Companies: 10,761     total market cap: HK$1021.114 T
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WaFd Bank
WAFD
#4353
Rank
HK$18.59 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
HK$243.26
Share price
-1.71%
Change (1 day)
11.45%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. WaFd Bank
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2024 Q1

WaFd Bank - 10-Q quarterly report FY2024 Q1


Text size:
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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 December 31, 2023
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 001-34654
WAFD, INC.
(Exact name of registrant as specified in its charter)
 
Washington
91-1661606
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
425 Pike Street
Seattle
Washington
98101
(Address of Principal Executive Offices)
(Zip Code)
Registrant’s telephone number, including area code (206) 624-7930
 
(Former name, former address and former fiscal year, if changed since last report.)

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

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

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

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


The registrant had outstanding 64,736,916 shares of common stock as of January 30, 2024.


WAFD, INC. AND SUBSIDIARIES
 
  
The Consolidated Financial Statements of WaFd, Inc. and Subsidiaries filed as a part of the report are as follows:
  
  
  
  

2
WAFD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)



December 31, 2023September 30, 2023
(In thousands, except share data)
ASSETS
Cash and cash equivalents$1,144,774 $980,649 
Available-for-sale securities, at fair value
2,018,445 1,995,097 
Held-to-maturity securities, at amortized cost
415,079 423,586 
Loans receivable, net of allowance for loan losses of $179,320 and $177,207
17,584,622 17,476,550 
Interest receivable87,022 87,003 
Premises and equipment, net237,202 237,011 
Real estate owned6,820 4,149 
FHLB stock137,940 126,820 
Bank owned life insurance244,558 242,919 
Intangible assets, including goodwill of $305,125 and $304,750
311,103 310,619 
Federal and state income tax assets, net— 8,479 
Other assets452,557 581,793 
$22,640,122 $22,474,675 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Customer accounts
Transaction deposit accounts$10,658,064 $10,765,313 
Time deposit accounts5,380,723 5,305,016 
16,038,787 16,070,329 
Borrowings3,875,000 3,650,000 
Advance payments by borrowers for taxes and insurance19,244 52,550 
Federal and state income tax liabilities, net1,478 — 
Accrued expenses and other liabilities253,609 275,370 
20,188,118 20,048,249 
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; 136,679,479 and 136,466,579 shares issued; 64,254,700 and 64,736,916 shares outstanding
136,679 136,467 
Additional paid-in capital1,691,102 1,687,634 
Accumulated other comprehensive income (loss), net of taxes47,014 46,921 
Treasury stock, at cost; 72,424,779 and 71,729,663 shares
(1,629,348)(1,612,345)
Retained earnings1,906,557 1,867,749 
2,452,004 2,426,426 
$22,640,122 $22,474,675 


SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
3
WAFD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 Three Months Ended December 31,
 20232022
(In thousands, except share data)
INTEREST INCOME
Loans receivable$245,792 $203,946 
Mortgage-backed securities11,266 10,613 
Investment securities and cash equivalents29,788 18,860 
286,846 233,419 
INTEREST EXPENSE
Customer accounts96,671 31,646 
Borrowings37,938 18,974 
134,609 50,620 
Net interest income152,237 182,799 
Provision for credit losses— 2,500 
Net interest income after provision (release)152,237 180,299 
OTHER INCOME
Gain (loss) on sale of investment securities81 — 
Gain (loss) on termination of hedging derivatives109 — 
Loan fee income844 1,502 
Deposit fee income6,802 6,353 
Other income6,331 6,169 
14,167 14,024 
OTHER EXPENSE
Compensation and benefits49,841 49,070 
Occupancy9,371 10,102 
FDIC insurance premiums6,570 3,675 
Product delivery6,009 4,621 
Information technology12,866 12,329 
Other expense11,883 12,481 
96,540 92,278 
Gain (loss) on real estate owned, net1,826 (112)
Income before income taxes71,690 101,933 
Income tax expense13,237 22,424 
Net income58,453 79,509 
Dividends on preferred stock3,656 3,656 
Net income available to common shareholders$54,797 $75,853 
PER SHARE DATA
Basic earnings per common share$0.85 $1.16 
Diluted earnings per common share0.85 1.16 
Dividends paid on common stock per share0.25 0.24 
Basic weighted average number of shares outstanding64,297,49965,341,974
Diluted weighted average number of shares outstanding64,312,11065,430,690

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
4
WAFD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)


 Three Months Ended December 31,
 20232022
(In thousands)
Net income$58,453 $79,509 
Other comprehensive income (loss) net of tax:
Net unrealized gain (loss) during the period on available-for-sale investment securities, net of tax of $(9,294) and $1,659
31,276 (5,521)
Reclassification adjustment of net (gain) loss from sale of available-for-sale securities included in net income, net of tax of $(19) and $0
63 — 
Net unrealized gain (loss) from investment securities, net of reclassification adjustment31,339 (5,521)
Net unrealized gain (loss) during the period on borrowings cash flow hedges, net of tax of $9,281 and $1,572
(31,246)(5,234)
Net unrealized gain (loss) in cash flow hedging instruments, net of reclassification adjustment(31,246)(5,234)
Other comprehensive income (loss)93 (10,755)
Comprehensive income$58,546 $68,754 



SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
5
WAFD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED) 

(in thousands)Preferred StockCommon StockPaid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal
Balance at October 1, 2023$300,000 $136,467 $1,687,634 $1,867,749 $46,921 $(1,612,345)$2,426,426 
Net income— — — 58,453 — — 58,453 
Other comprehensive income (loss)— — — — 93 — 93 
Dividends on common stock
($0.25 per share)
— — — (15,989)— — (15,989)
Dividends on preferred stock ($12.1875 per share)
— — — (3,656)— — (3,656)
Proceeds from stock issuances— 55 1,394 — — — 1,449 
Stock-based compensation expense— 157 2,074 — — 62 2,293 
Treasury stock purchased— — — — — (17,065)(17,065)
Balance at December 31, 2023$300,000 $136,679 $1,691,102 $1,906,557 $47,014 $(1,629,348)$2,452,004 
(in thousands)Preferred StockCommon StockPaid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal
Balance at October 1, 2022$300,000 $136,271 $1,686,975 $1,688,740 $52,481 $(1,590,207)$2,274,260 
Net income— — — 79,509 — — 79,509 
Other comprehensive income (loss)— — — — (10,755)— (10,755)
Dividends on common stock
($0.24 per share)
— — — (15,585)— — (15,585)
Dividends on preferred stock ($12.1875 per share)
— — — (3,656)— — (3,656)
Proceeds from stock issuances— 25 740 — — — 765 
Stock-based compensation expense— 77 1,494 — — — 1,571 
Treasury stock purchased— — — — — (1,728)(1,728)
Balance at December 31, 2022$300,000 $136,373 $1,689,209 $1,749,008 $41,726 $(1,591,935)$2,324,381 









SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
6
WAFD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) 
 Three Months Ended December 31,
 20232022
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income$58,453 $79,509 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, accretion and other, net(22,095)1,613 
Stock-based compensation expense2,293 1,571 
Provision (release) for credit losses— 2,500 
Loss (gain) on sale of investment securities(81)— 
Gain on settlements of bank owned life insurance— (821)
Net realized (gain) loss on sales of premises, equipment, and real estate owned(3,571)(230)
Decrease (increase) in accrued interest receivable(19)(11,444)
Decrease (increase) in federal and state income tax receivable8,451 — 
Decrease (increase) in cash surrender value of bank owned life insurance(1,639)(439)
Decrease (increase) in other assets85,553 3,134 
Increase (decrease) in federal and state income tax liabilities1,478 16,920 
Increase (decrease) in accrued expenses and other liabilities(18,563)(26,213)
Net cash provided by (used in) operating activities110,260 66,100 
CASH FLOWS FROM INVESTING ACTIVITIES
Origination of loans and principal repayments, net(81,947)(802,470)
Loans purchased— (77,484)
FHLB stock purchased(156,375)(176,000)
FHLB stock redeemed145,255 138,000 
Available-for-sale securities purchased(49,380)(115,909)
Principal payments and maturities of available-for-sale securities64,120 100,340 
Proceeds from sales of available-for-sale securities2,624 — 
Principal payments and maturities of held-to-maturity securities8,438 9,793 
Proceeds from sales of real estate owned4,762 744 
Purchase of strategic investments— (7,500)
Net cash received (paid) in business combinations(750)— 
Proceeds from sales of premises and equipment421 664 
Premises and equipment purchased and REO improvements(8,195)(2,217)
Net cash provided by (used in) investing activities(71,027)(932,039)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in customer accounts(31,542)(69,535)
Proceeds from borrowings6,050,000 4,400,000 
Repayments of borrowings(5,825,000)(3,450,000)
Proceeds from stock-based awards1,220 765 
Dividends paid on common stock(15,989)(15,585)
Dividends paid on preferred stock(3,656)(3,656)
Proceeds from employee stock purchase229 — 
Treasury stock purchased(17,064)(1,728)
Increase (decrease) in advances payments by borrowers for taxes and insurance(33,306)(32,425)
Net cash provided by (used in) financing activities124,892 827,836 
Increase (decrease) in cash and cash equivalents164,125 (38,103)
Cash, cash equivalents and restricted cash at beginning of period980,649 683,965 
Cash, cash equivalents and restricted cash at end of period$1,144,774 $645,862 
(CONTINUED)
SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
7
WAFD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Three Months Ended December 31,
 20232022
(In thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Non-cash investing activities
Real estate acquired through foreclosure$— $95 
Non-cash financing activities
Preferred stock dividend payable3,656 3,656 
Cash paid (received) during the period for
Interest131,204 48,195 
Income tax(738)1,016 


SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
8
Table of Contents

WAFD, 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, was formed as the Bank’s holding company in November, 1994. On September 27, 2023, Articles of Amendment were filed with the Washington Secretary of State to change the name of Washington Federal, Inc. to WaFd, Inc. This change was effective on September 29, 2023. As used throughout this document, the terms “WaFd” or the “Company” or “we” or “us” and “our” refer to WaFd, Inc. and its consolidated subsidiaries, and the term “Bank” refers to the operating subsidiary, Washington Federal Bank dba WaFd Bank. The Company is headquartered in Seattle, Washington. The Bank conducts its activities through a network of 198 bank branches located in Washington, Oregon, Idaho, Utah, Arizona, Nevada, New Mexico and Texas.

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

The information included in this Form 10-Q should be read in conjunction with the financial statements and related notes contained in the Company's 2023 Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on November 17, 2023 ("2023 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 2023 Annual Financial Statements. There have not been any significant changes in the Company's significant accounting policies compared to those contained in its 2023 Annual Financial Statements.

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

Restricted Cash Balances - Based on the level of vault cash on hand, the Company was not required to maintain cash reserve balances with the Federal Reserve Bank as of December 31, 2023. As of December 31, 2023 and September 30, 2023, the Company held counterparty cash collateral of $229,100,000 and $326,750,000, respectively, related to derivative contracts.

