing characteristics in the Company's interest-earning assets and interest-bearing liabilities, including the maturity structure of assets and liabilities and their repricing characteristics during the periods of changes in market interest rates. The analysis assumes a constant balance sheet. Actual results would differ from the assumptions used in this model, as management monitors and adjusts loan and deposit pricing and the size and composition of the balance sheet to respond to changing interest rates.

As of March 31, 2023, in the event of an immediate and parallel increase of 200 basis points in both short and long-term interest rates, the model estimates that net interest income would increase by 3.3% in the next year. This compares to an estimated increase of 1.9% as of the September 30, 2022 analysis. The change is primarily due to a shift in the yield curve as well as shifts in the mix of fixed versus adjustable rate assets and liabilities. Management estimates that a gradual increase of 300 basis points in short term rates and 100 basis points in long-term rates over two years would result in a net interest income
43

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
increase of 0.9% in the first year and increase of 3.0% in the second year assuming a constant balance sheet and no management intervention. Alternatively, in the event of an immediate and parallel decrease of 100 basis points in both short and long-term interest rates estimates that net interest income would increase by 1.62%.

NPV Sensitivity - NPV is an estimate of the market value of shareholders' equity. NPV is calculated as the difference between the present value of expected cash flows from interest-earning assets and the present value of expected cash flows from interest-paying liabilities and off-balance-sheet contracts. The sensitivity of NPV to changes in interest rates provides a view of interest rate risk as it incorporates all future expected cash flows. As of March 31, 2023, in the event of an immediate and parallel increase of 200 basis points in interest rates, the NPV is estimated to decrease by $667,138,000 or 25.2% and the NPV to total assets ratio to decline to 9.9% from a base of 12.4%. As of September 30, 2022, the NPV in the event of a 200 basis point increase in rates was estimated to decrease by $617,000,000 or 20.9% and the NPV to total assets ratio to decline to 12.6% from a base of 14.9%. The change in NPV sensitivity is due primarily to changes in interest rates and the related impact on asset prices and sensitivity to expected prepayment speeds on fixed rate loans and mortgage-backed securities, as well as changes in the mix of fixed versus adjustable rate assets and liabilities as of March 31, 2023. Prepayment speeds for single family mortgages are historically low at March 31, 2023. For example, the Bank's conditional payment rate ("CPR") for this loan portfolio segment has fallen to 5.8% from 18.4% the year before.

As of March 31, 2023, the event of an immediate and parallel decrease of 100 basis points in interest rates is estimated to increase NPV by $314,730,000, or 11.86%, and the NPV to total assets ratio to grow to 13.45% from a base of 12.4%.
Interest Rates - The Company measures the difference between the rate on total interest-earning assets and the rate on interest-bearing liabilities at the end of each period. This period-end interest rate spread was 2.86% at March 31, 2023 and 3.36% at September 30, 2022. As of March 31, 2023, the weighted average period-end rate on interest-earning assets increased by 41 basis points to 4.45% compared to 4.04% at September 30, 2022, while the weighted average period-end rate on interest-bearing liabilities increased by 123 basis point to 1.91% from 0.68%. The period-end interest rate spread increased to 2.86% at March 31, 2023 from 2.57% at March 31, 2022.

Net Interest Margin - Net interest margin is measured as net interest income divided by average earning assets for the period. Net interest margin was 3.51% for the quarter ended March 31, 2023 compared to 2.90% for the quarter ended March 31, 2022. The yield on interest-earning assets increased 187 basis points to 5.11% and the cost of interest-bearing liabilities increased 159 basis points to 2.03% over that same period. The higher yield on interest-earning assets was primarily due to the impact of rising rates on adjustable rate assets and cash. The higher rate in interest-bearing liabilities resulted primarily from customer deposits repricing and a higher rate on FHLB borrowings.
The following table sets forth the information explaining the changes in the net interest margin for the period indicated compared to the same period one year ago.
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
Three Months Ended March 31, 2023Three Months Ended March 31, 2022
 Average BalanceInterestAverage RateAverage BalanceInterestAverage Rate
($ in thousands)($ in thousands)
Assets
Loans receivable$17,097,130 $222,957 5.29 %$14,869,733 $139,260 3.80 %
Mortgage-backed securities1,355,403 10,422 3.12 852,134 4,659 2.22 
Cash & Investments1,657,027 19,786 4.84 3,085,239 5,757 0.76 
FHLB & FRB stock139,484 2,181 6.34 89,002 1,162 5.29 
Total interest-earning assets20,249,044 255,346 5.11 %18,896,108 150,838 3.24 %
Other assets1,491,981 1,284,929 
Total assets$21,741,025 $20,181,037 
Liabilities and Equity
Interest-bearing customer accounts$12,746,827 $52,123 1.66 %$12,882,885 $8,226 0.26 %
Borrowings3,281,945 28,185 3.48 1,720,000 7,525 1.77 
Total interest-bearing liabilities16,028,772 80,308 2.03 %14,602,885 15,751 0.44 %
Noninterest-bearing customer accounts3,046,867 3,198,052 
Other liabilities290,702 214,851 
               Total liabilities19,366,341 18,015,788 
Shareholders' equity2,374,684 2,165,249 
Total liabilities and equity$21,741,025 $20,181,037 
Net interest income/interest rate spread$175,038 3.08 %$135,087 2.80 %
Net interest margin (NIM)3.51 %2.90 %

