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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 June 30, 2022
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 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 65,324,266 shares of common stock as of July 27, 2022.

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, 2022 and September 30, 2021 |  | 3
| Consolidated Statements of Operations for the three and nin e months ended June 30, 2022 and June 30, 2021 |  | 4
| Consolidated Statements of Comprehensive Income for the three and nin e months ended June 30, 2022 and June 30, 2021 |  | 5
| Consolidated Statements of Shareholders' Equity for the three and nine months ended June 30, 2022 and June 30, 2021 |  | 6
| Consolidated Statements of Cash Flows for the nine months ended June 30, 2022 and June 30, 2021 |  | 8
| Notes to Interim Consolidated Financial Statements |  | 10
Item 2. |  | Management’s Discussion and Analysis of Financial Condition and Results of Operations |  | 38
Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk |  | 50
Item 4. |  | Controls and Procedures |  | 50
PART II
Item 1. |  | Legal Proceedings |  | 51
Item 1A. |  | Risk Factors |  | 51
Item 2. |  | Unregistered Sales of Equity Securities and Use of Proceeds |  | 65
Item 3. |  | Defaults Upon Senior Securities |  | 65
Item 4. |  | Mine Safety Disclosures |  | 65
Item 5. |  | Other Information |  | 65
Item 6. |  | Exhibits |  | 65
|  | Signatures |  | 66

2

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

| June 30, 2022 |  | September 30, 2021
| (In thousands, except share data)
ASSETS |  |  |
Cash and cash equivalents | $ | 607,421 |  |  | $ | 2,090,809 |
Available-for-sale securities, at fair value | 2,150,732 |  |  | 2,138,259 |
Held-to-maturity securities, at amortized cost | 477,884 |  |  | 366,025 |
Loans receivable, net of allowance for loan losses of $170,979 and $171,300 | 15,565,165 |  |  | 13,833,570 |
Interest receivable | 55,985 |  |  | 50,636 |
Premises and equipment, net | 244,232 |  |  | 255,152 |
Real estate owned | 9,656 |  |  | 8,204 |
FHLB and FRB stock | 78,073 |  |  | 102,863 |
Bank owned life insurance | 237,407 |  |  | 233,263 |
Intangible assets, including goodwill of $303,457 and $303,457 | 309,254 |  |  | 310,019 |
Federal and state income tax assets, net | — |  |  | 3,877 |
Other assets | 423,022 |  |  | 257,897 |
| $ | 20,158,831 |  |  | $ | 19,650,574 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |
Liabilities |  |  |
Customer accounts |  |  |
Transaction deposit accounts | $ | 12,668,251 |  |  | $ | 12,108,025 |
Time deposit accounts | 3,297,369 |  |  | 3,434,087 |
| 15,965,620 |  |  | 15,542,112 |
FHLB advances | 1,700,000 |  |  | 1,720,000 |
Advance payments by borrowers for taxes and insurance | 30,251 |  |  | 47,016 |
Federal and state income tax liabilities, net | 4,394 |  |  | — |
Accrued expenses and other liabilities | 238,455 |  |  | 215,382 |
| 17,938,720 |  |  | 17,524,510 |
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; 136,261,099 and 135,993,254 shares issued; 65,321,869 and 65,145,268 shares outstanding | 136,261 |  |  | 135,993 |
Additional paid-in capital | 1,685,219 |  |  | 1,678,622 |
Accumulated other comprehensive income (loss), net of taxes | 54,227 |  |  | 69,785 |
Treasury stock, at cost; 70,939,230 and 70,847,986 shares | (1,590,159) |  |  | (1,586,947) |
Retained earnings | 1,634,563 |  |  | 1,528,611 |
| 2,220,111 |  |  | 2,126,064 |
| $ | 20,158,831 |  |  | $ | 19,650,574 |

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Table of Contents
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

| Three Months Ended June 30, |  | Nine Months Ended June 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
| (In thousands, except share data) |  | (In thousands, except share data)
INTEREST INCOME |  |  |  |  |  |  |
Loans receivable | $ | 149,113 |  |  | $ | 134,193 |  |  | $ | 426,882 |  |  | $ | 400,621 |
Mortgage-backed securities | 8,618 |  |  | 5,488 |  |  | 18,069 |  |  | 19,414 |
Investment securities and cash equivalents | 9,417 |  |  | 7,767 |  |  | 23,475 |  |  | 21,989 |
| 167,148 |  |  | 147,448 |  |  | 468,426 |  |  | 442,024 |
INTEREST EXPENSE |  |  |  |  |  |  |
Customer accounts | 9,284 |  |  | 8,906 |  |  | 25,970 |  |  | 33,745 |
FHLB advances | 6,118 |  |  | 9,937 |  |  | 21,486 |  |  | 35,126 |
| 15,402 |  |  | 18,843 |  |  | 47,456 |  |  | 68,871 |
Net interest income | 151,746 |  |  | 128,605 |  |  | 420,970 |  |  | 373,153 |
Provision (release) for credit losses | 1,500 |  |  | (2,000) |  |  | 1,500 |  |  | 1,000 |
Net interest income after provision (release) | 150,246 |  |  | 130,605 |  |  | 419,470 |  |  | 372,153 |
OTHER INCOME |  |  |  |  |  |  |
Gain (loss) on sale of investment securities | — |  |  | — |  |  | 81 |  |  | — |
Gain (loss) on termination of hedging derivatives | — |  |  | — |  |  | — |  |  | 14,110 |
Prepayment penalty on long-term debt | — |  |  | — |  |  | — |  |  | (13,788) |
Loan fee income | 1,618 |  |  | 1,748 |  |  | 6,014 |  |  | 5,012 |
Deposit fee income | 6,613 |  |  | 6,201 |  |  | 19,338 |  |  | 18,187 |
Other income | 9,319 |  |  | 5,262 |  |  | 26,457 |  |  | 18,037 |
| 17,550 |  |  | 13,211 |  |  | 51,890 |  |  | 41,558 |
OTHER EXPENSE |  |  |  |  |  |  |
Compensation and benefits | 48,073 |  |  | 43,841 |  |  | 142,613 |  |  | 130,196 |
Occupancy | 10,053 |  |  | 9,725 |  |  | 31,931 |  |  | 29,790 |
FDIC insurance premiums | 2,100 |  |  | 3,900 |  |  | 7,300 |  |  | 10,918 |
Product delivery | 4,667 |  |  | 4,075 |  |  | 14,432 |  |  | 13,413 |
Information technology | 11,831 |  |  | 10,396 |  |  | 34,974 |  |  | 32,923 |
Other expense | 10,679 |  |  | 11,703 |  |  | 34,183 |  |  | 29,556 |
| 87,403 |  |  | 83,640 |  |  | 265,433 |  |  | 246,796 |
Gain (loss) on real estate owned, net | 448 |  |  | (151) |  |  | 1,139 |  |  | (566) |
Income before income taxes | 80,841 |  |  | 60,025 |  |  | 207,066 |  |  | 166,349 |
Income tax expense | 17,546 |  |  | 12,603 |  |  | 44,131 |  |  | 35,105 |
Net income | 63,295 |  |  | 47,422 |  |  | 162,935 |  |  | 131,244 |
Dividends on preferred stock | 3,656 |  |  | 3,656 |  |  | 10,969 |  |  | 6,378 |
Net income available to common shareholders | $ | 59,639 |  |  | $ | 43,766 |  |  | $ | 151,966 |  |  | $ | 124,866 |
PER SHARE DATA |  |  |  |  |  |  |
Basic earnings per common share | $ | 0.91 |  |  | $ | 0.61 |  |  | $ | 2.33 |  |  | $ | 1.68 |
Diluted earnings per common share | 0.91 |  |  | 0.61 |  |  | 2.32 |  |  | 1.68 |
Dividends paid on common stock per share | 0.24 |  |  | 0.23 |  |  | 0.71 |  |  | 0.68 |
Basic weighted average number of shares outstanding | 65,315,481 |  | 71,795,157 |  | 65,274,488 |  | 74,315,911
Diluted weighted average number of shares outstanding | 65,395,666 |  | 71,901,068 |  | 65,397,579 |  | 74,326,693

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

| Three Months Ended June 30,
| 2022 |  | 2021
| (In thousands)
Net income | $ | 63,295 |  |  | $ | 47,422 |
Other comprehensive income (loss) net of tax: |  |  |
Net unrealized gain (loss) during the period on available-for-sale investment securities, net of tax of $12,379 and $(605) | (41,158) |  |  | 2,027 |
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 adjustment | (41,158) |  |  | 2,027 |
Net unrealized gain (loss) during the period on borrowings cash flow hedges, net of tax of $(7,318) and $5,401 | 23,907 |  |  | (18,083) |
Reclassification adjustment of net (gain) loss included in net income during the period from hedging derivatives, net of tax of $0 and $0 | — |  |  | — |
Net unrealized gain (loss) in cash flow hedging instruments, net of reclassification adjustment | 23,907 |  |  | (18,083) |
Other comprehensive income (loss) | (17,251) |  |  | (16,056) |
Comprehensive income | $ | 46,044 |  |  | $ | 31,366 |

| Nine Months Ended June 30,
| 2022 |  | 2021
| (In thousands)
Net income | $ | 162,935 |  |  | $ | 131,244 |
Other comprehensive income (loss) net of tax: |  |  |
Net unrealized gain (loss) during the period on available-for-sale investment securities, net of tax of $26,329 and $(2,177) | (87,859) |  |  | 7,289 |
Reclassification adjustment of net (gain) loss from sale of available-for-sale securities included in net income, net of tax of $(19) and $0 | 62 |  |  | — |
Net unrealized gain (loss) from investment securities, net of reclassification adjustment | (87,797) |  |  | 7,289 |
Net unrealized gain (loss) during the period on borrowings cash flow hedges, net of tax of $(21,755) and $(15,456) | 72,239 |  |  | 51,743 |
Reclassification adjustment of net (gain) loss included in net income during the period from hedging derivatives, net of tax of $0 and $3,245 | — |  |  | (10,865) |
Net unrealized gain (loss) in cash flow hedging instruments, net of reclassification adjustment | 72,239 |  |  | 40,878 |
Other comprehensive income (loss) | (15,558) |  |  | 48,167 |
Comprehensive income | $ | 147,377 |  |  | $ | 179,411 |

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Table of Contents
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, 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 |
(in thousands) | Preferred Stock | Common Stock | Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total
Balance at April 1, 2021 | $ | 300,000 |  | $ | 135,980 |  | $ | 1,675,772 |  | $ | 1,468,093 |  | $ | 81,176 |  | $ | (1,328,068) |  | $ | 2,332,953 |
Net income | — |  | — |  | — |  | 47,422 |  | — |  | — |  | 47,422 |
Other comprehensive income (loss) | — |  | — |  | — |  | — |  | (16,056) |  | — |  | (16,056) |
Dividends on common stock ($0.23 per share) | — |  | — |  | — |  | (16,518) |  | — |  | — |  | (16,518) |
Dividends on preferred stock ($12.1875 per share) | — |  | — |  | — |  | (3,656) |  | — |  | — |  | (3,656) |
Proceeds from stock-based awards | — |  | — |  | 8 |  | — |  | — |  | — |  | 8 |
Stock-based compensation expense | — |  | 7 |  | 1,383 |  | — |  | — |  | — |  | 1,390 |
Treasury stock acquired | — |  | — |  | — |  | — |  | — |  | (118,303) |  | (118,303) |
Balance at June 30, 2021 | $ | 300,000 |  | $ | 135,987 |  | $ | 1,677,163 |  | $ | 1,495,341 |  | $ | 65,120 |  | $ | (1,446,371) |  | $ | 2,227,240 |

(CONTINUED)
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6

Table of Contents

(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 ($36.5625 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 |
(in thousands) | Preferred Stock | Common Stock | Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total
Balance at October 1, 2020 | $ | — |  | $ | 135,727 |  | $ | 1,678,843 |  | $ | 1,420,906 |  | $ | 16,953 |  | $ | (1,238,296) |  | $ | 2,014,133 |
Net income | — |  | — |  | — |  | 131,244 |  | — |  | — |  | 131,244 |
Other comprehensive income (loss) | — |  | — |  | — |  | — |  | 48,167 |  | — |  | 48,167 |
Issuance of preferred stock, net | 300,000 |  | — |  | (6,675) |  | — |  | — |  | — |  | 293,325 |
Dividends on common stock ($0.68 per share) | — |  | — |  | — |  | (50,431) |  | — |  | — |  | (50,431) |
Dividends on preferred stock ($21.2604 per share) | — |  | — |  | — |  | (6,378) |  | — |  | — |  | (6,378) |
Proceeds from stock-based awards | — |  | 20 |  | 319 |  | — |  | — |  | — |  | 339 |
Stock-based compensation expense | — |  | 240 |  | 4,676 |  | — |  | — |  | — |  | 4,916 |
Treasury stock acquired | — |  | — |  | — |  | — |  | — |  | (208,075) |  | (208,075) |
Balance at June 30, 2021 | $ | 300,000 |  | $ | 135,987 |  | $ | 1,677,163 |  | $ | 1,495,341 |  | $ | 65,120 |  | $ | (1,446,371) |  | $ | 2,227,240 |

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Table of Contents
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

| Nine Months Ended June 30, |  |  |
| 2022 |  | 2021 |  |  |
| (In thousands) |  |  |
CASH FLOWS FROM OPERATING ACTIVITIES |  |  |  |
Net income | $ | 162,935 |  |  | $ | 131,244 |  |  |  |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |
Depreciation, amortization, accretion and other, net | 47,398 |  |  | 26,329 |  |  |  |
Stock-based compensation expense | 5,316 |  |  | 4,916 |  |  |  |
Provision (release) for credit losses | 1,500 |  |  | 1,000 |  |  |  |
Loss (gain) on sale of investment securities | (81) |  |  | — |  |  |  |
Net realized (gain) loss on sales of premises, equipment, and real estate owned | (516) |  |  | (104) |  |  |  |
Impairment loss on premises and equipment | — |  |  | 574 |  |  |  |
Prepayment penalty from repayment of borrowings | — |  |  | 13,788 |  |  |  |
Gain on early termination of long term borrowing hedge | — |  |  | (14,110) |  |  |  |
Decrease (increase) in accrued interest receivable | (5,349) |  |  | 2,255 |  |  |  |
Decrease (increase) in federal and state income tax receivable | 3,877 |  |  | 5,708 |  |  |  |
Decrease (increase) in cash surrender value of bank owned life insurance | (4,144) |  |  | (4,133) |  |  |  |
Decrease (increase) in other assets | (60,525) |  |  | 153,610 |  |  |  |
Increase (decrease) in federal and state income tax liabilities | 8,950 |  |  | (13,470) |  |  |  |
Increase (decrease) in accrued expenses and other liabilities | 12,046 |  |  | (57,910) |  |  |  |
Net cash provided by (used in) operating activities | 171,407 |  |  | 249,697 |  |  |  |
CASH FLOWS FROM INVESTING ACTIVITIES |  |  |  |  |  |
Origination of loans and principal repayments, net | (1,186,189) |  |  | (266,566) |  |  |  |
Loans purchased | (576,697) |  |  | (412,423) |  |  |  |
FHLB & FRB stock purchased | (170,000) |  |  | (244,035) |  |  |  |
FHLB & FRB stock redeemed | 194,790 |  |  | 274,000 |  |  |  |
Available-for-sale securities purchased | (516,163) |  |  | (528,937) |  |  |  |
Principal payments and maturities of available-for-sale securities | 384,111 |  |  | 493,520 |  |  |  |
Proceeds from sales of available-for-sale securities | 4,510 |  |  | — |  |  |  |
Held-to-maturity securities purchased | (195,358) |  |  | — |  |  |  |
Principal payments and maturities of held-to-maturity securities | 81,497 |  |  | 283,458 |  |  |  |
Proceeds from sales of real estate owned | 5,280 |  |  | 2,089 |  |  |  |
Proceeds from sales of premises and equipment | 41 |  |  | 3,376 |  |  |  |
Premises and equipment purchased and REO improvements | (8,712) |  |  | (24,758) |  |  |  |
Net cash provided by (used in) investing activities | (1,982,890) |  |  | (420,276) |  |  |  |
CASH FLOWS FROM FINANCING ACTIVITIES |  |  |  |  |  |
Net increase (decrease) in customer accounts | 423,508 |  |  | 1,458,734 |  |  |  |
Proceeds from borrowings | 4,250,000 |  |  | 6,100,000 |  |  |  |
Repayments of borrowings | (4,270,000) |  |  | (6,863,788) |  |  |  |
Proceeds from the early termination of long term borrowing hedge | — |  |  | 14,110 |  |  |  |
Proceeds from stock-based awards | 1,548 |  |  | 339 |  |  |  |
Proceeds from issuance of preferred stock, net | — |  |  | 293,325 |  |  |  |
Dividends paid on common stock | (46,015) |  |  | (50,431) |  |  |  |
Dividends paid on preferred stock | (10,969) |  |  | (2,722) |  |  |  |
Treasury stock purchased | (3,212) |  |  | (208,075) |  |  |  |
Increase (decrease) in advances payments by borrowers for taxes and insurance | (16,765) |  |  | (21,932) |  |  |  |
Net cash provided by (used in) financing activities | 328,095 |  |  | 719,560 |  |  |  |
Increase (decrease) in cash and cash equivalents | (1,483,388) |  |  | 548,981 |  |  |  |
Cash, cash equivalents and restricted cash at beginning of period | 2,090,809 |  |  | 1,702,977 |  |  |  |
Cash, cash equivalents and restricted cash at end of period | $ | 607,421 |  |  | $ | 2,251,958 |  |  |  |

(CONTINUED)
SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
8

Table of Contents
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

| Nine Months Ended June 30,
| 2022 |  | 2021
| (In thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
Non-cash investing activities |  |  |
Real estate acquired through foreclosure | $ | 73 |  |  | $ | 175 |
Other personal property acquired through foreclosure | 422 |  |  | — |
Non-cash financing activities |  |  |
Preferred stock dividend payable | 3,656 |  |  | 3,656 |
Cash paid (received) during the period for |  |  |
Interest | 40,196 |  |  | 57,189 |
Income taxes | 19,257 |  |  | 31,154 |

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
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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 209 bank branches located in Washington, Oregon, Idaho, Utah, Arizona, Nevada, New Mexico and Texas.
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 Washington State Department of Financial Institutions (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.
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 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on November 19, 2021 ("2021 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 2021 Annual Financial Statements. There have not been any significant changes in the Company's significant accounting policies compared to those contained in its 2021 Annual Financial Statements for the year ended September 30, 2021.
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 1/40 th 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, 2022. As of June 30, 2022 and September 30, 2021, the Company held counterparty cash collateral of $219,650,000 and pledged cash collateral to counterparties of $1,500,000, respectively, related to derivative contracts.
Equity Securities - The Company records equity securities within Other assets in its Consolidated Statements of Financial Condition. Investments in equity securities with readily determinable fair values (marketable) are measured at fair value, with changes in the fair value recognized as a component of Other income in the Consolidated Statements of Operations. Investments in equity investments that do not have readily determinable fair values (non-marketable) are accounted for at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the
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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
identical or similar investment of the same issuer, also referred to as the measurement alternative. Any adjustments to the carrying value of these investments are recorded in Other income in the Consolidated Statements of Operations.
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 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
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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 - Upon adoption of ASC 326, the Company made the following elections regarding accrued interest receivable:
•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 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,
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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 $4,973,336,000 and $3,804,444,000 at June 30, 2022 and September 30, 2021, 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 Accounting Standards Update ("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 the anticipated transition away from LIBOR 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. This guidance is effective immediately and the amendments may be applied prospectively through December 31, 2022. 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.
NOTE C – Dividends and Share Repurchases
On June 3, 2022, the Company paid a regular dividend on common stock of $0.24 per share, which represented the 157 th consecutive quarterly cash dividend. Dividends per share were $0.24 and $0.23 for the quarters ended June 30, 2022 and 2021, respectively.
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
For the three months ended June 30, 2022, the Company repurchased 2,446 shares (related to tax withholding on employee equity awards) at an average price of $31.36. As of June 30, 2022, there are 3,725,874 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 July 15, 2022.
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.
The following table is a summary of loans receivable by loan portfolio segment and class.

| June 30, 2022 |  | September 30, 2021
| (In thousands) |  | (In thousands)
Commercial loans |  |  |  |  |
Multi-family | $ | 2,494,594 |  | 13.2 | % |  | $ | 2,291,477 |  | 14.0 | %
Commercial real estate | 2,899,057 |  | 15.3 |  |  | 2,443,845 |  | 15.0 |
Commercial & industrial (1) | 2,351,030 |  | 12.4 |  |  | 2,314,654 |  | 14.2 |
Construction | 3,896,740 |  | 20.6 |  |  | 2,888,214 |  | 17.7 |
Land - acquisition & development | 245,233 |  | 1.3 |  |  | 222,457 |  | 1.4 |
Total commercial loans | 11,886,654 |  | 62.9 |  |  | 10,160,647 |  | 62.3 |
Consumer loans |  |  |  |  |
Single-family residential | 5,652,897 |  | 29.9 |  |  | 4,951,627 |  | 30.4 |
Construction - custom | 943,858 |  | 5.0 |  |  | 783,221 |  | 4.8 |
Land - consumer lot loans | 158,485 |  | 0.8 |  |  | 149,956 |  | 0.9 |
HELOC | 185,427 |  | 1.0 |  |  | 165,989 |  | 1.0 |
Consumer | 73,044 |  | 0.4 |  |  | 87,892 |  | 0.5 |
Total consumer loans | 7,013,711 |  | 37.1 |  |  | 6,138,685 |  | 37.7 |
Total gross loans | 18,900,365 |  | 100 | % |  | 16,299,332 |  | 100 | %
Less: |  |  |  |  |
Allowance for credit losses on loans | 170,979 |  |  |  | 171,300 |  |
Loans in process | 3,083,573 |  |  |  | 2,232,836 |  |
Net deferred fees, costs and discounts | 80,648 |  |  |  | 61,626 |  |
Total loan contra accounts | 3,335,200 |  |  |  | 2,465,762 |  |
Net loans | $ | 15,565,165 |  |  |  | $ | 13,833,570 |  |