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

•Low-income housing tax credit investments are accounted for under the proportional amortization method.
•For equity investments where the Company has significant influence, the Company applies the equity method of accounting, which adjusts the carrying value of the investment to recognize a proportionate share of the financial results of the investment entity, regardless of whether any distribution is made. Any adjustments to the fair value of these investments are recorded in Other income in the Consolidated Statements of Operations.
•For investments in certain nonmarketable equity securities investments where the equity method of accounting is not applicable, the Company applies the fair value method. Any adjustments to the fair value of these investments are recorded in Other income in the Consolidated Statements of Operations. Fair value is determined by reference to readily determinable market values, if applicable. As these investments do not have readily determinable fair values, they are generally accounted for at cost minus impairment, if any, plus or minus changes resulting from observable
9
WAFD, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


transactions involving the same or similar investments from the same issuer. This practice is referred to as the measurement alternative.
•Equity investments in qualified real estate funds can use the NAV expedient for fair value measurement. Under this method, the net asset value (NAV) is determined by the fund as fair value for the investment. At December 31, 2023, equity investments held by the Company and recorded at NAV had a carrying amount of $36,708,000 and a remaining unfunded commitment of $5,578,000. These NAV based investments cannot be transferred without consent and we do not have redemption rights. Equity investments measured at NAV are not classified in the fair value hierarchy.

Allowance for Credit Losses (Loans Receivable) - The Company maintains an allowance for credit losses (“ACL”) for the expected credit losses of the loan portfolio as well as unfunded loan commitments. The amount of ACL is based on ongoing, quarterly assessments by management. The current expected credit loss methodology (“CECL”) requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures).

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

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

For the majority of the Company's 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
10
WAFD, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


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

The Company may establish a specific reserve for individually evaluated loans that do not share similar risk characteristics with the loans included in each respective loan pool if management deems it appropriate. If this occurs, these individually evaluated loans are removed from their respective pools and typically represent collateral dependent loans but may also include other non-performing loans.

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

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

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

•Presenting accrued interest receivable balances separately from their underlying instruments within the consolidated statements of financial condition.
•Excluding accrued interest receivable that is included in the amortized cost of financing receivables from related disclosure requirements.
•Continuing the Company's 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. 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 being modified, 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. For commercial loans, six consecutive payments on newly restructured loan terms are required prior to returning the loan to accrual status. In some instances, after the required six consecutive payments are made, management will conclude that collection of the entire principal and interest due is still in doubt. In those instances, the loan will remain on non-accrual status.
11
WAFD, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



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 $3,180,001,000 and $3,625,333,000 at December 31, 2023 and September 30, 2023, respectively. The reserve for unfunded commitments is recognized as a liability (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.

Subsequent events - On January 30, 2024, the Company announced that it had received all regulatory approvals needed for Luther Burbank Corporation (NASDAQ: LBC, "Luther Burbank") to be merged with and into WaFd, Inc. The approval is based on the terms and subject to the conditions of the Agreement and Plan of Reorganization dated November 13, 2022 (the "Merger Agreement"). The merger is expected to be completed by February 29, 2024, subject to the satisfaction or waiver of the remaining closing conditions set forth in the Merger Agreement. The Company announced the merger in November 2022 and obtained shareholder approval on May 4th, 2023. This transaction will expand the Company's footprint to nine western states with the addition of branches in California.

NOTE B – New Accounting Pronouncements

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

In October 2023, the FASB issued ASU 2023-6 Disclosure Improvements: Codification Amendments In Response to the SEC's Disclosure Update and Simplification Initiative to clarify or improve disclosure and presentation requirements on a variety of topics and align the requirements in the FASB accounting standard codification with the Securities and Exchange Commission regulations. The amendments will be effective for the Company only if the SEC removes the related disclosure requirement from its existing regulations no later than June 30, 2027. If the SEC timely removes such a related requirement from its existing regulations, the corresponding amendments within the ASU will become effective for the Company on the same date with early adoption permitted. The Company does not expect the amendments in this update to have a material impact on our consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting - Improvements to Reportable Segment Disclosures (Topic 280) to improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses. For public companies amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 with early adoption permitted. The Company does not expect this ASU to have a material effect on our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Tax - Improvements to Income Tax Disclosures (Topic 740) which requires reporting companies to break out their income tax expense and tax rate reconciliation in more detail. For public
12
WAFD, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


companies, the requirements will become effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company does not expect this ASU to have a material effect on our consolidated financial statements.


NOTE C – Dividends and Share Repurchases

On December 8, 2023, the Company paid a regular dividend on common stock of $0.25 per share, which represented the 163rd consecutive quarterly cash dividend. Dividends per share were $0.25 and $0.24 for the quarters ended December 31, 2023 and 2022, respectively.

For the three months ended December 31, 2023, the Company repurchased 697,893 shares at an average price of $24.45. As of December 31, 2023, there are 1,861,290 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 a Series A Preferred Dividend on October 15, 2023 and January 15, 2024.

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.

13
WAFD, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


The following table is a summary of loans receivable by loan portfolio segment and class.
 December 31, 2023September 30, 2023
Gross loans by category(In thousands)(In thousands)
Commercial loans
Multi-family$3,054,426 15.8 %$2,907,086 14.8 %
Commercial real estate3,351,113 17.3 3,344,959 17.0 
Commercial & industrial2,371,393 12.3 2,321,717 11.8 
Construction2,868,207 14.8 3,318,994 16.9 
Land - acquisition & development190,732 1.0 201,538 1.0 
Total commercial loans11,835,871 61.2 12,094,294 61.6 
Consumer loans
Single-family residential6,535,073 33.8 6,451,270 32.8 
Construction - custom543,748 2.8 672,643 3.4 
   Land - consumer lot loans119,735 0.6 125,723 0.6 
   HELOC243,742 1.2 234,410 1.2 
   Consumer74,884 0.4 70,164 0.4 
Total consumer loans7,517,182 38.8 7,554,210 38.4 
Total gross loans19,353,053 100 %19,648,504 100 %
   Less:
      Allowance for credit losses on loans179,320 177,207 
      Loans in process1,516,522 1,895,940 
      Net deferred fees, costs and discounts72,589 98,807 
Total loan contra accounts1,768,431 2,171,954 
Net loans$17,584,622 $17,476,550 



The Company elected to exclude accrued interest receivable from the amortized cost basis of loans for disclosure purposes and from the calculations of estimated credit losses. As of December 31, 2023, and September 30, 2023, AIR for loans totaled $77,760,000 and $77,349,000, respectively, and is included in the Interest receivable line item balance on the Company’s consolidated statements of financial condition.
14
WAFD, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


Loans in the amount of $10,493,301,000 and $8,941,201,000 at December 31, 2023 and September 30, 2023, respectively, were pledged to secure borrowings from the Federal Home Loan Bank ("FHLB") as part of the Company's 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.
 
 December 31, 2023September 30, 2023
 (In thousands, except ratio data)
Non-accrualNon-accrual with no ACL90 days or more past due and accruingNon-accrualNon-accrual with no ACL90 days or more past due and accruing
Commercial loans
Multi-family$132 $— $— $5,127 $— $— 
Commercial real estate24,283 — — 23,435 — — 
Commercial & industrial4,437 — — 6,082 — — 
Construction— — — — — — 
Land - acquisition & development— — — — — — 
   Total commercial loans28,852 — — 34,644 — — 
Consumer loans
Single-family residential15,396 — — 14,918 — — 
Construction - custom88 — — 88 — — 
Land - consumer lot loans57 — — 9 — — 
HELOC603 — — 736 — — 
Consumer262 — — 27 — — 
   Total consumer loans16,406 — — 15,778 — — 
Total non-accrual loans$45,258 $— $— $50,422 $— $— 
% of total loans0.25 %0.29 %

The Company recognized interest income on non-accrual loans of approximately $511,000 in the three months ended December 31, 2023 as a result of the collection of past due amounts. 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 $625,000 for the three months ended December 31, 2023. Interest cash flows collected on non-accrual loans vary from period to period as those loans are brought current or are paid off.

15
WAFD, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


The following tables provide details regarding loan delinquencies by loan portfolio and class.
 
December 31, 2023Days Delinquent Based on $ Amount of Loans% based
on $
Type of LoanLoans Receivable (Amortized Cost)Current306090Total Delinquent
(In thousands, except ratio data)
Commercial Loans
Multi-family$3,022,457 $3,022,325 $— $— $132 $132 — %
Commercial real estate3,332,293 3,307,076 934 — 24,283 25,217 0.76 
Commercial & industrial2,364,982 2,357,841 2,686 20 4,435 7,141 0.30 
Construction1,695,506 1,695,506 — — — — 
Land - acquisition & development148,711 148,711 — — — — — 
   Total commercial loans10,563,949 10,531,459 3,620 20 28,850 32,490 0.31 
Consumer Loans
Single-family residential6,495,449 6,473,306 6,131 4,065 11,947 22,143 0.34 
Construction - custom263,638 262,791 760 — 87 847 0.32 
Land - consumer lot loans118,917 118,524 336 — 57 393 0.33 
HELOC247,145 245,477 1,117 — 551 1,668 0.67 
Consumer74,844 74,328 208 47 261 516 0.69 
   Total consumer loans7,199,993 7,174,426 8,552 4,112 12,903 25,567 0.36 
Total Loans$17,763,942 $17,705,885 $12,172 $4,132 $41,753 $58,057 0.33 %
Delinquency %99.67%0.07%0.01%0.24%0.33%



September 30, 2023Days Delinquent Based on $ Amount of Loans% based
on $
Type of LoanLoans Receivable (Amortized Cost)Current306090Total Delinquent
(In thousands, except ratio data)
Commercial Loans
Multi-family$2,886,594 $2,886,462 $— $— $132 $132 — %
Commercial real estate3,310,101 3,285,673 848 145 23,435 24,428 0.74 
Commercial & industrial2,315,318 2,307,020 30 2,186 6,082 8,298 0.36 
Construction1,838,936 1,838,936 — — — — — 
Land - acquisition & development156,661 156,661 — — — — — 
  Total commercial loans10,507,610 10,474,752 878 2,331 29,649 32,858 0.31 
Consumer Loans
Single-family residential6,388,990 6,365,065 6,441 6,068 11,416 23,925 0.37 
Construction - custom324,451 320,987 760 2,617 87 3,464 1.07 
Land - consumer lot loans124,842 124,231 358 245 8 611 0.49 
HELOC237,754 235,708 1,050 314 682 2,046 0.86 
Consumer70,110 69,699 228 107 76 411 0.59 
  Total consumer loans7,146,147 7,115,690 8,837 9,351 12,269 30,457 0.43 
Total Loans$17,653,757 $17,590,442 $9,715 $11,682 $41,918 $63,315 0.36 %
Delinquency %99.64%0.06%0.07%0.24%0.36%


16
WAFD, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


On October 1, 2023, the Company adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which eliminated the accounting guidance on troubled debt restructurings ("TDRs") and requires enhanced disclosures for loan modifications to borrowers experiencing financial difficulty. This guidance was applied on a prospective basis. These modified balances are included in their segment cohort based on loan type for the purpose of calculating historical loss rates as described in Note A.
Loans may be modified as the result of borrowers experiencing financial difficulty needing relief from the contractual terms of their loan. Most loan modifications to borrowers experiencing financial difficulty are accruing and performing loans where the borrower has approached the Company about modification due to temporary financial difficulties. Each request for modification is individually evaluated for merit and likelihood of success. Often a term extension is needed in the short term in order to evaluate the need for further corrective action. Payment delays and interest-only payments may also be approved during the modification period. Principal forgiveness is not an available option for restructured loans.
For commercial loans, modifications could be any of the above-listed modification types available or a mix thereof. Modifications to extend the term, lower the payment amount or delay payment are made for the purposes of providing borrowers additional time to return to compliance with the terms of their loans. Renewals of commercial lines to borrowers experiencing financial difficulty are included within the disclosures below though many of these are made in the normal course of business.
For consumer loans, modifications typically consist of minor payment delays or deferrals and may include a modification of the existing contractual rate or extension of the maturity date, or both, when it is determined the borrowers are likely to successfully maintain compliance with these modified loan terms.