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
Six Months Ended March 31, 2023Six Months Ended March 31, 2022
 Average BalanceInterestAverage RateAverage BalanceInterestAverage Rate
($ in thousands)($ in thousands)
Assets
Loans receivable$16,835,843 $426,903 5.09 %$14,580,678 $277,769 3.82 %
Mortgage-backed securities1,362,154 21,035 3.10 888,982 9,451 2.13 
Cash & Investments1,624,258 37,272 4.60 3,147,232 11,539 0.74 
FHLB & FRB stock128,573 3,555 5.55 96,008 2,519 5.26 
Total interest-earning assets19,950,828 488,765 4.91 %18,712,900 301,278 3.23 %
Other assets1,496,485 1,278,476 
Total assets$21,447,313 $19,991,376 
Liabilities and Equity
Interest-bearing customer accounts$12,678,483 $83,769 1.33 %$12,704,752 $16,687 0.26 %
Borrowings2,985,577 47,159 3.17 1,720,000 15,367 1.79 
Total interest-bearing liabilities15,664,060 130,928 1.68 %14,424,752 32,054 0.45 %
Noninterest-bearing customer accounts3,147,155 3,193,084 
Other liabilities297,546 219,183 
               Total liabilities19,108,761 17,837,019 
Shareholders' equity2,338,552 2,154,357 
Total liabilities and equity$21,447,313 $19,991,376 
Net interest income/interest rate spread$357,837 3.24 %$269,224 2.78 %
Net interest margin (NIM)3.60 %2.89 %

As of March 31, 2023, total assets had increased by $1,553,080,000 to $22,325,211,000 from $20,772,131,000 at September 30, 2022. During the six months ended March 31, 2023, loans receivable increased $1,158,342,000 while cash and cash equivalents increased by $434,579,000 and investment securities decreased by $62,828,000. Growth in loans receivable was primarily funded by the increase in borrowings during the period.

LIQUIDITY AND CAPITAL RESOURCES
The principal sources of funds for the Company's activities are loan repayments (including prepayments), net deposit inflows, sales and repayments of investments and borrowings and retained earnings, if applicable. The Company's principal sources of revenue are interest on loans and interest and dividends on investments. Additionally, the Company earns fee income for loan, deposit, insurance and other services.
On February 8, 2021, in connection with an underwritten public offering, the Company issued 300,000 shares of 4.875% Noncumulative Perpetual Series A Preferred Stock (“Series A Preferred Stock”). Net proceeds, after underwriting discounts and expenses, were $293,325,000. The public offering consisted of the issuance and sale of 12,000,000 depositary shares, each representing a 1/40th interest in a share of the Series A Preferred Stock, at a public offering price of $25.00 per depositary share. Holders of the depositary shares are entitled to all proportional rights and preferences of the Series A Preferred Stock (including dividend, voting, redemption and liquidation rights). The depositary shares are traded on the NASDAQ under the symbol "WAFDP." The Series A Preferred Stock is redeemable at the option of the Company, subject to all applicable regulatory approvals, on or after April 15, 2026.
The Bank has a credit line with the Federal Home Loan Bank of Des Moines ("FHLB") of up to 45% of total assets depending on specific collateral eligibility. This line provides a substantial source of additional liquidity.
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
The Bank has entered into borrowing agreements with the FHLB to borrow funds under a short-term floating rate cash management advance program and fixed-rate term loan agreements. All borrowings are secured by stock of the FHLB, deposits with the FHLB, and a blanket pledge of qualifying loans receivable as provided in the agreements with the FHLB. The Bank is also eligible to borrow under the Federal Reserve Bank's primary credit program. Borrowings totaled $3,800,000,000 as of March 31, 2023, an increase from $2,125,000,000 at September 30, 2022.
Customer deposit account balances have remained stable, decreasing only $168,622,000, or 1.1%, to $15,860,948,000 at March 31, 2023 compared with $16,029,570,000 at September 30, 2022.
The Company's cash and cash equivalents totaled $1,118,544,000 at March 31, 2023, an increase from $683,965,000 at September 30, 2022. These amounts include the Bank's operating cash.
The Company’s shareholders' equity at March 31, 2023 was $2,375,117,000, or 10.64% of total assets. This is an increase of $100,857,000 from September 30, 2022 when shareholders' equity was $2,274,260,000, or 10.95% of total assets. The Company’s shareholders' equity was impacted in the six months ended March 31, 2023 by net income of $145,443,000, the payment of $31,828,000 in common stock dividends, payment of $7,313,000 in preferred stock dividends, net treasury stock transactions of $1,836,000, as well as other comprehensive loss of $8,659,000. The ratio of tangible capital to tangible assets at March 31, 2023 was 9.39%. Management believes the Company's strong net worth position allows it to manage balance sheet risk and provide the capital support needed for controlled growth in a regulated environment.
Washington Federal, Inc. and its banking subsidiary are subject to various regulatory capital requirements administered by the bank regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on the Company's financial statements.
Federal Bank regulatory agencies establish regulatory capital rules that require minimum capital ratios and establish criteria for calculating regulatory capital. Minimum capital ratios for four measures are used for assessing capital adequacy. The standards are indicated in the table below. The common equity tier 1 capital ratio recognizes common equity as the highest form of capital. The denominator for all except the leverage ratio is risk weighted assets. The rules set forth a “capital conservation buffer” of up to 2.5%. In the event that a bank’s capital levels fall below the minimum ratios plus these buffers, the bank's regulators may place restrictions on it. These restrictions include reducing dividend payments, share buy-backs, and staff bonus payments. The purpose of these buffers is to require banks to build up capital outside of periods of stress that can be drawn down during periods of stress. As a result, even during periods where losses are incurred, the minimum capital ratios can still be met.
47

