WASHINGTON FEDERAL INC [WAFD] Filings

10-Q 1 wfsl-20230630.htm 10-Q wfsl-20230630

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 June 30, 2023


☐			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 filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller 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 64,729,528 shares of common stock as of July 31, 2023.

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

PART I

Item 1.

Financial Statements (Unaudited)

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

Consolidated Statements of Financial Condition as of June 30 , 2023 and September 30, 2022

Consolidated Statements of Operations for the three and nine months ended June 30 , 2023 and June 30 , 2022

Consolidated Statements of Comprehensive Income for the three and nine months ended June 30 , 2023 and June 30 , 2022

Consolidated Statements of Shareholders' Equity for the three and nine months ended June 30 , 2023 and June 30 , 2022

Consolidated Statements of Cash Flows for the nine months ended June 30 , 2023 and June 30 , 2022

Notes to Interim Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)


	June 30, 2023		September 30, 2022
	(In thousands, except share data)
ASSETS
Cash and cash equivalents	$	1,139,643	$	683,965
Available-for-sale securities, at fair value	2,036,233		2,051,037
Held-to-maturity securities, at amortized cost	434,172		463,299
Loans receivable, net of allowance for loan losses of $178,069 and $172,808	17,384,188		16,113,564
Interest receivable	81,931		63,872
Premises and equipment, net	237,339		243,062
Real estate owned	8,371		6,667
FHLB stock	130,875		95,073
Bank owned life insurance	241,351		237,931
Intangible assets, including goodwill of $303,457 and $303,457	309,069		309,009

Other assets	549,416		504,652
	$	22,552,588	$	20,772,131
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Customer accounts
Transaction deposit accounts	$	11,256,575	$	12,691,527
Time deposit accounts	4,863,849		3,338,043
	16,120,424		16,029,570
Borrowings	3,750,000		2,125,000
Advance payments by borrowers for taxes and insurance	33,516		50,051
Federal and state income tax liabilities, net	1,091		3,306
Accrued expenses and other liabilities	253,491		289,944
	20,158,522		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; 136,457,717 and 136,270,886 shares issued; 64,721,190 and 65,330,126 shares outstanding	136,458		136,271
Additional paid-in capital	1,685,587		1,686,975
Accumulated other comprehensive income (loss), net of taxes	47,351		52,481
Treasury stock, at cost; 71,736,527 and 70,940,760 shares	(1,612,494)		(1,590,207)
Retained earnings	1,837,164		1,688,740
	2,394,066		2,274,260
	$	22,552,588	$	20,772,131

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022
	(In thousands, except share data)				(In thousands, except share data)
INTEREST INCOME
Loans receivable	$	232,167	$	149,113	$	659,070	$	426,882
Mortgage-backed securities	10,454		8,618		31,489		18,069
Investment securities and cash equivalents	29,859		9,417		70,686		23,475
	272,480		167,148		761,245		468,426
INTEREST EXPENSE
Customer accounts	70,062		9,284		153,831		25,970
Borrowings	33,718		6,118		80,877		21,486
	103,780		15,402		234,708		47,456
Net interest income	168,700		151,746		526,537		420,970
Provision (release) for credit losses	9,000		1,500		15,000		1,500
Net interest income after provision (release)	159,700		150,246		511,537		419,470
OTHER INCOME
Gain (loss) on sale of investment securities	—		—		—		81
Gain (loss) on hedging derivatives	(926)		—		(900)		—

Loan fee income	1,000		1,618		3,154		6,014
Deposit fee income	6,660		6,613		19,201		19,338
Other income	7,037		9,319		16,412		26,457
	13,771		17,550		37,867		51,890
OTHER EXPENSE
Compensation and benefits	50,456		48,073		150,970		142,613
Occupancy	10,444		10,053		31,464		31,931
FDIC insurance premiums	5,350		2,100		13,025		7,300
Product delivery	5,217		4,667		15,154		14,432
Information technology	11,661		11,831		36,775		34,974
Other expense	11,571		10,679		36,470		34,183
	94,699		87,403		283,858		265,433
Gain (loss) on real estate owned, net	722		448		411		1,139
Income before income taxes	79,494		80,841		265,957		207,066
Income tax expense	17,719		17,546		58,739		44,131
Net income	61,775		63,295		207,218		162,935
Dividends on preferred stock	3,656		3,656		10,969		10,969
Net income available to common shareholders	$	58,119	$	59,639	$	196,249	$	151,966
PER SHARE DATA
Basic earnings per common share	$	0.89	$	0.91	$	3.00	$	2.33
Diluted earnings per common share	0.89		0.91		3.00		2.32
Dividends paid on common stock per share	0.25		0.24		0.74		0.71
Basic weighted average number of shares outstanding	65,194,880		65,315,481		65,348,709		65,274,488
Diluted weighted average number of shares outstanding	65,212,846		65,395,666		65,442,910		65,397,579