The following table presents the amortized basis of loans that were modified to borrowers experiencing financial difficulty during the period by loan class and modification type. All such modifications during the quarter were term extensions.

Three Months Ended December 31, 2023
Loan ClassTerm Extension% of Total Loan Class BalanceWtd. Avg.
Term Extension
( in thousands)(in months)
Commercial real estate$143 — %20
Commercial & industrial7,814 0.33 4
Construction346 0.02 4
Total commercial loans8,303 0.09 
Total Loans$8,303 0.05 %
The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of modification efforts. Only one loan modified in the three months ended December 31, 2023 was 31 days past due, all others were current. This loan had an amortized cost of $1,659,000 at December 31, 2023 and belonged to the commercial & industrial class. None of the loans above have defaulted after modification.

The Company evaluates the credit quality of its 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.

17
WAFD, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


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

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

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

18
WAFD, 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 December 31, 2023 and September 30, 2023. There were no commercial loans classified as Doubtful or Loss as of either date.
December 31, 2023Term Loans Amortized Cost Basis by Origination Year
YTD 20242023202220212020Prior to 2020Revolving LoansRevolving to Term LoansTotal Loans
Commercial loans
Multi-family
Pass$10,416 $135,720 $778,628 $955,583 $462,169 $521,665 $35,552 $13,959 $2,913,692 
Special Mention— — 90,668 — — — — — 90,668 
Substandard— — 5,690 2,302 2,416 7,689 — — 18,097 
Total$10,416 $135,720 $874,986 $957,885 $464,585 $529,354 $35,552 $13,959 $3,022,457 
Commercial real estate
Pass$61,720 $204,566 $979,199 $750,603 $444,855 $777,833 $2,317 $— $3,221,093 
Special Mention— — — 784 — — — — 784 
Substandard— 499 12,475 2,260 29,908 65,274 — — 110,416 
Total$61,720 $205,065 $991,674 $753,647 $474,763 $843,107 $2,317 $— $3,332,293 
Commercial & industrial
Pass$13,685 $160,759 $284,699 $310,840 $112,799 $187,813 $1,154,212 $55 $2,224,862 
Special Mention— — — — — — 2,850 — 2,850 
Substandard— — 10,457 5,346 2,784 49,992 68,690 1 137,270 
Total$13,685 $160,759 $295,156 $316,186 $115,583 $237,805 $1,225,752 $56 $2,364,982 
Gross Charge-offs— — — — — 31 — 31 62 
Construction
Pass$16,959 $321,724 $761,021 $396,547 $49,865 $49,310 $79,723 $— $1,675,149 
Substandard396 3,218 3,703 13,040 — — — — 20,357 
Total$17,355 $324,942 $764,724 $409,587 $49,865 $49,310 $79,723 $— $1,695,506 
Land - acquisition & development
Pass$9,598 $18,096 $60,988 $32,782 $6,251 $18,258 $2,600 $— $148,573 
Substandard— — 138 — — — — — 138 
Total$9,598 $18,096 $61,126 $32,782 $6,251 $18,258 $2,600 $— $148,711 
Gross Charge-offs— — — — — 18 — — 18 
Total commercial loans
Pass$112,378 $840,865 $2,864,535 $2,446,355 $1,075,939 $1,554,879 $1,274,404 $14,014 $10,183,369 
Special Mention— — 90,668 784 — — 2,850 — 94,302 
Substandard396 3,717 32,463 22,948 35,108 122,955 68,690 1 286,278 
Total$112,774 $844,582 $2,987,666 $2,470,087 $1,111,047 $1,677,834 $1,345,944 $14,015 $10,563,949 
Gross Charge-offs$— $— $— $— $— $49 $— $31 $80 

19
WAFD, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


December 31, 2023Term Loans Amortized Cost Basis by Origination Year
YTD 20242023202220212020Prior to 2020Revolving LoansRevolving to Term LoansTotal Loans
Consumer loans
Single-family residential
Current$50,755 $493,002 $1,584,370 $1,703,961 $715,431 $1,925,787 $— $— $6,473,306 
30 days past due— 820 337 1,470 746 2,758 — — 6,131 
60 days past due— — 863 1,335 — 1,867 — — 4,065 
90+ days past due— 996 469 675 682 9,125 — — 11,947 
Total$50,755 $494,818 $1,586,039 $1,707,441 $716,859 $1,939,537 $— $— $6,495,449 
Construction - custom
Current$1,331 $127,150 $131,617 $1,963 $372 $358 $— $— $262,791 
30 days past due— — 760 — — — — — 760 
90+ days past due— — 87 — — — — — 87 
Total$1,331 $127,150 $132,464 $1,963 $372 $358 $— $— $263,638 
Land - consumer lot loans
Current$3,804 $18,850 $39,120 $29,413 $11,342 $15,995 $— $— $118,524 
30 days past due— — — 336 — — — — 336 
90+ days past due— — — 57 — — — — 57 
Total$3,804 $18,850 $39,120 $29,806 $11,342 $15,995 $— $— $118,917 
HELOC
Current$— $— $— $— $— $4,797 $240,274 $406 $245,477 
30 days past due— — — — — 531 586 — 1,117 
90+ days past due— — — — — 8 543 — 551 
Total$— $— $— $— $— $5,336 $241,403 $406 $247,145 
Consumer
Current$29 $139 $122 $9,648 $8,005 $21,864 $34,521 $— $74,328 
30 days past due— — — — — 145 63 — 208 
60 days past due— — — — — 4 43 — 47 
90+ days past due— — — — — 137 124 — 261 
Total$29 $139 $122 $9,648 $8,005 $22,150 $34,751 $— $74,844 
Gross Charge-offs— — — — — 116 97 — 213 
Total consumer loans
Current$55,919 $639,141 $1,755,229 $1,744,985 $735,150 $1,968,801 $274,795 $406 $7,174,426 
30 days past due— 820 1,097 1,806 746 3,434 649 — 8,552 
60 days past due— — 863 1,335 — 1,871 43 — 4,112 
90+ days past due— 996 556 732 682 9,270 667 — 12,903 
Total$55,919 $640,957 $1,757,745 $1,748,858 $736,578 $1,983,376 $276,154 $406 $7,199,993 
Gross Charge-offs$— $— $— $— $— $116 $97 $— $213 
20
WAFD, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


September 30, 2023Term Loans Amortized Cost Basis by Origination Year
20232022202120202019Prior to 2019Revolving LoansRevolving to Term LoansTotal Loans
Commercial loans
Multi-family
Pass$135,859 $658,126 $850,998 $541,655 $135,965 $400,412 $49,523 $— $2,772,538 
Special Mention— 90,428 — — — — — — 90,428 
Substandard— 5,711 2,309 2,422 7,583 5,603 — — 23,628 
Total$135,859 $754,265 $853,307 $544,077 $143,548 $406,015 $49,523 $— $2,886,594 
Commercial real estate
Pass$221,057 $912,776 $735,069 $476,941 $262,945 $596,459 $2,349 $— $3,207,596 
Special Mention— — 788 — 4,059 — — — 4,847 
Substandard499 5,361 3,810 24,538 27,916 35,534 — — 97,658 
Total$221,556 $918,137 $739,667 $501,479 $294,920 $631,993 $2,349 $— $3,310,101 
Commercial & industrial
Pass$155,411 $258,798 $316,713 $117,089 $24,246 $175,042 $1,089,896 $27,681 $2,164,876 
Special Mention— — — — 2,940 — 3,707 — 6,647 
Substandard— 5,532 8,537 2,783 3,819 46,297 69,948 6,879 143,795 
Total$155,411 $264,330 $325,250 $119,872 $31,005 $221,339 $1,163,551 $34,560 $2,315,318 
Construction
Pass$235,150 $833,577 $559,850 $68,105 $46,390 $373 $74,821 $— $1,818,266 
Substandard2,901 5,119 12,650 — — — — — 20,670 
Total$238,051 $838,696 $572,500 $68,105 $46,390 $373 $74,821 $— $1,838,936 
Land - acquisition & development
Pass$20,593 $69,414 $39,276 $6,280 $351 $17,876 $2,600 $— $156,390 
Substandard— 271 — — — — — — 271 
Total$20,593 $69,685 $39,276 $6,280 $351 $17,876 $2,600 $— $156,661 
Total commercial loans
Pass$768,070 $2,732,691 $2,501,906 $1,210,070 $469,897 $1,190,162 $1,219,189 $27,681 $10,119,666 
Special Mention— 90,428 788 — 6,999 — 3,707 — 101,922 
Substandard3,400 21,994 27,306 29,743 39,318 87,434 69,948 6,879 286,022 
Total$771,470 $2,845,113 $2,530,000 $1,239,813 $516,214 $1,277,596 $1,292,844 $34,560 $10,507,610 