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
There are also standards for Adequate and Well Capitalized criteria that are used for “Prompt Corrective Action” purposes. To remain categorized as well capitalized, the Bank and the Company must maintain minimum common equity risk-based, tier 1 risk-based, total risk-based and tier 1 leverage ratios as set forth in the following table.
ActualMinimum Capital
Adequacy Guidelines
Minimum Well-Capitalized Guidelines
($ in thousands)CapitalRatioRatioRatio
 
March 31, 2023
Common Equity Tier I risk-based capital ratio:
      The Company$1,723,052 10.21 %4.50 %NA
      The Bank1,872,006 11.09 %4.50 %6.50 %
Tier I risk-based capital ratio:
      The Company2,023,052 11.98 %6.00 %NA
      The Bank1,872,006 11.09 %6.00 %8.00 %
Total risk-based capital ratio:
      The Company2,228,972 13.20 %8.00 %NA
      The Bank2,077,926 12.31 %8.00 %10.00 %
Tier 1 Leverage ratio:
      The Company2,023,052 9.38 %4.00 %NA
      The Bank1,872,006 8.69 %4.00 %5.00 %
September 30, 2022
Common Equity Tier 1 risk-based capital ratio:
      The Company$1,613,075 9.86 %4.50 %NA
      The Bank1,781,932 10.89 %4.50 %6.50 %
Tier I risk-based capital ratio:
      The Company1,913,075 11.69 %6.00 %NA
      The Bank1,781,932 10.89 %6.00 %8.00 %
Total risk-based capital ratio:
      The Company2,117,574 12.94 %8.00 %NA
      The Bank1,986,434 12.14 %8.00 %10.00 %
Tier 1 Leverage ratio:
      The Company1,913,075 9.51 %4.00 %NA
      The Bank1,781,932 8.86 %4.00 %5.00 %

CHANGES IN FINANCIAL CONDITION
Cash and cash equivalents - Cash and cash equivalents were $1,118,544,000 at March 31, 2023, an increase of $434,579,000, or 63.5%, since September 30, 2022. The change is primarily the result of increased borrowings to provide greater balance sheet liquidity offset by the funding of construction loan advances.

Available-for-sale and held-to-maturity investment securities - AFS securities decreased $44,751,000, or 2.2%, during the six months ended March 31, 2023, mostly due to principal payments and maturities of $178,589,000 which were offset by purchases of $115,931,000 and an unrealized gain of $17,518,000. During the same period, the balance of HTM securities decreased by $18,077,000 due primarily to principal pay-downs and maturities of $17,936,000. As of March 31, 2023, the Company had a net unrealized loss on AFS securities of $94,179,000, which is included on a net of tax basis in accumulated other comprehensive income (loss).

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
The majority of the Company’s HTM and AFS debt securities are issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. The Company did not record an allowance for credit losses for HTM securities as of March 31, 2023 or September 30, 2022 as the investment portfolio consists primarily of U.S. government agency mortgage-backed securities that management deems to have immaterial risk of loss. The impact going forward will depend on the composition, characteristics, and credit quality of the loan and securities portfolios as well as the economic conditions at future reporting periods. The Company does not believe that any of its available-for-sale debt securities had credit loss impairment as of March 31, 2023 or September 30, 2022, therefore, no allowance was recorded.