(1) Includes $55 million and $312 million of Small Business Administration’s Paycheck Protection Program ("PPP") loans as of June 30, 2022 and September 30, 2021, respectively.
The Company elected to exclude accrued interest receivable ("AIR") from the amortized cost basis of loans for disclosure purposes and from the calculations of estimated credit losses. As of June 30, 2022, and September 30, 2021, AIR for loans
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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
totaled $49,263,000 and $46,234,000, 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 $7,841,568,000 and $5,930,015,000 at June 30, 2022 and September 30, 2021, 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.
The following table sets forth the amortized cost basis of non-accrual loans and loans 90 days or more past due and accruing.

| June 30, 2022 |  | September 30, 2021
| (In thousands, except ratio data)
| Non-accrual |  | Non-accrual with no ACL (2) |  | 90 days or more past due and accruing (1) |  | Non-accrual |  | Non-accrual with no ACL |  | 90 days or more past due and accruing
Commercial loans |  |  |  |  |  |  |  |  |  |  |
Multi-family | $ | 5,944 |  |  | $ | — |  |  | $ | — |  |  | $ | 475 |  |  | $ | — |  |  | $ | — |
Commercial real estate | 5,024 |  |  | — |  |  | — |  |  | 8,038 |  |  | — |  |  | — |
Commercial & industrial | 4,288 |  |  | 754 |  |  | 11,439 |  |  | 365 |  |  | 30 |  |  | — |
Construction | — |  |  | — |  |  | — |  |  | 505 |  |  | — |  |  | — |
Land - acquisition & development | — |  |  | — |  |  | — |  |  | 2,340 |  |  | — |  |  | — |
Total commercial loans | 15,256 |  |  | 754 |  |  | 11,439 |  |  | 11,723 |  |  | 30 |  |  | — |
Consumer loans |  |  |  |  |  |  |  |  |  |  |
Single-family residential | 20,184 |  |  | — |  |  | — |  |  | 19,320 |  |  | — |  |  | — |
Construction - custom | 900 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Land - consumer lot loans | 213 |  |  | — |  |  | — |  |  | 359 |  |  | — |  |  | — |
HELOC | 91 |  |  | — |  |  | — |  |  | 287 |  |  | — |  |  | — |
Consumer | 35 |  |  | — |  |  | — |  |  | 60 |  |  | — |  |  | — |
Total consumer loans | 21,423 |  |  | — |  |  | — |  |  | 20,026 |  |  | — |  |  | — |
Total non-accrual loans | $ | 36,679 |  |  | $ | 754 |  |  | $ | 11,439 |  |  | $ | 31,749 |  |  | $ | 30 |  |  | $ | — |
% of total loans | 0.23 | % |  |  |  |  |  | 0.23 | % |  |  |  |

(1) $10 million of this amount is comprised of one government guaranteed SBA PPP loan for which the entire balance was forgiven by the SBA subsequent to the June 30, 2022 quarter end.
(2) 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 $2,544,000 in the nine months ended June 30, 2022. 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 $969,000 for the nine months ended June 30, 2022. Recognized interest income for the nine months ended June 30, 2022 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.
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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.

June 30, 2022 |  |  | Days Delinquent Based on $ Amount of Loans |  | % based on $
Type of Loan | Loans Receivable (Amortized Cost) |  | Current |  | 30 |  | 60 |  | 90 |  | Total Delinquent |
| (In thousands, except ratio data) |  |
Commercial Loans |  |  |  |  |  |  |  |  |  |  |  |  |
Multi-family | $ | 2,478,932 |  |  | $ | 2,478,932 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | — | %
Commercial real estate | 2,876,995 |  |  | 2,876,644 |  |  | — |  |  | — |  |  | 351 |  |  | 351 |  |  | 0.01 |
Commercial & industrial (1) | 2,344,046 |  |  | 2,327,625 |  |  | 369 |  |  | 359 |  |  | 15,693 |  |  | 16,421 |  |  | 0.70 |
Construction | 1,407,211 |  |  | 1,407,211 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Land - acquisition & development | 222,974 |  |  | 222,974 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total commercial loans | 9,330,158 |  |  | 9,313,386 |  |  | 369 |  |  | 359 |  |  | 16,044 |  |  | 16,772 |  |  | 0.18 |
Consumer Loans |  |  |  |  |  |  |  |  |  |  |  |  |
Single-family residential | 5,619,448 |  |  | 5,597,259 |  |  | 4,611 |  |  | 1,533 |  |  | 16,045 |  |  | 22,189 |  |  | 0.39 |
Construction - custom | 368,839 |  |  | 367,939 |  |  | — |  |  | — |  |  | 900 |  |  | 900 |  |  | 0.24 |
Land - consumer lot loans | 157,076 |  |  | 156,693 |  |  | 206 |  |  | — |  |  | 177 |  |  | 383 |  |  | 0.24 |
HELOC | 187,469 |  |  | 187,267 |  |  | 103 |  |  | 16 |  |  | 83 |  |  | 202 |  |  | 0.11 |
Consumer | 73,154 |  |  | 72,902 |  |  | 130 |  |  | 63 |  |  | 59 |  |  | 252 |  |  | 0.34 |
Total consumer loans | 6,405,986 |  |  | 6,382,060 |  |  | 5,050 |  |  | 1,612 |  |  | 17,264 |  |  | 23,926 |  |  | 0.37 |
Total Loans | $ | 15,736,144 |  |  | $ | 15,695,446 |  |  | $ | 5,419 |  |  | $ | 1,971 |  |  | $ | 33,308 |  |  | $ | 40,698 |  |  | 0.26 | %
Delinquency % |  |  | 99.74% |  | 0.03% |  | 0.01% |  | 0.21% |  | 0.26% |  |

(1) $10 million of the 90 days past due amount for this loan class is comprised of one government guaranteed SBA PPP loan for which the entire balance was forgiven by the SBA subsequent to the June 30, 2022 quarter end.

September 30, 2021 |  |  | Days Delinquent Based on $ Amount of Loans |  | % based on $
Type of Loan | Loans Receivable (Amortized Cost) |  | Current |  | 30 |  | 60 |  | 90 |  | Total Delinquent |
| (In thousands, except ratio data) |  |
Commercial Loans |  |  |  |  |  |  |  |  |  |  |  |  |
Multi-family | $ | 2,273,689 |  |  | $ | 2,273,214 |  |  | $ | — |  |  | $ | — |  |  | $ | 475 |  |  | $ | 475 |  |  | 0.02 | %
Commercial real estate | 2,429,332 |  |  | 2,428,014 |  |  | 971 |  |  | 64 |  |  | 283 |  |  | 1,318 |  |  | 0.05 |
Commercial & industrial | 2,303,927 |  |  | 2,303,605 |  |  | — |  |  | — |  |  | 322 |  |  | 322 |  |  | 0.01 |
Construction | 1,117,227 |  |  | 1,117,186 |  |  | — |  |  | — |  |  | 41 |  |  | 41 |  |  | — |
Land - acquisition & development | 192,416 |  |  | 190,076 |  |  | — |  |  | — |  |  | 2,340 |  |  | 2,340 |  |  | 1.22 |
Total commercial loans | 8,316,591 |  |  | 8,312,095 |  |  | 971 |  |  | 64 |  |  | 3,461 |  |  | 4,496 |  |  | 0.05 |
Consumer Loans |  |  |  |  |  |  |  |  |  |  |  |  |
Single-family residential | 4,937,064 |  |  | 4,915,749 |  |  | 3,627 |  |  | 2,165 |  |  | 15,523 |  |  | 21,315 |  |  | 0.43 |
Construction - custom | 347,752 |  |  | 347,752 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Land - consumer lot loans | 148,534 |  |  | 147,952 |  |  | 5 |  |  | 307 |  |  | 270 |  |  | 582 |  |  | 0.39 |
HELOC | 166,940 |  |  | 166,627 |  |  | 47 |  |  | — |  |  | 266 |  |  | 313 |  |  | 0.19 |
Consumer | 87,989 |  |  | 87,727 |  |  | 152 |  |  | 59 |  |  | 51 |  |  | 262 |  |  | 0.30 |
Total consumer loans | 5,688,279 |  |  | 5,665,807 |  |  | 3,831 |  |  | 2,531 |  |  | 16,110 |  |  | 22,472 |  |  | 0.40 |
Total Loans | $ | 14,004,870 |  |  | $ | 13,977,902 |  |  | $ | 4,802 |  |  | $ | 2,595 |  |  | $ | 19,571 |  |  | $ | 26,968 |  |  | 0.19 | %
Delinquency % |  |  | 99.81% |  | 0.03% |  | 0.02% |  | 0.14% |  | 0.19% |  |

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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 June 30, 2022, 97.6% of the Company's $58,896,000 in TDRs were classified as performing. As of June 30, 2022, single-family residential loans comprised 82.7% 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.
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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 June 30, 2022.

| Term Loans Amortized Cost Basis by Origination Year |  |  |
| YTD 2022 | 2021 | 2020 | 2019 | 2018 | Prior to 2018 | Revolving Loans | Revolving to Term Loans | Total Loans
Commercial loans |  |  |  |  |  |  |  |  |
Multi-family |  |  |  |  |  |  |  |  |
Pass | $ | 584,451 |  | $ | 717,886 |  | $ | 463,720 |  | $ | 140,499 |  | $ | 162,319 |  | $ | 373,585 |  | $ | 26,562 |  | $ | — |  | $ | 2,469,022 |
Substandard | — |  | — |  | 1,738 |  | — |  | 6,592 |  | 1,580 |  | — |  | — |  | 9,910 |
Total | $ | 584,451 |  | $ | 717,886 |  | $ | 465,458 |  | $ | 140,499 |  | $ | 168,911 |  | $ | 375,165 |  | $ | 26,562 |  | $ | — |  | $ | 2,478,932 |
Commercial real estate |  |  |  |  |  |  |
Pass | $ | 605,412 |  | $ | 678,619 |  | $ | 432,194 |  | $ | 273,116 |  | $ | 243,378 |  | $ | 549,589 |  | $ | 2,942 |  | $ | — |  | $ | 2,785,250 |
Substandard | 262 |  | — |  | 5,119 |  | 66,309 |  | 4,895 |  | 14,080 |  | 1,080 |  | — |  | 91,745 |
Total | $ | 605,674 |  | $ | 678,619 |  | $ | 437,313 |  | $ | 339,425 |  | $ | 248,273 |  | $ | 563,669 |  | $ | 4,022 |  | $ | — |  | $ | 2,876,995 |
Commercial & industrial |  |  |  |  |  |  |
Pass | $ | 197,991 |  | $ | 476,441 |  | $ | 152,423 |  | $ | 43,441 |  | $ | 25,837 |  | $ | 233,135 |  | $ | 1,068,341 |  | $ | 217 |  | $ | 2,197,826 |
Special Mention | 2,506 |  | — |  | — |  | — |  | — |  | — |  | 30,283 |  | — |  | 32,789 |
Substandard | 2,045 |  | 12,935 |  | 19,866 |  | 5,603 |  | 4,388 |  | 1,983 |  | 66,611 |  | — |  | 113,431 |
Total | $ | 202,542 |  | $ | 489,376 |  | $ | 172,289 |  | $ | 49,044 |  | $ | 30,225 |  | $ | 235,118 |  | $ | 1,165,235 |  | $ | 217 |  | $ | 2,344,046 |
Construction |  |  |  |  |  |  |  |  |
Pass | $ | 381,073 |  | $ | 623,971 |  | $ | 252,391 |  | $ | 70,014 |  | $ | 374 |  | $ | 16,316 |  | $ | 60,816 |  | $ | — |  | $ | 1,404,955 |
Substandard | — |  | 2,256 |  | — |  | — |  | — |  | — |  | — |  | — |  | 2,256 |
Total | $ | 381,073 |  | $ | 626,227 |  | $ | 252,391 |  | $ | 70,014 |  | $ | 374 |  | $ | 16,316 |  | $ | 60,816 |  | $ | — |  | $ | 1,407,211 |
Land - acquisition & development |  |  |  |  |  |
Pass | $ | 83,037 |  | $ | 73,788 |  | $ | 20,398 |  | $ | 4,126 |  | $ | 10,444 |  | $ | 28,581 |  | $ | 2,600 |  | $ | — |  | $ | 222,974 |
Total | $ | 83,037 |  | $ | 73,788 |  | $ | 20,398 |  | $ | 4,126 |  | $ | 10,444 |  | $ | 28,581 |  | $ | 2,600 |  | $ | — |  | $ | 222,974 |
Total commercial loans |  |  |  |  |  |  |
Pass | $ | 1,851,964 |  | $ | 2,570,705 |  | $ | 1,321,126 |  | $ | 531,196 |  | $ | 442,352 |  | $ | 1,201,206 |  | $ | 1,161,261 |  | $ | 217 |  | $ | 9,080,027 |
Special Mention | 2,506 |  | — |  | — |  | — |  | — |  | — |  | 30,283 |  | — |  | 32,789 |
Substandard | 2,307 |  | 15,191 |  | 26,723 |  | 71,912 |  | 15,875 |  | 17,643 |  | 67,691 |  | — |  | 217,342 |
Total | $ | 1,856,777 |  | $ | 2,585,896 |  | $ | 1,347,849 |  | $ | 603,108 |  | $ | 458,227 |  | $ | 1,218,849 |  | $ | 1,259,235 |  | $ | 217 |  | $ | 9,330,158 |

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

| Term Loans Amortized Cost Basis by Origination Year |  |  |
| YTD 2022 | 2021 | 2020 | 2019 | 2018 | Prior to 2018 | Revolving Loans | Revolving to Term Loans | Total Loans
Consumer loans |  |  |  |  |  |  |  |  |
Single-family residential |  |  |  |  |  |  |
Current | $ | 1,008,103 |  | $ | 1,566,179 |  | $ | 780,090 |  | $ | 331,798 |  | $ | 286,311 |  | $ | 1,624,778 |  | $ | — |  | $ | — |  | $ | 5,597,259 |
30 days past due | 2,601 |  | — |  | — |  | 78 |  | — |  | 1,932 |  | — |  | — |  | 4,611 |
60 days past due | — |  | — |  | 696 |  | 59 |  | — |  | 778 |  | — |  | — |  | 1,533 |
90+ days past due | — |  | 775 |  | — |  | 699 |  | 57 |  | 14,514 |  | — |  | — |  | 16,045 |
Total | $ | 1,010,704 |  | $ | 1,566,954 |  | $ | 780,786 |  | $ | 332,634 |  | $ | 286,368 |  | $ | 1,642,002 |  | $ | — |  | $ | — |  | $ | 5,619,448 |
Construction - custom |  |  |  |  |  |  |  |
Current | $ | 125,662 |  | $ | 223,181 |  | $ | 17,212 |  | $ | 1,154 |  | $ | 730 |  | $ | — |  | $ | — |  | $ | — |  | $ | 367,939 |
90+ days past due | — |  | 435 |  | 465 |  | — |  | — |  | — |  | — |  | — |  | 900 |
Total | $ | 125,662 |  | $ | 223,616 |  | $ | 17,677 |  | $ | 1,154 |  | $ | 730 |  | $ | — |  | $ | — |  | $ | — |  | $ | 368,839 |
Land - consumer lot loans |  |  |  |  |  |  |
Current | $ | 49,972 |  | $ | 65,286 |  | $ | 18,076 |  | $ | 5,825 |  | $ | 3,464 |  | $ | 14,070 |  | $ | — |  | $ | — |  | $ | 156,693 |
30 days past due | — |  | — |  | 206 |  | — |  | — |  | — |  | — |  | — |  | 206 |
90+ days past due | — |  | — |  | — |  | — |  | — |  | 177 |  | — |  | — |  | 177 |
Total | $ | 49,972 |  | $ | 65,286 |  | $ | 18,282 |  | $ | 5,825 |  | $ | 3,464 |  | $ | 14,247 |  | $ | — |  | $ | — |  | $ | 157,076 |
HELOC |  |  |  |  |  |  |  |  |
Current | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 4,794 |  | $ | 182,091 |  | $ | 382 |  | $ | 187,267 |
30 days past due | — |  | — |  | — |  | — |  | — |  | — |  | 103 |  | — |  | 103 |
60 days past due | — |  | — |  | — |  | — |  | — |  | — |  | 7 |  | 9 |  | 16 |
90+ days past due | — |  | — |  | — |  | — |  | — |  | — |  | 83 |  | — |  | 83 |
Total | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 4,794 |  | $ | 182,284 |  | $ | 391 |  | $ | 187,469 |
Consumer |  |  |  |  |  |  |  |  |
Current | $ | 647 |  | $ | 10,251 |  | $ | 8,049 |  | $ | 299 |  | $ | 25,482 |  | $ | 7,128 |  | $ | 21,046 |  | $ | — |  | $ | 72,902 |
30 days past due | — |  | — |  | — |  | 5 |  | — |  | 123 |  | 2 |  | — |  | 130 |
60 days past due | — |  | — |  | — |  | — |  | — |  | 63 |  | — |  | — |  | 63 |
90+ days past due | 1 |  | — |  | — |  | 33 |  | — |  | 25 |  | — |  | — |  | 59 |
Total | $ | 648 |  | $ | 10,251 |  | $ | 8,049 |  | $ | 337 |  | $ | 25,482 |  | $ | 7,339 |  | $ | 21,048 |  | $ | — |  | $ | 73,154 |
Total consumer loans |  |  |  |  |  |  |  |
Current | $ | 1,184,384 |  | $ | 1,864,897 |  | $ | 823,427 |  | $ | 339,076 |  | $ | 315,987 |  | $ | 1,650,770 |  | $ | 203,137 |  | $ | 382 |  | $ | 6,382,060 |
30 days past due | 2,601 |  | — |  | 206 |  | 83 |  | — |  | 2,055 |  | 105 |  | — |  | 5,050 |
60 days past due | — |  | — |  | 696 |  | 59 |  | — |  | 841 |  | 7 |  | 9 |  | 1,612 |
90+ days past due | 1 |  | 1,210 |  | 465 |  | 732 |  | 57 |  | 14,716 |  | 83 |  | — |  | 17,264 |
Total | $ | 1,186,986 |  | $ | 1,866,107 |  | $ | 824,794 |  | $ | 339,950 |  | $ | 316,044 |  | $ | 1,668,382 |  | $ | 203,332 |  | $ | 391 |  | $ | 6,405,986 |

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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 June 30, 2022 | Beginning Allowance |  | Charge-offs |  | Recoveries |  | Provision & Transfers (1) |  | Ending Allowance
| (In thousands)
Commercial loans |  |  |  |  |  |  |  |  |
Multi-family | $ | 14,463 |  |  | $ | — |  |  | $ | — |  |  | $ | (1,889) |  |  | $ | 12,574 |
Commercial real estate | 24,682 |  |  | — |  |  | 23 |  |  | 595 |  |  | 25,300 |
Commercial & industrial | 53,903 |  |  | (27) |  |  | 8 |  |  | 1,040 |  |  | 54,924 |
Construction | 22,707 |  |  | — |  |  | — |  |  | 3,127 |  |  | 25,834 |
Land - acquisition & development | 13,685 |  |  | (1) |  |  | 11 |  |  | (1,468) |  |  | 12,227 |
Total commercial loans | 129,440 |  |  | (28) |  |  | 42 |  |  | 1,405 |  |  | 130,859 |
Consumer loans |  |  |  |  |  |  |  |  |
Single-family residential | 28,992 |  |  | — |  |  | 252 |  |  | (3,027) |  |  | 26,217 |
Construction - custom | 3,129 |  |  | — |  |  | — |  |  | 225 |  |  | 3,354 |
Land - consumer lot loans | 5,105 |  |  | — |  |  | 2 |  |  | 113 |  |  | 5,220 |
HELOC | 2,475 |  |  | — |  |  | 249 |  |  | (92) |  |  | 2,632 |
Consumer | 2,243 |  |  | (253) |  |  | 331 |  |  | 376 |  |  | 2,697 |
Total consumer loans | 41,944 |  |  | (253) |  |  | 834 |  |  | (2,405) |  |  | 40,120 |
Total loans | $ | 171,384 |  |  | $ | (281) |  |  | $ | 876 |  |  | $ | (1,000) |  |  | $ | 170,979 |

(1) Provision & transfer amounts within the table do not include the provision for unfunded commitments of $2.5 million.