21
WAFD, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


September 30, 2023Term Loans Amortized Cost Basis by Origination Year
20232022202120202019Prior to 2019Revolving LoansRevolving to Term LoansTotal Loans
Consumer loans
Single-family residential
Current$513,007 $1,478,479 $1,719,163 $718,250 $295,836 $1,640,330 $— $— $6,365,065 
30 days past due822 115 859 392 221 4,032 — — 6,441 
60 days past due— 1,526 1,420 1,325 — 1,797 — — 6,068 
90+ days past due— 1,470 666 1,408 — 7,872 — — 11,416 
Total$513,829 $1,481,590 $1,722,108 $721,375 $296,057 $1,654,031 $— $— $6,388,990 
Construction - custom
Current$92,081 $218,988 $8,838 $243 $358 $479 $— $— $320,987 
30 days past due— 760 — — — — — — 760 
60 days past due— — — 2,617 — — — — 2,617 
90+ days past due— 87 — — — — — — 87 
Total$92,081 $219,835 $8,838 $2,860 $358 $479 $— $— $324,451 
Land - consumer lot loans
Current$19,128 $41,658 $35,048 $11,517 $4,166 $12,714 $— $— $124,231 
30 days past due— — 358 — — — — — 358 
60 days past due— — 245 — — — — — 245 
90+ days past due— — — — — 8 — — 8 
Total$19,128 $41,658 $35,651 $11,517 $4,166 $12,722 $— $— $124,842 
HELOC
Current$— $— $— $— $— $3,733 $230,338 $1,637 $235,708 
30 days past due— — — — — 44 1,006 — 1,050 
60 days past due— — — — — 314 — — 314 
90+ days past due— — — — — — 682 — 682 
Total$— $— $— $— $— $4,091 $232,026 $1,637 $237,754 
Consumer
Current$662 $121 $9,748 $8,006 $16 $23,201 $27,945 $— $69,699 
30 days past due— — — — — 225 3 — 228 
60 days past due— — — — — 106 1 — 107 
90+ days past due— — — — 29 46 — 1 76 
Total$662 $121 $9,748 $8,006 $45 $23,578 $27,949 $1 $70,110 
Total consumer loans
Current$624,878 $1,739,246 $1,772,797 $738,016 $300,376 $1,680,457 $258,283 $1,637 $7,115,690 
30 days past due822 875 1,217 392 221 4,301 1,009 — 8,837 
60 days past due— 1,526 1,665 3,942 — 2,217 1 — 9,351 
90+ days past due— 1,557 666 1,408 29 7,926 682 1 12,269 
Total$625,700 $1,743,204 $1,776,345 $743,758 $300,626 $1,694,901 $259,975 $1,638 $7,146,147 
22
WAFD, 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 December 31, 2023Beginning AllowanceCharge-offsRecoveriesProvision &
Transfers(1)		Ending Allowance
 (In thousands)
Commercial loans
   Multi-family$13,155 $— $— $636 $13,791 
   Commercial real estate28,842 — 2 163 29,007 
   Commercial & industrial58,773 (62)32 2,093 60,836 
   Construction29,408 — — (545)28,863 
   Land - acquisition & development7,016 (18)50 (390)6,658 
      Total commercial loans137,194 (80)84 1,957 139,155 
Consumer loans
   Single-family residential28,029 — 120 407 28,556 
   Construction - custom2,781 — — (519)2,262 
   Land - consumer lot loans3,512 — 9 (176)3,345 
   HELOC2,859 — 1 113 2,973 
   Consumer2,832 (213)192 218 3,029 
      Total consumer loans40,013 (213)322 43 40,165 
Total ACL - loans$177,207 $(293)$406 $2,000 $179,320 
(1) Provision & transfer amounts within the table do not include provision recapture from unfunded commitments of $2,000,000.
Three Months Ended December 31, 2022Beginning AllowanceCharge-offsRecoveriesProvision &
Transfers(1)		Ending Allowance
 (In thousands)
Commercial loans
   Multi-family$12,013 $— $— $311 $12,324 
   Commercial real estate25,814 — 4 1,562 27,380 
   Commercial & industrial57,210 (82)32 6,713 63,873 
   Construction26,161 — — (28)26,133 
   Land - acquisition & development12,278 — 16 (3,722)8,572 
      Total commercial loans133,476 (82)52 4,836 138,282 
Consumer loans
   Single-family residential25,518 — 430 (473)25,475 
   Construction - custom3,410 — — 90 3,500 
   Land - consumer lot loans5,047 — — (905)4,142 
   HELOC2,482 — 1 105 2,588 
   Consumer2,875 (146)234 (153)2,810 
      Total consumer loans39,332 (146)665 (1,336)38,515 
Total loans$172,808 $(228)$717 $3,500 $176,797 
23
WAFD, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


(1) Provision & transfer amounts within the table do not include provision recapture from unfunded commitments of $1,000,000


The Company recorded no provision for credit losses for the three months ended December 31, 2023, compared with a provision for credit losses of $2,500,000 for the three months ended December 31, 2022. The lack of provision in the three months ended December 31, 2023 was primarily due to a stable loan receivable balance and continued strong credit performance. The increase in the overall ACL was offset by the equal decrease in the reserve for unfunded commitments. The provision for the three months ended December 31, 2022 was primarily due to reserving for growth in loans receivable and changes in composition of the loan portfolio. Recoveries, net of charge-offs, totaled $113,000 for the three months ended December 31, 2023, compared to $489,000 during the three months ended December 31, 2022.

Non-performing assets were $55,388,000, or 0.24% of total assets, at December 31, 2023, compared to $57,924,000, or 0.26% of total assets, at September 30, 2023. Non-accrual loans were $45,258,000 at December 31, 2023, compared to $50,422,000 at September 30, 2023. Delinquencies, as a percent of total loans, were 0.33% at December 31, 2023, compared to 0.36% at September 30, 2023.

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.
December 31, 2023Internally Assigned Grade
 PassSpecial mentionSubstandardDoubtfulLossTotal
 (In thousands, except ratio data)
Loan type
Commercial loans
  Multi-family$2,913,692 $90,668 $18,097 $— $— $3,022,457 
  Commercial real estate3,221,093 784 110,416 — — 3,332,293 
  Commercial & industrial2,224,862 2,850 137,270 — — 2,364,982 
  Construction1,675,149 — 20,357 — — 1,695,506 
  Land - acquisition & development148,573 — 138 — — 148,711 
    Total commercial loans10,183,369 94,302 286,278 — — 10,563,949 
Consumer loans
  Single-family residential6,477,005 — 18,444 — — 6,495,449 
  Construction - custom263,550 — 88 — — 263,638 
  Land - consumer lot loans118,860 — 57 — — 118,917 
  HELOC246,541 — 604 — — 247,145 
  Consumer74,708 — 136 — — 74,844 
    Total consumer loans7,180,664 — 19,329 — — 7,199,993 
Total$17,364,033 $94,302 $305,607 $— $— $17,763,942 
Total grade as a % of total loans97.75 %0.53 %1.72 %— %— %


24
WAFD, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


September 30, 2023Internally Assigned Grade
 PassSpecial mentionSubstandardDoubtfulLossTotal Gross Loans
 (In thousands, except ratio data)
Loan type
Commercial loans
  Multi-family$2,772,538 $90,428 $23,628 $— $— $2,886,594 
  Commercial real estate3,207,596 4,847 97,658 — — 3,310,101 
  Commercial & industrial2,164,876 6,647 143,795 — — 2,315,318 
  Construction1,818,266 — 20,670 — — 1,838,936 
  Land - acquisition & development156,390 — 271 — — 156,661 
    Total commercial loans10,119,666 101,922 286,022 — — 10,507,610 
Consumer loans
  Single-family residential6,370,936 — 18,054 — — 6,388,990 
  Construction - custom324,363 — 88 — — 324,451 
  Land - consumer lot loans124,588 — 254 — — 124,842 
  HELOC237,018 — 736 — — 237,754 
  Consumer70,098 — 12 — — 70,110 
    Total consumer loans7,127,003 — 19,144 — — 7,146,147 
Total loans$17,246,669 $101,922 $305,166 $— $— $17,653,757 
Total grade as a % of total gross loans97.69 %0.58 %1.73 %— %— %

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

December 31, 2023Performing LoansNon-Performing Loans
 Amount% of Total
Loans		Amount% of Total
Loans
 (In thousands, except ratio data)
Commercial loans
   Multi-family$3,022,325 100.0 %$132 — %
   Commercial real estate3,308,010 99.3 24,283 0.7 
   Commercial & industrial2,360,545 99.8 4,437 0.2 
   Construction1,695,506 100.0 — 0.0 
   Land - acquisition & development148,711 100.0 — — 
      Total commercial loans10,535,097 99.7 28,852 0.3 
Consumer loans
   Single-family residential6,480,053 99.8 15,396 0.2 
   Construction - custom263,550 100.0 88 — 
   Land - consumer lot loans118,860 100.0 57 0.0 
   HELOC246,542 99.8 603 0.2 
   Consumer74,582 99.6 262 0.4 
      Total consumer loans7,183,587 99.8 16,406 0.2 
Total loans$17,718,684 99.7 %$45,258 0.3 %
25
WAFD, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


September 30, 2023Performing LoansNon-Performing Loans
 Amount% of Total
Loans		Amount% of Total
Loans
 (In thousands, except ratio data)
Commercial loans
   Multi-family$2,881,467 99.8 %$5,127 0.2 %
   Commercial real estate3,286,666 99.3 23,435 0.7 
   Commercial & industrial2,309,236 99.7 6,082 0.3 
   Construction1,838,936 100.0 — — 
   Land - acquisition & development156,661 100.0 — — 
      Total commercial loans10,472,966 99.7 34,644 0.3 
Consumer loans
   Single-family residential6,374,072 99.8 14,918 0.2 
   Construction - custom324,363 100.0 88 — 
   Land - consumer lot loans124,833 100.0 9 — 
   HELOC237,018 99.7 736 0.3 
   Consumer70,083 100.0 27 0.0 
      Total consumer loans7,130,369 99.8 15,778 0.2 
Total loans$17,603,335 99.7 %$50,422 0.3 %


26
WAFD, 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.
 
27
WAFD, 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 (with the exception of those measured using the NAV practical expedient).
 December 31, 2023
 Level 1Level 2Level 3Total
 (In thousands)
Financial Assets
Available-for-sale securities:
U.S. government and agency securities$— $232,359 $— $232,359 
Asset-backed securities— 561,304 — 561,304 
Municipal bonds— 35,206 — 35,206 
Corporate debt securities— 248,813 — 248,813 
Mortgage-backed securities
Agency pass-through certificates— 940,763 — 940,763 
Total available-for-sale securities— 2,018,445 — 2,018,445 
Client swap program hedges— 55,631 — 55,631 
Commercial loan fair value hedges— 2,061 — 2,061 
Mortgage loan fair value hedges— 22,244 — 22,244 
Borrowings cash flow hedges— 143,846 — 143,846 
Total financial assets$— $2,242,227 $— $2,242,227 
Financial Liabilities
Client swap program hedges$— $56,392 $— $56,392 
Total financial liabilities$— $56,392 $— $56,392 
 September 30, 2023
 Level 1Level 2Level 3Total
 (In thousands)
Financial Assets
Available-for-sale securities:
U.S. government and agency securities$— $217,053 $— $217,053 
Asset-backed securities— 588,016 588,016 
Municipal bonds— 34,662 — 34,662 
Corporate debt securities— 242,522 — 242,522 
Mortgage-backed securities
Agency pass-through certificates— 912,844 — 912,844 
Total available-for-sale securities— 1,995,097 — 1,995,097 
Client swap program hedges— 78,797 — 78,797 
Commercial loan fair value hedges— 3,405 — 3,405 
Mortgage loan fair value hedges— 46,396 — 46,396 
Borrowings cash flow hedges— 184,373 — 184,373 
Total financial assets$— $2,308,068 $— $2,308,068 
Financial Liabilities
Client swap program hedges$— $79,668 $— $79,668 
Total financial liabilities$— $79,668 $— $79,668 
28
WAFD, 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 December 31, 2023 included loans for which an allowance was established or a partial charge-off was recorded based on the fair value of collateral, as well as real estate owned where the fair value of the property was less than the cost basis.