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


	Three Months Ended June 30,
	2023		2022
	(In thousands)
Net income	$	61,775	$	63,295
Other comprehensive income (loss) net of tax:
Net unrealized gain (loss) during the period on available-for-sale investment securities, net of tax of $2,350 and $12,379	(7,822)		(41,158)
Reclassification adjustment of net (gain) loss from sale of available-for-sale securities included in net income, net of tax of $(1) and $0	3		—
Net unrealized gain (loss) from investment securities, net of reclassification adjustment	(7,819)		(41,158)
Net unrealized gain (loss) during the period on borrowings cash flow hedges, net of tax of $(3,409) and $(7,318)	11,348		23,907

Net unrealized gain (loss) in cash flow hedging instruments, net of reclassification adjustment	11,348		23,907

Other comprehensive income (loss)	3,529		(17,251)
Comprehensive income	$	65,304	$	46,044


	Nine Months Ended June 30,
	2023		2022
	(In thousands)
Net income	$	207,218	$	162,935
Other comprehensive income (loss) net of tax:
Net unrealized gain (loss) during the period on available-for-sale investment securities, net of tax of $(1,697) and $26,329	5,649		(87,859)
Reclassification adjustment of net (gain) loss from sale of available-for-sale securities included in net income, net of tax of $(1) and $(19)	3		62
Net unrealized gain (loss) from investment securities, net of reclassification adjustment	5,652		(87,797)
Net unrealized gain (loss) during the period on borrowings cash flow hedges, net of tax of $3,239 and $(21,755)	(10,782)		72,239

Net unrealized gain (loss) in cash flow hedging instruments, net of reclassification adjustment	(10,782)		72,239

Other comprehensive income (loss)	(5,130)		(15,558)
Comprehensive income	$	202,088	$	147,377

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(UNAUDITED)


(in thousands)	Preferred Stock		Common Stock		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
Balance at April 1, 2023	$	300,000	$	136,413	$	1,683,720	$	1,795,042	$	43,822	$	(1,583,880)	$	2,375,117

Net income	—		—		—		61,775		—		—		61,775
Other comprehensive income (loss)	—		—		—		—		3,529		—		3,529

Dividends on common stock ($0.25 per share)	—		—		—		(15,998)		—		—		(15,998)
Dividends on preferred stock ($12.1875 per share)	—		—		—		(3,655)		—		—		(3,655)
Proceeds from stock-based awards	—		1		15		—		—		—		16

Stock-based compensation expense	—		44		1,852		—		—		—		1,896

Treasury stock acquired	—		—		—		—		—		(28,614)		(28,614)

Balance at June 30, 2023	$	300,000	$	136,458	$	1,685,587	$	1,837,164	$	47,351	$	(1,612,494)	$	2,394,066

(in thousands)	Preferred Stock		Common Stock		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
Balance at April 1, 2022	$	300,000	$	136,244	$	1,683,578	$	1,590,483	$	71,478	$	(1,590,082)	$	2,191,701

Net income	—		—		—		63,295		—		—		63,295
Other comprehensive income (loss)	—		—		—		—		(17,251)		—		(17,251)

Dividends on common stock ($0.24 per share)	—		—		—		(15,559)		—		—		(15,559)
Dividends on preferred stock ($12.1875 per share)	—		—		—		(3,656)		—		—		(3,656)
Proceeds from stock-based awards	—		6		182		—		—		—		188

Stock-based compensation expense	—		11		1,459		—		—		—		1,470

Treasury stock acquired	—		—		—		—		—		(77)		(77)
Balance at June 30, 2022	$	300,000	$	136,261	$	1,685,219	$	1,634,563	$	54,227	$	(1,590,159)	$	2,220,111

(CONTINUED)

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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(in thousands)	Preferred Stock		Common Stock		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
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	—		—		—		207,218		—		—		207,218
Other comprehensive income (loss)	—		—		—		—		(5,130)		—		(5,130)

Dividends on common stock ($0.74 per share)	—		—		—		(47,826)		—		—		(47,826)
Dividends on preferred stock ($24.3750 per share)	—		—		—		(10,968)		—		—		(10,968)
Proceeds from stock-based awards	—		34		1,005		—		—		—		1,039

Stock-based compensation expense	—		153		(2,393)		—		—		8,163		5,923

Treasury stock acquired	—		—		—		—		—		(30,450)		(30,450)