Three Months Ended June 30, 2021 | Beginning Allowance |  | Charge-offs |  | Recoveries |  | Provision & Transfers (1) |  | Ending Allowance
| (In thousands)
Commercial loans |  |  |  |  |  |  |  |  |
Multi-family | $ | 17,776 |  |  | $ | — |  |  | $ | — |  |  | $ | (108) |  |  | $ | 17,668 |
Commercial real estate | 26,822 |  |  | — |  |  | 485 |  |  | (3,422) |  |  | 23,885 |
Commercial & industrial | 47,794 |  |  | (11) |  |  | 13 |  |  | (2,258) |  |  | 45,538 |
Construction | 22,549 |  |  | — |  |  | — |  |  | 2,274 |  |  | 24,823 |
Land - acquisition & development | 10,503 |  |  | — |  |  | 9 |  |  | 1,093 |  |  | 11,605 |
Total commercial loans | 125,444 |  |  | (11) |  |  | 507 |  |  | (2,421) |  |  | 123,519 |
Consumer loans |  |  |  |  |  |  |  |  |
Single-family residential | 35,108 |  |  | — |  |  | 324 |  |  | (1,242) |  |  | 34,190 |
Construction - custom | 3,248 |  |  | — |  |  | — |  |  | 274 |  |  | 3,522 |
Land - consumer lot loans | 3,292 |  |  | — |  |  | 7 |  |  | 412 |  |  | 3,711 |
HELOC | 2,226 |  |  | — |  |  | 51 |  |  | (64) |  |  | 2,213 |
Consumer | 3,335 |  |  | (36) |  |  | 289 |  |  | 41 |  |  | 3,629 |
Total consumer loans | 47,209 |  |  | (36) |  |  | 671 |  |  | (579) |  |  | 47,265 |
Total loans | $ | 172,653 |  |  | $ | (47) |  |  | $ | 1,178 |  |  | $ | (3,000) |  |  | $ | 170,784 |

(1) Provision & transfer amounts within the table do not include the provision for unfunded commitments of $1.0 million.
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Nine Months Ended June 30, 2022 | Beginning Allowance |  | Charge-offs |  | Recoveries |  | Provision & Transfers (1) |  | Ending Allowance
| (In thousands)
Commercial loans |  |  |  |  |  |  |  |  |
Multi-family | $ | 16,949 |  |  | $ | — |  |  | $ | — |  |  | $ | (4,375) |  |  | $ | 12,574 |
Commercial real estate | 23,437 |  |  | (529) |  |  | 820 |  |  | 1,572 |  |  | 25,300 |
Commercial & industrial | 45,957 |  |  | (943) |  |  | 72 |  |  | 9,838 |  |  | 54,924 |
Construction | 25,585 |  |  | — |  |  | 2,179 |  |  | (1,930) |  |  | 25,834 |
Land - acquisition & development | 13,447 |  |  | (3) |  |  | 51 |  |  | (1,268) |  |  | 12,227 |
Total commercial loans | 125,375 |  |  | (1,475) |  |  | 3,122 |  |  | 3,837 |  |  | 130,859 |
Consumer loans |  |  |  |  |  |  |  |  |
Single-family residential | 30,978 |  |  | — |  |  | 804 |  |  | (5,565) |  |  | 26,217 |
Construction - custom | 4,907 |  |  | — |  |  | — |  |  | (1,553) |  |  | 3,354 |
Land - consumer lot loans | 4,939 |  |  | (27) |  |  | 47 |  |  | 261 |  |  | 5,220 |
HELOC | 2,390 |  |  | — |  |  | 350 |  |  | (108) |  |  | 2,632 |
Consumer | 2,711 |  |  | (368) |  |  | 726 |  |  | (372) |  |  | 2,697 |
Total consumer loans | 45,925 |  |  | (395) |  |  | 1,927 |  |  | (7,337) |  |  | 40,120 |
Total loans | $ | 171,300 |  |  | $ | (1,870) |  |  | $ | 5,049 |  |  | $ | (3,500) |  |  | $ | 170,979 |

(1) Provision & transfer amounts within the table do not include the provision for unfunded commitments of $5.0 million.

Nine Months Ended June 30, 2021 | Beginning Allowance |  | Charge-offs |  | Recoveries |  | Provision & Transfers (1) |  | Ending Allowance
| (In thousands)
Commercial loans |  |  |  |  |  |  |  |  |
Multi-family | $ | 13,853 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,815 |  |  | $ | 17,668 |
Commercial real estate | 22,516 |  |  | — |  |  | 2,731 |  |  | (1,362) |  |  | 23,885 |
Commercial & industrial | 38,665 |  |  | (31) |  |  | 74 |  |  | 6,830 |  |  | 45,538 |
Construction | 24,156 |  |  | — |  |  | — |  |  | 667 |  |  | 24,823 |
Land - acquisition & development | 10,733 |  |  | — |  |  | 454 |  |  | 418 |  |  | 11,605 |
Total commercial loans | 109,923 |  |  | (31) |  |  | 3,259 |  |  | 10,368 |  |  | 123,519 |
Consumer loans |  |  |  |  |  |  |  |  |
Single-family residential | 45,186 |  |  | (106) |  |  | 1,600 |  |  | (12,490) |  |  | 34,190 |
Construction - custom | 3,555 |  |  | — |  |  | — |  |  | (33) |  |  | 3,522 |
Land - consumer lot loans | 2,729 |  |  | — |  |  | 21 |  |  | 961 |  |  | 3,711 |
HELOC | 2,571 |  |  | — |  |  | 51 |  |  | (409) |  |  | 2,213 |
Consumer | 2,991 |  |  | (270) |  |  | 805 |  |  | 103 |  |  | 3,629 |
Total consumer loans | 57,032 |  |  | (376) |  |  | 2,477 |  |  | (11,868) |  |  | 47,265 |
Total loans | $ | 166,955 |  |  | $ | (407) |  |  | $ | 5,736 |  |  | $ | (1,500) |  |  | $ | 170,784 |

(1) Provision & transfer amounts within the table do not include the provision for unfunded commitments of $2.5 million.
The Company recorded a $1,500,000 provision for credit losses for the three months ended June 30, 2022, compared to a $2,000,000 release of allowance for credit losses for the three months ended June 30, 2021. The provision in the three months ended June 30, 2022 was primarily due to growth in loans receivable and unfunded commitments partially offset by improvements in the credit quality of certain loan portfolios related to strong real estate markets and collateral conditions. The release for the three months ended June 30, 2021 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
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Company recorded a $1,500,000 provision for credit losses for the nine months ended June 30, 2022, compared with a $1,000,000 provision for credit losses for the nine months ended June 30, 2021. Recoveries, net of charge-offs, totaled $595,000 for the three months ended June 30, 2022, compared to net recoveries of $1,131,000 during the three months ended June 30, 2021. Recoveries, net of charge-offs, totaled $3,179,000 for the nine months ended June 30, 2022, compared to net recoveries of $5,329,000 during the nine months ended June 30, 2021. No allowance was recorded as of June 30, 2022 or as of September 30, 2021 for the $54,185,000 and $305,162,000 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 $50,430,000, or 0.25% of total assets, at June 30, 2022, compared to $43,625,000, or 0.22% of total assets, at September 30, 2021. Non-accrual loans were $36,679,000 at June 30, 2022, compared to $31,749,000 at September 30, 2021. Delinquencies, as a percent of total loans, were 0.26% at June 30, 2022, compared to 0.19% at September 30, 2021.
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."
The following tables provide the amortized cost of loans receivable based on risk rating categories as previously defined.

June 30, 2022 | Internally Assigned Grade |  |
| Pass |  | Special mention |  | Substandard |  | Doubtful |  | Loss |  | Total
| (In thousands, except ratio data)
Loan type |  |  |  |  |  |  |  |  |  |  |
Commercial loans |  |  |  |  |  |  |  |  |  |  |
Multi-family | $ | 2,469,022 |  |  | $ | — |  |  | $ | 9,910 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,478,932 |
Commercial real estate | 2,785,250 |  |  | — |  |  | 91,745 |  |  | — |  |  | — |  |  | 2,876,995 |
Commercial & industrial | 2,197,826 |  |  | 32,789 |  |  | 113,431 |  |  | — |  |  | — |  |  | 2,344,046 |
Construction | 1,404,955 |  |  | — |  |  | 2,256 |  |  | — |  |  | — |  |  | 1,407,211 |
Land - acquisition & development | 222,974 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 222,974 |
Total commercial loans | 9,080,027 |  |  | 32,789 |  |  | 217,342 |  |  | — |  |  | — |  |  | 9,330,158 |
Consumer loans |  |  |  |  |  |  |  |  |  |  |
Single-family residential | 5,595,898 |  |  | — |  |  | 23,550 |  |  | — |  |  | — |  |  | 5,619,448 |
Construction - custom | 367,939 |  |  | — |  |  | 900 |  |  | — |  |  | — |  |  | 368,839 |
Land - consumer lot loans | 156,864 |  |  | — |  |  | 212 |  |  | — |  |  | — |  |  | 157,076 |
HELOC | 187,378 |  |  | — |  |  | 91 |  |  | — |  |  | — |  |  | 187,469 |
Consumer | 73,142 |  |  | — |  |  | 12 |  |  | — |  |  | — |  |  | 73,154 |
Total consumer loans | 6,381,221 |  |  | — |  |  | 24,765 |  |  | — |  |  | — |  |  | 6,405,986 |
Total | $ | 15,461,248 |  |  | $ | 32,789 |  |  | $ | 242,107 |  |  | $ | — |  |  | $ | — |  |  | $ | 15,736,144 |
Total grade as a % of total loans | 98.25 | % |  | 0.21 | % |  | 1.54 | % |  | — | % |  | — | % |  |

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

September 30, 2021 | Internally Assigned Grade |  |
| Pass |  | Special mention |  | Substandard |  | Doubtful |  | Loss |  | Total
| (In thousands, except ratio data)
Loan type |  |  |  |  |  |  |  |  |  |  |
Commercial loans |  |  |  |  |  |  |  |  |  |  |
Multi-family | $ | 2,252,395 |  |  | $ | 4,874 |  |  | $ | 16,420 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,273,689 |
Commercial real estate | 2,174,386 |  |  | 57,625 |  |  | 197,321 |  |  | — |  |  | — |  |  | 2,429,332 |
Commercial & industrial | 2,108,152 |  |  | 48,124 |  |  | 147,651 |  |  | — |  |  | — |  |  | 2,303,927 |
Construction | 1,115,791 |  |  | 931 |  |  | 505 |  |  | — |  |  | — |  |  | 1,117,227 |
Land - acquisition & development | 190,076 |  |  | — |  |  | 2,340 |  |  | — |  |  | — |  |  | 192,416 |
Total commercial loans | 7,840,800 |  |  | 111,554 |  |  | 364,237 |  |  | — |  |  | — |  |  | 8,316,591 |
Consumer loans |  |  |  |  |  |  |  |  |  |  |
Single-family residential | 4,915,106 |  |  | — |  |  | 21,958 |  |  | — |  |  | — |  |  | 4,937,064 |
Construction - custom | 347,752 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 347,752 |
Land - consumer lot loans | 148,010 |  |  | — |  |  | 524 |  |  | — |  |  | — |  |  | 148,534 |
HELOC | 166,652 |  |  | — |  |  | 288 |  |  | — |  |  | — |  |  | 166,940 |
Consumer | 87,962 |  |  | — |  |  | 27 |  |  | — |  |  | — |  |  | 87,989 |
Total consumer loans | 5,665,482 |  |  | — |  |  | 22,797 |  |  | — |  |  | — |  |  | 5,688,279 |
Total loans | $ | 13,506,282 |  |  | $ | 111,554 |  |  | $ | 387,034 |  |  | $ | — |  |  | $ | — |  |  | $ | 14,004,870 |
Total grade as a % of total loans | 96.44 | % |  | 0.80 | % |  | 2.76 | % |  | — | % |  | — | % |  |

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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.

June 30, 2022 | Performing Loans |  | Non-Performing Loans
| Amount |  | % of Total Loans |  | Amount |  | % of Total Loans
| (In thousands, except ratio data)
Commercial loans |  |  |  |  |  |  |
Multi-family | $ | 2,472,988 |  |  | 99.8 | % |  | $ | 5,944 |  |  | 0.2 | %
Commercial real estate | 2,871,971 |  |  | 99.8 |  |  | 5,024 |  |  | 0.2 |
Commercial & industrial | 2,339,758 |  |  | 99.8 |  |  | 4,288 |  |  | 0.2 |
Construction | 1,407,211 |  |  | 100.0 |  |  | — |  |  | 0.0 |
Land - acquisition & development | 222,974 |  |  | 100.0 |  |  | — |  |  | — |
Total commercial loans | 9,314,902 |  |  | 99.8 |  |  | 15,256 |  |  | 0.2 |
Consumer loans |  |  |  |  |  |  |
Single-family residential | 5,599,264 |  |  | 99.6 |  |  | 20,184 |  |  | 0.4 |
Construction - custom | 367,939 |  |  | 99.8 |  |  | 900 |  |  | 0.2 |
Land - consumer lot loans | 156,863 |  |  | 99.9 |  |  | 213 |  |  | 0.1 |
HELOC | 187,378 |  |  | 100.0 |  |  | 91 |  |  | — |
Consumer | 73,119 |  |  | 100.0 |  |  | 35 |  |  | 0.0 |
Total consumer loans | 6,384,563 |  |  | 99.7 |  |  | 21,423 |  |  | 0.3 |
Total loans | $ | 15,699,465 |  |  | 99.8 | % |  | $ | 36,679 |  |  | 0.2 | %

September 30, 2021 | Performing Loans |  | Non-Performing Loans
| Amount |  | % of Total Loans |  | Amount |  | % of Total Loans
| (In thousands, except ratio data)
Commercial loans |  |  |  |  |  |  |
Multi-family | $ | 2,273,214 |  |  | 100.0 | % |  | $ | 475 |  |  | — | %
Commercial real estate | 2,421,294 |  |  | 99.7 |  |  | 8,038 |  |  | 0.3 |
Commercial & industrial | 2,303,562 |  |  | 100.0 |  |  | 365 |  |  | — |
Construction | 1,116,722 |  |  | 100.0 |  |  | 505 |  |  | — |
Land - acquisition & development | 190,076 |  |  | 98.8 |  |  | 2,340 |  |  | 1.2 |
Total commercial loans | 8,304,868 |  |  | 99.9 |  |  | 11,723 |  |  | 0.1 |
Consumer loans |  |  |  |  |  |  |
Single-family residential | 4,917,744 |  |  | 99.6 |  |  | 19,320 |  |  | 0.4 |
Construction - custom | 347,752 |  |  | 100.0 |  |  | — |  |  | — |
Land - consumer lot loans | 148,175 |  |  | 99.8 |  |  | 359 |  |  | 0.2 |
HELOC | 166,653 |  |  | 99.8 |  |  | 287 |  |  | 0.2 |
Consumer | 87,929 |  |  | 99.9 |  |  | 60 |  |  | 0.1 |
Total consumer loans | 5,668,253 |  |  | 99.6 |  |  | 20,026 |  |  | 0.4 |
Total loans | $ | 13,973,121 |  |  | 99.8 | % |  | $ | 31,749 |  |  | 0.2 | %

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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.
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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.

| June 30, 2022
| Level 1 |  | Level 2 |  | Level 3 |  | Total
| (In thousands)
Financial Assets |  |  |  |  |  |  |
Available-for-sale securities: |  |  |  |  |  |  |
U.S. government and agency securities | $ | — |  |  | $ | 45,462 |  |  | $ | — |  |  | $ | 45,462 |
Asset-backed securities | — |  |  | 838,033 |  |  | — |  |  | 838,033 |
Municipal bonds | — |  |  | 37,231 |  |  | — |  |  | 37,231 |
Corporate debt securities | — |  |  | 321,924 |  |  | — |  |  | 321,924 |
Mortgage-backed securities |  |  |  |  |  |  |
Agency pass-through certificates | — |  |  | 908,082 |  |  | — |  |  | 908,082 |
Total available-for-sale securities | — |  |  | 2,150,732 |  |  | — |  |  | 2,150,732 |
Client swap program hedges | — |  |  | 43,219 |  |  | — |  |  | 43,219 |
Commercial loan fair value hedges | — |  |  | 1,153 |  |  | — |  |  | 1,153 |
Mortgage loan fair value hedges | — |  |  | 26,415 |  |  | — |  |  | 26,415 |
Borrowings cash flow hedges | — |  |  | 136,436 |  |  | — |  |  | 136,436 |
Total financial assets | $ | — |  |  | $ | 2,357,955 |  |  | $ | — |  |  | $ | 2,357,955 |
Financial Liabilities |  |  |  |  |  |  |
Client swap program hedges | $ | — |  |  | $ | 43,219 |  |  | $ | — |  |  | $ | 43,219 |
Total financial liabilities | $ | — |  |  | $ | 43,219 |  |  | $ | — |  |  | $ | 43,219 |

| September 30, 2021
| Level 1 |  | Level 2 |  | Level 3 |  | Total
| (In thousands)
Financial Assets |  |  |  |  |  |  |
Available-for-sale securities: |  |  |  |  |  |  |
U.S. government and agency securities | $ | — |  |  | $ | 61,779 |  |  | $ | — |  |  | $ | 61,779 |
Asset-backed securities | — |  |  | 1,078,681 |  |  |  |  | 1,078,681 |
Municipal bonds | — |  |  | 39,984 |  |  | — |  |  | 39,984 |
Corporate debt securities | — |  |  | 350,988 |  |  | — |  |  | 350,988 |
Mortgage-backed securities |  |  |  |  |  |  |
Agency pass-through certificates | — |  |  | 606,827 |  |  | — |  |  | 606,827 |
Total available-for-sale securities | — |  |  | 2,138,259 |  |  | — |  |  | 2,138,259 |
Client swap program hedges | — |  |  | 10,983 |  |  | — |  |  | 10,983 |
Borrowings cash flow hedges | — |  |  | 42,442 |  |  | — |  |  | 42,442 |
Total financial assets | $ | — |  |  | $ | 2,191,684 |  |  | $ | — |  |  | $ | 2,191,684 |
Financial Liabilities |  |  |  |  |  |  |
Client swap program hedges | $ | — |  |  | $ | 10,983 |  |  | $ | — |  |  | $ | 10,983 |
Commercial loan fair value hedges | — |  |  | 2,177 |  |  | — |  |  | 2,177 |
Mortgage loan fair value hedges |  |  | 1,641 |  |  |  |  | 1,641 |
Total financial liabilities | $ | — |  |  | $ | 14,801 |  |  | $ | — |  |  | $ | 14,801 |

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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 June 30, 2022 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 June 30, 2022 and June 30, 2021, 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.

| June 30, 2022 |  | Three Months Ended June 30, 2022 |  | Nine Months Ended June 30, 2022
| Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Total Gains (Losses)
| (In thousands) |  | (In thousands)
Loans (1) | $ | — |  |  | $ | — |  |  | $ | 4,182 |  |  | $ | 4,182 |  |  | $ | (40) |  |  | $ | (1,025) |
Real estate owned (2) | — |  |  | — |  |  | 1,848 |  |  | 1,848 |  |  | 196 |  |  | (276) |
Balance at end of period | $ | — |  |  | $ | — |  |  | $ | 6,030 |  |  | $ | 6,030 |  |  | $ | 156 |  |  | $ | (1,301) |

(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.

| June 30, 2021 |  | Three Months Ended June 30, 2021 |  | Nine Months Ended June 30, 2021
| Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Total Gains (Losses)
| (In thousands) |  | (In thousands)
Loans (1) | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (19) |  |  | $ | (88) |
Real estate owned (2) | — |  |  | — |  |  | 1,542 |  |  | 1,542 |  |  | (460) |  |  | (359) |
Balance at end of period | $ | — |  |  | $ | — |  |  | $ | 1,542 |  |  | $ | 1,542 |  |  | $ | (479) |  |  | $ | (447) |

(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 June 30, 2022, there was $234,000 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 $2,313,000.
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.
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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

|  |  |  | June 30, 2022 |  | September 30, 2021
|  | Level in Fair Value Hierarchy |  | Carrying Amount |  | Estimated Fair Value |  | Carrying Amount |  | Estimated Fair Value
|  |  |  | ($ in thousands)
Financial assets |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | 1 |  | $ | 607,421 |  |  | $ | 607,421 |  |  | $ | 2,090,809 |  |  | $ | 2,090,809 |
Available-for-sale securities |  |  |  |  |  |  |  |  |  |
U.S. government and agency securities |  | 2 |  | 45,462 |  |  | 45,462 |  |  | 61,779 |  |  | 61,779 |
Asset-backed securities |  | 2 |  | 838,033 |  |  | 838,033 |  |  | 1,078,681 |  |  | 1,078,681 |
Municipal bonds |  | 2 |  | 37,231 |  |  | 37,231 |  |  | 39,984 |  |  | 39,984 |
Corporate debt securities |  | 2 |  | 321,924 |  |  | 321,924 |  |  | 350,988 |  |  | 350,988 |
Mortgage-backed securities |  |  |  |  |  |  |  |  |  |
Agency pass-through certificates |  | 2 |  | 908,082 |  |  | 908,082 |  |  | 606,827 |  |  | 606,827 |
Total available-for-sale securities |  |  |  | 2,150,732 |  |  | 2,150,732 |  |  | 2,138,259 |  |  | 2,138,259 |
Held-to-maturity securities |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities |  |  |  |  |  |  |  |  |  |
Agency pass-through certificates |  | 2 |  | 477,884 |  |  | 447,829 |  |  | 366,025 |  |  | 379,547 |
Total held-to-maturity securities |  |  |  | 477,884 |  |  | 447,829 |  |  | 366,025 |  |  | 379,547 |
Loans receivable |  | 3 |  | 15,565,165 |  |  | 15,395,375 |  |  | 13,833,570 |  |  | 14,279,725 |
FHLB and FRB stock |  | 2 |  | 78,073 |  |  | 78,073 |  |  | 102,863 |  |  | 102,863 |
Other assets - client swap program hedges |  | 2 |  | 43,219 |  |  | 43,219 |  |  | 10,983 |  |  | 10,983 |
Other assets - commercial fair value loan hedges |  | 2 |  | 1,153 |  |  | 1,153 |  |  | — |  |  | — |
Other assets - mortgage loan fair value hedges |  | 2 |  | 26,415 |  |  | 26,415 |  |  | — |  |  | — |
Other assets - borrowings cash flow hedges |  | 2 |  | 136,436 |  |  | 136,436 |  |  | 42,442 |  |  | 42,442 |
Financial liabilities |  |  |  |  |  |  |  |  |  |
Time deposits |  | 2 |  | 3,297,369 |  |  | 3,212,617 |  |  | 3,434,087 |  |  | 3,382,206 |
FHLB advances |  | 2 |  | 1,700,000 |  |  | 1,558,021 |  |  | 1,720,000 |  |  | 1,692,412 |
Other liabilities - client swap program hedges |  | 2 |  | 43,219 |  |  | 43,219 |  |  | 10,983 |  |  | 10,983 |
Other liabilities - commercial loan fair value hedges |  | 2 |  | — |  |  | — |  |  | 2,177 |  |  | 2,177 |
Other liabilities - mortgage loan fair value hedges |  | 2 |  | — |  |  | — |  |  | 1,641 |  |  | 1,641 |