The following tables present the aggregated balance of assets that were measured at fair value on a nonrecurring basis at December 31, 2023 and December 31, 2022, and the total gains (losses) resulting from those fair value adjustments during the respective periods. The estimated fair value measurements are shown gross of estimated selling costs.
 
 December 31, 2023Three Months Ended December 31, 2023
 Level 1Level  2Level  3TotalTotal Gains (Losses)
 (In thousands)(In thousands)
Loans (1)$— $— $781 $781 $(158)
Real estate owned (2)— — — — — 
Balance at end of period$— $— $781 $781 $(158)

(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.
December 31, 2022Three Months Ended December 31, 2022
Level 1Level  2Level  3TotalTotal Gains (Losses)
(In thousands)(In thousands)
Loans (1)$— $— $— $— $(123)
Real estate owned (2)— — — — — 
Balance at end of period$— $— $— $— $(123)

(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 December 31, 2023, there was $121,000 in foreclosed residential real estate properties held as REO. The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process was $3,338,000.
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.
29
WAFD, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


 December 31, 2023September 30, 2023
 Level in Fair Value HierarchyCarrying
Amount		Estimated
Fair Value		Carrying
Amount		Estimated
Fair Value
 ($ in thousands)
Financial assets
Cash and cash equivalents1$1,144,774 $1,144,774 $980,649 $980,649 
Available-for-sale securities
U.S. government and agency securities2232,359 232,359 217,053 217,053 
Asset-backed securities2561,304 561,304 588,016 588,016 
Municipal bonds235,206 35,206 34,662 34,662 
Corporate debt securities2248,813 248,813 242,522 242,522 
Mortgage-backed securities
Agency pass-through certificates2940,763 940,763 912,844 912,844 
Total available-for-sale securities2,018,445 2,018,445 1,995,097 1,995,097 
Held-to-maturity securities
Mortgage-backed securities
Agency pass-through certificates2415,079 370,942 423,586 355,188 
Total held-to-maturity securities415,079 370,942 423,586 355,188 
Loans receivable317,584,622 16,876,965 17,476,550 16,559,758 
FHLB stock2137,940 137,940 126,820 126,820 
        Other assets - client swap program hedges255,631 55,631 78,797 78,797 
        Other assets - commercial fair value loan hedges22,061 2,061 3,405 3,405 
        Other assets - mortgage loan fair value hedges222,244 22,244 46,396 46,396 
        Other assets - borrowings cash flow hedges2143,846 143,846 184,373 184,373 
Financial liabilities
Time deposits25,380,723 5,363,731 5,305,016 5,232,689 
Borrowings23,875,000 3,867,812 3,650,000 3,653,229 
        Other liabilities - client swap program hedges256,392 56,392 79,668 79,668 

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 securities and held-to-maturity 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 fair value. Fair value for impaired loans is also based on recent appraisals or estimated cash flows discounted using rates
30
WAFD, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


commensurate with risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific borrower information.
FHLB stock – The fair value is based upon the par value of the stock that equates to its carrying value.
Time deposits – The fair value of time deposits is estimated by discounting the estimated future cash flows using rates offered for deposits with similar remaining maturities.
Borrowings – The fair value of FHLB advances and FRB 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.
 December 31, 2023
 Amortized
Cost		Gross UnrealizedFair
Value		Yield
 GainsLosses
 ($ in thousands)
Available-for-sale securities
U.S. government and agency securities due
Within 1 year$1,750 $— $(5)$1,745 6.07 %
1 to 5 years16,747 8 (305)16,450 4.54 %
5 to 10 years110,295 189 (173)110,311 6.01 
Over 10 years103,594 267 (8)103,853 6.09 
Asset-backed securities
1 to 5 years17,693 — (766)16,927 6.08 
5 to 10 years31,469 14 (205)31,278 6.23 
Over 10 years519,103 316 (6,320)513,099 6.37 
Corporate debt securities due
1 to 5 years152,022 479 (1,196)151,305 5.15 
5 to 10 years112,923 — (15,415)97,508 3.87 
Municipal bonds due
5 to 10 years5,712 — (298)5,414 3.00 
Over 10 years29,822 95 (125)29,792 5.85 
Mortgage-backed securities
Agency pass-through certificates1,000,184 707 (60,128)940,763 3.44 
2,101,314 2,075 (84,944)2,018,445 4.69 
Held-to-maturity securities
Mortgage-backed securities
Agency pass-through certificates415,079 27 (44,164)370,942 2.88 
415,079 27 (44,164)370,942 2.88 
$2,516,393 $2,102 $(129,108)$2,389,387 4.39 %



31
WAFD, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



 
 September 30, 2023
 Amortized
Cost		Gross UnrealizedFair
Value		Yield
 GainsLosses
 ($ in thousands)
Available-for-sale securities
U.S. government and agency securities due
Within 1 year$3,501 $— $(36)$3,465 6.06 %
1 to 5 years18,894 — (563)18,331 4.70 %
5 to 10 years87,922 177 — 88,099 5.76 
Over 10 years106,340 831 (13)107,158 5.84 
Asset-backed securities
1 to 5 years18,579 — (715)17,864 6.06 
5 to 10 years36,875 2 (99)36,778 6.11 
Over 10 years539,911 578 (7,115)533,374 6.35 
Corporate debt securities due
1 to 5 years151,893 895 (1,787)151,001 5.14 
5 to 10 years113,221 — (21,700)91,521 3.87 
Municipal bonds due
5 to 10 years5,720 — (701)5,019 3.00 
Over 10 years29,832 361 (550)29,643 5.85 
Mortgage-backed securities
Agency pass-through certificates1,005,928 66 (93,150)912,844 3.39 
2,118,616 2,910 (126,429)1,995,097 4.64 
Held-to-maturity securities
Mortgage-backed securities
Agency pass-through certificates423,586 — (68,398)355,188 2.88 
423,586 — (68,398)355,188 2.88 
$2,542,202 $2,910 $(194,827)$2,350,285 4.35 %


The Company purchased $49,380,000 of AFS investment securities during the three months ended December 31, 2023 and purchased $115,909,000 of AFS securities during the three months ended December 31, 2022. Sales of AFS securities totaled $2,624,000 during the three months ended December 31, 2023 compared to no sales during the prior year same period. For HTM investment securities, there were no purchases during the three months ended December 31, 2023 and no purchases during the three months ended December 31, 2022. There were no sales of HTM investment securities during the three months ended December 31, 2023 or December 31, 2022. Substantially all of the agency mortgage-backed securities have contractual due dates that exceed 25 years.

The Company elected to exclude AIR from the amortized cost basis of debt securities disclosed throughout this footnote. For AFS securities, AIR totaled $8,270,000 and $8,641,000 as of December 31, 2023 and September 30, 2023, respectively. For HTM debt securities, AIR totaled $992,000 and $1,013,000 as of December 31, 2023 and September 30, 2023, 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 December 31, 2023 and September 30, 2023, by length of time that individual securities in each category have been in a continuous loss position. There were 220 and 231 securities with an unrealized loss as of December 31, 2023 and September 30, 2023, respectively.
32
WAFD, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


 
December 31, 2023Less than 12 months12 months or moreTotal
 Unrealized
Gross Losses		Fair
Value		Unrealized
Gross Losses		Fair
Value		Unrealized
Gross Losses		Fair
Value
 (In thousands)
Available-for-sale securities
Corporate debt securities$— $— $(16,611)$174,074 $(16,611)$174,074 
Municipal bonds— — (423)15,111 (423)15,111 
U.S. government and agency securities(181)134,687 (310)13,720 (491)148,407 
Asset-backed securities— — (7,291)522,583 (7,291)522,583 
Mortgage-backed securities(72)18,243 (60,056)756,173 (60,128)774,416 
(253)152,930 (84,691)1,481,661 (84,944)1,634,591 
Held-to-maturity securities
Mortgage-backed securities— — (44,164)369,265 (44,164)369,265 
$(253)$152,930 $(128,855)$1,850,926 $(129,108)$2,003,856 

September 30, 2023Less than 12 months12 months or moreTotal
 Unrealized
Gross Losses		Fair
Value		Unrealized
Gross Losses		Fair
Value		Unrealized
Gross Losses		Fair
Value
 (In thousands)
Available-for-sale securities
Corporate debt securities$— $— $(23,487)$167,452 $(23,487)$167,452 
Municipal bonds due— — (1,250)14,302 (1,250)14,302 
U.S. government and agency securities(13)14,917 (599)21,795 (612)36,712 
Asset-backed securities(2,142)86,800 (5,788)445,454 (7,930)532,254 
Mortgage-backed securities(2,030)142,235 (91,120)744,010 (93,150)886,245 
(4,185)243,952 (122,244)1,393,013 (126,429)1,636,965 
Held-to-maturity securities
Mortgage-backed securities(15)1,424 (68,383)353,764 (68,398)355,188 
$(4,200)$245,376 $(190,627)$1,746,777 $(194,827)$1,992,153 

The decline in fair value since purchase is attributable to changes in interest rates. 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. Therefore, the Company did not record an allowance for credit losses for these securities as of December 31, 2023 or September 30, 2023. The Company does not consider AFS or HTM investments to have any credit impairment.

The Company does not believe that the AFS debt securities that were in an unrealized loss position have any credit loss impairment as of December 31, 2023 or September 30, 2023. The Company does not intend to sell the investment securities that were in an unrealized loss position and it is more likely than not the Company will not be required to sell the investment securities before recovery of their amortized cost basis, which may be at maturity. AFS debt securities issued by U.S. government agencies or U.S. government-sponsored enterprises carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. Corporate debt securities and municipal bonds are considered to have an issuer of high credit quality and the decline in fair value is due to changes in interest rates and other market conditions. The issuer continues to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity.
33
WAFD, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)




NOTE G – Derivatives and Hedging Activities

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

December 31, 2023Derivative AssetsDerivative Liabilities
Interest rate contract purposeBalance Sheet LocationNotionalFair ValueBalance Sheet LocationNotionalFair Value
(In thousands)(In thousands)
Client swap program hedgesOther assets$896,485 $55,631 Other liabilities$896,485 $56,392 
Commercial loan fair value hedgesOther assets37,042 2,061 Other liabilities— — 
Mortgage loan fair value hedgesOther assets970,000 22,244 Other liabilities— — 
Borrowings cash flow hedgesOther assets1,000,000 143,846 Other liabilities— — 
$2,903,527 $223,782 $896,485 $56,392 

September 30, 2023Derivative AssetsDerivative Liabilities
Interest rate contract purposeBalance Sheet LocationNotionalFair ValueBalance Sheet LocationNotionalFair Value
(In thousands)(In thousands)
Client swap program hedgesOther assets$806,744 $78,797 Other liabilities$806,744 $79,668 
Commercial loan fair value hedgesOther assets39,661 3,405 Other liabilities— — 
Mortgage loan fair value hedgesOther assets670,000 46,396 Other liabilities— — 
Borrowings cash flow hedgesOther assets1,000,000 184,373 Other liabilities— — 
$2,516,405 $312,971 $806,744 $79,668 

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 "portfolio 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 December 31, 2023 and September 30, 2023.