Balance at June 30, 2023	$	300,000	$	136,458	$	1,685,587	$	1,837,164	$	47,351	$	(1,612,494)	$	2,394,066

(in thousands)	Preferred Stock		Common Stock		Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
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	—		—		—		162,935		—		—		162,935
Other comprehensive income (loss)	—		—		—		—		(15,558)		—		(15,558)

Dividends on common stock ($0.71 per share)	—		—		—		(46,015)		—		—		(46,015)
Dividends on preferred stock ($24.3750 per share)	—		—		—		(10,968)		—		—		(10,968)
Proceeds from stock-based awards	—		55		1,494		—		—		—		1,549

Stock-based compensation expense	—		213		5,103		—		—		—		5,316

Treasury stock acquired	—		—		—		—		—		(3,212)		(3,212)
Balance at June 30, 2022	$	300,000	$	136,261	$	1,685,219	$	1,634,563	$	54,227	$	(1,590,159)	$	2,220,111

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended June 30,
	2023		2022
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	207,218	$	162,935
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, accretion and other, net	15,667		47,398

Stock-based compensation expense	5,923		5,316
Provision (release) for credit losses	15,000		1,500
Loss (gain) on sale of investment securities	(3)		(81)
Gain on bank owned life insurance	(821)		—
Net realized (gain) loss on sales of premises, equipment, and real estate owned	(1,033)		(516)
Impairment loss on premises and equipment	6		—


Decrease (increase) in accrued interest receivable	(18,059)		(5,349)

Decrease (increase) in federal and state income tax receivable	—		3,877
Decrease (increase) in cash surrender value of bank owned life insurance	(4,409)		(4,144)
Decrease (increase) in other assets	(50,642)		(60,525)
Increase (decrease) in federal and state income tax liabilities	(674)		8,950
Increase (decrease) in accrued expenses and other liabilities	(37,095)		12,046
Net cash provided by (used in) operating activities	131,078		171,407
CASH FLOWS FROM INVESTING ACTIVITIES
Origination of loans and principal repayments, net	(1,208,282)		(1,186,189)
Loans purchased	(79,965)		(576,697)
FHLB stock purchased	(510,805)		(170,000)
FHLB & FRB stock redeemed	475,003		194,790
Available-for-sale securities purchased	(317,027)		(516,163)
Principal payments and maturities of available-for-sale securities	339,604		384,111
Proceeds from sales of available-for-sale securities	94		4,510
Held-to-maturity securities purchased	—		(195,358)
Principal payments and maturities of held-to-maturity securities	28,895		81,497

Proceeds from sales of real estate owned	2,715		5,280
Proceeds from settlement of bank owned life insurance	1,809		—

Equity securities purchased	(7,500)		—

Net cash received (paid) in business combinations	(785)		—
Proceeds from sales of premises and equipment	947		41
Premises and equipment purchased and REO improvements	(11,217)		(8,712)
Net cash provided by (used in) investing activities	(1,286,514)		(1,982,890)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in customer accounts	90,854		423,508
Proceeds from borrowings	13,575,000		4,250,000
Repayments of borrowings	(11,950,000)		(4,270,000)

Proceeds from stock-based awards	1,039		1,548

Dividends paid on common stock	(47,826)		(46,015)
Dividends paid on preferred stock	(10,968)		(10,969)

Treasury stock purchased	(30,450)		(3,212)
Increase (decrease) in advanced payments by borrowers for taxes and insurance	(16,535)		(16,765)
Net cash provided by (used in) financing activities	1,611,114		328,095
Increase (decrease) in cash and cash equivalents	455,678		(1,483,388)
Cash, cash equivalents and restricted cash at beginning of period	683,965		2,090,809
Cash, cash equivalents and restricted cash at end of period	$	1,139,643	$	607,421

(CONTINUED)

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended June 30,
	2023		2022
	(In thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Non-cash investing activities
Real estate acquired through foreclosure	$	121	$	73
Other personal property acquired through foreclosure	—		422
Non-cash financing activities
Preferred stock dividend payable	3,655		3,656
Cash paid (received) during the period for
Interest	243,465		40,196
Income taxes	47,251		19,257

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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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 June 30, 2023. As of June 30, 2023 and September 30, 2022, the Company held counterparty cash collateral of $285,600,000 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

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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 June 30, 2023, equity investments held by the Company and recorded at NAV had a carrying amount of $35,088,000 and a remaining unfunded commitment of $8,273,000. 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).

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) a 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

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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 for (or release of) 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

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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 $4,088,046,000 and $4,947,570,000 at June 30, 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, adjusted for probability of potential funding. 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).

WASHINGTON FEDERAL INC [WAFD] Filings

WASHINGTON FEDERAL INC [WAFDP] Filings