Loans receivable - Loans receivable, net of related contra accounts, increased by $1,158,342,000 to $17,271,906,000 at March 31, 2023, compared to $16,113,564,000 at September 30, 2022. The increase was primarily the net result of originations of $3,082,400,000, purchases of single-family residential mortgages of $79,965,000, partially offset by loan principal repayments of $2,342,752,000 as well as a $357,511,000 decrease in loans in process as a result of funding draws on construction loans. Commercial loan originations accounted for 80% of total originations and consumer loan originations were 20% during the period. The mix of loan originations is consistent with management's strategy during low rate environments to produce more multifamily, commercial real estate, construction and commercial and industrial loans that generally have adjustable interest rates or a shorter duration.
The following table shows the loan portfolio by category and the change.
 March 31, 2023September 30, 2022Change
($ in thousands)($ in thousands)$%
Commercial loans
Multi-family$2,894,567 14.3 %$2,645,801 13.7 %$248,766 9.4 %
Commercial real estate3,283,151 16.3 3,133,660 16.2 149,491 4.8 
Commercial & industrial2,590,700 12.8 2,350,984 12.1 239,716 10.2 
Construction3,735,821 18.5 3,784,388 19.5 (48,567)(1.3)
Land - acquisition & development231,990 1.1 291,301 1.5 (59,311)(20.4)
Total commercial loans12,736,229 63.1 12,206,134 63.0 530,095 4.3 
Consumer loans
Single-family residential6,175,250 30.6 5,771,862 29.8 403,388 7.0 
Construction - custom840,475 4.2 974,652 5.0 (134,177)(13.8)
   Land - consumer lot loans141,215 0.7 153,240 0.8 (12,025)(7.8)
   HELOC218,179 1.1 203,528 1.0 14,651 7.2 
   Consumer71,083 0.4 75,543 0.4 (4,460)(5.9)
Total consumer loans7,446,202 36.9 7,178,825 37.0 267,377 3.7 
Total gross loans20,182,431 100 %19,384,959 100 %797,472 4.1 
   Less:
      Allowance for credit losses on loans177,420 172,808 4,612 2.7 
      Loans in process2,648,512 3,006,023 (357,511)(11.9)
      Net deferred fees, costs and discounts84,593 92,564 (7,971)(8.6)
Total loan contra accounts2,910,525 3,271,395 (360,870)(11.0)
Net loans$17,271,906 $16,113,564 $1,158,342 7.2 %

Non-performing assets - Non-performing assets increased $2,231,000 during the six months ended March 31, 2023 to $46,785,000 from $44,554,000 at September 30, 2022. The change is primarily due to a $2,159,000 increase in REO. Non-performing assets as a percentage of total assets was 0.21% at March 31, 2023 compared to 0.21% at September 30, 2022.
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
The following table sets forth information regarding troubled debt restructured loans and non-performing assets.
March 31,
2023
September 30,
2022
 ($ in thousands)
Troubled debt restructured loans:
Multi - family$5,844 11.2 %$6,044 10.6 %
Commercial real estate2,110 4.1 2,166 3.8 
Commercial & industrial— — 
Single-family residential42,612 81.9 46,902 82.4 
Land - consumer lot loans1,378 2.6 1,590 2.8 
HELOC80 0.2 83 0.1 
Consumer26 — 31 0.1 
Total restructured loans (1)$52,051 100 %$56,817 100 %
Non-accrual loans:
Multi - family$5,844 16.9 %$5,912 17.1 %
Commercial real estate4,519 13.1 4,691 13.6 
Commercial & industrial7,681 22.2 5,693 16.5 
Construction— — — 0.1 
Single-family residential16,396 47.4 17,450 50.5 
Construction - custom— — 435 1.3 
Land - consumer lot loans— 84 0.2 
HELOC128 0.4 233 0.7 
Consumer32 0.1 36 0.1 
Total non-accrual loans34,606 100 %34,534 100 %
Real estate owned8,826 6,667 
Other property owned3,353 3,353 
Total non-performing assets$46,785 $44,554 
Total non-performing assets and performing restructured loans as a percentage of total assets0.44 %0.48 %
(1)    Restructured loans were as follows:
Performing$50,864 97.7 %$55,823 98.3 %
Non-performing (included in non-accrual loans above)1,187 2.3 994 1.7 
$52,051 100 %$56,817 100 %

For the six months ended March 31, 2023, the Company recognized $1,039,000 in interest income on cash payments received from borrowers on non-accrual loans. The Company would have recognized interest income of $761,000 for the same period had these loans performed according to their original contract terms. Recognized interest income for the six months ended March 31, 2023 was higher than what otherwise would have been recognized in the period due to the collection of past due amounts. In addition to the non-accrual loans reflected in the above table, the Company had $261,613,000 of loans that were less than 90 days delinquent at March 31, 2023 but were classified as substandard for one or more reasons. If these loans were deemed non-performing, the Company's ratio of total NPAs and performing restructured loans as a percent of total assets would have increased to 1.61% at March 31, 2023.
Restructured single-family residential loans are reserved for under the Company’s general reserve methodology. If any individual loan is significant in balance, the Company may establish a specific reserve as warranted.
 