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
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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 and FRB 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.
FHLB advances – The fair value of FHLB advances 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.

| June 30, 2022
| Amortized Cost |  | Gross Unrealized |  | Fair Value |  | Yield
| Gains |  | Losses |
| ($ in thousands)
Available-for-sale securities |  |  |  |  |  |  |  |  |
U.S. government and agency securities due |  |  |  |  |  |  |  |  |
1 to 5 years | $ | 46,584 |  |  | $ | — |  |  | $ | (1,122) |  |  | $ | 45,462 |  |  | 1.87 | %
Asset-backed securities |  |  |  |  |  |  |  |  |
1 to 5 years | 23,396 |  |  | — |  |  | (1,066) |  |  | 22,330 |  |  | 2.00 |
5 to 10 years | 94,022 |  |  | 61 |  |  | (376) |  |  | 93,707 |  |  | 2.01 |
Over 10 years | 731,942 |  |  | 780 |  |  | (10,726) |  |  | 721,996 |  |  | 2.35 |
Corporate debt securities due |  |  |  |  |  |  |  |  |
Within 1 year | 75,000 |  |  | 83 |  |  | — |  |  | 75,083 |  |  | 2.44 |
1 to 5 years | 151,290 |  |  | 77 |  |  | (1,667) |  |  | 149,700 |  |  | 2.68 |
5 to 10 years | 114,712 |  |  | — |  |  | (17,571) |  |  | 97,141 |  |  | 3.87 |
Municipal bonds due |  |  |  |  |  |  |  |  |
Within 1 year | 1,515 |  |  | — |  |  | — |  |  | 1,515 |  |  | — |
5 to 10 years | 5,758 |  |  | — |  |  | (246) |  |  | 5,512 |  |  | 0.16 |
Over 10 years | 29,880 |  |  | 756 |  |  | (432) |  |  | 30,204 |  |  | 5.85 |
Mortgage-backed securities |  |  |  |  |  |  |  |  |
Agency pass-through certificates | 942,552 |  |  | 855 |  |  | (35,325) |  |  | 908,082 |  |  | 2.60 |
| 2,216,651 |  |  | 2,612 |  |  | (68,531) |  |  | 2,150,732 |  |  | 2.49 |
Held-to-maturity securities |  |  |  |  |  |  |  |  |
Mortgage-backed securities |  |  |  |  |  |  |  |  |
Agency pass-through certificates | 477,884 |  |  | 115 |  |  | (30,170) |  |  | 447,829 |  |  | 2.89 |
| 477,884 |  |  | 115 |  |  | (30,170) |  |  | 447,829 |  |  | 2.89 |
| $ | 2,694,535 |  |  | $ | 2,727 |  |  | $ | (98,701) |  |  | $ | 2,598,561 |  |  | 2.63 | %

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

| September 30, 2021
| Amortized Cost |  | Gross Unrealized |  | Fair Value |  | Yield
| Gains | Losses |
| ($ in thousands)
Available-for-sale securities |  |  |  |  |  |  |  |  |
U.S. government and agency securities due |  |  |  |  |  |  |  |  |
1 to 5 years | $ | 47,339 |  |  | $ | 240 |  |  | $ | — |  |  | $ | 47,579 |  |  | 0.44 | %
5 to 10 years | 14,064 |  |  | 136 |  |  | — |  |  | 14,200 |  |  | 2.05 |
Asset-backed securities |  |  |  |  |  |  |  |  |
1 to 5 years | 19,730 |  |  | — |  |  | (434) |  |  | 19,296 |  |  | 0.52 |
5 to 10 years | 71,207 |  |  | 412 |  |  | (97) |  |  | 71,522 |  |  | 0.57 |
Over 10 years | 973,892 |  |  | 14,069 |  |  | (98) |  |  | 987,863 |  |  | 0.94 |
Corporate debt securities due |  |  |  |  |  |  |  |  |
Within 1 year | 225,928 |  |  | 7,860 |  |  | — |  |  | 233,788 |  |  | 1.57 |
1 to 5 years | 86,802 |  |  | 1,345 |  |  | — |  |  | 88,147 |  |  | 4.64 |
5 to 10 years | 28,804 |  |  | 249 |  |  | — |  |  | 29,053 |  |  | 1.95 |
Municipal bonds due |  |  |  |  |  |  |  |  |
Within 1 year | 1,493 |  |  | 17 |  |  | — |  |  | 1,510 |  |  | — |
5 to 10 years | 5,781 |  |  | 294 |  |  | — |  |  | 6,075 |  |  | 0.22 |
Over 10 years | 29,909 |  |  | 2,490 |  |  | — |  |  | 32,399 |  |  | 5.85 |
Mortgage-backed securities |  |  |  |  |  |  |  |  |
Agency pass-through certificates | 585,121 |  |  | 23,717 |  |  | (2,011) |  |  | 606,827 |  |  | 2.60 |
| 2,090,070 |  |  | 50,829 |  |  | (2,640) |  |  | 2,138,259 |  |  | 1.69 |
Held-to-maturity securities |  |  |  |  |  |  |  |  |
Mortgage-backed securities |  |  |  |  |  |  |  |  |
Agency pass-through certificates | 366,025 |  |  | 13,522 |  |  | — |  |  | 379,547 |  |  | 3.17 |
| 366,025 |  |  | 13,522 |  |  | — |  |  | 379,547 |  |  | 3.17 |
| $ | 2,456,095 |  |  | $ | 64,351 |  |  | $ | (2,640) |  |  | $ | 2,517,806 |  |  | 1.89 | %

For available-for-sale investment securities, there were purchases of $516,163,000 during the nine months ended June 30, 2022 and purchases of $528,937,000 during the nine months ended June 30, 2021. There were $4,510,000 of sales of available-for-sale investment securities during the nine months ended June 30, 2022 and no sales during the prior year same period. For held-to-maturity investment securities, there were purchases of $195,358,000 during the nine months ended June 30, 2022 and no purchases during the nine months ended June 30, 2021. There were no sales of held-to-maturity investment securities during the nine months ended June 30, 2022 or June 30, 2021. 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 $5,579,000 and $3,458,000 as of June 30, 2022 and September 30, 2021, respectively. For HTM debt securities, AIR totaled $1,143,000 and $944,000 as of June 30, 2022 and September 30, 2021, 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 June 30, 2022 and September 30, 2021, by length of time that individual securities in each category have been in a continuous loss position. There were 149 and 31 securities with an unrealized loss as of June 30, 2022 and September 30, 2021, 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
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.

June 30, 2022 | Less than 12 months |  | 12 months or more |  | Total
| Unrealized Gross Losses |  | Fair Value |  | Unrealized Gross Losses |  | Fair Value |  | Unrealized Gross Losses |  | Fair Value
| (In thousands) |  |
Available-for-sale securities |  |  |  |  |  |  |  |  |  |  |
Corporate debt securities | $ | (19,238) |  |  | $ | 226,780 |  |  | $ | — |  |  | $ | — |  |  | $ | (19,238) |  |  | $ | 226,780 |
Municipal bonds | (679) |  |  | 14,960 |  |  | — |  |  | — |  |  | (679) |  |  | 14,960 |
U.S. government and agency securities | (1,122) |  |  | 45,462 |  |  | — |  |  | — |  |  | (1,122) |  |  | 45,462 |
Asset-backed securities | (10,232) |  |  | 651,065 |  |  | (1,935) |  |  | 77,426 |  |  | (12,167) |  |  | 728,491 |
Mortgage-backed securities | (29,207) |  |  | 781,357 |  |  | (6,118) |  |  | 57,878 |  |  | (35,325) |  |  | 839,235 |
| (60,478) |  |  | 1,719,624 |  |  | (8,053) |  |  | 135,304 |  |  | (68,531) |  |  | 1,854,928 |
Held-to-maturity securities |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities | (30,170) |  |  | 445,576 |  |  | — |  |  | — |  |  | (30,170) |  |  | 445,576 |
| $ | (90,648) |  |  | $ | 2,165,200 |  |  | $ | (8,053) |  |  | $ | 135,304 |  |  | $ | (98,701) |  |  | $ | 2,300,504 |

September 30, 2021 | Less than 12 months |  | 12 months or more |  | Total
| Unrealized Gross Losses |  | Fair Value |  | Unrealized Gross Losses |  | Fair Value |  | Unrealized Gross Losses |  | Fair Value
| (In thousands) |  |
Available-for-sale securities |  |  |  |  |  |  |  |  |  |  |
Asset-backed securities | $ | (15) |  |  | $ | 4,639 |  |  | $ | (614) |  |  | $ | 70,058 |  |  | $ | (629) |  |  | $ | 74,697 |
Mortgage-backed securities | (1,569) |  |  | 47,758 |  |  | (442) |  |  | 32,266 |  |  | (2,011) |  |  | 80,024 |
| (1,584) |  |  | 52,397 |  |  | (1,056) |  |  | 102,324 |  |  | (2,640) |  |  | 154,721 |
Held-to-maturity securities |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
| $ | (1,584) |  |  | $ | 52,397 |  |  | $ | (1,056) |  |  | $ | 102,324 |  |  | $ | (2,640) |  |  | $ | 154,721 |

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 June 30, 2022 or September 30, 2021.
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 June 30, 2022 or September 30, 2021. 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 (rated AA or higher) 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.
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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 June 30, 2022 and September 30, 2021.

June 30, 2022 | Derivative Assets |  | Derivative Liabilities
Interest rate contract purpose | Balance Sheet Location | Notional | Fair Value |  | Balance Sheet Location | Notional | Fair Value
| (In thousands) |  | (In thousands)
Client swap program hedges | Other assets | $ | 565,380 |  | $ | 43,219 |  |  | Other liabilities | $ | 565,380 |  | $ | 43,219 |
Commercial loan fair value hedges | Other assets | 42,209 |  | 1,153 |  |  | Other liabilities | — |  | — |
Mortgage loan fair value hedges | Other assets | 470,000 |  | 26,415 |  |  | Other liabilities | — |  | — |
Borrowings cash flow hedges | Other assets | 1,000,000 |  | 136,436 |  |  | Other liabilities | — |  | — |
|  | $ | 2,077,589 |  | $ | 207,223 |  |  |  | $ | 565,380 |  | $ | 43,219 |

September 30, 2021 | Derivative Assets |  | Derivative Liabilities
Interest rate contract purpose | Balance Sheet Location | Notional | Fair Value |  | Balance Sheet Location | Notional | Fair Value
| (In thousands) |  | (In thousands)
Client swap program hedges | Other assets | $ | 644,355 |  | $ | 10,983 |  |  | Other liabilities | $ | 644,355 |  | $ | 10,983 |
Commercial loan fair value hedges | Other assets | — |  | — |  |  | Other liabilities | 44,678 |  | 2,177 |
Mortgage loan fair value hedges | Other assets | — |  | — |  |  | Other liabilities | 470,000 |  | 1,641 |
Borrowings cash flow hedges | Other assets | 1,000,000 |  | 42,442 |  |  | Other liabilities | — |  | — |
|  | $ | 1,644,355 |  | $ | 53,425 |  |  |  | $ | 1,159,033 |  | $ | 14,801 |

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 June 30, 2022 and September 30, 2021.

(In thousands) | June 30, 2022
Balance sheet line item in which hedged item is recorded | Carrying value of hedged items | Cumulative gain (loss) fair value hedge adjustment included in carrying amount of hedged items
Loans receivable (1) (2) | $ | 1,210,272 |  | $ | (27,410) |
| $ | 1,210,272 |  | $ | (27,410) |

(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 June 30, 2022, the amortized cost basis of the closed loan portfolios used in the hedging relationships was $1.2 billion, the cumulative basis adjustment associated with the hedging relationships was $(26.2) million, and the amount of the designated hedged items was $470 million. During the year ended September 30, 2021, hedge accounting was discontinued on $30 million (30%) of a $100
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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
million last of layer hedge. At June 30, 2022, there is $1.0 million of remaining unamortized basis adjustment associated with the terminated portion of the hedge and it will be recognized over the remaining life of the associated pool of loans.
(2) Includes the amortized cost basis of commercial loans designated in fair value hedging relationships. At June 30, 2022, the amortized cost basis of the hedged commercial loans was $41 million and the cumulative basis adjustment associated with the hedging relationships was $(1.2) million.

(In thousands) | September 30, 2021
Balance sheet line item in which hedged item is recorded | Carrying value of hedged items | Cumulative gain (loss) fair value hedge adjustment included in carrying amount of hedged items
Loans receivable (1) (2) | $ | 1,515,487 |  | $ | 4,215 |
| $ | 1,515,487 |  | $ | 4,215 |

(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, 2021, the amortized cost basis of the closed loan portfolios used in the hedging relationships was $1.5 billion, the cumulative basis adjustment associated with the hedging relationships was $1.9 million, and the amount of the designated hedged items was $470 million. During the year ended September 30, 2021, hedge accounting was discontinued on $30 million (30%) of a $100 million last of layer hedge.
(2) Includes the amortized cost basis of commercial loans designated in fair value hedging relationships. At September 30, 2021, the amortized cost basis of the hedged commercial loans was $47 million and the cumulative basis adjustment associated with the hedging relationships was $2.4 million. During the year ended September 30, 2021, hedge accounting was discontinued on a $46 million commercial loan hedge.
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. During the nine months ended June 30, 2021, $400,000,000 of cash flow hedges with an average effective rate of 2.15% were terminated and the associated FHLB borrowings were repaid at their 90-day call date. Additionally, a $200,000,000 partial termination of a cash flow hedge with an average effective rate of 0.79% was executed with the associated FHLB borrowing being repaid and a $14,110,000 gain recorded on the swap. Lastly, a $150,000,000 FHLB borrowing (unhedged) with a rate of 2.91% was repaid prior to maturity. As of June 30, 2022, the maturities for hedges of adjustable rate borrowings ranged from two years to eight years, with the weighted average being 6.8 years.
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following tables present the gain (loss) recognized in AOCI on derivative instruments related to cash flow hedges on borrowings for the periods presented, as well as the effect of reclassification adjustments.

(In thousands) | Three Months Ended June 30,
Amounts recognized in AOCI | 2022 | 2021
Interest rate contracts: |  |
Pay fixed/receive floating swaps on borrowings cash flow hedges | $ | 31,225 |  | $ | (23,485) |
Reclassification adjustment of net (gain)/loss included in net income | — |  | — |
Total pre-tax gain/(loss) recognized in AOCI | $ | 31,225 |  | $ | (23,485) |

(In thousands) | Nine Months Ended June 30,
Amounts recognized in AOCI | 2022 | 2021
Interest rate contracts: |  |
Pay fixed/receive floating swaps on borrowings cash flow hedges | $ | 93,994 |  | $ | 67,198 |
Reclassification adjustment of net (gain)/loss included in net income | — |  | (14,110) |
Total pre-tax gain/(loss) recognized in AOCI | $ | 93,994 |  | $ | 53,088 |

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.

| Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021
| Interest income on loans receivable | Interest expense on FHLB advances | Interest income on loans receivable | Interest expense on FHLB advances
| (In thousands) | (In thousands)
Interest income/(expense), including the effects of fair value and cash flow hedges | $ | 149,113 |  | $ | (6,118) |  | $ | 134,193 |  | $ | (9,937) |
Gain/(loss) on fair value hedging relationships: |  |  |  |
Interest rate contracts |  |  |  |
Amounts related to interest settlements on derivatives | $ | (394) |  |  | $ | (1,582) |  |
Recognized on derivatives | 8,325 |  |  | (6,262) |  |
Recognized on hedged items | (8,564) |  |  | 6,292 |  |
Net income/(expense) recognized on fair value hedges | $ | (633) |  |  | $ | (1,552) |  |
Gain/(loss) on cash flow hedging relationships: |  |  |  |
Interest rate contracts |  |  |  |
Amounts related to interest settlements on derivatives |  | $ | 21 |  |  | $ | 2,182 |
Amount of derivative gain/(loss) reclassified from AOCI into interest income/expense |  | — |  |  | — |
Net income/(expense) recognized on cash flow hedges |  | $ | 21 |  |  | $ | 2,182 |

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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

| Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021
| Interest income on loans receivable | Interest expense on FHLB advances | Interest income on loans receivable | Interest expense on FHLB advances
| (In thousands) | (In thousands)
Interest income/(expense), including the effects of fair value and cash flow hedges | $ | 426,882 |  | $ | (21,486) |  | $ | 400,621 |  | $ | (35,126) |
Gain/(loss) on fair value hedging relationships: |  |  |  |
Interest rate contracts |  |  |  |
Amounts related to interest settlements on derivatives | $ | (2,964) |  |  | $ | (4,686) |  |
Recognized on derivatives | 31,386 |  |  | 15,816 |  |
Recognized on hedged items | (31,625) |  |  | (15,541) |  |
Net income/(expense) recognized on fair value hedges | $ | (3,203) |  |  | $ | (4,411) |  |
Gain/(loss) on cash flow hedging relationships: |  |  |  |
Interest rate contracts |  |  |  |
Amounts related to interest settlements on derivatives |  | $ | 3,757 |  |  | $ | 8,846 |
Amount of derivative gain/(loss) reclassified from AOCI into interest income/expense |  | — |  |  | 14,110 |
Net income/(expense) recognized on cash flow hedges |  | $ | 3,757 |  |  | $ | 22,956 |

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, with changes in fair value recorded in earnings. There was no net impact to the statement of operations for the nine months ended June 30, 2022 and 2021 as the changes in fair value of the receive fixed swap and pay fixed swap offset each other.
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 June 30,
Derivative instruments | Classification of gain/(loss) recognized in income on derivative instrument | 2022 | 2021
Interest rate contracts: |  |  |
Pay fixed/receive floating swap | Other noninterest income | $ | 15,865 |  | $ | 10,814 |
Receive fixed/pay floating swap | Other noninterest income | (15,865) |  | (10,814) |
|  | $ | — |  | $ | — |

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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(In thousands) |  | Nine Months Ended June 30,
Derivative instruments | Classification of gain/(loss) recognized in income on derivative instrument | 2022 | 2021
Interest rate contracts: |  |  |
Pay fixed/receive floating swap | Other noninterest income | $ | 54,202 |  | $ | 64,119 |
Receive fixed/pay floating swap | Other noninterest income | (54,202) |  | (64,119) |
|  | $ | — |  | $ | — |