(In thousands)December 31, 2023
Balance sheet line item in which hedged item is recordedCarrying value of hedged itemsCumulative gain (loss) fair value hedge adjustment included in carrying amount of hedged items
Loans receivable (1) (2)$6,246,208 $(23,255)
$6,246,208 $(23,255)

(1) Includes the amortized cost basis of the closed mortgage loan portfolios used to designate the hedging relationships in which the hedged items are a portfolio layer expected to be remaining at the end of the hedging relationships. At December 31, 2023, the amortized cost basis of the closed loan portfolios used in the hedging relationships was
34
WAFD, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


$6,211,195,000, the cumulative basis adjustment associated with the hedging relationships was $(21,277,000), and the amount of the designated hedged items was $970,000,000.

(2) Includes the amortized cost basis of commercial loans designated in fair value hedging relationships. At December 31, 2023, the amortized cost basis of the hedged commercial loans was $35,013,000 and the cumulative basis adjustment associated with the hedging relationships was $(1,978,000).


(In thousands)September 30, 2023
Balance sheet line item in which hedged item is recordedCarrying value of hedged itemsCumulative gain (loss) fair value hedge adjustment included in carrying amount of hedged items
Loans receivable (1) (2)$1,816,870 $(48,865)
$1,816,870 $(48,865)

(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, 2023, the amortized cost basis of the closed loan portfolios used in the hedging relationships was $1,780,503,000, the cumulative basis adjustment associated with the hedging relationships was $(45,622,000), and the amount of the designated hedged items was $670,000,000.

(2) Includes the amortized cost basis of commercial loans designated in fair value hedging relationships. At September 30, 2023, the amortized cost basis of the hedged commercial loans was $36,367,000 and the cumulative basis adjustment associated with the hedging relationships was $(3,243,000).

The Company has entered into interest rate swaps to convert certain short-term borrowings to fixed rate payments. The primary purpose of these hedges is to mitigate the risk of changes in future cash flows resulting from increasing interest rates. For qualifying cash flow hedges under ASC 815, gains and losses on the interest rate swaps are recorded in accumulated other comprehensive income ("AOCI") and then reclassified into earnings in the same period the hedged cash flows affect earnings and within the same income statement line item as the hedged cash flows. As of December 31, 2023, the maturities for hedges of adjustable rate borrowings ranged from one year to six years, with the weighted average being 5.3 years.

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

(In thousands)Three Months Ended December 31,
Amount of gain/(loss) recognized in AOCI on derivatives in cash flow hedging relationships20232022
Interest rate contracts:
Pay fixed/receive floating swaps on borrowings cash flow hedges$(40,527)$(6,806)
Total pre-tax gain/(loss) recognized in AOCI $(40,527)$(6,806)


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.
35
WAFD, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


Three Months Ended December 31, 2023Three Months Ended December 31, 2022
Interest income on loans receivableInterest expense on FHLB advancesInterest income on loans receivableInterest expense on FHLB advances
(In thousands)(In thousands)
Interest income/(expense), including the effects of fair value and cash flow hedges$245,792 $(37,938)$203,946 $(18,974)
Gain/(loss) on fair value hedging relationships:
Interest rate contracts
Amounts related to interest settlements on derivatives$5,493 $3,167 
Recognized on derivatives(25,496)(2,849)
Recognized on hedged items25,610 3,132 
Net income/(expense) recognized on fair value hedges$5,607 $3,450 
Gain/(loss) on cash flow hedging relationships:
Interest rate contracts
Amounts related to interest settlements on derivatives$11,847 $7,274 
Amount of derivative gain/(loss) reclassified from AOCI into interest income/expense— — 
Net income/(expense) recognized on cash flow hedges$11,847 $7,274 


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. The impact to the statement of operations for the three months ended December 31, 2023 was an increase in other income of $109,000. There was no net impact to the statement of operations for the three months ended December 31, 2022 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 December 31,
Derivative instrumentsClassification of gain/(loss) recognized in income on derivative instrument20232022
Interest rate contracts:
Pay fixed/receive floating swapOther noninterest income$(28,709)$(3,878)
Receive fixed/pay floating swapOther noninterest income28,818 3,878 
$109 $— 


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 Company revenues are not subject to that guidance.
36
WAFD, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



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 3.6% of Company total revenue for the three months ended December 31, 2023, compared to 3.9% for the three months ended December 31, 2022. As this standard is immaterial to the 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 2024 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 unfunded loan commitments, which had a combined balance of $3,180,001,000 and $3,625,333,000 at December 31, 2023 and September 30, 2023, respectively. The reserve was $22,500,000 as of December 31, 2023, which is a decrease from $24,500,000 at September 30, 2023. 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.
37
WAFD, INC. AND SUBSIDIARIES
PART I – Financial Information
Item 2.                Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of WaFd, Inc. (the “Company” or “WaFd”) and its financial condition and results of operations should be read together with the financial statements and the related notes included elsewhere herein and the Consolidated Financial Statements, accompanying notes and management’s discussion and analysis of financial condition and results of operations and other disclosures contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023, filed with the Securities and Exchange Commission ("SEC") on November 17, 2023 (the “2023 10-K”).

FORWARD LOOKING STATEMENTS

This discussion contains forward-looking statements that involve risks and uncertainties. Words such as “expects,” “anticipates,” “believes,” “estimates,” “intends,” “forecasts,” “projects” and other similar expressions or future or conditional verbs such as “will,” “should,” “would” and “could” are intended to help identify such forward-looking statements. These statements are not historical facts, but instead represent current expectations, plans or forecasts of the Company and are based on the beliefs and assumptions of the management of the Company and the information available to management at the time that these disclosures were prepared. The Company intends for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumptions that are difficult to predict and often are beyond the Company's control. Actual outcomes and results may differ materially from those expressed in, or implied by, the Company's forward-looking statements.
You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties discussed elsewhere in this report, and including the Risk Factors included in the Company’s 2023 10-K, and in any of the Company's other subsequent Securities and Exchange Commission ("SEC") filings, which could cause the Company's future results to differ materially from the plans, objectives, goals, estimates, intentions and expectations expressed in forward-looking statements:

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

Regulatory and Litigation Risk:
•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;
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WAFD, INC. AND SUBSIDIARIES
•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;
•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;
•risks associated with increases to deposit insurance premiums or special assessments;
•litigation risks resulting in significant expenses, losses and reputational damage;
•environmental risks resulting from our real estate lending business.

Market and Industry Risk:
•eroding confidence in the banking system and regional banks in particular;
•downturns in the real estate market;
•changes in other economic, competitive, governmental, regulatory and technological factors affecting the Company's markets, operations, pricing, products, services and fees;
•risks associated with inadequate or faulty underwriting and loan collection practices;
•changes in banking operations, including a shift from retail to online activities;
•risks associated with our geographic concentration, including the effects of a severe economic downturn, including high unemployment rates and declines in housing prices and property values, in our primary market areas;
•industry deficiencies in foreclosure practices, including delays and challenges in the foreclosure process;
•impairment of goodwill.

Competitive Risks:
•competition from other financial institutions and new market participants, offering services similar to those offered by the Bank;
•our ability to grow organically or through acquisitions;
•risks associated with our entry into the California market.

Security Ownership Risks:
•our ability to continue to pay dividends, including on our outstanding Series A Preferred Stock;
•risks related to the volatility of our Common Stock, and future dilution;
•the Company’s shareholders will have less influence as a shareholder of the combined company than as a shareholder of Company, if the merger with Luther Burbank obtains regulatory approval;
•the ability of the Company to obtain external financing to fund its operations or obtain financing on favorable terms;
•risks related to Washington's anti-takeover statute;
•effects of activist shareholders.

General Risks:
•the success of the Company at managing the risks involved in the foregoing and managing its business; and
•the timing and occurrence or non-occurrence of events that may be subject to circumstances beyond the Company's control.
For the reasons described above, we caution you against relying on any forward-looking statements. You should not consider the summary of such factors to be an exhaustive statement of all of the risks, uncertainties, or potentially inaccurate assumptions that could cause our current expectations or beliefs to change. Further, all forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update or revise any forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, changes to future operating results over time, or the impact of circumstances arising after the date the forward-looking statement was made.
39
WAFD, INC. AND SUBSIDIARIES
GENERAL & BUSINESS DESCRIPTION

Washington Federal Bank, a federally-insured state-charted 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. On September 27, 2023, Articles of Amendment were filed with the Washington Secretary of State, to change the name of Washington Federal, Inc. to WaFd, Inc. This change was effective on September 29, 2023. As used throughout this document, the terms “WaFd,” the “Company” or “we” or “us” and “our” refer to the WaFd, Inc. and its consolidated subsidiaries, and the term “Bank” refers to the operating subsidiary, Washington Federal Bank dba WaFd Bank. The Company is headquartered in Seattle, Washington.


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 2023 10-K.


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 2023 10-K.

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 66% of total deposits as of December 31, 2023 while the composition of the investment securities portfolio is 47% variable and 53% 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 $415,079,000 of mortgage-backed securities that it has designated as HTM and are carried at amortized cost. As of December 31, 2023, the net unrealized loss on these securities was $44,137,000. The Company has $2,018,445,000 of AFS securities that are carried at fair value. As of December 31, 2023, the net unrealized loss on these securities was $82,869,000. 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 December 31, 2023 was $143,846,000. All of the above are pre-tax net unrealized gains or losses.

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

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

As of December 31, 2023, in the event of an immediate and parallel increase of 200 basis points in both short and long-term interest rates, the model estimates that net interest income would decrease by 1.0% in the next year. This compares to an estimated decrease of 2.0% as of the September 30, 2023 analysis. It is noted that a flattening yield curve where the spread between short-term rates and long-term rates decreases would likely result in lower net interest income and vice versa for a steepening yield curve. 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 0.2% in the first year and increase of 0.1% in the second year assuming a constant balance sheet and no management intervention. Alternatively, in the event of an
40
WAFD, INC. AND SUBSIDIARIES
immediate and parallel decrease of 100 basis points in both short and long-term interest rates, the model estimates that net interest income would increase by 3.47%.

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 December 31, 2023, in the event of an immediate and parallel increase of 200 basis points in interest rates, the NPV is estimated to decrease by $678,000,000 or 27.37% and the NPV to total assets ratio to decline to 8.79% from a base of 11.46%. As of September 30, 2023, the NPV in the event of a 200 basis point increase in rates was estimated to decrease by $723,000,000 or 27.41% and the NPV to total assets ratio to decline to 9.50% from a base of 12.42%. The change in the sensitivity of the NPV ratio to this assumed change in interest rates is primarily due to the flattening of the yield curve and changes in balance sheet mix during the three months ended December 31, 2023. Prepayment speeds continue to be low at December 31, 2023 but increasing with the Bank's conditional payment rate ("CPR") for single family mortgages at 6.60%, up from 6.30% the year before.