Most restructured loans are accruing and performing loans where the borrower has proactively approached the Bank about modifications due to temporary financial difficulties. Each request is individually evaluated for merit and likelihood of success. Single-family residential loans comprised 81.9% of restructured loans as of March 31, 2023. The concession for these loans is
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
typically a payment reduction through a rate reduction of 100 to 200 basis points for a specific term, usually six to twenty-four months. Interest-only payments may also be approved during the modification period.

For commercial loans, six consecutive payments on newly restructured loan terms are generally required prior to returning the loan to accrual status. In some instances, after the required six consecutive payments are made, a management assessment will conclude that collection of the entire principal balance is still in doubt. In those instances, the loan will remain on non-accrual. Homogeneous loans may or may not be on accrual status at the time of restructuring, but all are placed on accrual status upon the restructuring of the loan. Homogeneous loans are restructured only if the borrower can demonstrate the ability to meet the restructured payment terms; otherwise, collection is pursued and the loan remains on non-accrual status until liquidated. If the homogeneous restructured loan does not perform, it will be placed in non-accrual status when it is 90 days delinquent.

A loan that defaults and is subsequently modified would impact the Company’s delinquency trend, which is part of the qualitative risk factors component of the allowance for credit losses calculation. Any modified loan that re-defaults and is charged-off would impact the historical loss factors component of the Company's general reserve calculation.

Allowance for credit losses - The following table shows the composition of the Company’s allowance for credit losses.
March 31, 2023September 30, 2022Change
Allowance for credit losses:($ in thousands)($ in thousands)$%
Commercial loans
   Multi-family$13,038 7.3 %12,013 7.0 %$1,025 8.5 %
   Commercial real estate27,803 15.7 25,814 14.9 1,989 7.7 
   Commercial & industrial63,301 35.7 57,210 33.1 6,091 10.6 
   Construction26,027 14.7 26,161 15.1 (134)(0.5)
   Land - acquisition & development7,496 4.2 12,278 7.1 (4,782)(38.9)
      Total commercial loans137,665 77.6 133,476 77.2 4,189 3.1 
Consumer loans
   Single-family residential26,916 15.2 25,518 14.8 1,398 5.5 
   Construction - custom3,456 1.9 3,410 2.0 46 1.3 
   Land - consumer lot loans3,945 2.2 5,047 2.9 (1,102)(21.8)
   HELOC2,662 1.5 2,482 1.4 180 7.3 
   Consumer2,776 1.6 2,875 1.7 (99)(3.4)
      Total consumer loans39,755 22.4 39,332 22.8 423 1.1 
Total allowance for loan losses177,420 100.0 %172,808 100.0 %4,612 2.7 
Reserve for unfunded commitments28,500 32,500 (4,000)(12.3)
Total allowance for credit losses$205,920 $205,308 $612 0.3 %

Management believes the allowance for credit losses of $205,920,000, or 1.02% of gross loans, is sufficient to absorb estimated losses inherent in the portfolio of loans and unfunded commitments. See Note E and Note I for further details of the allowance for loan losses and reserve for unfunded commitments as of and for the period ended March 31, 2023 and September 30, 2022.

Real estate owned ("REO") - REO increased during the six months ended March 31, 2023 by $2,159,000 to $8,826,000. The increase was due to REO additions resulting from the Company's branch optimization activities partially offset by valuation adjustments on certain properties.

Intangible assets - Intangible assets decreased to $308,524,000 as of March 31, 2023 from $309,009,000 as of September 30, 2022. The decrease was due to normal amortization of finite-lived intangible assets.

Customer accounts - Customer accounts decreased $168,622,000, or 1.1%, to $15,860,948,000 at March 31, 2023 compared with $16,029,570,000 at September 30, 2022. Transaction accounts decreased by $811,184,000 or 6.4% during that period, while time deposits increased $642,562,000 or 19.2%.
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

The following table shows the composition of the Bank’s customer accounts by deposit type.

  
March 31, 2023September 30, 2022
 Deposit Account BalanceAs a % of Total DepositsWeighted
Average
Rate
Deposit Account BalanceAs a % of Total DepositsWeighted
Average
Rate
($ in thousands)
Non-interest checking$2,856,165 18.0 %— %$3,266,734 20.4 %— %
Interest checking4,125,554 26.0 1.98 3,497,795 21.8 0.90 
Savings943,915 6.0 0.16 1,059,093 6.6 0.13 
Money market3,954,709 24.9 1.22 4,867,905 30.4 0.49 
Time deposits3,980,605 25.1 2.59 3,338,043 20.8 0.74 
Total$15,860,948 100 %1.48 %$16,029,570 100 %0.51 %

Borrowings - Total borrowings were $3,800,000,000 as of March 31, 2023, an increase from $2,125,000,000 at September 30, 2022. This increase was driven by loan growth combined with relatively flat deposits. This increase also bolstered the Company's liquidity in the form of increased cash. The weighted average rate for borrowings was 3.69% as of March 31, 2023 and 2.02% at September 30, 2022.