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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 5.9% of our total revenues for the nine months ended June 30, 2022, compared to 5.9% for the nine months ended June 30, 2021. 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 2022 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 $4,973,336,000 and $3,804,444,000 at June 30, 2022 and September 30, 2021, respectively. The reserve was $32,500,000 as of June 30, 2022, which is an increase from $27,500,000 at September 30, 2021. 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.
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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. Many forward-looking statements can be identified using words such as “expects,” “anticipates,” “believes,” “estimates,” “intends,” “forecasts,” “projects,” "potentially," and other similar expressions or future or conditional verbs such as "may," “will,” “should,” “would” and “could” are intended to help identify such forward-looking statements. These statements are not historical or current 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 Risk Factors discussed in Item 1A of this report, 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:
•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;
•high unemployment rates, inflationary pressures and the impact of inflation on the Company's business and financial results;
•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 cybersecurity incidents and threat actors, including increased risks due to COVID-19 and the remote work environment;
•risks related to the impacts of climate change;
•the effects of a severe economic downturn, including high unemployment rates and declines in housing prices and property values, in our primary market areas;
•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;
•fluctuations in interest rate risk and changes in market interest rates, including risk related to LIBOR reform, risk of negative rates or an inverted yield curve and the effect on our net interest income and net interest margin;
•the Company's ability to make accurate assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of its borrowers and the value of the assets securing these loans;
•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;
•the ability of the Company to obtain external financing to fund its operations or obtain this financing on favorable terms;
•unanticipated effects and expenses related to the completed charter conversion of the Bank from a federal to a state charter; and
•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;
•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;
•changes in other economic, competitive, governmental, regulatory and technological factors affecting the Company's markets, operations, pricing, products, services and fees;
•the success of the Company at managing the risks involved in the foregoing and managing its business; and
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
•the timing and occurrence or non-occurrence of events that may be subject to circumstances beyond the Company's control.
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 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 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. As described in the Current Report on Form 8-K filed with the SEC on February 4, 2022, 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.
The Company's fiscal year end is September 30 th. All references to 2021 represent balances as of September 30, 2021 or activity for the fiscal year then ended.
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 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on November 19, 2021.
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 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on November 19, 2021.
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 79% of total deposits as of June 30, 2022 while the composition of the investment securities portfolio is 41% variable and 59% 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 $477,884,000 of mortgage-backed securities that it has designated as held-to-maturity and are carried at amortized cost. As of June 30, 2022, the net unrealized loss on these securities was $30,055,000. The Company has $2,150,732,000 of available-for-sale securities that are carried at fair value. As of June 30, 2022, the net unrealized loss on these securities was $65,919,000. 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 June 30, 2022 was $136,436,000. 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.
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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 June 30, 2022, 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 3.9% in the next year. This compares to an estimated increase of 9.7% as of the September 30, 2021 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 and lower cash balances that immediately reprice to reflect the 200 basis point increase in interest rates. 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 increase of 0.9% in the first year and increase of 2.9% in the second year assuming a constant balance sheet and no management intervention.
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 June 30, 2022, in the event of an immediate and parallel increase of 200 basis points in interest rates, the NPV is estimated to decrease by $592,366,000 or 21.1% and the NPV to total assets ratio to decline to 12.1% from a base of 14.3%. As of September 30, 2021, the NPV in the event of a 200 basis point increase in rates was estimated to decrease by $207,000,000 or 6.8% and the NPV to total assets ratio to decline to 15.2% from a base of 15.5%. 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 June 30, 2022.
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 3.07% at June 30, 2022 and 2.45% at September 30, 2021. As of June 30, 2022, the weighted average period-end rate on interest-earning assets increased by 70 basis points to 3.50% compared to 2.80% at September 30, 2021, while the weighted average period-end rate on interest-bearing liabilities increased by 8 basis point to 0.43% from 0.35%. The period-end interest rate spread increased to 3.07% at June 30, 2022 from 2.31% at June 30, 2021.
Net Interest Margin - Net interest margin is measured as net interest income divided by average earning assets for the period. Net interest margin was 3.22% for the quarter ended June 30, 2022 compared to 2.82% for the quarter ended June 30, 2021. The yield on interest-earning assets increased 30 basis points to 3.55% and the cost of interest-bearing liabilities decreased 12 basis points to 0.42% 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. Amortization of net loan origination fees on PPP loans declined to $936,000 during the quarter ended June 30, 2022 compared to $6,122,000 in the prior year quarter. The lower rate in interest-bearing liabilities was primarily due to replacing high-yielding, long-term FHLB borrowings with new borrowings at lower rates.
The following table sets forth the information explaining the changes in the net interest margin for the period indicated compared to the same period one year ago.
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| Three Months Ended June 30, 2022 |  | Three Months Ended June 30, 2021
| Average Balance |  | Interest |  | Average Rate |  | Average Balance |  | Interest |  | Average Rate
| ($ in thousands) |  | ($ in thousands)
Assets |  |  |  |  |  |  |  |  |  |  |
Loans receivable | $ | 15,350,905 |  |  | $ | 149,113 |  |  | 3.90 | % |  | $ | 13,330,611 |  |  | $ | 134,193 |  |  | 4.04 | %
Mortgage-backed securities | 1,416,212 |  |  | 8,618 |  |  | 2.44 |  |  | 1,179,767 |  |  | 5,488 |  |  | 1.87 |
Cash & Investments | 2,056,387 |  |  | 8,281 |  |  | 1.62 |  |  | 3,593,905 |  |  | 6,113 |  |  | 0.68 |
FHLB & FRB stock | 78,305 |  |  | 1,136 |  |  | 5.82 |  |  | 113,770 |  |  | 1,654 |  |  | 5.83 |
Total interest-earning assets | 18,901,809 |  |  | 167,148 |  |  | 3.55 | % |  | 18,218,053 |  |  | 147,448 |  |  | 3.25 | %
Other assets | 1,383,146 |  |  |  |  |  |  | 1,278,879 |  |  |  |  |
Total assets | $ | 20,284,955 |  |  |  |  |  |  | $ | 19,496,932 |  |  |  |  |
Liabilities and Equity |  |  |  |  |  |  |  |  |  |  |
Interest-bearing customer accounts | $ | 12,852,849 |  |  | $ | 9,284 |  |  | 0.29 | % |  | $ | 12,080,339 |  |  | $ | 8,906 |  |  | 0.30 | %
FHLB advances | 1,705,824 |  |  | 6,118 |  |  | 1.44 |  |  | 1,993,956 |  |  | 9,937 |  |  | 2.00 |
Other borrowings | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total interest-bearing liabilities | 14,558,673 |  |  | 15,402 |  |  | 0.42 | % |  | 14,074,295 |  |  | 18,843 |  |  | 0.54 | %
Noninterest-bearing customer accounts | 3,278,346 |  |  |  |  |  |  | 2,890,917 |  |  |  |  |
Other liabilities | 238,842 |  |  |  |  |  |  | 220,805 |  |  |  |  |
Total liabilities | 18,075,861 |  |  |  |  |  |  | 17,186,017 |  |  |  |  |
Shareholders' equity | 2,209,094 |  |  |  |  |  |  | 2,310,915 |  |  |  |  |
Total liabilities and equity | $ | 20,284,955 |  |  |  |  |  |  | $ | 19,496,932 |  |  |  |  |
Net interest income/interest rate spread |  |  | $ | 151,746 |  |  | 3.12 | % |  |  |  | $ | 128,605 |  |  | 2.71 | %
Net interest margin (NIM) |  |  |  |  | 3.22 | % |  |  |  |  |  | 2.82 | %

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| Nine Months Ended June 30, 2022 |  | Nine Months Ended June 30, 2021
| Average Balance |  | Interest |  | Average Rate |  | Average Balance |  | Interest |  | Average Rate
| ($ in thousands) |  | ($ in thousands)
Assets |  |  |  |  |  |  |  |  |  |  |
Loans receivable | $ | 14,837,421 |  |  | $ | 426,882 |  |  | 3.85 | % |  | $ | 12,999,227 |  |  | $ | 400,621 |  |  | 4.12 | %
Mortgage-backed securities | 1,064,725 |  |  | 18,069 |  |  | 2.27 |  |  | 1,374,710 |  |  | 19,414 |  |  | 1.89 |
Cash & Investments | 2,783,617 |  |  | 19,821 |  |  | 0.95 |  |  | 3,431,104 |  |  | 17,097 |  |  | 0.67 |
FHLB & FRB stock | 90,107 |  |  | 3,654 |  |  | 5.42 |  |  | 128,371 |  |  | 4,892 |  |  | 5.10 |
Total interest-earning assets | 18,775,870 |  |  | 468,426 |  |  | 3.34 | % |  | 17,933,412 |  |  | 442,024 |  |  | 3.30 | %
Other assets | 1,313,366 |  |  |  |  |  |  | 1,279,851 |  |  |  |  |
Total assets | $ | 20,089,236 |  |  |  |  |  |  | $ | 19,213,263 |  |  |  |  |
Liabilities and Equity |  |  |  |  |  |  |  |  |  |  |
Interest-bearing customer accounts | $ | 12,754,118 |  |  | $ | 25,970 |  |  | 0.27 | % |  | $ | 11,838,145 |  |  | $ | 33,745 |  |  | 0.38 | %
FHLB advances | 1,715,275 |  |  | 21,486 |  |  | 1.67 |  |  | 2,359,341 |  |  | 35,126 |  |  | 1.99 |
Other borrowings | — |  |  | — |  |  | — |  |  | 15 |  |  | — |  |  | 0.69 |
Total interest-bearing liabilities | 14,469,393 |  |  | 47,456 |  |  | 0.44 | % |  | 14,197,501 |  |  | 68,871 |  |  | 0.65 | %
Noninterest-bearing customer accounts | 3,221,504 |  |  |  |  |  |  | 2,575,191 |  |  |  |  |
Other liabilities | 225,736 |  |  |  |  |  |  | 248,384 |  |  |  |  |
Total liabilities | 17,916,633 |  |  |  |  |  |  | 17,021,076 |  |  |  |  |
Shareholders' equity | 2,172,603 |  |  |  |  |  |  | 2,192,187 |  |  |  |  |
Total liabilities and equity | $ | 20,089,236 |  |  |  |  |  |  | $ | 19,213,263 |  |  |  |  |
Net interest income/interest rate spread |  |  | $ | 420,970 |  |  | 2.90 | % |  |  |  | $ | 373,153 |  |  | 2.65 | %
Net interest margin (NIM) |  |  |  |  | 3.00 | % |  |  |  |  |  | 2.77 | %

As of June 30, 2022, total assets had increased by $508,257,000 to $20,158,831,000 from $19,650,574,000 at September 30, 2021. During the nine months ended June 30, 2022, loans receivable increased $1,731,595,000 while cash and cash equivalents decreased by $1,483,388,000 and investment securities increased by $124,332,000. Growth in loans receivable was partially funded by continued growth in customer deposits as well as the decline in cash.
Cash and cash equivalents of $607,421,000 and shareholders’ equity of $2,220,111,000 as of June 30, 2022 provide management with flexibility in managing interest rate risk going forward.
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.
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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 if needed.
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.
Strong growth in customer deposit accounts has been a substantial source for funding increases in the loan portfolio. Customer accounts increased $423,508,000, or 2.7%, to $15,965,620,000 at June 30, 2022 compared with $15,542,112,000 at September 30, 2021. Total FHLB borrowings totaled $1,700,000,000 as of June 30, 2022, a decrease from $1,720,000,000 at September 30, 2021.
The Company's cash and cash equivalents totaled $607,421,000 at June 30, 2022, a decrease from $2,090,809,000 at September 30, 2021. These amounts include the Bank's operating cash.
The Company’s shareholders' equity at June 30, 2022 was $2,220,111,000, or 11.01% of total assets. This is an increase of $94,047,000 from September 30, 2021 when shareholders' equity was $2,126,064,000, or 10.82% of total assets. The Company’s shareholders' equity was impacted in the nine months ended June 30, 2022 by net income of $162,935,000, the payment of $46,015,000 in common stock dividends, payment of $10,968,000 in preferred stock dividends, treasury stock purchases of $3,212,000, as well as other comprehensive loss of $15,558,000. The ratio of tangible capital to tangible assets at June 30, 2022 was 9.63%. 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.
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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.

| Actual |  | Minimum Capital Adequacy Guidelines |  | Minimum Well-Capitalized Guidelines
($ in thousands) | Capital |  | Ratio |  | Ratio |  | Ratio
June 30, 2022 |  |  |  |  |  |  |
Common Equity Tier I risk-based capital ratio: |  |  |  |  |  |  |
The Company | $ | 1,556,947 |  |  | 9.81 | % |  | 4.50 | % |  | NA
The Bank | 1,760,344 |  |  | 11.08 | % |  | 4.50 | % |  | 6.50 | %
Tier I risk-based capital ratio: |  |  |  |  |  |  |
The Company | 1,856,947 |  |  | 11.70 | % |  | 6.00 | % |  | NA
The Bank | 1,760,344 |  |  | 11.08 | % |  | 6.00 | % |  | 8.00 | %
Total risk-based capital ratio: |  |  |  |  |  |  |
The Company | 2,055,468 |  |  | 12.95 | % |  | 8.00 | % |  | NA
The Bank | 1,958,937 |  |  | 12.33 | % |  | 8.00 | % |  | 10.00 | %
Tier 1 Leverage ratio: |  |  |  |  |  |  |
The Company | 1,856,947 |  |  | 9.35 | % |  | 4.00 | % |  | NA
The Bank | 1,760,344 |  |  | 8.86 | % |  | 4.00 | % |  | 5.00 | %
September 30, 2021 |  |  |  |  |  |  |
Common Equity Tier 1 risk-based capital ratio: |  |  |  |  |  |  |
The Company | $ | 1,446,613 |  |  | 9.50 | % |  | 4.50 | % |  | NA
The Bank | 1,717,014 |  |  | 11.28 | % |  | 4.50 | % |  | 6.50 | %
Tier I risk-based capital ratio: |  |  |  |  |  |  |
The Company | 1,746,613 |  |  | 11.47 | % |  | 6.00 | % |  | NA
The Bank | 1,717,014 |  |  | 11.28 | % |  | 6.00 | % |  | 8.00 | %
Total risk-based capital ratio: |  |  |  |  |  |  |
The Company | 1,937,036 |  |  | 12.72 | % |  | 8.00 | % |  | NA
The Bank | 1,907,408 |  |  | 12.53 | % |  | 8.00 | % |  | 10.00 | %
Tier 1 Leverage ratio: |  |  |  |  |  |  |
The Company | 1,746,613 |  |  | 9.07 | % |  | 4.00 | % |  | NA
The Bank | 1,717,014 |  |  | 8.92 | % |  | 4.00 | % |  | 5.00 | %

CHANGES IN FINANCIAL CONDITION
Cash and cash equivalents - Cash and cash equivalents were $607,421,000 at June 30, 2022, a decrease of $1,483,388,000, or 70.9%, since September 30, 2021. The change is primarily due to funding of new loan originations, partially offset by growth in customer transaction deposit accounts.
Available-for-sale and held-to-maturity investment securities - Available-for-sale securities increased $12,473,000, or 0.6%, during the nine months ended June 30, 2022, mostly due to purchases of $516,163,000, partially offset by principal repayments and maturities of $384,111,000 and an unrealized loss of $87,859,000. During the same period, the balance of held-to-maturity securities increased by $111,859,000 due primarily to purchases of $195,358,000, partially offset by principal pay-downs and maturities of $81,497,000. As of June 30, 2022, the Company had a net unrealized loss on available-for-sale securities of $65,919,000, which is included on a net of tax basis in accumulated other comprehensive income (loss).
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The majority of the Company’s held-to-maturity and available-for-sale debt securities are issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. The Company did not record an allowance for credit losses for held-to-maturity securities as of June 30, 2022 or September 30, 2021 as the investment portfolio consists primarily of U.S. government agency mortgage-backed securities that management deems to have immaterial risk of loss. The impact going forward will depend on the composition, characteristics, and credit quality of the loan and securities portfolios as well as the economic conditions at future reporting periods. The Company does not believe that any of its available-for-sale debt securities had credit loss impairment as of June 30, 2022 or September 30, 2021, therefore, no allowance was recorded.
Loans receivable - Loans receivable, net of related contra accounts, increased by $1,731,595,000 to $15,565,165,000 at June 30, 2022, compared to $13,833,570,000 at September 30, 2021. The increase was primarily the net result of originations of $7,104,309,000, purchases of single-family residential mortgages of $576,697,000, partially offset by loan principal repayments of $5,068,452,000 as well as a $850,737,000 increase in loans in process. Commercial loan originations accounted for 78% of total originations and consumer loan originations were 22% during the period. The mix of loan originations is consistent with management's strategy during low rate environments to produce more construction, multifamily, commercial real estate, 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.

| June 30, 2022 |  | September 30, 2021 |  | Change
| ($ in thousands) |  | ($ in thousands) |  | $ | %
Commercial loans |  |  |  |  |  |  |  |
Multi-family | $ | 2,494,594 |  | 13.2 | % |  | $ | 2,291,477 |  | 14.0 | % |  | $ | 203,117 |  | 8.9 | %
Commercial real estate | 2,899,057 |  | 15.3 |  |  | 2,443,845 |  | 15.0 |  |  | 455,212 |  | 18.6 |
Commercial & industrial (1) | 2,351,030 |  | 12.4 |  |  | 2,314,654 |  | 14.2 |  |  | 36,376 |  | 1.6 |
Construction | 3,896,740 |  | 20.6 |  |  | 2,888,214 |  | 17.7 |  |  | 1,008,526 |  | 34.9 |
Land - acquisition & development | 245,233 |  | 1.3 |  |  | 222,457 |  | 1.4 |  |  | 22,776 |  | 10.2 |
Total commercial loans | 11,886,654 |  | 62.9 |  |  | 10,160,647 |  | 62.3 |  |  | 1,726,007 |  | 17.0 |
Consumer loans |  |  |  |  |  |  |  |
Single-family residential | 5,652,897 |  | 29.9 |  |  | 4,951,627 |  | 30.4 |  |  | 701,270 |  | 14.2 |
Construction - custom | 943,858 |  | 5.0 |  |  | 783,221 |  | 4.8 |  |  | 160,637 |  | 20.5 |
Land - consumer lot loans | 158,485 |  | 0.8 |  |  | 149,956 |  | 0.9 |  |  | 8,529 |  | 5.7 |
HELOC | 185,427 |  | 1.0 |  |  | 165,989 |  | 1.0 |  |  | 19,438 |  | 11.7 |
Consumer | 73,044 |  | 0.4 |  |  | 87,892 |  | 0.5 |  |  | (14,848) |  | (16.9) |
Total consumer loans | 7,013,711 |  | 37.1 |  |  | 6,138,685 |  | 37.7 |  |  | 875,026 |  | 14.3 |
Total gross loans | 18,900,365 |  | 100 | % |  | 16,299,332 |  | 100 | % |  | 2,601,033 |  | 16.0 |
Less: |  |  |  |  |  |  |  |
Allowance for credit losses on loans | 170,979 |  |  |  | 171,300 |  |  |  | (321) |  | (0.2) |
Loans in process | 3,083,573 |  |  |  | 2,232,836 |  |  |  | 850,737 |  | 38.1 |
Net deferred fees, costs and discounts | 80,648 |  |  |  | 61,626 |  |  |  | 19,022 |  | 30.9 |
Total loan contra accounts | 3,335,200 |  |  |  | 2,465,762 |  |  |  | 869,438 |  | 35.3 |
Net loans | $ | 15,565,165 |  |  |  | $ | 13,833,570 |  |  |  | $ | 1,731,595 |  | 12.5 | %

(1) Includes $55 million of PPP loans as of June 30, 2022 and $312 million as of September 30, 2021.
Non-performing assets - Non-performing assets increased $6,805,000 during the nine months ended June 30, 2022 to $50,430,000 from $43,625,000 at September 30, 2021. The change is primarily due to a $4,930,000 increase in non-accrual loans. Non-performing assets as a percentage of total assets was 0.25% at June 30, 2022 compared to 0.22% at September 30, 2021.
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The following table sets forth information regarding troubled debt restructured loans and non-performing assets.

| June 30, 2022 |  | September 30, 2021
| ($ in thousands)
Troubled debt restructured loans: |  |  |  |  |  |  |
Multi - family | $ | 6,099 |  |  | 10.4 | % |  | $ | 223 |  |  | 0.3 | %
Commercial real estate | 2,194 |  |  | 3.7 |  |  | 2,275 |  |  | 3.5 |
Commercial & industrial | 34 |  |  | 0.1 |  |  | 40 |  |  | 0.1 |
Single-family residential | 48,730 |  |  | 82.7 |  |  | 60,011 |  |  | 92.0 |
Land - consumer lot loans | 1,722 |  |  | 2.9 |  |  | 2,292 |  |  | 3.5 |
HELOC | 84 |  |  | 0.1 |  |  | 246 |  |  | 0.4 |
Consumer | 33 |  |  | 0.1 |  |  | 41 |  |  | 0.1 |
Total restructured loans (1) | $ | 58,896 |  |  | 100 | % |  | $ | 65,128 |  |  | 100 | %
Non-accrual loans: |  |  |  |  |  |  |
Multi - family | $ | 5,944 |  |  | 16.2 | % |  | $ | 475 |  |  | 1.5 | %
Commercial real estate | 5,024 |  |  | 13.7 |  |  | 8,038 |  |  | 25.3 |
Commercial & industrial | 4,288 |  |  | 11.7 |  |  | 365 |  |  | 1.1 |
Construction | — |  |  | — |  |  | 505 |  |  | 1.7 |
Land - acquisition & development | — |  |  | — |  |  | 2,340 |  |  | 7.4 |
Single-family residential | 20,184 |  |  | 55.0 |  |  | 19,320 |  |  | 60.9 |
Construction - custom | 900 |  |  | 2.5 |  |  | — |  |  | — |
Land - consumer lot loans | 213 |  |  | 0.6 |  |  | 359 |  |  | 1.1 |
HELOC | 91 |  |  | 0.2 |  |  | 287 |  |  | 0.9 |
Consumer | 35 |  |  | 0.1 |  |  | 60 |  |  | 0.2 |
Total non-accrual loans | 36,679 |  |  | 100 | % |  | 31,749 |  |  | 100 | %
Real estate owned | 9,656 |  |  |  |  | 8,204 |  |  |
Other property owned | 4,095 |  |  |  |  | 3,672 |  |  |
Total non-performing assets | $ | 50,430 |  |  |  |  | $ | 43,625 |  |  |
Total non-performing assets and performing restructured loans as a percentage of total assets | 0.54 | % |  |  |  | 0.55 | % |  |
Total Assets |  |  |  |  |  |  |
(1) Restructured loans were as follows: |  |  |  |  |  |  |
Performing | $ | 57,492 |  |  | 97.6 | % |  | $ | 63,655 |  |  | 97.7 | %
Non-performing (included in non-accrual loans above) | 1,404 |  |  | 2.4 |  |  | 1,473 |  |  | 2.3 |
| $ | 58,896 |  |  | 100 | % |  | $ | 65,128 |  |  | 100 | %

For the nine months ended June 30, 2022, the Company recognized $2,544,000 in interest income on cash payments received from borrowers on non-accrual loans. The Company would have recognized interest income of $969,000 for the same period had these loans performed according to their original contract terms. Recognized interest income for the nine months ended June 30, 2022 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 $209,166,000 of loans that were less than 90 days delinquent at June 30, 2022 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 1.57% at June 30, 2022.
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.
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Single-family residential loans comprised 82.7% of restructured loans as of June 30, 2022. The concession for these loans is typically a payment reduction through a rate reduction of 100 to 200 basis points for a specific term, usually six to 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.