As of December 31, 2023, in the event of an immediate and parallel decrease of 100 basis points in interest rates is estimated to increase NPV by $360,000,000 or 14.54% and the NPV to total assets ratio to grow to 12.74% from a base of 11.46%.
Period-End Interest Rates - The Company measures the difference between the rate on total interest-earning assets and the rate on interest-bearing liabilities at the end of each period. This period-end interest rate spread was 2.42% at December 31, 2023 and 2.61% at September 30, 2023. As of December 31, 2023, the weighted average period-end rate on interest-earning assets increased by 2 basis points to 5.09% compared to September 30, 2023, while the weighted average period-end rate on interest-bearing liabilities increased by 21 basis points to 2.67%. The period-end interest rate spread decreased to 2.42% at December 31, 2023 from 3.17% at December 31, 2022 as the weighted average period-end rate on interest-earning assets increased by 63 basis points while the weighted average period-end rate on interest-bearing liabilities increased by 138 basis points.

Net Interest Margin - Net interest margin is measured as net interest income divided by average earning assets for the period. Net interest margin was 2.91% for the quarter ended December 31, 2023 compared to 3.69% for the quarter ended December 31, 2022. The yield on interest-earning assets increased 76 basis points to 5.47% and the cost of interest-bearing liabilities increased 185 basis points to 3.16% over that same period. The higher yield on interest-earning assets was primarily due to the impact of rising rates on adjustable rate assets and cash. The higher rate in interest-bearing liabilities resulted primarily from customer deposits repricing and higher rates on borrowings.
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WAFD, INC. AND SUBSIDIARIES
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.
Three Months Ended December 31, 2023Three Months Ended December 31, 2022
 Average BalanceInterestAverage RateAverage BalanceInterestAverage Rate
($ in thousands)($ in thousands)
Assets
Loans receivable$17,533,944 $245,792 5.58 %$16,580,235 $203,946 4.88 %
Mortgage-backed securities1,337,174 11,266 3.35 1,368,759 10,613 3.08 
Cash & Investments1,851,301 27,354 5.88 1,592,201 17,486 4.36 
FHLB stock124,019 2,434 7.81 117,899 1,374 4.62 
Total interest-earning assets20,846,438 286,846 5.47 %19,659,094 233,419 4.71 %
Other assets1,535,021 1,500,892 
Total assets$22,381,459 $21,159,986 
Liabilities and Equity
Interest-bearing customer accounts$13,248,450 $96,671 2.90 %$12,611,624 $31,646 1.00 %
Borrowings3,718,207 37,938 4.06 2,695,652 18,974 2.79 
Total interest-bearing liabilities16,966,657 134,609 3.16 %15,307,276 50,620 1.31 %
Noninterest-bearing customer accounts2,654,982 3,245,264 
Other liabilities312,240 304,240 
               Total liabilities19,933,879 18,856,780 
Shareholders' equity2,447,580 2,303,206 
Total liabilities and equity$22,381,459 $21,159,986 
Net interest income/interest rate spread$152,237 2.32 %$182,799 3.40 %
Net interest margin (NIM)2.91 %3.69 %
As of December 31, 2023, total assets had increased by $165,447,000 to $22,640,122,000 from $22,474,675,000 at September 30, 2023. During the three months ended December 31, 2023, loans receivable increased $108,072,000 and FHLB stock increased by $11,120,000 while cash and cash equivalents increased by $164,125,000 and investment securities increased by $14,841,000.
Cash and cash equivalents of $1,144,774,000 and shareholders’ equity of $2,452,004,000 as of December 31, 2023 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.
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. 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. The Bank has elected to utilize the Federal Reserve's Bank Term Funding program ("BTFP") to leverage its highly favorable terms to fortify the Bank's liquidity position. These borrowings are repayable at any time without penalty and are currently the lowest cost funding source available. On January 24, 2024, the Federal Reserve announced the BTFP will cease making new loans on March 11, 2024.
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WAFD, INC. AND SUBSIDIARIES
Customer account balances have remained stable, decreasing only $31,542,000, or 0.2%, to $16,038,787,000 at December 31, 2023 compared with $16,070,329,000 at September 30, 2023. Total borrowings were $3,875,000,000 as of December 31, 2023 an increase from $3,650,000,000 at September 30, 2023.
The Company's cash and cash equivalents totaled $1,144,774,000 at December 31, 2023, an increase from $980,649,000 at September 30, 2023. These amounts include the Bank's operating cash.
The Company’s shareholders' equity at December 31, 2023 was $2,452,004,000, or 10.83% of total assets. This is an increase of $25,578,000 from September 30, 2023 when shareholders' equity was $2,426,426,000, or 10.80% of total assets. The Company’s shareholders' equity was impacted in the three months ended December 31, 2023 by net income of $58,453,000, the payment of $15,989,000 in common stock dividends, payment of $3,656,000 in preferred stock dividends, treasury stock purchases of $17,065,000, as well as the other comprehensive loss of $93,000. The ratio of tangible capital to tangible assets at December 31, 2023 was 9.59%. Management believes the Company's strong equity position allows it to manage balance sheet risk and provide the capital support needed for controlled growth in a regulated environment.
WaFd, Inc. and its banking subsidiary are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly discretionary actions by regulators that, if undertaken, could have a material adverse effect on the Company's financial statements.
Federal banking 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.
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.
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WAFD, INC. AND SUBSIDIARIES
As of December 31, 2023 and September 30, 2023, the Company and the Bank met all capital adequacy requirements to which they are subject, and the Bank's regulators categorized it as well capitalized under the regulatory framework for prompt corrective action.
ActualMinimum Capital
Adequacy Guidelines		Minimum Well-Capitalized Guidelines
($ in thousands)CapitalRatioRatioRatio
 
December 31, 2023
Common Equity Tier I risk-based capital ratio:
      The Company$1,794,192 10.74 %4.50 %NA
      The Bank2,021,794 12.10 %4.50 %6.50 %
Tier I risk-based capital ratio:
      The Company2,094,192 12.53 %6.00 %NA
      The Bank2,021,794 12.10 %6.00 %8.00 %
Total risk-based capital ratio:
      The Company2,296,012 13.74 %8.00 %NA
      The Bank2,223,614 13.31 %8.00 %10.00 %
Tier 1 Leverage ratio:
      The Company2,094,192 9.44 %4.00 %NA
      The Bank2,021,794 9.12 %4.00 %5.00 %
September 30, 2023
Common Equity Tier 1 risk-based capital ratio:
      The Company$1,769,170 10.37 %4.50 %NA
      The Bank1,982,943 11.63 %4.50 %6.50 %
Tier I risk-based capital ratio:
      The Company2,069,170 12.12 %6.00 %NA
      The Bank1,982,943 11.63 %6.00 %8.00 %
Total risk-based capital ratio:
      The Company2,270,877 13.31 %8.00 %NA
      The Bank2,184,650 12.81 %8.00 %10.00 %
Tier 1 Leverage ratio:
      The Company2,069,170 9.39 %4.00 %NA
      The Bank1,982,943 9.10 %4.00 %5.00 %

CHANGES IN FINANCIAL CONDITION
Cash and cash equivalents - Cash and cash equivalents were $1,144,774,000 at December 31, 2023, an increase of $164,125,000, or 16.7%, since September 30, 2023. This increase served to ensure sufficient balance sheet liquidity and was funded by the increase in borrowings.

Available-for-sale and held-to-maturity investment securities - AFS securities increased $23,348,000, or 1.2%, during the three months ended December 31, 2023, mostly due to securities purchases of $49,380,000 and unrealized gains during the period of $40,570,000 offset by principal repayments and maturities of $64,120,000. During the same period, the balance of HTM securities decreased by $8,507,000 primarily due to principal pay-downs and maturities of $8,438,000. As of December 31, 2023, the Company had a total net unrealized loss on AFS securities of $82,869,000, which is included on a net of tax basis in accumulated other comprehensive income (loss).

44
WAFD, INC. AND SUBSIDIARIES
Substantially all of the Company’s HTM and AFS debt securities are issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. The Company did not record an allowance for credit losses for HTM securities as of December 31, 2023 or September 30, 2023 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 securities portfolios as well as the economic conditions at future reporting periods. The Company does not believe that any of its AFS debt securities had credit loss impairment as of December 31, 2023 or September 30, 2023, therefore, no allowance was recorded.

Loans receivable - Loans receivable, net of related contra accounts, increased by $108,072,000 to $17,584,622,000 at December 31, 2023, compared to $17,476,550,000 at September 30, 2023. The increase was primarily the net result of originations of $871,446,000, a decrease to loans-in-process of $379,418,000, offset by loan principal repayments of $1,153,510,000. Commercial loan originations accounted for 75% of total originations and consumer loan originations were 25% during the period. The Company continues to focus on commercial lending, coupled with growing economies in all major markets in which we operate.
The following table shows the loan portfolio by category and the change.
 December 31, 2023September 30, 2023Change
($ in thousands)($ in thousands)$%
Commercial loans
Multi-family$3,054,426 15.8 %$2,907,086 14.8 %$147,340 5.1 %
Commercial real estate3,351,113 17.3 3,344,959 17.0 6,154 0.2 
Commercial & industrial2,371,393 12.3 2,321,717 11.8 49,676 2.1 
Construction2,868,207 14.8 3,318,994 16.9 (450,787)(13.6)
Land - acquisition & development190,732 1.0 201,538 1.0 (10,806)(5.4)
Total commercial loans11,835,871 61.2 12,094,294 61.6 (258,423)(2.1)
Consumer loans
Single-family residential6,535,073 33.8 6,451,270 32.8 83,803 1.3 
Construction - custom543,748 2.8 672,643 3.4 (128,895)(19.2)
   Land - consumer lot loans119,735 0.6 125,723 0.6 (5,988)(4.8)
   HELOC243,742 1.2 234,410 1.2 9,332 4.0 
   Consumer74,884 0.4 70,164 0.4 4,720 6.7 
Total consumer loans7,517,182 38.8 7,554,210 38.4 (37,028)(0.5)
Total gross loans19,353,053 100 %19,648,504 100 %(295,451)(1.5)
   Less:
      Allowance for credit losses on loans179,320 177,207 2,113 1.2 
      Loans in process1,516,522 1,895,940 (379,418)(20.0)
      Net deferred fees, costs and discounts72,589 98,807 (26,218)(26.5)
Total loan contra accounts1,768,431 2,171,954 (403,523)(18.6)
Net loans$17,584,622 $17,476,550 $108,072 0.6 %

Non-performing assets - Non-performing assets decreased $2,536,000 during the three months ended December 31, 2023 to $55,388,000 from $57,924,000 at September 30, 2023. The change is primarily due to a $5,164,000 decrease in non-accrual loans offset by a $2,671,000 increase in real estate owned as a result of the addition of former branch properties for sale. Non-performing assets as a percentage of total assets was 0.24% at December 31, 2023 compared to 0.26% at September 30, 2023.
45
WAFD, INC. AND SUBSIDIARIES
The following table sets forth information regarding non-performing assets.
December 31,
2023		September 30,
2023
 ($ in thousands)
Non-accrual loans:
Multi - family$132 0.3 %$5,127 10.2 %
Commercial real estate24,283 53.7 23,435 46.5 
Commercial & industrial4,437 9.8 6,082 12.1 
Construction— — — — 
Land - acquisition & development— — — — 
Single-family residential15,396 34.0 14,918 29.6 
Construction - custom88 0.2 88 0.2 
Land - consumer lot loans57 0.1 9 — 
HELOC603 1.3 736 1.5 
Consumer262 0.6 27 0.1 
Total non-accrual loans45,258 100 %50,422 100 %
Real estate owned6,820 4,149 
Other property owned3,310 3,353 
Total non-performing assets$55,388 $57,924 
Total non-performing assets and performing restructured loans as a percentage of total assets0.24 %0.26 %

For the three months ended December 31, 2023, the Company recognized $511,000 in interest income on cash payments received from borrowers on non-accrual loans. Recognized interest income on loans for the three months ended December 31, 2023 was higher than what otherwise would have been recognized in the period due to the collection of past due amounts. The Company would have recognized interest income of $625,000 for the same period had these loans performed according to their original contract terms. In addition to the non-accrual loans reflected in the above table, the Company had $263,973,000 of loans that were less than 90 days delinquent at December 31, 2023 but were classified as substandard for one or more reasons. If these loans were deemed non-performing, the Company's ratio of total NPAs as a percent of total assets would have increased to 1.41% at December 31, 2023.