Shareholders' equity - The Company’s shareholders' equity at March 31, 2023 was $2,375,117,000, or 10.64% of total assets. This is an increase of $100,857,000 from September 30, 2022 when net worth was $2,274,260,000, or 10.95% of total assets. The Company’s shareholders' equity was impacted in the six months ended March 31, 2023 by net income of $145,443,000, the payment of $31,828,000 in common stock dividends, payment of $7,313,000 in preferred stock dividends, net treasury stock transactions of $1,836,000, as well as a change in other comprehensive loss of $8,659,000.


RESULTS OF OPERATIONS

Net Income - The Company recorded net income of $65,934,000 for the three months ended March 31, 2023 compared to $49,359,000 for the prior year quarter. The Company recorded net income of $145,443,000 for the six months ended March 31, 2023 compared to $99,640,000 for the prior year same period. The changes are due to the factors described below.

Net Interest Income - For the three months ended March 31, 2023, net interest income was $175,038,000, which is $39,950,000 higher than the same quarter of the prior year. Net interest margin was 3.51% for the quarter ended March 31, 2023 compared to 2.90% for the quarter ended March 31, 2022. The increase in net interest income was mostly due to rising interest rates. The average rate earned on interest-earning assets grew by a 187 basis points to 5.11% while the average rate paid on interest-bearing liabilities increased by 159 basis points to 2.03%. For the six months ended March 31, 2023, net interest income was $357,837,000, which is $88,613,000 higher than the same period of the prior year. Net interest margin was 3.60% for the six months ended March 31, 2023 compared to 2.89% for the prior year same period.

The following table sets forth certain information explaining changes in interest income and interest expense for the period indicated compared to the same period one year ago. For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to (1) changes in volume (changes in volume multiplied by old rate) and (2) changes in rate (changes in rate multiplied by old volume). The change in interest income and interest expense attributable to changes in both volume and rate has been allocated proportionately to the change due to volume and the change due to rate.
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
Rate / Volume Analysis:
 Comparison of Three Months Ended
3/31/23 and 3/31/22
Comparison of Six Months Ended
3/31/23 and 3/31/22
($ in thousands)VolumeRateTotalVolumeRateTotal
Interest income:
Loans receivable$23,161 $60,536 $83,697 $47,385 $101,749 $149,134 
Mortgage-backed securities3,414 2,349 5,763 6,245 5,339 11,584 
Investments (1)(4,318)19,366 15,048 (9,320)36,089 26,769 
All interest-earning assets22,257 82,251 104,508 44,310 143,177 187,487 
Interest expense:
Customer accounts(88)43,985 43,897 (34)67,116 67,082 
Borrowings9,961 10,700 20,661 15,540 16,252 31,792 
All interest-bearing liabilities9,873 54,685 64,558 15,506 83,368 98,874 
Change in net interest income$12,384 $27,566 $39,950 $28,804 $59,809 $88,613 
___________________ ___________________ 
(1)Includes interest on cash equivalents and dividends on FHLB & FRB stock.

Provision (Release) for Credit Losses - The Company recorded a $3,500,000 provision for credit losses for the three months ended March 31, 2023, compared to a $500,000 release of allowance for credit losses for the three months ended March 31, 2022. The provision in the three months ended March 31, 2023 was primarily due to reserving for growth in loans receivable combined with the changing economic outlook amid concerns around a looming recession and recent macro-economic events. The release for the three months ended March 31, 2022 was primarily due to improvements in the credit quality of certain loan portfolios related to strong real estate markets and collateral conditions partially offset by growth in loans receivable. The Company recorded a $6,000,000 provision for credit losses for the six months ended March 31, 2023, compared with no provision for credit losses for the six months ended March 31, 2022. Charge-offs, net of recoveries, totaled $5,877,000 for the three months ended March 31, 2023, compared to net recoveries of $473,000 during the three months ended March 31, 2022. Charge-offs, net of recoveries, totaled $5,388,000 for the six months ended March 31, 2023, compared to net recoveries of $2,584,000 during the six months ended March 31, 2022.

Other Income - The results for the three months ended March 31, 2023 include total other income of $10,072,000 compared to $15,659,000 for the same period one year ago, a $5,587,000 decrease. The decrease in other income was primarily due to a loss of $4,000,000 that was recorded for certain equity investments in the quarter ended March 31, 2023 compared with a gain of $1,200,000 booked on the same investments in the quarter ended March 31, 2022. Also contributing to the decrease when compared to the same quarter in 2022 is a reduction of $1,800,000 in loan fee income as a result of reduced loan production. Other income was $24,096,000 for the six months ended March 31, 2023, compared with $34,340,000 for the six months ended March 31, 2022. The decrease was largely result of the same equity investments previously described. The loss for the six months ended March 31, 2023 was $2,400,000 compared to a gain of $12,500,000 for the six months ended March 31, 2022.