| June 30, 2022 |  | September 30, 2021 |  | Change
Allowance for credit losses: | ($ in thousands) |  | ($ in thousands) |  | $ | %
Commercial loans |  |  |  |  |  |  |  |
Multi-family | $ | 12,574 |  | 7.4 | % |  | 16,949 |  | 9.9 | % |  | $ | (4,375) |  | (25.8) | %
Commercial real estate | 25,300 |  | 14.8 |  |  | 23,437 |  | 13.7 |  |  | 1,863 |  | 7.9 |
Commercial & industrial | 54,924 |  | 32.1 |  |  | 45,957 |  | 26.8 |  |  | 8,967 |  | 19.5 |
Construction | 25,834 |  | 15.1 |  |  | 25,585 |  | 14.9 |  |  | 249 |  | 1.0 |
Land - acquisition & development | 12,227 |  | 7.2 |  |  | 13,447 |  | 7.8 |  |  | (1,220) |  | (9.1) |
Total commercial loans | 130,859 |  | 76.5 |  |  | 125,375 |  | 73.2 |  |  | 5,484 |  | 4.4 |
Consumer loans |  |  |  |  |  |  |  |
Single-family residential | 26,217 |  | 15.3 |  |  | 30,978 |  | 18.1 |  |  | (4,761) |  | (15.4) |
Construction - custom | 3,354 |  | 2.0 |  |  | 4,907 |  | 2.9 |  |  | (1,553) |  | (31.6) |
Land - consumer lot loans | 5,220 |  | 3.1 |  |  | 4,939 |  | 2.9 |  |  | 281 |  | 5.7 |
HELOC | 2,632 |  | 1.5 |  |  | 2,390 |  | 1.4 |  |  | 242 |  | 10.1 |
Consumer | 2,697 |  | 1.6 |  |  | 2,711 |  | 1.6 |  |  | (14) |  | (0.5) |
Total consumer loans | 40,120 |  | 23.5 |  |  | 45,925 |  | 26.8 |  |  | (5,805) |  | (12.6) |
Total allowance for loan losses | 170,979 |  | 100.0 | % |  | 171,300 |  | 100.0 | % |  | (321) |  | (0.2) |
Reserve for unfunded commitments | 32,500 |  |  |  | 30,000 |  |  |  | 2,500 |  | 8.3 |
Total allowance for credit losses | $ | 203,479 |  |  |  | $ | 201,300 |  |  |  | $ | 2,179 |  | 1.1 | %

No allowance was recorded as of June 30, 2022 or as of September 30, 2021 for the $54,185,000 and $305,162,000 of SBA Payroll Protection Program loans in the portfolio on each date, respectively, which are included in the commercial & industrial loan category, due to the government guarantee. Management believes the allowance for credit losses of $203,479,000, or 1.08% 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 June 30, 2022 and September 30, 2021.
Real estate owned ("REO") - REO increased during the nine months ended June 30, 2022 by $1,452,000 to $9,656,000. The increase was due to REO additions partially offset by sales and the write-down of certain properties.
Intangible assets - Intangible assets decreased to $309,254,000 as of June 30, 2022 from $310,019,000 as of September 30, 2021. The decrease was due to normal amortization of finite-lived intangible assets.
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Customer accounts - Customer accounts increased $423,508,000, or 2.7%, to $15,965,620,000 at June 30, 2022 compared with $15,542,112,000 at September 30, 2021. Transaction accounts increased by $560,226,000 or 4.6% during that period, while time deposits decreased $136,718,000 or 4.0%. The shift in deposit mix has been a result of a deliberate deposit pricing and customer growth strategy. The focus on transaction accounts is intended to lessen sensitivity to rising interest rates and manage interest expense.
The following table shows the composition of the Bank’s customer accounts by deposit type.

| June 30, 2022 |  | September 30, 2021
| Deposit Account Balance |  | As a % of Total Deposits |  | Weighted Average Rate |  | Deposit Account Balance |  | As a % of Total Deposits |  | Weighted Average Rate
($ in thousands) |  |  |  |  |  |  |  |  |  |  |
Non-interest checking | $ | 3,269,773 |  |  | 20.5 | % |  | — | % |  | $ | 3,122,397 |  |  | 20.1 | % |  | — | %
Interest checking | 3,472,402 |  |  | 21.7 |  |  | 0.51 |  |  | 3,566,322 |  |  | 22.9 |  |  | 0.20 |
Savings | 1,069,801 |  |  | 6.7 |  |  | 0.12 |  |  | 1,039,336 |  |  | 6.7 |  |  | 0.11 |
Money market | 4,856,275 |  |  | 30.4 |  |  | 0.31 |  |  | 4,379,970 |  |  | 28.2 |  |  | 0.19 |
Time deposits | 3,297,369 |  |  | 20.7 |  |  | 0.53 |  |  | 3,434,087 |  |  | 22.1 |  |  | 0.54 |
Total | $ | 15,965,620 |  |  | 100 | % |  | 0.32 | % |  | $ | 15,542,112 |  |  | 100 | % |  | 0.23 | %

FHLB advances and other borrowings - Total borrowings were $1,700,000,000 as of June 30, 2022, a decrease from $1,720,000,000 at September 30, 2021. Strong growth in deposits has provided for substantial funding of growth in loans receivable, therefore, the use of additional FHLB borrowings has been limited. The weighted average rate for FHLB borrowings was 1.43% as of June 30, 2022 and 1.51% at September 30, 2021. The decline in the weighted average effective interest rate was the result of replacing high-yielding, long-term FHLB borrowings with new borrowings at lower rate.
Shareholders' equity - The Company’s shareholders' equity at June 30, 2022 was $2,220,111,000, or 11.01% of total assets. This is an increase of $94,047,000 from September 30, 2021 when net worth was $2,126,064,000, or 10.82% of total assets. The Company’s shareholders' equity was impacted in the nine months ended June 30, 2022 by net income of $162,935,000, the payment of $46,015,000 in common stock dividends, payment of $10,968,000 in preferred stock dividends, treasury stock purchases of $3,212,000, as well as other comprehensive loss of $15,558,000.
RESULTS OF OPERATIONS
Net Income - The Company recorded net income of $63,295,000 for the three months ended June 30, 2022 compared to $47,422,000 for the prior year quarter. The Company recorded net income of $162,935,000 for the nine months ended June 30, 2022 compared to $131,244,000 for the prior year same period. The changes are due to the factors described below.
Net Interest Income - For the three months ended June 30, 2022, net interest income was $151,746,000, which is $23,141,000 higher than the same quarter of the prior year. Net interest margin was 3.22% for the quarter ended June 30, 2022 compared to 2.82% for the quarter ended June 30, 2021. The increase in net interest income was primarily due to average interest-earning assets increasing by $683,756,000 or 3.75% from the prior year while average interest-bearing liabilities increased $484,378,000 or 3.44% as well as the impact of rising rates on adjustable rate assets. Average noninterest-bearing deposits grew by $387,429,000 over the same period. The change in net interest income was also impacted by a 30 basis point increase in the average rate earned on interest-earning assets to 3.55% while the average rate paid on interest-bearing liabilities declined by 12 basis points to 0.42%. During the three months ended June 30, 2022 and 2021, net interest income included $936,000 and $6,122,000, respectively, of net loan origination fee amortization on PPP loans. For the nine months ended June 30, 2022, net interest income was $420,970,000, which is $47,817,000 higher than the same period of the prior year. Net interest margin was 3.00% for the nine months ended June 30, 2022 compared to 2.77% 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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Rate / Volume Analysis:

| Comparison of Three Months Ended 6/30/22 and 6/30/21 |  | Comparison of Nine Months Ended 6/30/22 and 6/30/21
($ in thousands) | Volume |  | Rate |  | Total |  | Volume |  | Rate |  | Total
Interest income: |  |  |  |  |  |  |  |  |  |  |
Loans receivable | $ | 19,742 |  |  | $ | (4,822) |  |  | $ | 14,920 |  |  | $ | 53,933 |  |  | $ | (27,672) |  |  | $ | 26,261 |
Mortgage-backed securities | 1,243 |  |  | 1,887 |  |  | 3,130 |  |  | (4,855) |  |  | 3,510 |  |  | (1,345) |
Investments (1) | (4,330) |  |  | 5,980 |  |  | 1,650 |  |  | (4,774) |  |  | 6,260 |  |  | 1,486 |
All interest-earning assets | 16,655 |  |  | 3,045 |  |  | 19,700 |  |  | 44,304 |  |  | (17,902) |  |  | 26,402 |
Interest expense: |  |  |  |  |  |  |  |  |  |  |
Customer accounts | 646 |  |  | (268) |  |  | 378 |  |  | 2,481 |  |  | (10,256) |  |  | (7,775) |
FHLB advances and other borrowings | (1,300) |  |  | (2,519) |  |  | (3,819) |  |  | (8,584) |  |  | (5,057) |  |  | (13,641) |
All interest-bearing liabilities | (654) |  |  | (2,787) |  |  | (3,441) |  |  | (6,103) |  |  | (15,313) |  |  | (21,416) |
Change in net interest income | $ | 17,309 |  |  | $ | 5,832 |  |  | $ | 23,141 |  |  | $ | 50,407 |  |  | $ | (2,589) |  |  | $ | 47,818 |