Loans may be modified as the result of borrowers experiencing financial difficulty needing relief from the contractual terms of their loan. Most loan modifications to borrowers experiencing financial difficulty are accruing and performing loans where the borrower has approached the Company about modification due to temporary financial difficulties. Each request for modification is individually evaluated for merit and likelihood of success. Often a term extension is needed in the short term in order to evaluate the need for further corrective action. Payment delays and interest-only payments may also be approved during the modification period. Principal forgiveness is not an available option for restructured loans.

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.

Allowance for credit losses - The following table shows the composition of the Company’s allowance for credit losses.
46
WAFD, INC. AND SUBSIDIARIES
December 31, 2023September 30, 2023Change
Allowance for credit losses:($ in thousands)($ in thousands)$%
Commercial loans
   Multi-family$13,791 7.7 %13,155 7.4 %$636 4.8 %
   Commercial real estate29,007 16.2 28,842 16.3 165 0.6 
   Commercial & industrial60,836 33.9 58,773 33.2 2,063 3.5 
   Construction28,863 16.1 29,408 16.6 (545)(1.9)
   Land - acquisition & development6,658 3.7 7,016 4.0 (358)(5.1)
      Total commercial loans139,155 77.6 137,194 77.4 1,961 1.4 
Consumer loans
   Single-family residential28,556 15.9 28,029 15.8 527 1.9 
   Construction - custom2,262 1.2 2,781 1.6 (519)(18.7)
   Land - consumer lot loans3,345 1.9 3,512 2.0 (167)(4.8)
   HELOC2,973 1.7 2,859 1.6 114 4.0 
   Consumer3,029 1.7 2,832 1.6 197 7.0 
      Total consumer loans40,165 22.4 40,013 22.6 152 0.4 
Total allowance for loan losses179,320 100.0 %177,207 100.0 %2,113 1.2 
Reserve for unfunded commitments22,500 24,500 (2,000)(8.2)
Total allowance for credit losses$201,820 $201,707 $113 0.1 %

Management believes the allowance for credit losses of $201,820,000, or 1.04% 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 December 31, 2023 and September 30, 2023.

Real estate owned ("REO") - REO increased during the three months ended December 31, 2023 by $2,671,000 to $6,820,000. The increase was due to the addition of former branch properties for sale offset by existing REO sales.

Intangible assets - Intangible assets increased to $311,103,000 as of December 31, 2023 from $310,619,000 as of September 30, 2023 as the result of an acquisition made by subsidiary, WaFd Insurance Group.

Customer accounts - Customer accounts decreased $31,542,000, or 0.2%, to $16,038,787,000 at December 31, 2023 compared with $16,070,329,000 at September 30, 2023. Transaction accounts decreased by $107,249,000 or 1.0% during that period, while time deposits increased $75,707,000 or 1.4%.

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

  
December 31, 2023September 30, 2023
 Deposit Account BalanceAs a % of Total DepositsWeighted
Average
Rate		Deposit Account BalanceAs a % of Total DepositsWeighted
Average
Rate
($ in thousands)
Non-interest checking$2,604,281 16.2 %— %$2,706,448 16.8 %— %
Interest checking4,084,933 25.6 2.80 3,882,715 24.2 2.28 
Savings777,204 4.8 0.21 817,547 5.1 0.21 
Money market3,191,646 19.9 1.30 3,358,603 20.9 1.48 
Time deposits5,380,723 33.4 4.08 5,305,016 33.0 3.77 
Total$16,038,787 100 %2.35 %$16,070,329 100 %2.12 %

47
WAFD, INC. AND SUBSIDIARIES
Borrowings - Total borrowings were $3,875,000,000 as of December 31, 2023 an increase from $3,650,000,000 as of September 30, 2023. This increase was driven by loan growth combined with relatively flat customer deposits. The weighted average rate for borrowings was 3.99% as of December 31, 2023 and 3.98% at September 30, 2023.

Shareholders' equity - The Company’s shareholders' equity at December 31, 2023 was $2,452,004,000, or 10.83% of total assets. This is an increase of $25,578,000 from September 30, 2023 when shareholders' equity was $2,426,426,000, or 10.80% of total assets. The Company’s shareholders' equity was impacted in the three months ended December 31, 2023 by net income of $58,453,000, the payment of $15,989,000 in common stock dividends, payment of $3,656,000 in preferred stock dividends, treasury stock purchases of $17,065,000, as well as changes in other comprehensive income of $93,000.


RESULTS OF OPERATIONS

Net Income - The Company recorded net income of $58,453,000 for the three months ended December 31, 2023 compared to $79,509,000 for the prior year quarter. The changes are due to the factors described below.

Net Interest Income - For the three months ended December 31, 2023, net interest income was $152,237,000, which is $30,562,000 lower than the same quarter of the prior year. Net interest margin was 2.91% for the quarter ended December 31, 2023 compared to 3.69% for the quarter ended December 31, 2022. The decrease in net interest income is mostly due to rising deposit costs. The average rate earned on interest-earning assets grew by 76 basis points to 5.47% while the average rate paid on interest-bearing liabilities increased by 185 basis points to 3.16%. Additionally, average interest-earning assets increased by $1,187,344,000 from the same quarter last year while average interest-bearing liabilities increased by $1,659,381,000.

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.
Rate / Volume Analysis:
 Comparison of Three Months Ended
 12/31/2023 and 12/31/2022
($ in thousands)VolumeRateTotal
Interest income:
Loans receivable$11,982 $29,864 $41,846 
Mortgage-backed securities(249)902 653 
Investments (1)3,206 7,722 10,928 
All interest-earning assets14,939 38,488 53,427 
Interest expense:
Customer accounts1,698 63,327 65,025 
Borrowings8,605 10,359 18,964 
All interest-bearing liabilities10,303 73,686 83,989 
Change in net interest income$4,636 $(35,198)$(30,562)
___________________ 
(1)Includes interest on cash equivalents and dividends on FHLB stock.
Provision for Credit Losses - The Company recorded no provision for credit losses for the three months ended December 31, 2023, compared with a provision for credit losses of $2,500,000 for the three months ended December 31, 2022. The lack of provision in the three months ended December 31, 2023 was primarily due to a stable loan receivable balance and continued strong credit performance. The increase in overall ACL was offset by the equal decrease in the reserve for unfunded commitments. Recoveries, net of charge-offs, totaled $113,000 for the three months ended December 31, 2023, compared to $489,000 during the three months ended December 31, 2022.

48
WAFD, INC. AND SUBSIDIARIES
Other Income - The three months ended December 31, 2023 results include total other income of $14,167,000 compared to $14,024,000 for the same period one year ago, a $143,000 increase. The small increase is primarily due to increased interchange fees as a result of transaction volume.

Other Expense - Total other expense was $96,540,000 for the three months ended December 31, 2023, an increase of $4,262,000 from $92,278,000 for the prior year quarter. FDIC premiums increased $2,895,000 compared to the same period last year and product delivery costs increased by $1,388,000 as a result of volume-related interchange costs. Total other expense for the three months ended December 31, 2023 and December 31, 2022 equaled 1.73% and 1.74%, respectively, of average assets.

Gain (Loss) on Real Estate Owned - Results for the three months ended December 31, 2023 include a net gain on REO of $1,826,000, compared to a net loss of $112,000 for the prior year quarter. The gain during the three months ended December 31, 2023 was due to property sales.

Income Tax Expense - Income tax expense totaled $13,237,000 for the three months ended December 31, 2023, compared to $22,424,000 for the prior year quarter. The effective tax rate was 18.46% and 22.00% for the three months ended December 31, 2023 and December 31, 2022, respectively. The Company’s effective tax rate varies from the statutory rate mainly due to state taxes, tax-exempt income, tax-credit investments miscellaneous non-deductible expenses and discrete tax adjustments for prior periods.

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, 2023. 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 2023 Form 10-K.

PART I – Financial Information

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.
49
WAFD, INC. AND SUBSIDIARIES

 
PART II – Other Information
Item 1. Legal Proceedings
The Company and its consolidated subsidiaries are involved in legal proceedings occurring in the ordinary course of business that in the aggregate are believed by management to be immaterial to the financial statements of the Company.

Item 1A. Risk Factors

In addition to other information set forth in this report, you should carefully consider the factors discussed under "Part I--Item 1A--Risk Factors" in the Company's Form 10-K for the year ended September 30, 2023. 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.


Item 2.                 Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information with respect to purchases of Common Stock made by or on behalf of the Company of the Company’s common stock during the three months ended December 31, 2023 under the Company's stock repurchase plan.

Period 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
October 1, 2023 to October 31, 2023654,203 $24.41 654,203 1,904,980 
November 1, 2023 to November 30, 202341,535 24.81 41,535 1,863,445 
December 1, 2023 to December 31, 20232,155 31.09 2,155 1,861,290 
Total697,893 $24.45 697,893 1,861,290 
(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

50
WAFD, INC. AND SUBSIDIARIES
Item 5.                Other Information
Trading Arrangements - During the period covered by this Quarterly Report on 10-Q, no director or executive officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.

Item 6.                Exhibits
(a)Exhibits
101
Financial Statements from the Company’s Form 10-Q for the three months ended December 31, 2023 formatted in iXBRL *
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). *
* Filed herewith

51
WAFD, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
January 31, 2024/S/    BRENT J. BEARDALL
BRENT J. BEARDALL
President & Chief Executive Officer
January 31, 2024
/S/    KELLI J. HOLZ  
KELLI J. HOLZ
Executive Vice President and Chief Financial Officer
January 31, 2024
/S/    BLAYNE A. SANDEN      
BLAYNE A. SANDEN
Senior Vice President and Principal Accounting Officer

52

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