Other Expense - Total other expense was $96,881,000 for the three months ended March 31, 2023, an increase of $8,464,000 from $88,417,000 for the prior year quarter. Compensation and benefits costs increased by $4,329,000, or 9.2%, over the prior year quarter due to annual merit increases, strategic initiatives and reduced cost capitalization as loan originations have decreased. In addition, the Company realized merger related expenses of $1,200,000 in the three months ended March 31, 2023 as a result of our pending merger with Luther Burbank Corporation. Other expense was $189,159,000 for the six months ended March 31, 2023, compared with $178,030,000 for the six months ended March 31, 2022 and the increase was primarily due to compensation and benefits increasing by $5,974,000 for the same reasons noted above.

Gain (Loss) on Real Estate Owned - Results for the three months ended March 31, 2023 include a net loss on REO of $199,000, compared to a net gain of $129,000 for the prior year quarter. Results for the six months ended March 31, 2023 include a net loss on real estate owned of $311,000, compared to a net gain of $691,000 for the prior year same period. The losses for each respective period in 2023 are due to normal REO maintenance offset by property sales.

Income Tax Expense - Income tax expense totaled $18,596,000 for the three months ended March 31, 2023, compared to $13,600,000 for the prior year quarter. Income tax expense totaled $41,020,000 for the six months ended March 31, 2023, compared to $26,585,000 for the prior year same period. The effective tax rate was 22.00% and 21.06% for the six months
53

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
ended March 31, 2023 and March 31, 2022, respectively. The Company’s effective tax rate varies from the statutory rate due to state taxes, tax-exempt income, tax-credit investments and miscellaneous non-deductible expenses.

Item 3.                Quantitative and Qualitative Disclosures About Market Risk
Management believes that there have been no material changes in the Company’s quantitative and qualitative information about market risk since September 30, 2022. For a complete discussion of the Company’s quantitative and qualitative market risk, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2022 Form 10-K.

Item 4.                Controls and Procedures


(a) Evaluation of Disclosure Controls and Procedures. The Company maintains a set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Company's management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management has evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report (the "Evaluation Date"). Based on the evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures are effective.

(b) Changes in Internal Control over Financial Reporting. During the period to which this report relates, there have not been any changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or that are reasonably likely to materially affect, such controls.
54

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

 
PART II – Other Information
Item 1. Legal Proceedings
From time to time, the Company and its subsidiaries are engaged in legal proceedings in the ordinary course of business, none of which are considered to have a material impact on the Company’s consolidated financial statements.


Item 1A. Risk Factors

In addition to the risk factors discussed below and the other information set forth in this report, you should carefully consider the factors discussed under "Part I--Item 1A--Risk Factors" in the Company's Form 10-K for the year ended September 30, 2022. These factors could materially and adversely affect the Company's business, financial condition, liquidity, results of operations and capital position, and could cause its actual results to differ materially from its historical results or the results contemplated by the forward-looking statements contained in this report.


The Company’s pending merger with Luther Burbank Corporation may expose the Company to certain risks.

On November 13, 2022, the Company announced that it had entered into a definitive merger agreement pursuant to which it intends to acquire Luther Burbank Corporation (“Luther Burbank”) and its wholly-owned subsidiary, Luther Burbank Savings, in an all-stock transaction valued at approximately $654 million based upon the closing price of the Company’s Common Stock on November 11, 2022. The transaction is subject to shareholder and regulatory approval and other customary closing conditions, and it is possible the transaction may not be consummated as planned or at all, and may expose the Company to certain risks, prior to or after completion, including but not limited to:

The Company and Luther Burbank will be subject to business uncertainties and contractual restrictions on their respective operations while the merger is pending.
The announcement and pendency of the merger could cause disruptions in the businesses of the Company and Luther Burbank, which could have an adverse effect on their respective business and financial results, and consequently on the combined company if the merger is consummated.
The shareholders of Luther Burbank or the Company may not approve the merger or the related issuance of shares of the Company’s common stock.
Litigation from shareholders of either Luther Burbank or the Company could attempt to prevent or delay the consummation of the merger and result in additional unanticipated costs.
Regulatory approvals may not be received, may take longer than expected, or may impose conditions not presently anticipated or that could have an adverse effect on the combined company following the merger.
Termination of the merger agreement or failure to complete the merger for whatever reason could adversely impact the Company.
The value of the merger consideration to be issued by the Company is uncertain because the market price of the Company’s Common Stock will fluctuate.
The market price of the Company’s stock after the merger may be affected by factors different from those that currently affect the shares of the Company.
Existing holders of Company Common Stock will have a reduced ownership and voting interest after the merger and will exercise less influence over management if the merger is consummated.
Combining Luther Burbank with the Company may prove more difficult, costly or time consuming than expected, and the anticipated benefits and cost savings of the merger may not be realized.
The merger is subject to certain closing conditions that, if not satisfied or waived, will result in the merger not being completed, which may cause the price of the Company’s stock to decline.
The growth opportunities and cost savings from the merger may not be fully realized or may take longer to realize than expected.
55

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
Operating costs, customer losses and business disruption following the merger, including adverse effects of relationships with employees, may be greater than expected.
The interest rate environment may change, causing margins to compress and adversely affecting net interest income.
The fair value of the Luther Burbank assets to be acquired in the merger are sensitive to the interest rate environment and may fluctuate as a result of changes in interest rates, which could reduce or eliminate the anticipated benefits of the merger for the Company.
The combined company may be unable to retain Washington Federal and/or Luther Burbank personnel.
The Company may incur substantial costs associated with the merger and the integration of Luther Burbank.