___________________ ___________________
(1)Includes interest on cash equivalents and dividends on FHLB & FRB stock. The Bank’s FRB stock was redeemed effective February 4, 2022 in connection with its conversion to a Washington state chartered commercial bank.
Provision (Release) for Credit Losses - The Company recorded a $1,500,000 provision for credit losses for the three months ended June 30, 2022, compared to a $2,000,000 release of allowance for credit losses for the three months ended June 30, 2021. The provision in the three months ended June 30, 2022 was primarily due to growth in loans receivable and unfunded commitments partially offset by improvements in the credit quality of certain loan portfolios related to strong real estate markets and collateral conditions. The release for the three months ended June 30, 2021 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 $1,500,000 provision for credit losses for the nine months ended June 30, 2022, compared with a $1,000,000 provision for credit losses for the nine months ended June 30, 2021. Recoveries, net of charge-offs, totaled $595,000 for the three months ended June 30, 2022, compared to net recoveries of $1,131,000 during the three months ended June 30, 2021. Recoveries, net of charge-offs, totaled $3,179,000 for the nine months ended June 30, 2022, compared to net recoveries of $5,329,000 during the nine months ended June 30, 2021. No allowance was recorded as of June 30, 2022 or as of September 30, 2021 for the $54,185,000 and $305,162,000 of PPP loans in the portfolio on each date, respectively, which are included in the commercial & industrial loan category, due to the government guarantee.
Other Income - The results for the three months ended June 30, 2022 include total other income of $17,550,000 compared to $13,211,000 for the same period one year ago, a $4,339,000 increase. The increase in other income was primarily due to an unrealized gain of $2,708,000 that was recorded for certain equity investments in the quarter ended June 30, 2022. Other income was $51,890,000 for the nine months ended June 30, 2022, compared with $41,558,000 for the nine months ended June 30, 2021 and the increase was mostly due to unrealized gains of $9,008,000 that were recorded for certain equity investments in the nine months ended June 30, 2022.
Other Expense - Total other expense was $87,403,000 for the three months ended June 30, 2022, an increase of $3,763,000 from $83,640,000 for the prior year quarter. Compensation and benefits costs increased by $4,232,000, or 9.7%, over the prior year quarter due to annual merit increases, higher bonus compensation accruals related to strong deposit and loan growth and investments in top talent and contract staff to support strategic initiatives. Other expense was $265,433,000 for the nine months ended June 30, 2022, compared with $246,796,000 for the nine months ended June 30, 2021 and the increase was primarily due to compensation and benefits increasing by $12,417,000 for the same reasons noted above. The nine months ended June 30, 2022 also included a tax related accrual of $1,700,000. Total other expense for the nine months ended June 30, 2022 and June 30, 2021 equaled 1.76% and 1.71%, respectively, of average assets.
Gain (Loss) on Real Estate Owned - Results for the three months ended June 30, 2022 include a net gain on real estate owned of $448,000, compared to a net loss of $151,000 for the prior year quarter. Results for the nine months ended June 30, 2022 include a net gain on real estate owned of $1,139,000, compared to a net loss of $566,000 for the prior year same period. The gain (loss) for each respective period is due to REO sales valuation adjustments for certain properties.
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Income Tax Expense - Income tax expense totaled $17,546,000 for the three months ended June 30, 2022, compared to $12,603,000 for the prior year quarter. Income tax expense totaled $44,131,000 for the nine months ended June 30, 2022, compared to $35,105,000 for the prior year same period. The effective tax rate was 21.31% and 21.10% for the nine months ended June 30, 2022 and June 30, 2021, respectively. The Company’s effective tax rate varies from the statutory rate mainly due to state taxes, tax-exempt income and tax-credit investments.
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, 2021. 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 2021 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.
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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
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.
Operational Risks
Current uncertain economic conditions pose challenges, and could adversely affect our business, financial condition and results of operations.
We are operating in an uncertain economic environment. The pandemic caused a global economic slowdown, and while we have seen some economic recovery, raw material shortages, supply chain issues and labor shortages risk slowing or reversing the continued recovery. Continued economic uncertainty and a recessionary or stagnant economy could result in financial stress on the Bank's borrowers, which could adversely affect our business, financial condition and results of operations. We decreased the expense for credit losses over fiscal year 2021 as the economy began to recover, however, deteriorating conditions in the regional economies we serve, or in certain sectors of those economies, could drive losses beyond that which is provided for in our allowance for loan losses. We could also face the following risks in connection with the following events:
•Market developments and economic stagnation or slowdown may affect consumer confidence levels and may cause adverse changes in payment patterns, resulting in increased delinquencies and default rates on loans and other credit facilities.
•The processes we use to estimate the allowance for credit losses and other reserves may prove to be unreliable. Such estimates rely upon complex modeling inputs and judgments, including forecasts of economic conditions, which may be rendered inaccurate and/or no longer subject to accurate forecasting.
•Our ability to assess the creditworthiness of our borrowers may be impaired if the models and approaches we use to select, manage, and underwrite loans become less predictive of future charge-offs.
•Regulatory scrutiny of the industry could increase, leading to increased regulation of the industry that could lead to a higher cost of compliance, limit our ability to pursue business opportunities and increase our exposure to litigation or fines.
•Ineffective monetary policy or other market conditions could cause rapid changes in interest rates and asset values that would have a materially adverse impact on our profitability and overall financial condition.
•Further erosion in the fiscal condition of the U.S. Treasury could lead to new taxes that would limit our ability to pursue growth and return profits to shareholders.
If these conditions or similar ones continue to exist or worsen, we could experience continuing or increased adverse effects on our financial condition.
Fluctuating interest rates could adversely affect our business.
Significant increases in market interest rates on loans, or the perception that an increase may occur, could adversely affect both our ability to originate new loans and our ability to grow. Conversely, decreases in interest rates could result in an acceleration of loan prepayments. An increase in market interest rates could also adversely affect the ability of our floating-rate borrowers to meet their higher payment obligations. If this occurred, it could cause an increase in nonperforming assets and charge offs, which could adversely affect our business.
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Further, our profitability is dependent to a large extent upon net interest income, which is the difference (or “spread”) between the interest earned on loans, securities and other interest-earning assets and the interest paid on deposits, borrowings, and other interest-bearing liabilities. Because of the differences in maturities and repricing characteristics of our interest-earning assets and interest-bearing liabilities, changes in interest rates do not produce equivalent changes in interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Accordingly, fluctuations in interest rates could adversely affect our interest rate spread, and, in turn, our profitability. Although it is expected that the Federal Reserve will continue to increase the target federal funds rate in 2022 to combat recent inflationary trends, if interest rates do not rise, or if the Federal Reserve were to lower the target federal funds rate to below 0%, these low rates could continue to constrain our interest rate spread and may adversely affect our business forecasts. On the other hand, increases in interest rates, to combat inflation or otherwise, may result in a change in the mix of noninterest and interest-bearing accounts. We are unable to predict changes in interest rates, which are affected by factors beyond our control, including inflation, deflation, recession, unemployment, money supply and other changes in financial markets.
Changes to monetary policy by the Federal Reserve could adversely impact our results of operations.
The Federal Reserve is responsible for regulating the supply of money in the United States, including open market operations used to stabilize prices in times of economic stress, as well as setting monetary policies. These activities strongly influence our rate of return on certain investments, our hedge effectiveness for mortgage servicing and our mortgage origination pipeline, as well as our costs of funds for lending and investing, all of which may adversely impact our liquidity, results of operations, financial condition and capital position.
Unstable global economic conditions may have serious adverse consequences on our business, financial condition, and operations.
The global credit and financial markets have from time to time experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, high rates of inflation, and uncertainty about economic stability. The financial markets and the global economy may also be adversely affected by the current or anticipated impact of military conflict, including the current conflict between Russia and Ukraine, which is increasing volatility in commodity and energy prices, creating supply chain issues and causing instability in financial markets. Sanctions imposed by the United States and other countries in response to such conflict could further adversely impact the financial markets and the global economy, and any economic countermeasures by the affected countries or others could exacerbate market and economic instability. The specific consequences of the conflict in Ukraine on our business is difficult to predict at this time, but in addition to inflationary pressures affecting our operations and those of our customers and borrowers, we may also experience an increase in cyberattacks against us, our customers and borrowers, service providers and other third parties. There can be no assurance that further deterioration in markets and confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any such economic downturn, volatile business environment, hostile third-party action or continued unpredictable and unstable market conditions.
Our allowance for credit losses ("ACL") may not be adequate to cover future loan losses, which could adversely affect our financial condition and results of operations.
Due to the declining economic conditions, our customers may not be able to repay their loans according to the original terms, and the collateral securing the payment of those loans may be insufficient to pay any remaining loan balance. While we maintain our ACL to provide for loan defaults and non-performance, losses may exceed the value of the collateral securing the loans and the allowance may not fully cover any excess loss.
We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of loans. Our ACL is based on these judgments, as well as historical loss experience and an evaluation of the other risks associated with our loan portfolio, including but not limited to, economic trends and conditions, changes in underwriting standards, management, competition, and trends in delinquencies, non-accrual and adversely classified loans. the size and composition of the loan portfolio, current economic conditions and geographic concentrations within the portfolio. We have also included assumptions about the severity and duration of the effects of the COVID-19 pandemic on our borrowers, their industry, and on economic conditions in general, all of which are highly uncertain and for which we have no historical experience to draw upon. Federal regulatory agencies, as part of their examination process, review our loans and ACL. If our assumptions and judgments used to determine the ACL prove to be incorrect, if the value of the collateral securing the loans decreases substantially or if regulators disagree with its judgments, we may need to increase the ACL in amounts that exceed our expectations. Material additions to the ACL would adversely affect our results of operations and financial condition.
We are exposed to risks related to our operational, technological, and third-party provided technology infrastructure.
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We rely extensively on the successful and uninterrupted functioning of information technology and telecommunications systems to conduct our business. This includes internally developed systems, internally managed systems, outsourced systems provided by third-party service providers, internet facing digital products and services, mobile technologies and the on-going operational maintenance of each service. Any disruptions, failures, or inaccuracies of these systems, including changes and improvements, could result in our inability to service customers, manage operations, manage risk, meet regulatory obligations, or provide timely and accurate financial reporting which could damage our reputation, result in loss of customer business, subject us to regulatory scrutiny, or expose us to civil litigation and possible financial liability.
In many instances, the Company’s products and services to customers are dependent upon third-party service providers, who provide necessary, or critical, services and support. Any disruption of such services, or an unplanned termination of a third-party license or service agreement related thereto, could adversely affect our ability to provide necessary products and services for our customers.
In recent years, we have made a significant ongoing investment to enhance our technological capabilities with the objectives of enhancing customer experience, growing revenue, and improving operating efficiency. There is a risk that these investments may not provide the anticipated benefits and/or will prove significantly more costly and time consuming to produce. If this occurs, we may see a loss of customers, and our financial results and ability to execute on our strategic plan may be adversely impacted.
We are exposed to risks related to fraud and cyber-attacks.
Cybersecurity, and the continued development and enhancement of controls, processes, and practices designed to protect customer information, systems, computers, software, data, and networks from attack, damage, or unauthorized access remain a priority for the Company. As cybersecurity threats continue to evolve, we may be required to expend additional resources to continue to enhance, modify, and refine our protective measures against these evolving threats.
We are continuously enhancing and expanding our digital products and services to meet customer and business needs with desired outcomes. These digital products and services often include storing, transmitting, and processing confidential customer, employee, financial, and business information. Due to the nature of this information, and the value it has for internal and external threat actors, we, and our third-party service providers, continue to be subject to cyber-attacks and fraud activity that attempts to gain unauthorized access, misuse information and information systems, steal information, disrupt or degrade information systems, spread malicious software, and other illegal activities.
We have recently changed our consumer online and mobile banking platforms to provide more flexibility and customizable feature sets to improve customer experience. This change provides the Company more opportunity to differentiate ourselves in the market, but also increases our direct responsibility for managing cybersecurity risk associated with digital banking, when historically, the responsibility for providing adequate safeguards and security controls was managed by third party vendors.
We believe we have robust preventive, detective, and administrative safeguards and security controls to minimize the probability and magnitude of a material event. However, because the tactics and techniques used by threat actors to bypass safeguards and security controls change frequently, and often are not recognized until after an event has occurred, we may be unable to anticipate future tactics and techniques, or to implement adequate and timely protective measures.
In June 2022, we were notified by a third-party vendor that it experienced a network security incident involving unauthorized access to certain personal and financial data of some of our customers. We immediately suspended services with the vendor. Since the incident was detected, this third-party vendor has engaged a third-party security firm to investigate the incident, provide support to remove the unauthorized access, enhance its security controls, and help our third-party vendor safely resume operations. The investigation into the extent of the data that was compromised is ongoing and we will notify all impacted customers by this breach when the analysis is complete. There was no breach of our own systems due to this incident. After receiving assurances that this third-party is operating in a safe and secure manner, we have resumed operations with it, and continue to have frequent contact to receive updates as to the status of its internal security and progress on its forensic analysis to determine customer impact. We are not aware of any continuing cybersecurity threats or breaches involving this vendor or our systems generally, but we continue to monitor the situation carefully.
To date, we have no knowledge of a successful cyber-attack or other material information security breach affecting the systems we operate and control. However, our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, the continuation of a remote work environment for our employees and service providers, and our plans to continue to implement and expand digital banking services, expand operations, and use third-party
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information systems that includes cloud-based infrastructure, platforms, and software. Recent instances of attacks specifically targeting banks and financial services businesses indicate that the risk to our systems remains significant. We, and our third-party providers, are regularly the subject of attempted attacks and the ability of the attackers continues to grow in sophistication. Potential threats to our technologies, systems, networks, and other devices, as well as those of our employees, third party vendors, and other third parties with whom we interact, include DDOS attacks, computer viruses, hacking, malware, ransomware, credential stuffing, or phishing or other forms of social engineering. Such cyber-attacks and other security incidents are designed to lead to various harmful outcomes, such as unauthorized transactions our customers’ accounts, unauthorized or unintended access to or release, gathering, monitoring, disclosure, loss, destruction, corruption, disablement, encryption, misuse, modification or other processing of confidential or sensitive information (including personal information), intellectual property, software, methodologies or business secrets, disruption, sabotage or degradation of service, systems or networks, or other damage. These threats may derive from, among other things, error, fraud or malice on the part of our employees, insiders, or third parties or may result from accidental technological failure. Any of these parties may also attempt to fraudulently induce employees, service providers, customers, partners or other third-party users of our systems or networks to disclose confidential or sensitive information (including personal information) in order to gain access to our systems, networks or data or that of our customers, partners, or third parties with whom we interact, or to unlawfully obtain monetary benefit through misdirected or otherwise improper payment. For example, any party that obtains our confidential or sensitive information (including personal information) through a cyber-attack or other security incident may use this information for ransom, to be paid by us or a third party, as part of a fraudulent activity that is part of a broader criminal activity, or for other illicit purposes.
A cyber-attack or other security incident on us or a critical third party vendor could cause us to suffer damage to our reputation, productivity losses, response costs associated with investigation and resumption of services, and incur substantial additional expenses, including remediation expenses costs associated with customer notification and credit monitoring services, increased insurance premiums, regulatory penalties and fines, and costs associated civil litigation, any of which could have a materially adverse effect on our business, financial condition, and results of operations.
We also face additional costs when our customers become the victims of cyber-attacks. For example, various retailers have reported that they have been the victims of a cyber-attack in which large amounts of their customers’ data, including debit and credit card information, is obtained. Our customers may be the victims of phishing scams, providing cyber criminals access to their accounts, or credit or debit card information. In these situations, we incur costs to replace compromised cards and address fraudulent transaction activity affecting our customers, as well as potential increases to insurance premiums for policies we may maintain to cover these losses.
Both internal and external fraud and theft are risks. If confidential customer, employee, monetary, or business information were to be mishandled or misused, we could suffer significant regulatory consequences, reputational damage, and financial loss. Such mishandling or misuse could include, for example, if such information were erroneously provided to parties who are not permitted to have the information, either by fault of our systems, employees, or counterparties, or if such information were to be intercepted or otherwise inappropriately taken by third parties, or if our own employees abused their access to financial systems to commit fraud against our customers and the Company. These activities can occur in connection with activities such as the origination of loans and lines of credit, ACH transactions, wire transactions, ATM transactions, and checking transactions, and result in financial losses as well as reputational damage.
Operational errors can include information system misconfiguration, clerical or record-keeping errors, or disruptions from faulty or disabled computer or telecommunications systems. Because the nature of the financial services business involves a high volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully rectified. Because of the Company’s large transaction volume and its necessary dependence upon automated systems to record and process these transactions, there is a risk that technical flaws, tampering, or manipulation of those automated systems, arising from events wholly or partially beyond its control, may give rise to disruption of service to customers and to financial loss or liability.
The occurrence of any of these risks could result in a diminished ability for us to operate our business, additional costs to correct defects, potential liability to clients, reputational damage. and regulatory intervention, any of which could adversely affect our business, financial condition and results of operations.
The COVID-19 pandemic increased cyber-security risks.
The ongoing COVID-19 pandemic has introduced additional risk to our information systems and security procedures, controls and policies as a result of employees, contractors and other corporate partners working remotely. As a result of the increased remote workforce, we must increasingly rely on information technology systems that are outside our direct control, and these systems are also vulnerable to cyber-based attacks and security breaches. In addition, since the beginning of the pandemic, there has been an increase in attacks by cyber criminals on businesses and individuals, utilizing interest in pandemic-
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related information and the fear and uncertainty caused by the pandemic to increase phishing, malware, and other cybersecurity attacks designed to trick victims into transferring sensitive data or funds, steal credentials or deploy malware that compromises information systems. If one of our employees were to fall victim to one of these attacks, or our information technology systems are compromised, our operations could be disrupted, or we may suffer financial loss, reputational loss, loss of customer business or other critical assets, or become exposed to regulatory fines and intervention or civil litigation.
The ongoing COVID-19 pandemic, and government and multinational actions taken in response to it, could adversely affect our business and our customers, counterparties, employees, and third-party service providers.
The spread of COVID-19 created a global public-health crisis that has impacted household, business, economic, and market conditions, including in the western United States where we conduct nearly all of our business.
Throughout the pandemic our operations have been impacted by the need to close certain offices and limit how customers conduct business through our branch network. Many of our employees continue to work remotely, which exposes us to increased cybersecurity risks such as phishing, malware, and other cybersecurity attacks, all of which could expose us to liability and could seriously disrupt our business operations.
Governments have taken unprecedented steps to partially mitigate the adverse effects of their containment measures. For example, in late March 2020, the CARES Act was enacted to inject more than $2 trillion of financial assistance into the U.S. economy, followed by additional COVID relief legislation of approximately $900 million in December 2020. In March 2021 the American Rescue Plan Act, also called the COVID-19 Stimulus Package or American Rescue Plan, Pub L. No. 117-2, was enacted to inject an additional $1.9 trillion in financial relief and economic stimulus. The Federal Reserve Bank has taken decisive and sweeping actions as well. From March 15, 2020, to September 30, 2021, their actions have included a reduction in the target range for the federal funds rate to 0 to 25 basis points, a program to purchase an indeterminate amount of Treasury securities and agency mortgage-backed securities, corporate bonds and other investments, and numerous facilities to support the flow of credit to households and businesses. Beginning early in 2022, in response to growing signs of inflation, the Federal Reserve has increased interest rates rapidly. Further, the Federal Reserve has increased the benchmark rapidly and has announced an intention to take further actions to mitigate inflationary pressures. Rapid changes in interest rates make it difficult for the Bank to balance its loan and deposit portfolios, which may adversely affect our results of operations by, for example, reducing asset yields or spreads, creating operating and system issues, or having other adverse impacts on our business.
The full extent of the impact of the COVID-19 pandemic on our capital, liquidity, and other financial positions and on our business, results of operations, and prospects is still uncertain, and will depend on a number of evolving factors, including:
•The duration, extent, and severity of the pandemic. COVID-19 has not yet been contained; continuing spread and rise of new variants could affect significantly more households and businesses, or cause additional limitations on commercial activity, increased unemployment, increased property vacancy rates and general economic and financial instability. The continuation of the pandemic may also negatively impact regional economic conditions for a period of time, resulting in declines in loan demand and collateral values. The duration and severity of the pandemic continues to be impossible to predict, as is the potential for a seasonal or other resurgence. We also believe we will continue to see the economic effects of the pandemic even after the COVID-19 outbreak has subsided, which is expected to continue to affect our business, financial position, results of operations and prospects.
•The response of governmental authorities. To date, many of the actions of governmental authorities, including eviction forbearance, occupancy restrictions and vaccine mandates, have been directed toward curtailing household and business activity to contain COVID-19 while simultaneously deploying fiscal and monetary policy measures to partially mitigate the adverse effects on individual households and businesses. The ultimate success or impact of these actions and their effect on our customers and the economy generally is still unclear. Further, some measures, such as a suspension of mortgage and other loan payments and foreclosures, may have a negative impact on our business.
•The effect on our customers, counterparties, employees, and third-party service providers. COVID-19 and its associated consequences and uncertainties are affecting individuals, households, and businesses differently and unevenly. Negative impacts on our customers could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans.
•The effect on economies and markets. Whether the actions of governmental and nongovernmental authorities will be successful in mitigating the adverse effects of COVID-19 is unclear. National, regional, and local economies and markets could suffer disruptions that are lasting. Governmental actions are meaningfully influencing the interest-rate
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environment and financial-market activity and could have lasting effects on taxes and other economic factors, which could adversely affect our results of operations and financial condition.
As a participating lender in the SBA Paycheck Protection Program (“PPP”), we are subject to additional risks of litigation from our customers or other parties regarding our processing of loans for the PPP and risks that the SBA may not fund some or all PPP loan guaranties.
On March 27, 2020, President Trump signed the CARES Act, which included a loan program administered through the SBA referred to as the PPP. Under the PPP (and its expansion in 2021), small businesses and other entities and individuals were eligible to apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. We participated as a lender in the PPP, and ultimately assisted approximately 9,000 businesses with approximately $1.1 billion in PPP loans.
The PPP opened on April 3, 2020; however, because of the short timeframe between the passing of the CARES Act and the opening of the PPP, there was some ambiguity in the laws, rules and guidance regarding the operation of the PPP, which exposes us to potential risks relating to noncompliance with the PPP, and risks related to fair lending, violation of BSA/AML requirements and reputational risk.
Since the opening of the PPP, several other banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP and claims related to agent fees. We may be exposed to the risk of similar litigation, from both customers and non-customers that approached us regarding PPP loans, regarding our process and procedures used in processing applications or forgiveness requests for the PPP. If any such litigation is filed against us and is not resolved in a favorable manner, it may result in significant financial liability or adversely affect the Company’s reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP-related litigation could have a material adverse impact on our business, financial condition and results of operations.
We also have credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which a PPP loan was originated, funded, or serviced by us, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced by us, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from us. As of June 30, 2022, approximately 8,600 PPP loans totaling approximately $1.04 billion have been forgiven by the SBA, and we continued to hold PPP loans receivable of $54.2 million.
If we are not able to retain or attract key employees, or if we were to suffer the loss of a significant number of employees, we could experience a disruption in our business.
If a key employee or a substantial number of employees depart or become unable to perform their duties, it may negatively impact our ability to conduct business as usual. We might then have to divert resources from other areas of our operations, which could create additional stress for other employees, including those in key positions. The loss of qualified and key personnel, or an inability to continue to attract, retain and motivate key personnel could adversely affect our business and consequently impact our financial condition and results of operations.
Our risk management framework may not be effective in mitigating risks and losses to us.
Our risk management framework is comprised of various processes, systems and strategies, and is designed to manage the types of risk to which we are subject, including, among others, credit, market, liquidity, interest rate and compliance. Our framework also includes financial or other modeling methodologies that involve management assumptions and judgment. Our risk management framework may not be effective under all circumstances and may not adequately mitigate any risk of loss to us. If our framework is not effective, we could suffer unexpected losses and our financial condition, operations or business prospects could be materially and adversely affected. We may also be subject to potentially adverse regulatory consequences.
Climate change could adversely affect our business, affect client activity levels and damage our reputation.
Concerns over the long-term impacts of climate change have led and will continue to lead to governmental efforts around the world to mitigate those impacts. Consumers and businesses are also changing their behavior and business preferences as a result of these concerns. New governmental regulations or guidance relating to climate change, as well as changes in consumers’ and businesses’ behaviors and business preferences, may affect whether and on what terms and conditions we will
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engage in certain activities or offer certain products or services. The governmental and supervisory focus on climate change could also result in our becoming subject to new or heightened regulatory requirements relating to climate change, such as requirements relating to operational resiliency or stress testing for various climate stress scenarios. Any such new or heightened requirements could result in increased regulatory, compliance or other costs or higher capital requirements. In connection with the transition to a low carbon economy, legislative or public policy changes and changes in consumer sentiment could negatively impact the businesses and financial condition of our clients, which may decrease revenues from those clients and increase the credit risk associated with loans and other credit exposures to those clients. Our business, reputation and ability to attract and retain employees may also be harmed if our response to climate change is perceived to be ineffective or insufficient.
Regulatory and Litigation Risks
Failure to comply with the 2020 and 2013 Consent Orders from the Consumer Financial Protection Bureau regarding our Home Mortgage Disclosure Act submissions could result in additional regulatory enforcement action.
In March 2020, the Consumer Financial Protection Bureau (the “CFPB”) Office of Enforcement formally notified us of alleged violations of the Home Mortgage Disclosure Act (“HMDA”) associated with our HMDA reporting submissions. The CFPB alleged that the Bank did not accurately report all required relevant information within the annual HMDA submissions. We responded to the CFPB, noting that the Bank has instituted enhanced procedures to ensure compliance with HMDA, and submitted amended HMDA filings. In October 2020, after further discussions with the CFPB, we entered into a consent order related to our HMDA reporting, under which we agreed to pay a $200,000 civil money penalty and implement a HMDA compliance management system while adhering to a compliance plan. The consent order will be in effect for 10 years. We had previously entered in a consent order with the CFPB in 2013, also relating to HMDA reporting deficiencies, resulting in a $34,000 civil money penalty. The 2013 HMDA Consent Order remains in effect. Any further deficiencies in our HMDA reporting submissions could result in additional regulatory enforcement actions, cause us to incur additional significant compliance costs and subject us to larger fines. Moreover, continued deficiencies in our HMDA reporting could have serious reputational consequences for the Bank. Any of these results could have a material adverse effect on our business, financial condition and results of operations.
Non-Compliance with the USA PATRIOT Act, Bank Secrecy Act, Real Estate Settlement Procedures Act, Truth-in-Lending Act, Community Reinvestment Act, Fair Lending Laws, Flood Insurance Reform Act or other laws and regulations could result in fines or sanctions, and curtail our expansion opportunities.
Financial institutions are required under the USA PATRIOT Act of 2001 (the “Patriot Act”) and Bank Secrecy Act ("BSA") to develop programs to prevent financial institutions from being used for money-laundering ("AML") and terrorist activities. Financial institutions are also obligated to file suspicious activity reports with the U.S. Treasury Department's Office of Financial Crimes Enforcement Network. These rules also require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure or the inability to comply with the Patriot Act and BSA statutes and regulations could result in fines or penalties, curtailment of expansion opportunities, enforcement actions, intervention or sanctions by regulators and costly litigation or expensive additional controls and systems. During the last few years, several banking institutions have received large fines for non-compliance with these laws and regulations, and we were subject to a Consent Order and have paid a civil money penalty with respect to our BSA Program, as described below. In addition, the U.S. Government imposed and is expected to continue to expand laws and regulations relating to residential and consumer lending activities that could create significant new compliance burdens and financial costs.
We were recently subject to a Consent Order with the Office of the Comptroller of the Currency (“OCC”) with respect to our BSA compliance, and any future BSA compliance issues could result in additional regulatory enforcement action, including additional fines or sanctions.
The Bank Secrecy Act, the Patriot Act, and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate. The Bank was previously subject to a Consent Order from the OCC for its BSA program that was issued in February 2018 (the “BSA Consent Order”). The BSA Consent Order resulted in the Bank incurring significant expenses to comply with it, including payment of a $2,500,000 civil money penalty. The OCC terminated the BSA Consent Order in December 2021. A copy of the consent order for the civil money penalty was filed with the SEC on October 1, 2021 as an exhibit to the Company’s Current Report on Form 8-K. Similarly, the Company filed a copy of the Order terminating the BSA Consent Order with the SEC on December 20, 2021 as an exhibit to the Company’s Current Report on Form 8-K.
The Bank remains subject to the BSA, the Patriot Act, and other laws and regulations requiring financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate. Failure to maintain an effective BSA program could have serious business, financial and reputational consequences for the Bank. Any of these results could have a material adverse effect on our business, financial condition and results of operations.
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We operate in a highly regulated industry, which limits the manner and scope of our business activities.
We are subject to extensive supervision, regulation and examination by the WDFI, CFPB and the FDIC. In addition, the Federal Reserve is responsible for regulating the holding company. This regulatory structure is designed primarily for the protection of the deposit insurance funds and consumers and not to benefit our shareholders. This regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies to address not only compliance with applicable laws and regulations (including laws and regulations governing consumer credit, and anti-money laundering and anti-terrorism laws), but also capital adequacy, asset quality and risk, management ability and performance, earnings, liquidity, data reporting and various other factors. As part of this regulatory structure, we are subject to policies and other guidance developed by the regulatory agencies with respect to capital levels, the timing and amount of dividend payments, the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Under this structure the WDFI, the FDIC, the CFPB and the Federal Reserve have broad discretion to impose restrictions and limitations on our operations if they determine, among other things, that our operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agencies. This supervisory framework could materially impact the conduct, growth and profitability of our operations.
Failure to comply with applicable laws and regulations can result in a range of sanctions and enforcement actions, including the imposition of civil money penalties, formal agreements and cease and desist orders; identified deficiencies in our HMDA reporting and BSA/AML programs have resulted in Consent Orders from the CFPB and OCC, required us to incur significant expenses and compliance costs and subjected us to civil penalties. Failure to meet regulatory requirements could require the Bank to incur additional significant costs in order to bring our programs and operations into compliance, negatively impact our reputation, and have a material adverse effect on our business, financial condition and results of operations.
In addition, the FDIC has specific authority to take “prompt corrective action,” depending on the Bank's capital level. Currently, the Bank is considered “well-capitalized” for prompt corrective action purposes. If the Bank were designated as “adequately capitalized,” its ability to take brokered deposits would become limited. If the Bank were to be designated in one of the lower capital levels “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized,” it would be required to raise additional capital and would be subject to progressively more severe restrictions on its operations, management and capital distributions, and replacement of senior executive officers and directors. If the Bank became “critically undercapitalized,” it would also be subject to the appointment of a conservator or receiver.
Recent national and state legislation and regulatory initiatives to support the financial services industry have been coupled with numerous restrictions and requirements that could detrimentally affect our business.
The Dodd-Frank Act has had a substantial impact on the financial services industry since its passage in 2010. The Dodd-Frank Act creates a framework through which regulatory reform has been and continues to be written. While many of the rules required by the Dodd-Frank Act have been implemented, others are still being drafted. As a result, the impact of the future regulatory requirements continues to be uncertain. We expect the way we conduct business to continue to be affected by these regulatory requirements, including through limitations on our ability to pursue certain lines of business, capital requirements, enhanced reporting obligations, and increased costs.
Other legislative initiatives could detrimentally impact our operations in the future. The extent of the impact of any such legislation will be dependent on the specific details of the final legislation passed, if any.
Deposit insurance premiums could increase further in the future.
The FDIC insures deposits at FDIC-insured financial institutions, including the Bank. The FDIC charges insured financial institutions premiums to maintain the Deposit Insurance Fund ("DIF") at a specific level. The Bank's FDIC insurance premiums increased substantially beginning in 2009, and could increase significantly in the future. Unfavorable economic conditions, increased bank failures and additional failures decreased the DIF. In order to restore the DIF to its statutorily mandated minimum of 1.35% of total deposits, the FDIC may need to increase deposit insurance premium rates. Insured institutions with assets of $10 billion or more are responsible for funding this increase. The FDIC has issued regulations to implement these provisions of the Dodd-Frank Act. The FDIC has also established a higher reserve ratio of 2% as a long term goal and the minimum level needed to withstand future financial crises of the magnitude of past crises. The FDIC may increase the assessment rates or impose additional special assessments in the future to keep the DIF at the statutory target level. Any increase in the Bank's FDIC premiums could have an adverse effect on its business, financial condition and results of operations.
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We are subject to various claims and litigation, which could result in significant expenses, losses and damage to our reputation.
We are, from time to time, subject to claims and proceedings related to our operations. These claims and legal actions could include supervisory or enforcement actions by our regulators, criminal proceedings by prosecutorial authorities, or civil claims by our customers, former customers, contractual counterparties, and current and former employees. We may also face class action lawsuits for alleged violations of employment, state wage and hour and consumer protection laws. These claims could involve large monetary demands, including civil money penalties or fines imposed by government authorities, and significant defense costs. If such claims and legal actions are brought, and are not resolved in a manner favorable to the Company, they could result in financial liability and/or reputational harm, which could have a material adverse effect on our financial condition and results of operations.
Banking institutions are also increasingly the target of class action lawsuits. Most recently there has been an increase in claims filed claiming deceptive practices or violations of account terms in connection with non-sufficient funds or overdraft charges. In September 2020, we received notice a similar class action had been filed against the Bank, alleging that we have been improperly charging our customers overdraft fees on items re-presented for payment. In May 2022, the Bank settled this lawsuit for a payment of $495,000 plus claims administrative expenses. In June 2022, the court granted preliminary approval of the settlement, and the claims administration process is ongoing. If the settlement is not approved by the court, or if another class action lawsuit is filed or determined adversely to us, or we were to enter into a settlement agreement in connection with such a matter, we could be exposed to monetary damages, reputational harm, or subject to limits on our ability to operate our business, which could have an adverse effect on our financial condition, and operating results.
Our real estate lending also exposes us to the risk of environmental liabilities.
In the course of our business, it is necessary to foreclose and take title to real estate, which could subject us to environmental liabilities with respect to these properties. Hazardous substances or waste, contaminants, pollutants or sources thereof may be discovered on properties during our ownership or after a sale to a third party. We could be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic substances or chemical releases at such properties. The costs associated with investigation or remediation activities could be substantial and could substantially exceed the value of the real property. In addition, as the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. We may be unable to recover costs from any third party. These occurrences may materially reduce the value of the affected property, and we may find it difficult or impossible to use or sell the property prior to or following any environmental remediation. If we ever become subject to significant environmental liabilities, our business, financial condition and results of operations could be materially and adversely affected.
Market and Industry Risks
Our operations are focused in the western United States, subjecting us to the risks of general economic conditions in these market areas.
Substantially all of the Bank's loans are to individuals, businesses and real estate developers in the Pacific Northwest, Arizona, Utah, Texas, New Mexico and Nevada. As a result, our business depends significantly on general economic conditions in these market areas. A substantial increase in unemployment rates, or severe declines in housing prices and property values in these primary market areas could have a material adverse effect on our business due to a number of factors, including:
•Loan delinquencies may increase.
•Problem assets and foreclosures may increase.
•Demand for the Bank's products and services may decline.
•Collateral for loans made by the Bank, especially real estate, may decline in value, in turn reducing a customer's borrowing power and reducing the value of assets and collateral associated with the loans.
•Natural disasters and catastrophic events such as wildfires, floods and earthquakes may damage or destroy collateral for loans made by the Bank and negatively impact the collateral’s value and a customer’s ability to repay loans.
A downturn in the real estate market would hurt our business.
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The Bank’s business activities and credit exposure are concentrated in real estate lending. The market for real estate is cyclical and the outlook for this sector is uncertain. A downturn in the real estate market, accompanied by falling values and increased foreclosures would hurt our business because a large majority of our loans are secured by real estate.
If a significant decline in market values occurs, the collateral for loans will provide decreasing levels of security. As a result, our ability to recover the principal amount due on defaulted loans by selling the underlying real estate will be diminished, and we will be more likely to suffer losses on defaulted loans.
We own real estate as a result of foreclosures resulting from non-performing loans. If other lenders or borrowers liquidate significant amounts of real estate in a rapid or disorderly fashion, or if the FDIC elects to dispose of significant amounts of real estate from failed financial institutions in a similar fashion, it could have an adverse effect on the values of the properties owned by the Company by depressing the value of these real estate holdings. In such a case, we may incur further write-downs and charge-offs, which could, in turn, adversely affect our business, financial condition and results of operations.
Changes in retail distribution strategies and consumer behavior may adversely impact our business, financial condition and results of operations.
We have significant investments in bank premises and equipment for our branch network as well as our retail work force and other branch banking assets. Advances in technology such as e-commerce, telephone, internet and mobile banking, and in-branch self-service technologies including automatic teller machines and other equipment, as well as changing customer preferences for these other methods of accessing our products and services, could decrease the value of our branch network or other retail distribution assets and may cause us to change our retail distribution strategy, close and/or sell certain branches or parcels of land held for development and restructure or reduce our remaining branches and work force. These actions could lead to losses on these assets or could adversely impact the carrying value of other long-lived assets and may lead to increased expenditures to renovate and reconfigure remaining branches or to otherwise reform our retail distribution channel. In addition, any changes in our branch network strategy could adversely impact our business, financial condition or operations if it results in the loss of customers or deposits which we rely on as a low cost and stable source of funds for our loans and operations.
We may suffer losses in our loan portfolio due to inadequate or faulty underwriting and loan collection practices.
There are risks inherent in any loan portfolio, which we attempt to address by adhering to specific underwriting and loan collection practices. Underwriting practices often include analysis of a borrower's prior credit history; financial statements; tax returns; cash flow projections; valuation of collateral; personal guarantees of loans to businesses; and verification of liquid assets. If the underwriting process fails to capture accurate information or proves to be inadequate, we may incur losses on loans that appeared to meet our underwriting criteria, and those losses may exceed the amounts set aside as reserves in the allowance for credit losses. Loan collection resources may be expanded to meet increases in nonperforming loans resulting from economic downturns or to service any loans acquired, resulting in higher loan administration costs. We are also exposed to the risk of improper documentation of foreclosure proceedings that would also increase the cost of collection.
Our business is subject to interest rate risk, and changes in market interest rates may negatively affect our business, financial condition and results of operations.
Our primary source of income is net interest income, which is the difference between the interest income generated by interest-earning assets and the interest expense generated by interest-bearing liabilities. The level of net interest income is a function of the average balances of interest-earning assets and interest-bearing liabilities and the spread between the amounts of the yield on such assets and the cost of such liabilities. These factors are influenced by both the pricing and the mix of interest-earning assets and interest-bearing liabilities which, in turn, are impacted by such external factors as the local economy, competition for loans and deposits, the monetary policy of the Federal Open Market Committee of the Federal Reserve Board of Governors (the “FOMC”) and market interest rates. Management is unable to predict these external factors, including the fluctuations of market interest rates, which are affected by many drivers, including inflation, recession, unemployment, monetary policy, domestic and international disorder, instability in domestic and foreign financial markets and investor and consumer demand.
Furthermore, movements in interest rates, the pace at which such movements occur and the volume and mix of our interest-bearing assets and liabilities influence the level of net interest income. The cost of customer deposits is largely based on short-term interest rates, the level of which is driven by the FOMC. However, the yields generated by long-term loans, such as single-family residential and multifamily mortgage loans, and securities are typically driven by longer-term (10 year) interest rates, which are set by the market and vary from day to day. Further, recent changes in the Federal Reserve's purchase of assets, commonly known as "quantitative easing," have created significant volatility in market interest rates and recent, rapid
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increases in federal benchmark rates and likely additional increases in such rates are creating additional uncertainty and making it more difficult for us to balance our loan and deposit portfolios.
For example, if the interest rates on interest-bearing liabilities increase at a faster pace than the interest rates on interest-earning assets, the result could be a reduction in our net interest income and with it, a reduction in earnings. The same could be true if interest rates on interest-earning assets decline faster than the rates on interest-bearing liabilities. Net interest income and earnings would be similarly impacted were the interest rates on interest-earning assets to decline more quickly than the interest rates on interest-bearing liabilities. In addition, changes in interest rates could affect the Bank's ability to originate loans and attract and retain deposits; the fair values of its securities and other financial assets; the fair values of its liabilities; and the average lives of its loan and securities portfolios. Additionally, decreases in interest rates could lead to increased loan refinancing activity, which, in turn, would alter the balance of our interest-earning assets and impact net interest income. Increases in interest rates could reduce loan refinancing activity, which could result in compression of the spread between loan yields and more quickly rising funding rates.
We may also be exposed to movements in market rates to a degree not experienced by other financial institutions, as a result of our significant portfolio of fixed-rate single-family home loans, which are longer-term in nature than the customer accounts and borrowed money that constitute our liabilities.
Our liquidity may be adversely impacted by issues arising from certain industry deficiencies in foreclosure practices, including delays and challenges in the foreclosure process.
Foreclosure process issues and the potential legal and regulatory responses to them could negatively impact the process and timing to completion of foreclosures for residential mortgage lenders, including the Bank. Due to the COVID-19 emergency, certain states in which we do business have enacted temporary stays on evictions and foreclosures, or instituted a right to forbearance for homeowners experiencing financial hardship. Many of these states have not revised or retracted these policies even as the apparent degree of the emergency appears to have mitigated. Even before the adoption of these emergency policies, foreclosure timelines have increased in recent years due to, among other reasons, delays associated with the significant increase in the number of foreclosure cases as a result of economic downturns, additional consumer protection initiatives related to the foreclosure process and voluntary or mandatory programs intended to permit or require lenders to consider loan modifications or other alternatives to foreclosure. Should these stays or rights to forbearance continue, we may be limited in our ability to take timely possession of real estate assets collateralizing loans, which may increase our loan losses. Increases in the foreclosure timeline may also have an adverse effect on collateral values and the our ability to minimize our losses.
The replacement of the LIBOR benchmark interest rate may have an impact on our business, financial condition or results of operations.
Certain loans made by us are made at variable rates that use LIBOR as a benchmark for establishing the interest rate. In addition, we also have investments and interest rate derivatives that reference LIBOR. On July 27, 2017, the United Kingdom’s Financial Conduct Authority ("FCA") announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. On November 30, 2020 to facilitate an orderly LIBOR transition the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Board of Governors of the Federal Reserve jointly announced that entering into new contacts using LIBOR as a reference rate after December 31, 2021 would create a safety and soundness risk. On March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021, in the case of 1-week and 2-month U.S. dollar LIBOR, and immediately after June 30, 2023, in the case of the remaining U.S. dollar LIBOR settings. In the United States, efforts to identify a set of alternative U.S. dollar reference interest rates are ongoing, and the Alternative Reference Rate Committee ("ARRC") has recommended the use of a Secured Overnight Funding Rate ("SOFR"). SOFR is different from LIBOR in that it is a backward looking secured rate rather than a forward looking unsecured rate. These differences could lead to a greater disconnect between the Bank's costs to raise funds for SOFR as compared to LIBOR. For cash products and loans, the ARRC has also recommended Term SOFR, which is a forward looking SOFR based on SOFR futures and may in part reduce differences between SOFR and LIBOR. To further reduce differences between replacement indices and substitute indices market practitioners have also gravitated towards credit sensitive rates, the leading among them being the Bloomberg Short-term Bank Yield Index (“BSBY”). The ARRC announced on October 21, 2020 that they are not well positioned to adjudicate the development of a credit sensitive rate and will not criticize firms solely for using reference rates other than SOFR, such as BSBY. The Company has prepared to originate new loans to customers based on SOFR, Term SOFR and BSBY. There are also operational issues which may create a delay in the transition to SOFR or other substitute indices, leading to uncertainty across the industry. The implementation of a substitute index or indices for the calculation of interest rates under our loan agreements with our borrowers may incur significant expenses in effecting the transition, may result in reduced loan balances if borrowers do not accept the substitute index or indices, and may result in disputes or litigation with customers over the appropriateness or comparability to LIBOR of the substitute index or indices, which could have an adverse effect on our results of operations. These reforms may cause LIBOR to cease to exist, new methods of calculating LIBOR to be established or the establishment of
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multiple alternative reference rate(s). These consequences cannot be entirely predicted and could have an adverse impact on the market value for or value of LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us.
Competitive Risks
Our ability to originate mortgage loans has been adversely affected by the increased competition resulting from the involvement of the U.S. Government, the Federal Reserve and Government-Sponsored Enterprises (“GSEs”) in the residential mortgage market.
Over the past few years, we have faced increased competition for mortgage loans due to the increased involvement of the GSEs in the mortgage market, which has caused interest rates for thirty year fixed-rate mortgage loans that conform to GSE guidelines to remain artificially low. Mortgage loan repayments on one-to-four family residential properties have been elevated, and it is possible that these mortgage loan repayments will outpace our loan production as a result of this competition, making it difficult for us to grow our mortgage loan portfolio and balance sheet, and having an adverse effect on our business.
The Bank faces strong competition from other financial institutions and new market participants, offering services similar to those offered by the Bank.
Many competitors, including fintech companies, offer the same types of loan and deposit services that the Company offers. These competitors include national and multinational banks, other regional banks, savings associations, community banks, credit unions and other financial intermediaries. In particular, our competitors include national banks and major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations and mount extensive promotional and advertising campaigns. Additionally, recent technological breakthroughs have made it possible for other non-traditional competitors to enter the marketplace and compete for traditional banking services. Increased competition within our geographic market area may result in reduced loan originations and deposits. Ultimately, competition from current and future competitors may affect our business materially and adversely.
We may not be able to continue to grow organically or through acquisitions.
Historically, we have expanded through a combination of organic growth and acquisitions. If market and regulatory conditions change, we may be unable to grow organically or successfully compete for, complete, and integrate potential future acquisitions at the same pace as we have achieved in recent years, or at all. We have historically used our strong stock currency and capital resources to complete acquisitions. Downturns in the stock market and the market price of our stock, changes in our capital position, and changes in our regulatory standing could each have a negative impact on our ability to complete future acquisitions.
Security Ownership Risks
Our ability to pay dividends is subject to limitations that may affect our ability to continue to pay dividends to shareholders.
The Company is a separate legal entity from the bank subsidiary and does not have significant operations of its own. The availability of dividends from the Bank is limited by the Bank's earnings and capital, as well as various statutes and regulations. It is possible, depending upon the financial condition of the Bank and other factors, that the Bank may not be able to pay dividends to the Company. If the Bank is unable to pay dividends to the Company, then we may not be able to pay dividends on our preferred or common stock to our shareholders. There are various federal law limitations on the extent to which the Bank can finance or otherwise supply funds to the Company through dividends and loans. These limitations include capital adequacy regulations and policies of its regulators generally and specifically the FDIC’s Prompt Corrective Action regulations, federal banking law requirements concerning the payment of dividends out of net profits or surplus, Sections 23A and 23B of the Federal Reserve Act and Regulation W governing transactions between an insured depository institution and its affiliates, as well as general federal regulatory oversight to prevent unsafe or unsound practices. If the Bank earnings are not sufficient to make dividend payments to us while maintaining adequate capital levels, then our liquidity may be affected and our stock price may be negatively affected by our inability to pay dividends, which will have an adverse impact on both the Company and our shareholders.
Our 4.875% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A (“Series A Preferred Stock”) ranks senior to our Common Stock, and we are prohibited from paying dividends on our common stock unless we have paid dividends on our Series A Preferred.
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Shares of our Series A Preferred Stock rank senior to our Common stock with respect to the payment of dividends and distributions of assets upon liquidation, dissolution or winding up. Holders of Series A Preferred Stock are entitled to receive, when, as, and if declared by our Board of Directors (or a duly authorized committee of our Board of Directors), out of assets legally available for the payment of dividends under Washington law, non-cumulative cash dividends based on the liquidation preference of the Series A Preferred Stock at a rate equal to 4.875% per annum for each quarterly dividend period, beginning on April 15, 2021. If we do not or are unable to pay quarterly dividends on our Series A Preferred Stock, we may not pay a dividend to the holders of our Common Stock. Our stock price may be negatively affected by our inability to pay dividends, which will have an adverse impact on both the Company and our shareholders.
In addition, if we fail to pay, or declare and set apart for payment, dividends on our Series A Preferred Stock for six quarterly dividend periods, whether or not consecutive, the number of directors on our Board of Directors will automatically be increased by two, and the holders of shares of Series A Preferred Stock will have the right to elect two additional members of our Board of Directors (the “Preferred Stock Directors”) to fill such newly created directorships.
The market price for our Common Stock may be volatile.
The market price of our Common Stock could fluctuate substantially in the future in response to a number of factors, including those discussed below. The market price of our Common Stock has in the past fluctuated significantly. We expect to see additional volatility in the financial markets due to the uncertainty caused by the continuing COVID-19 pandemic, disruption in global supply chains, uncertainty over the U.S. government debt ceiling and changing Federal Reserve policy. Some additional factors that may cause the price of our common stock to fluctuate include:
•general conditions in the financial markets and real estate markets.
•macro-economic and political conditions in the U. S. and the financial markets generally (including the effects of the COVID-19 pandemic).
•variations in the operating results of the Company and our competitors.
•events affecting other companies that the market deems comparable to the Company.
•changes in securities analysts' estimates of our future performance and the future performance of our competitors.
•announcements by the Company or our competitors of mergers, acquisitions and strategic partnerships.
•additions or departure of key personnel.
•the presence or absence of short selling of the Company's Common Stock.
•future sales by us of our Common Stock or debt securities.
The stock markets in general have experienced substantial price and trading fluctuations. These fluctuations have resulted in volatility in the market prices of securities that often has been unrelated or disproportionate to changes in operating performance. These broad market fluctuations are expected to continue for the near future, and may adversely affect the trading price of our Common Stock.
There may be future sales or other dilution of the Company's equity, which may adversely affect the market price of our common stock or depositary shares.
We are not restricted from issuing additional shares of common stock, preferred stock, or securities that are convertible into or exchangeable for, or that represent the right to receive, Common Stock or preferred stock. Our Board of Directors is authorized to cause Washington Federal to issue one or more classes or series of preferred stock junior to our Series A Preferred Stock from time to time without any action on the part of our shareholders, and our Board of Directors also has the power, without shareholder approval, to set the terms of any such classes or series of preferred stock that may be issued, including voting rights, dividend rights, and preferences over the Common Stock with respect to dividends or upon our dissolution, winding up and liquidation and other terms. Although the approval of holders of depositary shares representing interests in the Series A Preferred Stock will be needed to issue any equity security ranking above the Series A Preferred Stock, if we were to issue preferred stock in the future that has preference over the Series A Preferred Stock with respect to the payment of dividends or upon liquidation, or if we were to issue preferred stock with voting rights that dilute the voting power of the Series A Preferred Stock or depositary shares, the rights of holders of the depositary shares or the market price of the depositary shares could be adversely affected.
The issuance of any additional shares of common or of preferred stock or convertible securities or the exercise of such securities could be substantially dilutive to existing shareholders. For instance, exercise of the warrant issued to the U.S. Treasury in connection with our participation in the Capital Purchase Program diluted the value of our Common Stock. We may also elect to use Common Stock to fund new acquisitions, which will dilute existing shareholders. Holders of our Common
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Stock have no preemptive rights that entitle holders to purchase their pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in increased dilution to our shareholders.
We rely, in part, on external financing to fund our operations and the unavailability of such funding in the future could adversely impact our growth and prospects.
We rely on customer deposits, advances from the FHLB and other borrowings to fund our operations. Management has historically been able to replace maturing deposits, if desired; however, we may not be able to replace such funds at any given point in time if our financial condition or market conditions change or if the cost of doing so might adversely affect our business, financial condition and results of operations.
Although we consider current sources of funds adequate for our liquidity needs, we may seek additional debt in the future to achieve our long-term business objectives. Such borrowings, if sought, may not be available to us or, if available, may not be on favorable terms. If additional financing sources are unavailable or are not available on reasonable terms, our business, financial condition and results of operations may be adversely affected.
A person holding our Common Stock could have the voting power of their shares of Common Stock on all matters significantly reduced under Washington's anti-takeover statutes, if the person acquires 10% or more of the voting stock of the Company.
We are incorporated in the state of Washington and subject to Washington state law. Some provisions of Washington state law could interfere with or restrict takeover bids or other change-in-control events affecting us. For example, Chapter 23B.19 of the Washington Business Corporation Act, with limited exceptions, prohibits a “target corporation” from engaging in specified “significant business transactions” for a period of five years after the share acquisition by an acquiring person, unless:
•the prohibited transaction or the acquiring person's purchase of shares was approved by a majority of the members of the target corporation's board of directors prior to the acquiring person's share acquisition; or
•the prohibited transaction was both approved by the majority of the members of the target corporation's board and authorized at a shareholder meeting by at least two-thirds of the outstanding voting shares (excluding the acquiring person's shares) at or subsequent to the acquiring person's share acquisition. An acquiring person is defined as a person or group of persons that beneficially own 10% or more of the voting securities of the target corporation. Such prohibited transactions include, among other things:
•certain mergers, or consolidations with, disposition of assets to, or issuances of stock to or redemption of stock from, the acquiring person;
•termination of 5% or more of the employees of the target corporation as a result of the acquiring person's acquisition of 10% or more of the shares;
•allowing the acquiring person to receive any disproportionate benefit as a shareholder; and
•liquidating or dissolving the target corporation.
After the five-year period, certain “significant business transactions” are permitted, if they comply with certain “fair price” provisions of the statute or are approved by a majority of the outstanding shares other than those of which the acquiring person has beneficial ownership. As a Washington corporation, the Company is not permitted to “opt out” of this statute.
The Company’s business or the value of its common shares could be negatively affected as a result of actions by activist shareholders.
The Company values constructive input from shareholders. Our Board of Directors and management team are committed to acting in the best interests of all of the Company’s shareholders. Activist shareholders who disagree with the composition of the Board of Directors, the Company’s strategic direction, or the way the Company is managed may seek to effect change through various strategies that range from private engagement to public filings, proxy contests, efforts to force transactions not supported by the Board of Directors, and litigation. Responding to some of these actions can be costly and time-consuming, may disrupt the Company’s operations and divert the attention of the Board of Directors and management. Such activities could interfere with the Company’s ability to execute its strategic plan and to attract and retain qualified executive leadership. The perceived uncertainty as to the Company’s future direction resulting from activist strategies could also affect the market price and volatility of the Company’s common shares.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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 June 30, 2022.