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 involving Silicon Valley Bank and Signature Bank have generated significant market volatility among publicly traded bank holding companies and, in particular, regional banks like the Company. These market developments have negatively impacted customer confidence in the safety and soundness of regional banks. While the Department of the Treasury, the Federal Reserve, and the FDIC have made statements ensuring that depositors of these recently failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in regional banks and the banking system more broadly. If other banks and financial institutions enter receivership or become insolvent in the future due to financial conditions affecting the banking system and financial markets, it could cause further disruption to the financial services industry and customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations.

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

A worsening of any of the foregoing conditions would likely exacerbate the adverse effects of these challenging market conditions on us and others in the banking industry. In particular, we may face the following risks in connection with any such events:

We expect to face increased regulation of our industry, and compliance with such regulation may increase our costs and limit our ability to pursue business opportunities.
We may be required to pay future significantly higher Federal Deposit Insurance Corporation premiums if losses further deplete the FDIC deposit insurance fund.
There may be downward pressure on our stock price.
We may face increased competition for deposits due to the volatility within the financial services industry and 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.


Item 2.                 Unregistered Sales of Equity Securities and Use of Proceeds
As previously disclosed on February 17, 2023, pursuant to the Company's Supplemental Executive Retirement Plan ("SERP"), the Company credited an aggregate of 368,966 company stock units to the Company's six executive officers, with each common stock unit having a value equal to one share of the Company's common stock. The Company relied on the exemption under Rule 506(b) of Regulation D for the issuance of the common stock units and for the future issuance of one share of Company common stock for each stock unit upon a participant's separation from service, defined as the termination of the SERP participant's employment with the Company and all affiliates.
The following table provides information with respect to purchases made by or on behalf of the Company of the Company’s common stock during the three months ended March 31, 2023. 
56

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PeriodTotal Number of
Shares Purchased
 Average Price
Paid Per Share
 Total Number of
Shares Purchased
as Part of  Publicly
Announced Plan (1)
Maximum
Number of Shares
That May Yet Be
Purchased Under
the Plan at the
End of the Period
January 1, 2023 to January 31, 20232,486 $33.60 2,486 3,677,013 
February 1, 2023 to February 28, 2023169 36.15 169 3,676,844 
March 1, 2023 to March 31, 2023584 32.18 584 3,676,260 
Total3,239   $33.48   3,239 3,676,260 
 ___________________
(1)The Company's stock repurchase program was publicly announced by its Board of Directors on February 3, 1995 and has no expiration date. Under this ongoing program, a total of 76,956,264 shares were authorized for repurchase. This includes the 10,000,000 additional shares authorized by the Board of Directors on January 26, 2021.

The Company’s ability to pay dividends is subject to bank regulatory requirements, including (but not limited to) the capital adequacy regulations and policies established by the Board of Governors of the Federal Reserve System. The Company’s dividend policy is to review our financial performance, capital adequacy, regulatory compliance and cash resources on a quarterly basis, and, if such review is favorable, to declare and pay a quarterly cash dividend to common shareholders. The Company’s 4.875% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred”), ranks senior to the Company’s common stock with respect to payment of dividends, and dividends (if declared) accrue and are payable on the Series A Preferred a rate of 4.875% per annum, payable quarterly, in arrears. While the Series A Preferred is outstanding, unless the full dividend for the preceding quarterly period is paid in full, or declared and a sum set aside, no dividend may be declared or paid on the Company’s common stock.

Item 3.                Defaults Upon Senior Securities
Not applicable

Item 4.                Mine Safety Disclosures
Not applicable

Item 5.                Other Information

Not applicable

Item 6.                Exhibits
(a)Exhibits
10.1 **
32 *
101 *Financial Statements from the Company’s Form 10-Q for the three months ended March 31, 2023 formatted in iXBRL
104 *Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Filed herewith
** Incorporated by reference to exhibit 10.2 from the Registrant's Form 8-K filed with the SEC on February 17, 2023

57

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
WASHINGTON FEDERAL, INC.
(Registrant)
May 4, 2023
/S/    BRENT J. BEARDALL        
BRENT J. BEARDALL
President & Chief Executive Officer
May 4, 2023
/S/    KELLI J. HOLZ     
KELLI J. HOLZ
Executive Vice President and Chief Financial Officer
May 4, 2023
/S/    BLAYNE A. SANDEN      
BLAYNE A. SANDEN
Senior Vice President and Principal Accounting Officer

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