Period | Total 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
April 1, 2022 to April 30, 2022 | 1,712 |  |  | $ | 31.70 |  |  | 1,712 |  |  | 3,726,608 |
May 1, 2022 to May 31, 2022 | 197 |  |  | 30.56 |  |  | 197 |  |  | 3,726,411 |
June 1, 2022 to June 30, 2022 | 537 |  |  | 30.54 |  |  | 537 |  |  | 3,725,874 |
Total | 2,446 |  |  | $ | 31.36 |  |  | 2,446 |  |  | 3,725,874 |

___________________
(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 Board of Directors' dividend policy is to review our financial performance, capital adequacy, regulatory compliance and cash resources on a quarterly basis, and, if such review is favorable, to declare and pay a quarterly cash dividend to common shareholders. The 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
On July 29, 2022, Broadridge replaced AST as the transfer agent for the Company's common stock and depositary for the Company's preferred stock.
Item 6. Exhibits

(a) |  | Exhibits
|  | 31.1 * |  | Section 302 Certification by the Chief Executive Officer
|  | 31.2 * |  | Section 302 Certification by the Chief Financial Officer
|  | 32 * |  | Section 906 Certification by the Chief Executive Officer and Chief Financial Officer
|  | 101 * |  | Financial Statements from the Company’s Form 10-Q for the three months ended June 30, 2022 formatted in iXBRL
|  | 104 * |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Filed herewith

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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)
July 29, 2022 | /S/ BRENT J. BEARDALL
| BRENT J. BEARDALL President & Chief Executive Officer
July 29, 2022 | /S/ VINCENT L. BEATTY
| VINCENT L. BEATTY Executive Vice President and Chief Financial Officer
July 29, 2022 | /S/ CORY D. STEWART
| CORY D. STEWART Senior Vice President and Principal Accounting Officer

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